August 28, 1998
Dear Fellow Shareholders:
A bear market in small capitalization stocks has engulfed us. As of
August 27, 1998, the Russell 2000 index of small company stocks was down 16.23%
year to date and 25.50% from its high on April 21, 1998. This is the worst
sell-off since the third quarter of 1990 in small capitalization stocks.
During these same periods, Nicholas Limited Edition was down 13.24% and 19.89%
respectively. Performance figures for periods ended June 30, 1998 can be seen
in the chart below:
<TABLE>
Average Annual Total Return*
6 Months 1 Year 3 Years 5 Years 10 Years
-------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Nicholas Limited Edition, Inc. (Distributions Reinvested) ..... + 2.47% +18.29% +24.14% +17.82% +16.39%
Morningstar Small Company Mutual Fund Objective
(Distributions Reinvested) .................................... + 6.55% +18.03% +19.78% +16.53% +14.93%
Russell 2000 (Dividends Reinvested) ........................... + 4.93% +16.50% +18.85% +16.05% +13.57%
Standard & Poor's 500 (Dividends Reinvested) ................. +17.70% +30.15% +30.22% +23.06% +18.55%
Ending Value of $10,000 invested in
Nicholas Limited Edition (Distributions Reinvested) ......... $10,247 $11,829 $19,129 $22,703 $45,622
</TABLE>
The outperformance of large capitalization stocks vs small continued and
even widened during the first half of 1998 as can be seen by the huge
performance differential between the Standard and Poor's 500 and the Russell
2000 index. This divergence is as wide as we have seen and the duration
continues to amaze us. The psychology of the market favors large brand name
companies as small company investing has become the equivalent of catching the
plague.
Second quarter earnings growth to slowed due to international economic
conditions and inventory adjustments. The combination of worldwide recession
fears, high valuations, and liquidity concerns has caused the dismal
performance over the last eight months in small capitalization stocks.
Corrections like these are normal for equities especially considering the types
of returns enjoyed by investors over the most recent past. Market corrections
tend to wring out the excesses. High valuations, speculation, and initial
public offerings of unseasoned companies tend to disappear during these times.
The performance of Nicholas Limited Edition has not been spared during
this small company correction. Some of our companies are feeling the pressure
of the economic slow-down as others have worked off their overvaluations. We
use these corrective periods to weed out our mistakes and add to, or establish
new positions in companies we feel can continue to grow and whose valuations
look more attractive. When the environment for small companies ameliorates, it
usually happens quickly and the timing of the turnaround is impossible to
forecast. Therefore, we will remain fully invested and continue our research
efforts to try and produce superior long term returns for our shareholders.
Thank you for your continued support.
Sincerely,
/s/ David O. Nicholas
---------------------
David O. Nicholas
Portfolio Manager
*Total returns are historical and include change in share price and
reinvestment of dividend and capital gain distributions. Past performance is
no guarantee of future results. Principal value and return will fluctuate so
an investment, when redeemed, may be worth more or less than original cost.
Financial Highlights
(For a share outstanding throughout each period)
- -------------------------------------------------------------------------------
<TABLE>
Six Months
Ended 6/30/98 Year ended December 31,
(unaudited)
------------- ------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $25.07 $20.74 $19.22 $17.09 $18.68 $18.77
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .00(1) .00(1) .01 .08 .10 .09
Net gains(losses) on securities
(realized and unrealized) .62 6.82 4.14 5.07 (.68) 1.59
-------- -------- ------ ------ ------ ------
Total from investment operations .62 6.82 4.15 5.15 (.58) 1.68
-------- -------- ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net
investment income) -- (.00) (.01) (.08) (.10) (.09)
Distributions (from capital gains) -- (2.49) (2.62) (2.94) (.91) (1.57)
Distributions (in excess of book
realized gains) -- -- -- -- -- (.11)(2)
------- -------- ------ ------ ------ ------
Total distributions -- (2.49) (2.63) (3.02) (1.01) (1.77)
------- -------- ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $25.69 $25.07 $20.74 $19.22 $17.09 $18.68
-------- -------- ------ ------ ------ ------
-------- -------- ------ ------ ------ ------
TOTAL RETURN 2.47%(3) 33.02% 21.81% 30.18% (3.04%) 9.03%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) $382.9 $328.0 $232.8 $169.6 $142.6 $180.8
Ratio of expenses to average net assets .82%(4) $ .86% .86% .90% .90% .88%
Ratio of net investment income
to average net assets .03%(4) .01% .06% .38% .52% .42%
Portfolio turnover rate 18.91% 37.05% 32.31% 35.77% 16.29% 24.35%
Average commission rate paid by the
Fund on portfolio investment
transactions (5) $0.0489 $0.0469 $0.0478 $0.0450 -- --
(1) The amounts round to 0.00, the actual amounts were 0.0037 and 0.0029 for 6/30/98 and 12/31/97
respectively.
(2) Excess distributions of book realized gains is the result of different accounting treatment for book
and tax purposes and should not be treated as a return of capital for income tax reporting. The Fund is required to
distribute at least 98 percent of realized gains through October 31 to avoid paying a federal excise tax. The excess
distribution in 1993 generally represents losses on the sale of portfolio securities in the months of November and
December. The losses were used to offset future gains.
(3) Not annualized.
(4) Annualized.
(5) Disclosure of this rate is required by the Securities and Exchange Commission on a prospective basis
beginning with the Fund's 1996 fiscal year end.
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
Top Ten Portfolio Holdings
June 30, 1998 (unaudited)
- -------------------------------------------------------------------------------
Percentage of
Name Net Assets
- ---- -------------
International Speedway Corporation - Class B 4.09%
Harborside Healthcare Corporation .......... 2.82
Heartland Express, Inc. .................... 2.75
Poe & Brown, Inc. .......................... 2.52
Patterson Dental Company ................... 2.48
Knight Transportation, Inc. ................ 2.23
Thermo Bioanalysis Corporation.............. 2.13
O'Reilly Automotive, Inc. .................. 2.07
Interim Services, Inc....................... 2.03
DBT Online, Inc. ........................... 2.02
------
Total of top ten......................... 25.14%
------
------
Schedule of Investments
June 30, 1998 (unaudited)
- ---------------------------------------------------------------------
Shares or Quoted
Principal Market
Amount Value
- ------------ -------------
(Note 1 (a))
COMMON STOCKS - 94.42%
BANKS AND FINANCE - 6.04%
96,912 CNB Bancshares, Inc. $ 4,651,776
90,500 Community First Bankshares, Inc. 2,369,969
97,500 Marshall & Ilsley Corporation 4,978,594
206,580 National City Bancorporation * 6,868,785
109,497 State Financial Services Corporation - Class A 2,408,934
432,800 Surety Capital Corporation * + 1,839,400
-------------
23,117,458
-------------
BUSINESS SERVICES - 12.26%
203,750 Analysts International Corporation 5,781,406
200,000 Checkfree Holdings Corporation * 5,887,500
217,500 Concord EFS, Inc. * 5,682,188
286,250 DBT Online, Inc. * 7,728,750
100,000 Envoy Corporation * 4,737,500
107,150 G&K Services, Inc. - Class A 4,674,418
242,222 Interim Services, Inc. * 7,781,382
237,000 TESSCO Technologies, Incorporated * + 4,680,750
-------------
46,953,894
-------------
CONSUMER PRODUCTS AND SERVICES - 3.96%
210,000 Extended Stay America, Inc. * 2,362,500
468,700 ThermoQuest Corporation * 7,001,206
339,600 ThermoTrex Corporation * 5,815,650
-------------
15,179,356
-------------
HEALTH CARE PRODUCTS - 11.58%
311,200 Ballard Medical Products 5,601,600
260,000 DENTSPLY International Inc. 6,500,000
96,000 Elan Corporation, plc * 6,174,000
135,200 Forest Laboratories, Inc. * 4,833,400
373,125 PSS World Medical, Inc. * 5,456,953
376,000 Respironics, Inc. * 5,851,500
85,000 Sofamor/Danek Group, Inc. * 7,357,813
111,950 Thermo Cardiosystems Inc. * 2,546,862
-------------
44,322,128
--------------
HEALTH CARE SERVICES - 20.01%
240,500 American HomePatient, Inc. * 4,599,562
480,000 American Oncology Resources, Inc. * 5,865,024
414,000 Assisted Living Concepts Incorporated * 7,141,500
180,000 Concentra Managed Care, Inc. * 4,680,000
236,000 Emeritus Corporation * 2,787,750
452,200 Harborside Healthcare Corporation * + 10,796,275
158,488 National HealthCare Corporation * 4,992,372
201,500 National Surgery Centers, Inc. * 5,856,094
200,000 NCS Health Care, Inc. - Class A 5,700,000
258,750 Patterson Dental Company * 9,476,719
120,000 Province Healthcare Company * 3,322,500
127,500 Renal Care Group, Inc. * 5,617,969
312,750 Res-Care, Inc. * 5,766,328
-------------
76,602,093
-------------
INDUSTRIAL PRODUCTS AND SERVICES - 10.86%
282,692 Anicom, Inc. * 4,205,043
150,000 Fastenal Company 6,965,625
265,000 ONIX Systems Inc. * 3,411,875
60,000 Republic Industries, Inc. * 1,500,000
190,000 Superior Services, Inc. * 5,711,875
450,000 Thermo Bioanalysis Corporation * 8,156,250
367,000 Thermo Optek Corporation * 5,436,188
408,580 Thermo Vision Corporation * + 2,860,060
261,400 ThermoSpectra Corporation * 3,332,850
-------------
41,579,766
-------------
INSURANCE - 5.74%
325,000 ARM Financial Group, Inc. - Class A 7,190,625
259,800 Poe & Brown, Inc. 9,661,313
140,000 Protective Life Corporation 5,136,250
-------------
21,988,188
-------------
MEDIA, COMMUNICATIONS AND
ENTERTAINMENT -10.10%
465,000 Artesyn Technologies, Inc. * 7,440,000
325,800 Asia Satellite Telecommunications Holdings Limited 5,334,975
5,000 Championship Auto Racing Teams, Inc. * 91,250
338,000 Grand Prix Association of Long Beach, Inc. * + 6,422,000
539,310 International Speedway Corporation - Class B 15,639,990
127,500 Penske Motorsports, Inc. * 3,721,406
-------------
38,649,621
-------------
REAL ESTATE - 3.33%
192,000 CCA Prison Realty Trust 5,880,000
125,000 Corrections Corporation of America * 2,937,500
119,000 National Health Investors, Inc. 3,941,875
-------------
12,759,375
-------------
RETAIL TRADE - 3.87%
132,900 Kohl's Corporation * 6,894,188
220,000 O'Reilly Automotive, Inc. * 7,920,000
-------------
14,814,188
-------------
TRANSPORTATION - 6.67%
260,000 C.H. Robinson Worldwide, Inc. 6,467,500
520,188 Heartland Express, Inc. * 10,533,807
446,250 Knight Transportation, Inc. * 8,534,531
-------------
25,535,838
-------------
TOTAL COMMON STOCKS 361,501,905
------------
(cost $245,146,922)
CONVERTIBLE BONDS - 3.13%
5,100,000 Richey Electronics, Inc.
7.00%, due 3/1/06 4 679,250
1,900,000 Thermo Optek Corporation
5.00%, due 10/15/00 2 132,750
2,275,000 ThermoQuest Corporation
5.00%, due 8/15/00 2,496,813
3,000,000 ThermoTrex Corporation
3.25%, due 11/1/07 2,666,250
------------
TOTAL CONVERTIBLE BONDS 11 975 063
------------
(cost $13,083,063)
SHORT-TERM INVESTMENTS - 2.47%
Commercial Paper - 1.43%
1,000,000 ConAgra, Incorporated
5.63%, due July 1, 1998 1,000,000
1,500,000 Lockheed Martin Corporation
5.67%, due July 6, 1998 1,498,819
1,000,000 Manpower Inc.
5.70%, due July 8, 1998 998,891
2,000,000 Tyson Foods, Inc.
5.67%, due July 16, 1998 1,995,275
------------
5,492,985
------------
Variable Rate Demand Notes - 1.04%
400,000 Pitney Bowes Credit Corporation
5.27%, due July 1, 1998 400,000
3,565,962 Warner-Lambert Company
5.25%, due July 1, 1998 3,565,962
------------
3,965,962
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $9,442,185) 9,458,947
------------
TOTAL INVESTMENTS
(cost $267,672,170) 382,935,915
------------
LIABILITIES, NET OF CASH
AND RECEIVABLES-(0.02%) (82,764)
------------
TOTAL NET ASSETS
(Basis of percentages
disclosed above) $382,853,151
------------
------------
* Nondividend paying security.
+ This company is affiliated with the Fund as defined in Section 2(a)(3)
of the Investment Company Act of 1940, in that the Fund holds 5% or
more of its outstanding voting securities (Note 5).
The accompanying notes to financial statements
are an integral part of this schedule.
<PAGE>
Statement of Assets and Liabilities
- -----------------------------------
June 30, 1998 (unaudited)
- -------------------------------------------------------------------------------
ASSETS:
Investments in securities at market value (Note 1 (a)) --
Nonaffiliated issuers (cost $249,410,223) - see
accompanying schedule of investments............... $356,337,430
Affiliated issuers (cost $18,261,947) - see
accompanying schedule of investments (Note 5)...... 26,598,485
------------
Total investments............................ 382,935,915
------------
Receivables --
Investment securities sold......................... 882,295
Dividends and
interest........................................................ 470,496
------------
Total receivables............................ 1,352,791
------------
Total assets................................. 384,288,706
------------
LIABILITIES:
Payables --
Investment securities purchased.................... 508,685
Management fee (Note 2)............................ 229,835
Other payables and accrued expenses................ 697,035
------------
Total liabilities............................ 1,435,555
------------
Total net assets............................. $382,853,151
------------
------------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding....................... $252,812,567
Net unrealized appreciation on investments (Note 3)...... 115,246,983
Accumulated undistributed net realized gains on investments 14,737,949
Accumulated undistributed net investment income.......... 55,652
------------
$382,853,151
------------
------------
NET ASSET VALUE PER SHARE ($.01 par value, 20,000,000 shares authorized),
offering price and redemption price ($382,853,151./.14,902,795) shares
outstanding).................................................. $25.69
------
------
The accompanying notes to financial statements are an integral part of this
statement.
Statement of Operations
For the six months ended June 30, 1998 (unaudited)
- -------------------------------------------------------------------------------
INCOME:
Dividends.................................................. $ 699,524
Interest................................................... 855,951
-----------
1,555,475
-----------
EXPENSES:
Management fee (Note 2).................................... 1,358,493
Transfer agent fees........................................ 75,655
Registration fees.......................................... 33,942
Custodian fees............................................. 8,380
Legal fees................................................. 8,218
Printing fees.............................................. 7,175
Postage and mailing fees................................... 5,964
Directors' fees............................................ 500
Other operating expenses................................... 1,496
-----------
1,499,823
-----------
Net investment income................................ 55,652
-----------
NET REALIZED GAINS ON INVESTMENTS (Note 1 (b)):................... 14,737,949
-----------
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS .......... (6,516,272)
-----------
Net gain on investments.............................. 8,221,677
-----------
Net increase in net assets resulting from operations. $ 8,277,329
-----------
-----------
The accompanying notes to financial statements
are an integral part of this statement.
Statements of Changes in Net Assets
For the six months ended June 30, 1998 (unaudited)
and the year ended December 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
1998 1997
----------- ----------
OPERATIONS:
<S> <C> <C>
Net investment income...................................................... $ 55,652 $ 34,492
Net realized gains on investments (Note 1 (b))............................. 14,737,949 29,741,180
Net increase (decrease) in unrealized appreciation on investments.......... (6,516,272) 47,262,890
----------- -----------
Net increase in net assets resulting from operations.................. 8,277,329 77,038,562
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income ($0.0029 per share in 1997)....... -- (34,492)
Distributions from net realized gains on investments ($2.4886 per share
in 1997)................................................................. -- (29,741,180)
------------ -----------
Total distributions................................................... -- (29,775,672)
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (3,363,584 and 2,829,418 shares, respectively). 86,852,060 70,335,372
Net asset value of shares issued in distribution to shareholders
(1,126,020 shares in 1997)............................................... 27,925,295
Cost of shares redeemed (1,544,201 and 2,094,015 shares, respectively)..... (40,298,504) (50,255,447)
------------ -----------
Increase in net assets derived from capital share
transactions........................................................ 46,553,556 48,005,220
------------ -----------
Total increase in net assets.......................................... 54,830,885 95,268,110
------------ -----------
NET ASSETS, at the beginning of the period..................................... 328,022,286 232,754,156
------------ -----------
NET ASSETS, at the end of the period (including undistributed net investment
income of $55,652 at June 30, 1998) and 0 at December 31, 1997............... $382,853,151 $328,022,266
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
Historical Record (unaudited)
- -------------------------------------------------------------------------------
<TABLE>
Net Investment Dollar Growth of
Net Income Capital Gain Weighted An Initial
Asset Value Distributions Distributions Price/Earnings $10,000
Per Share Per Share Per Share Ratio** Investment***
----------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
May 18, 1987 *............................. $10.00 $ -- $ -- -- $10,000
December 31, 1987 ......................... 9.15 .0900 -- 13.9 times 9,242
December 31, 1988.......................... 11.29 .0969 .2527 14.1 11,762
December 31, 1989.......................... 12.49 .1453 .6151 16.3 13,804
December 31, 1990.......................... 12.03 .1207 .1213 14.2 13,566
December 31, 1991.......................... 16.86 .1228 .2407 21.9 19,429
December 31, 1992.......................... 18.77 .0815 .8275 18.8 22,690
December 31, 1993.......................... 18.68 .0867 1.6782 20.4 24,738
December 31, 1994.......................... 17.09 .1031 .9065 18.3 23,985
December 31, 1995.......................... 19.22 .0761 2.9353 25.2 31,223
December 31, 1996.......................... 20.74 .0124 2.6151 30.7 38,031
December 31, 1997.......................... 25.07 .0029 2.4886 33.0 50,590
June 30, 1998.............................. 25.69 -- -- 30.9 51,841
</TABLE>
*Date of Initial Public Offering.
**Based on latest 12 months accomplished earnings.
***Assuming reinvestment of all distributions.
Range in quarter end price/earnings ratios
High Low
------------- -------------
9/30/97 35.5 6/30/88 13.3
Notes to Financial Statements
June 30, 1998 (unaudited)
- -------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies --
Nicholas Limited Edition, Inc. (the "Fund"): is an open-end,
diversified management investment company registered under the
Investment Company Act of 1940, as amended. The primary objective of
the Fund is long-term growth. Current income is a small factor in
considering the selection of investments. The following is a summary
of the significant accounting policies of the Fund.
(a) Each equity security, is valued at the last sale price reported by
the principal security exchange on which the issue is traded, or
if no sale is reported, the latest bid price. Most debt
securities, excluding short-term investments, are valued at
current evaluated bid price. Variable rate demand notes are valued
at cost which approximates market value. U.S. Treasury Bills and
commercial paper are stated at market value with the resultant
difference between market value and original purchase price being
recorded as interest income. Investment transactions are recorded
no later than the first business day after the trade date. Cost
amounts, as reported on the schedule of investments and the
statement of assets and liabilities, are the same for Federal
income tax purposes.
(b) Net realized gains and losses on common stocks were computed on
the basis of specific certificates.
(c) Provision has not been made for Federal income taxes or excise
taxes since the Fund has elected to be taxed as a "regulated
investment company" and intends to distribute substantially all
taxable income to its shareholders and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies.
(d) Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Non-cash dividends, if any, are recorded at
fair market value on date of distribution.
(e) The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from estimates.
(2) Investment Adviser and Management Agreement --
The Fund has an agreement with Nicholas Company, Inc. (with whom
certain officers and directors of the Fund are affiliated) to serve as
investment adviser and manager. Under the terms of the agreement, a
monthly fee is paid to the investment adviser based on 1/16th of 1%
(.75 of 1% on an annual basis) of the average net asset value. Also,
the investment adviser may be reimbursed for clerical and
administrative services rendered by its personnel. The advisory
agreement is subject to an annual review by the directors of the Fund.
(3) Net Unrealized Appreciation --
Aggregate gross unrealized appreciation (depreciation) as of June 30,
1998, based on investment cost for Federal tax purposes is as follows:
Aggregate gross
unrealized appreciation on investments $127,929,642
Aggregate gross unrealized depreciation
on investments (12,682,659)
-----------
Net unrealized appreciation $115,246,983
-----------
-----------
(4) Investment Transactions --
For the six months ended June 30, 1998, the cost of purchases and the
proceeds from sales of investments, other than short-term obligations,
aggregated $92,607,746 and $32,867,994, respectively.
(5) Transactions with Affiliates --
Following is an analysis of fiscal 1998 transactions with "affiliated
companies" as defined by the Investment Company Act of 1940:
<TABLE>
Share Activity
--------------------------------------------------
Balance Balance
Security Name 12/31/97 Purchases Sales 6/30/98
------------- -------- --------- ----- -------
<S> <C> <C> <C> <C>
Grand Prix Association of Long Beach, Inc. 251,000 87,000 -- 338,000
Harborside Healthcare Corporation 452,200 -- -- 452,200
Surety Capital Corporation 432,800 -- -- 432,800
TESSCO Technologies, Incorporated 177,000 60,000 -- 237,000
Thermo Vision Corporation 343,580 65,000 -- 408,580
</TABLE>
There were no dividends from, or gains/losses on, affiliated companies
for the six months ended June 30, 1998.
OFFICERS AND DIRECTORS
ALBERT O. NICHOLAS
President and Director
THOMAS J. SAEGER
Executive Vice President, Secretary and Director
MELVIN L. SCHULTZ
Director
DAVID L. JOHNSON
Executive Vice President
LYNN S. NICHOLAS
Senior Vice President
DAVID O. NICHOLAS
Senior Vice President
JEFFREY T. MAY
Senior Vice President
CANDACE L. LESAK
Vice President
MARK J. GIESE
Vice President
TRACY C. EBERLEIN
Assistant Vice President
MARY C. GOSEWEHR
Treasurer
INVESTMENT ADVISOR
NICHOLAS COMPANY, INC.
414-272-6133 or 800-227-5987
CUSTODIAN AND TRANSFER AGENT
FIRSTAR TRUST COMPANY
414-276-0535 or 800-544-6547
INDEPENDANT PUBLIC ACCOUNTANTS
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
COUNSEL
MICHAEL, BEST & FRIEDRICH
Milwaukee, Wisconsin
This report is submitted for the information of shareholders of the
Fund. It is not authorized for distribution to prospective investors unless
preceded or accompanied by an effective prospectus.
NICHOLAS LIMITED EDITION
700 N. Water Street
Milwaukee, WIsconsin 53202
June 30, 1998
