<PAGE>
NORTHEAST INVESTORS GROWTH FUND
50 Congress Street
Boston, Massachusetts 02109
(800) 225-6704
(617) 523-3588
SHARES OF BENEFICIAL INTEREST
PROSPECTUS
May 1, 1996
The Fund's objective is to produce long-term growth of both capital and future
income for its shareholders. This objective is pursued through a flexible policy
emphasizing investments in common stocks and money market instruments and
permitting investments in corporate bonds.
The Fund may from time to time use the investment technique of leverage. Such
speculative activity may involve greater risks and the possibility of greater
costs. See page .
This Prospectus sets forth information about the Fund that a prospective
investor should know before making an investment in the Fund. A Statement of
Additional Information, dated May 1, 1996, has been filed by the Fund with the
Securities and Exchange Commission and is incorporated in this Prospectus by
reference. The Statement of Additional Information is available free of charge
upon request to the Fund at the above address. Shareholders are advised to
retain this Prospectus for future reference.
Offered at Net Asset Value Without "Sales Charge"
or Commissions Payable to Anyone.
TABLE OF CONTENTS
Fee Table......................................1
Financial Highlights...........................1
The Fund.......................................3
Sales Without "Sales Charge"...................3
Investment Objective and Policies..............3
How to Invest..................................5
Investment Plans...............................6
How to Withdraw Your Investment................6
Distributions and Taxes........................6
Advisory and Service Contract..................8
Additional Information.........................8
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES REGULATORY AUTHORITY NOR HAS THE
COMMISSION OR ANY STATE AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
FEE TABLE
Shareholders Transaction Expenses
<S> <C>
Sales Load Imposed
on Purchase None
Deferred Sales Load
Imposed on Redemptions None
Sales Load Imposed on
Dividend Reinvestment None
Exchange Fees None
Redemption Fee None
Annual Operating Expenses (as a percentage of average
daily net assets)
12b-1 Expense ..................... None
Investment Advisory Fee ........... .71%
Other Expenses ................... .66%
Total Operating Expenses ......... 1.37%
</TABLE>
<TABLE>
<CAPTION>
Example
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 invest- $14 $45 $77 $169
ment, assuming a 5% annual
return
</TABLE>
The purpose of the table is to assist the investor in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The percentage expense levels shown in the table above are based on
actual expenses incurred in the fiscal year ended December 31, 1995; actual
expense levels in future years may vary from the amounts shown.
FINANCIAL HIGHLIGHTS
The information included in the following table has been audited by Coopers &
Lybrand L.L.P., Independent Accountants, for the years ended December 31, 1993
through December 31, 1995 and by other Auditors for the years ended December 31,
1986 through December 31, 1992. The report of Coopers and Lybrand L.L.P. on the
financial statements and financial highlights for the year ended December 31,
1995 is included in the Statement of Additional Information.
- 1 -
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
Per Share Data 1995 1994 1993 1992~ 1991~ 1990~ 1989~ 1988~ 1987~ 1986~
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period......... $24.40 $25.12 $29.11 $31.12 $23.45 $23.68 $18.28 $16.84 $18.23 $15.24
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income From Investment
Operations:
Net investment income................ .21 .19 .20 .20 .26 .28 .23 .27 .14 .08
Net realized and
unrealized gain(loss)
on investments.............. 8.70 (.22) .47 (.44) 8.32 .08 5.75 1.91 (.79) 3.56
------ ---- ------ ---- ------ ------ ------ ------ ---- ------
Total from investment
operations.................. 8.91 (.03) .67 (.24) 8.58 .36 5.98 2.18 (.65) 3.64
Less Distributions:
Net investment income....... (.21) (.19) (.20) (.20) (.36) (.26) (.28) (.27) (.12) (.13)
Capital gains............... (1.32) (.50) (4.46) (1.57) (.55) (.33) (.30) (.47) (.62) (.52)
----- ---- ----- ----- ---- ---- ---- ---- ---- ----
Total Distributions.................. (1.53) (.69) (4.66) (1.77) (.91) (.59) (.58) (.74) (.74) (.65)
----- ---- ----- ----- ---- ---- ---- ---- ---- ----
Net asset value:
End of period............... $31.78 $24.40 $25.12 $29.11 $31.12 $23.45 $23.68 $18.28 $16.84 $18.23
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return......................... 36.46%(.07%) 2.44%(.73%) 36.91% 1.52% 32.73% 12.91%(3.54%) 24.36%
Ratios & Supplemental Data
Net assets end of
period (000's omitted)...... $48,337 $35,459 $38,694 $42,609 $40,873 $27,189 $27,205 $19,248 $20,847 $20,537
Ratio of operating
expenses* to average
net assets.................. 1.37% 1.53% 1.45% 1.42% 1.50% 1.74% 1.77% 1.74%+ 1.60% 1.87%
Ratio of net investment
income to average
net assets.................. .74% .74% .62% .71% 1.02% 1.19% 1.11% 1.25%+ .60% .53%
Portfolio turnover rate.............. 26.53% 25.55% 35.14% 28.91% 15.63% 37.18% 22.97% 15.83% 35.90% 12.61%
<FN>
* Includes state taxes incurred through June 30, 1987.
+ During 1988 the investment advisor waived a portion of its fee.
Had the waiver not been made the ratios of operating expenses to
average net assets and net investment income to average net
costs would have been 1.99% and 1.00%, respectively.
~ Audited by other Auditors.
</FN>
</TABLE>
Further information about the performance of the Fund is contained in its most
recent Annual Report to Shareholders, a copy of which will be made available
upon request without charge.
- 2 -
<PAGE>
THE FUND
The Fund is a diversified, open-end management investment company which seeks
long-term growth of both capital and future income. This objective is pursued
through a flexible investment policy allowing for investments in common stocks,
corporate bonds and short-term money market instruments, depending on the Fund
management's perception of current and future economic conditions. Northeast
Management & Research Company, Inc. is the Investment Adviser to the Fund.
SALES WITHOUT "SALES CHARGE"
The Fund wishes to offer investors an opportunity to share in the benefits of a
mutual fund without requiring that they pay a sales commission or distribution
expense, generally known as a "sales charge", "load charge" or "12b-1 expense".
The purchase of shares of numerous other mutual funds requires the investor to
pay a substantial amount for a selling commission and related expenses, thereby
reducing the net amount invested which is actually received by the Fund. It is
the current policy of the Fund that shares of the Fund be sold at the net asset
value next determined after receipt of an order, the Fund receiving the full
amount paid by the investor.
Brokers or dealers may accept purchase and sale orders for shares of the Fund
and may impose a transaction charge for this service. Any investor may, however,
purchase or redeem shares without such additional charge by dealing directly
with the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund, which may be changed only by vote of the
majority of the Fund's outstanding shares, is to produce long-term growth of
both capital and future income for its shareholders. To achieve this, the Fund
maintains a flexible policy which allows it to pursue its objective through
investments in common stocks, corporate bonds and money market instruments.
Investments may also be made in securities convertible into common stocks,
warrants and in preferred stocks. Assets of the Fund will be fully invested at
all times (except for cash required to meet expenses borne by the Fund) in the
above types of securities. The Fund will make limited use of the leverage
principle to the extent that management believes that leverage may enhance the
Fund's achievement of its objective, but not to a level of more than one quarter
of the Fund's total assets. See "Additional Information-Leverage". No assurance
can be given that the Fund will achieve its investment objective.
- 3 -
<PAGE>
It is anticipated that a major portion of the Fund's assets will be generally
invested in common stocks whose prices appear to management to be relatively low
in relation to one or more of a company's earnings potential, net worth or book
value and future stream of dividends. Investments may be made in common stocks
not currently paying a dividend. From time to time, assets of the Fund may be
invested in corporate debt securities with special attention being paid to bonds
selling substantially below their par or maturity value.
The Fund also has the ability to emphasize, when deemed appropriate for
relatively short periods of time, investments in short-term, highly liquid
securities with maturities of 180 days or less. Such securities may include
commercial paper rated in the highest category by either Moody's Investors
Service or Standard & Poor's Corporation, certificates of deposit of banks
having gross assets in excess of $200,000,000, or securities issued or
guaranteed by the U.S. Government or its instrumentalities. Such an investment
would most likely be emphasized during periods when liquidity is deemed highly
desirable.
Through its flexible policy, the Fund will not necessarily be committed to any
one area at any particular time, but will rather manage the areas of investment
to meet present economic conditions and future economic trends. Investment may
be made in all three areas in combination so as to enhance the Fund's
achievement of its primary objective of long-term growth of capital and future
income. The Fund may, however, at times, be fully invested exclusively in one or
two of these areas. Although it is not contemplated that the Fund would be
exclusively invested in either money market instruments or bonds for any
significant time, it is possible that its investments would be comprised
virtually entirely of equity securities for long periods of time if conditions
in the equity markets and general economic conditions indicate to management
that the Fund's objective is most likely to be achieved with such investments.
It is the policy of the Fund not to concentrate its investments in securities of
companies in any particular industry or group of industries, and the Fund will
not make an investment in any industry if, as a result, investments in such
industry would aggregate more than 25% of the Fund's total assets.
The Fund may lend its portfolio securities, principally to broker-dealers, under
agreements which would require that the loans be continuously secured by
collateral consisting of cash or U.S. Government securities in an amount at
least equal to 102% of the market value of the securities loaned. The Fund
would continue to receive interest or dividends on the securities loaned and
would also either earn interest on the investment of the loan's
- 4 -
<PAGE>
collateral or receive other payments. See "Additional Information--Loan
Transactions". In seeking a return on temporarily available cash, the Fund may
purchase obligations of the U.S. Government and its instrumentalities from banks
subject to an agreement by the seller to repurchase them ("repurchase
agreements"). Repurchase agreements are subject to the risk of the seller's
becoming unable to fulfill its obligations; in such an event, the Fund would
have the right to retain the purchased securities, although there is currently
some uncertainty as to the full extent of such rights in bankruptcy proceedings,
and the Fund could incur delays and losses in establishing its rights.
The Fund does not intend to engage in trading for short-term profits, and
portfolio turnover will be limited in accordance with the Fund's objective of
producing long-term growth of capital and future income. This does not, however,
preclude an occasional investment for the purpose of short-term capital
appreciation, for example in the stock of a company which is an actual or
potential acquisition target. Also, securities will be sold without regard to
the holding period whenever such action seems advisable.
Although the Fund's investment in a diversified portfolio of securities reduces
the risk inherent in the ownership of a single security, it cannot eliminate the
risk or protect shareholders of the Fund against fluctuations in the market
valuation of their shares. See the Statement of Additional Information for a
description of certain investment restrictions to which the Fund is subject.
HOW TO INVEST
You may purchase shares of the Fund at their per share net asset value next
determined after the purchase order is received by the Fund in good order. The
net asset value per share is computed by dividing the market value of all
securities plus other assets, less liabilities, by the number of shares
outstanding. There is no sales charge or commission. All initial investments
must be accompanied by a completed Application, a copy of which is attached to
this Prospectus. The minimum initial investment in the Fund for each account is
$1,000. There is no minimum for subsequent investment either by mail, telephone
or exchange; there is a maximum for telephone investments of $25,000.
Investors in the Fund may arrange to make investments on a regular basis
under the Fund's automatic investment plan through regular deductions (minimum
$50) from their bank checking or savings account.
- 5 -
<PAGE>
INVESTMENT PLANS
The Fund offers shareholders tax-advantaged retirement plans, including a
Prototype Defined Contribution Plan for sole proprietors, partnerships and
corporations, Individual Retirement Accounts, and 403(b) Retirement Accounts.
Details of these investment plans are available from the Fund at the address
shown on the cover of this Prospectus.
HOW TO WITHDRAW YOUR INVESTMENT
Shareholders are entitled to redeem all or any portion of the shares credited to
their account by submitting a written request for redemption to the Fund. Within
seven days after the receipt of such a request in "good order" as described
below, the shareholder will be sent an amount equal to the net asset value of
the redeemed shares next determined after the redemption request has been
received. If the shares to be redeemed represent an investment made by check,
the Fund reserves the right not to honor the redemption request until the check
has been collected. The maximum delay in such an event, however, would be
ten business days.
A redemption request will be considered to have been received in "good order" if
the following conditions are satisfied:
(i) the request is in writing, indicates the number of
shares to be redeemed and identifies the shareholder's
account;
(ii) the request is accompanied by any certificates issued
representing the shares, which have been endorsed for transfer
(or are themselves accompanied by an endorsed stock power)
exactly as the shares are registered;
(iii) for redemptions in excess of $5,000, the signatures on
either the written redemption request or the
certificates (or their accompanying stock power) have
been guaranteed by a U.S. bank or trust company, member
of a national securities exchange or other eligible
guarantor institution. Mere witnessing of a signature
is not sufficient; a specific signature guarantee must
be made with respect to all signatures. A notary
public is not an acceptable guarantor; and
(iv) in the case of corporations, executors, administrators, trustees
or other organizations, evidence of authority to sell, together
with a request that the Fund purchase the same and pay the
shareholder for the shares so surrendered is needed.
The Fund reserves the right to deliver assets in whole or in
part in kind in lieu of cash. The Fund has elected to be
- 6 -
<PAGE>
governed by Rule 18f-1 under the Investment Company Act of 1940, as amended,
pursuant to which the Fund is obligated to redeem shares solely in cash up to
the lesser of $250,000 or 1 percent of the net asset value of the Fund during
any 90 day period for any one shareholder. Shareholders receiving redemptions in
kind will incur brokerage costs in converting securities received to cash.
Shareholders who are investors in a tax-advantaged retirement plan should
consider specific taxpayer restrictions, penalties and procedures that may be
associated with redemptions from their retirement plan in order to qualify under
the provisions of the Internal Revenue Code. The Fund assumes no responsibility
for determining whether any specific redemption satisfies the conditions of
federal tax laws. That determination is the shareholder's responsibility.
Penalties, if any, apply to redemptions from the plan, not to redemptions from
the Fund and are governed by federal tax law alone.
Telephone redemptions are not permitted (unless confirmed in writing on the
same day), except that telephone instructions from the registered owner to
exchange shares of the Fund for shares of Northeast Investors Trust will be
accepted. Existing shareholders may also make additional investments by
telephone. No specific election is required in the Application to obtain
telephone exchange or purchase privileges. The Fund will employ reasonable
procedures, including requiring personal identification prior to acting on
telephone instructions, to confirm that such instructions are genuine. If the
Fund does not follow such procedures it may be liable for losses due to
unauthorized or fraudulent instructions, but otherwise it will not be liable for
following instructions communicated by telephone that it reasonably believes to
be genuine.
DISTRIBUTIONS AND TAXES
The Fund's policy is to distribute substantially all of its net investment
income and net realized capital gains, if any. The Fund generally intends to
qualify as a regulated investment company so that it will not be subject to
federal income tax on its net investment income and net realized capital gains
which are distributed to shareholders. It did so qualify during its last taxable
year.
Capital gains, unless reduced by any available capital loss carryforward, are
generally distributed near the close of the Fund's fiscal year. Dividends and
distributions are credited in shares of the Fund unless the shareholder elects
to receive cash. A purchase of Fund shares shortly before the ex-date of a
dividend or distribution could result in the receipt of an amount which,
although in effect a return of principal, is subject to income taxes.
- 7 -
<PAGE>
The Fund will inform its shareholders each year of the amount and nature of the
income and gains it distributes to them. Shareholders may be proportionately
liable for taxes on income and gains of the Fund, but shareholders who are not
subject to federal tax on their income will not be required to pay such tax on
amounts distributed to them by the Fund. Dividends and net realized capital gain
distributions may also be subject to state and local taxes.
ADVISORY AND SERVICE CONTRACT
Northeast Management & Research Company, Inc. ("NMR") is the
Fund's Investment Adviser and Manager. Under Massachusetts law,
the Fund's Trustees are responsible for the management of the
affairs of the Fund, and NMR is subject to the general
supervision of the Trustees.
NMR is a corporation organized in July, 1980 to manage the
Fund, and at present engages in no other activities. NMR is
controlled by its three directors, William A. Oates, Jr., Ernest
E. Monrad, and Robert B. Minturn, Jr. Mr. Oates is President of
the Fund and has been principally responsible for the day-to-day
management of its portfolio since its inception. Mr. Monrad is
the Chairman of the Trustees of Northeast Investors Trust, a
position he has held since 1969, having first become a Trustee
of such fund in 1960. Mr. Minturn has been a Trustee of
Northeast Investors Trust since 1980.
NMR serves the Fund pursuant to an Advisory and Service Contract. Under its
terms, NMR is required to provide an investment program within the limitations
of the Fund's investment policies and restrictions, and is authorized in its
discretion to buy and sell securities on behalf of the Fund. It also provides
the Fund's executive management and office space.
Investment Advisory Fee. As compensation for its management services and
expenses assumed, the Fund pays NMR a fee at the end of each calendar month
calculated by applying a monthly rate, based on an annual percentage fee of 1%
of the Fund's average daily net assets up to and including $10,000,000, 3/4 of
1% of such average daily net assets above $10,000,000 up to and including
$30,000,000 and 1/2 of 1% of such average daily net assets in excess of
$30,000,000 during such month. This fee is higher than that charged by advisers
to most other funds with similar objectives and policies.
ADDITIONAL INFORMATION
Capital Shares and Voting Rights. The Fund has only one class of
securities--shares of beneficial interest without par value--of which an
unlimited number are authorized. Each share has one vote, and when issued is
fully paid and nonassessable. Fractional shares may be issued and when issued
have the same
- 8 -
<PAGE>
rights proportionately as full shares. The shares are transferable by
endorsement or stock power in the customary manner, but the Fund is not bound to
recognize any transfer until it is recorded on the books of the Fund. Each share
is entitled to participate equally in any dividends or distributions declared by
the Trustees. In the event of liquidation of the Fund, the holders of shares are
entitled to all assets remaining for distribution after satisfaction of all
outstanding liabilities and are entitled to share therein in proportion to the
number of shares held. No shares carry any conversion, subscription, or other
preemptive rights.
The Fund was originally organized as a Massachusetts corporation on July 9, 1980
and was converted to a Massachusetts business trust effective May 1, 1987. It
functions as its own transfer agent and dividend paying agent.
Any inquiries by shareholders may be made in writing or by telephone to the Fund
at the address or telephone numbers shown on the cover of this Prospectus.
Loan transactions involve the lending of securities to a broker-dealer or
institutional investor for its use in connection with short sales, arbitrage, or
other securities transactions. Loans of portfolio securities of the Fund will be
made, if at all, in strictest conformity with applicable federal and state rules
and regulations. While there may be delays in recovery of loaned securities or
even a loss of rights in collateral supplied should the borrower fail
financially, loans will be made only to firms deemed by the Fund's management to
be of good standing and will not be made unless, in the judgment of the Fund's
management, the consideration to be earned from such loans would justify the
risk. The purpose of such loan transactions is to afford the Fund an opportunity
to continue to earn income on the securities loaned and at the same time to earn
income on the collateral held by it. The Fund has not in its history effected
any such loan transactions and has no present intention of so doing, although it
reserves the right to do so if deemed advisable by the Trustees.
Leverage. In order to raise additional funds for investment or to avoid
liquidating securities to meet cash needs, such as for redemptions, the Fund may
borrow money from banks. Such borrowing will normally not be continued over a
protracted period when short-term rates are considered to be high when compared
to the potential investment opportunities. The Fund intends to use the proceeds
of any such borrowing to purchase securities which appear to be especially
undervalued in terms of earning and dividend potential and tangible net worth.
Borrowed money may also be invested in debt securities yielding more than the
interest rate on the borrowing. Also, the ability to borrow permits the Fund to
minimize uninvested cash. Any investment gains made with the additional funds in
excess of the interest
- 9 -
<PAGE>
paid will cause the net asset value of Fund shares to rise faster than would
otherwise be the case. On the other hand, if the investment performance of the
additional funds fails to cover their cost to the Fund, the net asset value of
the Fund will decrease faster than would otherwise be the case. This is the
factor known as "leverage".
The Fund may borrow money from banks for investment purposes, if, in the opinion
of NMR, such borrowing would increase the earning power of the Fund, but such
borrowing is limited to 25% of the gross assets of the Fund valued at cost. The
Fund may also temporarily borrow from banks for extraordinary or emergency
purposes, but is limited to borrowing for all purposes up to 30% of the gross
assets of the Fund valued at cost.
The amount of leverage to be outstanding at any one time cannot be estimated in
advance since the Fund may vary the amount of borrowings from time to time,
within the authorized limits, as NMR deems advisable, including having no
borrowings at all. Under the Investment Company Act of 1940, as amended, the
Fund is required to maintain asset coverage of 300% of outstanding borrowings
and could be required to liquidate portfolio securities to reduce borrowings if
this requirement is not met.
- 10 -
<PAGE>
NORTHEAST INVESTORS GROWTH FUND
50 Congress Street
Boston, Massachusetts 02109
(800) 225-6704
(617) 523-3588
Shares of Beneficial Interest
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
This Statement of Additional Information supplements the Prospectus for the Fund
dated May 1, 1996 and should be read in conjunction with the Prospectus. A copy
of the Prospectus may be obtained from the Fund at the above address. This
Statement of Additional Information is not a Prospectus.
TABLE OF CONTENTS
Page
The Fund ........................................B-2
Investment Restrictions .........................B-2
Trustees and Officers ...........................B-4
Principal Shareholder .......................... B-6
Advisory and Service Contract ...................B-6
Custodian and Independent Accountants............B-7
Brokerage .......................................B-7
Price and Net Asset Value .......................B-8
Shareholder Plans ...............................B-8
Tax-Advantaged Retirement Plans .................B-9
Dividends, Distributions & Federal Taxes ........B-11
Securities Lending Transactions..................B-12
Trustee and Shareholder Liability................B-12
Financial Statements ............................B-13
<PAGE>
THE FUND
Northeast Investors Growth Fund, herein called the Fund, is a
diversified open-end management investment company originally organized in 1980
under the laws of The Commonwealth of Massachusetts as a corporation and
converted to a Massachusetts business trust in 1987.
INVESTMENT RESTRICTIONS
The Fund's objective is to produce long-term growth of both capital and
future income for its shareholders. This objective is pursued through a flexible
policy emphasizing investments in common stocks and money market instruments and
permitting investments in corporate bonds.
In pursuing this objective it is the fundamental policy of the Fund not
to engage in any of the following activities or investment practices. These
restrictions may not be changed without the approval of a majority of the
outstanding shares.
The Fund may not:
1. purchase the securities of any issuer if such
purchase, at the time thereof, would cause more
than 5% of the value of the Fund's total assets
at market value to be invested in the securities
of such issuer (other than obligations of the
U.S. Government and its instrumentalities);
2. purchase the securities of any issuer if such
purchase, at the time thereof, would cause more
than 10% of any class of securities, or of the
outstanding voting securities, of such issuer to
be held in the Fund's portfolio;
3. purchase securities of other investment companies
except in the open market where no commission
other than the ordinary broker's commission is
paid, or as part of a merger, and in no event may
investments in such securities exceed 10% of the
value of the total assets of the Fund. The Fund
may not purchase or retain securities issued by
another open-end investment company;
4. purchase any securities if such purchase, at the
time thereof would cause more than 25% of the
value of the Fund's assets to be invested in
securities of companies in any one industry;
5. invest in the securities of companies which,
including predecessors, have a record of less
than three years continuous operation, although
B-2
<PAGE>
it may invest in the securities of regulated
public utilities or pipe-line companies which do
not have such a record;
6. buy any securities or other property on margin,
engage in short sales (unless by virtue of its
ownership of other securities it has a right to
obtain securities equivalent in kind and amount
to the securities sold without incurring
additional costs) or purchase or sell puts or
calls, or combinations thereof;
7. invest in companies for the purpose of exercising
control or management;
8. buy or sell real estate, commodities or commodity
(futures) contracts unless acquired as a result
of ownership of securities;
9. underwrite securities issued by others;
10. make loans to other persons (except by purchase
of bonds and other obligations constituting part
of an issue, limited, in the case of privately
offered securities, to 10% of the Fund's total
assets). However, the Fund may lend its
portfolio securities to broker-dealers or other
institutional investors if, as a result thereof,
the aggregate value of all securities loaned does
not exceed 33-1/3% of the total assets of the
Fund;
11. purchase or retain securities issued by an issuer
if the officers, Trustees and Directors of the
Fund and of the Adviser, together, own
beneficially more than 5% of any class of
securities of such issuer.
In addition, the Fund may not purchase warrants in excess of 5% of the
value of the Fund's net assets. Included within that amount, but not to exceed
2% of the value of the Fund's net assets, may be warrants which are not listed
on the New York or American Stock Exchange. Warrants acquired by the Fund at any
time in units or attached to securities are not subject to this restriction.
The Fund will not purchase securities which are not readily marketable
(including repurchase agreements with maturities in excess of seven days) if
such purchase, at the time thereof, would result in more than 10% of the Fund's
net assets being invested in such securities.
B-3
<PAGE>
The restrictions in the two preceding paragraphs are not fundamental and
may be changed by the Board of Trustees without shareholder approval or
notification. In order to permit the sale of shares of the Fund in certain
states, the Fund may make commitments more restrictive than the fundamental
restrictions described above. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund and its shareholders, it will
revoke the commitment by terminating sales of its shares in the state(s)
involved. This would have the effect of precluding shareholders in such states
from making further purchases of Fund shares, either through one of the Fund's
investment plans or otherwise.
The Fund does not intend to engage in trading for short-term profits,
and portfolio turnover will be limited in accordance with the Fund's objective
of producing long-term growth. This does not, however, preclude an occasional
investment for the purpose of short-term capital appreciation. During the fiscal
years ended December 31, 1995 and 1994 the rates of total portfolio turnover
were 26.53% and 25.55% respectively. Although investment policy or changed
circumstances may require, in the opinion of management, an increased rate of
such portfolio turnover, the Adviser does not anticipate that such turnover will
be substantially in excess of that experienced by the Fund in recent years.
TRUSTEES AND OFFICERS
The Trustees of the Fund are Ernest E. Monrad, William
A. Oates, Jr. and Robert B. Minturn, Jr., all of 50 Congress
Street, Boston, Massachusetts, John R. Furman, 32 Manning Road,
Billerica, Massachusetts and John C. Emery, One Post Office
Square, Boston, Massachusetts. Mr. Oates is President, Mr.
Monrad is Chairman of the Trustees and Assistant Treasurer, and
Mr. Minturn is Vice President and Clerk of the Fund. Gordon C.
Barrett, 50 Congress Street, Boston, Massachusetts serves as
Vice President and Treasurer of the Fund. Messrs. Oates, Monrad
and Minturn are deemed "interested persons" of the Fund under
the Investment Company Act of 1940, as amended, because they are
affiliated with the Fund's investment adviser. The principal
occupations of each of Messrs. Oates, Monrad and Minturn for the
last five years have been their respective positions with the
Fund, in the case of Mr. Oates, and with Northeast Investors
Trust in the case of Messrs. Monrad and Minturn. The Trustees
who are interested persons receive no renumeration from the
Fund. Messrs. Furman and Emery each received Trustees fees of
$3,000 for the fiscal year ended December 31, 1995.
WILLIAM A. OATES, JR. is President of Northeast Investors Trust,
Boston, Massachusetts; President and a Director of Northeast Management &
Research Company, Inc., Boston, Massachusetts; Vice President, Treasurer and a
Director of Guild, Monrad & Oates, Inc., Boston, Massachusetts; a Trustee and
Treasurer of the
B-4
<PAGE>
Roxbury Latin School, West Roxbury, Massachusetts; a Director of Clifford of
Vermont, Inc., Bethel, Vermont, Furman Lumber, Inc., Billerica, Massachusetts
and the Horn Corporation, Ayer, Massachusetts; a Corporator of the Dedham
Institute for Savings, Dedham, Massachusetts; and President of the Board of
Trustees of Groton School, Groton, Massachusetts. He is 53.
ERNEST E. MONRAD is Chairman and a Trustee of Northeast Investors Trust, Boston,
Massachusetts; a Director of Northeast Management & Research Company, Inc.,
Boston, Massachusetts; Vice President and a Director of Guild, Monrad & Oates,
Inc., Boston, Massachusetts; Vice President and a Director of Furman Lumber,
Inc., Billerica, Massachusetts; a Director of The New America High Income Fund,
Inc., Boston, Massachusetts; and a Trustee of Century Shares Trust, Boston,
Massachusetts. He is 65.
ROBERT B. MINTURN, JR. is Clerk and a Trustee of Northeast
Investors Trust, Boston, Massachusetts; Vice President,
Treasurer, Clerk and a Director of Northeast Management &
Research Company, Inc., Boston, Massachusetts; Vice President,
Assistant Treasurer, Clerk and a Director of Guild, Monrad &
Oates, Inc., Boston, Massachusetts; and a Trustee, Clerk and
Assistant Treasurer of The Boston Home, Inc., Boston,
Massachusetts. He is 56.
GORDON C. BARRETT is a Vice President of Guild, Monrad & Oates,
Inc. and Vice President and Treasurer of Northeast Investors
Trust. He is 39.
JOHN R. FURMAN's principal occupation is Chairman and a Director
of Furman Lumber, Inc., Billerica, Massachusetts. He is 78.
JOHN C. EMERY's principal occupation is Partner of the Boston law firm of
Sullivan & Worcester; he also serves as a Director of Wastcoat Corporation and
of Boston Investment Company, both of Boston, Massachusetts. He is 65.
As of April 3, 1996, all of the foregoing officers and Trustees as a group were
deemed to own beneficially 161,256 shares, or 11% of the outstanding shares of
beneficial interest of the Fund, including shares held as trustee.
B-5
<PAGE>
PRINCIPAL SHAREHOLDER
The following is the beneficial owner of five percent or more of the Fund's
shares as of April 3, 1996.
Number of Shares Percentage of
Deemed Beneficially Outstanding
Name and Address Owned (1) Shares
William A. Oates, Jr. 149,632 10.2 %
50 Congress Street
Boston, MA 02109
(1) Includes 109,849 shares held as trustee.
ADVISORY AND SERVICE CONTRACT
Northeast Management & Research Company, Inc. ("NMR") serves the Fund pursuant
to an Advisory and Service Contract. Under its terms, NMR is required to provide
an investment program within the limitations of the Fund's investment policies
and restrictions, and is authorized in its discretion to buy and sell securities
on behalf of the Fund.
NMR pays the Fund's executive and certain administrative salaries and rent, with
the following expenses borne by the Fund: (a) taxes and other governmental
charges, if any, (b) interest on borrowed money, if any, (c) legal fees, (d)
auditing fees, (e) insurance premiums, (f) dues and fees for membership in trade
associations, if any, (g) fees and expenses of registering and maintaining
registrations by the Fund of its shares with the Securities and Exchange
Commission and of preparing reports to government agencies and expenses of
registering shares under Federal and state laws and regulations, (h) fees and
expenses of trustees not affiliated with or interested persons of NMR, (i) fees
and expenses of the custodian, (j) expenses of acting as its own dividend
disbursing agent and transfer agent, (k) issue and transfer taxes chargeable to
the Fund in connection with securities transactions to which the Fund is a
party, (l) cost of reports to shareholders and expense of shareholders'
meetings, including the mailing and preparation of proxy material, and trustees
meetings, and (m) the cost of share certificates representing shares of the
Fund. The Fund also pays all brokers' commissions in connection with its
portfolio transactions.
The Fund is also liable for such non-recurring expenses as may arise, including
litigation to which the Fund may be a party. The Fund may have an obligation to
indemnify its officers and trustees with respect to such litigation.
B-6
<PAGE>
The Fund has undertaken with certain states to comply with annual expense
limitations and NMR has agreed to reimburse the Fund for any expenses in excess
of such limitations. The most stringent expense limitation currently in effect
restricts the Fund's expenses in any calendar year to a maximum of 2-1/2% of the
first $30 million of average daily net assets, 2% of the next $70 million of
average daily net assets and 1-1/2% of the remaining average daily net assets.
This limitation is subject to change if state requirements change. For 1995,
1994 and 1993, respectively, the advisory fee was $290,132, $282,195, and
$303,921.
CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The custodian for the Fund is Investors Bank & Trust Company, 89 South Street,
Boston, Massachusetts. The custodian maintains custody of the Fund's assets.
The independent accountants for the Fund are Coopers & Lybrand L.L.P., One Post
Office Square, Boston, Massachusetts. Coopers & Lybrand L.L.P. audits the Fund's
annual financial statements included in the annual report to shareholders,
reviews the Fund's filings with the Securities and Exchange Commission on Form
N-1A and prepares the Fund's federal income and excise tax returns.
BROKERAGE
Decisions to buy and sell securities for the Fund and as to assignment of its
portfolio business and negotiation of its commission rates are made by NMR. It
is NMR's policy to obtain the best security price available, and, in doing so,
NMR assigns portfolio executions and negotiates commission rates in accordance
with the reliability and quality of a broker's services and their value and
expected contribution to the performance of the Fund. In order to minimize
brokerage charges, the Fund seeks to execute portfolio transactions with the
principal market maker for the security to which the transaction relates in the
over-the-counter market unless it has been determined that best price and
execution are available elsewhere. Such portfolio transactions may be carried
out with broker-dealers that have provided NMR or the Fund with statistics,
other information and wire and other services. Such services may include
furnishing advice as to the value of securities, the advisability of investing
in, purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing portfolio analyses and reports
concerning issuers, industries, securities, economic factors and trends; and
effecting securities transactions and performing functions incidental thereto
(such as clearance and settlement). It is not, however, NMR's policy to pay a
higher net price to a broker-dealer or receive a lower net price from a
broker-dealer solely because it has supplied
B-7
<PAGE>
such services. During 1995 and 1994 the Fund paid brokerage
commissions of $33,427 and $37,914, respectively.
PRICE AND NET ASSET VALUE
It is the current policy of the Fund that the public offering price of shares of
the Fund equal their net asset value, the Fund receiving the full amount paid by
the investor. The net asset value is determined as of the close of the New York
Stock Exchange on each day that the Exchange is open. It is the only price
available to investors whose orders were received prior to the close of the
Exchange (or the close of business) on that day. The price to investors whose
applications for purchase are received after the close of business or on a
non-business day will be the net asset value next determined. The New York Stock
Exchange is customarily closed on New Years Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. The net
asset value of the Fund's shares is determined by dividing the market value of
the Fund's securities, plus any cash and other assets (including dividends
accrued) less all liabilities (including accrued expenses but excluding capital
and surplus) by the number of shares outstanding. Securities and other assets
for which market quotations are readily available are valued at market values
determined on the basis of the last quoted sale prices prior to the close of the
New York Stock Exchange (or the last quoted bid prices in the event there are no
sales reported on that day) in the principal market in which such securities
normally are traded as publicly reported or furnished by recognized dealers in
such securities. Securities and other assets for which market quotations are not
readily available (including restricted securities, if any) are valued at their
fair value as determined in good faith under consistently applied procedures
approved by the Board of Trustees. Securities may also be valued on the basis of
valuations furnished by a pricing service that uses both dealer supplied
valuations and evaluations based on expert analysis of market data and other
factors if such valuations are believed to reflect more accurately the fair
value of such securities. An adjustment will be made for fractions of a cent to
the next highest cent. The Fund makes no special payment for the daily
computation of its net asset value.
SHAREHOLDER PLANS
Open Accounts
Upon making an initial investment (minimum amount $1,000), a shareholder will
automatically have an Open Account established for him on the books of the Fund.
Once any account is opened there is no limitation to the size or frequency of
investment. The shareholder will receive a confirmation from the Fund of this
and each subsequent transaction in his Account showing the
B-8
<PAGE>
current transaction and the current number of shares held. A shareholder may
make additional investments in shares of the Fund at any time by ordering the
Fund shares at the then applicable public offering price. Share certificates
which have been issued to a shareholder may be returned to the Fund at any time
for credit to the shareholder's Open Account. Shares held in an Open Account may
be redeemed as described in the Prospectus under "How to Withdraw Your
Investment". Income dividends and capital gains distributions are credited in
shares on the payment date (which may be different than the record date) at the
applicable record date closing net asset value, unless a shareholder has elected
to receive all income dividends and/or capital gains distributions in cash.
Automatic Investment and Withdrawal Plans
These Plans have been developed to accommodate those who wish to make purchases
or sales of shares of the Fund on a continuing basis without the imposition of
any fee or service charge. Subject to the initial investment minimum of $1,000,
any shareholder maintaining an Open Account may request in his application or
otherwise in writing that investments be made through automatic deductions
(minimum $50) from his bank checking account or that redemptions be made
automatically with the redemption price paid by check or electronic funds
transfer. The shareholder may cancel his participation in either Plan at any
time, and the Fund may modify or terminate either Plan at any time.
An investor should understand that he is investing in a security, the price of
which fluctuates, and that under the Plans he will purchase or sell shares
regardless of their price level and that if he terminates the Plan and sells his
accumulated shares at a time when their market value is less than his cost, he
will incur a loss. In the case of the Automatic Investment Plan, he should also
take into account his financial ability to continue the Plan through periods of
low prices and understand that the Plan cannot protect him against loss in
declining markets.
TAX-ADVANTAGED RETIREMENT PLANS
In addition to regular accounts, the Fund offers tax-advantaged retirement plans
which are described briefly below. Contributions to these plans are invested in
shares of the Fund; dividends and other distributions are reinvested in shares
of the Fund. Contributions may be invested in shares of Northeast Investors
Trust as well as shares of the Fund.
Contributions to these retirement plans, within the limits
and circumstances specified in applicable provisions of the
Internal Revenue Code, are excludable or deductible from the
participant's income for federal income tax purposes. In
B-9
<PAGE>
addition, non-deductible or after-tax contributions may be made to these
retirement plans to the extent permitted by the Internal Revenue Code.
Reinvested dividends and other distributions accumulate free from federal income
tax while the shares of the Fund are held in the plan. Distributions from these
plans are generally included in income when received; however, after-tax or
non-deductible contributions may be recovered without additional federal income
tax. Premature distributions, insufficient distributions after age 70 1/2 or
excess contributions may result in penalty taxes.
Investors Bank & Trust Company serves as trustee or custodian of each of the
following plans. It is entitled to receive specified fees for its services.
Detailed information concerning each of the following plans (including schedules
of trustee or custodial fees) and copies of the plan documents are available
upon request to the Fund at its offices.
An individual investor or employer considering any of these retirement plans
should read the detailed information for the plan carefully and should consider
consulting an attorney or other competent advisor with respect to the
requirements and tax aspects of the plan.
Prototype Defined Contribution Plan
The Fund offers a Prototype Defined Contribution Plan suitable for adoption by
businesses conducted as sole proprietorships, partnerships or corporations.
The employer establishes a Prototype Defined Contribution Plan by completing an
adoption agreement specifying the desired plan provisions. The adoption
agreement offers flexibility to choose appropriate coverage, eligibility,
vesting and contribution options subject to the requirements of law. Under a
supplement to the Prototype Defined Contribution Plan, an employer may establish
a salary reduction or 401(k) plan.
Individual Retirement Account (IRA)
An individual may open his own Individual Retirement Account using a custodial
account form approved for this purpose by the IRS. An individual may have an IRA
even though he is also an active participant in a pension or profit-sharing plan
or certain other plans. However, depending on the individual's adjusted gross
income and tax return filing status, contributions for an individual who is an
active participant in another plan may be partially or entirely non-deductible.
403(b) Retirement Account
Certain charitable and educational institutions may make
contributions to a 403(b) Retirement Account on behalf of an
B-10
<PAGE>
employee. The employee may enter into a salary reduction agreement with the
employer providing for the employee to reduce his pay by the amount specified in
the agreement and for the employer to contribute such amount to the employee's
403(b) Retirement Account. Funds in the account may generally be withdrawn only
upon the participant's reaching age 59 1/2 or his termination of employment,
financial hardship, disability, or death.
DIVIDENDS, DISTRIBUTIONS & FEDERAL TAXES
It is the Fund's policy to distribute net investment income and net realized
capital gains on sales of investments (less any available capital loss
carryforwards) annually. Dividends and distributions are credited in shares of
the Fund unless the shareholder elects to receive cash.
Any dividends or distributions paid shortly after a purchase of shares by an
investor will have the effect of reducing the per share net asset value of his
shares by the per share amount of the dividends or distributions. Furthermore,
such dividends or distributions, although in effect a return of capital, are
subject to income taxes.
It is the policy of the Fund to distribute its net investment income and net
realized gains for each year in taxable dividends and capital gain distributions
so as to qualify as a "regulated investment company" under the Internal Revenue
Code. The Fund did so qualify during its last taxable year.
A regulated investment company which meets the diversification of assets and
source of income requirements prescribed by the Internal Revenue Code is
accorded conduit or "pass through" treatment if it distributes to its
shareholders at least 90% of its taxable income exclusive of net capital gains,
i.e., it will be taxed only on the portion of such income which it retains.
To the extent that a regulated investment company distributes the excess of its
net long-term capital gain over its net short-term capital loss (including any
capital loss carry-over from prior years), such capital gain is not taxable to
the company but it is taxable to the shareholder.
Income dividends and capital gain distributions are taxable as described,
whether received in cash or additional shares. Shareholders who have not
supplied the Fund with appropriate information with respect to their tax
identification or social security number or who are otherwise subject to back-up
withholding may have 31% of distributions withheld by the Fund.
B-11
<PAGE>
The foregoing discussion relates to federal income taxation. Dividends and
capital gain distributions may also be subject to state and local taxes, and
shareholders should consult with a qualified tax advisor.
SECURITIES LENDING TRANSACTIONS
In connection with securities lending transactions, as described in the
Prospectus, requirements of the staff of the Securities and Exchange Commission
currently provide that: (1) the Fund must receive 100% collateral in the form of
cash or cash equivalents, e.g., U.S. Treasury bills or notes, from the borrower;
(2) the borrower must increase the collateral whenever the market value of the
securities (determined on a daily basis) rises above the level of the
collateral; (3) the Fund must be able to terminate the loan after notice, at any
time; (4) the Fund must receive reasonable interest on the loan or a flat fee
from the borrower, as well as amounts equivalent to any dividends, interest or
other distributions on the securities loaned and any increase in market value;
(5) the Fund may pay only reasonable custodian fees in connection with the loan;
(6) voting rights on the securities loaned may pass to the borrower; however, if
a material event affecting the investment occurs, the Fund's Trustees must be
able to terminate the loan and vote proxies or enter into an alternative
arrangement with the borrower to enable the Fund's Trustees to vote proxies.
Excluding items (1) and (2), these practices may be amended from time to time as
regulatory provisions permit.
TRUSTEE AND SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Fund. However, the Declaration
of Trust provides that the Trustees shall have no power to bind the shareholders
personally and requires that all contracts and other instruments shall recite
that the same are executed by the Trustees as Trustees and not individually and
that the obligations of such instruments are not binding upon any of the
Trustees or shareholders individually but are binding only upon the Fund's
assets. The Fund is advised by counsel (Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C.) that under the applicable Massachusetts decisions, no personal
liability can attach to the shareholders under contracts of the Fund containing
this recital. Moreover, the Declaration of Trust provides that any shareholder
of the Fund shall be indemnified by the Fund for all loss and expense incurred
by reason of his being or having been a shareholder of the Fund. Thus the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.
B-12
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investments as of December 31, 1995
Common Stocks-- Percent of
Number of Market Net
Name of Issuer Shares Value Assets
- ---------------------------------------------------------------------------------------------------------------------------
Apparel
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nike, Inc.- Class B...................................... 9,400 $ 654,475 1.3%
Banks
- ---------------------------------------------------------------------------------------------------------------------------
Bank of Boston Corporation .............................. 52,000 2,405,000
Bankers Trust New York Corporation....................... 5,000 332,500
BayBanks, Inc............................................ 30,600 3,006,450
Fifth Third Bancorp...................................... 11,000 805,750
First American Corporation, Tennessee.................... 13,200 625,350
First Security Corporation, Delaware.................... 17,600 677,600
Fleet Financial Group, Inc............................... 13,000 529,750
National Bancorp of Alaska, Inc.......................... 3,000 195,000
Zions Bancorporation..................................... 9,000 722,250
- ---------------------------------------------------------------------------------------------------------------------------
9,299,650 19.3%
Chemical
- ---------------------------------------------------------------------------------------------------------------------------
Cabot Corporation........................................ 12,500 673,438 1.4%
Clothing
- ---------------------------------------------------------------------------------------------------------------------------
West Point Stevens, Inc.^................................ 20,000 401,250 .8%
Computer & Data Processing
- ---------------------------------------------------------------------------------------------------------------------------
Hewlett- Packard Company................................. 10,000 837,500
International Business Machines.......................... 10,000 917,500
Microsoft Corporation^................................... 5,000 438,750
- ---------------------------------------------------------------------------------------------------------------------------
2,193,750 4.5%
Computer Software & Services
- ---------------------------------------------------------------------------------------------------------------------------
America Online, Inc.^.................................... 16,000 600,000 1.2%
Drug
- ---------------------------------------------------------------------------------------------------------------------------
Merck & Company, Inc.................................... 9,600 631,200 1.3%
Electrical Equipment
- ---------------------------------------------------------------------------------------------------------------------------
General Electric Company................................. 24,000 1,728,000
Intel Corporation........................................ 16,000 908,000
Motorola, Inc............................................ 36,000 2,052,000
- ---------------------------------------------------------------------------------------------------------------------------
4,688,000 9.8%
Energy & Natural Resources
- ---------------------------------------------------------------------------------------------------------------------------
Thermo Electron Corporation^............................. 18,600 967,200 2.0%
- ---------------------------------------------------------------------------------------------------------------------------
Northeast Investors Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
Common Stocks--continued
Percent of
Number of Market Net
Name of Issuer Shares Value Assets
- ---------------------------------------------------------------------------------------------------------------------------
Entertainment
- ---------------------------------------------------------------------------------------------------------------------------
Carnival Corporation..................................... 8,500 $ 207,188
Time Warner, Inc......................................... 40,000 1,515,000
Walt Disney Company...................................... 36,000 2,124,000
- ---------------------------------------------------------------------------------------------------------------------------
3,846,188 8.0%
Fast Food Service
- ---------------------------------------------------------------------------------------------------------------------------
McDonald's Corporation 12,000 541,500 1.1%
Financial Services
- ---------------------------------------------------------------------------------------------------------------------------
Beneficial Corporation 12,400 578,150 1.2%
Food & Beverage
- ---------------------------------------------------------------------------------------------------------------------------
Coca-Cola Company........................................ 9,800 727,650
General Mills, Inc....................................... 6,600 381,150
Pepsico, Inc............................................. 15,000 838,125
- ---------------------------------------------------------------------------------------------------------------------------
1,946,925 4.0%
Food Service
- ---------------------------------------------------------------------------------------------------------------------------
Sysco Corporation 15,000 487,500 1.0%
Health Care
- ---------------------------------------------------------------------------------------------------------------------------
Warner Lambert Company................................... 2,600 252,525 .5%
Health Care Supplies
- ---------------------------------------------------------------------------------------------------------------------------
Johnson & Johnson........................................ 18,000 1,541,250 3.2%
Household Products
- ---------------------------------------------------------------------------------------------------------------------------
American Home Products Corporation....................... 2,500 242,500
Procter & Gamble Company................................. 16,500 1,369,500
- ---------------------------------------------------------------------------------------------------------------------------
1,612,000 3.3%
Industrial Services & Manufacturing
- ---------------------------------------------------------------------------------------------------------------------------
Caterpillar, Inc......................................... 7,200 423,000
Minnesota, Mining & Manufacturing Company............... 5,000 331,250
- ---------------------------------------------------------------------------------------------------------------------------
754,250 1.6%
Insurance
- ---------------------------------------------------------------------------------------------------------------------------
American International Group............................. 9,350 864,875
Chubb Corporation........................................ 10,000 967,500
General Re Corporation................................... 11,100 1,720,500
St. Paul Companies, Inc.................................. 24,000 1,335,000
- ---------------------------------------------------------------------------------------------------------------------------
4,887,875 10.2%
- ---------------------------------------------------------------------------------------------------------------------------
Page 5
- ---------------------------------------------------------------------------------------------------------------------------
Northeast Investors Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
Common Stocks--continued
Percent of
Number of Market Net
Name of Issuer Shares Value Assets
- ---------------------------------------------------------------------------------------------------------------------------
Office Equipment
- ---------------------------------------------------------------------------------------------------------------------------
Xerox Corporation........................................ 6,800 $ 931,600 1.9%
Paper & Forest Products
- ---------------------------------------------------------------------------------------------------------------------------
James River Corporation, VA ............................. 17,500 422,187
Maxxam, Inc.^........................................... 10,000 352,500
- ---------------------------------------------------------------------------------------------------------------------------
774,687 1.6%
Petroleum, Coal & Gas
- ---------------------------------------------------------------------------------------------------------------------------
Chevron Corporation...................................... 24,000 1,260,000
Royal Dutch Petroleum Company........................... 10,000 1,411,250
- ---------------------------------------------------------------------------------------------------------------------------
2,671,250 5.5%
Pharmaceuticals
- ---------------------------------------------------------------------------------------------------------------------------
Abbott Laboratories...................................... 12,000 501,000
Astra AB Spons ADR A.................................... 8,750 348,906
- ---------------------------------------------------------------------------------------------------------------------------
849,906 1.8%
Precision Instruments
- ---------------------------------------------------------------------------------------------------------------------------
Eastman Kodak Company................................... 16,100 1,078,700 2.2%
Publishing & Printing
- ---------------------------------------------------------------------------------------------------------------------------
McGraw-Hill, Inc......................................... 4,000 348,500 .7%
Retail
- ---------------------------------------------------------------------------------------------------------------------------
Home Depot, Inc.......................................... 9,100 435,662 .9%
Telecommunications
- ---------------------------------------------------------------------------------------------------------------------------
AT&T Corporation......................................... 3,700 239,575
GTE Corporation.......................................... 10,000 440,000
SBC Communications, Inc................................. 10,000 575,000
- ---------------------------------------------------------------------------------------------------------------------------
1,254,575 2.6%
Toiletries & Cosmetics
- ---------------------------------------------------------------------------------------------------------------------------
Gillette Company 44,000 2,293,500 4.7%
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost--$29,776,849) 47,195,506 97.6%
- ---------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement Face
- ---------------------------------------------------------------------------------------------------------------------------
Prudential-Bache Securities, Inc., Repurchase Agreement,
5.39% due January 2, 1996 .................................... $1,455,926 1,455,926 3.0%
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Repurchase Agreement (Cost--$1,455,926)* 1,455,926
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$31,232,775) $ 48,651,432 100.6%
------------------- ----------------
------------------- ----------------
<FN>
*Acquired on December 29, 1995. Collateralized by $1,485,046 of various
U.S. government mortgage-backed securities, due through 9/01/2022. The maturity
value is $1,456,144. As an operating policy, the Fund, through the custodian
bank, secures receipt of adequate collateral supporting repurchase agreements
- --(see Note F)
^Non-income producing.
ADR stands for American Depository Receipt representing ownership of foreign
securities.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------
Assets
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments--at market value
(cost $31,232,775)-- Notes B, D &F.... $48,651,432
Dividends and interest receivable........ 84,130
Receivable for shares of beneficial
interest sold.......................... 302,499
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets............ 49,038,061
Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased........ 610,217
Payable for shares of beneficial interest
repurchased........................... 24,114
Accrued expenses......................... 42,197
Accrued investment advisory fee--
Note C................................... 24,236
- ---------------------------------------------------------------------------------------------------------------------------
..............Total Liabilities....... 700,764
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets.............................. $48,337,297
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets consist of (Note B):
Capital Paid-in.......................... 30,907,315
Undistributed
net investment income................. 1,766
Accumulated
net realized gains on investments..... 9,559
Net unrealized appreciation of ..........
investments 17,418,657
-----------
Net Assets, for 1,521,302 shares
outstanding........................... $48,337,297
===========
Net Asset Value, offering price
and redemption price per share
($48,337,297/1,521,302 shares) $31.78
======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------
Investment Income
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dividends................................ $842,592
Interest................................. 23,669
- ---------------------------------------------------------------------------------------------------------------------------
Total Income........ 866,261
Expenses
- ---------------------------------------------------------------------------------------------------------------------------
Investment advisory fee--
Note C.................. $290,132
Administrative expenses
and salaries.............. 92,056
Printing, postage
and stationery........... 33,200
Auditing fees................. 32,667
Registration and
filing fees............. 29,774
Legal fees................... 24,492
Custodian fees............... 22,019
Computer and
related expenses........ 19,958
Trustees fees--Note C........ 6,000
Insurance ................... 5,884
Interest-Note G ............. 301
Other expenses................ 6,679
- ---------------------------------------------------------------------------------------------------------------------------
Total Expenses............. 563,162
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income... 303,099
- ---------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain
on Investments-Note B:
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment
transactions......................... 2,025,092
Change in unrealized appreciation
of investments....................... 10,108,493
- ---------------------------------------------------------------------------------------------------------------------------
Net Gain on Investments.................. 12,133,585
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations....................... $12,436,684
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
.
- --------------------------------------------------------------------------------
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
From Operations:
Net investment income..................................................... $ 303,099 $ 263,567
Net realized gain from investment transactions............................ 2,025,092 596,042
Change in unrealized appreciation of investments.......................... 10,108,493 (909,015)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from
Operations............................................... 12,436,684 (49,406)
Distributions to Shareholders:
From net investment income............................................... (301,333) (263,567)
In excess of net investment income....................................... -- (3,031)
From net realized gains on investments.................................. (1,894,093) (583,622)
In excess of net realized gains on investments .......................... -- (118,411)
--------- ----------
Total Distributions...................................................... (2,195,426) (968,631)
From Net Fund Share Transactions--Note E..................................... 2,636,657 (2,216,958)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets............................ 12,877,915 (3,234,995)
Net Assets:
Beginning of Period...................................................... 35,459,382 38,694,377
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
End of Period (including undistributed net investment income
(distributions in excess of net investment income) of $1,766
and ($3,031), respectively)............................................. $ 48,337,297 $ 35,459,382
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
See Notes To Financial Statements.
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
Note A--Organization
Northeast Investors Growth Fund (the "Fund") is a diversified, no-load,
open-end, series-type management investment company registered under the
Investment Company Act of 1940, as amended. The Fund presently consists of one
portfolio and is organized as a Massachusetts business trust.
Note B--Significant Accounting Policies
Significant accounting policies of the Fund are as follows:
Valuation of Investments: Investments in securities traded on national
securities exchanges are valued based upon closing prices on the exchanges.
Securities traded in the over-the-counter market and listed securities with no
sales on the date of valuation are valued at closing bid prices. Repurchase
agreements are valued at cost with earned interest included in interest
receivable. Other short-term investments, when held by the Fund, are valued at
cost plus earned discount or interest which approximates market value.
Security Transactions: Investment security transactions are recorded on the
date of purchase or sale. Net realized gain or loss on sales of investments is
determined on the basis of identified cost.
Federal Income Taxes: No provision for federal income taxes is necessary
since the Fund has elected to qualify under subchapter M of the Internal Revenue
Code and its policy is to distribute all of its taxable income, including net
realized capital gains, within the prescribed time periods.
State Income Taxes: Because the Fund has been organized by an Agreement and
Declaration of Trust executed under the laws of the Commonwealth of
Massachusetts, it is not subject to state or excise taxes.
Distributions and Income: Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments for capital loss carryovers and losses deferred due to wash
sales. Permanent book and tax differences relating to shareholder distributions
will result in reclassifications to paid-in-capital. The Fund's distributions
and dividend income are recorded on the ex-dividend date. Interest income, which
consists of interest from repurchase agreements, is accrued as earned.
Net Asset Value: In determining the net asset value per share, rounding
adjustments are made for fractions of a cent to the next higher cent.
Note C--Investment Advisory and Service Contract
The Fund has its investment advisory and service contract with Northeast
Management & Research Company, Inc. (the "Advisor"). Under the contract, the
Fund pays the Advisor an annual fee at a maximum rate of 1% of the first
$10,000,000 of the Fund's average daily net assets, 3/4 of 1% of the next
$20,000,000 and 1/2 of 1% of the average daily net assets in excess of
$30,000,000, in monthly installments on the basis of the average daily net
assets during the month preceding payment. In the event that the normal
operating expenses of the Fund, exclusive of taxes, interest and brokerage
commissions or fees, but including the investment advisory fee, shall exceed
2.5% of the first $30,000,000 of the Fund's average daily net asset value, 2% of
the next $70,000,000 of the Fund's average daily net asset value and 1.5% of the
Fund's average daily net asset value in excess of $100,000,000 for any fiscal
year related thereto, the Advisor will waive a portion of its fee to the extent
of such excess.
All trustees except Messrs. John R. Furman and John C. Emery are officers
or directors of the Advisor. The compensation of all disinterested trustees of
the Fund is borne by the Fund.
- --------------------------------------------------------------------------------
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
Note D--Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments, other than
short-term securities, aggregated $10,991,770 and $10,786,279 respectively, for
the year ended December 31, 1995.
Note E--Shares of Beneficial Interest
At December 31, 1995, there was an unlimited number of shares of beneficial
interest authorized with no par value. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994
---------------------------- ----------------------------
Shares Amount Shares Amount
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold............................................. 221,312 $6,723,415 152,440 $3,755,882
Shares issued to shareholders in reinvestment of
distributions from net investment income and
realized gains from security transactions............ 63,002 2,021,120 36,815 881,353
------------ ------------- ------------ -------------
284,314 8,744,535 189,255 4,637,235
Shares repurchased...................................... (216,757) (6,107,878) (276,170) (6,854,193)
------------ ------------- ------------ -------------
Net Increase (Decrease) ............................. 67,557 $2,636,657 (86,915) ($2,216,958)
============ ============= ============ =============
</TABLE>
Note F--Repurchase Agreement
On a daily basis, the Fund invests uninvested cash balances into repurchase
agreements secured by U.S. Government obligations. Securities pledged as
collateral for repurchase agreements are held by the Fund's custodian bank until
maturity of the repurchase agreement. Provisions of the agreement ensure that
the market value of the collateral is sufficient in the event of default.
However, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral may be subject to
legal proceedings.
Note G--Short-term Borrowings
Short-term bank borrowings, which do not require maintenance of
compensating balances, are generally on a demand basis and are at rates equal to
adjusted money market interest rates in effect during the period in which such
loans are outstanding. At December 31, 1995, the Fund had unused lines of credit
amounting to $5,000,000.
The following information relates to aggregate short-term borrowings during
the year ended December 31, 1995: Average amount outstanding (total of daily
outstanding principal balances divided by
number of days during the year.)................................... $3,365
Weighted average interest rate (actual interest expense on short-term borrowing
divided by average short-term borrowings outstanding) 8.9%
Note H-Other Tax Information
For federal income tax purposes, the cost of investments owned at December
31, 1995 was $31,232,775. At December 31, 1995, gross unrealized appreciation of
investments was $17,497,804 and gross unrealized depreciation was $79,147,
resulting in net unrealized appreciation of $17,418,657.
To the Shareholders and Trustees of
Northeast Investors Growth Fund:
We have audited the accompanying statement of assets and liabilities of
Northeast Investors Growth Fund, including the schedule of investments, as of
December 31, 1995, and the related statement of operations for the year then
ended, the changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the three years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the years ended December 31, 1986 through
1992, presented herein, were audited by other auditors whose report dated
January 15, 1993, expressed an unqualified opinion on such financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Northeast Investors Growth Fund at December 31, 1995, and the results of its
operations for the year then ended and the changes in its net assets for each of
the two years of the period then ended and the financial highlights for each of
the three years in the period then ended, in conformity with generally accepted
accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
January 25, 1996
