Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
Dear Fellow Shareholders:
Across many fronts, 1997 was indeed a banner year for Northeast Investors
Growth Fund. On a total return basis, the fund delivered +37.3%, exceeding that
recorded by the Dow Jones Industrial Average of +24.9% and that recorded for
the more broadly based S&P 500 Index -- +33.4%. 1997 was the third year in a
row the fund posted double digit returns, 1995 being +36.5%, 1996 +24.6%, and
1997 +37.3%. In two of these years, 1996 and 1997, the fund outperformed the
S&P 500.
In addition to a strong year on the performance front, the fund's net
assets grew by 80% to $108,590,000, and in so doing, crossed the $100 million
mark in net assets for the first time. Asset growth came not only from the
appreciation of securities held, but also from the sale of new shares which
resulted in a substantial flow of new money into the fund.
Attention to the fund's expenses and the larger fund size helped move our
expense ratio below the 1% mark, and the new in-flow of money resulted in
increased activity on the buying side which enabled us to lower the costs of
this activity. Further, as you know, shares of the fund were split 3/1 in
September, a move which seemed to please many of our shareholders. The fund
also paid a modest dividend in June followed by the traditional December
payouts. The Trustees anticipate reviving the June distribution as many of you
seemed pleased to hear from us and have a tangible return on your investment on
an increasing frequency.
During 1997, we held fast to an underlying philosophy of being basically
fully invested at all times. We do not make any attempt to time the markets. A
reflection of this approach is a lower portfolio turnover rate --16.4%, the
lowest turnover rate since 1988. I mention the turnover rate because more and
more investors point with anguish to the capital gains they get "hit" with at
the end of each year, even though these gains represent portfolio progress. We
will in the future, as in the past, take gains when appropriate, but will
endeavor not to realize gains resulting from any attempt to "time" a market
decline.
Ours, then, remains a long-term approach to investing where we will
maintain investments with market leaders --dominant players in growing fields
of endeavor. Our top ten holdings, page 2, demonstrate this philosophy. As the
fund has attracted new shareholders and grown in size, we have been able to
look at a few more companies and gradually expand the number of investments.
This should give the fund further stability in the coming months.
As in the past, I encourage shareholders to contact me with any questions
regarding the fund at any time. Again, we are delighted with the results of the
past three years and with the momentum, direction and commitment we have as we
enter this New Year.
Ever sincerely,
William A. Oates, Jr.
President
February 2, 1998
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
Portfolio Transactions (unaudited) Portfolio Transactions (unaudited)
January 1, 1997-December 31, 1997
- --------------------------------------------------------------------------------
Additions to Existing Holdings
<CAPTION>
Additions Now Own
----------- --------
<S> <C> <C>
*American International Group, Inc. 4,675 14,025
*Astra AB Spons ADR A 20,916 33,466
*Caterpillar, Inc. 15,800 23,000
*Cisco Systems, Inc. 9,400 28,200
*Eaton Vance Corporation 49,700 61,700
*Eli Lilly & Company 22,100 28,400
*Fifth Third Bancorp 8,250 24,750
*First American Corporation 13,200 26,400
*First Security Corporation 23,150 53,250
Fleet Financial Group, Inc. 3,400 22,400
*General Electric Company 17,500 39,000
Hewlett-Packard Company 5,000 19,900
*IBM Corporation 1,200 11,800
*Intel Corporation 21,400 37,400
Ionics, Inc. 1,900 11,700
Lucent Technologies, Inc. 11,900 19,700
*Mellon Bank Corporation 21,800 29,400
Merck & Company, Inc. 4,000 13,600
Microsoft Corporation 1,900 23,400
Minnesota Mining &
Manufacturing Company 1,000 6,000
Monsanto Company 10,100 15,100
*Morgan Stanley, Dean Witter,
Discover & Co. 4,810 12,210
National Bancorp of Alaska, Inc. 4,250 7,250
*Pfizer, Inc. 22,050 37,150
*Procter & Gamble Company 12,500 29,000
*Royal Dutch Petroleum Company 30,000 40,000
*Schlumberger Ltd. 5,900 11,800
Warner Lambert Company 825 15,625
*Zions Bancorporation 30,000 40,000
<FN>
* Includes additional shares resulting from stock split
</FN>
</TABLE>
<TABLE>
<CAPTION>
New Holdings
Now Own
--------
<S> <C>
AT&T Corporation 23,100
America Online, Inc. 10,600
American Express Company 9,100
Baker Hughes, Inc. 10,900
Bell & Howell Company 17,500
Boston Scientific Corporation 16,900
Cabot Corporation 18,000
Chase Manhattan Corporation 6,500
Compaq Computer Corporation 8,000
Crescent Real Estate Equities Company 15,750
Diebold, Inc. 12,950
Dow Jones & Company, Inc. 16,900
First Palm Beach Bancorp 27,400
General Motors Corporation 3,700
Glaxo Wellcome PLC-Spons ADR 11,900
Medtronic, Inc. 23,800
Mobil Corporation 7,000
New York Times Company-Class A 17,500
January 1, 1997-December 31, 1997
(continued) Now Own
- ------------------------------------- --------
Paine Webber Group, Inc. 34,500
Pioneer Hi-Bred International, Inc. 10,000
Quaker Oats Company 16,050
Riggs National Corporation 41,000
St. Paul Companies, Inc. 7,800
Saville Systems Ireland Spons ADR 14,600
Sealed Air Corporation 10,900
State Street Corporation 28,500
Time Warner, Inc. 31,500
Triarc Companies 40,500
V F Corporation 15,200
Washington Mutual, Inc. 17,600
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eliminations/Reductions of Holdings
Sold Now Own
-------- --------
<S> <C> <C>
Abbott Laboratories 1,800 10,200
BankBoston Corporation 21,600 60,000
Cascade Communications
Corporation 12,200 0
Coca-Cola Company 5,600 14,000
Corning, Inc. 11,500 0
Eastman Kodak Company 12,500 7,500
Gillette Company 2,400 26,100
Home Depot, Inc. 2,875 11,625
Johnson & Johnson 15,200 17,000
McDonald's Corporation 12,000 0
Motorola, Inc. 8,000 8,000
Nike, Inc.-Class B 22,400 0
Parametric Technology Corporation 4,800 18,100
Sun MicroSystems, Inc. 28,400 0
Thermo Electron Corporation 1,500 12,000
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Largest Investment
Holdings (unaudited)
December 31, 1997
- --------------------------------------------------------------------------------
Ten Largest Investment Holdings
Market
Cost Value
------------- -------------
<S> <C> <C>
BankBoston Corporation $1,088,075 $5,636,250
Walt Disney Company 867,591 3,566,250
Microsoft Corporation 1,462,228 3,024,450
General Electric Company 887,447 2,861,625
Pfizer, Inc. 1,673,164 2,769,997
Intel Corporation 858,433 2,627,350
Gillette Company 600,863 2,621,419
General Re Corporation 734,337 2,353,200
Eaton Vance Corporation 1,412,711 2,329,175
Procter & Gamble Company 737,150 2,314,563
</TABLE>
- --------------------------------------------------------------------------------
Page 2
Northeast Investors Growth Fund
- ----------------------------------------------------------------------------
<TABLE>
Tax Information (unaudited)
For Federal Income Tax purposes, the following information is furnished
with respect to the capital gains distributions of the fund during its
calendar year ended December 31, 1997.
<S> <C>
June 11, 1997
Taxed at ordinary income rate.............................. 0%
Taxed at a maximum of 28%.................................. 100%
Taxed at a maximum of 20%.................................. 0%
December 17, 1997
Taxed at ordinary income rate.............................. 5%
Taxed at a maximum of 28%.................................. 35%
Taxed at a maximum of 20%.................................. 60%
<FN>
Under the Internal Revenue Code, 100% of the ordinary income distributions
paid to shareholders may be taken into account as a dividend for purposes
of the deduction for dividends received by corporations (section 243, as
amended).
</FN>
</TABLE>
- --------------------------------------------
Average Annual Total Return
(unaudited)
<TABLE>
<S> <C>
One year ended December 31, 1997................................ 37.28%
Five years ended December 31, 1997.............................. 19.03%
Ten years ended December 31, 1997............................... 17.32%
</TABLE>
- --------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value Per Share
(unaudited)
All prices adjusted for 3 for 1 share split on September 25, 1997.
<C> <C> <C> <C>
January- April- July- October-
March June September December
---------- ----------- ----------- -----------
<S>
1997 High $ 13.65 $ 14.87 $ 16.19 $ 16.69
Low $ 12.06 $ 12.14 $ 14.80 $ 14.89
---------------------------------------------------------------------------
January- April- July- October-
March June September December
---------- ----------- ----------- -----------
1996 High $ 11.37 $ 11.81 $ 12.34 $ 13.55
Low $ 10.19 $ 10.85 $ 10.89 $ 12.00
</TABLE>
- ----------------------------------------------------------------------------
Page 3
Northeast Investors Growth Fund
- ----------------------------------------------------------------------------
Performance Graph--Ten Years (1987-1997)
The following graph compares the cumulative total shareholder return on
the Northeast Investors Growth Fund shares over the ten preceding fiscal
years to the cumulative total share return on the Standard & Poor's 500
Index, assuming an investment of $10,000 in both at their closing prices
on December 31, 1987 and reinvestment of dividends and capital gains. For
management's discussion of the Growth Fund's fiscal year 1997 performance,
including strategies and market conditions which influenced such
performance, see the President's letter to shareholders.
(EDGAR REFERENCE - - GRAPH)
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991
<S> <C> <C> <C> <C> <C> <C>
Northeast Investors Growth Fund $10,000 $11,291 $14,987 $15,214 $20,830
Standard & Poor's 500 Index $10,000 $11,653 $15,347 $14,865 $19,384
1992 1993 1994 1995 1996 1997
Northeast Investors Growth Fund $20,678 $21,182 $21,168 $28,885 $35,991 $49,409
Standard & Poor's 500 Index $20,857 $22,947 $23,246 $31,990 $39,335 $52,458
</TABLE>
- ----------------------------------------------------------------------------
Page 4
Northeast Investors Growth Fund
- ----------------------------------------------------------------------------
Schedule of Investments--
December 31, 1997
<TABLE>
Common Stocks--
<CAPTION>
Market Percent of
Number of Value Net
Name of Issuer Shares (Note B) Assets
- --------------------------------------------------- ----------- ------------- -----------
------- ------- -------
Apparel
<S>
- --------------------------------------------------- <C> <C> <C>
V F Corporation ................... .......... 15,200 $ 699,200 0.6%
Automobile & Truck
- ----------------------------------------------------
General Motors Corporation ........ .......... 3,700 224,312 0.2%
Banks
- ----------------------------------------------------
BankBoston Corporation ............ .......... 60,000 5,636,250
Chase Manhattan Corporation ....... .......... 6,500 711,750
Fifth Third Bancorp ............... .......... 24,750 2,023,312
First American Corporation ........ .......... 26,400 1,313,400
First Palm Beach Bancorp .......... .......... 27,400 1,181,625
First Security Corporation ........ .......... 53,250 2,229,844
Fleet Financial Group, Inc. ....... .......... 22,400 1,678,600
Mellon Bank Corporation ........... .......... 29,400 1,782,375
National Bancorp of Alaska, Inc. .. .......... 7,250 917,125
Riggs National Corporation ........ .......... 41,000 1,101,875
Washington Mutual, Inc. ........... .......... 17,600 1,123,100
Zions Bancorporation .............. .......... 40,000 1,815,000
-----------
21,514,256 19.9%
Chemical
- ----------------------------------------------------
Cabot Corporation ................. .......... 18,000 497,250
Monsanto Company .................. .......... 15,100 634,200
-----------
1,131,450 1.0%
Computer & Data Processing
- ----------------------------------------------------
Bell & Howell Company- ............ .......... 17,500 423,281
Compaq Computer Corporation ....... .......... 8,000 451,500
Hewlett-Packard Company ........... .......... 19,900 1,243,750
IBM Corporation ................... .......... 11,800 1,233,837
-----------
3,352,368 3.1%
Computer Software & Services
- ----------------------------------------------------
America Online, Inc.- ............. .......... 10,600 945,387
Microsoft Corporation- ............ .......... 23,400 3,024,450
Parametric Technology Corporation- .......... 18,100 857,487
Saville Systems Ireland, Spons ADR- ......... 14,600 605,900
-----------
5,433,224 5.0%
- ----------------------------------------------------------------------------
Page 5
Northeast Investors Growth Fund
- ----------------------------------------------------------------------------
Common Stocks--continued
Market Percent of
Number of Value Net
Name of Issuer Shares (Note B) Assets
- ----------------------------------------------------------- ----------- ------------ -----------
------- ------- -------
Conglomerate
- -----------------------------------------------------------
Thermo Electron Corporation- .............. .......... 12,000 $ 534,000
Triarc Companies- ......................... .......... 40,500 1,103,625
----------
1,637,625 1.5%
Electrical Equipment
- ------------------------------------------------------------
General Electric Company .................. .......... 39,000 2,861,625 2.6%
Electronics
- ------------------------------------------------------------
Cisco Systems, Inc.- ...................... .......... 28,200 1,572,150
Intel Corporation ......................... .......... 37,400 2,627,350
Lucent Technologies, Inc. ................. .......... 19,700 1,573,537
Motorola, Inc. ............................ .......... 8,000 456,500
----------
6,229,537 5.7%
Entertainment
- ------------------------------------------------------------
Carnival Corporation ...................... .......... 14,900 825,087
Mirage Resorts, Inc.- ..................... .......... 16,500 375,375
Time Warner, Inc. ......................... .......... 31,500 1,953,000
Walt Disney Company ....................... .......... 36,000 3,566,250
----------
6,719,712 6.2%
Environmental Industry
- ------------------------------------------------------------
Ionics, Inc. .............................. .......... 11,700 457,763 0.4%
Financial Services
- ------------------------------------------------------------
American Express Company .................. .......... 9,100 812,175
Beneficial Corporation .................... .......... 13,400 1,113,875
Eaton Vance Corporation ................... .......... 61,700 2,329,175
First Data Corporation .................... .......... 18,700 546,975
H & R Block, Inc. ......................... .......... 10,200 457,087
Morgan Stanley, Dean Witter, Discover & Co. ......... 12,210 721,916
Paine Webber Group, Inc. .................. .......... 34,500 1,192,406
State Street Corporation .................. .......... 28,500 1,658,344
----------
8,831,953 8.2%
Food & Beverage
- ------------------------------------------------------------
Coca-Cola Company ......................... .......... 14,000 932,750
Pepsico, Inc. ............................. .......... 30,000 1,093,125
Quaker Oats Company ....................... .......... 16,050 846,637
----------
2,872,512 2.7%
Health Care Supplies
- ------------------------------------------------------------
American Home Products Corporation ........ .......... 11,800 902,700
Johnson & Johnson ......................... .......... 17,000 1,119,875
Warner Lambert Company .................... .......... 15,625 1,937,500
----------
3,960,075 3.7%
- ----------------------------------------------------------------------------
Page 6
Northeast Investors Growth Fund
- ----------------------------------------------------------------------------
Common Stocks--continued
Market Percent of
Number of Value Net
Name of Issuer Shares (Note B) Assets
- -------------------------------------------------------- ----------- ------------- -----------
------- ------- -------
Household Products
- --------------------------------------------------------
Procter & Gamble Company ............... .......... 29,000 $2,314,562 2.1%
Industrial Services & Manufacturing
- -----------------------------------------------------------------------------------------------
Caterpillar, Inc. ...................... .......... 23,000 1,116,938
Minnesota Mining & Manufacturing Company ......... 6,000 492,375
Pioneer Hi-Bred International, Inc. .... .......... 10,000 1,072,500
----------
2,681,813 2.5%
Insurance
- ---------------------------------------------------------
American International Group, Inc. ..... .......... 14,025 1,525,219
Chubb Corporation ...................... .......... 15,000 1,134,375
General Re Corporation ................. .......... 11,100 2,353,200
St. Paul Companies, Inc. ............... .......... 7,800 640,088
----------
5,652,882 5.2%
Medical Supplies
- ---------------------------------------------------------
Boston Scientific Corporation- ......... .......... 16,900 775,288
Medtronic, Inc. ........................ .......... 23,800 1,245,038
----------
2,020,326 1.9%
Office Equipment
- ---------------------------------------------------------
Xerox Corporation ...................... .......... 20,400 1,505,775 1.4%
Oil & Gas Exploration
- ---------------------------------------------------------
Baker Hughes, Inc. ..................... .......... 10,900 475,513
Schlumberger Ltd. ...................... .......... 11,800 949,900
----------
1,425,413 1.3%
Paper & Forest Products
- ---------------------------------------------------------
Fort James Corporation ................. .......... 14,700 562,275 0.5%
Petroleum, Coal & Gas
- ---------------------------------------------------------
Chevron Corporation .................... .......... 24,000 1,848,000
Mobil Corporation ...................... .......... 7,000 505,313
Royal Dutch Petroleum Company .......... .......... 40,000 2,167,500
----------
4,520,813 4.2%
Pharmaceuticals
- ---------------------------------------------------------
Abbott Laboratories .................... .......... 10,200 668,738
Astra AB Spons ADR A ................... .......... 33,466 575,197
Eli Lilly & Company .................... .......... 28,400 1,977,350
Glaxo Wellcome PLC-Spons ADR ........... .......... 11,900 569,712
Isis Pharmaceuticals, Inc.- ............ .......... 20,000 246,250
Merck & Company, Inc. .................. .......... 13,600 1,445,000
Pfizer, Inc. ........................... .......... 37,150 2,769,997
----------
8,252,244 7.6%
- ----------------------------------------------------------------------------
Page 7
Northeast Investors Growth Fund
- ----------------------------------------------------------------------------
Common Stocks--continued
Market Percent of
Number of Value Net
Name of Issuer Shares (Note B) Assets
- -------------------------------------------------------------------------- -------------- --------------- -----------
------- ------- -------
Precision Instruments
- --------------------------------------------------------------------------
Eastman Kodak Company ....................... ....................... 7,500 $ 456,094 0.4%
Product & Manufacturing
- ------------------------------------------------------------------------------------------------------------------------
Diebold, Inc. ............................... ....................... 12,950 655,594
Sealed Air Corporation- ..................... ....................... 10,900 673,075
------------
1,328,669 1.2%
Publishing & Printing
- ---------------------------------------------------------------------------
Dow Jones & Company, Inc. ................... ....................... 16,900 907,319
New York Times Company-Class A .............. ....................... 17,500 1,157,188
------------
2,064,507 1.9%
Real Estate
- ---------------------------------------------------------------------------
Crescent Real Estate Equities Company ....... ....................... 15,750 620,156 0.6%
Retail
- ---------------------------------------------------------------------------
Home Depot, Inc. ............................ ....................... 11,625 684,422 0.6%
Telecommunications
- ---------------------------------------------------------------------------
AT&T Corporation ............................ ....................... 23,100 1,414,875 1.3%
Toiletries & Cosmetics
- ------------------------------------------------------------------------------------------------------------------------
Gillette Company ............................ ....................... 26,100 2,621,419 2.4%
------------ ----
Total Common Stocks (Cost--$59,110,166) ..... ....................... $104,051,857 95.9%
- ------------------------------------------------- ------------------------ ------------ ----
Repurchase Agreement Face
- -------------------------------------------------------------------------- ------
Investors Bank & Trust Company Repurchase ............................
Agreement, 5.90% due January 2, 1998 ................................. $4,487,085 4,487,085 4.1%
------------ ----
Total Repurchase Agreement (Cost--$4,487,085) * 4,487,085
------------
Total Investments (Cost--$63,597,251) ....... ....................... $108,538,942 100%
============ ====
<FN>
* Acquired on December 31, 1997. Collateralized by $4,714,594 of various
U.S. government mortgage-backed securities, due through 10/15/2023. The
maturity value is $4,488,556. 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. Page 8
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Assets Statement of Operations
and Liabilities
December 31, 1997
- --------------------------------------
<S>
Assets
- ------------------------------------------- <C>
Investments--at market value (cost
$63,597,251)--Notes B, D & F............ $108,538,942
Dividends and interest receivable ......... 118,457
Receivable for shares of beneficial
interest sold .......................... 86,461
Receivable for securities sold ............ 11,385
------------
Total Assets .............................. 108,755,245
Liabilities
- ---------------------------------
Payable for shares of beneficial
interest repurchased ......... 79,782
Accrued expenses ................ 43,220
Accrued investment advisory
fee--Note C .................. 42,590
------
Total Liabilities ............... 165,592
-------
Net Assets ...................... $108,589,653
============
Net Assets Consist of--Note B:
Capital paid-in ................. 63,969,238
Undistributed net investment
income ....................... 0
Distributions in excess of net
realized gains ............... (321,276)
Net unrealized appreciation of
investments .................. 44,941,691
------------
Net Assets, for 6,857,564 shares
outstanding .................. $108,589,653
============
Net Asset Value, offering price
and redemption price per share
($108,589,653 / 6,857,564
shares) ...................... $ 15.84
============
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
- --------------------------------------
Investment Income
- ----------------------
<S> <C>
Dividends ............ $1,138,650
Interest ............. 46,539
----------
Total Income ......... 1,185,189
Expenses
- ----------------------------------------------------
Investment advisory fee--
Note C ..................... $462,146
Administrative expenses
and salaries ............... 120,388
Printing, postage and
stationery ................. 50,383
Computer and related
expenses ................... 42,311
Auditing fees ................. 35,000
Registration and filing
fees ....................... 31,236
Custodian fees ................ 25,361
Interest--Note G .............. 21,306
Legal fees .................... 19,511
Trustees fees--Note C ......... 8,000
Insurance ..................... 6,172
Other expenses ................ 10,315
--------
Total Expenses .......................... 832,129
-------
Net Investment Income 353,060
-------
Realized and Unrealized Gain
on Investments--Note B:
- --------------------------------------
Net realized gain from investment
transactions ...................... 4,479,634
Change in unrealized appreciation
of investments .................... 20,578,841
----------
Net Gain on Investments .............. 25,058,475
----------
Net Increase in Net Assets
Resulting from Operations ......... $25,411,535
===========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. Page
9
Northeast Investors Growth Fund
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Changes
in Net Assets
Years Ended December 31, <C> <C>
1997 1996
<S>
Increase in Net Assets
From Operations:
Net investment income .................................... $ 353,060 $ 246,034
Net realized gain from investment transactions ........... 4,479,634 4,575,461
Change in unrealized appreciation of investments ......... 20,578,841 6,944,193
------------ ------------
Net Increase in Net Assets Resulting from
Operations ............................................ 25,411,535 11,765,688
Distributions to Shareholders:
From net investment income ............................... (354,587) (243,418)
From net realized gains on investments ................... (4,924,443) (4,488,023)
------------ ------------
Total Distributions .................................... (5,279,030) (4,731,441)
From Net Fund Share Transactions--Note E .................. 28,182,395 4,903,209
------------ ------------
Total Increase in Net Assets ........................... 48,314,900 11,937,456
Net Assets:
Beginning of Period ...................................... 60,274,753 48,337,297
------------ ------------
End of Period (including undistributed net investment
income of $0 and $13,941 respectively) .................. $108,589,653 $ 60,274,753
============ ============
</TABLE>
- ----------------------------------------------------------------------------
The accompanying notes are an integral part of the financial
statements.
Page 10
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
Notes to the Financial Statements
for the period ended December 31, 1997
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 income 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 post-October loss deferrals. 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.
Use of Estimates: 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 those estimates.
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. 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.
- --------------------------------------------------------------------------------
Page 11
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
Notes to the Financial Statements --
continued
Note D--Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments, other than
short-term securities, aggregated $32,599,892 and $13,396,478 respectively, for
the year ended December 31, 1997.
Note E--Shares of Beneficial Interest
At December 31, 1997, 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,
1997 1996
---------------------------------- -------------------------------
Shares Amount Shares Amount
--------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares sold ........................................ 2,382,373 $ 67,324,344 241,920 $ 8,609,169
Shares resulting from 3 for 1 stock split .......... 3,977,737
Shares issued to shareholders in reinvestment of
distributions from net investment income and
realized gains from security transactions ......... 310,254 4,955,941 121,732 4,382,349
--------- ------------- ------- ------------
6,670,364 72,280,285 363,652 12,991,518
Shares repurchased ................................. (1,466,724) (44,097,890) (231,030) (8,088,309)
---------- ------------- -------- ------------
Net Increase ...................................... 5,203,640 $ 28,182,395 132,622 $ 4,903,209
========== ============= ======== ============
</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 the prime rate in effect during the period in which such loans
are outstanding. At December 31, 1997, 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, 1997:
Average short-term borrowings outstanding (total of daily
outstanding principal balances divided by number of days
during the year) .............................. $ 270,213
Weighted average interest rate (actual interest expense
on short-term borrowings divided by average short-term
borrowings outstanding) ..................... 7.88%
Note H--Other Tax Information
For federal income tax purposes, the cost of investments owned at December
31, 1997, was $63,595,713. At December 31, 1997, gross unrealized appreciation
of investments was $45,911,674 and gross unrealized depreciation was $968,445,
resulting in net unrealized appreciation of $44,943,229.
- --------------------------------------------------------------------------------
Page 12
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
Years Ended December 31
1997 1996 1995 1994
Per Share Data# ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net asset value:
Beginning of period ....... $ 12.15 $ 10.59 $ 8.13 $ 8.37
Income From Investment
Operations:
Net investment income ...... .06 .05 .07 .06
Net realized and
unrealized gain (loss) on
investments ............... 4.46 2.54 2.90 ( .07)
-------- -------- ------- ------
Total from investment
operations ................ 4.52 2.59 2.97 ( .01)
Less Distributions:
Net investment income...... ( .06) ( .05) ( .07) ( .06)
Capital gains ............. ( .77) ( .98) ( .44) ( .17)
--------- --------- ------- ------
Total Distributions ........ ( .83) ( 1.03) ( .51) ( .23)
--------- --------- ------- ------
Net asset value:
End of period ............. $ 15.84 $ 12.15 $ 10.59 $ 8.13
========= ========= ======= ======
Total Return ............... 37.28 % 24.60 % 36.46% ( .07%)
Ratios & Supplemental Data
Net assets end of period
(000's omitted) ........... $ 108,590 $ 60,275 $48,337 $35,459
Ratio of operating
expenses to average net
assets .................... .97 % 1.21 % 1.37% 1.53%
Ratio of net investment
income to average net
assets .................... .45 % .47 % .74% .74%
Portfolio turnover rate .... 16.36 % 25.27 % 26.53% 25.55%
Average broker
commission% ............... $ 0.0567 $ 0.0700
Years Ended December 31
1993 1992- 1991- 1990- 1989- 1988-
Per Share Data# ----------- ----------- ----------- ----------- ----------- ------------
<C> <C>
Net asset value:
Beginning of period ....... $ 9.70 $ 10.37 $ 7.81 $ 7.89 $ 6.09 $ 5.61
Income From Investment
Operations:
Net investment income ...... .07 .07 .09 .09 .08 .09
Net realized and
unrealized gain (loss) on
investments ............... .16 ( .15) 2.77 .03 1.91 .64
------ ------- ------- ------ ------ -------
Total from investment
operations ................ .23 ( .08) 2.86 .12 1.99 .73
Less Distributions:
Net investment income...... ( .07) ( .07) ( .12) ( .09) ( .09) ( .09)
Capital gains ............. (1.49) ( .52) ( .18) ( .11) ( .10) ( .16)
------- ------- ------- ------- ------- -------
Total Distributions ........ (1.56) ( .59) ( .30) ( .20) ( .19) ( .25)
------- ------- ------- ------- ------- -------
Net asset value:
End of period ............. $ 8.37 $ 9.70 $ 10.37 $ 7.81 $ 7.89 $ 6.09
======= ======= ======= ======= ======= =======
Total Return ............... 2.44% ( .73%) 36.91% 1.52% 32.73% 12.91%
Ratios & Supplemental Data
Net assets end of period
(000's omitted) ........... $38,694 $42,609 $40,873 $27,189 $27,205 $19,248
Ratio of operating
expenses to average net
assets .................... 1.45% 1.42% 1.50% 1.74% 1.77% 1.74%+
Ratio of net investment
income to average net
assets .................... .62% .71% 1.02% 1.19% 1.11% 1.25%+
Portfolio turnover rate .... 35.14% 28.91% 15.63% 37.18% 22.97% 15.83%
Average broker
commission% ...............
<FN>
+ 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 assets would have been 1.99% and
1.00%, respectively.
- Audited by other Auditors
% For fiscal years ending on or after August 31, 1996 the Fund is required to
disclose its average commission rate per share paid for security trades.
# All per share data as of December 31, 1996 and earlier has been restated
to reflect a 3 for 1 stock split effective September 25, 1997.
</FN>
</TABLE>
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Page 13
Report of Coopers & Lybrand L.L.P.
Independent Accountants
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, 1997, 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 five 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, 1988, through
1992, presented herein, were audited by others 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, 1997 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, 1997, 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 five years in the period then ended, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 2, 1998
- --------------------------------------------------------------------------------
This page intentionally left blank
Trustees
- --------------------------------------------------------------------------------
William A. Oates, Jr. John R. Furman
Ernest E. Monrad John C. Emery
Robert B. Minturn, Jr.
Officers
- --------------------------------------------------------------------------------
William A. Oates, Jr., President
Ernest E. Monrad, Assistant Treasurer
Robert B. Minturn, Jr., Vice President & Clerk
Gordon C. Barrett, Vice President & Treasurer
Investment Advisor
- --------------------------------------------------------------------------------
Northeast Management & Research Company, Inc.
50 Congress Street
Boston, Massachusetts 02109
Custodian
- --------------------------------------------------------------------------------
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02205
Legal Counsel
- --------------------------------------------------------------------------------
Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Transfer Agent
- --------------------------------------------------------------------------------
Northeast Investors Growth Fund
50 Congress Street
Boston, Massachusetts 02109
Independent Accountants
- --------------------------------------------------------------------------------
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
This report is prepared for the information of the shareholders of Northeast
Investors Growth Fund and must not be given to others unless preceded or
accompanied by a copy of the current Prospectus by which all offerings of the
Fund shares are made. It should be noted in reading this report and the letter
to shareholders that the record of past performance is not a representation as
to the Fund's future performance, and that the Fund's investments are subject
to market risks.
Shares of the Fund are sold to investors at net asset value by
Northeast Investors
Growth Fund
50 Congress Street
Boston, Massachusetts 02109
800-225-6704
617-523-3588
- --------------------------------------------------------------------------------
The share price for Northeast Investors Growth Fund is quoted daily in the
Mutual Funds section of most major newspapers under the heading NEINV GR or
Noeast Gr
- --------------------------------------------------------------------------------
N O R T H E A S T
INVESTORS GROWTH
FUND
A NO-LOAD FUND
EIGHTEENTH ANNUAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1997
