Dear Fellow Shareholders:
Inasmuch as stock prices, as measured by the performance of the S&P 500 Index,
have doubled in the past three years, our expectations for the market and
Northeast Investors Growth Fund at the beginning of this year were, as best,
hesitant and modest. Given these moderate expectations, therefore, our June 30
results were both pleasing and somewhat breathtaking. The Fund's total return
during the first six months of 1998 was 21.5%, exceeding both the 17.7% for the
S&P 500 and the 14.1% for the Dow Jones Industrial Average.
During this period, we have been fully invested at all times and on occasion
even more than fully invested, through the use of a modest amount of borrowed
money. The major investment focus continues to be with a number of regional
banks, with a solid representation among technology companies, and drug and
health care companies. Investments within these broad categories have been
outstanding and have helped propel the Fund's overall performance. About the
only complaint we have for the first six months of 1998 has been the
weather--unseasonably wet here in the Northeast.
The Fund was favorably mentioned in The Wall Street Journal of April 21, 1998
as one of the 65 best out of a total of 5,174 stock mutual funds. We were
selected after passing a number of criteria including performance, no-load, low
turnover, and continuity of management. On June 11, we made a five-cent per
share capital gain distribution. Since December 1997, net assets in the Fund
have grown 41% to $153,278,000. The expense ratio has further declined to 0.91%
annualized as of June 30, 1998.
As of this writing, the Fund has assets totalling $173,005,000, an increase of
12.9% since June 30, 1998. As we move into the second half of the year, our
tactics remain the same. We have been adding to our current investments, trying
to take advantage of occasional dips in market values. We continue to maintain a
fully invested stance in what is essentially a blue-chip list of the best there
is, in our opinion, in corporate America today.
As set forth on page two, new money coming into the Fund was added to
approximately 30 existing holdings. Fifteen investments were eliminated in their
entirety; 14 new investments were added. With this report, we record investments
in 83 different companies. We have investment representation in the Internet
through Microsoft and America Online and now a modest, but growing in value,
presence in Amazon.com.
It bears repeating that ours is a long-term approach to investing where we
will maintain positions with the market leaders--dominant players in growing
fields of endeavor. Our top 10 holdings, page two, 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. For those of you reading this report for the
first time, we hope you will join us in this endeavor as well.
Again, we are delighted with the results of the past three and a half years.
In fact, we are delighted with the Fund since its inception in 1980.
Most sincerely,
/s/ William A. Oates, Jr.
--------------------------
William A. Oates, Jr.
President
July 22, 1998
- -------------------------------------------------------------------------------
<PAGE>
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
Portfolio Transactions (unaudited)
January 1, 1998 - June 30, 1998
- --------------------------------------------------------------------------------
Additions to Existing Holdings
<TABLE>
<CAPTION>
Additions Now Own
- --------------------------------------------------------------------------------
<S> <C> <C>
*America Online, Inc. 25,800 36,400
American Express Company 7,200 16,300
*American Home Products Corp. 17,400 29,200
BankBoston Corporation 60,000 120,000
Cabot Corporation 15,000 33,000
Chase Manhattan Corporation 14,700 21,200
Chevron Corporation 2,700 26,700
Chubb Corporation 12,700 27,700
Cisco Systems, Inc. 8,300 36,500
Coca-Cola Company 16,500 30,500
Eli Lilly & Company 5,900 34,300
*Fifth Third Bancorp 14,375 39,125
First Palm Beach Bancorp 18,250 45,650
Fleet Financial Group, Inc. 7,400 29,800
Fort James Corporation 7,700 22,400
General Electric Company 12,400 51,400
General Motors Corporation 6,900 10,600
Glaxo Wellcome PLC-Spons ADR 8,000 19,900
Home Depot, Inc. 5,300 16,925
Johnson & Johnson 2,700 19,700
*Lucent Technologies, Inc. 26,700 46,400
Mellon Bank Corporation 22,500 51,900
Merck & Company, Inc. 9,800 23,400
Minnesota Mining & Mfg.Company 4,000 10,000
Monsanto Company 4,400 19,500
Morgan Stanley Dean Witter & Co. 3,600 15,810
National Bancorp of Alaska, Inc. 21,750 29,000
Pfizer, Inc. 10,000 47,150
*Pioneer Hi-Bred International, Inc. 53,500 63,500
Quaker Oats Company 4,000 20,050
Riggs National Corporation 7,000 48,000
Saville Systems Ireland Spons ADR 4,600 19,200
State Street Corporation 9,700 38,200
*St. Paul Companies, Inc. 14,800 22,600
Time Warner, Inc. 19,000 50,500
*Warner Lambert Company 31,250 46,875
*Washington Mutual, Inc. 15,350 32,950
Zions Bancorporation 8,500 48,500
</TABLE>
*Includes additional shares resulting from stock split
New Holdings
<TABLE>
<CAPTION>
Now Own
- --------------------------------------------------------------------------------
<S> <C>
Amazon.com, Inc. 15,800
Bristol Myers Squibb Company 14,700
Cabot Industrial Trust 42,900
CVS Corporation 27,400
Dell Computer Corporation 21,700
Donaldson, Lufkin & Jenrette, Inc. 15,000
Entremed, Inc. 18,200
J P Morgan & Company 17,000
McGraw-Hill Companies, Inc. 14,300
</TABLE>
- --------------------------------------------------------------------------------
Portfolio Transactions (unaudited)
January 1, 1998 - June 30, 1998
- --------------------------------------------------------------------------------
New Holdings (continued)
<TABLE>
<CAPTION>
Now Own
- --------------------------------------------------------------------------------
<S> <C>
Ohio Casualty Corporation 24,200
Polaris Industries, Inc. 15,700
Staples, Inc. 35,000
Wal-Mart Stores, Inc. 17,100
WestPoint Stevens, Inc. 12,000
</TABLE>
Eliminations/Reductions of Holdings
<TABLE>
<CAPTION>
Sold Now Own
- --------------------------------------------------------------------------------
<S> <C> <C>
AT&T Corporation 23,100 0
Baker Hughes, Inc. 10,900 0
Bell & Howell Company 17,500 0
Beneficial Corporation 6,400 7,000
Boston Scientific Corporation 8,900 8,000
Compaq Computer Corporation 8,000 0
Diebold, Inc. 12,950 0
Eastman Kodak Company 7,500 0
First Data Corporation 18,700 0
Hewlett-Packard Company 4,000 15,900
Ionics, Inc. 11,700 0
Isis Pharmaceuticals, Inc. 20,000 0
Mirage Resorts, Inc. 16,500 0
Motorola, Inc. 8,000 0
Sealed Air Corporation 10,900 0
Sun MicroSystems, Inc. 28,400 0
Thermo Electron Corporation 12,000 0
V. F. Corporation 15,200 0
</TABLE>
Ten Largest Investment Holdings
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Percent
Market of Net
Value Assets
- --------------------------------------------------------------------------------
<S> <C> <C>
BankBoston Corporation $6,675,000 4.4%
Pfizer, Inc. 5,124,616 3.3%
Microsoft Corporation 5,071,950 3.3%
General Electric Company 4,677,400 3.1%
Time Warner, Inc. 4,314,594 2.8%
Lucent Technologies, Inc. 3,859,900 2.5%
America Online, Inc. 3,858,400 2.5%
Walt Disney Company 3,782,250 2.5%
Mellon Bank Corporation 3,613,537 2.4%
Cisco Systems, Inc. 3,360,281 2.2%
</TABLE>
Average Annual Total
Return (unaudited)
<TABLE>
<S> <C>
One year ended June 30, 1998 37.37%
Five years ended June 30, 1998 24.08%
Ten years ended June 30, 1998 18.76%
</TABLE>
- -------------------------------------------------------------------------------
Page 2
<PAGE>
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
Schedule of Investments
June 30, 1998 (unaudited)
Common Stocks
<TABLE>
<CAPTION>
Market Percent of
Number of Value Net
Name of Issuer Shares (Note B) Assets
- ---------------------------------------------------------------------------------------------------------------------------
Automobile & Truck
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General Motors Corporation..................... 10,600 $ 708,212 .5%
Banks
- ---------------------------------------------------------------------------------------------------------------------------
BankBoston Corporation* ....................... 120,000 6,675,000
Chase Manhattan Corporation .................. 21,200 1,600,600
Fifth Third Bancorp........................... 39,125 2,464,875
First American Corporation.................... 26,400 1,270,500
First Palm Beach Bancorp...................... 45,650 1,985,775
First Security Corporation.................... 79,875 1,709,824
Fleet Financial Group, Inc.................... 29,800 2,488,300
J P Morgan & Company.......................... 17,000 1,990,062
Mellon Bank Corporation....................... 51,900 3,613,537
National Bancorp of Alaska, Inc............... 29,000 895,375
Riggs National Corporation.................... 48,000 1,402,500
Washington Mutual, Inc........................ 32,950 1,431,266
Zions Bancorporation.......................... 48,500 2,576,563
----------
30,104,177 19.6%
Biotechnology
- ---------------------------------------------------------------------------------------------------------------------------
Entremed, Inc.^............................... 18,200 605,150
Pioneer Hi-Bred International, Inc............ 63,500 2,627,313
----------
3,232,463 2.1%
Chemical
- ---------------------------------------------------------------------------------------------------------------------------
Cabot Corporation............................. 33,000 1,066,312
Monsanto Company.............................. 19,500 1,089,563
----------
2,155,875 1.4%
Clothing
- ---------------------------------------------------------------------------------------------------------------------------
WestPoint Stevens, Inc.^...................... 12,000 396,000 .3%
Computer & Data Processing
- ---------------------------------------------------------------------------------------------------------------------------
Dell Computer Corporation^.................... 21,700 2,014,031
Hewlett-Packard Company....................... 15,900 952,012
IBM Corporation............................... 11,800 1,354,787
----------
4,320,830 2.8%
</TABLE>
- --------------------------------------------------------------------------------
Page 3
<PAGE>
Northeast Investors Growth Fund
- -------------------------------------------------------------------------------
Common Stocks -- continued
<TABLE>
<CAPTION>
Market Percent of
Number of Value Net
Name of Issuer Shares (Note B) Assets
- -------------------------------------------------------------------------------------------------------------------------
Computer Software & Services
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
America Online, Inc.^......................... 36,400 $ 3,858,400
Microsoft Corporation^*....................... 46,800 5,071,950
Parametric Technology Corporation^............ 36,200 981,925
Saville Systems Ireland Spons ADR^............ 19,200 962,400
----------
10,874,675 7.1%
Cosmetics & Toiletries
- -------------------------------------------------------------------------------------------------------------------------
Gillette Company*............................. 52,200 2,959,087 1.9%
Diversified Operations
- -------------------------------------------------------------------------------------------------------------------------
General Electric Company...................... 51,400 4,677,400
Triarc Companies^............................. 40,500 888,469
----------
5,565,869 3.6%
Drug Stores
- -------------------------------------------------------------------------------------------------------------------------
CVS Corporation............................... 27,400 1,066,887 .7%
Electronics
- -------------------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc.^.......................... 36,500 3,360,281
Intel Corporation............................. 37,400 2,772,275
Lucent Technologies, Inc...................... 46,400 3,859,900
----------
9,992,456 6.5%
Entertainment
- -------------------------------------------------------------------------------------------------------------------------
Carnival Corporation.......................... 29,800 1,180,825
Time Warner, Inc.............................. 50,500 4,314,594
Walt Disney Company*.......................... 36,000 3,782,250
----------
9,277,669 6.1%
Financial Services
- -------------------------------------------------------------------------------------------------------------------------
American Express Company...................... 16,300 1,858,200
Beneficial Corporation........................ 7,000 1,072,313
Donaldson, Lufkin, & Jenrette, Inc............ 15,000 762,187
Eaton Vance Corporation....................... 61,700 2,857,481
H&R Block, Inc................................ 10,200 429,675
Morgan Stanley Dean Witter & Co............... 15,810 1,444,639
Paine Webber Group, Inc....................... 34,500 2,654,900
State Street Corporation...................... 38,200 1,479,188
----------
12,558,583 8.2%
</TABLE>
- --------------------------------------------------------------------------------
Page 4
<PAGE>
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
Common Stocks -- continued
<TABLE>
<CAPTION>
Market Percent of
Number of Value Net
Name of Issuer Shares (Note B) Assets
- -------------------------------------------------------------------------------------------------------------------------
Food & Beverage
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Coca-Cola Company............................. 30,500 $ 2,607,750
Pepsico, Inc.................................. 30,000 1,235,625
Quaker Oats Company........................... 20,050 1,101,497
----------
4,944,872 3.2%
Health Care
- -------------------------------------------------------------------------------------------------------------------------
American Home Products Corporation............ 29,200 1,511,100
Johnson & Johnson............................. 19,700 1,452,875
Warner Lambert Company........................ 46,875 3,251,953
----------
6,215,928 4.1%
Household Products
- -------------------------------------------------------------------------------------------------------------------------
Procter & Gamble Company*..................... 29,000 2,640,813 1.7%
Industrial Services & Manufacturing
- -------------------------------------------------------------------------------------------------------------------------
Caterpillar, Inc.............................. 23,000 1,216,125
Minnesota Mining & Manufacturing Company...... 10,000 821,875
----------
2,038,000 1.3%
Insurance
- -------------------------------------------------------------------------------------------------------------------------
American International Group, Inc............. 14,025 2,047,650
Chubb Corporation............................. 27,700 2,226,387
General Re Corporation........................ 11,100 2,844,375
Ohio Casualty Corporation..................... 24,200 1,070,850
St. Paul Companies, Inc....................... 22,600 950,612
----------
9,139,874 6.0%
Medical Supplies
- -------------------------------------------------------------------------------------------------------------------------
Boston Scientific Corporation^................ 8,000 573,000
Medtronic, Inc................................ 23,800 1,517,250
----------
2,090,250 1.4%
Office Equipment
- -------------------------------------------------------------------------------------------------------------------------
Staples, Inc.^................................ 35,000 1,012,813
Xerox Corporation............................. 20,400 2,073,150
----------
3,085,963 2.0%
Oil & Gas Exploration
- -------------------------------------------------------------------------------------------------------------------------
Schlumberger Ltd.............................. 11,800 806,088 .5%
Paper & Forest Products
- -------------------------------------------------------------------------------------------------------------------------
Fort James Corporation........................ 22,400 996,800 .7%
</TABLE>
- --------------------------------------------------------------------------------
Page 5
<PAGE>
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
Common Stocks -- continued
<TABLE>
<CAPTION>
Market Percent of
Number of Value Net
Name of Issuer Shares (Note B) Assets
- -------------------------------------------------------------------------------------------------------------------------
Petroleum, Coal & Gas
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chevron Corporation........................... 26,700 $ 2,217,769
Mobil Corporation............................. 7,000 536,375
Royal Dutch Petroleum Company ................ 40,000 2,192,500
---------
4,946,644 3.2%
Pharmaceuticals
- -------------------------------------------------------------------------------------------------------------------------
Abbott Laboratories........................... 20,400 833,850
Astra AB Spons ADR A.......................... 33,466 686,053
Bristol Myers Squibb Company.................. 14,700 1,689,581
Eli Lilly & Company........................... 34,300 2,265,944
Glaxo Wellcome PLC-Spons ADR.................. 19,900 1,190,269
Merck & Company, Inc.*........................ 23,400 3,129,750
Pfizer, Inc.*................................. 47,150 5,124,616
---------
14,920,063 9.7%
Publishing & Printing
- -------------------------------------------------------------------------------------------------------------------------
Dow Jones & Company, Inc...................... 16,900 942,175
McGraw-Hill Companies, Inc. .................. 14,300 1,166,344
New York Times Company - Class A.............. 17,500 1,386,875
---------
3,495,394 2.3%
Real Estate
- -------------------------------------------------------------------------------------------------------------------------
Cabot Industrial Trust........................ 42,900 927,712
Crescent Real Estate Equities Company......... 15,750 529,594
---------
1,457,306 1.0%
Recreation & Leisure
- -------------------------------------------------------------------------------------------------------------------------
Polaris Industries, Inc....................... 15,700 590,713 .4%
Retail
- -------------------------------------------------------------------------------------------------------------------------
Amazon.com, Inc.^............................. 15,800 1,576,050
Home Depot, Inc. ............................. 16,925 1,405,833
Wal-Mart Stores, Inc. ........................ 17,100 1,038,825
---------
4,020,708 2.6%
------
Total Common Stocks (Cost-$86,453,812)........................................... $154,702,199 100.9%
============ ======
</TABLE>
* Pledged to collateralize short-term borrowings (See Note F)
^ Non-income producing
ADR stands for American Depository Receipt representing ownership of foreign
securities.
- --------------------------------------------------------------------------------
Page 6 The accompanying notes are an integral part of the financial statements.
<PAGE>
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities (unaudited)
- --------------------------------------------------------------------------------
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- --------------------------------------------------------------------------------
<S> <C>
Investments--at market value
(cost $86,453,812)--Notes B & D.. $154,602,199
Dividends and interest receivable.. 148,831
Receivable for shares of beneficial
interest sold.................... 707,528
------------
Total Assets ................ 155,458,558
Liabilities
- --------------------------------------------------------------------------------
Short-term Borrowings--Note G...... 2,054,942
Payable for shares of beneficial interest
repurchased ..................... 10,990
Accrued expenses................... 46,149
Accrued investment advisory fee--
Note C .......................... 67,417
Other Payables..................... 1,140
Total Liabilities ........... 2,180,639
-----------
Net Assets......................... $153,277,919
============
Net Assets Consist of--Note B:
Capital paid-in.................... $ 84,628,440
Undistributed net investment
income .......................... 141,795
Accumulated net realized gain
on investments .................. 359,297
Net unrealized appreciation of
investments...................... 68,148,387
------------
Net Assets, for 7,983,857 shares
outstanding ..................... $153,277,919
============
Net Asset Value, offering price
and redemption price per share
($153,277,919/7,983,857 shares).. $19.20
======
</TABLE>
Statement of Operations (unaudited)
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
- --------------------------------------------------------------------------------
<S> <C>
Dividends....................................... $782,974
Interest........................................ 7,333
--------
Total Income ............................. 790,307
</TABLE>
<TABLE>
<CAPTION>
Expenses
- --------------------------------------------------------------------------------
<S> <C> <C>
Investment advisory fee --
Note C........................... $363,135
Administrative expenses
and salaries..................... 86,958
Interest--Note G................... 61,698
Printing, postage
and stationery .................. 33,890
Auditing fees...................... 23,327
Computer and
related expenses................. 20,370
Custodian fees..................... 15,166
Legal fees......................... 15,130
Registration and
filing fees...................... 9,281
Trustee fees--Note C............... 4,000
Insurance.......................... 575
Other expenses..................... 14,982
--------
Total Expenses................. 648,512
--------
Net Investment Income.......... 141,795
--------
Realized and Unrealized Gain
on Investment--Note B:
- --------------------------------------------------------------------------------
Net realized gain from investment
transactions................................... 1,068,966
Change in unrealized appreciation
of investments................................. 23,206,696
-----------
Net Gain on Investments.......................... 24,275,662
-----------
Net Increase in Net Assets
Resulting from Operations...................... $24,417,457
===========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. Page 7
<PAGE>
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
Statement of Changes
in Net Assets (unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998 Year Ended
(unaudited) December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in Net Assets
From Operations:
Net investment income.................................................... $ 141,795 $ 353,060
Net realized gain from investment transactions........................... 1,068,966 4,479,634
Change in unrealized appreciation of investments......................... 23,206,696 20,578,841
----------- -----------
Net Increase in Net Assets Resulting from
Operations........................................................... 24,417,457 25,411,535
Distributions to Shareholdedrs:
From net investment income............................................... -- (354,587)
From net realized gains on investments................................... (388,393) (4,924,443)
----------- -----------
Total Distributions.................................................. (388,393) (5,279,030)
From Net Fund Share Transactions--Note E................................... 20,659,202 28,182,395
----------- -----------
Total Increase in Net Assets......................................... 44,688,266 48,314,900
Net Assets:
Beginning of Period........................................................ 108,589,653 60,274,753
----------- -----------
End of Period (including undistributed net investment income
of $141,795 and $0, respectively)........................................ $153,277,919 $108,589,653
============ ============
</TABLE>
- --------------------------------------------------------------------------------
Page 8 The accompanying notes are an integral part of the financial statements.
<PAGE>
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
Notes to the Financial Statements
for the period ended June 30, 1998 (unaudited)
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. The Fund 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.
Distribution 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.
Note D--Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments, other than
short-term securities, aggregated $39,584,560 and $13,309,880, respectively, for
the six months ended June 30, 1998.
- --------------------------------------------------------------------------------
Page 9
<PAGE>
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
Notes to the Financial Statements for the period
ended June 30, 1998 - continued (unaudited)
Note E--Shares of Beneficial Interest
At June 30, 1998, 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>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
------------------------- ------------------------
Shares Amount Shares Amount
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Shares sold......................................... 2,419,495 $42,537,502 2,382,373 $67,324,344
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 gain from security transactions............ 19,589 359,849 310,254 4,955,941
---------- ----------- --------- -----------
2,439,084 42,897,351 6,670,364 72,280,285
Shares repurchased.................................. (1,312,791) (22,238,149) (1,466,724) (44,097,890)
---------- ----------- --------- -----------
Net Increase...................................... 1,126,293 $20,659,202 5,203,640 $28,182,395
========== =========== ========= ===========
</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. The Fund has a total line of credit of $10,000,000 with an unused
balance at June 30, 1998 of $7,945,058.
The following information relates to aggregate short-term borrowings for the
six month period ended June 30, 1998:
Average amount outstanding (total of daily outstanding principal balances
divided by number of days during the period)........................$1,589,382
Weighted average interest rate (actual interest expense on short-term
borrowings divided by average short-term borrowings outstanding)
(Annualized).............................................................7.28%
Interest expense includes commitment fees of $3,450. Securities with market
values aggregating $29,383,467 have been pledged to collateralize short-term
borrowings.
Note H--Other Tax Information
For federal income tax purposes, the cost of investments owned at June 30,
1998 was $86,452,274. At June 30, 1998, gross unrealized appreciation of
investments was $68,571,898 and gross unrealized depreciation was $421,973,
resulting in net unrealized appreciation of $68,149,925.
- --------------------------------------------------------------------------------
Page 10
<PAGE>
Northeast Investors Growth Fund
- --------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1998
Per Share Data# (unaudited) 1997 1996 1995 1994 1993 1992~ 1991~ 1990~ 1989~ 1988~
-------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of Period... $15.84 $12.15 $10.59 $8.13 $8.37 $9.70 $10.37 $7.81 $7.89 $6.09 $5.61
------ ------ ------ ----- ----- ----- ------ ----- ----- ----- -----
Income From Investment
Operations:
Net investment income... .02 .06 .05 .07 .06 .07 .07 .09 .09 .08 .09
Net realized and
unrealized gain (loss)
on investments......... 3.39 4.46 2.54 2.90 (.07) .16 (.15) 2.77 .03 1.91 .64
------ ------ ------ ----- ----- ----- ------ ----- ----- ----- -----
Total from investment
operations............ 3.41 4.52 2.59 2.97 (.01) .23 (.08) 2.86 .12 1.99 .73
Less Distributions:
Net investment income. (.0) (.06) (.05) (.07) (.06) (.07) (.07) (.12) (.09) (.09) (.09)
Capital gains......... (.05) (.77) (.98) (.44) (.17) (1.49) (.52) (.18) (.11) (.10) (.16)
------ ------ ------ ----- ----- ----- ------ ----- ----- ----- -----
Total Distributions..... (0.05) (.83) (1.03) (.51) (.23) (1.56) (.59) (.30) (.20) (.19) (.25)
------ ------ ------ ----- ----- ----- ------ ----- ----- ----- -----
Net Asset Value:
End of Period.......... $19.20 $15.84 $12.15 $10.59 $8.13 $8.37 $9.70 $10.37 $7.81 $7.89 $6.09
====== ====== ====== ====== ===== ===== ===== ====== ===== ===== =====
Total Return............ 21.54% 37.28% 24.60% 36.46% (.07%) 2.44% (.73%) 36.91% 1.52% 32.73% 12.91%
Ratios & Supplemental Data
Net assets end of
period (000's omitted) $153,278 $108,590 $60,275 $48,337 $35,459 $38,694 $42,609 $40,873 $27,189 $27,205 $19,248
Ratio of operating
expenses to average
net assets............ .91%** .97% 1.21% 1.37% 1.53% 1.45% 1.42% 1.50% 1.74% 1.77% 1.74%+
Ratio of interest
expense to average
net assets............ .10%** .03% .01% .0% .0% .0% .0% .0% .0% .0% .0%+
Ratio of net investment
income to average
net assets............ .32%** .45% .47% .74% .74% .62% .71% 1.02% 1.19% 1.11% 1.25%+
Portfolio turnover rate. 20.78%** 16.36% 25.27% 26.53% 25.55% 35.14% 28.91% 15.63% 37.18% 22.97% 15.83%
</TABLE>
** Ratios are annualized.
+ 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.
# 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.
- --------------------------------------------------------------------------------
Page 11
<PAGE>
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
Bruce H. Monrad, Vice President
Richard J. Semple, Vice President
Investment Advisor
- --------------------------------------------------------------------------------
Northeast Management & Research Company, Inc.
50 Congress Street
Boston, Massachusetts 02109
Custodian
- --------------------------------------------------------------------------------
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 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
- --------------------------------------------------------------------------------
PricewaterhouseCoopers 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 Fund section of most major newspapers under several abbreviations
including: NE Inv GR, NE Investors.
NORTHEAST
INVESTORS GROWTH
FUND
A NO-LOAD FUND
[NE LOGO]
Semi-Annual Report
- --------------------------------------------------------------------------------
For the Six Months Ended
- --------------------------------------------------------------------------------
June 30, 1998
