NORTHEAST
INVESTORS
GROWTH
FUND
A NO-LOAD FUND
[NORTHEAST LOGO]
Semi-Annual Report
------------------------------------
For the Six Months Ended
------------------------------------
June 30, 1999
------------------------------------
<PAGE>
Table of Contents
Letter to Shareholders................................. 1
Portfolio Transactions................................. 3
Fund Performance....................................... 5
Investment Sectors..................................... 7
Schedule of Investments................................ 8
Financial Statements................................... 11
Financial Highlights................................... 12
Notes to the Financial Statements...................... 16
<PAGE>
- --------------------------------
Dear Fellow Shareholders:
- --------------------------------
As this letter is written, the first six months of 1999 seem like ancient
history, and in some respects they are, as the market cares little about the
past and all about the future. This report, however, does record our holdings
halfway through the year and recognizes some significant investment and
operating changes.
The size of the fund at $311,113,097 on June 30 is an all-time high, up
dramatically, about 47%, from that recorded six months ago at year-end, December
31, 1998, at $211,258,849. The number of shareholders at 9,107 is a new high as
are the number of shares outstanding at 13,641,467. Our expense ratio of 0.85%
continues to move lower, which is a plus as this ratio continues to emerge as an
increasingly important index in analyzing how a mutual fund handles its ongoing
expenses and fees. Hence, we are particularly delighted to see this important
ratio moving lower.
During the first six months of 1999, we reduced the number of holdings from 80
at year-end 1998 to 65 as of this report. Many of the smaller holdings were
eliminated in favor of additions to existing holdings and to make way for seven
new holdings. In general, we have been moving toward a philosophy of fewer total
holdings, with each investment becoming a more significant part of the whole.
Hence, the "additions to existing holdings" and the "elimination/reductions of
holdings" look somewhat more active than they might otherwise have been. We do
not currently anticipate another significant reduction in the number of
holdings.
As you know, on June 15 we paid a modest dividend of $0.01835 per share and a
capital gain of $0.00665 per share. If financial conditions continue as we
expect, we anticipate making another distribution in mid-December.
Much has been written about how the market rotates among different sectors.
For example, through early April, larger blue chip growth stocks, which is most
of our investment hand, continued moving toward new highs. Then, "value"
stocks--which we do not own as a rule, began to do better--only to have growth
stocks come roaring back in June. All this movement and change could be quite
confusing. However, we will not alter our basic investment approach, which aims
to invest in market leaders whose products we know and understand and where
continued solid future growth looks likely to us. Most of our holdings are
expensive by any historic measures. But with low inflation, a Federal budget
that is not only balanced but creating a surplus, the Cold War over, and an
ever-vigilant Federal Reserve ready to pounce with a rate increase at any
moment, the future just might continue to surprise the pessimists and the press
and usher in an even more favorable investment environment in the days to come.
Page 1
<PAGE>
Total return results for the six month period ending June 30 are as follows:
<TABLE>
<CAPTION>
S&P 500 NE Growth Fund
------- --------------
<S> <C>
+12.38% +11.56%
</TABLE>
We appreciate your investment in the fund and please know that we are ever
attentive to the investments and to the rapidly changing world of opportunity in
which we live.
As in the past, I encourage shareholders to contact me with any questions
regarding the Fund at any time. Also, you may find us at our website:
www.northeastinvestors.com. For those of you non-shareholders, reading this
report for the first time, we hope you will join us in this endeavor as well.
Ever sincerely,
/s/ William A. Oates, Jr.
William A. Oates, Jr.
President
August 6, 1999
Page 2
<PAGE>
- --------------------------------
Portfolio Transactions
- --------------------------------
January 1, 1999-June 30, 1999
- --------------------------------------------------------------------------------
Additions to Existing Holdings
<TABLE>
<CAPTION>
Additions Now Own
- --------------------------------------------------------------------------------
<S> <C> <C>
Abbott Laboratories 18,600 49,200
America Online, Inc.* 40,000 100,000
American Home Products Corp. 34,500 63,700
American International Group, Inc. 15,000 36,037
Bristol Myers Squibb Company* 37,900 67,800
Carnival Corporation 20,000 49,800
Chase Manhattan Corporation* 6,500 30,300
Chevron Corporation 6,500 33,200
Cisco Systems, Inc.* 175,750 244,700
Coca-Cola Company 29,600 81,900
Eli Lilly & Company 12,600 58,700
EMC Corporation* 70,800 104,400
Exxon Corporation 38,500 57,200
Fifth Third Bancorp 29,200 71,525
Fleet Financial Group, Inc. 33,600 99,200
General Electric Company 37,000 101,100
General Motors Corporation 14,600 26,800
Gillette Company 29,500 81,700
International Business Machines* 38,600 55,000
Intel Corporation 68,800 106,200
Johnson & Johnson 23,600 49,800
Lucent Technologies, Inc.* 79,400 109,800
MCI Worldcom, Inc. 59,800 89,600
Medtronic, Inc.* 12,400 37,900
Mellon Bank Corporation 142,700 237,400
Merck & Company, Inc.* 53,100 86,400
Microsoft Corporation 121,200 169,200
Monsanto Company 10,000 56,000
Pfizer, Inc. 31,700 78,850
Procter & Gamble Company 5,000 40,300
Royal Dutch Petroleum 5,200 45,200
State Street Corporation 11,900 57,100
Time Warner, Inc. 72,000 179,400
Wal-Mart Stores, Inc.* 111,600 159,600
Walt Disney Company 14,000 169,000
Warner Lambert Company 7,400 66,975
Xerox Corporation* 29,400 49,800
Yahoo! Inc.* 15,200 25,000
Zions Bancorporation 23,500 130,600
</TABLE>
*Includes additional shares resulting from stock split
Page 3
<PAGE>
- --------------------------------
Portfolio Transactions
(continued)
- --------------------------------
January 1, 1999-June 30, 1999
- --------------------------------------------------------------------------------
New Holdings
<TABLE>
<CAPTION>
Now Own
- --------------------------------------------------------------------------------
<S> <C>
AT&T Corporation 71,550
Charles Schwab Corporation 25,000
FDX Corporation 61,400
Mirage Resorts, Inc. 75,000
Qwest Communications International, Inc. 92,000
Sun Microsystems, Inc. 40,400
VISX, Inc. 118,000
</TABLE>
Eliminations/Reductions of Holdings
<TABLE>
<CAPTION>
Sold Now Own
- --------------------------------------------------------------------------------
<S> <C> <C>
Boston Scientific Corporation 34,000 0
Cabot Corporation 33,000 0
Cabot Industrial Trust 68,900 0
Caterpillar, Inc. 23,000 0
Chubb Corporation 32,200 27,000
Eastman Kodak Company 14,300 0
Eaton Vance Corporation 33,400 90,000
Entremed, Inc. 22,200 0
First American Corporation 26,400 0
First Security Corporation 103,175 0
Fort James Corporation 22,400 0
Glaxo Wellcome PLC-Spons ADR 19,900 0
H & R Block, Inc. 10,200 0
National Bancorp of Alaska, Inc. 32,000 0
New York Times Company-Class A 35,000 0
Ohio Casualty Corporation 31,400 0
Parametric Technology Corporation 36,200 0
Philip Morris Companies, Inc.19,900 0
Pioneer Hi-Bred International, Inc. 63,500 0
Polaris Industries, Inc. 24,700 0
Republic Security Corporation 191,456 0
Saville Systems Ireland Spons ADR 19,200 0
St. Paul Companies 37,900 0
Triarc Companies 50,000 0
</TABLE>
Page 4
<PAGE>
- ----------------------------------
Average Annual Total Return
- ----------------------------------
<TABLE>
<CAPTION>
<S> <C>
One year ended June 30, 1999......................22.39%
Five years ended June 30, 1999....................29.57%
Ten years ended June 30, 1999.....................19.06%
</TABLE>
- ---------------------------------------------------
Performance Graph -- Ten Years (12/30/89-06/30/99)
- ---------------------------------------------------
[PLOT POINTS FOR BAR GRAPH]
<TABLE>
<CAPTION>
Northeast Standard
Investors & Poor's
Growth Fund 500 Index
- ----------------------------------------------------
<S> <C> <C>
1989 $10,000 $10,000
1990 $10,152 $ 9,687
1991 $13,899 $12,593
1992 $13,797 $13,529
1993 $14,134 $14,871
1994 $14,124 $15,061
1995 $19,274 $20,652
1996 $24,015 $25,336
1997 $32,968 $33,722
1998 $43,960 $43,279
1999* $49,042 $48,637
</TABLE>
[END PLOT POINTS]
*six months ended June 30, 1999
Page 5
<PAGE>
- ----------------------------------
Returns and Per Share Data
(Yearly Period Ended 12/31)
- ----------------------------------
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999*
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value 7.89 7.81 10.37 9.70 8.37 8.13 10.59 12.15 15.84 20.47 22.81
---------------------------------------------------------------------------------------------------------
Income Dividend 0.09 0.09 0.12 0.07 0.07 0.06 0.07 0.05 0.06 0.05 0.02
---------------------------------------------------------------------------------------------------------
Capital Gains Dist. 0.10 0.11 0.18 0.52 1.49 0.17 0.44 0.98 0.77 0.55 0.01
---------------------------------------------------------------------------------------------------------
Fund Return (%) 32.73 1.52 36.91 -0.73 2.44 -0.07 36.46 24.60 37.28 33.34 11.56
---------------------------------------------------------------------------------------------------------
S&P 500 (%) 31.50 -3.13 30.00 7.43 9.92 1.28 37.12 22.68 33.10 28.34 12.38
</TABLE>
[PLOT POINTS FOR BAR GRAPH]
<TABLE>
<CAPTION>
Northeast Standard
Investors & Poor's
Growth Fund 500 Index
- ----------------------------------------------------
<S> <C> <C>
1989 32.73 31.50
1990 1.52 -3.13
1991 36.91 30.00
1992 -0.73 7.43
1993 2.44 9.92
1994 -0.07 1.28
1995 36.46 37.12
1996 24.60 22.68
1997 37.28 33.10
1998 33.34 28.34
1999* 11.56 12.38
</TABLE>
[END PLOT POINTS]
*6 months ended June 30, 1999
Page 6
<PAGE>
- ---------------------------------------
Ten Largest Investment Holdings
- ---------------------------------------
June 30, 1999
- --------------------------------------------------------------------------------
Ten Largest Investment Holdings
<TABLE>
<CAPTION>
Percent
Market of Net
Value Assets
- --------------------------------------------------------------------------------
<S> <C> <C>
Cisco Systems, Inc. $15,783,150 5.1%
Microsoft Corporation 15,259,725 4.9%
Time Warner, Inc. 12,894,375 4.1%
General Electric Company 11,424,300 3.7%
America Online, Inc. 11,050,000 3.6%
VISX, Inc. 9,344,125 3.0%
Pfizer, Inc. 8,653,787 2.8%
Mellon Bank Corporation 8,635,425 2.8%
Zions Bancorporation 8,293,100 2.7%
MCI WorldCom, Inc. 7,728,000 2.5%
</TABLE>
- ---------------------------------------------
Investment Sectors
- ---------------------------------------------
[PIE CHART]
<TABLE>
<S> <C>
Banks 14.6%
Computer Software
& Services 9.8%
Electronics 9.5%
Pharmaceuticals 8.4%
Health Care/
Medical Supplies 8.2%
Financial
Services 7.3%
Entertainment 7%
Computer Data
& Processing 6.6%
Telecommunications 5.9%
Retail 5.1%
Other 17.5%
</TABLE>
[END PIE CHART]
Page 7
<PAGE>
- ------------------------------------
Schedule of Investments
June 30, 1999
- ------------------------------------
Common Stocks--
<TABLE>
<CAPTION>
Market
Number of Value
Name of Issuer Shares (Note B)
- --------------------------------------------------------------------------------
<S> <C> <C>
Automobile & Truck -- 0.6%
- --------------------------------------------------------------------------------
General Motors Corporation........... 26,800 $1,768,800
Banks -- 14.6%
- --------------------------------------------------------------------------------
BankBoston Corporation*.............. 126,000 6,441,750
Chase Manhattan Corporation.......... 30,300 2,620,950
Fifth Third Bancorp.................. 71,525 4,760,883
Fleet Financial Group, Inc........... 99,200 4,402,000
J P Morgan & Company................. 24,500 3,442,250
Mellon Bank Corporation.............. 237,400 8,635,425
Washington Mutual, Inc............... 187,850 6,680,416
Zions Bancorporation................. 130,600 8,293,100
-----------
45,276,774
Chemical -- 0.7%
- --------------------------------------------------------------------------------
Monsanto Company..................... 56,000 2,208,500
Computer & Data Processing -- 6.6%
- --------------------------------------------------------------------------------
Dell Computer Corporation^........... 43,400 3,211,600
EMC Corporation^..................... 104,400 5,755,050
Hewlett-Packard Company.............. 15,900 1,597,950
IBM Corporation...................... 55,000 7,119,063
Sun Microsystems, Inc.^.............. 40,400 2,782,550
-----------
20,466,213
Computer Software & Services -- 9.8%
- --------------------------------------------------------------------------------
America Online, Inc.^................ 100,000 11,050,000
Microsoft Corporation^*.............. 169,200 15,259,725
Yahoo! Inc.^......................... 25,000 4,306,250
-----------
30,615,975
Cosmetics & Toiletries -- 1.1%
- --------------------------------------------------------------------------------
Gillette Company..................... 81,700 3,349,700
Diversified Operations -- 3.7%
- --------------------------------------------------------------------------------
General Electric Company............. 101,100 11,424,300
Electronics -- 9.5%
- --------------------------------------------------------------------------------
Cisco Systems, Inc.^................. 244,700 15,783,150
Intel Corporation.................... 106,200 6,318,900
Lucent Technologies, Inc............. 109,800 7,404,638
-----------
29,506,688
</TABLE>
Page 8
<PAGE>
Common Stocks--
<TABLE>
<CAPTION>
Market
Number of Value
Name of Issuer Shares (Note B)
- --------------------------------------------------------------------------------
<S> <C> <C>
Entertainment -- 7.0%
- --------------------------------------------------------------------------------
Carnival Corporation................. 49,800 $ 2,415,300
Mirage Resorts, Inc.^................ 75,000 1,260,938
Time Warner, Inc..................... 179,400 12,894,375
Walt Disney Company*................. 169,000 5,101,687
-----------
21,672,300
Financial Services -- 7.3%
- --------------------------------------------------------------------------------
American Express Company............. 28,800 3,747,600
Charles Schwab Corporation........... 25,000 2,746,875
Donaldson, Lufkin, & Jenrette, Inc. . 37,600 2,265,400
Eaton Vance Corporation.............. 90,000 3,099,375
Morgan Stanley Dean Witter & Co. .... 43,410 4,460,378
Paine Webber Group, Inc.............. 34,500 1,612,875
State Street Corporation............. 57,100 4,874,912
-----------
22,807,415
Food & Beverage -- 2.1%
- --------------------------------------------------------------------------------
Coca-Cola Company.................... 81,900 5,118,750
Pepsico, Inc......................... 40,000 1,547,500
-----------
6,666,250
Health Care -- 4.2%
- --------------------------------------------------------------------------------
American Home Products Corporation .. 63,700 3,662,750
Johnson & Johnson.................... 49,800 4,762,125
Warner Lambert Company............... 66,975 4,638,019
-----------
13,062,894
Household Products -- 1.2%
- --------------------------------------------------------------------------------
Procter & Gamble Company*........... 40,300 3,596,775
Insurance -- 2.0%
- --------------------------------------------------------------------------------
American International Group, Inc. 36,037 4,218,581
Chubb Corporation.................... 27,000 1,876,500
-----------
6,095,081
Medical Supplies -- 4.0%
- --------------------------------------------------------------------------------
Medtronic, Inc. ..................... 37,900 2,951,462
VISX, Inc.^.......................... 118,000 9,344,125
-----------
12,295,587
Office Equipment -- 0.9%
- --------------------------------------------------------------------------------
Xerox Corporation.................... 49,800 2,941,312
-----------
2,941,312
</TABLE>
Page 9
<PAGE>
Common Stocks--
<TABLE>
<CAPTION>
Market
Number of Value
Name of Issuer Shares (Note B)
- --------------------------------------------------------------------------------
<S> <C> <C>
Petroleum, Coal & Gas -- 3.5%
- --------------------------------------------------------------------------------
Chevron Corporation.................. 33,200 $ 3,156,075
Exxon Corporation.................... 57,200 4,411,550
Mobil Corporation.................... 7,000 693,000
Royal Dutch Petroleum................ 45,200 2,723,300
------------
10,983,925
Pharmaceuticals -- 8.4%
- --------------------------------------------------------------------------------
Abbott Laboratories.................. 49,200 2,226,300
Bristol Myers Squibb Company......... 67,800 4,762,950
Eli Lilly & Company.................. 58,700 4,204,388
Merck & Company, Inc.*............... 86,400 6,393,600
Pfizer, Inc.*........................ 78,850 8,653,787
------------
26,241,025
Publishing & Printing -- 0.7%
- --------------------------------------------------------------------------------
McGraw-Hill Companies, Inc........... 42,800 2,308,525
Retail -- 5.1%
- --------------------------------------------------------------------------------
CVS Corporation...................... 41,800 2,137,025
Home Depot, Inc...................... 44,055 2,838,472
Staples Inc.^........................ 102,600 3,174,188
Wal-Mart Stores, Inc................. 159,600 7,700,700
------------
15,850,385
Telecommunications -- 5.1%
- --------------------------------------------------------------------------------
AT&T Corporation..................... 71,550 3,993,384
MCI Worldcom, Inc.^.................. 89,600 7,728,000
Qwest Communications International,
Inc. ............................... 92,000 3,041,750
Tellabs, Inc.^....................... 35,000 2,364,688
Vodafone Airtouch PLC-Spons ADR ..... 6,800 1,339,600
------------
18,467,422
Transportation -- 1.0%
- --------------------------------------------------------------------------------
FDX Corporation^*.................... 61,400 3,330,948
Total Common Stocks-- 99.9% (Cost--$204,869,052) $310,936,795
============
</TABLE>
* Pledged to collateralize short-term borrowings (See Note G)
^ Non-income producing.
ADR stands for American Depository Receipt representing ownership of foreign
securities.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
Page 10
<PAGE>
- ------------------------------------
Statement of Assets
and Liabilities
- ------------------------------------
- --------------------------------------------------------------------------------
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- -----------------------------------------------------------------------------------------
<S> <C>
Investments--at market value (cost $204,869,052--Notes B & D) ..... $310,936,795
Dividends and interest receivable ................................. 224,868
Receivable for shares of beneficial interest sold ................. 3,953,778
-------------
Total Assets .............................................. 315,115,441
Liabilities
- -----------------------------------------------------------------------------------------
Short-term Borrowings--Note G ..................................... 3,521,250
Payable for shares of beneficial interest repurchased ............. 273,093
Accrued expenses .................................................. 77,038
Accrued investment advisory fee--Note C ........................... 128,253
Other Payables .................................................... 2,710
-------------
Total Liabilities ......................................... 4,002,344
-------------
Net Assets ........................................................ $311,113,097
=============
Net Assets Consist of--Note B:
Capital paid-in ................................................... $202,765,822
Undistributed net investment income ............................... (149,075)
Accumulated net realized gain on investments ...................... 2,428,607
Net unrealized appreciation of investments ........................ 106,067,743
-------------
Net Assets, for 13,641,467 shares outstanding ..................... $311,113,097
=============
Net Asset Value, offering price and redemption
price per share ($311,113,097/13,641,467 shares) ................. $22.81
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 11
<PAGE>
- --------------------------------
Statement of Operations
- --------------------------------
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
- --------------------------------------------------------------------------------
<S> <C>
Dividends .................................................. $ 1,168,336
Interest ................................................... 21,070
------------
Total Income ........................................... 1,189,406
------------
Expenses
- --------------------------------------------------------------------------------
Investment advisory fee--Note C ............................ $705,998
Interest--Note G ........................................... 122,663
Administrative expenses and salaries ....................... 114,700
Legal fees ................................................. 40,700
Printing, postage and stationery ........................... 32,340
Auditing fees .............................................. 25,325
Computer and related expenses .............................. 21,957
Registration and filing fees................................ 16,498
Custodian fees ............................................. 12,811
Insurance expense .......................................... 10,395
Trustee fees--Note C ....................................... 8,585
Other expenses.............................................. 11,283
-------------
Total Expenses ............................................. 1,123,255
------------
Net Investment Income ...................................... 66,151
------------
Realized and Unrealized Gain on Investments--Note B:
Net realized gain from investment transactions ............. 2,661,936
Change in unrealized appreciation of investments ........... 24,099,700
------------
Net Gain on Investments .................................... 26,761,636
------------
Net Increase in Net Assets Resulting from Operations ....... $26,827,787
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 12
<PAGE>
- --------------------------------
Statements of Changes
in Net Assets
- --------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended
1999 December 31,
(unaudited) 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Increase in Net Assets
From Operations:
Net investment income ................................ $ 66,151 $ 529,082
Net realized gain from investment transactions ....... 2,661,936 5,367,820
Change in unrealized appreciation of investments ..... 24,099,700 37,027,890
------------ ------------
Net Increase in Net Assets Resulting from
Operations ....................................... 26,827,787 42,924,792
------------ ------------
Distributions to Shareholders:
From net investment income ........................... (247,015) (486,335)
From net realized gains on investment ................ (89,044) (5,203,325)
------------ ------------
Total Distributions............................... (336,059) (5,689,660)
------------ ------------
From Net Fund Share Transactions--Note E ............... 73,362,520 65,434,064
------------ ------------
Total Increase in Net Assets....................... 99,854,248 102,669,196
Net Assets:
Beginning of Period .................................. 211,258,849 108,589,653
------------ ------------
End of Period (including undistributed net investment
income of ($149,075) and $31,789, respectively) ...... $311,113,097 $221,258,849
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 13
<PAGE>
- --------------------------------
Financial Highlights
- -------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999 Year Ended December 31
Per Share Data (unaudited) 1998 1997 1996 1995
---------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value:
Beginning of Period .................. $ 20.47 $ 15.84 $ 12.15 $ 10.59 $ 8.13
-------- -------- -------- ------- -------
Income From Investment Operations:
Net investment income .................. .01 .05 .06 .05 .07
Net realized and unrealized gain
(loss) on investments ................ 2.36 5.18 4.46 2.54 2.90
-------- -------- -------- ------- -------
Total from investment operations ....... 2.37 5.23 4.52 2.59 2.97
-------- -------- -------- ------- -------
Less Distributions:
Net investment income ................ (.02) (.05) (.06) (.05) (.07)
Capital gains ........................ (.01) (.55) (.77) (.98) (.44)
-------- -------- -------- ------- -------
Total Distributions: .................. (.03) (.60) (.83) (1.03) (.51)
-------- -------- -------- ------- -------
Net asset value:
End of~period ......................... $ 22.81 $ 20.47 $ 15.84 $ 12.15 $ 10.59
======== ======== ======== ======= =======
Total Return ........................... 11.56% 33.34% 37.28% 24.60% 36.46%
Ratios & Supplemental Data
Net assets end of period
(000's omitted) ...................... $311,113 $211,259 $108,590 $60,275 $48,337
Ratio of operating expenses to
average net assets ................... .85%** .94% 97% 1.21% 1.37%
Ratio of net investment income
to average net assets ................ .14%** .44% .45% .47% .74%
Portfolio turnover rate ................ 26.90%** 18.54% 16.36% 25.27% 26.53%
</TABLE>
** Ratios are annualized
~ 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 14
<PAGE>
- -----------------------------------
Financial Highlights (continued)
- -----------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992~ 1991~ 1990~ 1989~
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value:
Beginning of Period ............. $ 8.37 $ 9.70 $ 10.37 $ 7.81 $ 7.89 $ 6.09
------- ------- ------- ------- ------- -------
Income From Investment Operations:
Net investment income ............. .06 .07 .07 .09 .09 .08
Net realized and unrealized gain
(loss) on investments ........... (.07) .16 (.15) 2.77 .03 1.91
------- ------- ------- ------- ------- -------
Total from investment operations .. (.01) .23 (.08) 2.86 .12 1.99
------- ------- ------- ------- ------- -------
Less Distributions:
Net investment income .......... (.06) (.07) (.07) (.12) (.09) (.09)
Capital gains .................. (.17) (1.49) (.52) (.18) (.11) (.10)
------- ------- ------- ------- ------- -------
Total Distributions: ............. (.23) (1.56) (.59) (.30) (.20) (.19)
------- ------- ------- ------- ------- -------
Net asset value:
End of~period ................... $ 8.13 $ 8.37 $ 9.70 $ 10.37 $ 7.81 $ 7.89
======= ======= ======= ======= ======= =======
Total Return ...................... (0.07)% 2.44% (0.73)% 36.91% 1.52% 32.73%
Ratios & Supplemental Data
Net assets end of period
(000's omitted) ................. $35,459 $38,694 $42,609 $40,873 $27,189 $27,205
Ratio of operating expenses to
average net assets .............. 1.53% 1.45% 1.42% 1.50% 1.74% 1.77%
Ratio of net investment income
to average net assets ........... .74% .62% .71% 1.02% 1.19% 1.11%
Portfolio turnover rate ........... 25.55 35.14% 28.91% 15.63% 37.18% 22.97%
</TABLE>
** Ratios are annualized.
~ 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 15
<PAGE>
HERE
- -------------------------------------
Notes to the Financial Statements
for the period ended June 30, 1999
- -------------------------------------
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.
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.
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
Page 16
<PAGE>
- ---------------------------------------
Notes to the Financial Statements
for the period ended June 30, 1999 --
continued
- ---------------------------------------
amounts of revenues and expense 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 $106,148,612 and $35,488,497, respectively,
for the six months ended June 30, 1999.
Note E-Shares of Beneficial Interest At
June 30, 1999, 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, 1999 December 31, 1998
----------------------------------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold............................ 4,647,259 $102,306,725 6,132,271 $111,339,313
Shares issued to shareholders
in reinvestment of distributions from
net investment income and realized
gains from security transactions ...... 13,859 291,303 274,986 5,161,310
---------- ----------- ---------- -----------
4,661,118 102,598,028 6,407,257 116,500,623
Shares repurchased..................... (1,344,770) (29,235,508) (2,939,702) (51,066,559)
---------- ----------- ---------- -----------
Net Increase........................... 3,316,348 $73,362,520 3,467,555 $65,434,064
---------- ----------- ---------- -----------
</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.
Page 17
<PAGE>
- ---------------------------------------
Notes to the Financial Statements
for the period ended June 30, 1999 --
continued
- ---------------------------------------
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 $15,000,000 with an unused
balance at June 30, 1999 of $11,478,750.
The following information relates to aggregate short-term borrowings for the
six month period ended June 30, 1999:
<TABLE>
<CAPTION>
<S> <C>
Average amount outstanding (total of daily outstanding principal balances
divided by number of days during the period) ................................... $4,173,961
Weighted average interest rate (actual interest expense on short-term
borrowing divided by average short-term borrowings outstanding) ................ 5.64%
</TABLE>
Interest expense includes commitment fees of $4,785. Securities with market
values aggregating $30,901,463 have been pledged to collateralize short-term
borrowings.
Note H-Securities Lending
The Fund may seek additional income by lending portfolio securities to
qualified institutions. The Fund will receive cash or securities as collateral
in an amount equal to at least 102% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it receives
in these transactions, the Fund could realize additional gains and losses. If
the borrower fails to return the securities and the value of the collateral has
declined during the term of the loan, the Fund will bear the loss. At June 30,
1999, the value of the securities loaned and the value of collateral were
$12,404,912 and $12,800,209, respectively. For the six months ended June 30,
1999, income from securities lending has amounted to $19,838 and is included in
interest income.
Page 18
<PAGE>
Trustees
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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
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Northeast Management & Research Company, Inc.
50 Congress Street
Boston, Massachusetts 02109
Custodian
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Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02205
Legal Counsel
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Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
One Financial Center
Boston Massachusetts 02111
Transfer Agent
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Northeast Investors Growth Fund
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~www.northeastinvestors.com
-------------------------------------------------------------------
The share price for Northeast Investors Growth Fund is quoted daily
in the Mutual Funds section of most major newspapers under several
abbreviations including: NE Inv GR, NE Investors.
-------------------------------------------------------------------
