Securities Act of 1933 Registration No. 2-68483
Investment Act of 1940 Registration No. 881-3079
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A-A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. ______ [ ]
Post-Effective Amendment No. 22 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 24 [X]
NORTHEAST INVESTORS GROWTH FUND
(Exact Name of Registrant as Specified in Charter)
50 Congress Street
Boston, Massachusetts 02109
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 523-3588
William A. Oates, Jr.
President
Northeast Investor Growth Fund
50 Congress Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copies to:
Thomas J. Kelly, Esq.
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
It is proposed that the filing will become effective under Rule 485:
[ ]Immediately upon filing pursuant to paragraph (b),
[ ] On _____________________________ pursuant to paragraph (b),
[ ] 60 days after filing pursuant to paragraph (a)(1),
[X ] On May 1, 1999 pursuant to paragraph (a)(1),
[ ] 75 days after filing pursuant to paragraph (a)(2).
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
NORTHEAST INVESTOR GROWTH FUND
Cross Reference Sheet
Pursuant to Rule 481(a)
Under the Securities Act of 1933
PART A
Item No.~Registration Statement Caption Caption in Prospectus
1.Front and Back Cover Pages Front and Back CoverPages
2.Risk/Return Summary: Investment, Overview of the Fund;Fund Goals,
Risks, and Performance Strategies, Risks and Management
3.Risk/Return Summary: Fee Table Investor Expenses
4.Investment Objectives, Principal Fund Goals, Strategies, Risks
Investment Strategies, and Related and Management; Additional
Risks Information
5.Management's Discussion of Performance Annual Report; Back Cover Page
6.Management, Organization and Advisory and Service Contract;
Capital Structure Additional Information
7.Shareholder Information Your Account
8.Distribution Arrangements Sales without "Sales Charge"
9.Financial Highlights Information Financial Highlights
PART B
Item No.~Registration Statement Caption Caption in Statement of Additional
Information
10.Cover Page and Table of Contents CoverPage; Table of Content
11.Fund History The Fund
12.Description of the Fund and The Fund; Investment Restrictions
its Investments and Risks
13.Management of the Fund Trustees and Officers
14.Control Persons and Principal Holders Trustees and Officers
of Securities
15.Investment Advisory and Other Services Advisory and Service Contract;
Custodian and Independent
Accountants
16.Brokerage Allocation and Other Brokerage
Practices
17.Capital Stock and Other Securities The Fund; Capital Shares
18.Purchase, Redemption and Pricing of Price and Net Asset Value;
Shares Shareholder Plans; Tax-Advantaged
Retirement Plans
19.Taxation of the Fund Dividends, Distributions and
Federal Taxes
20.Underwriters Not Applicable
21.Calculation of Performance Data Historical Performance Information
Information
22.Financial Statements Financial Statements PART C The information required to
be included in Part C is set forth under the appropriate Item, so numbered, in
Part C to this Registration Statement.
NORTHEAST INVESTORS GROWTH FUND
50 Congress Street
Boston, Massachusetts 02109
(800) 225-6704
(617) 523-3588
SHARES OF BENEFICIAL INTEREST
PROSPECTUS
May 1, 1999
The Fund's primary investment objective is to produce long-term growth of both
capital and future income for its shareholders. The Fund pursues this objective
through a flexible policy emphasizing investments in common stocks, generally
of large domestic issuers. This prospectus has information you should know
before you invest. Please read it carefully and keep it with your investment
records. Although these securities have been registered with the Securities and
Exchange Commission, as with all mutual funds, neither the SEC nor any state
securities commission has approved these securities or determined that this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
TABLE OF CONTENTS
OVERVIEW OF THE FUND 1
Goals And Strategies 1
Risks. 2
Portfolio Manager. 2
Performance. 2
INVESTOR EXPENSES 3
FINANCIAL HIGHLIGHTS 5
SALES WITHOUT "SALES CHARGE\ 5
SHAREHOLDER INFORMATION 5
General Information 5
How to Invest 7
Investment Plans 8
How To Withdraw Your Investment 8
How to Exchange Your Investment 9
Distributions 10
Tax Consequences 10
Fund Policies 11
FUND MANAGEMENT 11
ADDITIONAL INFORMATION 12
Securities Lending. 12
Repurchase Agreements. 12
Leverage 12
Year 2000 Compliance 12
OVERVIEW OF THE FUND
Northeast Investors Growth Fund offers investors a growth-oriented
investment opportunity without paying any sales charge or load. The investment
objective is to produce long-term growth of both capital and future income. In
pursuing a positive total return, the Fund may sometimes invest in debt
securities or money market instruments. Normally, however, management expects to
be fully invested in common stocks.
The Fund may be appropriate for investors who seek one or more of the
following:
capital appreciation of their investment over the long-term a fund
emphasizing established companies with consistent earnings growth
You should also consider the following:
an investment in the Fund should be part of a balanced investment program
the Fund is generally for investors with longer-term investment horizons
there is a risk that you could lose money by investing in the Fund and
there is no assurance that it will achieve its investment objectives
Fund shares are not bank deposits and are not guaranteed, endorsed or
insured by any financial institution, government entity or the FDIC
Goals And Strategies The Fund's goal is to produce long-term growth of both
capital and future income for its shareholders. To achieve this, the Fund
maintains a flexible investment policy. This policy allows the Fund to pursue
its objective throug investments in common stocks, corporate bonds and money
market instruments. The Fund may also invest in securities convertible into
common stocks, warrants and in preferred stocks. Normally, the assets of the
Fund will be fully invested at all times except for cash required to meet
expenses. The Fund, at times, will make limited use of borrowed funds. Leverage
is limited to one quarter of the Fund's total assets. The Fund will generally
invest a major portion of its assets in common stocks whose prices appear to
management to be relatively low in relation to one or
more of a company's earnings potential, net worth or book value and future
stream of dividends. These may include common stocks not currently paying a
dividend. From time to time, the Fund may invest in corporate debt securities.
The focus would be on bonds selling substantially below their par or maturity
value. The Fund may invest for relatively short periods of time in short-term,
highly liquid securities with maturities of 180 days or less. These securities
may include commercial paper rated in the highest category by either Moody's
Investors Service or Standard & Poor's Corporation or securities issued or
guaranteed by the U.S. Government. This would be likely to happen when
management believes that liquidity is highly desirable. Risks. Portfolio Risks.
The Fund's major risks are those commonly associated with stock investing. As
with any growth mutual fund that invest in stocks, these include the potential
for the depreciation in the value of your investment resulting from the changing
economic and market conditions as well as declining fundamentals associated with
individual companies or industries that the Fund is invested in. The degree to
which the Fund's share price reacts to these changes will depend upon the Fund's
level of exposure to the areas that are being effected. When you sell you shares
of a fund, they could be worth more or less than what you paid for them.
Leverage. The Fund may borrow money from banks to raise additional funds for
investment or to avoid liquidating securities to meet cash needs, such as for
redemptions. Investment gains made with borrowed funds can cause net asset value
to rise faster, but in a falling market net asset value may decrease faster.
Leverage can, therefore, involve additional risk.
Portfolio Manager.
William A. Oates, Jr. is the portfolio manager of the Fund. He has been in the
investment business for more than 27 years and has been the portfolio manager
of the Fund since its inception in 1980. Mr. Oates is assisted in his
portfolio manager's responsibilities by Gordon C. Barrett.
Performance.
The following information gives you some indication of the performance of the
Fund by comparing its average annual total return with the Standard & Poor's 500
Index.
Periods Ended December 31, 1998
<TABLE>
<CAPTION>
~One Year ~Five Years ~Ten Years ~Life of Fund
<S> <C> <C> <C> <C>
~~The Fund ~33.34% ~25.48% ~19.30% ~15.58%
~~Standard & Poor's
500 Index ~28.58% ~24.00% ~19.14% ~16.88%~~
The unmanaged Standard & Poor's Index is shown for comparative purposes.
As you know, past performance does not guarantee future
results.
</TABLE>
The following bar chart shows the Fund's annual total return for each of the ten
years ended December 31, 1998:
EDGAR REFERENCE CHART
Best quarter: 4th quarter 1998, up 27.50%
Worst quarter: 3rd quarter 1998, down -13.96%
<TABLE>
<CAPTION>
INVESTOR EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(Fees Paid Directly From Your Investment)
<S> <C>
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fees None
Annual Fund Operating Expenses
(Expenses That Are Deducted From Fund Assets)
Distribution (12b-1 Fees) None
Management Fees .57
Other Expenses (b) .37%
Total Fund Operating Expenses .94%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds based on the Fund's actual 1998
expenses. The example assumes that you invest $10,000 in the Fund for the time
periods indicated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs maybe higher or lower, based on these assumptions your costs would
be: <TABLE> <CAPTION>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
$96 $300 $520 $1,155
</TABLE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 10 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, Independent
Accountants, for the years ended December 31, 1993 through December 31, 1998 and
by other Auditors for the years ended December 31, 1989 through December 31,
1992. The report of PricewaterhouseCoopers LLP on the financial statements and
financial highlights for the year ended December 31, 1998 is Included in the
Statement of Additional Information.
<TABLE>
Years Ended December 31
Per Share Data 1998 1997 1996 1995 1994 1993 1992~ 1991~ 1990~ 1989~
<S> <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
Income From Investment
Operations:
Net investment income 0.05 .06 .05 .07 .06 .07 .07 .09 .09 .08
Net realized and
unrealized gain (loss)
on investments 5.18 4.46 2.54 2.90 (.07) .16 (.15) 2.77 .03 1.91
----- ----- ---- ---- ----- ----- ----- ----- ----- -----
Total from investment
operations 5.23 4.52 2.59 2.97 (.01) .23 (.08) 2.86 .12 1.99
Less Distributions:
Net investment income. (.05) (.06) (.05) (.07) (.06) (.07) (.07) (.12) (.09) (.09)
Capital gains (0.55) (.77) (.98) (.44) (.17) (1.49) (.52) (.18) (.11) (.10)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Distributions (0.60) (.83) (1.03) (.51) (.23) (1.56) (.59) (.30) (.20) (.19)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value:
End of period $20.47 $15.84 $12.15 $10.59 $8.13 $8.37 $9.70 $10.37 $7.81 $7.89
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Return 33.34% 37.28% 24.60% 36.46% (.07%) 2.44% (.73%) 36.91% 1.52% 32.73%
Ratios & Supplemental Data Net assets end of period (000's omitted)$211,259
$108,590 $60,275 $48,337 $35,459 $38,694 $42,609 $40,873 $27,189 $27,205 Ratio
of operating expenses to average net assets 0.94% .97% 1.21% 1.37% 1.53% 1.45%
1.42% 1.50% 1.74% 1.77% Ratio of net investment
income to average
net assets .44% .45% .47% .74% .74% .62% .71% 1.02% 1.19% 1.11%
Portfolio turnover rate 18.54% 16.36% 25.27% 26.53% 25.55% 35.14% 28.91% 15.63% 37.18% 22.97%
<FN>
~ 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.
</FN>
</TABLE>
SALES WITHOUT "SALES CHARGE"
The Fund offers investors an opportunity to share in the benefits of a mutual
fund without requiring that they pay a sales commission or distribution expense.
It has no "sales charge", "load charge" or "12b-1 expense". The purchase of
shares of numerous other mutual funds requires the investor to pay a substantial
amount for a selling commission and related expenses. This reduces the net
amount invested which the Fund actually receives.
SHAREHOLDER INFORMATION
General Information
For account, product and service information, please use the following
web site, phone number or address: For information over the Internet,
visit the Fund's web site at www.Northeastinvestors.com For information
over the phone use 1-800-225-6704 For information by mail please use
Northeast Investors Growth Fund
50 Congress Street
Boston, MA 02109
The different ways to set up (register) your account with the Fund are
listed in the following table.
Individual or Joint Tenant
For your general investment needs
Retirement
For tax-advantaged retirement savings Traditional Individual Retirement Accounts
(IRAs) Roth IRAs Roth Conversion IRAs Rollover IRAs Educational IRAs Keogh Plans
SIMPLE IRAs Simplified employee Pension Plans (SEP-IRAs) 403(b) Custodial
Accounts
Gifts or Transfers to a Minor (UGMA, UTMA) To invest for a child's education or
other future needs
Trust
For money being invested by a trust
Business or Organization
For investment needs of corporations, associations, partnerships or other groups
How to Invest Your initial investment must be accompanied by a completed
Application, in the form attached to this Prospectus. You may purchase shares of
the Fund at their
per share net asset value next determined after the Fund or an authorized
broker or agent receives a purchase order. There is no sales charge or
commission. The Fund computes net asset value per share by dividing the marke
value of all securities plus other assets, less liabilities, by the number of
shares outstanding. Net asset value is determined as of the close of the
New York Stock Exchange on each day when it is open. Brokers or dealers may
accept purchase and sale orders for shares of the Fund and may impose a
transaction charge for this service. Any investor may, however, purchase or
redeem shares without such additional charge by dealing directly with the Fund.
Short-term or excessive trading into and out of a fund may harm performance by
disrupting portfolio management strategies and by increasing expenses.
Accordingly, the Fund may reject any purchase orders, including exchanges,
particularly from market timers or investors who, in the Fund's opinion, have a
pattern of short-term or excessive trading or whose trading has been or may be
disruptive to the Fund. When you place an order to buy shares, note the
following: The minimum initial investment in the Fund for each account is
$1,000. Checks must be drawn on U.S. banks. The Fund does not accept cash.
Purchase orders may be sent directly or through an authorized broker or an other
authorized agent. There is no minimum for subsequent investment either by mail,
telephone or exchange. There is a maximum for telephone investments of $100,000.
You may participate in an automatic investment plan by completing the
appropriate section of the application. Under the Fund's automatic investment
plan regular deductions (minimum $50) will be made from your bank checking
account. Investment Plans The Fund offers shareholders tax-advantaged retirement
plans, including a Prototype Defined Contribution Plan for sole proprietors,
partnerships and corporations, Individual Retirement Accounts, and 403(b)
Retirement Accounts. Details of these investment plans are available from the
Fund at the address shown on the cover of this Prospectus. How To Withdraw Your
Investment You are entitled to redeem all or any portion of the shares credited
to your account by submitting a written request for redemption to the Fund.
Within seven days after the receipt of such a request in "good order" as
described below, you will be sent an amount equal to the net asset value of the
redeemed shares. This will be the value next determined after the redemption
request has been received. A redemption request will be considered to have been
received in "good order" if it meets the following requirements: The request is
in writing, indicates the number of shares to be redeemed and identifies your
account. You also send in any certificates issued representing the shares,
endorsed for transfer (or accompanied by a stock power) exactly as the shares
are registered. For redemptions in excess of $5,000, your signature has been
guaranteed by a U.S. bank or trust company, member of a national securities
exchange or other eligible guarantor institution. Mere witnessing of a signature
is not sufficient; a specific signature guarantee must be made with respect to
all signatures. A notary public is not an acceptable guarantor. In the case of
corporations, executors, administrators, trustees or other organizations you
enclose evidence of authority to sell. If shares to be redeemed represent an
investment made by check, the Fund reserves the right not to honor the
redemption request until the check has been collected up to a maximum of 15
days. A signature guarantee as described above is required on all redemptions
when the check is mailed to an address other than the address of record or if an
address change occurred in the past 30 days. Telephone redemptions are not
permitted (unless confirmed in writing on the same day).Telephone instructions
from the registered owner to exchange shares of the Fund for shares of Northeast
Investors Trust will be accepted. No specific election is required in the
Application to obtain telephone exchange or purchase privileges. The Fund will
employ reasonable procedures, including requiring personal identification, prior
to acting on telephone instructions to confirm that such instructions are
genuine. If the Fund does not follow such procedures it may be liable for losses
due to unauthorized or fraudulent instructions. Otherwise it will not be liable
for following instructions communicated by telephone that it reasonably believes
to be genuine. The Fund reserves the right to deliver assets in whole or in part
in kind in lieu of cash. The Fund is obligated to redeem shares solely in cash
up to the lesser of $250,000 or 1 percent of the net asset value of the Fund
during any 90 day period for any one shareholder. Shareholders receiving
redemptions in kind will incur brokerage costs in converting securities received
to cash. If you are an investor in a tax-advantaged retirement plan you should
consider specific taxpayer restrictions, penalties and procedures that may be
associated with redemptions from your retirement plan in order to qualify under
the provisions of the Internal Revenue Code. The Fund assumes no responsibility
for determining whether any specific redemption satisfies the conditions of
federal tax laws. That determination is your responsibility.
Penalties, if any, apply to withdrawals from the plan, not to redemptions
from the Fund, and are governed by federal tax law alone.
How to Exchange Your Investment
An exchange involves the redemption of all or a portion of the shares
of one fund and the purchase of shares of another fund.
As a shareholder, you have the privilege of exchanging shares of the
Fund for shares of Northeast Investors Trust. However, you should note the
following policies and restrictions governing exchanges: You may exchange only
between accounts that are registered in the same name, address, and taxpayer
identification number Before exchanging into a fund, read its prospectus
Exchanges may have tax consequences for you Each fund may temporarily or
permanently terminate the exchange privilege of any investor who makes excessive
exchanges out of the fund per calendar year The exchange limit may be modified
for accounts held by certain institutional retirement plans to conform to plan
exchange limits and Department of Labor regulations. See your plan materials for
further information Each fund may refuse exchange purchases by any group if, in
management's judgment, the fund would be unable to invest the money effectively
in accordance with its investment objective and policies, or would otherwise
potentially be adversely affected
The funds may terminate or modify the exchange privileges in the
future. Distributions The Fund earns dividends, interest and other income from
its investments, and distributes this income (less expenses) to shareholders as
dividends. The Fund also realizes capital gains from its investments, and
distributes these gains (less any losses) to shareholders as capital gain
distributions. When you open an account, specify on your application how you
want to receive your distributions. The following options are available for the
Fund's distributions: (1) Reinvestment Option. Your dividends and capital gains
distributions
will be automatically invested in additional shares of the Fund.
If you do not indicate a choice on your application, you will be assigned this
option.
(2) Income-Earned Option. Your capital gains distributions will be
automatically reinvested in additional shares of the Fund. Your
dividends will be paid in cash. (3) Cash Option. Your dividends and capital
gains distributions will be paid in cash. If you elect to receive the
distributions paid in cash by check and the U.S. Postal Service does not deliver
your checks, your distribution option may be converted to the Reinvestment
Option. You will not receive interest on amounts represented by uncashed
distribution checks. Tax Consequences As with any investment, your investment in
the Fund could have tax consequences for you. If you are not investing through a
tax-advantaged retirement account,
you should consider these tax consequences.
Taxes on Distributions. Distributions you receive from the Fund are subject to
federal income tax, and may also be subject to state or local taxes. For federal
tax purposes, the Fund's dividends and distributions of short-term capital gains
are taxable to you as ordinary income. The Fund's distributions of long-term
capital gains are taxable to you generally as capital gains. If you buy shares
when the Fund has realized but not yet distributed income or capital gains, you
will be "buying a dividend" by paying the full price for the shares and then
receiving a portion of the price back in the form you when you receive them,
regardless of your distribution option. Taxes on transactions. Your redemptions,
including exchanges, may result in a capital gain or loss for federal tax
purposes. A capital gain or loss on your investment in the Fund is the
difference between the cost of your shares and price you receive when you sell
them. Fund Policies The following policies apply to you as a shareholder.
Statements and reports that the Fund sends to you include the following:
Confirmation statements after transactions affecting your account balance.
Financial reports (every six months).
When you sign your account application, you will be asked to certify
that your social security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income to
the IRS. If you violate IRS regulations, the IRS can require the Fund to
withhold 31% of your taxable distributions and redemptions.
FUND MANAGEMENT
Northeast Management & Research Company, Inc. ("NMR") is the Fund's investment
manager. As the manager, NMR is responsible for choosing the fund's investments
and handling the general affairs of the Fund. NMR is subject to the general
supervision of the Fund's Trustees. NMR is a corporation organized in July, 1980
to manage the Fund, and at present engages in no other activities. Mr. Oates is
President of NMR and has been principally responsible for its day-to-day
management. NMR serves the Fund pursuant to an Advisory and Service Contract.
Under its terms, NMR is required to provide an investment program within the
limitations of the Fund's investment policies and restrictions, and is
authorized in its discretion to buy and sell securities on behalf of the Fund.
It also provides the Fund's executive management and office space.The Fund pays
NMR a fee at the end of each month calculated by applying a monthly rate, based
on an annual percentage fee of 1% of the Fund's average daily net assets for the
month up to and including $10,000,000, 3/4 of 1% of such average daily net
assets for the month above $10,000,000 up to and including $30,000,000 and 1/2
of 1% of such average daily net assets for the month in excess of $30,000,000
during such month. This fee is higher than that charged by advisers to many
other funds with similar objectives and policies. ADDITIONAL INFORMATION
Securities Lending
The Fund may seek additional income by lending portfolio securities to
qualified institutions that have a value of up to 33 1/3% of the Fund's assets.
The Fund will receive cash or cash equivalents (e.g. U.S. Government
obligations) as collateral in an amount at least equal to 100% of the current
market value of the loaned securities. The collateral will generally be held in
the form received, although cash may be invested in securities issued or
guaranteed by the U.S. Government and/or repurchase agreements. By reinvesting
cash it receives in these transactions, the Fund could magnify any gain or loss
it realizes on the underlying investment. If the borrower fails to return the
Securities and the collateral is insufficient to cover the loss, the Fund could
lose money. Repurchase Agreements.
The Fund may buy securities with the understanding that the seller will
buy them back with interest at a later date. If the seller is unable to honor
its commitment to repurchase the securities, the Fund could lose money. Leverage
In order to raise additional funds for investment or to avoid liquidating
securities to meet cash needs, such as for redemptions, the Fund may borrow
money from banks. The ability to borrow permits the Fund to minimize uninvested
cash. Any investment gains made with the additional funds in excess of the
interest paid will cause the net asset value of Fund shares to rise faster than
would otherwise be the case. On the other hand, if the investment performance of
the additional funds fails to cover their cost to the Fund, the net asset value
of the Fund will decrease faster than would otherwise be the case. The amount of
leverage to be outstanding at any one time cannot be estimated in advance since
the Fund may vary the amount of borrowings from time to time, including having
no borrowings at all. Under the Investment Company Act of 1940, as amended, the
Fund is required to maintain asset coverage of 300% of outstanding borrowings
and could be required to liquidate portfolio securities to reduce borrowings if
this requirement is not met. Year 2000 Compliance
The Fund has completed evaluation and testing of its internal systems
for year 2000 compliance. The year 2000 issue relates to systems designed to use
two digits rather than four to define the applicable year. Based upon the
results of the evaluation and testing the Fund believes that the year 2000 issue
will not pose significant operational problems with respect to its own systems.
The Fund is working with vendors and service providers to evaluate and test,
where appropriate, their year 2000 readiness; third parties are not subject to
the Fund's control and, as a result, the Fund cannot currently determine to what
extent it might be affected by the manner in which they address their own year
2000 issues. Expenses relating to this issue have not been, and are not expected
to be, material to the Fund and its shareholders.
FOR MORE INFORMATION
You can find additional information about the Fund in the following documents:
STATEMENT OF ADDITIONAL INFORMATION. (SAI). The SAI contains more detailed
information about the Fund and its investment Limitations and policies.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into this Prospectus (is legally part of this
prospectus).
ANNUAL AND SEMIANNUAL REPORTS. Additional information about the Fund's
investments is available in the Fund's Annual and Semiannual reports to
shareholders. In the Annual Report, you will find a discussion of the market
conditions and investment strategy that significantly affected the Fund's
performance during its last fiscal year. You may obtain a free copy of the
Fund's current Annual/Semiannual report or SAI by writing or calling the Fund
at: Northeast Investors Growth Fund 50 Congress Street Boston, MA 02109 (800)
225-6709 (617) 523-3588
You can also review and copy information about the Fund at the SEC's Public
Reference Room in Washington, D.C. You can call the SEC at 1-800-SEC-0300 for
information about the operation of the Public Reference Room. Reports and other
information about the Fund are available on the SEC's internet site at
http://www.sec.gov and copies may be obtained for a fee by writing the Public
Reference Center of the Securities and Exchange Commission,
Washington, D.C. 20549-6009.
NORTHEAST INVESTORS GROWTH FUND
50 Congress Street
Boston, Massachusetts 02109
(800) 225-6704
(617) 523-3588
Shares of Beneficial Interest
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
This Statement of Additional Information supplements the Prospectus for the Fund
dated May 1, 1999 and should be read in conjunction with the Prospectus. A copy
of the Prospectus may be obtained from the Fund at the above address. This
Statement of Additional Information is not a Prospectus.
TABLE OF CONTENTS Page
The Fund B-2
Investment Restrictions B-2
Trustees and Officers B-4
Advisory and Service Contract B-5
Custodian and Independent Accountants B-5
Brokerage B-6
Price and Net Asset Value B-6
Shareholder Plans B-7
Tax-Advantaged Retirement Plans B-7
Dividends, Distributions & Federal Taxes B-9
Capital Shares B-10
Historical Performance Information B-10
Financial Statements B-12
THE FUND
Northeast Investors Growth Fund, herein called the Fund, is a
diversified open-end management investment company originally rganized in 1980
under the laws of The Commonwealth of Massachusetts as a corporation and
converted to a Massachusetts business TRUST in 1987.
INVESTMENT RESTRICTIONS
The Fund's objective is to produce long-term growth of both capital and futur
income for its shareholders. This objective is pursued through a flexibl policy
emphasizing investments in common stocks and permitting investments in money
market instruments and corporate bonds.
In pursuing this objective it is the fundamental policy of the Fund not to
engage in any of the following activities or investment practices. These
restrictions may not be changed without the approval of a majority of the
outstanding shares. The Fund may not:
1. purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of the value of the
Fund's total assets at market value to be invested in the securities of such
issuer (other than obligations of the U.S. Government
and its instrumentalities);
2. purchase the securities of any issuer if such purchase, at the time thereof,
would cause more than 10% of any class of securities, or of the outstanding
voting securities, of such issuer to be held in the Fund's portfolio;
3. purchase securities of other investment companies except in the open market
where no commission other than the ordinary broker's commission is paid or as
part of a merger, and in no event may investments in such securities exceed 10%
of the value of the total assets of the Fund. The Fund may not purchase or
retain securities issued by another open-end investment company;
4. purchase any securities if such purchase, at the time thereof would cause
more than 25% of the value of the Fund's assets to be invested in securities of
companies in any one industry;
5. invest in the securities of companies which, including predecessors, have a
record of less than three years continuous operation, although it may invest in
the securities of regulated public utilities or pipe-line companies
which do not have such a record;
6. buy any securities or other property on margin, engage in short sales (unless
by virtue of its ownership of other securities it has a right to obtain
securities equivalent in kind and amount to the securities sold without
incurring additional costs) or purchase or sell puts or calls, or combinations
thereof;
7. invest in companies for the purpose of exercising control or
management;
8. buy or sell real estate, commodities or commodity (futures) contracts
unless acquired as a result of ownership of securities;
9. underwrite securities issued by others;
10. make loans to other persons (except by purchase of bonds and other
obligations constituting part of an issue, limited, in the case of privately
offered securities, to 10% of the Fund's total assets) . However, the Fund may
lend its portfolio securities to broker-dealers or other institutional investors
if, as a result thereof, the aggregate value of all securities loaned does not
exceed 33-1/3% of the total assets of the Fund;
11. purchase or retain securities issued by an issuer if the officers, Trustees
and Directors of the Fund and of the Adviser, together, own beneficially more
than 5% of any class of securities of such issuer.
In addition, the Fund may not purchase warrants in excess of 5% of the value of
the Fund's net assets. Included within that amount, but not to exceed 2% of the
value of the Fund's net assets, may be warrants which are not listed on the New
York or American Stock Exchange. Warrants acquired by the Fund at any time in
units or attached to
securities are not subject to this restriction.
The Fund will not purchase securities which are not readily marketable
(including repurchase agreements with maturities in excess of seven days) if
such purchase, at the time thereof, would result in more than 10% of the Fund's
net assets being invested in such securities.
The restrictions in the two preceding paragraphs are not fundamental and may be
changed by the Board of Trustees without shareholder approval or notification.
The Fund does not intend to engage in trading for short-term profits, and
portfolio turnover will be limited in accordance with the Fund's objective of
producing long-term growth. This does not, however, preclude an occasional
investment for the purpose of short-term capital appreciation. During the fiscal
years ended December 31, 1998 and 1997 the rates of total portfolio turnover
were 18.54% and 16.36% respectively. Although investment policy or changed
circumstances may require, in the opinion of management, an increased rate of
such portfolio turnover, the Adviser does not anticipate that such turnover will
be substantially in excess of that experienced by the Fund in recent years.
TRUSTEES AND OFFICERS
The Trustees of the Fund are Ernest E. Monrad, William A. Oates, Jr.,
Robert B. Minturn, Jr., John R. Furman and John C. Emery. Under Massachusetts
law, the Trustees are generally responsible for the management of the Fund.
The following table provides certain
information about the Fund's Trustees and officers:
Name, Address and Age~Position(s) Held with Fund~Principal Occupation(s) During
Last 5 Years~Aggregate Compensation from Fund
William A. Oates, Jr.*
50 Congress Street
Boston, MA
Age 56~President and Trustee~President and Trustee of Fund~-0-
Ernest E. Monrad* 50 Congress Street Boston, MA Age 68~Chairman of the Trustees,
Assistant Treasurer and Trustee~Chairman and Trustee of Northeast Investors
Trust~-0-
Robert B. Minturn, Jr.*
50 Congress Street
Boston, MA
Age 59~Vice President, Clerk and Trustee~Clerk and Trustee of Northeast
Investors Trust~-0-~
Gordon C. Barrett
50 Congress Street
Boston, MA
Age 42~Vice President and Treasurer~Executive Vice President and Treasurer
of Northeast Investors Trust~86,000
John R. Furman
32 Manning Road
Billerica, MA
Age 81~Trustee~Chairman and Director, Furman Lumber Company~$4,000
John C. Emery
One Post Office Square
Boston, MA
Age 68~Trustee~Partner, Law Firm of Sullivan & Worcester~$4,000~~
*Indicates a Trustee who is an "interested person" under the Investment Company
Act of 1940, as amended.
The total number of shares owned beneficially by the Trustees, officers and
members of their immediate families on February 18, 1999 was 179,622.75 shares
(1.6%).
ADVISORY AND SERVICE CONTRACT
Northeast Management & Research Company, Inc. ("NMR") serves the Fund pursuant
to an Advisory and Service Contract. Under its terms, NMR is required to provide
an investment program within the limitations of the Fund's investment policies
and restrictions, and is authorized in its discretion to buy and sell securities
on behalf of the Fund.
NMR pays the Fund's executive and certain administrative salaries and rent, with
the following expenses borne by the Fund: (a) taxes and other governmental
charges, if any, (b) interest on borrowed money, if any, (c) legal fees, (d)
auditing fees, (e) insurance premiums, (f) dues and fees for membership in trade
associations, if any, (g) fees and expenses of registering and maintaining
registrations by the Fund of its shares with the Securities and Exchange
Commission and of preparing reports to government agencies and expenses of
registering shares under Federal and state laws and regulations, (h) fees and
expenses of trustees not affiliated with or interested persons of
NMR, (i) fees and expenses of the custodian, (j) expenses of acting as its own
dividend disbursing agent and transfer agent, (k) issue and transfer taxes
chargeable to the Fund in connection with securities transactions to which the
Fund is a party, (1) cost of reports to shareholders and expense of
shareholders'meetings, including the mailing and preparation of proxy material,
and trustees meetings, and (m) the cost of share certificates representing
shares of the Fund.
The Fund also pays all brokers' commissions in connection with its portfolio
transactions.
The Fund is also liable for such non-recurring expenses as may arise, including
litigation to which the Fund may be a party. The Fund may have an obligation to
indemnify its officers and trustees with respect to such litigation.
For 1998,1997 and 1996, respectively, the advisory fee was $834,910, $462,146,
and $352,644.
CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The custodian for the Fund is Investors Bank & Trust Company, 200 Clarendon
Street , Boston, Massachusetts. The custodian maintains custody of the Fund's
assets. The Fund acts as its own Transfer and Shareholder Servicing Agent.
The independent accountants for the Fund are PricewaterhouseCoopers LLP, One
Post Office Square, Boston, Massachusetts. PricewaterhouseCoopers LLP audits the
Fund's annual financial statements included in the annual report to
shareholders, reviews the Fund's filings with the Securities and Exchange
Commission on Form N-lA and prepares the Fund's federal income and excise tax
returns.
BROKERAGE
Decisions to buy and sell securities for the Fund and as to assignment of its
portfolio business and negotiation of its commission rates are made by NMR. It
is NMR's policy to obtain the best security price available, and, in doin so,
NMR assigns portfolio executions and negotiates commission rates in accordance
with the reliability and quality of a broker's services and their value and
expected contribution to the performance of the Fund. In order to
minimize brokerage charges, the Fund seeks to execute portfolio transactions
with the principal market maker for the security to which the transaction
relates in the over-the-counter market unless it has been determined that best
price and execution are available elsewhere. Such portfolio transactions may
be carried out with broker-dealers that have provided NMR or the Fund with
statistics, other information and wire and other services. Such services may
include furnishing advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing portfolio analyse
and reports concerning issuers, industries, securities, economic factors and
trends; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). It is not, however,
NMR's policy to pay a higher net price to a broker-dealer or receive a lower
net price from a broker-dealer solely because it has supplied such services.
During 1998 and 1997 the Fund paid brokerage commissions of $109,897
and $52,143 respectively.
PRICE AND NET ASSET VALUE
It is the current policy of the Fund that the public offering price of shares of
the Fund equal their net asset value, the Fund receiving the full amount paid by
the investor. The net asset value is determined as of the close of the New York
Stock Exchange on each day that the Exchange is open. It is the only price
available to investors whose orders were received prior to the close of the
Exchange on that day. The price to investors whose applications for purchase are
received after the close of the New York Stock Exchange or on a non-busines day
will be the net asset value next determined. The net asset value of the Fund's
shares is determined by dividing the market value of the Fund's securities, plus
any cash and other assets (including dividends accrued) less all liabilities
(including accrued expenses but excluding capital and surplus by the number of
shares outstanding. Securities and other assets for which market quotations are
readily available are valued at market values determined on the basis of the
last quoted sale prices prior to the close of the New York Stock Exchange (or
the last quoted bid prices in the event there are no sales reported on that day)
in the principal market in which such securities normally are traded as publicly
reported or furnished by recognized dealers in such securities. Securities and
other assets for which market quotations are not readily available (including
restricted securities, if any) are valued at their fair value as determined in
good faith under consistently applied procedures approved by the Board of
Trustees. Securities may also be valued on the basis of valuations furnished by
a pricing service that uses both dealer supplied valuations and evaluations
based on expert analysis of market data and other factors if such valuations are
believed to reflect more accurately the fair value of such securities. An
adjustment will be made for fractions of a cent to the next highest cent. The
Fund makes no special payment for the daily computation of its net asset value.
SHAREHOLDER PLANS
Open Accounts
Upon making an initial investment (minimum amount $1,000), a shareholder will
automatically have an Open Account established for him on the books of the Fund.
Once any account is opened there is no limitation to the size or frequency of
investment. The shareholder will receive a confirmation from the Fund of this
and each subsequent transaction in his Account showing the current transaction
and the current number of shares held. A shareholder may make additional
investments in shares of the Fund at any time by ordering the Fund shares at th
then applicable public offering price. Share certificates which have been
issued to a shareholder may be returned to the Fund at any time for credit to
the shareholder's Open Account. Shares held in an Open Account may be redeemed
as described in the Prospectus under "How to Withdraw Your Investment". Income
dividends and capital gains distributions are credited in shares on the payment
date (which may be different than the record date) at the applicable record date
closing net asset value, unless a shareholder has elected to receive all income
dividends and/or capital gains distributions in cash.
Automatic Investment and Withdrawal Plans
These Plans have been developed to accommodate those who wish to make purchases
or sales of shares of the Fund on a continuing basis without the imposition of
any fee or service charge. Subject to the initial investment minimum of $1,000
any shareholder maintaining an Open Account may request in his application or
otherwise in writing that investments be made through automatic deductions
(minimum $50) from his bank checking or savings account or that withdrawals be
made automatically with the redemption price paid by check or electronic funds
transfer. The shareholder may cancel his participation in either Plan at any
time, and the Fund may modify or terminate either Plan at any time.
An investor should understand that he is investing in a security, the price of
which fluctuates, and that under the Plans he will purchase or sell shares
regardless of their price level and that if he terminates the Plan and sells his
accumulated shares at a time when their market value is less than his cost, he
will incur a loss. In the case of the Automatic Investment Plan, he should also
take into account his financial ability to continue the Plan through periods of
low prices and understand that the Plan cannot protect him against loss in
declining markets.
TAX-ADVANTAGED RETIREMENT PLANS
In addition to regular accounts, the Fund offers tax-advantaged retirement plans
which are described briefly below. Contributions to these plans are invested
in shares of the Fund; dividends and other distributions are reinvested in
shares of the Fund. Contributions may be invested in shares of Northeast
Investors Trust as well as shares of the Fund.
Contributions to these retirement plans, within the limits and circumstances
specified in applicable provisions of the Internal Revenue Code, are excludable
or deductible from the participant's income for federal income tax purposes.
In addition, non-deductible or after-tax contributions may be made to these
retirement plans to the extent permitted by the Internal Revenue Code.
Reinvested dividends and other distributions accumulate free from federal
income tax while the shares of the Fund are held in the plan. Distributions
from these plans are generally included in income when received; however,
after-tax or non-deductible contributions may be recovered without additional
federal income tax. Premature distributions, insufficient distributions after
age 70 1/2 or excess contributions may result in penalty taxes.
Investors Bank & Trust Company serves as trustee or custodian of each of the
following plans. It is entitled to receive specified fees for its services.
Detailed information concerning each of the following plans (including
schedules of trustee or custodial fees) and copies of the plan documents are
available upon request to the Fund at its offices.
An individual investor or employer considering any of these retirement plans
should read the detailed information for the plan carefully and should consider
consulting an attorney or other competent advisor with respect to the
requirements and tax aspects of the plan.
Prototype Defined Contribution Plan
The Fund offers a Prototype Defined Contribution Plan suitable for adoption by
businesses conducted as sole proprietorships, partnerships or corporations.
The employer establishes a Prototype Defined Contribution Plan by completing an
adoption agreement specifying the desired plan provisions. The adoption
agreement offers flexibility to choose appropriate coverage, eligibility,
vesting and contribution options subject to the requirements of law. Under a
supplement to the Prototype Defined Contribution Plan, an employer may
establish a salary reduction or 401(k) plan.
Individual Retirement Account (IRA)and Roth IRA
An individual may open his own Individual Retirement Account (IRA) or Roth IRA
using a custodial account form approved for this purpose by the IRS. An
individual may have an IRA even though he is also an active participant in a
pension or profit-sharing plan or certain other plans. However, depending on the
individual's adjusted gross income and tax return filing status, contributions
for an individual who is an active participant in another plan
may be partially or entirely non-deductible. Contributions to a Roth IRA are
non-deductible, but income and gains accumulate free of income tax and
distributions after age 59 1/2 are generally not taxable.
403(b) Retirement Account
Certain charitable and educational institutions may make contributions to a
403(b) Retirement Account on behalf of an employee. The employee may enter into
a salary reduction agreement with the employer providing for the employee to
reduce his pay by the amount specified in the agreement and for the employer
to contribute such amount to the employee's 403(b) Retirement Account. Funds
in the account may generally be withdrawn only upon the participant's reaching
age 59 1/2 or his termination of employment, financial hardship, disability, or
death.
DIVIDENDS, DISTRIBUTIONS & FEDERAL TAXES
It is the Fund's policy to distribute net investment income and net realized
capital gains on sales of investments (less any available capital loss carry
forwards) annually. Dividends and distributions are credited in shares of the
Fund unless the shareholder elects to receive cash.
Any dividends or distributions paid shortly after a purchase of shares by an
investor will have the effect of reducing the per share net asset value of his
shares by the per share amount of the dividends or distributions. Furthermore,
such dividends or distributions, although in effect a return of capital, are
subject to income taxes.
It is the policy of the Fund to distribute its net investment income and net
realized gains for each year in taxable dividends and capital gain distributions
so as to qualify as a "regulated investment company" under the Internal Revenue
Code. The Fund did so qualify during its last taxable year.
A regulated investment company which meets the diversification of assets and
source of income requirements prescribed by the Internal Revenue Code is
accorded conduit or "pass through"treatment if it distributes to its
shareholders at least 90% of its taxable income exclusive of net capital gains,
i.e., it will be taxed only on the portion of such income which it retains.
To the extent that a regulated investment company distributes the excess of its
net long-term capital gain over its net short-term capital loss (including any
capital loss carry-over from prior years), such capital gain is
not taxable to the company but it is taxable to the shareholder.
Income dividends and capital gain distributions are taxable as described,
whether received in cash or additional shares.Shareholders who have not
supplied the Fund with appropriate information with respect to their tax
identification or social security number or who are otherwise subject to back-up
withholding may have 31% of distributions withheld by the Fund.
The foregoing discussion relates to federal income taxation. Dividends and
capital gain distributions may also be subject to state and local taxes, and
shareholders should consult with a qualified tax advisor.
CAPITAL SHARES
The Fund has only one class of securities--shares of beneficial interest without
par value--of which an unlimited number are authorized. Each share has one vot
and when issued, is fully paid and nonassessable. Fractional shares may be
issued and when issued, have the same rights proportionately as full shares.
The shares are transferable by endorsement or stock power in the customary
manner, but the Fund is not bound to recognize any transfer until it is recorded
on the books of the Fund. Each share is entitled to participate equally in any
dividends or distributions declared by the Trustees. In the event of liquidation
of the Fund, the holders of shares are entitled to all assets remaining for
distribution after satisfaction of all outstanding liabilities. Distributions
would be in proportion to the number of shares held. No shares carry any
conversion, subscription, or other preemptive rights.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Fund. However, the Declaration
of Trust provides that the Trustees shall have no power to bind the shareholders
personally and requires that all contracts and other instruments shall recite
that the same are executed by the Trustees as Trustees and not individually and
that the obligations of such instruments are not binding upon any of the
Trustees or shareholders individually but are binding only upon the Fund's
assets. The Fund is advised by counsel (Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C.) that under the applicable Massachusetts decisions, no personal
liability can attach to the shareholders under contracts of the Fund containing
this recital. Moreover, the Declaration of Trust provides that any shareholder
of the Fund shall be indemnified by the Fund for all loss and expense incurred
by reason of his being or having been a shareholder of the Fund. Thus the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.
HISTORICAL PERFORMANCE INFORMATION
From time to time, the Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
EMBED Equation.2 ~ (ERV)1/N -1
P
Where:
P = a hypothetical initial payment of $1,000
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods at the end of the 1,5 or 10
year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions. The Fund may also advertise total return (a
"nonstandardized quotation") which is calculated differently from average annual
total return. A nonstandardized quotation of the total return may be a
cumulative return which measures the percentage change in the value of an
account between the beginning and end of a period, assuming no activity in the
account other than reinvestment of dividends and capital gains distributions.
A nonstandardized quotation may also indicate average annual compounded rates
of return over periods other than those specified for average annual total
return. A nonstandardized quotation of total return will always be accompanied
by the Fund's average annual total return as described above. The Fund's total
return for the one, five and for year periods ended December 31, 1998 are set
forth in the Prospectus.
From time to time, the Fund may also advertise its yield. A yield quotation is
based on a 30-day (or one month) period and is computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula:
Yield = 2[(a-b/cd + 1)6 - 1] Where:
a = dividends and interest earned during the period b = expenses accrued for the
period (net of reimbursements) c = the average daily number of shares
outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that a Fund
owns the security. Generally, interest earned (for the purpose of "a" above) on
debt obligations is computed by reference to the yield to maturity of each
obligation held based on the market value of the obligation (including actual
accrued interest) at the close of business on the last business day prior to the
start of the 30-day (or one month) period for which yield is being calculated,
or, with respect to obligations purchased during the month, the purchase price
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest). With respect to the treatment of discount and
premium on mortgage or other receivables-backed obligations which are expected
to be subject to monthly paydowns of principal and interest, gain or loss
attributable to actual monthly paydowns is accounted for as an increase or
decrease to interest income during the period and discount or premium on the
remaining security is not amortized.
The performance quotations described above are based on historical experience
and are not intended to indicate future performance.
the Fund may discuss various measures of Fund performance, including curren
performance ratings and/or rankings appearing in financial magazines,
newspapers and publications which track mutual fund performance. Advertisements
may also compare performance to performance as reported by other investments,
indices and averages.
FINANCIAL STATEMENTS
The following financial statements are included in this Statement of Additional
Information:
1. Report of PricewaterhouseCoopers LLP, Independent Accountants
2. Schedule of Investments as of December 31, 1998
3. Statement of Assets and Liabilities as of December 31, 1998
4. Statement of Operations for the Year Ended December 31,1998
5. Statement of Changes in Net Assets for each of the two years in the
period ended December 31, 1998
6. Notes to Financial Statements for the year ended December 31, 1998 # 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.
Schedule of Investments
December 31, 1998
<TABLE>
Common Stocks
<CAPTION>
Number of Value Net
Name of Issuer Shares (Note B) Assets
<S> <C> <C> <C>
Automobile & Truck
General Motors Corporation............................... 12,200 $ 858,575 0.4%
Banks
BankBoston Corporation*.................................. 126,000 4,906,125
Chase Manhattan Corporation.............................. 23,800 1,624,350
Fifth Third Bancorp...................................... 42,325 3,018,302
First American Corporation............................... 26,400 1,171,500
First Security Corporation.............................. 103,175 2,411,716
Fleet Financial Group, Inc............................... 65,600 2,931,500
J P Morgan & Company..................................... 24,500 2,597,000
Mellon Bank Corporation.................................. 94,700 6,510,625
National Bancorp of Alaska, Inc.......................... 32,000 1,080,000
Republic Security Corporation............................ 191,456 2,321,404
Washington Mutual, Inc................................... 164,050 6,264,659
Zions Bancorporation..................................... 107,100 6,680,362
- -----------------------------------------------------------------------------------------------------------------------------------
41,517,543 19.7%
Biotechnology
- -----------------------------------------------------------------------------------------------------------------------------------
Entremed, Inc.^.......................................... 22,200 466,200
Pioneer Hi-Bred International, Inc....................... 63,500 1,682,750
- -----------------------------------------------------------------------------------------------------------------------------------
2,148,950 1.0%
Chemical
- -----------------------------------------------------------------------------------------------------------------------------------
Cabot Corporation........................................ 33,000 921,937
Monsanto Company......................................... 46,000 2,162,000
- -----------------------------------------------------------------------------------------------------------------------------------
3,083,937 1.5%
Computer & Data Processing
- -----------------------------------------------------------------------------------------------------------------------------------
Dell Computer Corporation^............................... 43,400 3,176,337
EMC Corporation^......................................... 33,600 2,856,000
Hewlett-Packard Company.................................. 15,900 1,089,150
International Business Machines.......................... 16,400 3,023,750
- -----------------------------------------------------------------------------------------------------------------------------------
10,145,237 4.8%
Computer Software & Services
- -----------------------------------------------------------------------------------------------------------------------------------
America Online, Inc.^.................................... 60,000 9,600,000
Microsoft Corporation^*.................................. 48,000 6,657,000
Parametric Technology Corporation^....................... 36,200 592,775
Saville Systems Ireland Spons ADR^....................... 19,200 364,800
Yahoo!, Inc^............................................. 9,800 2,321,987
- -----------------------------------------------------------------------------------------------------------------------------------
19,536,562 9.3%
Cosmetics & Toiletries
- -----------------------------------------------------------------------------------------------------------------------------------
Gillette Company*........................................ 52,200 2,495,813 1.2%
Market Percent of
Value Net
Name of Issuer Shares (Note B) Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Operations
- -----------------------------------------------------------------------------------------------------------------------------------
General Electric Company................................. 64,100 $ 6,542,206
Philip Morris Companies, Inc............................. 19,900 1,069,625
Triarc Companies^........................................ 50,000 800,000
- -----------------------------------------------------------------------------------------------------------------------------------
8,411,831 4.0%
Drug Stores
- -----------------------------------------------------------------------------------------------------------------------------------
CVS Corporation.......................................... 41,800 2,299,000 1.1%
Electronics
- -----------------------------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc.^..................................... 68,950 6,399,422
Intel Corporation........................................ 37,400 4,434,238
Lucent Technologies, Inc................................. 30,400 3,344,000
- -----------------------------------------------------------------------------------------------------------------------------------
14,177,660 6.7%
Entertainment
- -----------------------------------------------------------------------------------------------------------------------------------
Carnival Corporation..................................... 29,800 1,430,400
Time Warner, Inc.............................................. 107,400 6,665,513
Walt Disney Company*.......................................... 155,000 4,611,250
- -----------------------------------------------------------------------------------------------------------------------------------
12,707,163 6.0%
Financial Services
- -----------------------------------------------------------------------------------------------------------------------------------
American Express Company................................. 28,800 2,944,800
Donaldson, Lufkin, & Jenrette, Inc....................... 37,600 1,541,600
Eaton Vance Corporation.................................. 123,400 2,575,975
H &R Block, Inc............................................. 10,200 459,000
Morgan Stanley Dean Witter & Co.......................... 43,410 3,082,110
Paine Webber Group, Inc.................................. 34,500 1,332,562
State Street Corporation................................. 45,200 3,152,700
- -----------------------------------------------------------------------------------------------------------------------------------
15,088,747 7.1%
Food & Beverage
- -----------------------------------------------------------------------------------------------------------------------------------
Coca-Cola Company........................................ 52,300 3,504,100
Pepsico, Inc............................................. 40,000 1,635,000
- ----------------------------------------------------------------------------------------------------------------------------------
5,139,100 2.4%
Health Care
- -----------------------------------------------------------------------------------------------------------------------------------
American Home Products Corporation....................... 29,200 1,646,150
Johnson & Johnson........................................ 26,200 2,197,525
Warner Lambert Company................................... 59,575 4,479,295
- -----------------------------------------------------------------------------------------------------------------------------------
8,322,970 3.9%
Household Products
- -----------------------------------------------------------------------------------------------------------------------------------
Procter & Gamble Company*................................ 35,300 3,223,331 1.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial Services & Manufacturing
- -----------------------------------------------------------------------------------------------------------------------------------
Caterpillar, Inc......................................... 23,000 $ 1,058,000 .5%
Insurance
- -----------------------------------------------------------------------------------------------------------------------------------
American International Group, Inc........................ 21,037.5 2,032,748
Chubb Corporation........................................ 59,200 3,833,200
Ohio Casualty Corporation..................................... 31,400 1,291,325
St.Paul Companies........................................... 37,900 1,317,025
- -----------------------------------------------------------------------------------------------------------------------------------
8,474,298 4.0%
Medical Supplies
- -----------------------------------------------------------------------------------------------------------------------------------
Boston Scientific Corporation^........................... 34,000 911,625
Medtronic, Inc........................................... 25,500 1,894,172
- -----------------------------------------------------------------------------------------------------------------------------------
2,805,797 1.3%
Office Equipment
- -----------------------------------------------------------------------------------------------------------------------------------
Staples, Inc.^........................................... 68,400 2,988,225
Xerox Corporation........................................ 20,400 2,407,200
- -----------------------------------------------------------------------------------------------------------------------------------
5,395,425 2.6%
Paper & Forest Products
- -----------------------------------------------------------------------------------------------------------------------------------
Fort James Corporation................................... 22,400 896,000 0.4%
Petroleum, Coal & Gas
- -----------------------------------------------------------------------------------------------------------------------------------
Chevron Corporation...................................... 26,700 2,214,431
Exxon Corporation........................................ 18,700 1,367,438
Mobil Corporation........................................ 7,000 609,875
Royal Dutch Petroleum.................................... 40,000 1,915,000
- -----------------------------------------------------------------------------------------------------------------------------------
6,106,744 2.9%
Pharmaceuticals
- -----------------------------------------------------------------------------------------------------------------------------------
Abbott Laboratories...................................... 30,600 1,499,400
Bristol Myers Squibb Company............................. 29,900 4,000,994
EliLilly & Company.......................................... 46,100 4,097,138
Glaxo Wellcome PLC-Spons ADR............................. 19,900 1,383,050
Merck & Company, Inc.*................................... 33,300 4,911,750
Pfizer, Inc.*............................................ 47,150 5,893,750
- -----------------------------------------------------------------------------------------------------------------------------------
21,786,082 10.3%
Precision Instruments
- -----------------------------------------------------------------------------------------------------------------------------------
Eastman Kodak Company.................................... 14,300 1,029,600 0.5%
Publishing & Printing
- -----------------------------------------------------------------------------------------------------------------------------------
McGraw-Hill Companies, Inc............................... 21,400 2,180,125
New York Times Company-Class A........................... 35,000 1,214,063
- -----------------------------------------------------------------------------------------------------------------------------------
3,394,188 1.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate
- -----------------------------------------------------------------------------------------------------------------------------------
Cabot Industrial Trust................................... 68,900 $ 1,408,144 0.7%
Recreation & Leisure
- -----------------------------------------------------------------------------------------------------------------------------------
Polaris Industries, Inc.................................. 24,700 967,931 0.5%
Retail
- -----------------------------------------------------------------------------------------------------------------------------------
Home Depot, Inc.......................................... 44,050 2,695,309
Wal-Mart Stores, Inc..................................... 48,000 3,909,000
- -----------------------------------------------------------------------------------------------------------------------------------
6,604,309 3.1%
Telecommunications
- -----------------------------------------------------------------------------------------------------------------------------------
MCI WorldCom, Inc.^...................................... 29,800 2,138,150
Tellabs, Inc.^........................................... 17,500 1,199,844
Vodafone Group PLC-Spons ADR............................. 6,800 1,095,650
- -----------------------------------------------------------------------------------------------------------------------------------
4,433,644 2.1%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost--$131,547,000) $ 213,516,581 101.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement Face
- -----------------------------------------------------------------------------------------------------------------------------------
Investors Bank & Trust Company Repurchase Agreement,
4.25% due January 4, 1999 .................................... $1,617,128 1,617,128 .8%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total Repurchase Agreement (Cost--$1,617,128)+ 1,617,128
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$133,164,128) $215,133,709 101.9%
<FN>
+Acquired on December 31, 1998. Collateralized by $1,698,137 of various U.S. government mortgage-backed securities,
due through 04/01/2022. The maturity value is $1,617,892. As an operating policy, the Fund, through the custodian
bank, secures receipt of adequate collateral supporting repurchase agreements --(see Note F)
*Pledged to collateralize short-term borrowings (See Note G)
^Non-income producing.
ADR stands for American Depository Receipt representing ownership of
foreign securities.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Assets
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments--at market value
(cost $133,164,128)-- Notes B, D &F... $215,133,709
Dividends and interest receivable........ 226,310
Receivable for shares of beneficial
interest sold......................... 1,362,839
- -----------------------------------------------------------------------------------------------------------------------------------
..............Total Assets................216,722,858
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased......... 5,063,415
Payable for shares of beneficial interest
repurchased........................... 251,358
Accrued expenses......................... 57,872
Accrued investment advisory fee--........ Note C.
91,364
- -----------------------------------------------------------------------------------------------------------------------------------
..............Total Liabilities....... 5,464,009
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets..................................$211,258,849
Net Assets Consist of -- Note B:
Capital paid-in.......................... 129,403,302
Undistributed net investment
income................................ 31,789
Distributions in excess of net
realized gains........................ (144,285)
Net unrealized appreciation of ..........
investments 81,968,043
-----------
Net Assets, for 10,325,119 shares
outstanding........................... $211,258,849
===========
Net Asset Value, offering price
and redemption price per share
($211,258,849 / 10,325,119 shares).... $20.47
------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Dividends................................ $1,892,251
Interest................................. 21,670
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income............. 1,913,921
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fee--
Note C.................. $834,910
Administrative expenses
and salaries.............. 171,450
Interest-Note G ............. 117,847
Printing, postage
and stationery.......... 68,424
Computer and
related expenses....... 44,894
Auditing fees 35,335
Registration and
filing fees............. 32,836
Custodian fees............... 29,730
Legal fees................... 18,485
Trustees fees--Note C........ 8,000
Insurance ................... 2,375
Other expenses................ 20,553
- -----------------------------------------------------------------------------------------------------------------------------------
Total Expenses.......... 1,384,839
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income.... 529,082
- -----------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain
on Investments -- Note B:
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment
transactions......................... 5,367,820
Change in unrealized appreciation
of investments....................... 37,027,890
- -----------------------------------------------------------------------------------------------------------------------------------
Net Gain on Investments.................. 42,395,710
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations....................... $42,924,792
- ----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Years Ended December 31,
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in Net Assets
From Operations:
Net investment income....................................... $ 529,082 $ 353,060
Net realized gain from investment transactions............ 5,367,820 4,479,634
Change in unrealized appreciation of investments......... 37,027,890 20,578,841
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations.......................................... 42,924,792 25,411,535
Distributions to Shareholders:
From net investment income................................ (486,335) (354,587)
From net realized gains on investments..................... (5,203,325) (4,924,443)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions.................................... (5,689,660) (5,279,030)
From Net Fund Share Transactions--Note E...................................... 65,434,064 28,182,395
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets......................................... 102,669,196 48,314,900
Net Assets:
Beginning of Period....................................................... 108,589,653 60,274,753
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
End of Period (including undistributed net investment income
of $31,789 and $0, respectively)..................................... $211,258,849 $108,589,653
</TABLE>
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 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 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 $94,638,786 and $27,569,771, respectively, for
the year ended December 31, 1998.
Note E--Shares of Beneficial Interest
At December 31, 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>
Years Ended December 31,
1998 1997
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
------------ ------------- ------------ -------------
Shares sold.......................................... 6,132,271 $111,339,313 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 gains from security transactions........... 274,986 5,161,310 310,254 4,955,941
------------ ------------- ------------ -------------
6,407,257 116,500,623 6,670,364 72,280,285
Shares repurchased...................................... (2,939,702) (51,066,559) (1,466,724) (44,097,890)
------------ ------------- ------------ -------------
Net Increase ........................................ 3,467,555 $65,434,064 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. At December 31, 1998, the Fund had unused lines of credit
amounting to $10,000,000.
The following information relates to aggregate short-term borrowings during
the year ended December 31, 1998: Average amount outstanding (total of daily
outstanding principal balances divided by
number of days during the year)............ $1,599,763
Weighted average interest rate (actual interest expense on short-term borrowing
divided by average short-term borrowings outstanding).......... 6.72%
Note H-Other Tax Information
For federal income tax purposes, the cost of investments owned at December
31, 1998 was $133,164,128. At December 31, 1998, gross unrealized appreciation
of investments was $84,775,140 and gross unrealized depreciation was $2,805,559,
resulting in net unrealized appreciation of $81,969,581.
Note I-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 December
31, 1998, the value of securities loaned and the value of collateral were
$21,723,294 and $22,433,200, respectively. During the year ended December 31,
1998, income from securities lending amounted to $9,153 and is included in
interest income.
To the Shareholders and Trustees of
Northeast Investors Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Northeast Investors Growth Fund
(hereafter referred to as the "Fund") at December 31, 1998, and the results of
its operations, the changes in its net assets and the financial highlights for
the periods indicated, in comformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial highlights") are the responsiblity of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments owned at December 31, 1998 by correspondence with
the custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 9, 1999
