NORTHEAST INVESTORS GROWTH FUND
50 Congress Street
Boston, Massachusetts 02109
(800) 225-6704
NORTHEAST INVESTORS GROWTH FUND
50 CONGRESS STREET
BOSTON, MASSACHUSETTS 02109
(800) 225-6704
SHARES OF BENEFICIAL INTEREST
PROSPECTUS
May 1, 2000
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.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
TABLE OF CONTENTS
Page
OVERVIEW OF THE FUND 2
Objectives And Strategies 2
Risks. 3
Suitability. 3
Performance. 4
INVESTOR EXPENSES 4
PORTFOLIO MANAGER 5
SALES WITHOUT "SALES CHARGE" 5
SHAREHOLDER INFORMATION 6
General Information 6
How to Invest 6
Investment Plans 7
How To Withdraw Your Investment 7
How to Exchange Your Investment 9
Dividends and Distributions 9
Tax Consequences 10
Fund Policies 10
FUND MANAGEMENT 10
FINANCIAL HIGHLIGHTS 12
OVERVIEW OF THE FUND
Investment Objectives
The Fund's objective is to produce long-term growth of both capital and future
income for its shareholders. Principal Investment Strategies The Fund maintains
a flexible investment policy which primarily targets common stocks of large,
well-known established companies. The policy allows the Fund to achieve its
objective through investment in common stock of both domestic and foreign
issuers (ADRs), corporate bonds and money market instruments. The Fund may also
invest in securities convertible into common stocks, preferred stocks or
warrants.
The Fund will generally focus a major portion of its assets in commonstocks of
large companies with histories of consistent earning and long-termcapital
appreciation. These companies are well-known, well-established leaders in their
industries and continue to offer the potential for accelerated earnings and
rev-enue growth. For this reason, stocks of these companies are often called
`growth' stocks. These may include common stocks not currently paying a
dividend.
Under normal circumstances, the assets of the Fund will be fullyinvested at all
times except for cash required to meet expenses. The Fund, at times, will make
limited use of borrowed funds in order to raise additional funds for investment
or to avoid liquidating securities for cash needs such as redemptions. Leverage
is not expected to be significant and would be limited to one quarter of the
Fund's total assets.
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 and that therefore the
Fund should adopt a tem-porary defensive policy. During such a period the Fund
may not achieve its growth objective.
Principal Investment Risks
Stock Market
Risks Stock market volatility allows for the potential for the depreciation in
the value of your investments. This may be in response to developments in
economic, political, regulatory or market conditions.
Portfolio Risks
Changing economic and market conditions as well as declining fundamentals, such
asrevenues or earnings per share, associated with individual companies or
industries that the Fund is invested in, can affect the value of your
investment. The degree to which the Fund's share price reacts to these factors
will depend upon the Fund's level of exposure to the areas that are
beingaffected.
"Growth Stock" Volatility
Growth stocks can perform differently than other types of stocks and the market
as a whole.
Leverage
Investment gains made with borrowed funds can cause net asset value to decrease
faster in a falling market. If, for example, the Fund makes a $1,000 investment
for which it had borrowed $200 (20%) of the purchase price and the investment
lost 20% of its value, to $800, the Fund would have a loss of $200 on an $800
investment, or 25% of the amount invested. Leverage can, therefore, involve
additional risk.
Foreign Exposure
There is an increased risk associated with investments in foreign securities.
Adverse developments in economic, political, regulatory and market conditions
can make the foreign markets more volatile than the U.S. market.
Convertible securities may be affected by these same factors, and debt
secu-rities are subject to credit risk and the risk of adverse upward movements
in inter-est rates. The degree to which the Fund's share price reacts to these
factors will depend upon the Fund's level of exposure to the areas that are
being affected. When you sell your shares of a fund, they could be worth less
than what you paid for them.
Suitability.
The Fund may be appropriate for investors who seek one or more of the
following:
o capital appreciation of their investment over the long-term
o a fund emphasizing established companies with consistent earnings
growth
You should also consider the following:
o an investment in the Fund should be part of a balanced investment
program
o the Fund is generally for investors with longer-term investment
horizons
o 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
o Fund shares are not bank deposits and are not guaranteed, endorsed or
insured by any financial institution, government entity or the FDIC
Performance.
The following performance related information provides some indication of
the risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by comparing its average annual return with the Standard &
Poor's 500 Index. Past performance does not guarantee future results.
The following bar chart shows the Fund's annual total return for each of
the ten years ended December 31, 1999:
<PAGE>
Best quarter: 4th quarter 1998, up 27.50%
Worst quarter: 3rd quarter 1998, down -13.96%
Periods Ended December 31, 1999
- -------------------------------------------------------------------------------
One Five Ten Life of Fund
Year Years Years (since Oct. 27, 1980)
The Fund 29.13% 31.90% 18.81% 16.29%
Standard & Poor's
500 Index 1 21.04% 28.51% 18.71% 17.40%
1 The unmanaged Standard & Poor's Index is shown for comparative purposes only.
<PAGE>
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)
Maximum Sales Charge
(Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends None
Redemption Fee None
Annual Fund Operating Expenses
(Expenses That Are Deducted From Fund Assets)
Management Fees .54%
Distribution (12b-1 Fees) None
Other Expenses .31%
Total Annual Fund Operating Expenses .85%
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
1999 expenses.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and redeem at the end of the period. The example also assumes
that your investment has a 5% return each year, including reinvested dividends
and distributions, 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:
1 year 3 years 5 years 10 years
$87 $271 $471 $1,049
<PAGE>
PORTFOLIO MANAGER
William A. Oates, Jr. is the portfolio manager of the Fund. He 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, the
Treasurer of the Fund.
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 fees". 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.
<PAGE>
SHAREHOLDER INFORMATION
General Information
For account, product and service information, please use the following web
site, phone number or address: o For information over the Internet, visit
the Fund's web site at www.Northeastinvestors.com o For information over
the phone use 1-800-225-6704
o 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 o Traditional Individual Retirement
Accounts (IRAs) o Roth IRAs o Roth Conversion IRAs o Rollover IRAs o
Educational IRAs o Keogh Plans o SIMPLE IRAs o Simplified employee Pension
Plans (SEP-IRAs) o 403(b) Custodial Accounts
- -------------------------------------------------------------------------------
Giftsor 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 market
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, based upon market quotations
for the Fund's portfolio securities. 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:
o The minimum initial investment in the Fund for each account is $1,000
or $500 for IRAs.
o Checks must be drawn on U.S. banks.
o The Fund does not accept cash.
o Purchase orders may be sent directly or through an authorized broker or
an other authorized agent.
o There is no minimum for subsequent investment either by mail, telephone
or exchange.
o There is a $100,000 maximum for telephone investments.
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 net asset value next determined at the close of the New
York Stock Exchange 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: o The request is in writing,
indicates the number of shares to be redeemed and identifies your account.
o You also send in any certificates issued representing the shares,
endorsed for transfer (or accompanied by a stock power in customary form)
exactly as the shares are registered. o 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. o In the case of corporations,
executors, administrators, trustees or other organizations you enclose
evidence of authority to sell. o If shares to be redeemed represent an
investment made by check, the Fund reserves the right to delay payment
until the check has been collected up to a maximum of 15 days. o 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. o Telephone redemptions will
not be made (unless confirmed in writing on the same day). o Telephone
instructions from the registered owner to exchange shares of the Fund for
shares of Northeast Investors Trust will be accepted.
<PAGE>
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 without any charge.
However, you should note the following policies and restrictions governing
exchanges:
o You may exchange only between accounts that are registered in the same
name, address, and taxpayer identification number o Before exchanging into
a fund, read its prospectus o Exchanges may have tax consequences for you o
Each fund may temporarily or permanently terminate the exchange privilege
of any investor who makes excessive exchanges out of the fund per calendar
year o 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 o 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
<PAGE>
The funds may terminate or modify the exchange privileges in the future.
Dividends and 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 for a period of six months,
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 of a
taxable distribution.
Any taxable distributions you receive from the Fund will normally be
taxable to 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.
<PAGE>
Fund Policies
The following policies apply to you as a shareholder.
Statements and reports that the Fund sends to you include the following: o
Confirmation statements after transactions affecting your account balance.
o 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.
<PAGE>
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, 1999 and by Ernst & Young LLP for the years ended December 31, 1990 through
December 31, 1992. The report of PricewaterhouseCoopers LLP on the financial
statements and financial highlights for the year ended December 31, 1999 is
included in the Statement of Additional Information which is available upon
request and without charge.
<PAGE>
Years Ended December 31
Per Share Data# 1999 1998 1997 1996 1995
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.............5.93 5.18 4.46 2.54 2.90
---- ---- ---- ---- ----
Total from investment
operations ................5.94 5.23 4.52 2.59 2.97
---- ---- ---- ---- ----
Less Distributions:
Net investment income .. (.02) (.05) (.06) (.05) (.07)
Capital gains ............ (.31) (.55) (.77) (.98) (.44)
Total Distributions ..... (.33) (.60) (.83) (1.03) (.51)
Net asset value:
End of period...... $26.08 $20.47 $15.84 $12.15 $10.59
------ ------ ------ ------ ------
Total Return ........ 29.13% 33.34% 37.28% 24.60% 36.46%
Ratios & Supplemental Data
Net assets end of
period (000's omitted) $357,650 $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.................. 03% .44% .45% .47% .74%
Portfolio turnover rate ..31.39% 18.54% 16.36% 25.27% 26.53%
# 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>
Years Ended December 31
Per Share Data# 1994 1993 1992~ 1991~ 1990~
Net asset value:
Beginning of period.......$8.37 $9.70 $10.37 $7.81 $7.89
Income From Investment
Operations:
Net investment income .......06 .07 .07 .09 .09
Net realized and
unrealized gain (loss)
on investments........... (.07) .16 (.15) 2.77 .03
Total from investment
operations .......... (.01) .23 (.08) 2.86 .12
Less Distributions:
Net investment income .. (.06) (.07) (.07) (.12) (.09)
Capital gains........... (.17) (1.49) (.52) (.18) (.11)
----- ------ ----- ----- -----
Total Distributions....... (.23) (1.56) (.59) (.30) (.20)
Net asset value:
End of period.. $8.13 $8.37 $9.70 $10.37 $7.81
----- ----- ----- ------ -----
Total Return....... (.07%) 2.44% (.73%) 36.91% 1.52%
Ratios & Supplemental Data
Net assets end of
period (000's omitted) ...$35,459 $38,694 $42,609 $40,873 $27,189
Ratio of operating
expenses to average
net assets......... 1.53% 1.45% 1.42% 1.50% 1.74%
Ratio of net investment
income to average
net assets.......... .74% .62% .71% 1.02% 1.19%
Portfolio turnover rate . 25.55% 35.14% 28.91% 15.63% 37.18%
~ 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>
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 or make any other shareholder inquiry by writing or calling the Fund at:
Northeast Investors Growth Fund
50 Congress Street
Boston, MA 02109
(800) 225-6704 (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 duplicating fee by writing
the Public Reference Center of the Securities and Exchange Commission,
Washington, D.C. 20549-6009.
The Fund's reference number as a registrant under the Investment Company
Act of 1940 is 811-3074.
<PAGE>
NORTHEAST INVESTORS GROWTH FUND
50 Congress Street
Boston, Massachusetts 02109
(800) 225-6704
(617) 523-3588
Shares of Beneficial Interest
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
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>
TABLE OF CONTENTS Page
<S> <C>
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
</TABLE>
<PAGE>
THE FUND
Northeast Investors Growth Fund, herein called the Fund, is a
diversified open-end management investment company originally organized in 1980
under the laws of The Commonwealth of Massachusetts as a corporation and
converted to a Massachusetts business trust in 1987.
INVESTMENT RESTRICTIONS
The Fund's objective is to produce long-term growth of both capital and
future income for its shareholders. This objective is pursued through a flexible
policy emphasizing investments in common stocks and 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;
<PAGE>
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.
12, issue senior securities, except that the Fund may
borrow from banks in an amount which does not exceed
25% of the Fund's total assets.
<PAGE>
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, 1999 and 1998 the rates of total portfolio turnover
were 31.39% and 18.54% 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,
including supervision of the Fund's investment manager. 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
William A. Oates, Jr.* President and Trustee President and Trustee
50 Congress Street of Fund
Boston, MA
Age 56
Ernest E. Monrad* Chairman of the Trustees, Chairman and Trustee of
50 Congress Street Assistant Treasurer and Northeast Investors Trust
Boston, MA Trustee
Age 68
Robert B. Minturn, Jr.* Vice President, Clerk and Clerk and Trustee of
50 Congress Street Trustee Northeast Investors Trust
Boston, MA
Age 59
Gordon C. Barrett Vice President and Treasurer Executive Vice President
50 Congress Street andTreasurer of Northeast
Boston, MA Investors Trust
Age 42
John R. Furman Trustee Founder, former Cairman,
32 Manning Road Furman Lumber Company
Billerica, MA
Age 81
John C. Emery Trustee Partner, Law Firm of
One Post Office Square Sullivan & Worcester
Boston, MA
Age 68
*Indicates a Trustee who is an "interested person" under the Investment
Company Act of 1940, as amended.
The following chart provides information concerning the 1999
compensation of the Fund's Trustees and the officer of the Fund who received in
excess of $60,000 in compensation from the Fund in 1999
<TABLE>
<S> <C> <C> <C> <C>
Pension and
Retirement Benefits Total Compensation
Received as Part of Estimated Annual from Fund and Fund
Aggregate Fund Expenses Benefit Upon Complex Paid to
Name of Person, Position Compensation from Retirement Trustees
the Fund
William A. Oates, -0- -0- -0- -0-
President and Trustee
Ernest E. Monrad, -0- -0- -0- -0-
Chairman of the Trustees,
Assistant Treasurer and
Trustee
Robert B. Minturn, Vice -0- -0- -0- -0-
President, Clerk and Trustee
Gordon C. Barrett, Treasurer $118,500 $5,250 -0- Not Applicable
John R. Furman, Trustee $ 6,000 -0- -0- $4,000
John C. Emery, Trustee $ 6,000 -0- -0- $4,000
</TABLE>
The total number of shares owned beneficially by the Trustees, officers
and members of their immediate families on April 12, 2000 was 129,578.306 shares
(.99%).
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 1999,1998 and 1997, respectively, the advisory fee was $1,542,605,
$834,910, and $462,146.
<PAGE>
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
doing so, NMR assigns portfolio executions and negotiates commission rates in
accordance with the reliability and quality of a broker's services and their
value and expected contribution to the performance of the Fund. In order to
minimize brokerage charges, the Fund seeks to execute portfolio transactions
with the principal market maker for the security to which the transaction
relates in the over-the-counter market unless it has been determined that best
price and execution are available elsewhere. Such portfolio transactions may be
carried out with broker-dealers that have provided NMR or the Fund with
statistics, other information and wire and other services. Such services may
include furnishing advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing portfolio analyses
and reports concerning issuers, industries, securities, economic factors and
trends; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). It is not, however, NMR's
policy to pay a higher net price to a broker-dealer or receive a lower net price
from a broker-dealer solely because it has supplied such services. During 1999,
1998 and 1997 the Fund paid brokerage commissions of $250,383, $109,897, and
$52,143 respectively. The difference in commissions paid was principally because
of the increasing size of the Fund.
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-business 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.
<PAGE>
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 the then applicable public offering price. Share certificates which
have been issued to a shareholder may be returned to the Fund at any time for
credit to the shareholder's Open Account. Shares held in an Open Account may be
redeemed as described in the Prospectus under "How to Withdraw Your Investment".
Income dividends and capital gains distributions are credited in shares on the
payment date (which may be different than the record date) at the applicable
record date closing net asset value, unless a shareholder has elected to receive
all income dividends and/or capital gains distributions in cash.
Automatic Investment and Withdrawal Plans
These Plans have been developed to accommodate those who wish to make
purchases or sales of shares of the Fund on a continuing basis without the
imposition of any fee or service charge. Subject to the initial investment
minimum of $1,000, any shareholder maintaining an Open Account may request in
his application or otherwise in writing that investments be made through
automatic deductions (minimum $50) from his bank checking 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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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 irrevocable stand-by letters of credit.
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. If, for example, the Fund makes a $1,000 investment for which it had
borrowed $200 (20%) of the purchase price and the investment lost 20% of its
value, to $800, the Fund would have a loss of $200 on an $800 investment, or 25%
of the amount invested.
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.
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 vote 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.
<PAGE>
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:
[OBJECT OMITTED]
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.
<PAGE>
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss various measures of Fund performance, including current 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, 1999
3. Statement of Assets and Liabilities as of December 31, 1999
4. Statement of Operations for the Year Ended December 31,1999
5. Statement of Changes in Net Assets for each of the two years
in the period ended December 31, 1999
6. Notes to Financial Statements for the year ended December 31,
1999
Schedule of Investments
December 31, 1999
Common Stocks-- Market Percent of
Number of Value Net
Name of Issuer Shares (Note B) Assets
Automobile & Truck
General Motors Corporation . 66,800 $ 4,855,525 1.36%
Banks
Chase Manhattan Corporation . 30,300 2,353,931
Citigroup Inc. . . . . . . . 69,000 3,842,438
Fifth Third Bancorp.. . . . . 71,525 5,248,147
FleetBoston Financial Corp*. 248,434 8,648,609
J P Morgan & Company . . . .. 24,500 3,102,313
Mellon Financial . . . . . . 237,400 8,086,438
Zions Bancorporation . . . . 130,600 7,729,888
39,011,764 10.91%
Biotechnology
Amgen Inc.^. . . . . . . . . .69,000 4,144,313 1.16%
Computer & Data Processing
Dell^ . . . . . . . . . . . . 86,800 4,426,800
EMC Corporation^* . . . . . 117,400 12,825,950
Hewlett Packard. . . . . . . 30,900 3,514,875
IBM* . . . . . . 77,000 8,306,375
Sun Microsystems^ . . . . . . 94,800 7,341,075
36,415,075 10.18%
Computer Software & Services
America Online, Inc.^ . . .. 133,400 10,038,350
CMGI Inc.^. . . . . . . . . . 19,000 5,260,625
Microsoft Corporation^*. . . 169,200 19,754,100
Oracle Corporation^ . . . . . 42,200 4,729,038
Yahoo! Inc.^ . . . . .. . . . 25,000 10,817,188
50,599,301 14.15%
Entertainment
Carnival Corporation .. . . . 49,800 2,381,063
Time Warner . . . . . . . . 187,400 13,551,363
Viacom Inc Class A^. .. . . . 35,000 2,115,313
18,047,739 5.05%
Electronic Equipment
General Electric Company . . 109,600 16,960,600
Corning Inc. . .. . . . . . . 13,000 1,676,188
18,636,788 5.21%
Electronics
Broadcom Corporation^ . . . 19,900 5,420,263
Cisco Systems Inc.^ . .. . . 212,700 22,785,488
Intel Corporation . . . . . 106,200 8,741,588
Lucent Technologies. . . . . 109,800 8,248,725
Nokia Corporation-Spons-ADR^ .27,800 5,311,538
Qualcomm Inc.^ . . .. . . . . 37,600 6,627,000
Sony Corporation . . . . . .. 22,400 6,378,400
63,513,002 17.76%
Financial Services
American Express Company . .. 31,500 5,236,875
Donaldson Lufkin & Jenrette.. 37,600 1,818,900
Eaton Vance Corp. . .. . . . 125,000 4,750,000
Morgan Stanley Dean Witter Co.43,410 6,196,778
Paine Webber Group Inc. . . . 34,500 1,339,031
State Street Corp . . . . . 78,100 5,706,181
25,047,765 7.00%
Health Care-Supplies
Johnson & Johnson . . . . . . 49,800 4,643,850
Warner Lambert Co. . . . . . 66,975 5,487,764
10,131,614 2.83%
Household Products
Procter & Gamble* . . . . . . 40,300 4,415,369 1.23%
Insurance
American International Group .45,046 4,870,599 1.36%
Medical
Medtronics, Inc. . . . . . . 75,800 2,761,963 0.77%
Petroleum, Coal, Gas
Chevron Corporation . . . . . 33,200 2,875,950
Exxon Mobile Corporation . . .77,441 6,238,841
Royal Dutch Petroleum . . . . 53,200 3,221,925
12,336,716 3.45%
Pharmaceuticals
Bristol Myers Squibb Co. . . 81,800 5,250,538
Eli Lilly & Co. . . . . . . . 65,700 4,369,050
Merck & Co.* . . . . . . . . 86,400 5,805,000
Pfizer Inc.* . . . . . . . . 176,550 5,726,841
21,151,429 5.91%
Precision Instruments
Visx Inc.^ . . . . . . . .. . 35,000 1,811,250 0.51%
Publishing/Printing
McGraw-Hill Companies Inc. .. 50,800 3,130,550 0.88%
Retail
Home Depot. . . . . . . . . . 66,075 4,542,656
Wal-Mart Stores Inc. . . . . 159,600 11,032,350
15,575,006 4.35%
Telecommunications
AT&T Corp . . . . . . . . . . 51,000 2,591,438
Cox Communications^ . . . .. 119,400 6,149,100
MCI Worldcom Inc.^ . . . . . 134,400 7,131,600
Qwest Communications^ . . . 104,800 4,506,400
Tellabs^ . . . . . . . . . . 65,000 4,172,188
Vodafone Airtouch PLC . . . . 82,000 4,059,000
28,609,726 8.00%
Total Common Stocks (Cost--$211,570,293) $365,065,494 102.07% * 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>
<TABLE>
<S> <C>
December 31, 1999
Assets
Investments--at market value (cost $211,570,293)--Notes B, D & F....$365,065,494
Dividends and interest receivable ............................. 227,056
Receivable for shares of beneficial interest sold................ 1,423,674
Total Assets ........................................... $366,716,224
Liabilities
Payable for shares of beneficial interest repurchased ........... 204,941
Accrued expenses................................................. 117,113
Notes Payable .................................................... 8,591,251
Accrued Investment advisory fee--Note C ......................... 153,372
Total Liabilities ................................ $9,066,677
Net Assets ........................................................ $357,649,547
Net Assets Consist of--Note B:
Capital paid-in.................................................... $204,581,069
Distributions in excess of net realized gains ................... (426,716)
Net unrealized appreciation of investments ...................... 153,495,194
Net Assets, for 13,714,780 shares outstanding ............. ....... $357,649,547
Net Asset Value, offering price and redemption price per share
($357,649,547/13,714,780 shares) . ................... $26.08
The accompanying notes are an integral part of the financial statements.
Year Ended December 31, 1999
Investment Income
Dividends........................................................... $ 2,480,675
Interest.................. .............................................. 8,602
Other Income--Note I .................................................... 26,170
Total Income........................................................ $ 2,515,447
Expenses
Investment advisory fee--Note C ................................ $ 1,542,605
Administrative expenses and salaries.......... .................... 246,806
Interest--Note G ................... ................................. 284,431
Printing, postage and stationery.................................. 83,460
Legal Fees........................................................ 50,895
Computer and related expenses ........................................ 50,001
Registration and filing fees........................................ 42,693
Auditing fees..................................................... 23,193
Insurance ......................................................... 19,955
Custodian fees ................................................... 14,431
Trustees fees--Note C............................................. 10,048
Other expenses ....................................................... . 37,875
Total Expenses ................................................... 2,406,393
Net Investment Income .............................................. 109,054
Realized and Unrealized Gain on Investments--Note B:
Net realized gain from investment transactions ................. 3,909,780
Change in unrealized appreciation of investments ................. 71,527,151
Net Gain on Investments .......................................... 75,436,931
Net Increase in Net Assets Resulting from Operations.................$75,545,985
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Years Ended December 31,
1999 1998
Increase in Net Assets
From Operations:
Net investment income ................ $ 109,054 $ 529,082
Net realized gain from investment transactions.. 3,909,780 5,367,820
Change in unrealized appreciation of investments 71,527,151 37,027,890
Net Increase in Net Assets Resulting from
Operations........................ 75,545,985 42,924,792
Distributions to Shareholders:
From net investment income ..........................(140,843) (486,335)
In excess of net investment income ............. (106,194)
From net realized gains on investments..... (4,010,686) (5,203,325)
In excess of net realized gains on investments...... (126,771)
Total Distributions .................... (4,384,494) (5,689,660)
From Net Fund Share Transactions--Note E. 75,229,207 65,434,064
Total Increase in Net Assets.......... 146,390,698 102,669,196
Net Assets:
Beginning of Period ............................ 211,258,849 108,589,653
----------- -----------
End of Period (including undistributed net invest-
ment income of $0 and $31,789 respectively) $357,649,547 $211,258,849
------------ ------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Note A-Organization Northeast Investors Growth Fund (the
"Fund") is a diversified, no-load,open-end, series-type management investment
company registered under theInvestment 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
NortheastManagement & 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 aver-age 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
$171,158,617 and $95,045,108, respectively, for the year ended December 31,
1999. Note E-Shares of Beneficial Interest At December 31, 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:
<PAGE>
<TABLE>
Years Ended December 31,
1999 1998
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold .........................239,820 $161,699,116 6,132,271 $111,339,313
Shares issued to shareholders in
reinvestment of distributions from
net investment income and realized
gains from security transactions .....165,009 3,980,887 274,986 5,161,310
.................................. 7,404,829 165,680,003 6,407,257 116,500,623
Shares repurchased.................(4,015,168) (90,450,796) (2,939,702) (51,066,559)
----------- ------------- ------------ ------------
Net Increase ..................... 3,389,661 $ 75,229,207 3,467,555 $ 65,434,064
</TABLE>
<PAGE>
Note F-Repurchase Agreement
On a daily basis, the Fund invests uninvested cash balances into
repurchaseagreements 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
theagreement, 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, 1999, the Fund had unused lines of credit amounting
to $6,408,749. The following information relates to aggregate short-term
borrowings during the year ended December 31, 1999:
Average amount outstanding (total of daily outstanding principal balances
divided by number of days during the year)....................... $4,895,102
Weighted average interest rate (actual interest expense on short-term
borrowing divided by average short-term borrowings outstanding) . 5.89%
Note H-Other Tax Information
For federal income tax purposes, the cost of investments owned at December 31,
1999 was $211,570,293. At December 31, 1999, gross unrealized appreciation of
investments was $154,298,352 and gross unrealized depreciation was $803,158,
resulting in net unrealized appreciation of $153,495,194. 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, 1999, the value of securities loaned and the value of collateral were
$8,533,700.03 and $8,784,000, respectively. During the year ended December 31,
1999, income from securi-ties lending amounted to $26,170.
<PAGE>
Years Ended December 31
Per Share Data# 1999 1998 1997 1996 1995
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.............5.93 5.18 4.46 2.54 2.90
---- ---- ---- ---- ----
Total from investment
operations ................5.94 5.23 4.52 2.59 2.97
---- ---- ---- ---- ----
Less Distributions:
Net investment income .. (.02) (.05) (.06) (.05) (.07)
Capital gains ............ (.31) (.55) (.77) (.98) (.44)
Total Distributions ..... (.33) (.60) (.83) (1.03) (.51)
Net asset value:
End of period...... $26.08 $20.47 $15.84 $12.15 $10.59
------ ------ ------ ------ ------
Total Return ........ 29.13% 33.34% 37.28% 24.60% 36.46%
Ratios & Supplemental Data
Net assets end of
period (000's omitted) $357,650 $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.................. 03% .44% .45% .47% .74%
Portfolio turnover rate ..31.39% 18.54% 16.36% 25.27% 26.53%
# 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>
Years Ended December 31
Per Share Data# 1994 1993 1992~ 1991~ 1990~
Net asset value:
Beginning of period.......$8.37 $9.70 $10.37 $7.81 $7.89
Income From Investment
Operations:
Net investment income .......06 .07 .07 .09 .09
Net realized and
unrealized gain (loss)
on investments........... (.07) .16 (.15) 2.77 .03
Total from investment
operations .......... (.01) .23 (.08) 2.86 .12
Less Distributions:
Net investment income .. (.06) (.07) (.07) (.12) (.09)
Capital gains........... (.17) (1.49) (.52) (.18) (.11)
----- ------ ----- ----- -----
Total Distributions....... (.23) (1.56) (.59) (.30) (.20)
Net asset value:
End of period.. $8.13 $8.37 $9.70 $10.37 $7.81
----- ----- ----- ------ -----
Total Return....... (.07%) 2.44% (.73%) 36.91% 1.52%
Ratios & Supplemental Data
Net assets end of
period (000's omitted) ...$35,459 $38,694 $42,609 $40,873 $27,189
Ratio of operating
expenses to average
net assets......... 1.53% 1.45% 1.42% 1.50% 1.74%
Ratio of net investment
income to average
net assets.......... .74% .62% .71% 1.02% 1.19%
Portfolio turnover rate . 25.55% 35.14% 28.91% 15.63% 37.18%
~ 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>
Report of Independent Accountants
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
(the "Fund") at December 31, 1999, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility 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 statements in
accordance with auditing standards generally accepted in the United States,
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, 1999 by correspondence with
the custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 2000
