Northeast Investors Growth
Dear Shareholders:
The first three months of the new millennium were strong months for the stock
market on the whole and Northeast Investors Growth Fund in particular. Our
shares closed at an all time high of $28.44 on March 23 - +9.05% for the young
year, only to have this experience followed by a declining market in April and
May, followed then by a stronger June. Our results - after this roller coaster
beginning - were a relieved +1.65%, versus -0.42% for the S&P 500 and -7.8% for
the Dow Jones Industrial Average. During this six month period, our turnover
rate was slightly higher than normal as several investment positions which had
grown in market value to an over weighting were "trimmed", bringing these
positions more in line with prudent weightings. In general, the stock market has
been more volatile than in recent memory. For example, it is reported that the
S&P 500 has had moves of 1% or more 84 of the first 126 trading days this year,
or 43% of the time. I am sure many of you have noticed these sharp up and down
days. We are not immune from this activity as our year to date return has been
as high as +9.05% and as low as -10.04%, again all during the first six months
of 2000. While these swings are dramatic, we feel comfortable with the
deep-rooted, well-managed, group of investments in the fund and their earning
abilities, which should continue to provide solid results over time. Of note, by
my estimate, about 1/3 of the portfolio has some exposure to "technology" and,
as such, these investments carry higher price earnings multiples and tend to
react both up and down with the highly volatile trading environment. Said
differently, the technology holdings are generally pricey, although the overall
outlook for this sector remains solid. Sadly, John R. Furman, a director of the
fund from its inception, October 27, 1980, died in May. John was an enthusiastic
supporter of our investment efforts, a thoughtful friend and mentor. Happily,
Michael Baldwin, age 60, founder of the investment firm of Baldwin Brothers,
Inc. in Marion, Massachusetts, has agreed to serve in John's place. Mr. Baldwin
brings to our board a level hand and a good understanding of the investment
world. He and John C. Emery are our two outside directors. As of June 30, 2000,
the net assets of the fund stand at $345,728,957. We continue to grow through
the interest and support of many long-time investors as well as many new
investors who are hearing about the fund and its common sense approach for the
first time. We look forward to further growth through a widening band of
shareholders and continued respectable results for all of us as the economic
prospects for this country and the world continue to expand.
As in the past, I encourage shareholders to contact me at any time with any
questions regarding the fund. For those of you reading this report for the first
time, I hope you will join us in the endeavor as well.
Most sincerely,
William A. Oates, Jr.
President
August 7, 2000
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<S> <C> <C>
January 1, 2000 to June 30, 2000
Additions to Existing Holdings Additions Now Own
American Express Company 63,000 94,500
Broadcom Corporation 19,900 39,800
Cisco Systems, Inc. 47,700 260,400
Citigroup, Inc. 18,500 87,500
CMGI, Inc. 19,000 38,000
Corning, Inc. 30,800 43,800
Cox Communications 20,000 139,400
EMC Corporation 85,400 202,800
Exxon Mobile Corporation 12,500 89,941
General Electric Company 181,200 290,800
Hewlett Packard Corporaton 8,500 39,400
Home Depot, Inc. 15,000 81,075
McGraw-Hill Companies, Inc. 16,500 67,300
Morgan Stanley Dean Witter Co. 43,410 86,820
Nokia Corporation-Spons-ADR 125,400 153,200
Oracle Corporation 76,200 118,400
Pfizer, Inc.* 184,181 360,731
Sony Corporation 29,400 51,800
Viacom, Inc., Class A 57,000 92,000
Vodafone Airtouch PLC-Spons-ADR 9,000 91,000
Yahoo!, Inc. 28,500 53,500
New Holdings
Now Own
Agilent Technologies 15,027
CTC Communications 21,000
Comverse Technologies 20,000
JDS Uniphase 34,600
Nortel Networks 61,000
Texas Instruments, Inc. 51,800
-o Results of Merger
</TABLE>
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<S> <C> <C>
Eliminations/Reductions of Holdings
Sold Now Own
America Online, Inc. 133,400 0
AT&T Corporation 51,000 0
Carnival Corporation 49,800 0
Chase Manhattan Corporation 30,300 0
Donaldson Lufkin & Jenrette 37,600 0
Fifth Third Bancorp 27,825 43,700
J P Morgan & Company 24,500 0
Microsoft Corporation 15,000 154,200
Paine Webber Group, Inc. 34,500 0
Procter & Gamble Company 54,300 0
Visx, Inc. 35,000 0
Warner Lambert Co.* 66,975 0
Zions Bancorporation 130,600 0
* Results of Merger
</TABLE>
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<TABLE>
<S> <C>
One year ended June 30, 2000 .................................17.51%
Five years ended June 30, 2000 ...............................27.40%
Ten years ended June 30, 2000 ................................18.64%
</TABLE>
<PAGE>
December 31, 1999
Ten Largest Investment Holdings
<TABLE>
<S> <C> <C>
Cost Market Value
Cisco Systems Inc. $8,689,399 $22,785,488
Microsoft Corporation 8,219,768 19,754,100
General Electric Company 9,040,613 16,960,600
TIme Warner 8,939,425 13,551,363
EMC Corporation 5,198,873 12,825,950
Wal-Mart Stores Inc. 5,841,434 11,032,350
Yahoo! Inc. 2,431,422 10,817,188
America Online Inc. 1,854,983 10,038,350
Intel Corporation 2,814,153 8,741,588
FleetBoston Financial Corporation 4,559,522 8,648,609
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Common Stocks-- Market Percent of
Number of Value Net
Name of Issuer Shares (Note B) Assets
Automobile & Truck
General Motors Corporation . 66,800 $ 3,874,400 1.12%
Banks
Citigroup, Inc . . . . . . .. 87,500 5,271,875
Fifth Third Bancorp . . . . . 43,700 2,764,025
FleetBoston Financial Corp* 110,634 3,761,556
Mellon Financial Corporation 82,500 3,006,094
14,803,550 4.28%
Biotechnology
Amgen Inc.^. . . . . . . . . .69,000 4,847,250 1.40%
Computer & Data Processing
Dell Computer Corporation^ . 86,800 4,280,325
EMC Corporation^* . . . . . 202,800 15,602,925
Hewlett Packard Corporation . 39,400 4,900,375
International Business Mach*. 77,000 8,436,313
Sun Microsystems, Inc.^ . . . 94,800 8,620,875
41,840,813 12.10%
Computer Software & Services
Microsoft Corporation^* . . 154,200 12,336,000
Oracle Corporation^ . . . . 118,400 9,953,000
22,289,000 6.45%
Entertainment
Disney (Walt) Productions . . 92,000 3,570,750
Time Warner, Inc. . . . .. . 187,400 14,242,400
Viacom Inc. Class A^ . .. . . 92,000 6,290,500
24,103,650 6.97%
Electronic Equipment
General Electric Company . . 109,600 16,960,600
Corning Inc. . .. . . . . . . 13,000 1,676,188
18,636,788 5.21%
Electronics
Agilent Technologies#^ .. . . 15,027 1,119,512
Broadcom Corporation^ . . . . 39,800 8,713,713
General Electric Company . . 290,800 15,412,400
Intel Corporation . . . . . 106,200 14,197,613
Texas Instruments, Inc. . . . 51,800 3,548,300
42,991,538 12.44%
Financial Services
American Express Company . . 94,500 4,925,813
Eaton Vance Corporation . . 125,000 5,781,250
Morgan Stanley Dean Witter. . 86,820 7,227,765
State Street Corporation . .. 78,100 8,283,481
26,218,309 7.58%
Health Care-Supplies
Johnson & Johnson . . . . . . 49,800 5,073,375
Medtronic, Inc. . . . . . . . 75,800 3,775,788
8,849,163 2.56%
Insurance
American International Group .45,046 5,292,905 1.53%
Internet Content
CMGI, Inc.^ . . . . . . . . . 38,000 1,740,875
Yahoo!, Inc.^ . . . . . . . . 53,500 6,627,313
8,368,188 2.42%
Networking Products
Cisco Systems, Inc.^ . . . . 260,400 16,551,675 4.79%
Petroleum, Coal, Gas
Chevron Corporation . . . . . 33,200 2,819,925
Exxon Mobil Corporation . . . 89,941 7,060,369
Royal Dutch Petroleum . . . . 53,200 3,275,125
13,155,419 3.81%
Pharmaceuticals
Bristol Myers Squibb Corp . . 81,800 4,744,400
Eli Lily & Co. . . . . . . . 65,700 6,561,788
Merck & Co., Inc.* . . . . . 86,400 6,555,600
Pfizer, Inc.* . . . . . .. . 360,731 17,269,997
35,131,785 10.16%
Publishing/Printing
McGraw-Hill Companies, Inc. . 67,300 3,667,850 1.06%
Retail
Home Depot, Inc. . . . . . . 81,075 4,048,682
Wal-Mart Stores, Inc.. . . . 159,600 9,196,950
13,245,632 3.83%
Telecommunications
CTC Communications^ . . . . . 21,000 756,000
Cox Communications^ . . . . 139,400 6,351,412
General Motors-Class H. . . . 31,800 2,790,450
Qwest Communications^ . . . 104,800 5,207,250
Vodafone Airtouch PLC . . . . 91,000 3,799,250
Worldcom, Inc.^ . . . . . . 134,400 6,165,600
25,069,962 7.25%
Telecommunications Equipment
Comverse Technologies . . . . 20,000 1,860,000
Corning, Inc. . . . . . . . . 43,800 11,760,300
JDS Uniphase^ . . . . . . . . 34,600 4,147,675
Lucent Technologies, Inc. .. 109,800 6,505,650
Nokia Corporation-Spons-ADR^ 153,200 7,650,425
Nortel Networks . . . . . . . 61,000 4,209,000
Qualcomm, Inc.^ . . . . . . . 37,600 2,256,000
Tellabs, Inc.^ . . . . . . .. 65,000 4,448,434
42,837,484 12.39%
Total Common Stocks (Cost--$223,161,859) $358,023,961 103.55% * Pledged to
collateralize short-term borrowings (See Note G)
^ Non-income producing.
ADR stands for American Depository Receipt representing ownership
of foreign securities.
# Includes 15,027 poison pill rights
The accompanying notes are an integral
part of the financial
statements.
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<TABLE>
<S> <C>
December 31, 1999
Assets
Cash ...............................................................$ 555
Investments--at market value (cost $223,161,859)--Notes B, D & F.....358,023,961
Dividends and interest receivable ............................. 122,185
Receivable for securities sold ..................................... 6,642
Receivable for shares of beneficial interest sold.................. 738,868
Total Assets ........................................... $358,892,211
Liabilities
Payable for shares of beneficial interest repurchased ............. 120,927
Accrued expenses................................................... 44,063
Payable for IRA fees 2,090
Notes Payable ...................................................... 12,859,439
Accrued Investment advisory fee--Note C ........................... 136,735
Total Liabilities ................................ $13,163,254
Net Assets .........................................................$345,728,957
Net Assets Consist of--Note B:
Capital paid-in.....................................................$186,692,687
Undistributed net realized gains ............................... 24,753,016
Accumulated net investment loss ......................... (578,848)
Net unrealized appreciation of investments 134,862,102
Net Assets, for 13,040,027 shares outstanding ............. ....... $345,728,957
Net Asset Value, offering price and redemption price per share
($345,728,957/13,040,027 shares) . ................... $26.51
The accompanying notes are an integral part of the financial statements.
Six month ended June 30, 2000
Investment Income
Dividends.............................................................. $ 976,933
Other Income--Note I ....................................................... 40,181
Total Income........................................................... $ 1,017,114
Expenses
Investment advisory fee--Note C ................................ $ 907,346
Administrative expenses and salaries.......... ....................... 152,779
Interest--Note G ................... .................................... 366,702
Printing, postage and stationery................................... 37,254
Legal Fees........................................................... 16,290
Computer and related expenses ........................................... 22,725
Registration and filing fees........................................... 16,471
Telephone expense ....................................................... 13,525
Auditing fees........................................................ 13,530
Commitment fee--Note G ............................................... 8,650
Insurance ............................................................ 5,068
Custodian fees .................................................... 7,635
Trustees fees--Note C................................................ 5,389
Other expenses .......................................................... . 22,598
Total Expenses .................................................... 1,595,962
Net Investment Income ................................................. (578,848)
Realized and Unrealized Gain on Investments--Note B:
Net realized gain from investment transactions ................. 25,179,732
Change in unrealized depreciation of investments .................... (18,633,092)
Net Gain on Investments ............................................ 6,546,640
Net Increase in Net Assets Resulting from Operations....................$ 5,967,792
The accompanying notes are an integral part of the financial statements.
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<S> <C> <C>
Years Ended December 31,
1999 1999
Increase in Net Assets
From Operations:
Net investment income (loss).......... $ (578,848) $ 109,054
Net realized gain(loss)from investment transactions.. 25,179,732 3,909,780
Change in unrealized appreciation of investments 71,527,151
Net Increase in Net Assets Resulting from
Operations........................ 18,633,092 75,545,985
Distributions to Shareholders:
From net investment income .......................... 0 (140,843)
In excess of net investment income ............. 0 (106,194)
From net realized gains on investments..... 0 (4,010,686)
In excess of net realized gains on investments...... 0 (126,771)
Total Distributions .................... 0 (4,384,494)
From Net Fund Share Transactions--Note E. (17,888,382) 75,229,207
Total Increase/decrease in Net Assets. (11,920,590) 146,390,698
Net Assets:
Beginning of Period ............................ $357,649,547 211,258,849
----------- -----------
End of Period (including undistributed net invest-
ment income/loss of $(578,848) and $0 respectively) $345,728,957 $357,649,547
------------ ------------
The accompanying notes are an integral part of the financial statements.
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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. Michael
Baldwin 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
$51,020,864 and $64,609,029, respectively, for the year ended six months ened
June 30, 2000.
Note E-Shares of Beneficial Interest At June 30, 2000, there was an unlimited
number of shares of beneficial interest authorized with no par value.
Transactions in shares of beneficial interest were as follows:
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<S> <C> <C> <C> <C>
1999
Shares Amount Shares Amount
Shares sold ........................ 2,661,104 $67,489,361 7,239,820 $161,699,116
Shares issued to shareholders in
reinvestment of distributions from
net investment income and realized
gains from security transactions ..... 0 0 165,009 3,980,887
.................................. 2,661,104 67,489,361 7,404,829 165,680,003
Shares repurchased................. (3,335,857) (85,377,743) (4,015,168) (90,450,796)
----------- ------------- ------------ ------------
Net Increase ..................... (674,753) $(17,888,382) 3,389,661 $ 75,229,207
</TABLE>
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 June 30, 2000,
the Fund had unused lines of credit amounting to $2,140,561. The
The following information relates to aggregate short-term borrowings
during the six month ended June 30, 2000:
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<TABLE>
<S> <C>
Average amount outstanding (total of daily outstanding principal balances
divided by number of days during the year)....................... $11,006,384
Weighted average interest rate (actual interest expense on short-term
borrowing divided by average short-term borrowings outstanding) ...... 6.68%
</TABLE>
Note H-Other Tax Information
For federal income tax purposes, the cost of investments owned at June 30, 2000
was $223,161,859. At June 30, 2000, gross unrealized appreciation of investments
was $140,512,752 and gross unrealized depreciation was $5,650,650, resulting in
net unrealized appreciation of $134,862,102.
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 June 30,
2000, the value of securities loaned and the value of collateral were
$10,862,264 and $11,330,903, respectively. During the six months ened, income
from securi-ties lending amounted to $40,181.
<PAGE>
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<S> <C> <C> <C> <C> <C> <C>
Years Ended December 31
Per Share Data# 1999 1998 1997 1996 1995
Net asset value:
Beginning of period..... $26.08 $20.47 $15.84 $12.15 $10.59 $8.13
Income From Investment
Operations:
Net investment income(loss) (.04) .01 .05 .06 .05 .07
Net realized and
unrealized gain (loss)
on investments............. .47 5.93 5.18 4.46 2.54 2.90
---- ---- ---- ---- ----
Total from investment
operations ................ .43 5.94 5.23 4.52 2.59 2.97
---- ---- ---- ---- ----
Less Distributions:
Net investment income .. 0 (.02) (.05) (.06) (.05) (.07)
Capital gains ............ 0 (.31) (.55) (.77) (.98) (.44)
Total Distributions ..... 0 (.33) (.60) (.83) (1.03) (.51)
Net asset value:
End of period...... $26.51 $26.08 $20.47 $15.84 $12.15 $10.59
------ ------ ------ ------ ------
Total Return ........ 1.65% 29.13% 33.34% 37.28% 24.60% 36.46%
Ratios & Supplemental Data
Net assets end of
period (000's omitted) $345,729 $357,650 $211,259 $108,590 $60,275 $48,337
Ratio of operating
expenses to average
net assets
(includes interest expense). .94% .85% .94% .97% 1.21% 1.37%
Ratio of interest expense
to average net assets .22% - - - - -
Ratio of net investment
income to average
net assets.................. -.34% .03% .44% .45% .47% .74%
Portfolio turnover rate .. 11.59% 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.
Years Ended December 31
Per Share Data# 1994 1993 1992~ 1991~
Net asset value:
Beginning of period.......$8.37 $9.70 $10.37 $7.81
Income From Investment
Operations:
Net investment income .......06 .07 .07 .09
Net realized and
unrealized gain (loss)
on investments........... (.07) .16 (.15) 2.77
Total from investment
operations .......... (.01) .23 (.08) 2.86
Less Distributions:
Net investment income .. (.06) (.07) (.07) (.12)
Capital gains........... (.17) (1.49) (.52) (.18)
----- ------ ----- -----
Total Distributions....... (.23) (1.56) (.59) (.30)
Net asset value:
End of period.. $8.13 $8.37 $9.70 $10.37
----- ----- ----- ------
Total Return....... (.07%) 2.44% (.73%) 36.91%
Ratios & Supplemental Data
Net assets end of
period (000's omitted) ...$35,459 $38,694 $42,609 $40,873
Ratio of operating
expenses to average
net assets......... 1.53% 1.45% 1.42% 1.50%
Ratio of net investment
income to average
net assets.......... .74% .62% .71% 1.02%
Portfolio turnover rate . 25.55% 35.14% 28.91% 15.63%
~ 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.
Average share method use to calculate per share data
All ratios for the Six months ended June 30, 2000 are annualized.
</TABLE>
