Northeast Investors Trust
With great pleasure, we enclose our 47th Annual Report. During the year, net
assets per share rose from $10.33 to $10.90. Dividends in the total amount of
$0.99 were paid during the year, contributing to an annual total return of
15.98%.
Net assets at year end were $1,200,483,907, a new high and a level which aided
in the reduction of our expense ratio to .66%. Average annual total returns for
the trailing three-, five- and ten-year periods were 13.44%, 15.64% and 10.49%,
respectively.
It may come as a surprise to some of our newer investors that the portfolio
was invested almost entirely in stocks in the early days of Northeast. Then, in
the early 1980s, electric utility bonds dominated our list. A constant goal of
our process has been to produce a high level of current income, and stocks
yielded more than bonds in the 1950s, and utility bonds yielded more than most
industrial bonds in the early 1980s. In the mid-1980s, spurred by takeovers and
recapitalizations, a large market -- now estimated at $250 billion -- evolved in
high yield securities, and we gravitated toward it.
More recently, the high yield market has been remarkably resilient in a year
in which Treasury bond prices have been under some pressure. This decoupling has
affected the overall relative value of the high yield market, and we have now
defensively overweighted the portfolio with short-term securities in an attempt
to impart more price stability to the fund, and, in an effort to build our
liquidity, we have not for the most part been utilizing our available leverage.
To this point, we have also largely avoided investing in the growing number
of start-up businesses that have turned to the high yield market for capital.
For the most part, we have been concerned about the perceived unfavorable
allocation of risk and reward between the providers of debt capital and the
providers of equity capital for these businesses.
In our opinion, the high yield market is not the only market the high
historical returns of which may be difficult to replicate, and we have
accordingly also reduced the percentage of the overall portfolio comprised of
equity investments. It is interesting to note that stocks, as measured by
certain averages, have appreciated in price on the order of 15% per annum since
August 1982, whereas the economy over this period has grown at a rate of
approximately 6%.
It would seem to us that at some point this disparity would have to correct
itself.
These, then, are the salient factors in our efforts to provide our investors
with superior results.
Respectfully submitted,
Ernest E. Monrad
Chairman of Trustees
October 24, 1996
<PAGE>
<TABLE>
Distribution Per Share
Fiscal At End of Fiscal Year During Fiscal Year
- -----------------------------------------------------------------------------------------------------------------------------------
Year Approximate Full Net Asset Total From From Average
Ended Number of Shares Value Net Net Realized Monthly
Sept. 30 Shareholders Outstanding Per Share Assets Income Gain Net Asset
Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1950(a) 67 27,685 $10.12 $ 280,172 $0.22 $0.0000 $ 9.86
1951 113 51,070 11.09 566,238 0.60 0.2709 10.71
1952 159 78,519 11.33 889,359 0.61 0.2597 11.28
1953 193 96,413 10.83 1,044,115 0.65 0.1046 11.57
1954 290 131,031 14.17 1,855,734 0.61 0.2269 12.75
1955 366 159,278 16.93 2,695,322 0.675 0.3886 16.30
1956 417 168,256 16.87 2,837,437 0.745 0.3185 17.65
1957 437 180,360 14.57 2,626,103 0.76 1.2450 16.72
1958 505 210,929 16.55 3,489,777 0.76 0.6658 15.75
1959 694 259,709 16.77 4,354,809 0.76 1.6951 18.36
1960 884 316,915 15.73 4,986,360 0.79 0.5663 16.58
1961 1,156 391,126 17.23 6,739,320 0.80 0.8179 17.33
1962 1,508 492,454 16.48 8,111,024 0.80 0.4345 17.45
1963 2,142 676,976 17.80 12,046,866 0.80 0.4134 17.70
1964 2,800 981,037 18.48 18,122,167 0.83 0.4899 18.36
1965 3,380 1,238,570 18.46 22,855,525 0.84 0.4642 18.80
1966 3,678 1,445,424 16.03 23,163,540 0.86 0.4346 18.08
1967 3,773 1,644,607 17.31 28,454,561 0.90 0.3157 17.08
1968 3,932 1,954,413 17.74 34,657,130 0.94 0.4357 17.31
1969 4,396 2,225,423 15.30 34,032,661 0.99 0.4378 17.07
1970 5,066 2,618,638 14.15 37,049,008 1.035 0.0000 14.57
1971 5,574 3,174,649 15.23 48,329,677 1.10 0.0000 15.04
1972 6,276 3,924,201 15.75 61,787,749 1.15 0.0000 15.74
1973 7,269 4,541,622 15.18 68,896,938 1.14 0.0000 15.62
1974 7,380 4,735,497 12.35 58,446,955 1.16 0.0000 13.95
1975 8,354 5,995,696 13.04 78,126,666 1.21 0.0000 13.10
1976 10,023 8,067,930 14.57 117,514,100 1.25 0.0000 14.02
1977 12,871 10,781,998 14.93 160,882,937 1.28 0.0000 14.96
1978 13,717 11,838,531 14.03 166,015,297 1.28 0.0000 14.34
1979 13,924 12,463,013 13.01 162,045,583 1.285 0.0000 13.89
1980 13,086 12,405,590 11.26 139,586,138 1.34 0.0000 11.78
1981 11,828 12,249,619 9.38 114,852,760 1.395 0.0000 10.35
1982 12,792 13,360,184 10.88 145,243,484 1.41 0.0000 10.01
1983 13,027 14,361,773 11.83 169,821,605 1.44 0.0000 11.96
1984 11,634 15,324,746 10.98 168,229,381 1.46 0.0000 10.34
1985 11,991 17,887,582 12.19 217,989,344 1.46 0.0000 11.77
1986 14,431 23,037,102 13.60 313,197,229 1.46 0.0000 13.17
1987 17,532 26,987,069 12.89 347,841,198 1.46 0.0000 13.63
1988 19,107 33,268,240 12.16 404,218,905 1.94 0.0000 12.13
1989 18,749 34,498,332 11.18 385,389,718 1.54 0.0000 11.64
1990 16,895 31,459,941 8.81 277,133,819 1.43 0.0000 9.78
1991 15,747 35,220,038 8.83 310,667,350 1.34 0.0000 8.36
1992 15,918 47,684,814 9.50 452,773,909 1.15 0.0000 9.22
1993 16,209 47,797,167 9.94 474,975,825 1.02 0.0000 9.68
1994 17,460 58,148,389 10.02 582,093,443 0.99 0.0000 10.27
1995 20,644 77,209,155 10.33 797,559,000 0.96 0.0000 10.01
1996 24,631 110,229,375 10.90 1,200,483,907 0.99 0.0000 10.46
(a)From March 1, 1950, date of organization of the Trust. The shares were initially sold on March 1,1950 at a net asset value of
$10.00 per share.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Average Annual Total Return (unaudited):
One year ended September 30, 1996......................................15.98%
Five years ended September 30, 1996....................................15.64%
Ten years ended September 30, 1996.....................................10.49%
Yield calculated as of September 30, 1996 (unaudited):...................... 8.60%
</TABLE>
The following graph compares the cumulative total shareholder return on the
Northeast Investors Trust shares over the ten preceding fiscal years to the
cumulative total share return on the First Boston High Yield Index, assuming an
investment of $10,000 in both at their closing prices on September 30, 1986 and
reinvestment of dividends and capital gains. For management's discussion of the
Trust's fiscal year 1996 performance, see the Chairman's letter to shareholders.
(EDGAR REFERENCE - GRAPH)
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Northeast Investors Trust $10,000 $10,544$11,664$12,232 $11,147$13,112$15,977 $18,573$20,609$23,379$27,115
First Boston High Yield Index $10,000$10,598$12,060 $12,728$11,598$15,882 $19,135$22,136$22,899$26,121$28,933
</TABLE>
<TABLE>
Corporate Bonds--
<CAPTION>
Market
Name of Issuer Principal Value (Note B)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aerospace--.69%
- -----------------------------------------------------------------------------------------------------------------------------------
Coltec Industries Senior Sub. Notes, 10.25%, 4/01/02.................... 3,000,000 $ 3,112,500
Coltec Industries Senior Notes, 9.75%, 11/01/99......................... 5,000,000 5,175,000
- -----------------------------------------------------------------------------------------------------------------------------------
8,287,500
Apparel--3.33%
- -----------------------------------------------------------------------------------------------------------------------------------
JPS Textile Group, Inc. Sen. Sub. Disc. Notes, 10.25%, 6/01/99~. 6,143,000 3,685,800
JPS Textile Group, Inc. Sen. Sub. Disc. Notes, 10.85%, 6/01/99~......... 14,592,000 8,755,200
JPStevens Debentures, 9%, 3/01/17^...................................... 12,671,000 12,322,547
Samsonite Corp. Senior Sub. Notes, 11.125%, 7/15/05..................... 4,000,000 4,240,000
United States Leather, Inc. Senior Notes, 10.25%, 7/31/03^.............. 13,500,000 10,935,000
- -----------------------------------------------------------------------------------------------------------------------------------
39,938,547
Automotive Products--.91%
- ----------------------------------------------------------------------------------------------------------------------------------
SPX Corporation Senior Sub. Notes, 11.75%, 6/01/02...................... 10,000,000 10,975,000
Banks--.16%
- -----------------------------------------------------------------------------------------------------------------------------------
Guardian Savings & Loan Sub. Cap. Deb., 12.625%, 1/15/02~>.............. 1,000,000 1,970,000
Building & Construction--1.07%
- -----------------------------------------------------------------------------------------------------------------------------------
Associated Materials Senior Sub. Deb. Notes, 11.5%, 8/15/03^............ 6,200,000 5,921,000
Georgia Marble Co. Sub. Notes, 17%, 1/01/96~............................ 1,500,000 1,094,700
Nortek, Inc. Senior Sub. Notes, 9.875%, 3/01/04^........................ 5,950,000 5,771,500
- -----------------------------------------------------------------------------------------------------------------------------------
WalterWalterWWWalter 12,787,200
Chemicals--5.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Indspec Chemical Corp. Sen. Disc. Notes, 0/11.5%, 12/01/03#^............ 15,869,000 14,123,410
NL Industries Senior Disc. Notes, 0/13%, 10/15/05#^..................... 17,460,000 14,710,050
Pioneer Americas Acq. Senior Notes, 13.375%, 4/01/05.................... 12,500,000 13,750,000
Plastic Specialties &Technologies Sen. Notes, 11.25%, 12/01/03^......... 12,000,000 11,790,000
Uniroyal Technology Senior Notes, 11.75%, 6/01/03....................... 6,045,000 5,621,850
- -----------------------------------------------------------------------------------------------------------------------------------
59,995,310
Computer Software & Services--2.17%
- -----------------------------------------------------------------------------------------------------------------------------------
Unisys Corporation Notes, 15%, 7/01/97.................................. 16,751,000 17,714,182
Unisys Corporation Senior Notes, 12%, 4/15/03........................... 8,000,000 8,280,000
- -----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
25,994,182
Corporate Bonds--continued Market
Name of Issuer Principal Value (Note B)
- -----------------------------------------------------------------------------------------------------------------------------------
Conglomerate--1.27%
- -----------------------------------------------------------------------------------------------------------------------------------
Jordan Industries Senior Sub. Disc. Notes, 0/11.75%, 8/01/05#^.......... 13,440,000$ 9,945,600
Jordan Industries Senior Notes, 10.375%, 8/01/03........................ 5,550,000 5,355,750
- -----------------------------------------------------------------------------------------------------------------------------------
15,301,350
Cosmetics--.03%
- -----------------------------------------------------------------------------------------------------------------------------------
Revlon Consumer Products Corp. Deb., 10.875%, 7/15/10................... 400,000 413,500
Drug Stores--.56%
- -----------------------------------------------------------------------------------------------------------------------------------
Thrifty Payless Senior Sub. Notes, 12.25%, 4/15/04...................... 6,000,000 6,690,000
Electronics--.27%
- -----------------------------------------------------------------------------------------------------------------------------------
Amphenol Corp. Senior Sub. Notes, 12.75%, 12/15/02...................... 2,940,000 3,241,350
Food & Beverage-- 2.33%
- -----------------------------------------------------------------------------------------------------------------------------------
Envirodyne Industries, Inc. Senior Notes, 10.25%, 12/01/01^............. 20,395,000 18,559,450
Great American Cookie Senior Sec. Notes, 10.875%, 1/15/01............... 3,500,000 2,940,000
Specialty Foods Senior Notes, 10.25%, 8/15/01........................... 7,000,000 6,440,000
- -----------------------------------------------------------------------------------------------------------------------------------
27,939,450
Food Service--.90%
- -----------------------------------------------------------------------------------------------------------------------------------
SCInternational Service, Inc. Senior Sub. Notes, 13%, 10/01/05.......... 10,000,000 10,800,000
Furniture--.95%
- -----------------------------------------------------------------------------------------------------------------------------------
Lifestyle Furnishings Intl. Ltd. Sen. Sub. Notes, 10.875%, 8/01/06...... 11,000,000 11,385,000
Gaming--14.48%
- -----------------------------------------------------------------------------------------------------------------------------------
Alliance Gaming Corp. Senior Notes, 12.875%, 6/30/03^................... 4,000,000 4,140,000
Aztar Corp. Senior Sub. Notes, 11%, 10/01/02............................ 3,652,000 3,652,000
Aztar Corp. Senior Sub. Notes, 13.75%, 10/01/04^........................ 21,548,000 24,349,240
Bally's Casino Holdings Senior Discount Notes, 0%, 6/15/98^............. 6,750,000 5,990,625
Bally's Grand First Mortgage Notes, 10.375%, 12/15/03^.................. 10,550,000 11,657,750
Coast Hotels &CasinoFirst Mortgage Notes, 13%, 12/15/02................. 10,000,000 10,825,000
Eldorado Resorts Senior Sub. Notes, 10.5%, 8/15/06^..................... 1,500,000 1,552,500
GB Property Funding Corp. Mortgage Notes, 10.875%, 1/15/04^............. 17,350,000 15,094,500
Harrahs Operating, Inc. Senior Sub. Notes, 8.75%, 3/15/00............... 5,000,000 5,050,000
Harrahs Operating, Inc. Senior Sub. Notes, 10.875%, 4/15/02............. 2,115,000 2,247,187
<PAGE>
Corporate Bonds--continued Market
Name of Issuer Principal Value (Note B)
- -----------------------------------------------------------------------------------------------------------------------------------
Gaming--continued
- -----------------------------------------------------------------------------------------------------------------------------------
MGMGrand Hotels First Mortgage Notes, 11.75%, 5/01/99................... 20,445,000 $ 21,441,694
MGMGrand Hotels First Mortgage Notes, 12%, 5/01/02...................... 31,667,000 34,358,695
Resorts International Mortgage Notes, 11%, 9/15/03...................... 3,204,000 3,300,120
Showboat, Inc. Senior Sub. Notes, 13%, 8/01/09.......................... 900,000 1,021,500
Trump Atlantic City First Mortgage Notes, 11.25%, 5/01/06............... 15,000,000 14,775,000
Trump Plaza Funding First Mortgage Notes, 10.875%, 6/15/01.............. 13,000,000 14,430,000
- -----------------------------------------------------------------------------------------------------------------------------------
173,885,811
Grocery Stores--8.84%
- -----------------------------------------------------------------------------------------------------------------------------------
Fleming Co., Inc. Medium Term Notes, 5.77%, 8/06/98..................... 3,000,000 2,760,000
Fleming Co., Inc. Floating Sen. Notes, Libor + 2.25%, 12/15/01^......... 7,300,000 6,296,250
Food 4 Less Holdings Debentures, 0/13.625%, 7/15/05#.................... 29,000,000 15,370,000
Grand Union Company Senior Notes, 12%, 9/01/04.......................... 19,500,000 19,695,000
Kash N Karry Food Stores, Inc. Senior Notes, 11.5%, 2/01/03............. 3,560,068 3,595,669
Kash N Karry Food Stores, Inc. Sen. Notes, Libor + 2%, 2/01/03.......... 11,288,006 10,046,325
P&C Food Market Senior Notes, 11.5%, 10/15/01^.............. 21,500,000 19,296,250
Ralph's Grocery Senior Notes, 10.45%, 6/15/04................ 2,000,000 2,027,500
Ralph's Grocery Senior Notes, 10.45%, 6/15/04........................... 3,000,000 3,041,250
Ralph's Grocery Senior Sub. Notes, 11%, 6/15/05......................... 8,000,000 8,000,000
Smith's Food &Drug Centers Senior Sub. Notes, 11.25%, 5/15/07........... 15,000,000 15,937,500
Victory Markets, Inc. Sub. Notes, 12.5%, 3/15/00~....................... 2,000,000 5,000
- -----------------------------------------------------------------------------------------------------------------------------------
106,070,744
Insurance--.64%
- -----------------------------------------------------------------------------------------------------------------------------------
First Capital Holdings Senior Sub. Notes, 13%, 5/15/99~................. 4,932,000 36,990
Leucadia National Corp. Conv. Debentures, 5.25%, 2/01/03^............... 6,975,000 7,044,750
Leucadia National Corp. Sen. Sub. Notes, 10.375%, 6/15/02............... 575,000 615,250
- -----------------------------------------------------------------------------------------------------------------------------------
7,696,990
Metals & Mining--.18%
- -----------------------------------------------------------------------------------------------------------------------------------
Kaiser Aluminum Chemical Corp. Sub. Notes, 12.75%, 2/01/03.............. 2,000,000 2,170,000
Packaging & Container--7.20%
- -----------------------------------------------------------------------------------------------------------------------------------
Florida Coast Paper Co. First Mort. Notes, 12.75%, 6/01/03^............. 2,000,000 2,155,000
Four M Corporation Senior Notes, 12%, 6/01/06^.......................... 1,500,000 1,590,000
Gaylord Container Corp. Senior Sub. Notes, 12.75%, 5/15/05^............. 19,000,000 20,852,500
Owens-Illinois, Inc. Senior Sub. Notes, 10.25%, 4/01/99................. 2,240,000 2,282,000
Packaging Resources, Inc. Senior Notes, 11.625%, 5/01/03................ 8,800,000 9,064,000
Stone Container Corp. Conv. Sen. Sub. Notes, 8.875%, 7/15/00 ........... 3,000,000 4,443,750
Stone Container Corp. Senior Notes, 11.875%, 8/01/16.................... 25,000,000 25,437,500
Stone Container Corp. Senior Notes, 11.5%, 8/15/06...................... 20,000,000 20,600,000
- -----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
86,424,750
Corporate Bonds--continued Market
Name of Issuer Principal Value (Note B)
- -----------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products--1.95%
- -----------------------------------------------------------------------------------------------------------------------------------
MAXXAM Group, Inc. Senior Disc. Notes, 0/12.25%, 8/01/03#^.............. 30,000,000 $ 21,825,000
MAXXAM, Inc. Senior Sub. Deb., 12.5%, 12/15/99.......................... 1,408,000 1,450,240
WTDIndustries, Inc. Senior Sub. Deb., 8%, 6/30/05....................... 340,900 170,450
- -----------------------------------------------------------------------------------------------------------------------------------
23,445,690
Petroleum & Drilling-- 1.07%
- -----------------------------------------------------------------------------------------------------------------------------------
Harcor Energy Senior Notes, 14.875%, 7/15/02............................ 4,000,000 4,530,000
Mesa Operating Co. Sen. Sub. Notes, 0/11.625%, 7/01/06#................. 5,500,000 3,520,000
Triton Energy Senior Sub. Notes, 0%, 11/01/97........................... 5,150,000 4,738,000
- -----------------------------------------------------------------------------------------------------------------------------------
12,788,000
Publishing & Printing-- 1.68%
- -----------------------------------------------------------------------------------------------------------------------------------
American Pad &Paper Senior Sub. Notes, 13%, 11/15/05.................... 17,555,000 20,144,363
Real Estate--1.88%
- -----------------------------------------------------------------------------------------------------------------------------------
Olympia & York Maiden Lane Sec. Notes, 10.375%, 12/31/95~............... 19,535,000 6,055,850
Rockefeller Center Properties Conv. Deb., 0%, 12/31/00.................. 27,700,000 16,481,500
- -----------------------------------------------------------------------------------------------------------------------------------
22,537,350
Recreation--2.68%
- -----------------------------------------------------------------------------------------------------------------------------------
Genmar Holdings, Inc. Senior Sub. Notes, 13.5%, 7/15/01................. 18,000,000 17,190,000
Marvel Holdings Sen. Sec. Disc. Notes, Series B, 0%, 4/15/98^........... 5,000,000 3,962,500
Outboard Marine Corp. Debentures, 9.125%, 4/15/17^...................... 9,750,000 8,872,500
Royal Caribbean Cruises Sen. Sub. Notes, 11.375%, 5/15/02............... 2,025,000 2,171,813
- -----------------------------------------------------------------------------------------------------------------------------------
32,196,813
Retail--4.15%
- -----------------------------------------------------------------------------------------------------------------------------------
Bradlees, Inc. Senior Sub. Notes, 11%, 8/01/02~......................... 2,000,000 190,000
Bradlees, Inc. Senior Sub. Notes, 9.25%, 3/01/03~....................... 15,455,000 1,275,038
Cole National Group, Inc. Senior Notes, 11.25%, 10/01/01................ 8,150,000 8,659,375
Color Tile, Inc. Senior Notes, 10.75%, 12/15/01~........................ 21,000,000 1,312,500
Eyecare Centers of America, Inc. Senior Notes, 12%, 10/01/03............ 7,000,000 7,448,000
Kay Jewelers, Inc. Debentures, 12.875%, 8/01/99......................... 1,500,000 1,500,000
McCrory Corp. Sub. Debentures, 9.75%, 9/15/08~.......................... 1,251,000 37,530
National Convenience Stores, Inc. Sec. Notes, 9.5%, 6/30/03............. 12,065,297 12,668,562
Orion Stores Secured Notes, 12.75%, 10/01/98............................ 5,694,868 5,894,188
Speedy Muffler King, Inc. Senior Notes, 10.875%, 10/01/06............... 1,500,000 1,545,000
Town & Country Corp. Senior Sec. Notes, 11.5%, 9/15/97.................. 1,992,000 1,852,560
Town & Country Corp. Senior Sub. Notes, 13%, 5/31/98.................... 7,434,949 6,319,707
Wherehouse Entertainment Senior Sub. Notes, 13%, 8/01/02~............... 15,500,000 1,123,750
- -----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
49,826,210
Corporate Bonds--continued Market
Name of Issuer Principal Value (Note B)
- -----------------------------------------------------------------------------------------------------------------------------------
Retail Food Chains--3.54%
- -----------------------------------------------------------------------------------------------------------------------------------
American Restaurant Group Senior Notes, 13%, 9/15/98.................... 7,414,143 $ 6,895,153
American Restaurant Group Senior Notes, 13%, 9/15/98.................... 4,396,200 3,956,580
Family Restaurants Senior Notes, 9.75%, 2/01/02......................... 18,000,000 11,340,000
Flagstar Corporation Senior Notes, 10.875%, 12/01/02.................... 14,200,000 12,531,500
Flagstar Corporation Senior Notes, 10.75%, 9/15/01...................... 8,750,000 7,765,625
- -----------------------------------------------------------------------------------------------------------------------------------
42,488,858
Tobacco & Distilling--.08%
- -----------------------------------------------------------------------------------------------------------------------------------
MacAndrews & Forbes Co. Sen. Sub. Notes, 11.875%, 11/15/02.............. 1,000,000 1,080,000
Transportation--1.04%
- -----------------------------------------------------------------------------------------------------------------------------------
Central Transport Rental Group Notes, 9.5%, 4/30/03..................... 8,440,250 7,870,533
Continental Airlines, Inc., 12.5%, 4/15/99~@............................ 1,400,000 14,000
Continental Airlines, Inc., 11%, 3/15/95~@.............................. 1,000,000 7,500
International Airline Support Group, Inc. Conv., 8%, 8/31/03*~@......... 1,000,000 400,000
Moran Transportation Co. Mortgage Notes, 11.75%, 7/15/04^............... 4,000,000 4,200,000
- -----------------------------------------------------------------------------------------------------------------------------------
12,492,033
Miscellaneous--4.37%
- -----------------------------------------------------------------------------------------------------------------------------------
Acadia Partners L.P. Sub. Notes, 13%, 10/01/97.......................... 14,000,000 14,560,000
Darling International Senior Sub. Notes, 11%, 7/15/00^.................. 12,195,000 12,073,050
Hines Horticulture Senior Sub. Notes, 11.75%, 10/15/05.................. 3,000,000 3,120,000
Iron Mountain, Inc. Senior Sub. Notes, 10.125%, 10/01/06................ 2,500,000 2,546,875
Mosler, Inc. Senior Notes, 11%, 4/15/03................................. 10,340,000 9,099,200
Pope, Evans & Robbins, Inc., 7%, 5/15/98~@.............................. 1,116,669 112
Specialty Equipment Senior Sub. Notes, 11.375%, 12/01/03................ 6,370,000 6,831,825
Tokheim Corporation Senior Sub. Notes, 11.5%, 8/01/06................... 4,000,000 4,180,000
- -----------------------------------------------------------------------------------------------------------------------------------
52,411,062
- -----------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds--73.42% (cost--$921,185,986) 881,377,063
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign Bonds--
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign-- 4.52%
- -----------------------------------------------------------------------------------------------------------------------------------
Argentina Floating Rate Notes, Libor + .8125%, 3/31/05.................. 34,646,535 29,059,781
Republic of Brazil Discount FRN, Libor +.8125%, 4/15/24................. 33,000,000 25,245,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Foreign Bonds--4.52% (cost--$45,578,975) 54,304,781
- -----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Stocks-- Number of Market
Name of Issuer Shares Value (NoteB)
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stocks--14.08%
- -----------------------------------------------------------------------------------------------------------------------------------
American Building Co.+.................................................. 8,807 $ 233,386
Bankers Trust NY^....................................................... 300,000 23,587,500
Central Transport Rental Group+......................................... 4,111,586 1,413,358
Chubb Corp.^............................................................ 500,000 23,000,000
Cole National Corp. Class A+ ........................................... 48,000 1,110,000
C R Anthony Company+.................................................... 338,142 1,394,836
Crompton &Knowles Corp.+................................................ 206,724 3,385,106
Darling International, Inc.+............................................ 248,510 6,771,897
Gaylord Container Corp.+................................................ 1,243,799 9,173,018
Grand Union Co.+........................................................ 167,904 1,070,388
Homeland Stores Holdings Corp A+@....................................... 822,672 8,227
Houlihan's Restaurant Group+............................................ 471,386 3,299,702
J P Morgan & Co.^....................................................... 100,000 8,887,500
JPSTextile Group, Inc., Class A@~....................................... 48,878 48,878
Kash N Karry Food Stores, Inc.x+........................................ 184,074 4,521,318
Little Switzerland, Inc.+............................................... 273,659 1,180,154
MAXXAM, Inc.+........................................................... 200,000 8,850,000
Mesa, Inc.+............................................................. 128,592 530,442
NL Industries........................................................... 180,000 1,890,000
Pope, Evans & Robbins, Inc. @~.......................................... 316,575 3
Smith's Food & Drug Centers Class B+.................................... 12,047 319,245
Specialty Equipment Co. +............................................... 400,000 5,300,000
Telemundo Group, Inc.+.................................................. 244,660 8,379,605
Town & Country Corp. Class A+........................................... 1,079,455 944,523
Triton Group, LTD ...................................................... 559,966 384,976
Vons Company, Inc.+^.................................................... 600,000 25,725,000
Walter Industries, Inc.+................................................ 466,365 6,004,449
WestPoint Stevens, Inc.+^............................................... 635,000 18,018,125
WPS Investors LP+@...................................................... 200,000 3,622,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks--14.08% (cost--$138,113,462) 169,053,636
- -----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks--2.82%
- -----------------------------------------------------------------------------------------------------------------------------------
Alliance Gaming Corp.Series B, 15%...................................... 5,000 470,625
Mesa, Inc. Conv. Series A, 8%........................................... 128,022 640,110
TimeWarner, Inc. Series K, 10.25%....................................... 30,668 32,201,400
Town & Country Corp. Conv., 6%.......................................... 295,067 516,367
- -----------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks--2.82% (cost--$32,316,895) 33,828,502
- -----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Number of
Shares or Units
- -----------------------------------------------------------------------------------------------------------------------------------
Warrants and Units--1.50%+ __ ___
- -----------------------------------------------------------------------------------------------------------------------------------
Cookies USA, Inc. Warrants.............................................. 630 15,750
Eyecare Center Corp. Warrants........................................... 6,500 6,500
Federated Dept. Stores C Warrants....................................... 225,869 2,061,055
Federated Dept. Stores D Warrants....................................... 290,771 2,725,978
Gaylord Container Warrants.............................................. 814,218 6,920,853
Harcor Energy Inc....................................................... 88,000 102,080
International Airline Support Group, Inc. Warrants*+.................... 92,677 927
Jewel Recovery L P Units+............................................... 257,072 2,571
Reliance Group, Inc. Warrants........................................... 38,067 76,134
Sam Houston Race Park Inc. Warrants+.................................... 6,000 60
UGI Corp. Warrants...................................................... 42,499 10,625
....................................Total Warrants, and Units--1.49% (cost--$) 11,922,533
Repurchase Agreement--3.24%
- -----------------------------------------------------------------------------------------------------------------------------------
Investors Bank &Trust Repurchase Agreement, 5.3%, due 10/1/96........... $38,868,330 38,868,330
- -----------------------------------------------------------------------------------------------------------------------------------
Total Repurchase Agreement--3.24% (cost--$38,868,330)** 38,868,330
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments--98.67% (cost--$1,180,402,445) $1,184,463,376
===================================================================================================================================
<FN>
** Acquired on September 30, 1996. Collateralized by $40,812,147 of various U.S.Government mortgage-backed securities, due
through 6/01/26. The maturity value is $38,874,052. As an operating policy, the Trust, through the custodian bank, secures
receipt
of adequate collateral supporting repurchase agreements.--(see Note I).
- -----------------------------------------------------------------------------------------------------------------------------------
~ Non-income producing security due to default or bankruptcy filing + Non-income
producing security @ Securities valued in good faith (See Note B)
# Represents a zero coupon bond that converts to a fixed rate at a designated future date. The date shown on the schedule of
investments
represents the maturity date of the security and not the date of coupon conversion.
^ Pledged to collateralize short-term borrowings (See Note H)
> Security trades with accrued interest in the price.
* Restricted security--represents ownership in a security whose resale is
restricted or a private placement investment which has not been registered
with the Securities and Exchange Commission under the Securities Act of
1933. These securities may be resold in transactions exempt from
registration or if the securities are registered for resale. Information
concerning restricted security holdings (excluding 144A issues) at
September 30, 1996 is as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Security Date Acquired Cost Market Value % of Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
International Airline Support Group, Inc. Conv., 8%, 8/31/03 9/23/93 $1,000,000 $400,000.03%
Federal Tax Information: At September 30, 1996, the aggregate cost of investment
securities for income tax purposes was $1,180,501,185. Net unrealized
appreciation aggregated $3,962,191 of which $101,283,353 related to appreciated
investment securities and $97,321,162 related to depreciated investment
securities.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>
<TABLE>
<CAPTION>
September 30, 1996
- -------------------------------------------------------------------------------
Assets
- -------------------------------------------------------------------------------
<S> <C>
Investments--at market value
(cost $1,180,402,445)--Note B ....... $1,184,463,376
Cash.................................... 6,847
Interest receivable..................... 27,235,978
Receivable for securities sold.......... 1,795,991
Receivable for shares of beneficial
interest sold........................ 3,841,265
Receivable for dividends................ 1,389,396
Miscellaneous receivable................ 298,113
----------
Total Assets.......... 1,219,030,966
Liabilities
- -------------------------------------------------------------------------------
Payable for securities purchased........ 16,318,875
Payable for shares of beneficial
interest repurchased................. 575,048
Trustee fees payable--Note C............. 1,499,534
Accrued expenses........................ 153,602
- -------------------------------------------------------------------------------
Total Liabilities..... 18,547,059
- -------------------------------------------------------------------------------
Net Assets..............................$1,200,483,907
===============================================================================
Net Assets Consist of (Note B):
Capital, at a $1.00 par value...........$ 110,229,375
Paid-in surplus......................... 1,100,068,753
Accumulated net investment
income............................... 1,850,095
Accumulated net realized loss
on investments....................... (15,725,247)
Net unrealized appreciation of
investments.......................... 4,060,931
- -------------------------------------------------------------------------------
Net Assets, for 110,229,375 shares
outstanding..........................$1,200,483,907
===============================================================================
Net Asset Value, offering price
and redemption price per share
($1,200,483,907/110,229,375 shares) $10.90
===============================================================================
</TABLE>
- -------------------------------------------------------------------------------
Year Ended September 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
- -------------------------------------------------------------------------------
<S> <C>
Interest.................................. $89,984,359
Dividends................................. 3,264,515
Other Income.............................. 360,581
---------
Total Income............ 93,609,455
Expenses
- -------------------------------------------------------------------------------
<S> <C>
Trustee fees--Note C........ $4,896,339
Administrative
expenses and
salaries................. 499,334
Interest--Note H............. 262,633
Computer and
related expenses......... 156,445
Printing, postage
and stationery........... 142,035
Registration and
filing fees.............. 120,862
Custodian fees.............. 87,437
Legal fees.................. 82,144
Auditing fees............... 72,660
Other expenses.............. 45,937
Insurance................... 13,705
- -------------------------------------------------------------------------------
Total Expenses .......... 6,379,531
Net Investment Income 87,229,924
- -------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss).on Investments--Note B:
- -------------------------------------------------------------------------------
Net realized gain from investment
transactions........................... 14,771,550
Change in unrealized depreciation
of investments......................... 39,213,982
Net Gain on Investments.................... 53,985,532
Net Increase in Net Assets Resulting
from Operations........................ $141,215,456
===============================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C> <C>
Increase in Net Assets
From Operations:
Net investment income................................................ $ 87,229,924 $ 64,053,984
Net realized gain from investment transactions....................... 14,771,550 5,772,428
Change in unrealized depreciation of investments..................... 39,213,982 15,623,321
------------ ------------
Net Increase in Net Assets Resulting from
Operations...................................................... 141,215,456 85,449,733
Distributions to Shareholders from Net Investment Income................ (87,486,984) (62,400,122)
($.99 and $.96 per share, respectively)
From Net Trust Share Transactions--Note E................................ 349,196,435 192,415,946
------------ ------------
Total Increase in Net Assets.................................... 402,924,907 215,465,557
Net Assets:
Beginning of Period.................................................. 797,559,000 582,093,443
------------ ------------
End of Period (including undistributed net investment
income of $1,850,095 and $2,090,975, respectively)................ $1,200,483,907 $797,559,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Note A-Organization
Northeast Investors Trust (the Trust), a diversified open-end management
investment company (a Massachusetts Trust), is registered under the Investment
Company Act of 1940, as amended.
Note B-Significant Accounting Policies
Significant accounting policies of the Trust are as follows:
Valuation of Investments: Securities 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 are furnished by recognized dealers in such securities.
Securities for which market quotations are not readily available (including
restricted securities and private placements, 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.
Federal Income Taxes: The Trust does not provide for federal income taxes
as it is the policy of the Trust to distribute its taxable income for each year
in taxable dividends so as to qualify as a regulated investment company under
the Internal Revenue Code.
State Income Taxes: Because the Trust 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.
Net Asset Value: In determining the net asset value per share, rounding
adjustments are made for fractions of a cent to thenext higher cent.
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 carryforwards and losses deferred due to
wash sales. Permanent book and tax differences relating to shareholder
distributions will result in reclassifications to paid-in surplus. The Trust's
distributions and dividend income are recorded on the ex-dividend date. Interest
income, which includes accretion of market discount, is accrued as earned.
Original issue discount on bonds and step-up bonds is accreted according to the
effective-yield method. Certain securities held by the Trust pay interest in the
form of cash or additional securities (known as Payment-in-kind or PIK);
interest on such securities is recorded on the accrual basis by means of the
effective-yield method.
Security Transactions: Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the basis of
identified cost.
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-Trustees' Compensation
Trustees' compensation has been computed at the rate of 1/8 of 1% of the
net assets (before deduction of accrued Trustees'compensation) at the close of
each quarter, from which the Trustees have paid certain expenses specified in
the Declaration of Trust.
Note D-Capital Loss Carryforward
At September 30, 1996, the Trust had $ 15,626,506 in accumulated net
realized losses on sales of investments available to be carried forward to
offset future net realized gains on sales of investments. To the extent that
such carryforwards are utilized by the Trust, no capital gains distributions
will be made. The carryforwards expire as follows: September 30,
1998-$9,909,289, September 30, 1999-$3,468,054 and September 30,
2002-$2,249,163.
<PAGE>
Note E-Shares of Beneficial Interest
At September 30, 1996, there were unlimited shares of beneficial interest
authorized with a par value of $1. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1996 September 30, 1995
---------------------------- ----------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
------------ ------------- ------------ -------------
Shares sold............................................. 60,008,485 $631,430,398 43,866,307 $438,670,192
Shares issued to shareholders in reinvestment of
distributions from net investment income............ 5,469,554 56,729,325 4,021,531 39,999,108
------------ ------------- ------------ -------------
65,478,039 688,159,723 47,887,838 478,669,300
Shares repurchased...................................... (32,457,819) (338,963,288) (28,827,071) (286,253,354)
------------ ------------- ------------ -------------
Net Increase......................................... 33,020,220 $349,196,435 19,060,767 $192,415,946
============ ============= ============ =============
</TABLE>
Note F-Purchases and Sales of Investments
Purchases and sales of securities, other than short-term securities,
aggregated $574,952,436 and $285,836,712, respectively, for the period ended
September 30, 1996.
Note G-Security Lending
During the period, the Trust loaned a security to a certain broker-dealer
who paid the fund a negotiated lenders fee. The fee is included in interest
income. The Trust received U.S. Treasury obligations and/or cash as collateral
against the loaned security, in an amount at least equal to 102% of the market
value of the loaned security. At period end, no securities were on loan. Note
H-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 September 30, 1996 the Trust has unused
lines of credit amounting to $130,000,000. The committed lines of credit may be
terminated at the banks' option at their annual renewal dates.
The following information relates to aggregate short-term borrowings for the
year ended September 30, 1996:
<TABLE>
<CAPTION>
<S> <C>
Maximum amount outstanding at any month end..................... $3,934,000
Average amount outstanding (total of daily outstanding principal balances
divided by number of days with debt outstanding during the period)... $8,331,405
Average interest rate ............................................... 6.80%
</TABLE>
Interest expense includes commitment fees of $197,166. Under the most
restrictive arrangement, the Trust must pledge to the banks securities having a
market value equal to or greater than 200% of the total bank borrowings.
Securities with principal amounts and market values aggregating $217,446,000 and
$272,247,623, respectively, have been pledged to collateralize short-term
borrowings. Note I-Repurchase Agreement
On a daily basis, the Trust invests uninvested cash balances into
repurchase agreements secured by U.S. Government obligations. Securities pledged
as collateral for repurchase agreements are held by the Trust's custodian bank
until maturity of the repurchase agreement. Provisions of the agreement ensure
that the market value of the collateral is sufficient in the event of default.
However, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral may be subject to
legal proceedings.
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
Per Share Data 1996 1995 1994 1993 1992~ 1991~ 1990~ 1989~ 1988~ 1987~
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of Period............ $10.33 $10.02 $9.94 $9.50 $8.83 $8.81 $11.18 $12.16 $12.89 $13.60
Income From Investment
Operations:
Net investment income............ .98 .98 .98 1.04 1.15 1.32 1.45 1.50 1.65 1.55
Net realized and
unrealized gain (loss)
on investment................. .58 .29 .09 .42 .67 .04 (2.39) (.94) (.44) (.80)
----- ---- ---- ----- ----- ----- ----- ---- ----- ----
Total from investment
operations.................... 1.56 1.27 1.07 1.46 1.82 1.36 (.94) .56 1.21 .75
Less Distributions:
Net investment income......... (.99) (.96) (.99) (1.02) (1.15) (1.34) (1.43) (1.54) (1.94)+ (1.46)
Net asset value:
End ofPeriod................... $10.90 $10.33 $10.02 $9.94 $9.50 $8.83 $8.81 $11.18 $12.16 $12.89
Total return..................... 15.98% 13.44% 10.96% 16.25% 21.85% 17.63% (8.87)% 4.87% 10.62% 5.44%
Ratios &Supplemental Data
Net assets end of
period (000's omitted)........ $1,200,484 $797,559 $582,093 $474,976 $452,774 $310,667 $277,134 $385,390 $404,219 $347,841
Ratio of operating
expenses to average
net assets.................... .66% .67% .70% .73% .79% .88% .78% .72% .75% .76%
Ratio of interest expense
to average net assets......... .03% .35% .36% .48% .65% 1.01% .69% .61% .66% .71%
Ratio of net investment
income to average
net assets ................... 9.41% 9.77% 9.37% 10.53% 12.36% 15.38%14.35% 12.68% 13.16% 11.59%
Portfolio turnover rate.......... 32.01% 40.58% 73.36% 75.72% 59.41% 33.77%21.23% 33.61% 17.35% 52.03%
Average broker
commission...................... $0.06
<FN>
+Includes accumulated undistributed net investment income (including original
issue discount)through December 31, 1987 as required under the excise tax
provisions of the Tax Reform Act of 1986, estimated by the trustees to be $.42
per share.
~ Audited by other auditors.
</FN>
</TABLE>
To the Shareholders and Trustees of
Northeast Investors Trust
We have audited the accompanying statement of assets and liabilities of
Northeast Investors Trust, including the schedule of portfolio investments, as
of September 30, 1996, and the related statement of operations for the year then
ended, and the changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the four years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the years ended September 30, 1987 through
1992, presented herein, were audited by other auditors whose report dated
October 30, 1992, expressed an unqualified opinion on such financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Northeast Investors Trust as of September 30, 1996, and the results of its
operations for the year then ended, and the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the four years in the period then ended, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
November 1, 1996
<PAGE>
Trustees
Ernest E. Monrad
C. Earl Russell
Robert B. Minturn, Jr.
Fred L. Glimp
Bruce H. Monrad
J. Murray Howe
Officers
- --------------------------------------------------------------------------------
Ernest E. Monrad, Chairman
William A. Oates, Jr., President
Robert B. Minturn, Jr., Vice President & Clerk
Gordon C. Barrett, Vice President & Treasurer
Bruce H. Monrad, Vice President
Kelly A. Beatty, Asst. Vice President
Lisa A. Hislop, Asst. Vice President
Custodian
- --------------------------------------------------------------------------------
Investors Bank & Trust
89 South Street
Boston, MA 02111
Legal Counsel
- --------------------------------------------------------------------------------
Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Transfer Agent
- --------------------------------------------------------------------------------
Northeast Investors Trust
50 Congress Street
Boston, Massachusetts 02109
Independent Accountants
- --------------------------------------------------------------------------------
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
This report is prepared for the information of the shareholders of Northeast
Investors Trust and must not be given to others unless preceded or accompanied
by a copy of the current Prospectus by which all offerings of the Trust's
shares are made. It should be noted in reading this report and the letter to
shareholders that the record of past performance is not a representation as
to the Trust's future performance, and that the Trust's investments are subject
to market risks.
Shares of the Trust are sold to investors at net asset value by
Northeast Investors Trust
50 Congress Street
Boston, Massachusetts 02109
800-225-6704
617-523-3588
- ------------------------------------------------------------------------------
The share price for Northeast Investors Trust is quoted daily in the Mutual
Funds section of most major newspapers under several
abbreviations including: NE Investors, NE Inv Tr.
