We are pleased to enclose our semi-annual report for the period ended March
31, 1996. Net assets per share rose from $10.33 to $10.42, a gain which
contributed to a total return of 6.00% during the period. Total net assets at
March 31, 1996 were $893,283,421, a new high and a level that has helped lower
our expense ratio to .66%. The trailing 1-, 5- and 10-year average annual total
return figures are 15.29%, 17.50%, and 11.89%, respectively.
As evidence emerged during the first calendar quarter of 1996 that the
economy was stronger than some had anticipated, Treasury bond prices fell
sharply. We were therefore particularly pleased to produce a 4.95% positive
total return during that period, when long-term Treasury bonds produced a
negative return of -7.20%.
In part, the divergence reflects our strategy of significantly overweighting
the portfolio with floating rate bonds and with bonds with short effective
maturities. As calendar 1995 progressed, we had deliberately and increasingly
purchased securities with a modest expected correlation with the long-term U.S.
Treasury bonds.
Another factor explaining the differing performances is that the better
business climate, anathema to Treasury bonds, has improved the perceived credit
quality of a number of our bonds, particularly in the more cyclical fields. In
general, the net effect of a more vibrant economy on the price of high yield
bonds is uncertain, since the unfavorable impact of the repricing of benchmark
Treasurys at higher yields may be offset by the favorable impact of improved
credit results.
In the past period, we have also had good results from our selective
investing in Brazilian and Argentinean dollar-denominated bonds. Other
profitable investments included the first mortgage bonds of certain Atlantic
City casinos. The most notable example would be that of the Trump Plaza 10.875s,
which have now been defeased by U.S. Treasurys. We had purchased those bonds at
an average price of 73, with an associated yield to maturity of 18%.
Without any leverage as of this writing, the portfolio remains in a
relatively liquid position. What we plan to do is to pick and choose carefully
as new situations come along in our continuing efforts to enhance the
productivity of the investment portfolio for our shareholders.
Sincerely yours,
Ernest E. Monrad
Chairman of Trustees
April 24, 1996
<TABLE>
<CAPTION>
Distribution Per Share
Fiscal At End of Fiscal Year During Fiscal Year Average
- ---------------------------------------------------------------------------------------------------------------------------
Year Approximate Full Net Asset Total From From Monthly
Ended Number of Shares Value Net Net Realized Offering
Sept. 30, Shareholders Outstanding Per Share Assets Income Gain Price
- ---------------------------------------------------------------------------------------------------------------------------
<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 .99 0.0000 10.27
1995 20,644 77,209,155 10.33 797,559,000 .96 0.0000 10.01
1996(b) 22,566 85,768,244 10.42 893,283,421 .51 0.0000 10.28
(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.
(b) Six months ended March 31, 1996.
</TABLE>
<TABLE>
<S> <C>
Average Annual Total Return (unaudited):
One year ended March 31, 1996........................................15.29%
Five years ended March 31, 1996......................................17.50%
Ten years ended March 31, 1996.......................................11.89%
Yield calculated as of March 31, 1996 (unaudited): 9.04%
</TABLE>
<TABLE>
<CAPTION>
Market %of
Value Net Assets
- ---------------------------------------------------------------------------------------------------------------------------
Corporate Bonds
<S> <C>
Apparel $ 3,900,000 .44%
Banks & Finance 1,900,000 .21%
Building & Construction 12,429,872 1.39%
Chemicals 40,716,605 4.56%
Clothing 35,352,600 3.96%
Computer Software &Service 7,960,000 .89%
Conglomerate 13,197,750 1.48%
Cosmetics 410,500 .05%
Energy & Natural Resources 4,377,920 .49%
Entertainment 2,348,000 .26%
Fast Food Service 13,000,000 1.45%
Food & Beverage 25,041,250 2.80%
Food Service 10,500,000 1.18%
Gas &Oil Production 2,601,240 .29%
Grocery Stores 78,213,503 8.76%
Insurance 7,134,053 .80%
Metals & Mining 2,120,000 .24%
Packaging & Container 23,393,750 2.62%
Paper &Forest Products 21,672,520 2.42%
Petroleum & Drilling 26,036,690 2.91%
Publishing & Printing 7,735,000 .87%
Real Estate 25,939,950 2.90%
Recreation 132,745,730 14.86%
Retail 47,677,127 5.34%
Retail Food Chains 30,690,000 3.43%
Textile 12,000,000 1.34%
Tobacco & Distilling 1,045,000 .12%
Transportation 15,620,899 1.75%
Miscellaneous 39,439,567 4.42%
-- -----------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds 645,199,526 72.23%
Total Foreign Bonds 46,622,188 5.22%
Total Common Stocks 141,834,076 15.88%
Total Preferred Stocks 358,091 .04%
Total Warrants and Units 13,615,742 1.52%
Total Repurchase Agreement 25,010,946 2.80%
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments 872,640,569 97.69%
Cash &Receivables 22,602,835 2.53%
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $895,243,404 100.22%
Less Liabilities (1,959,983) (.22%)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets $893,283,421 100.00%
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Corporate Bonds--
Market
Name of Issuer Principal Value (Note B)
- ---------------------------------------------------------------------------------------------------------------------------
Apparel--.44%
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Samsonite Corp. Senior Sub. Notes, 11.125%, 7/15/05............. $4,000,000 $ 3,900,000
Banks & Finance--.21%
- ---------------------------------------------------------------------------------------------------------------------------
Guardian Savings & Loan, 12.625%, 1/15/02~.............................. 1,000,000 1,900,000
.............................................................................
Building & Construction--1.39%
- ---------------------------------------------------------------------------------------------------------------------------
Associated Materials Senior Sub. Deb. Notes, 11.5%, 8/15/03^............ 6,200,000 5,146,000
Nortek, Inc. Senior Sub. Notes, 9.875%, 3/01/04^........................ 5,950,000 5,593,000
Walter Industries, Inc. Senior Notes, 12.19%, 3/15/00................... 1,674,131 1,690,872
- ---------------------------------------------------------------------------------------------------------------------------
12,429,872
Chemicals--4.56%
- ---------------------------------------------------------------------------------------------------------------------------
Indspec Chemical Corp. Senior Disc. Notes, 0/11.5%, 12/01/03#^.......... 15,869,000 13,409,305
NL Industries Senior Disc. Notes, 0/13%, 10/15/05#^..................... 11,000,000 8,250,000
Pioneer Americas Acq. Senior Notes, 13.375%, 4/01/05.................... 12,500,000 13,375,000
Uniroyal Technology Senior Notes, 11.75%, 6/01/03^...................... 6,045,000 5,682,300
- ---------------------------------------------------------------------------------------------------------------------------
............................................................................. 40,716,605
Clothing--3.96%
- ---------------------------------------------------------------------------------------------------------------------------
JPS Textile Group, Inc. Senior Sub. Disc. Notes, 10.25%, 6/01/99.. 6,143,000 3,440,080
JPS Textile Group, Inc. Senior Sub. Disc. Notes, 10.85%, 6/01/99........ 14,592,000 8,171,520
JPStevens, 9%, 3/01/17^................................................. 12,671,000 12,671,000
United States Leather, Inc. Senior Notes, 10.25%, 7/31/03^.............. 13,500,000 11,070,000
- ---------------------------------------------------------------------------------------------------------------------------
35,352,600
Computer Software &Service--.89%
- ---------------------------------------------------------------------------------------------------------------------------
Unisys Corp. Senior Notes, 12%, 4/15/03........................ 8,000,000 7,960,000
Conglomerate--1.48%
- ---------------------------------------------------------------------------------------------------------------------------
Jordan Industries Senior Sub. Disc. Notes, 0/11.75%, 8/01/05#^.......... 13,440,000 8,064,000
Jordan Industries Senior Notes, 10.375%, 8/01/03........................ 5,550,000 5,133,750
- ---------------------------------------------------------------------------------------------------------------------------
13,197,750
The accompanying notes are an integral part of the financial statements.
- ---------------------------------------------------------------------------------------------------------------------------
Corporate Bonds --continued Market
Name of Issuer Principal Value (Note B)
- ---------------------------------------------------------------------------------------------------------------------------
Cosmetics--.05%
- ---------------------------------------------------------------------------------------------------------------------------
Revlon Consumer Products Corp. S.F. Deb., 10.875%, 7/15/10.............. $ 400,000 $ 410,500
Energy & Natural Resources--.49%
- ---------------------------------------------------------------------------------------------------------------------------
Harcor Energy Senior Notes, 14.875%, 7/15/02................... 4,000,000 4,377,920
Entertainment--.26%
- ---------------------------------------------------------------------------------------------------------------------------
Showboat, Inc. Senior Sub. Notes, 13%, 8/01/09 .................. 900,000 1,030,500
Wherehouse Entertainment Senior Sub. Notes, 13%, 8/01/02~ .... 15,500,000 1,317,500
- ---------------------------------------------------------------------------------------------------------------------------
2,348,000
Fast Food Service--1.45%
- ---------------------------------------------------------------------------------------------------------------------------
American Restaurant Group Senior Notes, 12%, 9/15/98^................... 9,500,000 8,550,000
American Restaurant Group Senior Notes, 12%, 9/15/98^................... 5,000,000 4,450,000
- ---------------------------------------------------------------------------------------------------------------------------
13,000,000
Food & Beverage--2.80%
- ---------------------------------------------------------------------------------------------------------------------------
Chiquita Brands Debentures, 11.5%, 6/01/01.............................. 6,500,000 6,857,500
Envirodyne Industries, Inc. Senior Notes, 10.25%, 12/01/01^............. 20,395,000 15,296,250
Great American Cookie Senior Sec. Notes, 10.875%, 1/15/01............... 3,500,000 2,887,500
- ---------------------------------------------------------------------------------------------------------------------------
25,041,250
Food Service--1.18%
- ---------------------------------------------------------------------------------------------------------------------------
SCInternational Service, Inc. Senior Sub. Notes, 13%, 10/01/05... 10,000,000 10,500,000
Gas &Oil Production--.29%
- ---------------------------------------------------------------------------------------------------------------------------
Plains Resources Senior Sub. Notes, 12%, 10/1/99................ 2,454,000 2,601,240
Grocery Stores--8.76%
- ---------------------------------------------------------------------------------------------------------------------------
Fleming Co. Inc. Medium Term Notes, 5.77%, 8/06/98............ 3,000,000 2,535,000
Fleming Co. Inc. Floating Senior Notes, Libor + 2.25%, 12/15/01.. 4,500,000 3,375,000
Food 4 Less Holdings Debentures, 0/13.625%, 7/15/05#.......... 26,000,000 11,180,000
Grand Union Co. Senior Notes, 12%, 9/01/04.............................. 19,500,000 17,111,250
Kash- n- Karry Food Stores, Inc. Sen. Notes, 11.5%, 2/01/03............. 3,560,068 3,568,968
Kash- n- Karry Food Stores, Inc. Sen. Floating Notes, 2/01/03........... 11,288,006 9,143,285
P&C Food Market Senior Notes, 11.5%, 10/15/01................. 11,000,000 11,220,000
Penn Traffic Co. Senior Notes, 8.625%, 12/15/03^........................ 7,000,000 6,370,000
Ralph's Grocery Senior Notes, 10.45%, 6/15/04........................... 2,000,000 1,910,000
Ralph's Grocery Senior Sub. Notes, 11%, 6/15/056/15/04.................. 8,000,000 7,200,000
Smitty's Super Value, Inc. Senior Sub. Notes, 12.75%, 6/15/04........... 4,000,000 4,400,000
Victory Markets, Inc. Sub. Notes, 12.5%, 3/15/00~....................... 2,000,000 200,000
- ---------------------------------------------------------------------------------------------------------------------------
78,213,503
The accompanying notes are an integral part of the financial statements.
- ---------------------------------------------------------------------------------------------------------------------------
Corporate Bonds--continued Market
Name of Issuer Principal Value (Note B)
- ---------------------------------------------------------------------------------------------------------------------------
Insurance--.80%
- ---------------------------------------------------------------------------------------------------------------------------
First Capital Holdings, 13%, 5/15/99~................................... 4,932,000 36,990
Leucadia National Corp. Conv., 5.25%, 2/01/03^.......................... 6,975,000 7,097,063
- ---------------------------------------------------------------------------------------------------------------------------
7,134,053
Metals & Mining--.24%
- ---------------------------------------------------------------------------------------------------------------------------
Kaiser Aluminum Chemical Corp. Sub. Notes, 12.75%, 2/01/03.............. $ 2,000,000 $ 2,120,000
Packaging & Container--2.62%
- ---------------------------------------------------------------------------------------------------------------------------
Gaylord Container Corp. Senior Sub. Notes, 0/12.75%, 5/15/05#^......... 19,000,000 19,190,000
Stone Container Corp. Conv., 8.875%, 7/15/00 ........................... 3,000,000 4,203,750
- ---------------------------------------------------------------------------------------------------------------------------
............................................................................. 23,393,750
Paper & Forest Products--2.42%
- ---------------------------------------------------------------------------------------------------------------------------
MAXXAM Group, Inc. Senior Disc. Notes, 0/12.25%, 8/01/03#^.............. 30,000,000 20,100,000
MAXXAM, Inc. Senior Sub. Deb., 12.5%, 12/15/99.......................... 1,408,000 1,436,160
WTDIndustries, Inc. Senior Sub. Deb., 8%, 6/30/05....................... 340,900 136,360
- ---------------------------------------------------------------------------------------------------------------------------
21,672,520
Petroleum & Drilling--2.91%
- ---------------------------------------------------------
Mesa Capital Corp., 12.75%, 6/30/98..................................... 26,636,000 26,036,690
Publishing & Printing--.87%
- ---------------------------------------------------------------------------------------------------------------------------
Williamhouse Regency Senior Sub. Notes, 13%, 11/15/05........ 7,000,000 7,735,000
Real Estate--2.90%
- ---------------------------------------------------------------------------------------------------------------------------
Olympia & York Maiden Lane, 10.375%, 12/31/95~.......................... 19,535,000 9,181,450
Rockefeller Center Properties Conv. Deb., 0%, 12/31/00.................. 27,700,000 16,758,500
- ---------------------------------------------------------------------------------------------------------------------------
25,939,950
Recreation--14.86%
- ---------------------------------------------------------------------------------------------------------------------------
Aztar Corp. Senior Sub. Notes, 13.75%, 10/01/04......................... 19,548,000 21,796,020
Aztar Corp. Senior Sub. Notes, 11%, 10/01/02............................ 5,652,000 5,708,520
Bally's Casino Holdings Senior Disc. Notes, 0%, 6/15/98^................ 6,750,000 5,703,750
Bally's Grand, 10.375%, 12/15/03^....................................... 10,550,000 10,734,625
Coast Hotels &Casinos Mortgage Notes, 13%, 12/15/02..................... 10,000,000 10,000,000
Farm Fresh Senior Notes, 12.25%, 10/01/00............................... 1,000,000 840,000
GBProperty Funding Corp., 10.875%, 1/15/04^............................. 17,350,000 15,441,500
Genmar Holdings, Inc. Senior Sub. Deb., 13.5%, 7/15/01.................. 18,000,000 16,200,000
Marvel Holdings Senior Sec. Disc. Notes, Series B, 0%, 4/15/98^......... 5,000,000 3,775,000
Marvel Parent Holdings Senior Notes, 0%, 4/15/98........................ 16,950,000 12,627,750
Outboard Marine, 9.125%, 4/15/17^....................................... 9,750,000 9,067,500
Resorts International Mortgage Notes, 11%, 9/15/03...................... 3,204,000 3,256,065
Rio Hotel & Casino Senior Sub. Notes, 10.625%, 7/15/05.................. 3,000,000 3,165,000
Trump Plaza Funding, 10.875%, 6/15/01................................... 13,000,000 14,430,000
- ---------------------------------------------------------------------------------------------------------------------------
132,745,730
The accompanying notes are an integral part of the financial statements.
Corporate Bonds--continued Market
Name of Issuer Principal Value (Note B)
- ---------------------------------------------------------------------------------------------------------------------------
Retail--5.34%
- ---------------------------------------------------------------------------------------------------------------------------
Bradlees, Inc. Senior Sub. Notes, 11%, 8/01/02~......................... $ 2,000,000 $ 480,000
Bradlees, Inc. Senior Sub. Notes, 9.25%, 3/01/03~....................... 15,455,000 3,400,100
Cole National Group, Inc., 11.25%, 10/01/01............................. 8,150,000 8,313,000
Color Tile, Inc. Senior Notes, 10.75%, 12/15/01~........................ 21,000,000 1,260,000
Eyecare Centers of America, Inc. Senior Notes, 12%, 10/01/03............ 7,000,000 6,923,000
Kay Jewelers, Inc., 12.875%, 8/01/99.................................... 1,500,000 1,380,000
McCrory Corp. S. F. Sub. Deb., 9.75%, 9/15/08~.......................... 1,251,000 37,530
National Convenience Stores, Inc. Sec. Notes, 9.5%, 6/30/03............. 12,242,872 12,977,445
Orion Stores Sec. Notes, 12.75%, 10/01/98............................... 5,929,614 6,403,984
Town & Country Corp. Senior Sec. Notes, 11.5%, 9/15/97.................. 1,992,000 1,892,400
Town & Country Corp. Senior Sub. Notes, 13%, 5/31/98.................... 7,434,949 4,609,668
- ---------------------------------------------------------------------------------------------------------------------------
............................................................................. 47,677,127
Retail Food Chains--3.43%
- ---------------------------------------------------------------------------------------------------------------------------
Family Restaurants Senior Notes, 9.75%, 2/01/02......................... 18,000,000 11,835,000
Flagstar Corp Senior Notes, 10.875%, 12/01/02........................... 14,200,000 12,780,000
Flagstar Corp Senior Notes, 10.75%, 9/15/01............................. 6,750,000 6,075,000
- ---------------------------------------------------------------------------------------------------------------------------
............................................................................. 30,690,000
Textile--1.34%
- ---------------------------------------------------------------------------------------------------------------------------
Plastic Specialties & Technologies Sen. Notes, 11.25%, 12/01/03^....... 12,000,000 12,000,000
Tobacco & Distilling--.12%
- ------------------------------------------------------------------------------------------------- ----------------
MacAndrews & Forbes Co. Senior Sub. Notes, 11.875%, 11/15/02............ 1,000,000 1,045,000
Transportation--1.75%
- ---------------------------------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 12.5%, 4/15/99~@............................ 1,400,000 145,600
Continental Airlines, Inc., 12.125%, 4/15/96~@.......................... 5,500,000 577,500
Continental Airlines, Inc., 11%, 3/15/95~@.............................. 1,000,000 7,500
International Airline Support Group, Inc., 12%, 7/17/97*@............... 461,856 323,299
International Airline Support Group, Inc. Conv., 8%, 8/31/03*~@........ 1,000,000 250,000
Moran Transportation Co. Notes, 11.75%, 7/15/04......................... 4,000,000 3,880,000
Tiphook Finance Notes, 10.75%, 11/01/02^................................ 14,700,000 10,437,000
- ---------------------------------------------------------------------------------------------------------------------------
............................................................................. 15,620,899
The accompanying notes are an integral part of the financial statements.
- ---------------------------------------------------------------------------------------------------------------------------
Corporate Bonds.--continued Market
Name of Issuer Principal Value (Note B)
- ---------------------------------------------------------------------------------------------------------------------------
Miscellaneous--4.42%
- ---------------------------------------------------------------------------------------------------------------------------
Acadia Partners L.P. Sub. Notes, 13%, 10/01/97..................... $ 14,000,000 14,490,000
Darling International Senior Sub. Notes, 11%, 7/15/00^.................. 12,195,000 12,195,000
Georgia Marble Co., 17%, 1/01/96~....................................... 4,000,000 2,742,400
Hines Horticulture Senior Sub. Notes, 11.75%, 10/15/05.................. 3,000,000 3,180,000
Mosler, Inc. Senior Notes, 11%, 4/15/03................................. 8,975,000 6,821,000
Pope, Evans & Robbins, Inc., 7%, 5/15/98(PIK)~@......................... 1,116,669 11,167
- ---------------------------------------------------------------------------------------------------------------------------
39,439,567
- ---------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds--72.23% (cost--$704,484,247) 645,199,526
Foreign Bonds--
- ---------------------------------------------------------------------------------------------- ---------------
Foreign--5.22%
- ---------------------------------------------------------------------------------------------------------------------------
Argentina Bocon FRB, Libor +.8125%, 3/31/05............................. 23,750,000 17,129,688
Argentina Bocon Pre IV FRN, Libor, 9/01/02.............................. 10,000,000 8,290,000
Republic of Brazil Discount FRN, Libor+.8125%, 4/15/24.................. 33,000,000 21,202,500
- ---------------------------------------------------------------------------------------------------------------------------
Total Foreign Bonds--5.22% (cost--$44,874,588) 46,622,188
Stocks-- Number of
Shares
- ---------------------------------------------------------------------------------------------- ---------------
Common Stocks--15.88%
- ---------------------------------------------------------------------------------------------------------------------------
American Building Co.+.................................................. 8,807 $ 194,855
Bankers Trust NY^....................................................... 300,000 21,262,500
Chubb Corp.^............................................................ 250,000 23,468,750
Citicasters, Inc.+...................................................... 91,773 2,684,360
Cole National Corp. Class A+ ........................................... 48,000 648,000
C R Anthony Company+.................................................... 338,142 507,213
Darling International, Inc.+............................................ 248,510 6,865,089
Gaylord Container Corp.+................................................ 429,581 3,946,775
Grand Union Co.+........................................................ 167,904 1,007,424
Homeland Stores Holdings+@.............................................. 822,672 8,227
Houlihan's Restaurant Group+............................................ 471,386 2,327,468
J P Morgan & Co.^....................................................... 100,000 8,300,000
JPSTextile Group, Inc. Class A+......................................... 48,877 48,878
Kash- n-Karry Food Stores+.............................................. 184,074 4,187,684
Little Switzerland, Inc.+............................................... 273,659 1,094,636
MAXXAM, Inc.+........................................................... 200,000 9,775,000
McCrory Parent Corp.~................................................... 37,938 872,574
Mesa, Inc.+............................................................. 128,592 337,554
Metromedia International Group, Inc.+................................... 36,957 503,539
NL Industries........................................................... 180,000 2,385,000
Pope, Evans & Robbins, Inc.+ @.......................................... 316,575 3
Smitty's Supervalue, Inc.+.............................................. 4,000 40,000
Specialty Equipment Co.+................................................ 400,000 5,850,000
The accompanying notes are an integral part of the financial statements.
- ---------------------------------------------------------------------------------------------------------------------------
Stocks--continued Number of Market
Name of Issuer Shares Value(Note B)
- ---------------------------------------------------------------------------------------------------------------------------
Telemundo Group, Inc.+.................................................. 244,660 $ 4,832,035
Town & Country Corp. Class A+........................................... 1,079,455 674,659
Triton Group, LTD +..................................................... 559,966 244,985
UCC Investors Holdings, Inc. Class A+................................... 215,855 2,077,604
Vons Company, Inc.+^.................................................... 600,000 18,675,000
Walter Industries, Inc.+................................................ 350,001 4,812,514
WestPoint Stevens, Inc.+^............................................... 635,000 12,223,750
WPS Investors LP+@...................................................... 200,000 1,978,000
----
- ---------------------------------------------------------------------------------------------------------------------------
Total Common Stocks--15.88%(cost--$135,234,256) 141,834,076
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Preferred Stocks--.04%+
- ---------------------------------------------------------------------------------------------------------------------------
Town & Country Corp. Conv............................................... 286,473 358,091
- ---------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks--.04% (cost--$811,269) 358,091
- ---------------------------------------------------------------------------------------------------------------------------
Number of
Shares or Units
- ---------------------------------------------------------------------------------------------- ---------------
Warrants and Units--1.52%+
- ---------------------------------------------------------------------------------------------------------------------------
Cookies USA, Inc. Warrants.............................................. 630 7,875
Eyecare Center Corp. Warrants........................................... 6,500 6,500
Federated Dept. Stores C Warrants....................................... 225,869 2,795,129
Federated Dept. Stores D Warrants....................................... 290,771 3,489,252
Gaylord Container Warrants.............................................. 814,218 7,124,407
Harcor Energy, Inc. Warrants............................................ 88,000 102,080
International Airline Support Group, Inc. Warrants*@.................... 92,677 927
Jewel Recovery LP Units@................................................ 281,290 2,813
Reliance Group, Inc. Warrants........................................... 38,067 76,134
UGI Corp. Warrants........................................................... 42,499 10,625
- -----------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
.............................Total Warrants and Units--1.52% (cost--$6,850,623) 13,615,742
- ---------------------------------------------------------------------------------------------------------------------------
Principal
- ---------------------------------------------------------------------------------------------- ---------------------------
Repurchase Agreement--2.80%
- ---------------------------------------------------------------------------------------------------------------------------
Investors Bank &Trust Repurchase Agreement, 5%, due 4/1/96.............. 25,010,946 25,010,946
- ---------------------------------------------------------------------------------------------------------------------------
Total Repurchase Agreement--2.80% (cost--$25,010,946)* 25,010,946
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments--97.69% (cost--$917,265,929) $872,640,569
-----------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Acquired on March 29, 1996. Collateralized by $53,324,000 of various U.S.
Government mortgage-backed securities, due through 11/01/23. The maturity
value is $25,021,367. As an operating policy, the Trust, through the
custodian bank, secures receipt of adequate collateral supporting
repurchase agreements--(see Note I).
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Northeast Investors Trust
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PIK Payment In Kind
~ Non-income producing security due to default or bankruptcy filing.
+ Non-income producing security.
@ Security 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).
* 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. Information concerning restricted security holdings at March 31, 1996
is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Security Date Acquired Cost Market Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Airline Support Group, Inc., 12%, 7/17/97... 7/17/92 $423,417 $323,299
International Airline Support Group, Inc. Conv., 8%, 8/31/03 9/23/93 1,000,000 250,000
International Airline Support Group, Inc. Warrants........ 7/17/92 167,745 927
-----
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Totals $1,591,162 $574,226
</TABLE>
Federal Tax Information: At March 31, 1996, the aggregate cost of investment
securities for income tax purposes was $917,265,929. Net unrealized depreciation
aggregated $44,625,360 of which $66,293,685 related to appreciated investment
securities and $110,919,045 related to depreciated investment securities.
The accompanying notes are an integral part of the financial statements.
<TABLE>
Statements of Assets and Liabilities(unaudited)
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Investments--at market value
(cost $917,265,929)--Note B............. $872,640,569
Cash...................................... 174,375
Interest receivable....................... 18,947,695
Receivable for investments sold........... 84,781
Receivable for shares of beneficial
interest sold.......................... 2,657,905
Receivable for dividends.................. 516,000
Miscellaneous receivable.................. 222,079
----------
Total assets............ 895,243,404
Liabilities
- --------------------------------------------------------------------------------
Payable for shares of beneficial interest
repurchased............................ 723,118
Trustee fees payable--Note C............... 1,116,359
Accrued expenses.......................... 120,506
----------
Total liabilities 1,959,983
- --------------------------------------------------------------------------------
Net Assets................................ $893,283,421
==========
Net Assets consist of (Note B):
Capital, at a $1.00 par value............. $85,768,244
Paid-in surplus........................... 864,105,677
Accumulated net realized loss
on investments......................... (13,443,977)
Net unrealized depreciation of
investments............................ (44,625,360)
Accumulated net investment
income................................. 1,478,837
- --------------------------------------------------------------------------------
Net Assets, for 85,768,244 shares
outstanding............................ $893,283,421
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net Asset Value, offering price
and redemption price per share
($893,283,421/85,768,244 shares)....... $10.42
================================================================================
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations (unaudited)
Six Months Ended March 31, 1996
================================================================================
Investment Income
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest............................. $41,919,509
Dividends............................ 1,341,119
Other Income......................... 110,179
---------
Total income............ 43,370,807
Expenses
- -------------------------------------------------------------------------------
Trustee fees--Note C.... $2,124,108
Administrative
expenses and
salaries............ 241,629
Interest--Note H........ 162,126
Registration and
filing fees........ 97,797
Printing, postage
and stationery.... 89,305
Computer and
related expenses.... 65,525
Custodian fees......... 43,470
Legal fees............. 42,875
Auditing fees.......... 38,435
Other expenses......... 11,483
Insurance.............. 6,370
- --------------------------------------------------------------------------------
Total expenses .......... 2,923,123
- --------------------------------------------------------------------------------
Net investment income 40,447,684
- --------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)......on Investments--Note B:
- --------------------------------------------------------------------------------
Net realized gain from investment
transactions...................... 17,052,820
Change in unrealized depreciation
of investments................... (9,472,309)
- --------------------------------------------------------------------------------
Net gain on investments.................... 7,580,511
================================================================================
Net increase in net assets resulting
from operations......................... $48,028,195
================================================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended
March 31, Year Ended
1996 September 30, 1996 (unaudited)
1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Increase in Net Assets
From Operations:
Net investment income................................................ $40,447,684 $ 64,053,984
Net realized gain from investment transactions....................... 17,052,820 5,772,428
Change in unrealized depreciation of investments..................... (9,472,309) 15,523,321
------------ ------------
Net Increase in Net Assets Resulting from
Operations...................................................... 48,028,195 85,449,733
Distributions to Shareholders from Net Investment Income................(41,059,822)(62,400,122)
($.51 and $.96 per share, respectively)
From Net Trust Share Transactions--Note E ............................... 88,756,048 192,415,946
------------ ------------
Total Increase in Net Assets.................................... 95,724,421 215,465,557
Net Assets:
Beginning of Period.................................................. 797,559,000 582,093,443
------------ ------------
End of Period (including undistributed net investment
income of $1,478,837 and $2,090,975, respectively) $893,283,421 $797,559,000
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Notes to the Financial Statements (unaudited) for the period ending
March 31, 1996
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 Fund 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.
Restricted Securities: The Trust is permitted to invest in restricted
securities. These securities may be resold in transactions exempt from
registration or if the securities are registered for resale. At the end of the
period, restricted securities (excluding 144A issues) amounted to $574,226, or
.06% of net assets.
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 the next 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
liabilites 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, 1995, the Trust had $ 30,496,797 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,
1997-$5,157,724, September 30,1998-$19,621,853, September 30, 1999-$3,468,054,
and September 30, 2000-$2,249,166.
Note E-Shares of Beneficial Interest
At March 31, 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>
Six Months Ended Year Ended
March 31, 1996 September 30, 1995
---------------------------- ----------------------------
Shares Amount Shares Amount
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold............................................. 20,471,819 $211,217,662 43,866,307 $438,670,192
Shares issued to shareholders in
reinvestment of distributions from net investment income.. 2,624,027 26,612,281 4,021,531 39,999,108
------------ ------------- ------------ -------------
23,095,846 237,829,943 47,887,838 478,669,300
Shares repurchased...................................... (14,536,757) (149,073,895) (28,827,071) (286,253,354)
------------ ------------- ------------ -------------
Net Increase......................................... 8,559,089 $88,756,048 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 $243,301,445 and $195,797,082, respectively, for the period ended
March 31, 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. The Trust has unused lines of credit amounting to $120,000,000. 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 six months ended March 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Maximum amount outstanding at any month end.......................................................... $1,850,000
Average amount outstanding (total of daily outstanding principal balances divided by
number of days during the period)................................................................. $1,828,355
Weighted average interest rate (actual interest expense less commitment fees paid on short-term borrowings
divided by average short-term borrowings outstanding)............................................. 6.77%
</TABLE>
Interest expense includes commiment fees of $100,255. 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 $207,896,000 and $243,209,988,
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.
<TABLE>
<CAPTION>
Six Months
Ended
March 31,
(unaudited) Year Ended September 30,
Per Share Data 1996 1995 1994 1993 1992_____1991 1990 1989 1988 1987 1986
<S> <C> <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 $12.19
Income From Investment
Operations:
Net investment income .... .50 .98 .98 1.04 1.15 1.32 1.45 1.50 1.65 1.55 1.47
Net realized and
unrealized gain (loss)
on investments ......... .10 .29 .09 .42 .67 .04 (2.39) (.94) (.44) (.80) 1.40
----- ------ ------ ----- ----- ----- ----- ----- ----- ----
Total from investment
operations .............. .60 1.27 1.07 1.46 1.82 1.36 (.94) .56 1.21 .75 2.87
Less Distributions:
Net investment income (.51) (.96) (.99) (1.02) (1.15) (1.34) (1.43) (1.54) (1.94)= (1.46) (1.46)
Net asset value:
End ofPeriod ..........$10.42 $10.33 $10.02 $9.94 $9.50 $8.83 $8.81 $11.18 $12.16 $12.89 $13.60
Total return ............. 6.00% 13.44% 10.96% 16.25% 21.85% 17.63% (8.87)% 4.87% 10.62% 5.44% 24.61%
Ratios &Supplemental Data
Net assets end of
period (000's omitted) $893,283 $797,559 $582,093 $474,976 $452,774 $310,667 $277,134 $385,390 $404,219
$347,814 $313,197
Ratio of operating
expenses to average
net assets ............... .66%** .67% .70% .73% .79% .88% .78% .72% .75% .76%
.72%
Ratio of interest expense
to average net assets ...... .04%** .35% .36% .48% .65% 1.01% .69% .61% .66% .71%
.52%
Ratio of net investment
income to average
net assets ............... 9.74% 9.77% 9.37% 10.53% 12.36% 15.38% 14.35% 12.68% 13.16%
11.59% 11.53%
Portfolio turnover rate ..... 48.95%**40.58% 73.36% 75.72% 59.41% 33.77% 21.23% 33.61% 17.35% 52.03%
42.58%
Average Broker
Commission ............ $0.06
=Includes accumulated undistributed net investment income (including orginal
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.
**Annualized
</TABLE>
