Dear Fellow Shareholders,
We are pleased to enclose our semi-annual report for the six months ended
March 31, 1997. Net assets per share rose to $11.18, compared with $10.90 per
share on September 30, 1996, and $10.42 on March 31, 1996. Total net assets were
$1,577,417,282 compared with $1,200,483,907 on September 30, 1996, and
$893,283,421 on March 31, 1996. The rise in net assets has facilitated yet
another decline in our expense ratio to - .64%. Our trailing one-, five-,and
ten-year average annual total return figures are 17.57%, 14.73%, and 10.36%,
respectively.
Much is being made of late of "fund families". Our approach has been somewhat
different in that at Northeast we have concentrated our efforts exclusively on
our two long-established funds, not a fund-of-the-week stable from which a new
horse is constantly being selected for aggressive promotion, as less successful
contemporaneously launched entries get quietly scratched (a phenomenon noted and
recently critically commented on by Securities and Exchange Commission
spokepersons). Even more troubling in our view are the attempts of some
conglomerates to circumvent important investor protections provided by the
securities legislation of the 1930s and 1940s. These statutes came into being to
counteract and safeguard against the very real abuses of the 1920s in terms of
conflicts of interest, "stuffing" (putting underwritings that went poorly into
captive mutual funds), churning and other even more nefarious activities.
Now we see Wall Street firms acting as underwriters, lenders, mutual fund
managers, investment advisors, marketers, and investors for their own accounts,
as well as performing the traditional brokerage house role. To our thinking,
putative "Chinese Walls" offer just too little protection in the face of much
temptation, especially when large sums of money are at stake.
Coming originally from a specialist legal background, my personal instinct
has always been to focus on trying to do just one thing well: in our case, the
management of money, a task that in itself is most difficult. We in management
at Northeast, with very significant percentages of our own net worths invested
in the Trust, feel that we have a single-minded, unconflicted mutuality of
interest with its other holders.
As of the reporting date, the Trust had roughly 14% of its assets in U.S.
Treasury bills and other cash items, reflecting the historically low spread
currently existing between high yield debt issues and investment grade bonds, as
well as the high level of equity prices. We also continued a portfolio shift
towards an increased weighting of shorter-term securities. In addition, of note
to shareholders is the Trust's realization to date of net capital gains well
exceeding our capital loss carryforward as of this writing. Should this
condition continue, a capital gains distribution at year-end may be mandated.
Finally, with great regret we record the passing of Hollis P. Nichols, the
founder of Northeast Investors Trust, on January 16, 1997 at the age of 87. He
was a man of keen intellect and extraordinary financial insight and a mentor to
us all.
Respectfully submitted,
Ernest E. Monrad
Chairman of Trustees
May 10, 1997
<PAGE>
<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>
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 24,631 110,229,375 10.90 1,200,483,907 .99 0.0000 10.46
1997(b) 29,106 141,143,178 11.18 1,577,417,282 .52 0.0000 11.11
<FN>
(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, 1997.
</FN>
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Average Annual Total Return (unaudited):
One year ended March 31, 1997........................................17.57%
Five years ended March 31, 1997......................................14.73%
Ten years ended March 31, 1997.......................................10.36%
Yield calculated as of March 31, 1997 (unaudited): 8.02%
</TABLE>
<TABLE>
<CAPTION>
%of
Market Value Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds
<S> <C> <C>
Apparel $ 41,681,583 2.64%
Automobile & Trucks 1,515,000 .10%
Automotive Products 30,368,600 1.92%
Building & Construction 26,426,156 1.68%
Chemicals 63,785,470 4.04%
Computer Software &Service 25,278,510 1.60%
Conglomerate 16,823,523 1.07%
Electronics 3,189,900 .20%
Food & Beverage 32,264,075 2.04%
Food Service 11,150,000 .71%
Furniture 12,100,000 .77%
Gaming 182,228,004 11.55%
Grocery Stores 98,380,625 6.24%
Insurance 7,057,080 .45%
Metals & Mining 16,257,500 1.03%
Oil &Gas Exploration 10,900,000 .69%
Packaging & Container 82,945,600 5.26%
Paper &Forest Products 33,287,495 2.11%
Petroleum & Drilling 56,387,252 3.57%
Publishing & Printing 22,857,800 1.45%
Real Estate 36,305,663 2.30%
Recreation 29,337,562 1.86%
Retail 33,394,771 2.12%
Retail Food Chains 57,138,851 3.62%
Telecommunications 9,571,120 .61%
Tobacco & Distilling 1,057,500 .07%
Transportation 12,325,335 .78%
Miscellaneous 70,644,777 4.48%
Total Corporate Bonds 1,024,659,752 64.96%
Total Treasury Bills 172,147,500 10.91%
Total Foreign Bonds 57,181,062 3.62%
Total Common Stocks 195,312,461 12.38%
Total Preferred Stocks 73,144,631 4.64%
Total Warrants and Units 6,768,638 .43%
Total Repurchase Agreement 44,006,882 2.79%
Total Investments 1,573,220,926 99.73%
Cash &Receivables 41,480,996 2.63%
Total Assets 1,614,701,922 102.36%
Less Liabilities (37,284,640) (2.36%)
Net Assets $1,577,417,282 100.00%
</TABLE>
<PAGE>
<TABLE>
Corporate Bonds-- Market
Name of Issuer Principal Value (Note B)
- ---------------------------------------------------------------------------------------------------------------------------------
Apparel--2.64%
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JPS Textile Group, Inc. Sen. Sub. Disc. Notes, 10.25%, 6/01/99~......... $ 6,143,000 $ 4,207,955
JPS Textile Group, Inc. Sen. Sub. Disc. Notes, 10.85%, 6/01/99~......... 14,592,000 9,995,520
JPStevens Debentures, 9%, 3/01/17^...................................... 12,671,000 12,861,065
Samsonite Corp. Senior Sub. Notes, 11.125%, 7/15/05..................... 2,667,000 3,007,043
United States Leather, Inc. Senior Notes, 10.25%, 7/31/03^.............. 13,500,000 11,610,000
- ---------------------------------------------------------------------------------------------------------------------------------
41,681,583
Automobile & Trucks--.10%
- ----------------------------------------------------------------------------------------------------------------------------------
Speedy Muffler King, Inc. Senior Notes, 10.875%, 10/01/06............... 1,500,000 1,515,000
Automotive Products--1.92%
- ----------------------------------------------------------------------------------------------------------------------------------
Exide Corp. Senior Notes, 10.75%, 12/15/02.............................. 9,090,000 9,158,175
Exide Corp. Senior Sub. Deb., 0/12.25%, 12/15/04#....................... 8,455,000 7,905,425
SPXCorporation Senior Sub. Notes, 11.75%, 6/01/02....................... 12,000,000 13,305,000
- ---------------------------------------------------------------------------------------------------------------------------------
30,368,600
Building & Construction--1.68%
- ----------------------------------------------------------------------------------------------------------------------------------
Aluma Systems Corp., 9.86%, 2/01/10..................................... 13,492,723 9,444,906
American Standard Sen. Sub. Deb., 0/10.5%, 6/01/05#..................... 5,000,000 4,750,000
Associated Materials Senior Sub. Notes, 11.5%, 8/15/03.................. 6,200,000 6,370,500
Nortek, Inc. Senior Sub. Notes, 9.875%, 3/01/04 5,950,000 5,860,750
- ----------------------------------------------------------------------------------------------------------------------------------
26,426,156
Chemicals--4.04%
- ---------------------------------------------------------------------------------------------------------------------------------
Indspec Chemical Corp. Sen. Disc. Notes, 0/11.5%, 12/01/03#^............ 15,869,000 14,758,170
NL Industries Senior Disc. Notes, 0/13%, 10/15/05#^..................... 17,460,000 15,670,350
Pioneer Americas Acq. Senior Notes, 13.375%, 4/01/05.................... 12,500,000 14,593,750
Plastic Specialties & Technologies Sen. Notes, 11.25%, 12/01/03^........ 12,000,000 12,960,000
Uniroyal Technology Senior Notes, 11.75%, 6/01/03....................... 6,045,000 5,803,200
- ---------------------------------------------------------------------------------------------------------------------------------
63,785,470
Computer Software & Service--1.60%
- ----------------------------------------------------------------------------------------------------------------------------------
Unisys Corp. Notes, 15%, 7/01/97........................................ 16,751,000 16,918,510
Unisys Corp. Senior Notes, 12%, 4/15/03................................. 8,000,000 8,360,000
- ----------------------------------------------------------------------------------------------------------------------------------
25,278,510
Conglomerate--1.07%
- ---------------------------------------------------------------------------------------------------------------------------------
Jordan Industries Senior Sub. Disc. Notes, 0/11.75%, 4/01/09#........... 21,616,713 11,356,773
Jordan Industries Senior Notes, 10.375%, 8/01/03........................ 5,550,000 5,466,750
=================================================================================================================================
<PAGE>
Corporate Bonds --continued Market
Name of Issuer Principal Value (Note B)
- ---------------------------------------------------------------------------------------------------------------------------------
Electronics--.20%
- ---------------------------------------------------------------------------------------------------------------------------------
Amphenol Corp. Senior Sub. Notes, 12.75%, 12/15/02...................... $ 2,940,000 $ 3,189,900
Food & Beverage--2.04%
- ----------------------------------------------------------------------------------------------------------------------------------
Envirodyne Industries, Inc. Senior Notes, 10.25%, 12/01/01^............. 20,395,000 20,089,075
Great American Cookie Senior Sec. Notes, 10.875%, 1/15/01............... 3,500,000 3,377,500
Specialty Foods Senior Notes, 10.25%, 8/15/01........................... 9,000,000 8,797,500
- ---------------------------------------------------------------------------------------------------------------------------------
32,264,075
Food Service--.71%
- ---------------------------------------------------------------------------------------------------------------------------------
SCInternational Service, Inc. Sen. Sub. Notes, 13%, 10/01/05............ 10,000,000 11,150,000
Furniture--.77%
- ----------------------------------------------------------------------------------------------------------------------------------
Lifestyles Furnishings Intl. Ltd. Sen.Sub. Notes, 10.875%, 8/01/06 11,000,000 12,100,000
Gaming--11.55%
- ----------------------------------------------------------------------------------------------------------------------------------
Alliance Gaming Corp. Senior Notes, 12.875%, 6/30/03^................... 4,000,000 4,360,000
Aztar Corp. Senior Sub. Notes, 11%, 10/01/02............................ 1,652,000 1,668,520
Aztar Corp. Senior Sub. Notes, 13.75%, 10/01/04^........................ 21,548,000 24,133,760
Boyd Gaming Corp. Senior Notes, 9.25%, 10/01/03......................... 5,000,000 4,750,000
Coast Hotels &CasinoFirst Mortgage Notes, 13%, 12/15/02................. 10,000,000 11,250,000
Eldorado Resorts Senior Sub. Notes, 10.5%, 8/15/06...................... 1,500,000 1,582,500
GB Property Funding Corp. Mortgage Notes, 10.875%, 1/15/04^............. 17,350,000 14,140,250
Harrahs Operating, Inc. Senior Sub. Notes, 8.75%, 3/15/00............... 20,460,000 20,766,900
Harrahs Operating, Inc. Senior Sub. Notes, 10.875%, 4/15/02............. 2,115,000 2,210,175
MGM Grand Hotels First Mortgage Notes, 11.75%, 5/01/99.................. 20,445,000 20,929,547
MGM Grand Hotels First Mortgage Notes, 12%, 5/01/02..................... 31,667,000 33,487,852
Marvel Holdings Sen. Sec. Disc. Notes, Series B, 0%, 4/15/98^~.......... 5,000,000 875,000
Showboat, Inc. Senior Sub. Notes, 13%, 8/01/09.......................... 900,000 1,026,000
Trump Atlantic City First Mortgage Notes, 11.25%, 5/01/06............... 29,500,000 26,845,000
Trump Plaza Funding First Mortgage Notes, 10.875%, 6/15/01.............. 13,000,000 14,202,500
- ----------------------------------------------------------------------------------------------------------------------------------
182,228,004
Grocery Stores--6.24%
- ----------------------------------------------------------------------------------------------------------------------------------
Fleming Co., Inc. Medium Term Notes, 9.24%, 2/28/00..................... 5,000,000 4,782,000
Fleming Co., Inc. Medium Term Notes Series B, 8.74%, 9/19/02............ 4,500,000 4,084,200
Fleming Co., Inc. Medium Term Notes Series C, 6.04%, 7/19/00............ 5,000,000 4,475,000
Fleming Co., Inc. Medium Term Notes, 5.77%, 8/06/98..................... 3,000,000 2,807,700
Fleming Co., Inc. Floating Sen. Notes, Libor + 2.25%, 12/15/01^......... 9,925,000 8,882,875
Food 4 Less Holdings Debentures, 0/13.625%, 7/15/05#.................... 29,000,000 20,880,000
Grand Union Company Senior Notes, 12%, 9/01/04^......................... 13,500,000 13,263,750
P&C Food Market Senior Notes, 11.5%, 10/15/01^.......................... 25,590,000 22,775,100
Smith's Food & Drug Centers Sen. Sub. Notes, 11.25%, 5/15/07............ 15,000,000 16,425,000
Victory Markets, Inc. Sub. Notes, 12.5%, 3/15/00~....................... 2,000,000 5,000
- ----------------------------------------------------------------------------------------------------------------------------------
98,380,625
The accompanying notes are an integral part of the financial statements.
<PAGE>
Corporate Bonds--continued Market
Name of Issuer Principal Value (Note B)
- ---------------------------------------------------------------------------------------------------------------------------------
Insurance--.45%
- ---------------------------------------------------------------------------------------------------------------------------------
First Capital Holdings Sen. Sub. Notes, 13%, 5/15/99~................... $ 4,932,000 $ 12,330
Leucadia National Corp. Conv. Debentures, 5.25%, 2/01/03................ 6,975,000 7,044,750
- ----------------------------------------------------------------------------------------------------------------------------------
7,057,080
Metals & Mining--1.03%
- ----------------------------------------------------------------------------------------------------------------------------------
Kaiser Aluminum Chemical Corp. Sub. Notes, 12.75%, 2/01/03.............. 2,000,000 2,150,000
Kaiser Aluminum Chemical Senior Notes, 10.875%, 10/15/06................ 13,500,000 14,107,500
- ---------------------------------------------------------------------------------------------------------------------------------
16,257,500
Oil&Gas Exploration--.69%
- ----------------------------------------------------------------------------------------------------------------------------------
Santa Fe Energy Resources Senior Sub. Deb., 11%, 5/15/04................ 10,000,000 10,900,000
Packaging & Container--5.26%
- ----------------------------------------------------------------------------------------------------------------------------------
Florida Coast Paper Co. First Mortgage Notes, 12.75%, 6/01/03........... 2,000,000 1,960,000
Four M Corp. Senior Notes Series B, 12%, 6/01/06........................ 1,500,000 1,492,500
Gaylord Container Corp. Sen. Sub. Notes, 12.75%, 5/15/05............... 19,000,000 20,710,000
Owens-Illinois, Inc. Senior Sub. Notes, 10.25%, 4/01/99................. 2,240,000 2,245,600
Packaging Resources, Inc. Senior Notes, 11.625%, 5/01/03................ 8,800,000 9,130,000
Stone Container Corp. Senior Notes, 11.5%, 8/15/06...................... 20,000,000 19,600,000
Stone Container Corp. Senior Notes, 11.875%, 8/01/16.................... 25,000,000 24,500,000
Stone Container Corp. Conv. Sen. Sub. Notes, 8.875%, 7/15/00 ........... 3,000,000 3,307,500
- ----------------------------------------------------------------------------------------------------------------------------------
............................................................................. 82,945,600
Paper & Forest Products--2.11%
- ----------------------------------------------------------------------------------------------------------------------------------
MAXXAM Group, Inc. Senior Disc. Notes, 0/12.25%, 8/01/03#............... 30,000,000 26,100,000
MAXXAM Group Holdings, Inc. Senior Notes, 12%, 8/01/03.................. 7,000,000 7,000,000
WTDIndustries, Inc. Senior Sub. Deb., 8%, 6/30/05....................... 340,900 187,495
- ----------------------------------------------------------------------------------------------------------------------------------
33,287,495
Petroleum & Drilling--3.57%
- ----------------------------------------------------------------------------------------------------------------------------------
Abraxas Petroleum Corp. Senior Notes, 11.5%, 11/01/04................... 4,000,000 4,260,000
Global Marine Senior Notes, 12.75%, 12/15/99............................ 2,500,000 2,646,875
Harcor Energy Senior Notes, 14.875%, 7/15/02............................ 4,982,000 5,779,120
Offshore Pipeline Intl., Inc. Senior Notes, 12.875%, 7/15/02............ 12,415,000 13,408,200
Parker Drilling Company Senior Notes, 9.75%, 11/15/06................... 2,000,000 2,065,000
Triton Energy Senior Sub. Notes, 0%, 11/01/97........................... 29,481,000 28,228,057
- ----------------------------------------------------------------------------------------------------------------------------------
56,387,252
Publishing & Printing--1.45%
- ----------------------------------------------------------------------------------------------------------------------------------
American Pad & Paper Senior Sub. Notes, 13%, 11/15/05................... 19,705,000 22,857,800
Real Estate--2.30%
- ---------------------------------------------------------------------------------------------------------------------------------
Crow Winthrop Partnership, 11.85%, 4/01/98~............................. 12,309,100 8,708,688
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.................. 32,700,000 21,541,125
- ----------------------------------------------------------------------------------------------------------------------------------
36,305,663
The accompanying notes are an integral part of the financial statements.
<PAGE>
Corporate Bonds--continued Market
Name of Issuer Principal Value (Note B)
- ----------------------------------------------------------------------------------------------------------------------------------
Recreation--1.86%
Genmar Holdings, Inc. Senior Sub. Notes, 13.5%, 7/15/01................. $18,000,000 $18,090,000
Outboard Marine Corp. Debentures, 9.125%, 4/15/17^...................... 9,750,000 9,116,250
Royal Caribbean Cruises Sen. Sub. Notes, 11.375%, 5/15/02............... 2,025,000 2,131,312
- ----------------------------------------------------------------------------------------------------------------------------------
29,337,562
Retail--2.12%
- ----------------------------------------------------------------------------------------------------------------------------------
Bradlees, Inc. Senior Sub. Notes, 11%, 8/01/02~......................... 2,000,000 160,000
Bradlees, Inc. Senior Sub. Notes, 9.25%, 3/01/03~....................... 15,455,000 1,159,125
Cole National Group, Inc. Senior Notes, 11.25%, 10/01/01................ 8,150,000 8,924,250
Color Tile, Inc. Senior Notes, 10.75%, 12/15/01~........................ 21,000,000 840,000
Eyecare Centers of America, Inc. Senior Notes, 12%, 10/01/03............ 7,000,000 7,518,000
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
Orion Stores Secured Notes, 12.75%, 10/01/98............................ 5,444,754 5,682,962
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 4,460,969
Wherehouse Entertainment Senior Sub. Notes, 13%, 8/01/02~............... 15,500,000 1,259,375
- ----------------------------------------------------------------------------------------------------------------------------------
Retail Food Chains--3.62%
- ----------------------------------------------------------------------------------------------------------------------------------
American Restaurant Group Senior Notes, 13%, 9/15/98.................... 6,744,674 6,542,334
American Restaurant Group Senior Notes, 13%, 9/15/98.................... 4,231,300 4,125,517
Family Restaurants Senior Notes, 9.75%, 2/01/02......................... 18,000,000 13,860,000
Flagstar Corp Senior Notes, 10.875%, 12/01/02........................... 14,200,000 13,916,000
Flagstar Corp Senior Notes, 10.75%, 9/15/01............................. 8,750,000 8,575,000
Flagstar Corp Senior Sub. Notes, 11.25%, 11/01/04~..................... 18,000,000 7,920,000
Flagstar Corp. Senior Sub. Deb., 11.375%, 9/15/03~...................... 5,000,000 2,200,000
- ---------------------------------------------------------------------------------------------------------------------------------
57,138,851
Telecommunications--.61%
- ----------------------------------------------------------------------------------------------------------------------------------
Paging Network Senior Sub Notes, 11.75%, 5/15/02........................ 9,203,000 9,571,120
Tobacco & Distilling--.07%
- ---------------------------------------------------------------------------- -----------------------------------------------------
MacAndrews & Forbes Co. Sen. Sub. Notes, 11.875%, 11/15/02.............. 1,000,000 1,057,500
Transportation--.78%
- ----------------------------------------------------------------------------------------------------------------------------------
Central Transport Rental Group Notes, 9.5%, 4/30/03..................... 8,440,250 7,933,835
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
Moran Transportation Co. Mortgage Notes, 11.75%, 7/15/04^............... 4,000,000 4,370,000
- ----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
Corporate Bonds--continued Market
Name of Issuer Principal Value (Note B)
- ---------------------------------------------------------------------------------------------------------------------------------
Miscellaneous--4.48%
- ---------------------------------------------------------------------------------------------------------------------------------
Acadia Partners L.P. Sub. Notes, 13%, 10/01/97.......................... $14,000,000 $ 14,350,000
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 3,165,000
Iron Mountain, Inc. Sen. Sub. Notes, 10.125%, 10/01/06.................. 2,500,000 2,562,500
K&F Industries Senior Notes, 11.875%, 12/01/03.......................... 8,087,000 8,450,915
Mosler, Inc. Senior Notes, 11%, 4/15/03................................. 10,340,000 9,667,900
Pope, Evans & Robbins, Inc., 7%, 5/15/98~@.............................. 1,116,669 112
Primeco, Inc. Senior Sub. Notes, 12.75%, 3/01/05........................ 7,000,000 7,980,000
Specialty Equipment Senior Sub. Notes, 11.375%, 12/01/03................ 7,620,000 8,115,300
Tokheim Corp. Senior Sub. Notes, 11.5%, 8/01/06......................... 4,000,000 4,280,000
- ---------------------------------------------------------------------------------------------------------------------------------
70,644,777
=================================================================================================================================
Total Corporate Bonds--64.96% (cost--$1,061,912,202) 1,024,659,752
Treasury Bills--
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bills--10.91%
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bill, 5/01/97............................................. 25,000,000 24,892,500
U.S. Treasury Bill, 8/21/97............................................. 50,000,000 48,950,000
U.S. Treasury Bill, 9/18/97............................................. 25,000,000 24,367,500
U.S. Treasury Bill, 6/05/97............................................. 25,000,000 24,765,000
U.S. Treasury Bill, 7/03/97............................................. 25,000,000 24,665,000
U.S. Treasury Bill, 8/14/97............................................. 25,000,000 24,507,500
- ----------------------------------------------------------------------------------------------------------------------------------
Total Treasury Bills--10.91% (cost--$172,002,615) 172,147,500
==================================================================================================================================
Foreign Bonds--
- --------------------------------------------------------------------------------------------------------------------
Foreign Bonds--3.62%
- ----------------------------------------------------------------------------------------------------------------------------------
Argentina Floating Rate Notes, Libor +.8125%, 3/31/05................... 34,300,070 30,698,562
Republic of Brazil Discount FRN, Libor+.8125%, 4/15/24.................. 33,000,000 26,482,500
- ----------------------------------------------------------------------------------------------------------------------------------
Total Foreign Bonds--3.62% (cost--$46,085,796) 57,181,062
The accompanying notes are an integral part of the financial statements.
<PAGE>
Stocks-- Number of Market
Name of Issuer Shares Value (Note B)
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stocks--12.38%
- ----------------------------------------------------------------------------------------------------------------------------------
American Building Co.+.................................................. 8,807 242,192
Bankers Trust NY^....................................................... 350,000 28,612,500
Central Transport Rental Group+......................................... 4,111,586 1,413,563
Chase Manhattan Corp.................................................... 200,000 18,725,000
Chubb Corp.^............................................................ 500,000 26,937,500
Cole National Corp. Class A+ ........................................... 48,000 1,524,000
C R Anthony Company+.................................................... 338,142 2,567,783
Crompton &Knowles Corp.+................................................ 206,724 4,108,640
Darling International, Inc.+............................................ 248,510 6,461,260
Gaylord Container Corp.+................................................ 1,243,799 7,540,531
Grand Union Co.+........................................................ 167,904 598,158
Homeland Holding Corp.+................................................. 6,354 57,186
Houlihan's Restaurant Group+............................................ 471,386 2,592,623
International Airline Support Group+.................................... 224,540 813,958
J P Morgan & Co.^....................................................... 200,000 19,600,000
JPSTextile Group, Inc., Class A@~....................................... 48,878 48,878
Little Switzerland, Inc.+............................................... 273,659 1,231,466
MAXXAM, Inc.+........................................................... 200,000 9,050,000
Mesa, Inc.+............................................................. 128,592 771,552
NL Industries........................................................... 1,000,000 10,000,000
Pope, Evans & Robbins, Inc. @~.......................................... 316,575 3
Smith's Food &Drug Centers Class B+..................................... 12,047 412,610
Specialty Equipment Co.+................................................ 400,000 5,250,000
Telemundo Group, Inc.+.................................................. 244,660 7,003,392
Town & Country Corp. Class A+........................................... 1,079,455 337,330
Triton Group, LTD +..................................................... 559,966 524,968
Vons Company, Inc.+..................................................... 30,000 1,972,500
Walter Industries, Inc.+................................................ 536,183 7,305,493
WestPoint Stevens, Inc.+^............................................... 635,000 24,209,375
WPS Investors LP+@...................................................... 200,000 5,400,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks--12.38%(cost--$168,388,695) 195,312,461
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks--4.64% PIK
- ---------------------------------------------------------------------------------------------------------------------------------
Alliance Gaming Corp. Series B, 15%..................................... 5,400 534,600
Mesa, Inc. Conv. Series A, 8%........................................... 132,092 990,690
Time Warner, Inc. Series K, 10.25%...................................... 66,759 71,432,130
Town & Country Corp. Conv., 6%.......................................... 299,537 187,211
- ---------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks--4.64% (cost--$71,960,389) 73,144,631
The accompanying notes are an integral part of the financial statements.
<PAGE>
Warrants and Units-- Number of Market
Name of Issuer Shares or Units Value (Note B)
- ---------------------------------------------------------------------------------------------------------------------------------
Warrants and Units--.43%+
- ---------------------------------------------------------------------------------------------------------------------------------
Cookies USA, Inc. Warrants.............................................. 630 6,300
Eyecare Center Corp. Warrants........................................... 6,500 6,500
Federated Dept. Stores C Warrants....................................... 225,869 2,738,661
Federated Dept. Stores D Warrants....................................... 290,771 3,743,677
Harcor Energy, Inc. Warrants............................................ 88,000 264,000
Homeland Holding Corp. Warrants......................................... 6,687 6,687
Jewel Recovery LP Units@................................................ 281,290 2,813
- ---------------------------------------------------------------------------------------------------------------------------------
Total Warrants and Units--.43% (cost--$4,345,484) 6,768,638
Principal
Repurchase Agreement--2.79%
- ---------------------------------------------------------------------------------------------------------------------------------
Investors Bank &Trust Repurchase Agreement,5.85%, due 4/1/97............ $44,006,882 44,006,882
- ---------------------------------------------------------------------------------------------------------------------------------
Total Repurchase Agreement--2.79% (cost--$44,006,882)** 44,006,882
=================================================================================================================================
Total Investments--99.73% (cost--$1,568,702,063) $1,573,220,926
=================================================================================================================================
<FN>
** Acquired on March 31, 1997. Collateralized by $46,214,946 of various
U.S.Government mortgage-backed securities, due through 1/30/02. The
maturity value is $44,014,033. As an operating policy, the Trust, through
the custodian bank, secures receipt of adequate collateral supporting
repurchase agreements.--(see Note H).
- -------------------------------------------------------------------------------
PIK Payment In Kind
~ 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 G)
Federal Tax Information: At March 31, 1997, the aggregate cost of investment
securities for income tax purposes was $1,568,843,877. Net unrealized
appreciation aggregated $4,377,049 of which $105,067,531 related to appreciated
investment securities and $100,690,482 related to depreciated investment
securities.
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
March 31, 1997
================================================================================
Assets
- --------------------------------------------------------------------------------
<S> <C>
Investments--at market value
(cost $1,568,702,063)--Note B......... $1,573,220,926
Interest receivable..................... 30,304,407
Receivable for investments sold......... 1,012,806
Receivable for shares of beneficial
interest sold........................ 7,759,344
Receivable for dividends................ 2,404,216
Miscellaneous receivable................ 223
- --------------------------------------------------------------------------------
Total Assets......................... 1,614,701,922
Liabilities
================================================================================
Payable for investments purchased....... 10,569,757
Payable for shares of beneficial
interest repurchased................. 24,663,359
Trustee fees payable--Note C............. 1,998,037
Accrued expenses........................ 53,487
- -------------------------------------------------------------------------------
Total Liabilities.................... 37,284,640
================================================================================
Net Assets.............................. $1,577,417,282
================================================================================
Net Assets Consist of --Note B:
Capital, at a $1.00 par value........... $ 141,143,178
Paid-in surplus......................... 1,414,149,043
Accumulated net realized gain
on investments...................... 17,882,692
Net unrealized appreciation of
investments......................... 4,518,863
Distributions in excess of
net investment income................ (276,494)
- --------------------------------------------------------------------------------
Net Assets, for 141,143,178 shares
outstanding......................... $1,577,417,282
================================================================================
Net Asset Value, offering price
and redemption price per share
($1,577,417,282/141,143,178 shares) $11.18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
Six Months Ended March 31, 1997
===============================================================================
<S> <C> <C>
Investment Income
- --------------------------------------------------------------------------------
Interest............................ $63,040,268
Dividends........................... 2,927,216
Other income........................ 681,940
- --------------------------------------------------------------------------------
Total Income.............. 66,649,424
Expenses
- --------------------------------------------------------------------------------
Trustee fees--Note C $3,693,556
Administrative
expenses and
salaries............ 314,070
Computer and
related expenses.... 88,430
Registration and
filing fees........ 82,483
Printing, postage
and stationery.... 77,750
Interest--Note G........ 67,063
Custodian fees......... 53,155
Auditing fees.......... 33,855
Other expenses......... 18,300
Legal fees............. 12,350
Insurance.............. 5,625
- --------------------------------------------------------------------------------
Total Expenses ........... 4,446,637
- --------------------------------------------------------------------------------
Net Investment Income 62,202,787
================================================================================
Realized and Unrealized Gain (Loss)....
on Investments--Note B:
- --------------------------------------------------------------------------------
Net realized gain from investment
transactions..................... 33,607,939
Change in unrealized appreciation
of investments.................. 457,932
- --------------------------------------------------------------------------------
Net Gain on Investments.................. 34,065,871
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations....................... $96,268,658
================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months
Ended
March 31, Year Ended
1997 September 30, 1996 (unaudited)
1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in Net Assets
From Operations:
Net investment income................................................ $ 62,202,787 $ 87,229,924
Net realized gain from investment transactions....................... 33,607,939 14,771,550
Change in unrealized appreciation of investments..................... 457,932 39,213,982
------------ ------------
Net Increase in Net Assets Resulting from
Operations...................................................... 96,268,658 141,215,456
Distributions to Shareholders from Net Investment Income................ (64,329,376) (87,486,984)
($.52 and $.99 per share, respectively)
From Net Trust Share Transactions--Note E ............................... 344,994,093 349,196,435
------------ ------------
Total Increase in Net Assets.................................... 376,933,375 402,924,907
==================================================================================================================================
Net Assets:
Beginning of Period.................................................. 1,200,483,907 797,559,000
------------ ------------
End of Period (including distributions in excess of income
of ($276,494) and undistributed net investment income
of $1,850,095)....................................................... $1,577,417,282 $1,200,483,907
==================================================================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<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 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
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.
<PAGE>
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.
Note E-Shares of Beneficial Interest
At March 31, 1997, 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, 1997 September 30, 1996
---------------------------- ----------------------------
Shares Amount Shares Amount
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold............................................. 50,743,388 $566,983,652 60,008,485 $631,430,398
Shares issued to shareholders in reinvestment of
distributions from net investment income............ 3,873,326 42,769,060 5,469,554 56,729,325
----------------------------- ------------- ---------------
54,616,714 609,752,712 65,478,039 688,159,723
Shares repurchased...................................... (23,699,893) (264,758,619) (32,457,819) (338,963,288)
----------------------------- ------------- ---------------
Net Increase......................................... 30,916,821 $344,994,093 33,020,220 $349,196,435
============================= ============= ===============
</TABLE>
Note F-Purchases and Sales of Investments
Purchases and sales of securities, other than short-term securities,
aggregated $338,073,301 and $173,250,759, respectively, for the period ended
March 31, 1997.
Note G-Short-term Borrowings
Short-term bank borrowings, which do not require maintenance of compensating
balances, are generally on a demand basis and are at rates equal to adjusted
money market interest rates in effect during the period in which such loans are
outstanding. At March 31, 1997 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. There were no short term borrowings for
the period ended March 31, 1997.
Interest expense includes commitment fees of $67,063. 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 $98,066,000 and $144,945,140,
respectively, have been pledged to collateralize short-term borrowings.
Note H-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>
Six Months
Ended
March 31,
(unaudited) Year Ended September 30,
Per Share Data 1997 1996 1995 1994 1993 1992~ 1991~ 1990~ 1989~ 1988~ 1987~
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of Period... $10.90 $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... .50 .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......... .30 .58 .29 .09 .42 .67 .04 (2.39) (.94) (.44) (.80)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations............ .80 1.56 1.27 1.07 1.46 1.82 1.36 (.94) .56 1.21 .75
Less Distributions:
Net investment income. (.52) (.99) (.96) (.99) (1.02) (1.15) (1.34) (1.43) (1.54) (1.94)+ (1.46)
Net asset value:
End ofPeriod.......... $11.18 $10.90 $10.33 $10.02 $9.94 $9.50 $8.83 $8.81 $11.18 $12.16 $12.89
====== ====== ====== ====== ===== ===== ===== ===== ====== ====== ======
Total return............ 7.86% 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 (in millions). $1,577.4 $1,200.4 $797.5 $582.0 $474.9 $452.7 $310.6 $277.1 $385.3 $404.2 $347.8
Ratio of operating
expenses to average
net assets........... .64%** .66% .67% .70% .73% .79% .88% .78% .72% .75% .76% .
Ratio of interest expense
to average net assets .01%** .03% .35% .36% .48% .65% 1.01% .69% .61% .66% .71%
Ratio of net investment
income to average
net assets .......... 8.95% 9.41% 9.77% 9.37% 10.53% 12.36% 15.38% 14.35% 12.68% 13.16% 11.59%
Portfolio turnover rate. 26.43%** 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 $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.
** Annualized
> For fiscal years beginning on or after January 1, 1996 the Trust is required
to disclose its average commission rate per share paid for security trades.
</FN>
</TABLE>
<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 Company
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 Fund are sold to investors at net asset value by
Northeast Investors Trust
50 Congress Street
Boston, Massachusetts 02109
800-225-6704
617-523-3588
