Reg. No. 2-11318
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No.
/ /
Post-Effective Amendment No. 66
/ X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
/ /
Amendment No. 19
/ X /
(Check appropriate box or boxes.)
Northeast Investors Trust
(Exact Name of Registrant as Specified in Charter)
50 Congress Street, Boston, Massachusetts 02109
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (617) 523-3588
Ernest E. Monrad, Trustee Thomas J. Kelly
Northeast Investors Trust Mintz, Levin, Cohn, Ferris,
50 Congress Street Glovsky and Popeo, P.C.
Boston, Massachusetts 02109 One Financial Center
Boston, Massachusetts 02111
(Name and Address of Agents for Service)
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
X on February 1, 1997 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)
on (date) pursuant to paragraph (a) of rule 485
<PAGE>
Registrant has a declaration in effect pursuant to
Rule 24f-2 under the Investment Company Act of 1940
and filed a Rule 24f-2 Notice on November 12, 1996.
<PAGE>
NORTHEAST INVESTORS TRUST
Cross Reference Sheet
Item No. of Form N-1A Location in Prospectus
1 Front Cover
2(a) Fee Table
2(b)-(c) Not Applicable
3(a) Financial Highlights
3(b) Bank Loans
4(a)(i) The Trust
4(a)(ii), (b) and (c) Investment Objectives and
Policies
5(a) Management of the Trust
5(b) Not Applicable
5(c) Management of the Trust
5(d) Not Applicable
5(e) Expenses
5(f) Fee Table; Financial Highlights;
Expenses
5(g) Not Applicable
5A Financial Highlights
6(a)-(e) Capitalization and
Shareholders' Rights
6(f) and (g) Dividends, Distributions &
Federal Taxes
6(h) Not applicable
7(a) Not Applicable
7(b) and (d) How to Purchase Trust Shares
7(c) Investment Plans
7(e) and (f) Not applicable
8 Redemption of Shares
9 Not Applicable
<PAGE>
-2-
NORTHEAST INVESTORS TRUST
50 Congress Street
Boston, Massachusetts 02109
(800) 225-6704
(617) 523-3588
SHARES OF BENEFICIAL INTEREST
PROSPECTUS
February 1, 1997
The primary objective of the Trust is the production of income. Capital
appreciation is a secondary objective of the Trust, the achievement of which
must be compatible with the primary objective.
The Trust may, from time to time, use the investment technique of
leverage. Such speculative activity may involve greater risks and the
possibility of greater costs. See page _8.
The Trust's investment in lower rated debt securities involves greater
risk, including default risks, than investments in lower yielding, higher rated
securities. See page 7.
This Prospectus sets forth certain information about the Trust that a
prospective investor should know before making an investment in the Trust. A
Statement of Additional Information, dated February 1, 1997, has been filed by
the Trust with the Securities and Exchange Commission and is incorporated in
this Prospectus by reference. The Statement is available free of charge upon
written request to the Trust at the above address. Shareholders are advised to
retain this Prospectus for future reference.
Offered at Net Asset Value without "Sales Charge"
or Commissions Payable to Anyone.
TABLE OF CONTENTS
Page
Fee Table........................................................3
Bank Loans.......................................................4
Financial Highlights.............................................5
The Trust........................................................6
Sales Without "Sales Charge".....................................6
Investment Objectives and Policies...............................6
Management of the Trust..........................................9
Expenses.........................................................9
How to Purchase Trust Shares.....................................9
Investment Plans.................................................10
Redemption of Shares.............................................10
Dividends, Distributions & Federal Taxes.........................12
Capitalization and Shareholders' Rights..........................12
Appendix - Portfolio Composition.................................13
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES AUTHORITIES NOR HAS THE COMMISSION
OR ANY STATE SECURITIES AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
FEE TABLE
Shareholders Transaction Expenses
<S> <C>
Sales Load Imposed
on Purchase None
Deferred Sales Load
Imposed on Redemptions None
Sales Load Imposed on
Dividend Reinvestment None
Exchange Fees None
Redemption Fee None
Annual Operating Expenses (as a percentage of average net
assets)
12b-1 Expense . . . ................................None
Trustees' Compensation.............................. .53%
Other Expenses...................................... .13%
----
Total Operating Expenses............................ .66%
====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000
investment, assuming a 5%
annual return ............. $7 $21 $36 $80
</TABLE>
The purpose of the table is to assist in understanding the various
costs and expenses that an investor in the Trust will bear. The percentage
expense levels shown in the table above are based on actual expenses incurred in
the fiscal year ended September 30, 1996; actual expenses in future years may
vary from the amounts shown.
<PAGE>
<TABLE>
<CAPTION>
BANK LOANS
Average
Average Number of Average
Amount of Amount of Registrant's Amount of
Debt Debt Shares Debt
outstanding outstanding outstanding per share
at end of during the during the during the
Year Ended year year* year* year
September 30,
<S> <C> <C> <C> <C>
1987...................................... $44,156,000 $37,118,076 $25,920,383 $1.43
1988...................................... 27,102,000 31,715,153 29,837,408 1.06
1989...................................... 23,433,000 24,344,769 34,534,012 .71
1990...................................... 36,856,000 24,645,015 32,102,975 .77
1991...................................... 49,077,000 35,925,779 31,667,858 1.13
1992...................................... 51,990,000 42,752,526 39,896,979 1.07
1993...................................... 75,321,000 50,497,798 47,027,522 1.07
1994...................................... 54,363,000 41,432,102 58,822,259 .77
1995...................................... 3,552,000 32,973,723 65,574,945 .50
1996...................................... 0 8,331,405 88,985,931 .09
<FN>
* Monthly method (sum of amounts outstanding at beginning of year and at the end
of each month during the year divided by 13).
</FN>
</TABLE>
FINANCIAL HIGHLIGHTS
The information included in the following table has been audited by
Coopers & Lybrand L.L.P., Independent Auditors, for the years ended September
30, 1993 through September 30, 1996, and by other Auditors for the years ended
September 30, 1987 through September 30, 1992. The report of Coopers & Lybrand
L.L.P. on the financial statements and financial highlights for the year ended
September 30, 1996 is included in the Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
Per Share Data................. 1996 1995 1994 1993 1992~ 1991~ 1990~ 1989~ 1988~ 1987~
---- ---- ---- ---- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of Period............ $10.33 $10.02 $9.94 $9.50 $8.83 $8.81 $11.18 $12.16 $12.89 $13.60
------ ------ ----- ----- ----- ----- ------ ------ ------ ------
Income From Investment
Operations:
Net investment income.......... .98 .98 .98 1.04 1.15 1.32 1.45 1.50 1.65 1.55
Net realized and unrealized
gain (loss) on investments.. .58 .29 .09 .42 .67 .04 (2.39) (.94) (.44) (.80)
----- ---- ------ ------ ------ ------ -------- ------- ------- --------
Total from investment
operations.................. 1.56 1.27 1.07 1.46 1.82 1.36 (.94) .56 1.21 .75
Less Distributions:
Net investment income....... (.99) (.96) (.99) (1.02) (1.15) (1.34) (1.43) (1.54) (1.94)+ (1.46)
----- ----- ----- ------ ------ ------ ------ ------ ------ ------
Net asset value:
End of Period............... $10.90 $10.33 $10.02 $9.94 $9.50 $8.83 $8.81 $11.18 $12.16 $12.89
====== ====== ====== ===== ===== ===== ===== ====== ====== ======
Total return.......... 15.98% 13.44% 10.96% 16.25% 21.85% 17.63% (8.87)% 4.87% 10.62% 5.44%
Ratios & Supplemental Data
Net assets end of
period (000's omitted)......$1,200,484 $797,559 $582,093 $474,976 $452,774 $310,667 $277,134 $385,390 $404,219 $347,841
Ratio of operating expenses
to average net assets....... .66% .67% .70% .73% .79% .88% .78% .72% .75% .76%
Ratio of interest expense
to average net assets....... .03% .35% .36% .48% .65% 1.01% .69% .61% .66% .71%
Ratio of net investment
income to average
net assets.................. 9.41% 9.77% 9.37% 10.53% 12.36% 15.38% 14.35% 12.68% 13.16% 11.59%
Portfolio turnover rate........ 32.01% 40.58% 73.36% 75.72% 59.41% 33.77% 21.23% 33.61% 17.35% 52.03%
Average broker
commission..................... $0.06
<FN>
+ Includes accumulated undistributed net investment income (including
original issue discount) through December 31, 1987 as required under
the excise tax provisions of the Tax Reform Act of 1986, estimated
by the trustees to be $.42 per share.
~ Audited by other auditors.
</FN>
</TABLE>
<PAGE>
Further information about the performance of the Trust is contained in its most
recent Annual Report to Shareholders, a copy of which will be made available
upon request without charge.
THE TRUST
Northeast Investors Trust, herein called the Trust, is a diversified
open-end management investment company organized March 1, 1950 by an Agreement
and Declaration of Trust executed under the laws of the Commonwealth of
Massachusetts.
SALES WITHOUT "SALES CHARGE"
The Trustees wish to offer investors an opportunity to share in the
benefits of a mutual fund without requiring that they pay a sales commission or
distribution expense, generally known as a "sales charge", "load charge" or
"12b-1 expenses". The purchase of shares of numerous other mutual funds requires
the investor to pay a substantial amount for a selling commission and related
expenses in excess of the amount received by the fund. It is the current policy
of the Trustees that shares of the Trust be sold at net asset value, the Trust
receiving the full amount paid by the investor.
Brokers or dealers may accept purchase and sell orders for shares of
the Trust and may impose a transaction charge for this service. Any investor
may, however, purchase shares without such additional charge by acquiring them
directly from the Trust.
INVESTMENT OBJECTIVES AND POLICIES
The purpose of the Trust is to provide investors with a vehicle for
investment under the management of the Trustees. Through this Trust, the
Trustees will seek to provide a managed, diversified investment program, the
primary objective of which shall be the production of income. Capital
appreciation is also an objective of the Trust, but its achievement must be
compatible with the primary objective. Under the Declaration of Trust, a change
in this investment objective would require the affirmative vote of two-thirds of
the outstanding shares of the Trust. The Trust will make limited use of the
leverage principle. See "Leverage" below.
It is the intention of the Trustees to invest primarily in marketable
securities of established companies which the Trustees believe provide
reasonable income and which, where consistent with this objective, may have
potentialities for capital appreciation. This would include bonds, preferred
stocks, dividend paying common stocks, securities convertible into common stocks
and securities with warrants attached. The proportion of the Trust's assets
invested in each type of security will vary from time to time depending on
market and economic conditions,
<PAGE>
and the Trustees may, when in their opinion capital appreciation is not
compatible with the production of income, emphasize fixed income investments for
protracted periods of time if they deem it advisable, even to the extent that
the total holdings of the Trust may consist of bonds or other debt securities,
preferred stocks and cash. Since 1970 the Trust has taken such a position and
more than 80% of its assets have been held in bonds or other debt securities,
preferred stocks and cash, although in the most recent fiscal years the Trust's
holdings of common stocks have been greater than in prior fiscal years. As of
September 30, 1996, approximately 80.8% of the Trust's net assets were invested
in fixed income securities.
It is the further policy of the Trust that the Trustees not purchase
any security if upon such purchase 25% or more of the value of the Trust's
assets would be invested in securities of issuers in any one industry. However,
when securities of a given industry come to constitute more than 25% of the
value of the Trust's assets by reason of changes in value of either the
concentrated securities or other securities, the excess need not be sold. If, as
a result of changed circumstances in the future, these policies with respect to
industry concentration become in the judgment of the Trustees less likely to
achieve the Trust's primary income objective, any proposed change in such
policies will be submitted to the shareholders.
Although the Trust's investment in a diversified portfolio of
securities reduces the risk inherent in the ownership of a single security, it
cannot eliminate the risk or protect a shareholder of the Trust against
fluctuations in the market valuation of one's shares. The prices of fixed income
securities are normally quite sensitive to general interest rate trends and
usually vary inversely thereto. There can be no assurance that the Trust will in
fact achieve its objectives.
Risk of Lower Rated Debt Securities
The Trust does not impose any particular rating standards which the
Trustees must utilize in making investment decisions. As a result, the Trust's
portfolio has, since it began making major commitments to fixed income
securities in the mid 1960s, generally included debt securities which are not
rated as investment grade by either of the two principal rating services. The
Trustees have usually relied upon their own credit analysis in making decisions
concerning the Trust's portfolio.
Higher yielding and unrated or lower rated debt securities (commonly
referred to as "junk bonds") may be subject to greater market volatility and can
present speculative features with respect to debt service coverage by the
issuer, marketability and liquidity of the investment under adverse market
conditions, and risk of loss of principal due to issuer default to a greater
degree than lower
<PAGE>
yielding, highly rated securities. Bonds which are not rated as investment grade
may be more susceptible than higher rated securities to real or perceived
adverse economic conditions, such as a projected recession which causes a
lessening of confidence in the ability of highly leveraged issuers to service
outstanding debt.
Investors should consider the relative risks of investing in these
types of securities, which are generally not meant for short-term investments.
See the Appendix for further information concerning the Trust's investment
portfolio.
Leverage
In order to raise additional funds for investment the Trust may borrow
money from banks. Such borrowing will normally not be continued over a
protracted period when short term interest rates exceed the yield available from
longer term securities. The Trustees intend to use the proceeds of any such
borrowings to purchase debt securities yielding more than the interest rate on
the borrowing. Moreover, the ability to borrow permits the Trustees to minimize
uninvested cash and to fund redemptions without liquidating portfolio
securities. Any investment gains made with the additional funds in excess of the
interest paid will cause the net asset value of the Trust shares to rise faster
than would otherwise be the case. On the other hand, if the investment
performance of the additional funds fails to cover their cost to the Trust, the
net asset value of the Trust will decrease faster than would otherwise be the
case. This is the speculative factor known as "leverage".
The Declaration of Trust permits the borrowing of money from banks for
the purposes of the Trust if, in the opinion of the Trustees, such borrowing may
be advantageously made to increase the earning power of the Trust, but only up
to 25% of the gross assets of the Trust taken at cost at the time the borrowings
are made. The Trustees may also temporarily borrow from banks for extraordinary
or emergency purposes but only to an amount that the aggregate of all bank
borrowings of the Trust shall not exceed 30% of the gross assets of the Trust
taken at cost at the time the borrowings are made.
The amount of leverage to be outstanding at any one time cannot be
estimated in advance since the Trustees may vary the amount of borrowings from
time to time, within the authorized limits, as they deem advisable, including
having no borrowings at all. The outstanding borrowings by the Trust as of
September 30 for the years 1987-1996 are set forth on page 4.
<PAGE>
MANAGEMENT OF THE TRUST
The Trustees of the Trust have been elected by the shareholders or
appointed by the Trustees to fill a vacancy. They have full powers as to the
investment of the assets of the Trust, subject to the restrictions and
limitations imposed by the Declaration of Trust. The Trust has no investment
adviser or management contract.
The Trustees principally responsible for the day-to-day management of
the Trust's portfolio are Ernest E. Monrad and Bruce H. Monrad. Ernest E. Monrad
has served as a Trustee of the Trust since 1960 and as its Chairman since 1969.
Bruce H. Monrad has been associated with the Trust since July, 1989 and was
appointed a Trustee in May, 1993.
EXPENSES
Under the Declaration of Trust, the Trustees are entitled to receive an
annual fee equal to 1/2 of 1% of the principal of the Trust, computed at the end
of each quarter year at the rate of 1/8 of 1% of the principal at the close of
such quarter. The principal of the Trust for this purpose is taken as a total of
the market value of the portfolio and other assets less all liabilities, except
accrued Trustees' fees. Other than the fee to the Trustees, no compensation is
paid by the Trust to any person other than in the ordinary course of business.
In addition to the services furnished to the Trust by the Trustees, there are
other expenses of the Trust which are paid by it directly. These include
expenses such as taxes, custodian's fees and expenses, legal and auditing fees
and expenses, bookkeeping expenses, and the expense of qualifying shares for
sale under federal and state laws. The Trust also acts as its own transfer agent
and, as such, carries out all functions relating to the maintenance of its
shareholder accounts, transfers and redemption of shares, and mailings to
shareholders and pays the expenses relating thereto, including the compensation
of persons performing these functions and data processing expenses.
HOW TO PURCHASE TRUST SHARES
As indicated on page 6 under "Sales Without Sales Charge", shares are
sold by the Trust directly to investors at net asset value with no sales charge
or premium added to the price paid by the purchaser. Applications for the
purchase of shares will be received on any full business day at the office of
the Trust, 50 Congress Street, Boston, Massachusetts 02109. An initial
investment of at least $1,000 is required. There is no minimum for subsequent
investments either by mail or telephone; there is a maximum for telephone
investments of $100,000.
<PAGE>
Investors in the Trust may arrange to make investments on a regular
basis under the Trust's automatic investment plan through regular deductions
(minimum $50) from their bank account.
The public offering price to investors whose applications are received
before the close of the New York Stock Exchange on a day the Exchange is open is
the net asset value determined as of the close of the Exchange on that day. Net
asset value is determined on the basis of the market value of the Trust's
assets. If an application is received after the close of the Exchange or on a
day the Exchange is not open, the applicable net asset value will be that
determined at the close of the Exchange on the next day on which it is open. In
any event, the price of shares is based upon the next calculation of net asset
value after an order is placed. The sale of shares will be suspended during any
period when the right of redemption is suspended.
INVESTMENT PLANS
The Trust offers shareholders open accounts and a cumulative investment
plan, as well as tax-advantaged retirement plans, including a Prototype Defined
Contribution Plan for sole proprietors, partnerships and corporations, which may
include a 401(k) savings feature, Individual Retirement Accounts, and 403(b)
Retirement Accounts. Details of these investment plans are available from the
Trust at the address shown on the cover of this Prospectus.
REDEMPTION OF SHARES
The Trust provides a market for its shares. The Declaration of Trust
provides in substance that the shareholders shall be entitled ordinarily to
sell, and the Trust shall be required to buy, shares at net asset value thereof,
less any liquidating charge that may be imposed by the Trustees in their
discretion, which charge, if imposed shall be at a rate determined by the
Trustees not exceeding 1% of such net asset value. It has been the policy of the
Trustees since the inception of the Trust not to charge such a liquidating fee
so that shareholders may redeem their shares at the full net asset value
thereof. This policy can be changed by the Trustees without notice to the
shareholders.
For such purpose the shares must be surrendered to the Trustees at the
office of the Trust, properly endorsed for transfer. For redemptions in excess
of $5,000 the shareholder's signature(s) must be guaranteed by a U.S. commercial
bank or trust company or a member firm of a recognized stock exchange or other
authorized guarantor institution, and in the case of fiduciary, partnership and
corporate holdings, evidence of authority to sell, together with a request that
the Trustees
<PAGE>
purchase the same and pay the shareholder for the shares so surrendered. A stock
power, with the shareholder's signature(s) similarly guaranteed, should be used
to redeem shares for which a certificate has not been issued. In either case, a
notary public is not an acceptable guarantor. Mere witnessing of a signature is
not sufficient; a specific signature guarantee must be made with respect to all
signatures. Redemption requests cannot be honored until all documentation has
been received in proper order. Signature guarantees are required on all
redemptions when the check is mailed to an address other than the address of
record or if an address change occurred in the past three months. When payment
for shares has been made by check redemption requests will be processed only
after ten business days from the date of the payment.
Payment to the shareholder must ordinarily be made within seven
calendar days after the shares together with instructions are properly
deposited. The Trustees reserve the right to deliver assets in whole or in part
in kind in lieu of cash. The Trustees have elected to be governed by Rule 18f-1
under the Investment Company Act of 1940, as amended, pursuant to which the
Trustees are obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1 percent of the net asset value of the Trust during any 90-day
period for any one shareholder. Shareholders receiving redemptions in kind will
incur brokerage costs in converting securities received to cash.
Shares received by the Trust for redemption at or before the close of
the New York Stock Exchange on a day on which the Exchange is open will be
redeemed on the basis of the net asset value determined as of the close of the
Exchange that day; if the day of deposit is not such a day or if the deposit is
made after the close of the Exchange on such a day, the redemption price will be
based on the net asset value determined as of the close of the Exchange on the
next day on which it is open.
Shareholders who are investors in a tax-advantaged retirement plan
should consider specific taxpayer restrictions, penalties, and procedures that
may be associated with redemptions from their retirement plan in order to
qualify under the provisions of the Internal Revenue Code. The Trust assumes no
responsibility for determining whether any specific redemption satisfies the
conditions of federal tax laws. That determination is the shareholder's
responsibility. Penalties, if any, apply to redemptions from the plan, not to
redemptions from the Trust and are governed by federal tax law alone.
Telephone redemptions are not permitted (unless confirmed in writing on
the same day), except that telephone instructions from the registered owner to
exchange shares of the Trust for shares of Northeast Investors Growth Fund will
be accepted. Existing shareholders may also make additional investments by
telephone. No specific election is required in the Application to obtain
telephone exchange or purchase privileges. The Trust will employ reasonable
procedures, including
<PAGE>
requiring personal identification prior to acting on telephone instructions, to
confirm that such instructions are genuine. If the Trust does not follow such
procedures it may be liable for losses due to unauthorized or fraudulent
instructions, but otherwise will not be liable for following instructions
communicated by telephone that it reasonably believes to be genuine.
DIVIDENDS, DISTRIBUTIONS & FEDERAL TAXES
The Trust has paid dividends in each quarter since its organization.
Payments from net investment income are generally made around the end of
February, May, August and November. It is the Trust's policy to distribute net
realized capital gains on sales of investments (less any available capital loss
carry forward) and such distributions, if any, would be made between October 31
and December 31. No such capital gain distribution has been made since 1968.
The holders of shares are entitled to receive, annually, or more often,
dividends in an amount equal approximately to the net income of the Trust
(defined in the Declaration of Trust as the gross earnings less the expenses of
the Trust) and such other dividends as the Trustees may declare. As the net
income fluctuates from year to year, no fixed dividend can be promised.
Any dividends or distributions paid shortly after a purchase of shares
by an investor will have the effect of reducing the per share net asset value of
his shares by the per share amount of the dividends or distributions.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to income taxes.
It is the policy of the Trust to distribute all of its net investment
income and net realized gains for each year in dividends and capital gain
distributions which will be taxable for federal income tax purposes to the
shareholders of the Trust, other than shareholders exempt from federal income
tax. In such event, the Trust itself will not be subject to federal income tax
on its net investment income and net realized gains. The Trust will inform its
shareholders each year of the amount and nature of the income and gains it
distributes to them. Shareholders may be proportionately liable for taxes on
income and gains of the Trust, but shareholders who are not subject to federal
tax on their income will not be required to pay such tax on amounts distributed
to them by the Trust. Dividends and capital gain distributions may also be
subject to state and local taxes.
CAPITALIZATION AND SHAREHOLDERS' RIGHTS
The capitalization of the Trust consists solely of an unlimited
authorized number of full and fractional shares of beneficial interest, all
shares having equal rights pro rata in voting, dividends, assets, and
liquidation. Voting rights
<PAGE>
include the election of Trustees, amendment of the Declaration of Trust and
amendment of the Custodian Agreement. The Trust is wholly owned by the
shareholders after deducting liabilities in the form of current liabilities and
bank loans which, from time to time, may be outstanding. There are no options
outstanding or intended to be created. All shares of beneficial interest are of
$1 par value, validly issued, fully paid and nonassessable, are transferable and
have no fixed dividend rate. Each shareholder is entitled to receive from the
Trust semi-annually a report containing financial statements and a list of the
Trust's investments as of a reasonably current date.
Any inquiries by shareholders may be made in writing, addressed to the
Trust at the address shown on the cover of this Prospectus.
APPENDIX-PORTFOLIO COMPOSITION
The table below reflects the composition by quality rating of the investment
portfolio of the Trust on a month-end weighted average basis for the fiscal year
ended September 30, 1996. The table reflects the percentage of total assets
represented by fixed income securities rated by Standard & Poor's Corporation
("S&P") and by unrated fixed income securities. As noted under "Investment
Objectives and Policies-Risk of Lower Rated Debt Securities" the Trust does not
impose particular rating standards which the Trustees must utilize in making
investment decisions. The allocations in the table are not necessarily
representative of the composition of the Trust's portfolio at other times.
<TABLE>
<CAPTION>
S&P Rating Portfolio
Category Composition
<S> <C>
Unrated. . . . . . ...................... 22.78%
AAA...................................... -
AA....................................... -
A........................................ -
BBB...................................... 1.01%
BB....................................... 9.18%
B........................................ 53.13%
CCC...................................... 9.42%
CC,C,D................................... 4.48%
</TABLE>
Set forth below is a description of the rating categories. The ratings of S&P
represent their opinion as to the quality of the securities that they undertake
to rate. It should be emphasized, however, that ratings are relative and
subjective and are not absolute standards of quality.
<PAGE>
DESCRIPTION OF S&P CORPORATE BOND RATINGS
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
D - Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
<PAGE>
NORTHEAST INVESTORS TRUST
50 Congress Street
Boston, Massachusetts 02109
(800) 225-6704
(617) 523-3588
SHARES OF BENEFICIAL INTEREST
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1997
This Statement of Additional Information supplements the
Prospectus for the Trust dated February 1, 1997 and should be read in
conjunction with the Prospectus. A copy of the Prospectus may be obtained from
the Trust at the above address. This Statement of Additional Information is not
a Prospectus.
-------------------------
TABLE OF CONTENTS
THE TRUST.................................................................B-2
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS..........................B-2
MANAGEMENT OF THE TRUST...................................................B-3
COMPENSATION OF TRUSTEES..................................................B-5
CUSTODIAN AND INDEPENDENT ACCOUNTANTS.....................................B-5
BROKERAGE.................................................................B-6
PRICE AND NET ASSET VALUE.................................................B-6
SHAREHOLDER PLANS.........................................................B-7
TAX-ADVANTAGED RETIREMENT PLANS...........................................B-8
DIVIDENDS, DISTRIBUTIONS & FEDERAL TAXES..................................B-9
ADDITIONAL INFORMATION CONCERNING SHAREHOLDERS' RIGHTS....................B-10
FINANCIAL STATEMENTS B-12
<PAGE>
THE TRUST
Northeast Investors Trust, herein called the Trust, is a diversified
open-end management investment company organized March 1, 1950 by an Agreement
and Declaration of Trust executed under the laws of The Commonwealth of
Massachusetts.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
As explained in the Prospectus, the purpose of the Trust is to provide
investors with a vehicle for investment under the management of the Trustees.
Through this Trust, the Trustees will seek to provide a managed, diversified
investment program, the primary objective of which shall be the production of
income. Capital appreciation is also an objective of the Trust, but its
achievement must be compatible with the primary objective.
In addition to the investment objectives and policies described in the
Prospectus, the Trust has adopted certain investment restrictions. So long as
these restrictions remain in effect, the Trustees may not: (1) Purchase any
securities which would cause more than 5% of the Trust's total assets at the
time of such purchase to be invested in the securities of any issuer, except the
United States Government. (2) Purchase any securities which would cause the
Trust at the time of such purchase to own more than 10% of any class of any
issuer. (3) Purchase the securities of any issuer engaged in continuous
operation for less than three years. (4) Purchase real estate or commodities or
commodities contracts, but this limitation does not preclude an investment in
the securities of organizations which deal in real estate or commodities or in
securities secured by interests in real estate. (5) Purchase the securities of
any investment company, except in connection with a merger, consolidation or
acquisition or by purchase of securities of closed-end investment companies in
regular transactions in the open market. (6) Purchase securities on margin or
effect short sales of securities. (7) Make loans, except that the Trust may
acquire publicly distributed bonds, debentures, notes and other debt securities.
(8) Act as an underwriter of securities except insofar as the Trust might
technically be deemed to be an underwriter for purposes of the Securities Act of
1933 upon the disposition of certain securities. (9) Invest in companies for
the purpose of exercising management or control. (10) Invest in puts, calls,
straddles, spreads or any combinations thereof. (11) Purchase or retain the
securities of any issuer if all Trustees together own more than 1/2 of 1% of the
securities of such issuer. (12) Deal as principal with the Trust in the
purchase or sale of portfolio securities. (13) Deal as agent with the Trust
in the purchase or sale of portfolio securities. (14) Invest in securities for
which there is no readily available market, if at the time of acquisition more
than 5% of the Trust's assets would be invested in such securities.
(15) Purchase participations or other direct interests in
<PAGE>
oil, gas or other mineral exploration or development programs. (16) Invest in
warrants if at the time of acquisition more than 2% of the Trust's assets would
be invested in warrants. (17) Invest in securities of foreign issuers if at the
time of acquisition more than 10% of the Trust's assets would be invested in
such securities.
The above policies do not preclude the purchase of securitized bank
loans or the lending of portfolio securities to broker-dealers. Loans of
portfolio securities of the Trust will be made, if at all, in strictest
conformity with applicable federal and state rules and regulations. While there
may be delays in recovery of loaned securities or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be made
only to firms deemed by the Trust's management to be of good standing and will
not be made unless, in the judgment of the Trust's management, the consideration
to be earned from such loans would justify the risk. The purpose of such loan
transactions is to afford the Trust an opportunity to continue to earn income on
the securities loaned and at the same time to earn income on the collateral held
by it.
The Trust does not intend to engage in trading for short-term
profits, and portfolio turnover will belimited in accordance with the Trust's
objective of producing income. This does not, however, preclude an occasional
investment for the purpose of short-term capital appreciation. During the
fiscal years ended September 30, 1995 and 1996 the rates of total portfolio
turnover were 40.58% and 32.01% respectively. Investment policy or changed
circumstancesmay require, in the opinion of the Trustees, an increased rate of
such portfolio turnover.
MANAGEMENT OF THE TRUST
The trustees of the Trust are Ernest E. Monrad, Robert B.
Minturn, Jr., Bruce H. Monrad, and C. Earl Russell, all of 50 Congress Street,
Boston, Massachusetts, Fred L. Glimp, 1350 Massachusetts Avenue, Cambridge,
Massachusetts and J. Murray Howe, One Post Office Square, Boston, Massachusetts.
Mr. Ernest E. Monrad is Chairman of the Trustees and is the principal executive
and financial officer of the Trust. Messrs. Ernest E. Monrad, Bruce H. Monrad
and Minturn are deemed "interested persons" of the Trust under the Investment
Company Act of 1940, as amended, because they are Chairman, Vice President, and
Clerk of the Trustees, respectively. William A. Oates, Jr., 50 Congress Street,
Boston, Massachusetts serves as President of the Trust. Gordon C. Barrett,
50 Congress Street, Boston, Massachusetts serves as Treasurer of the Trust. The
principal occupations of each of Messrs. Ernest E. Monrad, Oates, Minturn,
Barrett and Bruce H. Monrad for the last five years have been their respective
positions with the Trust and, in the case of Mr. Oates, with Northeast Investors
Growth Fund. Bruce H. Monrad has been associated with the Trust since July,
1989 and was appointed a Trustee in May, 1993. Ernest E. Monrad is the father
of Bruce H. Monrad.
<PAGE>
The Trustees have been elected by the shareholders or appointed by the
Trustees to fill vacancies. They have full powers as to the investment of the
assets of the Trust, subject to the restrictions and limitations imposed by the
Declaration of Trust. The Trust has no investment adviser or management
contract.
ERNEST E. MONRAD is Chairman, Assistant Treasurer and a Trustee of
Northeast Investors Growth Fund, Boston, Massachusetts; a Director of Northeast
Management & Research Company, Inc., Boston, Massachusetts ; Vice President and
a Director of Northeast Investment Management, Inc., Boston, Massachusetts; Vice
President and a Director of Furman Lumber, Inc., Billerica, Massachusetts; a
Director of The New America High Income Fund, Inc., Boston, Massachusetts; and a
Trustee of Century Shares Trust, Boston, Massachusetts. He is 66.
WILLIAM A. OATES, JR. is President and a Trustee of Northeast Investors
Growth Fund, Boston, Massachusetts; President and a Director of Northeast
Management & Research Company, Inc., Boston, Massachusetts; Vice President,
Treasurer and a Director of Northeast Investment Management, Inc., Boston,
Massachusetts; a Trustee and Treasurer of the Roxbury Latin School, West
Roxbury, Massachusetts; a Director of Clifford of Vermont, Inc., Bethel,
Vermont, Furman Lumber, Inc., Billerica, Massachusetts and the Horn Corporation,
Ayer, Massachusetts; and a Corporator of the Dedham Institute for Savings,
Dedham, Massachusetts. He is 54.
ROBERT B. MINTURN, JR. is Vice President, Clerk and a Trustee of
Northeast Investors Growth Fund, Boston, Massachusetts; Vice President,
Treasurer, Clerk and a Director of Northeast Management & Research Company,
Inc., Boston, Massachusetts; Vice President, Assistant Treasurer, Clerk and a
Director of Northeast Investment Management, Inc., Boston, Massachusetts; and a
Trustee, Clerk and Assistant Treasurer of The Boston Home, Inc., Boston,
Massachusetts. He is 57.
BRUCE H. MONRAD is a Vice President of Northeast Investment Management,
Inc., Boston, Massachusetts and a Director of Furman Lumber, Inc., Billerica,
Massachusetts. He is 34.
GORDON C. BARRETT is a Vice President of Northeast Investment
Management, Inc., Boston, Massachusetts and a Vice President and Treasurer of
Northeast Investors Growth Fund. He is 40.
C. EARL RUSSELL has been engaged in accounting practice since 1932 and
continues as an adviser to Russell, Brier & Co., a partnership which he founded
in 1934. He is Trustee of Lahey Clinic Foundation, Inc., Burlington,
Massachusetts and a Director of the Citizenship Training Group, Inc., Boston,
Massachusetts. He is 88.
<PAGE>
FRED L. GLIMP is Special Assistant to the President of Harvard
University, Cambridge, Massachusetts and was formerly Vice President for Alumni
Affairs and Development of Harvard University. He is 70.
J. MURRAY HOWE is of counsel to the Boston law firm of Sullivan &
Worcester. He also serves as Secretary of Iron Mountain Incorporated, a
Director and Clerk of Schooner Capital Corporation, and a Director of Schooner
Asset Co., LLC, all of Boston, Massachusetts. He is 76.
The total number of shares owned beneficially by the Trustees and
members of their immediate families on November 27, 1996 was 458,930 shares
(.39%).
COMPENSATION OF TRUSTEES
Under the Declaration of Trust, the Trustees are entitled to receive an
annual fee equal to 1/2 of 1% of the principal of the Trust, computed at the end
of each quarter year at the rate of 1/8 of 1% of the principal at the close of
such quarter. The principal of the Trust for this purpose is taken as a total
of the value of the portfolio and other assets less all liabilities, except
accrued Trustees' fees, valued as set forth below under "Price and Net Asset
Value". From the total fee of $4,896,339 for the fiscal year ended September
30, 1996, Ernest E. Monrad received $1,913,995 as Chairman of the Trustees,
Bruce H. Monrad and Robert B. Minturn, Jr. received $1,357,353 and $210,000
respectively, as Trustees and William A. Oates, Jr. received $1,375,991 as
President of the Trust. Each of the Trustees who is not also an officer of the
Trust received compensation of $13,000 from the total Trustee's fee. There are
arrangements providing for payment from the Trustees' fee of pension benefits
upon the death, disability or retirement of the Trustees.
Under the Declaration of Trust, the Trustees are required to furnish
the Trust from their compensation financial and statistical services for the
Trust and such office space as the Trust may require. In addition, the Trustees
have in the past, and intend in the future, to spend part of their fee directly
for advertising and other promotional expenses.
CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The custodian for the Trust is Investors Bank and Trust Company,
89 South Street, Boston, Massachusetts. The custodian maintains custody of the
Trust's assets.
The independent accountants for the Trust are Coopers & Lybrand L.L.P.,
One Post Office Square, Boston, Massachusetts. Coopers & Lybrand L.L.P. audits
the Trust's annual financial statements included in the annual report to
shareholders, reviews the Trust's filings with the Securities and Exchange
Commission on Form N-1A and prepares the Trust's federal income and excise tax
return.
<PAGE>
BROKERAGE
Decisions to buy and sell securities for the Trust and assignment of
its portfolio business and negotiation of its commission rates are made by the
Trustees. The Trustees have a policy of not having any dealings as principal or
agent with the Trust when they make purchases and sales for the Trust's
investment portfolio. The Trust does not effect transactions in portfolio
securities through dealers affiliated with any Trustee.
It is the Trustees' policy to obtain the best security price
available, and, in doing so, they will assign portfolio executions and negotiate
commission rates in accordance with the reliability and quality of a broker's
services and their value and expected contribution to the performance of the
Trust. In order to minimize brokerage charges, the Trustees seek to execute
portfolio transactions with the principal market maker for the security to which
the transaction relates in the over-the-counter market unless it has been
determined that best price and execution are available elsewhere.
During the fiscal year ended September 30, 1996, the Trust engaged in
portfolio transactions involving broker-dealers totaling $722,856,573. Of this
amount $7,527,580 involved trades with brokers acting as agents in which such
brokers received total brokerage commissions of $26,380. The remaining
$715,328,993 in portfolio trades consisted of principal transactions with market
makers and other dealers. During the fiscal year ended September 30, 1995
brokerage commissions paid totaled $66,095; in fiscal 1994 brokerage
commissions paid totaled $249,026. All such portfolio transactions completed by
the Trust during the year ended September 30, 1996 were carried out with broker-
dealers that have provided the Trust with statistics, other information and wire
and other services.
PRICE AND NET ASSET VALUE
It is the current policy of the Trustees that the public offering price
of shares of the Trust equal their net asset value, the Trust receiving the full
amount paid by the investor. The net asset value is determined by the Trustees
as of the close of the New York Stock Exchange on each day that the Exchange is
open, and is the only price available to investors whose orders were received
prior to the close of the Exchange on that day. The price to investors whose
applications for purchase are received after the close of the Exchange or on a
day the Exchange is not open will be the net asset value determined as of the
close of the Exchange on the next day on which it is open. The New York Stock
Exchange is customarily closed on New Years Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. The
Declaration of Trust requires that the net asset value of the Trust's shares be
determined by dividing the value of the Trust's securities, plus any cash and
other assets (including dividends accrued) less all liabilities (including
accrued expenses but excluding capital and surplus) by the number of shares
outstanding. Securities and other assets for which
<PAGE>
market quotations are readily available are valued at market values determined
on the basis of the last quoted sale prices prior to the close of the New York
Stock Exchange (or the last quoted bid prices in the event there are no sales
reported on that day) in the principal market in which such securities normally
are traded as publicly reported or furnished by recognized dealers in such
securities. Securities and other assets for which market quotations are not
readily available (including restricted securities, if any) are valued at their
fair value as determined in good faith under consistently applied procedures
approved by the Board of Trustees. Securities may also be valued on the basis of
valuations furnished by a pricing service that uses both dealer supplied
valuations and evaluations based on expert analysis of market data and other
factors if such valuations are believed to reflect more accurately the fair
value of such securities. Adjustment will be made for fractions of a cent to the
next highest cent. The Trust makes no special payment for the daily computation
of its net asset value.
SHAREHOLDER PLANS
Open Accounts
Upon making an initial investment (minimum amount $1,000), a
shareholder will automatically have an Open Account established for him on the
books of the Trust. Once any account is opened there is no limitation on the
size or frequency of investment. The shareholder will receive a confirmation
from the Trust of this and each subsequent transaction in his Account showing
the current transaction and the current number of shares held. A shareholder
may make additional investments in shares of the Trust at any time by ordering
by telephone (maximum of $100,000) or mail from the Trust shares at the then
applicable public offering price. Shares held in an Open Account may be
redeemed as described in the Prospectus under "Redemption of Shares". Income
dividends and capital gains distributions are credited in shares on the payment
date (which may be different than the record date) at the applicable record date
closing net asset value, unless a shareholder has elected to receive all income
dividends and/or capital gains distributions in cash.
Automatic Investment and Withdrawal Plans
These Plans have been developed to accommodate those who wish to make
purchases or sales of shares of the Trust on a continuing basis without the
imposition of any fee or service charge. Subject to the initial investment
limitation of $1,000, any shareholder maintaining an Open Account may request
in his application or otherwise in writing that investments be made through
automatic deductions (minimum of $50) from his bank checking or savings account
or that withdrawals be made automatically with the redemption price paid by
check or electronic funds transfer. The shareholder may cancel his
participation in either Plan at any time, and the Trust may modify or terminate
either Plan at any time.
<PAGE>
An investor should understand that he is investing in a
security, the price of which fluctuates, and that under the Plans he will
purchase or sell shares regardless of their price level; that if he terminates a
Plan and sells his accumulated shares at a time when their market value is less
than his cost, he will incur a loss. In the case of the Automatic Investment
Plan, he should also take into account his financial ability to continue the
Plan through periods of low prices and that the Plan cannot protect him against
loss in declining markets.
TAX-ADVANTAGED RETIREMENT PLANS
In addition to regular accounts, the Trust offers the tax-advantaged
retirement plans which are described briefly below. Contributions to these
plans are invested in shares of the Trust; dividends and other distributions are
reinvested in shares of the Trust. Contributions may be invested in shares of
Northeast Investors Growth Fund as well as shares of the Trust.
Contributions to these retirement plans, within the limits and
circumstances specified in applicable provisions of the Internal Revenue Code,
are excludable or deductible from the participant's income for federal income
tax purposes. In addition, non-deductible or after-tax contributions may be
made to these retirement plans to the extent permitted by the Internal Revenue
Code. Reinvested dividends and other distributions accumulate free from federal
income tax while the shares of the Trust are held in the plan. Distributions
from these plans are generally included in income when received; however, after-
tax or non-deductible contributions may be recovered without additional federal
income tax. Premature distributions, insufficient distributions after age 70
1/2 or excess contributions may result in penalty taxes.
Investors Bank and Trust Company serves as trustee or custodian of each
of the following plans. It is entitled to receive specified fees for its
services. Detailed information concerning each of the following plans
(including schedules of trustee or custodial fees) and copies of the plan
documents are available upon request to the Trust at its offices.
An individual investor or employer considering any of these retirement
plans should read the detailed information for the plan carefully and should
consider consulting an attorney or other competent advisor with respect to
the requirements and tax aspects of the plans.
<PAGE>
Prototype Defined Contribution Plan
The Trust offers a Prototype Defined Contribution Plan suitable for
adoption by businesses conducted as sole proprietorships, partnerships or
corporations.
The employer establishes a Prototype Defined Contribution Plan by
completing an adoption agreement specifying the desired plan provisions. The
adoption agreement offers flexibility to choose appropriate coverage,
eligibility, vesting and contribution options subject to the requirements of
law. Under a supplement to the Prototype Defined Contribution Plan, an employer
may establish a salary reduction or 401(k) plan.
Individual Retirement Account (IRA)
An individual may open his own Individual Retirement Account using a
custodial account form approved for this purpose by the IRS. An individual may
have an IRA even though he is also an active participant in a pension or profit-
sharing plan or certain other plans. However, depending on the individual's
adjusted gross income and tax return filing status, contributions for an
individual who is an active participant in another plan may be partially or
entirely non-deductible.
403(b) Retirement Account
Certain charitable and educational institutions may make contributions
to a 403(b) Retirement Account on behalf of an employee. The employee may enter
into a salary reduction agreement with the employer providing for the employee
to reduce his or her pay by the amount specified in the agreement and for the
employer to contribute such amount to the employee's 403(b) Retirement Account.
Funds in the account may generally be withdrawn only upon the participant's
reaching age 59 1/2 or termination of employment, financial hardship,
disability, or death.
DIVIDENDS, DISTRIBUTIONS & FEDERAL TAXES
The Trust has paid dividends in each quarter since organization.
Payments are generally made around the end of February, May, August and
November. It is the Trust's policy to distribute net realized capital gains on
sales of investments (less any available capital loss carryforward) and such
distributions, if any, would be made between October 31 and December 31. See
Note D to the Financial Statements for information concerning the amount of the
Trust's capital loss carryforwards. A table of payments from net income is
shown in the Prospectus under the caption "Financial Highlights". Dividends
and distributions are credited in shares of the Trust unless the shareholder
elects to receive cash.
<PAGE>
The holders of shares are entitled to receive, annually, or more often,
dividends in an amount equal approximately to the net income of the Trust
(defined in the Declaration of Trust as the gross earnings less the expenses
of the Trust) and such other dividends as the Trustees may declare. As the net
income fluctuates from year to year, no fixed dividend can be promised.
Any dividends or distributions paid shortly after a purchase of shares
by an investor will have the effect of reducing the per share net asset value of
one's shares by the per share amount of the dividends or distributions.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to income taxes.
It is the policy of the Trust to distribute its net investment income
and net realized gains for each year in taxable dividends and capital gain
distributions so as to qualify as a "regulated investment company" under the
Internal Revenue Code. The Trust did so qualify during its last taxable year.
Such qualification does not involve supervision of management or investment
practices or policies.
A regulated investment company which meets the diversification
of assets and source of income requirements prescribed by the Internal Revenue
Code is accorded conduit or "pass through" treatment if it distributes to its
shareholders at least 90% of its taxable income exclusive of net capital gains,
i.e., it will be taxed only on the portion of such income which it retains.
To the extent that a regulated investment company distributes
the excess of its net long-term capital gain over its net short-term capital
loss (including any capital loss carryforward from prior years), such capital
gain is not taxable to the company but it is taxable to the shareholder.
Income dividends and capital gain distributions are taxable as
described, whether received in cash or additional shares.
The foregoing discussion relates to federal income taxation. Dividends
and capital gain distributions may also be subject to state and local taxes.
ADDITIONAL INFORMATION CONCERNING SHAREHOLDERS' RIGHTS
The shares of the Trust have noncumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of Trustees can elect 100% of the Trustees if they choose to do so,
and, in such event, the holders of the remaining less than 50% of the shares
voting for the election of the Trustees will not be able to elect any Trustee or
Trustees.
<PAGE>
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust provides that the Trustees shall have no power
to bind the shareholders personally and requires that all contracts and other
instruments shall recite that the same are executed by the Trustees as Trustees
and not individually and that the obligations of such instruments are not
binding upon any of the Trustees or shareholders individually but are binding
only upon the Trust's assets. The Trust is advised by counsel (Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C.) that under the applicable Massachusetts
decisions, no personal liability can attach to the shareholders under contracts
of the Trust containing this recital. Moreover, the Declaration of Trust
provides that any shareholder of the Trust shall be indemnified by the Trust for
all loss and expense incurredby reason of his being or having been a shareholder
of the Trust. Thus the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Trust
itself would be unable to meet its obligations.
<PAGE>
<TABLE>
<CAPTION>
September 30, 1996
Assets
<S> <C>
Investments--at market value
(cost $1,180,402,445)--Note B ....... $1,184,463,376
Cash.................................... 6,847
Interest receivable..................... 27,235,978
Receivable for securities sold.......... 1,795,991
Receivable for shares of beneficial
interest sold........................ 3,841,265
Receivable for dividends................ 1,389,396
Miscellaneous receivable................ 298,113
----------
Total Assets.......... 1,219,030,966
Liabilities
Payable for securities purchased........ 16,318,875
Payable for shares of beneficial
interest repurchased................. 575,048
Trustee fees payable--Note C............. 1,499,534
Accrued expenses........................ 153,602
Total Liabilities..... 18,547,059
Net Assets.............................. $1,200,483,907
Net Assets Consist of (Note B):
Capital, at a $1.00 par value...........$ 110,229,375
Paid-in surplus......................... 1,100,068,753
Accumulated net investment
income............................... 1,850,095
Accumulated net realized loss
on investments....................... (15,725,247)
Net unrealized appreciation of
investments.......................... 4,060,931
Net Assets, for 110,229,375 shares
outstanding.......................... $1,200,483,907
Net Asset Value, offering price
and redemption price per share
($1,200,483,907/110,229,375 shares) $10.90
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investment Income
<S> <C>
Interest.................................. $89,984,359
Dividends................................. 3,264,515
Other Income.............................. 360,581
---------
Total Income............ 93,609,455
Expenses
<S> <C>
Trustee fees--Note C........ $4,896,339
Administrative
expenses and
salaries................. 499,334
Interest--Note H............. 262,633
Computer and
related expenses......... 156,445
Printing, postage
and stationery........... 142,035
Registration and
filing fees.............. 120,862
Custodian fees.............. 87,437
Legal fees.................. 82,144
Auditing fees............... 72,660
Other expenses.............. 45,937
Insurance................... 13,705
Total Expenses .......... 6,379,531
Net Investment Income 87,229,924
Realized and Unrealized Gain (Loss).on Investments--Note B:
Net realized gain from investment
transactions........................... 14,771,550
Change in unrealized depreciation
of investments......................... 39,213,982
Net Gain on Investments.................... 53,985,532
Net Increase in Net Assets Resulting
from Operations........................ $141,215,456
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Increase in Net Assets
From Operations:
Net investment income................................................ $ 87,229,924 $ 64,053,984
Net realized gain from investment transactions....................... 14,771,550 5,772,428
Change in unrealized depreciation of investments..................... 39,213,982 15,623,321
------------ ------------
Net Increase in Net Assets Resulting from
Operations...................................................... 141,215,456 85,449,733
Distributions to Shareholders from Net Investment Income................ (87,486,984) (62,400,122)
($.99 and $.96 per share, respectively)
From Net Trust Share Transactions--Note E................................ 349,196,435 192,415,946
------------ ------------
Total Increase in Net Assets.................................... 402,924,907 215,465,557
Net Assets:
Beginning of Period.................................................. 797,559,000 582,093,443
------------ ------------
End of Period (including undistributed net investment
income of $1,850,095 and $2,090,975, respectively)................ $1,200,483,907 $797,559,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investments as of September 30, 1996
Corporate Bonds--
Market
Name of Issuer Principal Value (Note B)
<S> <C> <C>
Aerospace--.69%
Coltec Industries Senior Sub. Notes, 10.25%, 4/01/02.................... 3,000,000 $ 3,112,500
Coltec Industries Senior Notes, 9.75%, 11/01/99......................... 5,000,000 5,175,000
8,287,500
Apparel--3.33%
JPS Textile Group, Inc. Sen. Sub. Disc. Notes, 10.25%, 6/01/99~. 6,143,000 3,685,800
JPS Textile Group, Inc. Sen. Sub. Disc. Notes, 10.85%, 6/01/99~......... 14,592,000 8,755,200
JPStevens Debentures, 9%, 3/01/17^...................................... 12,671,000 12,322,547
Samsonite Corp. Senior Sub. Notes, 11.125%, 7/15/05..................... 4,000,000 4,240,000
United States Leather, Inc. Senior Notes, 10.25%, 7/31/03^.............. 13,500,000 10,935,000
39,938,547
Automotive Products--.91%
SPX Corporation Senior Sub. Notes, 11.75%, 6/01/02...................... 10,000,000 10,975,000
Banks--.16%
Guardian Savings & Loan Sub. Cap. Deb., 12.625%, 1/15/02~>.............. 1,000,000 1,970,000
Building & Construction--1.07%
Associated Materials Senior Sub. Deb. Notes, 11.5%, 8/15/03^............ 6,200,000 5,921,000
Georgia Marble Co. Sub. Notes, 17%, 1/01/96~............................ 1,500,000 1,094,700
Nortek, Inc. Senior Sub. Notes, 9.875%, 3/01/04^........................ 5,950,000 5,771,500
12,787,200
Chemicals--5.00%
Indspec Chemical Corp. Sen. Disc. Notes, 0/11.5%, 12/01/03#^............ 15,869,000 14,123,410
NL Industries Senior Disc. Notes, 0/13%, 10/15/05#^..................... 17,460,000 14,710,050
Pioneer Americas Acq. Senior Notes, 13.375%, 4/01/05.................... 12,500,000 13,750,000
Plastic Specialties &Technologies Sen. Notes, 11.25%, 12/01/03^......... 12,000,000 11,790,000
Uniroyal Technology Senior Notes, 11.75%, 6/01/03....................... 6,045,000 5,621,850
59,995,310
Computer Software & Services--2.17%
Unisys Corporation Notes, 15%, 7/01/97.................................. 16,751,000 17,714,182
Unisys Corporation Senior Notes, 12%, 4/15/03........................... 8,000,000 8,280,000
25,994,182
<PAGE>
Corporate Bonds--continued
Market
Name of Issuer Principal Value (Note B)
Conglomerate--1.27%
Jordan Industries Senior Sub. Disc. Notes, 0/11.75%, 8/01/05#^.......... 13,440,000 $ 9,945,600
Jordan Industries Senior Notes, 10.375%, 8/01/03........................ 5,550,000 5,355,750
15,301,350
Cosmetics--.03%
Revlon Consumer Products Corp. Deb., 10.875%, 7/15/10................... 400,000 413,500
Drug Stores--.56%
Thrifty Payless Senior Sub. Notes, 12.25%, 4/15/04...................... 6,000,000 6,690,000
Electronics--.27%
Amphenol Corp. Senior Sub. Notes, 12.75%, 12/15/02...................... 2,940,000 3,241,350
Food & Beverage-- 2.33%
Envirodyne Industries, Inc. Senior Notes, 10.25%, 12/01/01^............. 20,395,000 18,559,450
Great American Cookie Senior Sec. Notes, 10.875%, 1/15/01............... 3,500,000 2,940,000
Specialty Foods Senior Notes, 10.25%, 8/15/01........................... 7,000,000 6,440,000
27,939,450
Food Service--.90%
SCInternational Service, Inc. Senior Sub. Notes, 13%, 10/01/05.......... 10,000,000 10,800,000
Furniture--.95%
Lifestyle Furnishings Intl. Ltd. Sen. Sub. Notes, 10.875%, 8/01/06...... 11,000,000 11,385,000
Gaming--14.48%
Alliance Gaming Corp. Senior Notes, 12.875%, 6/30/03^................... 4,000,000 4,140,000
Aztar Corp. Senior Sub. Notes, 11%, 10/01/02............................ 3,652,000 3,652,000
Aztar Corp. Senior Sub. Notes, 13.75%, 10/01/04^........................ 21,548,000 24,349,240
Bally's Casino Holdings Senior Discount Notes, 0%, 6/15/98^............. 6,750,000 5,990,625
Bally's Grand First Mortgage Notes, 10.375%, 12/15/03^.................. 10,550,000 11,657,750
Coast Hotels &CasinoFirst Mortgage Notes, 13%, 12/15/02................. 10,000,000 10,825,000
Eldorado Resorts Senior Sub. Notes, 10.5%, 8/15/06^..................... 1,500,000 1,552,500
GB Property Funding Corp. Mortgage Notes, 10.875%, 1/15/04^............. 17,350,000 15,094,500
Harrahs Operating, Inc. Senior Sub. Notes, 8.75%, 3/15/00............... 5,000,000 5,050,000
Harrahs Operating, Inc. Senior Sub. Notes, 10.875%, 4/15/02............. 2,115,000 2,247,187
<PAGE>
Corporate Bonds--continued
Market
Name of Issuer Principal Value (Note B)
MGMGrand Hotels First Mortgage Notes, 11.75%, 5/01/99................... 20,445,000 $ 21,441,694
MGMGrand Hotels First Mortgage Notes, 12%, 5/01/02...................... 31,667,000 34,358,695
Resorts International Mortgage Notes, 11%, 9/15/03...................... 3,204,000 3,300,120
Showboat, Inc. Senior Sub. Notes, 13%, 8/01/09.......................... 900,000 1,021,500
Trump Atlantic City First Mortgage Notes, 11.25%, 5/01/06............... 15,000,000 14,775,000
Trump Plaza Funding First Mortgage Notes, 10.875%, 6/15/01.............. 13,000,000 14,430,000
173,885,811
Grocery Stores--8.84%
Fleming Co., Inc. Medium Term Notes, 5.77%, 8/06/98..................... 3,000,000 2,760,000
Fleming Co., Inc. Floating Sen. Notes, Libor + 2.25%, 12/15/01^......... 7,300,000 6,296,250
Food 4 Less Holdings Debentures, 0/13.625%, 7/15/05#.................... 29,000,000 15,370,000
Grand Union Company Senior Notes, 12%, 9/01/04.......................... 19,500,000 19,695,000
Kash N Karry Food Stores, Inc. Senior Notes, 11.5%, 2/01/03............. 3,560,068 3,595,669
Kash N Karry Food Stores, Inc. Sen. Notes, Libor + 2%, 2/01/03.......... 11,288,006 10,046,325
P&C Food Market Senior Notes, 11.5%, 10/15/01^.............. 21,500,000 19,296,250
Ralph's Grocery Senior Notes, 10.45%, 6/15/04................ 2,000,000 2,027,500
Ralph's Grocery Senior Notes, 10.45%, 6/15/04........................... 3,000,000 3,041,250
Ralph's Grocery Senior Sub. Notes, 11%, 6/15/05......................... 8,000,000 8,000,000
Smith's Food &Drug Centers Senior Sub. Notes, 11.25%, 5/15/07........... 15,000,000 15,937,500
Victory Markets, Inc. Sub. Notes, 12.5%, 3/15/00~....................... 2,000,000 5,000
106,070,744
Insurance--.64%
First Capital Holdings Senior Sub. Notes, 13%, 5/15/99~................. 4,932,000 36,990
Leucadia National Corp. Conv. Debentures, 5.25%, 2/01/03^............... 6,975,000 7,044,750
Leucadia National Corp. Sen. Sub. Notes, 10.375%, 6/15/02............... 575,000 615,250
7,696,990
Metals & Mining--.18%
Kaiser Aluminum Chemical Corp. Sub. Notes, 12.75%, 2/01/03.............. 2,000,000 2,170,000
Packaging & Container--7.20%
Florida Coast Paper Co. First Mort. Notes, 12.75%, 6/01/03^............. 2,000,000 2,155,000
Four M Corporation Senior Notes, 12%, 6/01/06^.......................... 1,500,000 1,590,000
Gaylord Container Corp. Senior Sub. Notes, 12.75%, 5/15/05^............. 19,000,000 20,852,500
Owens-Illinois, Inc. Senior Sub. Notes, 10.25%, 4/01/99................. 2,240,000 2,282,000
Packaging Resources, Inc. Senior Notes, 11.625%, 5/01/03................ 8,800,000 9,064,000
Stone Container Corp. Conv. Sen. Sub. Notes, 8.875%, 7/15/00 ........... 3,000,000 4,443,750
Stone Container Corp. Senior Notes, 11.875%, 8/01/16.................... 25,000,000 25,437,500
Stone Container Corp. Senior Notes, 11.5%, 8/15/06...................... 20,000,000 20,600,000
86,424,750
<PAGE>
Corporate Bonds--continued Market
Name of Issuer Principal Value (Note B)
Paper & Forest Products--1.95%
MAXXAM Group, Inc. Senior Disc. Notes, 0/12.25%, 8/01/03#^.............. 30,000,000 $ 21,825,000
MAXXAM, Inc. Senior Sub. Deb., 12.5%, 12/15/99.......................... 1,408,000 1,450,240
WTDIndustries, Inc. Senior Sub. Deb., 8%, 6/30/05....................... 340,900 170,450
23,445,690
Petroleum & Drilling-- 1.07%
Harcor Energy Senior Notes, 14.875%, 7/15/02............................ 4,000,000 4,530,000
Mesa Operating Co. Sen. Sub. Notes, 0/11.625%, 7/01/06#................. 5,500,000 3,520,000
Triton Energy Senior Sub. Notes, 0%, 11/01/97........................... 5,150,000 4,738,000
12,788,000
Publishing & Printing-- 1.68%
American Pad &Paper Senior Sub. Notes, 13%, 11/15/05.................... 17,555,000 20,144,363
Real Estate--1.88%
Olympia & York Maiden Lane Sec. Notes, 10.375%, 12/31/95~............... 19,535,000 6,055,850
Rockefeller Center Properties Conv. Deb., 0%, 12/31/00.................. 27,700,000 16,481,500
22,537,350
Recreation--2.68%
Genmar Holdings, Inc. Senior Sub. Notes, 13.5%, 7/15/01................. 18,000,000 17,190,000
Marvel Holdings Sen. Sec. Disc. Notes, Series B, 0%, 4/15/98^........... 5,000,000 3,962,500
Outboard Marine Corp. Debentures, 9.125%, 4/15/17^...................... 9,750,000 8,872,500
Royal Caribbean Cruises Sen. Sub. Notes, 11.375%, 5/15/02............... 2,025,000 2,171,813
32,196,813
Retail--4.15%
Bradlees, Inc. Senior Sub. Notes, 11%, 8/01/02~......................... 2,000,000 190,000
Bradlees, Inc. Senior Sub. Notes, 9.25%, 3/01/03~....................... 15,455,000 1,275,038
Cole National Group, Inc. Senior Notes, 11.25%, 10/01/01................ 8,150,000 8,659,375
Color Tile, Inc. Senior Notes, 10.75%, 12/15/01~........................ 21,000,000 1,312,500
Eyecare Centers of America, Inc. Senior Notes, 12%, 10/01/03............ 7,000,000 7,448,000
Kay Jewelers, Inc. Debentures, 12.875%, 8/01/99......................... 1,500,000 1,500,000
McCrory Corp. Sub. Debentures, 9.75%, 9/15/08~.......................... 1,251,000 37,530
National Convenience Stores, Inc. Sec. Notes, 9.5%, 6/30/03............. 12,065,297 12,668,562
Orion Stores Secured Notes, 12.75%, 10/01/98............................ 5,694,868 5,894,188
Speedy Muffler King, Inc. Senior Notes, 10.875%, 10/01/06............... 1,500,000 1,545,000
Town & Country Corp. Senior Sec. Notes, 11.5%, 9/15/97.................. 1,992,000 1,852,560
Town & Country Corp. Senior Sub. Notes, 13%, 5/31/98.................... 7,434,949 6,319,707
Wherehouse Entertainment Senior Sub. Notes, 13%, 8/01/02~............... 15,500,000 1,123,750
49,826,210
<PAGE>
Corporate Bonds--continued Market
Principal Value (Note B)
Retail Food Chains--3.54%
American Restaurant Group Senior Notes, 13%, 9/15/98.................... 7,414,143 $ 6,895,153
American Restaurant Group Senior Notes, 13%, 9/15/98.................... 4,396,200 3,956,580
Family Restaurants Senior Notes, 9.75%, 2/01/02......................... 18,000,000 11,340,000
Flagstar Corporation Senior Notes, 10.875%, 12/01/02.................... 14,200,000 12,531,500
Flagstar Corporation Senior Notes, 10.75%, 9/15/01...................... 8,750,000 7,765,625
42,488,858
Tobacco & Distilling--.08%
MacAndrews & Forbes Co. Sen. Sub. Notes, 11.875%, 11/15/02.............. 1,000,000 1,080,000
Transportation--1.04%
Central Transport Rental Group Notes, 9.5%, 4/30/03..................... 8,440,250 7,870,533
Continental Airlines, Inc., 12.5%, 4/15/99~@............................ 1,400,000 14,000
Continental Airlines, Inc., 11%, 3/15/95~@.............................. 1,000,000 7,500
International Airline Support Group, Inc. Conv., 8%, 8/31/03*~@......... 1,000,000 400,000
Moran Transportation Co. Mortgage Notes, 11.75%, 7/15/04^............... 4,000,000 4,200,000
12,492,033
Miscellaneous--4.37%
Acadia Partners L.P. Sub. Notes, 13%, 10/01/97.......................... 14,000,000 14,560,000
Darling International Senior Sub. Notes, 11%, 7/15/00^.................. 12,195,000 12,073,050
Hines Horticulture Senior Sub. Notes, 11.75%, 10/15/05.................. 3,000,000 3,120,000
Iron Mountain, Inc. Senior Sub. Notes, 10.125%, 10/01/06................ 2,500,000 2,546,875
Mosler, Inc. Senior Notes, 11%, 4/15/03................................. 10,340,000 9,099,200
Pope, Evans & Robbins, Inc., 7%, 5/15/98~@.............................. 1,116,669 112
Specialty Equipment Senior Sub. Notes, 11.375%, 12/01/03................ 6,370,000 6,831,825
Tokheim Corporation Senior Sub. Notes, 11.5%, 8/01/06................... 4,000,000 4,180,000
52,411,062
Total Corporate Bonds--73.42% (cost--$921,185,986) 881,377,063
Foreign Bonds--
Foreign-- 4.52%
Argentina Floating Rate Notes, Libor + .8125%, 3/31/05.................. 34,646,535 29,059,781
Republic of Brazil Discount FRN, Libor +.8125%, 4/15/24................. 33,000,000 25,245,000
Total Foreign Bonds--4.52% (cost--$45,578,975) 54,304,781
<PAGE>
Stocks-- Number of Market
Name of Issuer Shares Value (NoteB)
Common Stocks--14.08%
American Building Co.+.................................................. 8,807 $ 233,386
Bankers Trust NY^....................................................... 300,000 23,587,500
Central Transport Rental Group+......................................... 4,111,586 1,413,358
Chubb Corp.^............................................................ 500,000 23,000,000
Cole National Corp. Class A+ ........................................... 48,000 1,110,000
C R Anthony Company+.................................................... 338,142 1,394,836
Crompton &Knowles Corp.+................................................ 206,724 3,385,106
Darling International, Inc.+............................................ 248,510 6,771,897
Gaylord Container Corp.+................................................ 1,243,799 9,173,018
Grand Union Co.+........................................................ 167,904 1,070,388
Homeland Stores Holdings Corp A+@....................................... 822,672 8,227
Houlihan's Restaurant Group+............................................ 471,386 3,299,702
J P Morgan & Co.^....................................................... 100,000 8,887,500
JPSTextile Group, Inc., Class A@~....................................... 48,878 48,878
Kash N Karry Food Stores, Inc.x+........................................ 184,074 4,521,318
Little Switzerland, Inc.+............................................... 273,659 1,180,154
MAXXAM, Inc.+........................................................... 200,000 8,850,000
Mesa, Inc.+............................................................. 128,592 530,442
NL Industries........................................................... 180,000 1,890,000
Pope, Evans & Robbins, Inc. @~.......................................... 316,575 3
Smith's Food & Drug Centers Class B+.................................... 12,047 319,245
Specialty Equipment Co. +............................................... 400,000 5,300,000
Telemundo Group, Inc.+.................................................. 244,660 8,379,605
Town & Country Corp. Class A+........................................... 1,079,455 944,523
Triton Group, LTD ...................................................... 559,966 384,976
Vons Company, Inc.+^.................................................... 600,000 25,725,000
Walter Industries, Inc.+................................................ 466,365 6,004,449
WestPoint Stevens, Inc.+^............................................... 635,000 18,018,125
WPS Investors LP+@...................................................... 200,000 3,622,000
Total Common Stocks--14.08% (cost--$138,113,462) 169,053,636
Preferred Stocks--2.82%
Alliance Gaming Corp.Series B, 15%...................................... 5,000 470,625
Mesa, Inc. Conv. Series A, 8%........................................... 128,022 640,110
TimeWarner, Inc. Series K, 10.25%....................................... 30,668 32,201,400
Town & Country Corp. Conv., 6%.......................................... 295,067 516,367
Total Preferred Stocks--2.82% (cost--$32,316,895) 33,828,502
<PAGE>
Number of
Shares or Units
Warrants and Units--1.50%+
Cookies USA, Inc. Warrants.............................................. 630 15,750
Eyecare Center Corp. Warrants........................................... 6,500 6,500
Federated Dept. Stores C Warrants....................................... 225,869 2,061,055
Federated Dept. Stores D Warrants....................................... 290,771 2,725,978
Gaylord Container Warrants.............................................. 814,218 6,920,853
Harcor Energy Inc....................................................... 88,000 102,080
International Airline Support Group, Inc. Warrants*+.................... 92,677 927
Jewel Recovery L P Units+............................................... 257,072 2,571
Reliance Group, Inc. Warrants........................................... 38,067 76,134
Sam Houston Race Park Inc. Warrants+.................................... 6,000 60
UGI Corp. Warrants...................................................... 42,499 10,625
....................................Total Warrants, and Units--1.49% (cost--$) 11,922,533
Repurchase Agreement--3.24%
Investors Bank &Trust Repurchase Agreement, 5.3%, due 10/1/96........... $38,868,330 38,868,330
Total Repurchase Agreement--3.24% (cost--$38,868,330)** 38,868,330
Total Investments--98.67% (cost--$1,180,402,445) $1,184,463,376
<FN>
** Acquired on September 30, 1996. Collateralized by $40,812,147 of various U.S.Government mortgage-backed securities, due
through 6/01/26. The maturity value is $38,874,052. As an operating policy, the Trust, through the custodian bank, secures
receipt
of adequate collateral supporting repurchase agreements.--(see Note I).
~ Non-income producing security due to default or bankruptcy filing + Non-income
producing security @ Securities valued in good faith (See Note B)
# Represents a zero coupon bond that converts to a fixed rate at a designated future date. The date shown on the schedule of
investments
represents the maturity date of the security and not the date of coupon conversion.
^ Pledged to collateralize short-term borrowings (See Note H)
> Security trades with accrued interest in the price.
* Restricted security--represents ownership in a security whose resale is
restricted or a private placement investment which has not been registered
with the Securities and Exchange Commission under the Securities Act of
1933. These securities may be resold in transactions exempt from
registration or if the securities are registered for resale.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Information concerning restricted security holdings (excluding 144A
issues) at September 30, 1996 is as follows:
Security Date Acquired Cost Market Value % of Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Airline Support Group, Inc. Conv., 8%, 8/31/03 9/23/93 $1,000,000 $400,000 .03%
</TABLE>
Federal Tax Information: At September 30, 1996, the aggregate cost of investment
securities for income tax purposes was $1,180,501,185. Net unrealized
appreciation aggregated $3,962,191 of which $101,283,353 related to appreciated
investment securities and $97,321,162 related to depreciated investment
securities.
<PAGE>
Note A-Organization
Northeast Investors Trust (the Trust), a diversified open-end management
investment company (a Massachusetts Trust), is registered under the Investment
Company Act of 1940, as amended.
Note B-Significant Accounting Policies
Significant accounting policies of the Trust are as follows:
Valuation of Investments: Securities for which market quotations are
readily available are valued at market values determined on the basis of the
last quoted sale prices prior to the close of the New York Stock Exchange (or
the last quoted bid prices in the event there are no sales reported on that day)
in the principal market in which such securities normally are traded, as
publicly reported, or are furnished by recognized dealers in such securities.
Securities for which market quotations are not readily available (including
restricted securities and private placements, if any) are valued at their fair
value as determined in good faith under consistently applied procedures approved
by the Board of Trustees. Securities may also be valued on the basis of
valuations furnished by a pricing service that uses both dealer supplied
valuations and evaluations based on expert analysis of market data and other
factors if such valuations are believed to reflect more accurately the fair
value of such securities.
Federal Income Taxes: The Trust does not provide for federal income taxes
as it is the policy of the Trust to distribute its taxable income for each year
in taxable dividends so as to qualify as a regulated investment company under
the Internal Revenue Code.
State Income Taxes: Because the Trust has been organized by an Agreement
and Declaration of Trust executed under the laws of the Commonwealth of
Massachusetts, it is not subject to state income or excise taxes.
Net Asset Value: In determining the net asset value per share, rounding
adjustments are made for fractions of a cent to thenext higher cent.
Distributions and Income: Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments for capital loss carryforwards and losses deferred due to
wash sales. Permanent book and tax differences relating to shareholder
distributions will result in reclassifications to paid-in surplus. The Trust's
distributions and dividend income are recorded on the ex-dividend date. Interest
income, which includes accretion of market discount, is accrued as earned.
Original issue discount on bonds and step-up bonds is accreted according to the
effective-yield method. Certain securities held by the Trust pay interest in the
form of cash or additional securities (known as Payment-in-kind or PIK);
interest on such securities is recorded on the accrual basis by means of the
effective-yield method.
Security Transactions: Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the basis of
identified cost.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Note C-Trustees' Compensation
Trustees' compensation has been computed at the rate of 1/8 of 1% of the
net assets (before deduction of accrued Trustees'compensation) at the close of
each quarter, from which the Trustees have paid certain expenses specified in
the Declaration of Trust.
Note D-Capital Loss Carryforward
At September 30, 1996, the Trust had $ 15,626,506 in accumulated net
realized losses on sales of investments available to be carried forward to
offset future net realized gains on sales of investments. To the extent that
such carryforwards are utilized by the Trust, no capital gains distributions
will be made. The carryforwards expire as follows: September 30,
1998-$9,909,289, September 30, 1999-$3,468,054 and September 30,
2002-$2,249,163.
<PAGE>
Note E-Shares of Beneficial Interest
At September 30, 1996, there were unlimited shares of beneficial interest
authorized with a par value of $1. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1996 September 30, 1995
---------------------------- ----------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
------------ ------------- ------------ -------------
Shares sold............................................. 60,008,485 $631,430,398 43,866,307 $438,670,192
Shares issued to shareholders in reinvestment of
distributions from net investment income............ 5,469,554 56,729,325 4,021,531 39,999,108
------------ ------------- ------------ -------------
65,478,039 688,159,723 47,887,838 478,669,300
Shares repurchased...................................... (32,457,819) (338,963,288) (28,827,071) (286,253,354)
------------ ------------- ------------ -------------
Net Increase......................................... 33,020,220 $349,196,435 19,060,767 $192,415,946
============ ============= ============ =============
</TABLE>
Note F-Purchases and Sales of Investments
Purchases and sales of securities, other than short-term securities,
aggregated $574,952,436 and $285,836,712, respectively, for the period ended
September 30, 1996.
Note G-Security Lending
During the period, the Trust loaned a security to a certain broker-dealer
who paid the fund a negotiated lenders fee. The fee is included in interest
income. The Trust received U.S. Treasury obligations and/or cash as collateral
against the loaned security, in an amount at least equal to 102% of the market
value of the loaned security. At period end, no securities were on loan. Note
H-Short-term Borrowings Short-term bank borrowings, which do not require
maintenance of compensating balances, are generally on a demand basis and are at
rates equal to adjusted money market interest rates in effect during the period
in which such loans are outstanding. At September 30, 1996 the Trust has unused
lines of credit amounting to $130,000,000. The committed lines of credit may be
terminated at the banks' option at their annual renewal dates.
The following information relates to aggregate short-term borrowings for the
year ended September 30, 1996:
<TABLE>
<CAPTION>
<S> <C>
Maximum amount outstanding at any month end..................... $3,934,000
Average amount outstanding (total of daily outstanding principal balances
divided by number of days with debt outstanding during the period)... $8,331,405
Average interest rate ............................................... 6.80%
</TABLE>
Interest expense includes commitment fees of $197,166. Under the most
restrictive arrangement, the Trust must pledge to the banks securities having a
market value equal to or greater than 200% of the total bank borrowings.
Securities with principal amounts and market values aggregating $217,446,000 and
$272,247,623, respectively, have been pledged to collateralize short-term
borrowings. Note I-Repurchase Agreement
On a daily basis, the Trust invests uninvested cash balances into
repurchase agreements secured by U.S. Government obligations. Securities pledged
as collateral for repurchase agreements are held by the Trust's custodian bank
until maturity of the repurchase agreement. Provisions of the agreement ensure
that the market value of the collateral is sufficient in the event of default.
However, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral may be subject to
legal proceedings.
<PAGE>
To the Shareholders and Trustees of
Northeast Investors Trust
We have audited the accompanying statement of assets and liabilities of
Northeast Investors Trust, including the schedule of portfolio investments, as
of September 30, 1996, and the related statement of operations for the year then
ended, and the changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the four years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the years ended September 30, 1987 through
1992, presented herein, were audited by other auditors whose report dated
October 30, 1992, expressed an unqualified opinion on such financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Northeast Investors Trust as of September 30, 1996, and the results of its
operations for the year then ended, and the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the four years in the period then ended, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
November 1, 1996
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The following financial statements and related information are
included in the Statement of Additional Information:
1. Statement of Assets and Liabilities as of September 30, 1996.
2. Statement of Operations for the year ended September 30, 1996.
3. Statement of Changes in Net Assets for each of the two years in the
period ended September 30, 1996.
4. Schedule of Investments as of September 30, 1996.
5. Notes to financial statements for the year ended September 30, 1996.
6. Report of Coopers & Lybrand L.L.P., Independent Accountants.
In addition, the Consent of Independent Accountants is included in Part
C.
(b) The following exhibits are incorporated by reference herein.
(1) Exhibit 1 -- Restated Agreement and Declaration
of Trust as amended through February
9, 1987 (incorporated by reference
from Post-Effective Amendment No. 57
to this Registration Statement)
(2) Not Applicable
(3) Not Applicable
(4) Exhibit 4 -- Form of Certificate representing
shares of beneficial interest
(incorporated by reference from Post
-Effective Amendment No. 48 to this
Registration Statement)
(5) Not Applicable
(6) Not Applicable
(7) Not Applicable
(8) Exhibit 8 -- Custodian Agreement (incorporated
by reference from Post-Effective
Amendment No.48 to this Registration
Statement)
(9) Not Applicable
<PAGE>
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(14) Exhibit 14.1 -- IRA Custodial Account Agreement(incorporated
by reference from Post-Effective Amendment
No. 57 to this Registration Statement)
Exhibit 14.2 -- Prototype Defined Contribution Plan and
Trust (incorporated by reference from
Post-Effective Amendment No. 55 to this
Registration Statement)
Exhibit 14.3 -- Model of 403(b) Retirement Account
(incorporated by reference from
Post-Effective Amendment No. 48 to this
Registration Statement)
(15) Not Applicable
Item 25. Persons Controlled by or Under Common Control With Registrant
Not Applicable
Item 26. Number of Holders of Securities
The number of record holders of each class of securities of the
Registrant as of September 30, 1996 is as follows:
(1) (2)
Title of Class Number of Record Holders
Shares of Beneficial Interest 24,631
<PAGE>
Item 27. Indemnification
Registrant's Declaration of Trust contains the following provision:
"Each person who is or has been a Trustee or beneficiary of the Trust
shall be indemnified by the Trust against expenses reasonably incurred by him in
connection with any claim or in connection with any action, suit or proceeding
to which he may be a party, by reason of his being or having been a Trustee or
beneficiary of the Trust. The term expenses includes amounts paid in
satisfaction of judgments or in settlement other than amounts paid to the Trust
itself. Except as hereinafter provided the Trust shall not, however, indemnify
such Trustee or beneficiary if there is a claim of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office, unless there is an adjudication of freedom from such
charges. In the case of settlement or in the case of an adjudication in which
the existence of such aforesaid charges if not established, the Trustees shall,
prior to authorizing reimbursement for any such settlement or adjudication,
determine that the Trustee or beneficiary is not liable to the Trust or its
beneficiaries for willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. In making such
determination the Trustees may be guided, in their discretion, by an opinion of
counsel. Such determination by the Trustees, however, shall not prevent a
beneficiary from challenging such indemnification by appropriate legal
proceedings. The foregoing right of indemnification shall be in addition to any
other rights to which any such Trustee or beneficiary may be entitled as a
matter of law."
The Registrant has been advised that in the opinion of the Securities
and Exchange Commission provisions providing for the indemnification by a
Massachusetts business trust of its officers and trustees against liabilities
imposed by the Securities Act of 1933 are against public policy, as expressed in
said Act, and are therefore unenforceable. It is recognized that the
above-quoted provisions of the Registrant's Declaration of Trust may be
sufficiently broad to indemnify officers and trustees of the Registrant against
liabilities arising under said Act. Therefore, in the event that a claim of
indemnification against liability under said Act (other than the payment by the
Registrant of expenses incurred or paid by an officer or trustee of the
Registrant in the successful defense of any action, suit or proceeding) shall be
asserted by an officer or trustee under said provisions, the Registrant will,
unless in the opinion of its counsel the question has already been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether or not such indemnification by it is against public policy
as expressed in said Act and will be governed by the final adjudication of such
issue.
Item 28. Business and Other Connections of Investment Adviser
Not Applicable
<PAGE>
Item 29. Principal Underwriters
Not Applicable
Item 30. Location of Accounts and Records
Accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules promulgated thereunder are
maintained at the offices of the Registrant, 50 Congress Street, Boston,
Massachusetts.
Item 31. Management Services
None
Item 32. Undertakings
The Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest Annual Report to
Shareholders upon request and without charge.
<PAGE>
Coopers Coopers & Lybrand L.L.P.
&Lybrand
a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Northeast Investors Trust
We consent to the inclusion in Post-Effective Amendment No. 66 to the
Registration Statement of Northeast Investors Trust on Form N-1A (Securities Act
of 1933 File No. 2-11318) of our report dated November 1, 1996 on our audit of
the financial statements and the financial highlights of Northeast Investors
Trust for the year ended September 30, 1996. We also consent to the reference to
our firm under the captions "Financial Highlights" and "Independent Accountants"
in the Registration Statement.
Coopers & Lybrand
L.L.P.
Boston, Massachusetts
January 27, 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
be signed on its behalf by the undersigned, thereto duly authorized, in the City
of Boston, and The Commonwealth of Massachusetts on the 27th day of January,
1997. Registrant represents that this amendment meets the requirements for
filing under Rule 485(b).
NORTHEAST INVESTORS TRUST
By s/Ernest E. Monrad
Ernest E. Monrad, Trustee
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to said Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
s/Ernest E. Monrad Trustee and person January 27, 1997
Ernest E. Monrad performing functions
of principal executive
officer and principal
financial and accounting
officer
s/Bruce H. Monrad Trustee January 27, 1997
Bruce H. Monrad
s/Robert B. Minturn, Jr. Trustee January 27, 1997
Robert B. Minturn, Jr.
Trustee January 27, 1997
C. Earl Russell
Trustee January 27, 1997
Fred L. Glimp
s/J. Murray Howe Trustee January 27, 1997
J. Murray Howe
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