We are most pleased to submit our Semi-Annual Report for the six-month period
ended March 31, 1998. Net assets rose to $12.00 per share, up from $11.79 at the
end of our fiscal year on September 30, 1997. Total net assets were
$2,467,216,477 up also from the September 30, 1997 figure of $2,074,181,767. Our
trailing one-, five-, and ten-year average annual total return figures are
16.57%,14.46% and 11.90%, respectively, to March 31, 1998. We are pleased to
note the five-year total return, a reasonably sufficient testing period, has
placed us at the top of our peer group in the ratings of some national
magazines.
Our expense ratio continues to decline, partly as a function of the Trust's
growth in net assets. The ratio is currently running at .63%, well below the
average for other comparable funds. Another item of expense, turnover ratio,
does not show up in our income statement but is, in fact, a cost. For the
semi-annual period our turnover ratio was less than one third of our peer
group's average of 106%.
In our past report we alluded to the size of the domestic high yield market.
Worldwide this figure is now approaching $1 trillion by some estimates, with
nearly 1,000 issuers. This, coupled with the new issues that are constantly
coming to market, affords us a very large marketplace from which to pick and
choose.
The key thing for us to do is to select carefully and, hopefully, wisely from
among all these possibilities. We will endeavor to do this in our continuing
effort to try to produce a superior total return for our shareholders.
Respectfully submitted,
Ernest E. Monrad
Chairman of the Trustees
<PAGE>
<TABLE>
Distribution Per Share
Fiscal At End of Fiscal Year During Fiscal Year Average
- ------------------------------------------------------------------------------------------------------------------------------------
Year Approximate FullNet Asset Total From From Monthly
Ended Number of Shares Value Net Net RealizedNet Asset
Sept. 30Shareholders OutstandingPer Share Assets Income Gain Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1950(a) 67 27,685 $10.12 $ 280,172 $0.22 $0.0000 $ 9.86
1951 113 51,070 11.09 566,238 0.60 0.2709 10.71
1952 159 78,519 11.33 889,359 0.61 0.2597 11.28
1953 193 96,413 10.83 1,044,115 0.65 0.1046 11.57
1954 290 131,031 14.17 1,855,734 0.61 0.2269 12.75
1955 366 159,278 16.93 2,695,322 0.675 0.3886 16.30
1956 417 168,256 16.87 2,837,437 0.745 0.3185 17.65
1957 437 180,360 14.57 2,626,103 0.76 1.2450 16.72
1958 505 210,929 16.55 3,489,777 0.76 0.6658 15.75
1959 694 259,709 16.77 4,354,809 0.76 1.6951 18.36
1960 884 316,915 15.73 4,986,360 0.79 0.5663 16.58
1961 1,156 391,126 17.23 6,739,320 0.80 0.8179 17.33
1962 1,508 492,454 16.48 8,111,024 0.80 0.4345 17.45
1963 2,142 676,976 17.80 12,046,866 0.80 0.4134 17.70
1964 2,800 981,037 18.48 18,122,167 0.83 0.4899 18.36
1965 3,380 1,238,570 18.46 22,855,525 0.84 0.4642 18.80
1966 3,678 1,445,424 16.03 23,163,540 0.86 0.4346 18.08
1967 3,773 1,644,607 17.31 28,454,561 0.90 0.3157 17.08
1968 3,932 1,954,413 17.74 34,657,130 0.94 0.4357 17.31
1969 4,396 2,225,423 15.30 34,032,661 0.99 0.4378 17.07
1970 5,066 2,618,638 14.15 37,049,008 1.035 0.0000 14.57
1971 5,574 3,174,649 15.23 48,329,677 1.10 0.0000 15.04
1972 6,276 3,924,201 15.75 61,787,749 1.15 0.0000 15.74
1973 7,269 4,541,622 15.18 68,896,938 1.14 0.0000 15.62
1974 7,380 4,735,497 12.35 58,446,955 1.16 0.0000 13.95
1975 8,354 5,995,696 13.04 78,126,666 1.21 0.0000 13.10
1976 10,023 8,067,930 14.57 117,514,100 1.25 0.0000 14.02
1977 12,871 10,781,998 14.93 160,882,937 1.28 0.0000 14.96
1978 13,717 11,838,531 14.03 166,015,297 1.28 0.0000 14.34
1979 13,924 12,463,013 13.01 162,045,583 1.285 0.0000 13.89
1980 13,086 12,405,590 11.26 139,586,138 1.34 0.0000 11.78
1981 11,828 12,249,619 9.38 114,852,760 1.395 0.0000 10.35
1982 12,792 13,360,184 10.88 145,243,484 1.41 0.0000 10.01
1983 13,027 14,361,773 11.83 169,821,605 1.44 0.0000 11.96
1984 11,634 15,324,746 10.98 168,229,381 1.46 0.0000 10.34
1985 11,991 17,887,582 12.19 217,989,344 1.46 0.0000 11.77
1986 14,431 23,037,102 13.60 313,197,229 1.46 0.0000 13.17
1987 17,532 26,987,069 12.89 347,841,198 1.46 0.0000 13.63
1988 19,107 33,268,240 12.16 404,218,905 1.94 0.0000 12.13
1989 18,749 34,498,332 11.18 385,389,718 1.54 0.0000 11.64
1990 16,895 31,459,941 8.81 277,133,819 1.43 0.0000 9.78
1991 15,747 35,220,038 8.83 310,667,350 1.34 0.0000 8.36
1992 15,918 47,684,814 9.50 452,773,909 1.15 0.0000 9.22
1993 16,209 47,797,167 9.94 474,975,825 1.02 0.0000 9.68
1994 17,460 58,148,389 10.02 582,093,443 0.99 0.0000 10.27
1995 20,644 77,209,155 10.33 797,559,000 0.96 0.0000 10.01
1996 24,631 110,229,375 10.90 1,200,483,907 0.99 0.0000 10.46
1997 34,213 175,955,357 11.79 2,074,181,767 1.00 0.0000 11.32
1998(b) 37,858 205,611,883 12.00 2,467,216,477 0.48 0.0000 11.77
(a) From March 1, 1950, date of organization of the Trust. The shares were
initially sold on March 1,1950 at a net asset value of $10.00 per share.
(b) Six months ended March 31, 1998.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Average Annual Total Return (unaudited):
One year ended March 31, 1998..........................................16.57%
Five years ended March 31, 1998...... .................................14.46%
Ten years ended March 31, 1998...... ................................11.90%
Yield calculated as of March 31, 1998 (unaudited):..........................7.93%
</TABLE>
<TABLE>
<S> <C> <C>
Market Value Net Assets% of
- ------------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds
Advertising $7,350,000 .30%
Apparel 23,562,005 .96%
Automobile &Truck 33,080,020 1.34%
Building &Construction 123,768,514 5.02%
Chemicals 198,834,249 8.06%
Clothing 15,904,688 .64%
Computer Software & Service 14,235,000 .58%
Conglomerate 23,968,529 .97%
Electrical Equipment 8,855,600 .36%
Energy/Natural Resources 33,120,585 1.34%
Entertainment 21,073,438 .85%
Fast Food Service 2,312,500 .09%
Food &Beverage 96,281,125 3.90%
Food Processing 15,840,000 .64%
Food Service 19,611,250 .79%
Furniture 22,100,000 .90%
Gaming 352,249,475 14.28%
Grocery Stores 111,790,575 4.53%
Metals & Mining 42,693,163 1.73%
Office Equipment 15,805,350 .64%
Oil & Gas Exploration 10,825,000 .44%
Packaging & Container 219,664,604 8.90%
Paper &Forest Products 53,362,380 2.16%
Petroleum & Drilling 18,643,850 .76%
Publishing & Printing 26,525,100 1.08%
Real Estate 56,362,900 2.28%
Recreation 27,457,500 1.11%
Retail 22,348,088 .91%
Retail Food Chains 164,971,894 6.69%
Steel 83,225,000 3.37%
Textile 5,106,250 .21%
Transportation 27,548,538 1.12%
Miscellaneous 46,222,538 1.87%
- ---------------------------------------------------------------------------------------
Total Corporate Bonds 1,944,699,708 78.82%
Total Foreign Bonds 64,950,363 2.63%
Total Common Stocks 320,889,170 13.01%
Total Preferred Stocks 119,341,145 4.84%
Total Warrants 15,030,411 .61%
Total Repurchase Agreement 8,506,994 .34%
Total Investments 2,473,417,791 100.25%
Cash &Receivables 55,495,753 2.25%
Total Assets 2,528,913,544 102.50%
Less Liabilities (61,697,067) (2.50%)
=======================================================================================
Net Assets $2,467,216,477 100.0%
=======================================================================================
</TABLE>
<PAGE>
<TABLE>
Corporate Bonds
<CAPTION>
Market Value
Name of Issuer Principal (Note B)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
Advertising --.30%
- ---------------------------------------------------------------------------------------
Outdoor Communications Senior Sub. Notes, 9.25%, 8/15/07. 7,000,000 $ 7,350,000
Apparel --.96%
- ------------------------------------------------------------------------------------------------------------------------------------
Ann Taylor, Inc. Sub. Notes, 8.75%, 6/15/00.............. 2,000,000 2,015,000
JPStevens Debentures, 9%, 3/01/17^....................... 12,037,000 12,458,295
Samsonite Corp. Senior Sub. Notes, 11.125%, 7/15/05...... 2,667,000 3,013,710
United States Leather, Inc. Senior Notes, 10.25%, 7/31/03 13,500,000 6,075,000
- ------------------------------------------------------------------------------------------------------------------------------------
23,562,005
Automobile &Truck -- 1.34%
- ------------------------------------------------------------------------------------------------------------------------------------
Lear Seating Co. Sub. Notes, 8.25%, 2/01/02 ............. 31,802,000 32,120,020
Speedy Muffler King, Inc. Senior Notes, 10.875%, 10/01/06 1,500,000 960,000
- ------------------------------------------------------------------------------------------------------------------------------------
33,080,020
Building & Construction -- 5.02%
- ------------------------------------------------------------------------------------------------------------------------------------
Aluma Enterprises, Inc., 7.50%, 12/31/01................. 4,832,060 3,865,648
American Standard Sen. Sub. Deb., 0/10.50%, 6/01/05#..... 70,000,000 72,100,000
American Standard Senior Notes, 10.875%, 5/15/99......... 30,000,000 31,050,000
Associated Materials Senior Sub. Notes, 9.25%, 3/01/08... 4,000,000 4,140,000
Nortek, Inc. Senior Sub. Notes, 9.875%, 3/01/04.......... 5,950,000 6,188,000
Nualt Enterprises, Inc., 0/6%,12/31/04#.................. 8,031,082 6,424,866
- ------------------------------------------------------------------------------------------------------------------------------------
123,768,514
Chemicals-- 8.06%
- ------------------------------------------------------------------------------------------------------------------------------------
Harris Chemical Corp. Senior Disc. Notes, 10.25%, 7/15/01 2,660,000 2,779,700
Harris Chemical Corp. Sen. Sub. Notes, 10.75%, 10/15/03.. 2,190,000 2,321,400
Huntsman Corp. Sen. Sub. FRN, Libor + .325%, 7/01/07..... 39,500,000 40,092,500
Huntsman Polymer Corp. Senior Notes, 11.75%, 12/01/04.... 14,000,000 15,662,500
Indspec Chemical Corp. Sen. Sub. Notes, 0/11.5%,12/01/03#^15,869,000 16,087,199
LaRoche Ind. Sen. Sub. Notes, 9.50%, 9/15/07............. 18,000,000 17,820,000
NL Industries Senior Disc. Notes, 0/13%, 10/15/05#^...... 17,460,000 17,852,850
PCI(Pioneer) Canada, Inc. Senior Notes, 9.25%, 10/15/07.. 4,000,000 4,030,000
Pioneer Americas Acq. Senior Notes, 9.25%, 6/15/07....... 12,500,000 12,781,250
Sterling Chemical, Inc. Senior Sub. Notes, 11.75%, 8/15/06 6,500,000 6,727,500
Sterling Chemical, Inc. Senior Sub. Notes, 11.25%,4/01/07 27,025,000 27,565,500
Sterling Chemical Hold. Sen. Disc. Nts.,0/13.50%,8/15/08# 18,980,000 11,293,100
UCC Investors Holding Disc. Notes, 0/12%, 5/01/05#....... 17,650,000 17,473,500
Uniroyal Technology Senior Notes, 11.75%, 6/01/03........ 6,045,000 6,347,250
- ------------------------------------------------------------------------------------------------------------------------------------
198,834,249
Clothing -- .64%
- ------------------------------------------------------------------------------------------------------------------------------------
Westpoint Stevens Senior Notes, 8.75%, 12/15/01 350,000 364,000
Westpoint Stevens Senior Sub. Deb., 9.375%, 12/15/05 14,675,000 15,540,688
- ------------------------------------------------------------------------------------------------------------------------------------
15,904,688
<PAGE>
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Software & Service -- .58%
- ------------------------------------------------------------------------------------------------------------------------------------
Unisys Corp. Senior Deb. Notes, 9.75%, 9/15/16 5,000,000 $ 5,175,000
Unisys Corp. Senior Notes, 12%, 4/15/03 8,000,000 9,060,000
- ------------------------------------------------------------------------------------------------------------------------------------
14,235,000
Conglomerate -- .97%
- ------------------------------------------------------------------------------------------------------------------------------------
Jordan Industries Senior Sub.Disc.Nts, 0/11.75%, 4/01/09# 21,616,713 13,618,529
Jordan Industries Senior Notes, 10.375%, 8/01/07 10,000,000 10,350,000
- ------------------------------------------------------------------------------------------------------------------------------------
23,968,529
Electrical Equipment -- .36%
- ------------------------------------------------------------------------------------------------------------------------------------
Essex Group Senior Notes, 10%, 5/01/03^ 8,515,000 8,855,600
Energy/Natural Resources -- 1.34%
- ------------------------------------------------------------------------------------------------------------------------------------
California Energy Disc. Notes, 10.25%, 1/15/04^ 26,546,000 28,470,585
Universal Compression Sen. Disc. Notes, 0/9.875%, 2/15/08# 7,500,000 4,650,000
- ------------------------------------------------------------------------------------------------------------------------------------
33,120,585
Entertainment -- .85%
- ------------------------------------------------------------------------------------------------------------------------------------
Marvel Holdings Sen. Sec. Disc. Notes Series B,0%,4/15/98^ 5,000,000 200,000
Premier Parks Corp. Senior Notes, 12%, 8/15/03 6,075,000 7,459,313
Premier Parks Corp. Senior Notes, 9.25%, 4/01/06 3,000,000 3,063,750
Premier Parks Corp. Senior Disc. Notes, 0/10%, 4/01/08# 3,250,000 2,071,875
Six Flags Entertainment Senior Notes, 8.875%, 4/01/06 3,000,000 3,056,250
Telemundo Group, Inc. Senior Disc. Notes, 10.50%, 2/15/06 4,950,000 5,222,250
- ------------------------------------------------------------------------------------------------------------------------------------
21,073,438
Fast Food Service -- .09%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston Chicken Convertible Notes, 0%, 6/01/15 18,500,000 2,312,500
Food & Beverage -- 3.90%
- ------------------------------------------------------------------------------------------------------------------------------------
Envirodyne Industries, Inc. Sen. Notes, 10.25%,12/01/01^ 20,395,000 20,293,025
Great American Cookie Senior Sec. Notes, 10.875%, 1/15/01 3,500,000 3,622,500
Specialty Foods Corp. Series B Sen. Nts., 11.125%,10/1/02 23,040,000 23,385,600
Specialty Foods Corp. Senior Notes, 10.25%, 8/15/01 49,600,000 48,980,000
- ------------------------------------------------------------------------------------------------------------------------------------
96,281,125
Food Processing -- .64%
- ------------------------------------------------------------------------------------------------------------------------------------
Del Monte Foods Senior Discount Notes, 0/12.5%, 12/15/07# 24,000,000 15,840,000
Food Service -- .79%
- ------------------------------------------------------------------------------------------------------------------------------------
B&GFoods Senior Sub. Notes, 9.625%, 8/01/07 7,000,000 7,131,250
SC International Service, Inc. Sen. Sub. Notes, 9.25%, 9/01/07 12,000,000
12,480,000
- ------------------------------------------------------------------------------------------------------------------------------------
19,611,250
Furniture -- .90%
- ------------------------------------------------------------------------------------------------------------------------------------
Lifestyle Furnish.Intl.Ltd Sen.Sub.Nts.,10.875%,8/01/06 20,000,000 22,100,000
<PAGE>
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
- ------------------------------------------------------------------------------------------------------------------------------------
Gaming -- 14.28%
- ------------------------------------------------------------------------------------------------------------------------------------
Aztar Corp. Senior Sub. Notes, 11%, 10/01/02 1,652,000 $ 1,705,690
Aztar Corp. Senior Sub. Notes, 13.75%, 10/01/04^ 21,548,000 24,834,070
Boyd Gaming Senior Sub. Notes, 9.50%, 7/15/07 45,000,000 47,925,000
Coast Hotels &CasinoFirst Mortgage Notes, 13%, 12/15/02 10,000,000 11,625,000
Eldorado Resorts Senior Sub. Notes, 10.5%, 8/15/06 1,500,000 1,665,000
Fitzgeralds Gaming Corp. Sen.Sec.Nts,12.25%,12/15/04 5,000,000 5,050,000
GBProperty Funding Corp. Mortgage Notes, 10.875%, 1/15/04 17,350,000 15,181,250
Harrahs Operating, Inc. Senior Sub. Notes, 8.75%, 3/15/00 44,107,000 44,989,140
Riviera Holdings Corp. First Mortgage Notes, 10%, 8/15/04 17,000,000 17,085,000
Showboat, Inc. Senior Sub. Notes, 13%, 8/01/09 900,000 1,057,500
Station Casinos Senior Sub. Notes Series A,9.625%,6/01/03 20,000,000 20,750,000
Station Casinos Senior Sub. Notes Series B,9.625%,6/01/03 5,000,000 5,187,500
Station Casinos Senior Sub. Notes, 10.125%, 3/15/06 6,100,000 6,786,250
Trump Atlantic City First Mortgage Notes, 11.25%, 5/01/06 85,530,000 87,882,075
Trump Plaza Funding First Mortgage Notes, 10.875%,6/15/01 13,000,000 13,773,500
Las Vegas Sands/Venetian Mortgage, 12.25%, 11/15/04 34,000,000 35,190,000
Las Vegas Sands/Venetian Sen.Sub.Nts.,10/14.25%,11/15/01# 12,500,000 11,562,500
- ------------------------------------------------------------------------------------------------------------------------------------
352,249,475
Grocery Stores -- 4.53%
- ------------------------------------------------------------------------------------------------------------------------------------
Fleming Co., Inc. Medium Term Notes, 9.24%, 2/28/00^ 5,000,000 5,077,000
Fleming Co., Inc. Med. Term Notes Series B, 8.74%, 9/19/0210,000,000 10,143,000
Fleming Co., Inc. Med. Term Notes Series C, 6.04%, 7/19/00^5,000,000 4,763,000
Fleming Co., Inc. Med. Term Notes, 5.77%, 8/06/98 3,000,000 2,974,500
Fleming Co., Inc. Series B Sen. Sub. Nts, 10.50%,12/01/04 20,000,000 21,200,000
Fleming Co., Inc. Series B Sen. Sub. Nts, 10.625%,7/31/07 18,000,000 19,170,000
Grand Union Company Senior Notes, 12%, 9/01/04~^ 18,500,000 10,406,250
P&C Food Market Senior Notes, 11.5%, 10/15/01 17,590,000 15,655,100
Penn Traffic Co. Senior Notes, 10.25%, 2/15/02 10,000,000 8,700,000
Penn Traffic Co. Senior Notes, 11.50%, 4/15/06 15,620,000 13,696,725
Victory Markets, Inc. Sub. Notes, 12.5%, 3/15/00~ 2,000,000 5,000
- ------------------------------------------------------------------------------------------------------------------------------------
111,790,575
Metals & Mining -- 1.73%
- ------------------------------------------------------------------------------------------------------------------------------------
Armco, Inc. Senior Notes, 9.375%, 11/01/00 21,115,000 21,695,663
Armco, Inc. Senior Notes, 9%, 9/15/07 4,000,000 4,150,000
Kaiser Aluminum Chemical Corp. Sub. Notes, 12.75%,2/01/03. 2,000,000 2,132,500
Kaiser Aluminum Chemical Corp. Series B, 10.875%,10/15/06 13,500,000 14,715,000
- ------------------------------------------------------------------------------------------------------------------------------------
42,693,163
Office Equipment -- .64%
- ------------------------------------------------------------------------------------------------------------------------------------
Dictaphone Corp. Senior Sub. Notes, 11.75%, 8/01/05 15,345,000 15,805,350
Oil & Gas Exploration -- .44%
- ------------------------------------------------------------------------------------------------------------------------------------
Santa Fe Energy Resources Senior Sub. Deb., 11%, 5/15/04^ 10,000,000 10,825,000
<PAGE>
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
- ------------------------------------------------------------------------------------------------------------------------------------
Packaging & Container -- 8.90%
- ------------------------------------------------------------------------------------------------------------------------------------
Florida Coast Paper Co. First Mortgage Notes, 12.75%, 6/01/03 7,000,000
$ 7,490,000
Four M Corp. Senior Notes, Series B, 12%, 6/01/06 1,500,000 1,595,625
Gaylord Container Corp. Sen. Sub. Deb., 12.75%, 5/15/05 35,319,000 37,835,479
Gaylord Container Corp. Sen. Notes, 9.75%, 6/15/07 19,000,000 19,380,000
Gaylord Container Corp. Sen. Notes, 9.375%, 6/15/07 15,000,000 15,037,500
Gaylord Container Corp. Sen. Sub. Notes, 9.875%, 2/15/08 30,000,000 29,775,000
Huntsman Packaging Corp. Sen. Sub. Notes, 9.125%,10/01/07 4,500,000 4,590,000
Packaging Resources, Inc. Senior Notes, 11.625%, 5/01/03 8,800,000 8,624,000
Stone Container Corp. Senior Notes, 11.5%, 10/01/04 12,580,000 13,523,500
Stone Container Corp. Conv. Sen. Sub. Notes,8.875%,7/15/00 3,000,000 3,600,000
Stone Container Corp. Senior Notes, 12.58%, 8/01/16 43,100,000 46,763,500
Stone Container Corp. Senior Sub. Notes, 12.25%, 4/01/02 10,000,000 10,250,000
Stone Container Corp. Senior Notes, 11.5%, 8/15/06 20,000,000 21,200,000
- ------------------------------------------------------------------------------------------------------------------------------------
219,664,604
Paper & Forest Products -- 2.16%
- ------------------------------------------------------------------------------------------------------------------------------------
MAXXAM Group, Inc. Sen. Sec. Disc. Notes, 12%, 8/01/03 7,000,000 7,673,750
MAXXAM Group, Inc. Sen. Disc. Nts., 0/12.25%, 8/01/03# 30,000,000 30,600,000
Repap New Brunswick Senior FRN, Libor +.325%, 7/15/00 15,000,000 14,850,000
WTDIndustries, Inc. Senior Sub. Deb., 8%, 6/30/05 340,900 238,630
- ------------------------------------------------------------------------------------------------------------------------------------
53,362,380
Petroleum & Drilling -- .76%
- ------------------------------------------------------------------------------------------------------------------------------------
Harcor Energy, Inc. Senior Notes, 14.875%, 7/15/02 4,982,000 5,853,850
Parker Drilling Company Senior Notes Ser. B,9.75%11/15/06 2,000,000 2,140,000
Parker Drilling Company Notes Ser. C, 9.75%, 11/15/06 10,000,000 10,650,000
- ------------------------------------------------------------------------------------------------------------------------------------
18,643,850
Publishing & Printing -- 1.08%
- ------------------------------------------------------------------------------------------------------------------------------------
American Pad &Paper Senior Sub. Notes, 13%, 11/15/05 26,005,000 26,525,100
Real Estate -- 2.28%
- ------------------------------------------------------------------------------------------------------------------------------------
Jamboree LLCClass A Senior Sub. Notes, 8.18%, 3/27/02 5,136,000 5,136,000
Jamboree LLCClass B Senior Sec. Notes, 8.93%, 3/27/02 PIK 1,286,000 1,286,000
Olympia & York Maiden Lane Sec. Notes, 10.375%, 12/31/95~ 19,535,000 14,455,900
Rockefeller Center Properties Conv. Deb., 0%, 12/31/00 47,000,000 35,485,000
- ------------------------------------------------------------------------------------------------------------------------------------
56,362,900
Recreation -- 1.11%
- ------------------------------------------------------------------------------------------------------------------------------------
Genmar Holdings, Inc. Senior Sub. Notes, 13.5%, 7/15/01 18,000,000 18,000,000
Outboard Marine Corp. Debentures, 9.125%, 4/15/17^ 9,750,000 9,457,500
- ------------------------------------------------------------------------------------------------------------------------------------
27,457,500
<PAGE>
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
- -----------------------------------------------------------------------------------------------------------------------------------
Retail -- .91%
- ------------------------------------------------------------------------------------------------------------------------------------
Bradlees, Inc. Senior Sub. Notes, 11%, 8/01/02~ 2,000,000 $ 130,000
Bradlees, Inc. Senior Sub. Notes, 9.25%, 3/01/03~ 15,455,000 579,563
Eyecare Centers of America, Inc. Senior Notes,12%,10/01/03 7,000,000 7,560,000
Finlay Enterprises Senior Discount Deb., 0/12%, 5/01/05#^ 8,000,000 8,020,000
Orion Stores Secured Notes, 12.75%, 10/01/98 4,894,340 4,943,283
Town & Country Corp. Senior Sub. Notes, 13%, 5/31/98~ 7,434,949 1,115,242
- ------------------------------------------------------------------------------------------------------------------------------------
22,348,088
Retail Food Chains -- 6.69%
- ------------------------------------------------------------------------------------------------------------------------------------
Advantica Restaurant Group Senior Notes, 11.25%, 1/15/08 55,768,700 59,254,244
American Restaurant Group Senior Sec. Notes 11.5%,2/15/03 15,500,000 15,538,750
FRD Acquisition Senior Notes, 12.5%, 7/15/04 10,000,000 10,950,000
Family Restaurants Senior Notes, 9.75%, 2/01/02 18,000,000 14,265,000
Foodmaker, Inc. Senior Notes, 9.25%, 3/01/99 15,904,000 16,102,800
Foodmaker, Inc. Senior Sub. Notes, 9.75%, 6/01/02 12,934,000 13,257,350
Pathmark Stores Senior Sub. Notes, 9.625%, 5/01/03 23,000,000 22,885,000
Planet Hollywood Senior Sub. Notes, 12%, 4/01/05 12,500,000 12,718,750
- ------------------------------------------------------------------------------------------------------------------------------------
164,971,894
Steel -- 3.37%
- ------------------------------------------------------------------------------------------------------------------------------------
AK Steel Corporation Senior Notes, 10.75%, 4/01/04^ 35,500,000 37,985,000
Acme Metal, Inc. Senior Notes, 10.875%, 12/15/07 20,000,000 20,700,000
Inland Steel Co., 7.9%, 1/15/07 6,500,000 6,565,000
National Steel Corp., 8.375%, 8/01/06 7,500,000 7,575,000
Weirton Steel Senior Notes, 10.875%, 10/15/99 10,000,000 10,400,000
- ------------------------------------------------------------------------------------------------------------------------------------
83,225,000
Textile -- .21%
- ------------------------------------------------------------------------------------------------------------------------------------
Polymer Group Senior Sub. Notes, 8.75%, 3/01/08 5,000,000 5,106,250
Transportation -- 1.12%
- ------------------------------------------------------------------------------------------------------------------------------------
Moran Transportation Co. Mortgage Notes, 11.75%, 7/15/04^ 4,000,000 4,470,000
U.S. Airways Senior Notes, 10%, 7/01/03 21,834,000 23,078,538
- ------------------------------------------------------------------------------------------------------------------------------------
27,548,538
Miscellaneous -- 1.87%
- ------------------------------------------------------------------------------------------------------------------------------------
Hines Horticulture Senior Sub. Notes, 11.75%, 10/15/05 3,000,000 3,300,000
Iron Mountain, Inc. Sen. Sub. Notes, 10.125%, 10/01/06 2,500,000 2,762,500
JPS Capital Contingent Notes, 9/10/08 3,785,976 3,255,938
Mosler, Inc. Senior Notes, 11%, 4/15/03 10,340,000 9,099,200
Precise Technology, Inc. Senior Sub. Nts, 11.125% 6/15/07 7,500,000 7,518,750
Specialty Equipment Senior Sub. Notes, 11.375%, 12/01/03 14,620,000 15,826,150
Tokheim Corp. Senior Sub. Notes, 11.5%, 8/01/06 4,000,000 4,460,000
- ------------------------------------------------------------------------------------------------------------------------------------
46,222,538
Total Corporate Bonds--78.82% (cost--$1,935,882,861) 1,944,699,708
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign Bonds -- 2.63% Market Value
Name of Issuer Principal (Note B)
- ------------------------------------------------------------------------------------------------------------------------------------
Argentina GlobalBonds, 9.75%, 9/19/27 32,751,000 $32,341,613
Republic of Brazil Discount FRN, Libor +.8125%, 4/15/24 33,000,000 32,608,750
- ------------------------------------------------------------------------------------------------------------------------------------
Total Foreign Bonds--2.63% (cost--$56,851,485) 64,950,363
<PAGE>
Stocks -- Number ofMarket Value
Name of Issuer Shares (Note B)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stocks -- 13.01%
Advantica Restaurant Group+ 1,217,762 11,416,519
American Building Co.+ 8,807 265,311
Bankers Trust NY^ 350,000 42,109,375
Chase Manhattan Corp 225,000 30,346,875
Chubb Corp.^ 500,000 39,187,500
Citicorp 100,000 14,200,000
Crompton &Knowles Corp. 119,324 3,452,938
Darling International, Inc.+ 745,530 6,430,196
Gaylord Container Corp.+. 1,243,799 9,250,755
International Airline Support Group+ 224,540 2,385,738
Jamboree Office REIT 50,307 4,276,094
J P Morgan & Co.^ 200,000 26,862,500
JPS Capital 1,038,823 13,569,625
Leucadia National Corp+ 242,608 9,552,690
Little Switzerland, Inc.+ 273,659 2,103,754
MAXXAM, Inc.+ 200,000 12,250,000
NL Industries+ 1,000,000 17,437,500
Specialty Equipment Co. + 400,000 8,150,000
Telemundo Group, Inc.+. 244,660 10,245,138
Town & Country Corp. Class A~ 1,079,455 0
Walter Industries, Inc.+ 536,183 11,460,912
WPS Investors LP+@ 200,000 9,582,000
WestPoint Stevens, Inc.+^ 1,270,000 36,353,750
- ------------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks--13.01% (cost--$193,668,245) 320,889,170
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks--4.84% PIK
- ------------------------------------------------------------------------------------------------------------------------------------
American Restaurant Group, 12% 3,500 3,552,500
Time Warner, Inc. Series M, 10.25% 103,614 115,788,645
Town & Country Corp. Conv., 6%~ 299,537 0
- ------------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks--4.84% (cost--$116,062,277) 119,341,145
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants-- Number of Market Value
Name of Issuer Shares or Units (Note B)
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants -- .61%+
- ------------------------------------------------------------------------------------------------------------------------------------
Cookies USA, Inc. 630 $ 6,300
Eyecare Center Corp. 6,500 6,500
Federated Dept. Stores C 225,869 6,239,631
Federated Dept. Stores D 290,771 7,978,029
Harcor Energy, Inc. 88,000 11,000
Homeland Holding Corp. 6,687 1,672
Wherehouse Entertainment A@ 81,164 659,051
Wherehouse Entertainment B@ 14,091 69,046
Wherehouse Entertainment C@ 14,091 59,182
- ------------------------------------------------------------------------------------------------------------------------------------
Total Warrants--.61% (cost--$5,058,905) 15,030,411
<PAGE>
Principal
Repurchase Agreement -- .34%
- ------------------------------------------------------------------------------------------------------------------------------------
Investors Bank &Trust Repurchase Agreement, 5.43%, due 4/1/98 $8,506,994
- ------------------------------------------------------------------------------------------------------------------------------------
Total Repurchase Agreement--.34% (cost--$8,506,994)** 8,506,994
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments--100.25% (cost--$2,316,030,767) $2,473,417,791
<FN>
** Acquired on March 31, 1998. Collateralized by $8,935,445 of various
U.S.Government mortgage-backed securities, due through 11/15/22. The
maturity value is $8,508,278. As an operating policy, the Trust, through
the custodian bank, secures receipt of adequate collateral supporting
repurchase agreements.--(see Note G).
</FN>
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
PIK Payment in Kind
~ Non-income producing security due to default or bankruptcy filing + Non-income
producing security @ Securities valued in good faith (See Note B)
# Represents a zero coupon bond that converts to a fixed rate at a designated
future date. The date shown on the schedule of investments represents the
maturity date of the security and not the date of coupon conversion. ^ Pledged
to collateralize short-term borrowings (See Note F)
Federal Tax Information: At March 31, 1998, the aggregate cost of investment securities
for income tax purposes was $2,316,793,480. Net unrealized appreciation
aggregated $156,624,311 of which $218,304,386 related to appreciated investment
securities and $61,680,075 related to depreciated investment securities.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments--at market value (cost $2,316,030,767)--Note B $2,473,417,791
Interest receivable 49,652,628
Receivable for shares of beneficial interest sold 5,148,099
Receivable for dividends 695,026
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 2,528,913,544
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased 54,660,632
Payable for shares of beneficial interest repurchased 3,957,202
Trustee fees payable--Note C 3,074,993
Other payables 4,240
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 61,697,067
Net Assets $2,467,216,477
====================================================================================================================================
Net Assets Consist of -- Note B:
Capital, at a $1.00 par value $ 205,611,883
Paid-in surplus 2,096,626,070
Accumulated net realized gain on investments 1,539,316
Net unrealized appreciation of investments 157,387,024
Accumulated net investment income 6,052,184
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, for 205,611,883 shares outstanding $2,467,216,477
====================================================================================================================================
Net Asset Value, offering price and redemption
price per share ($2,467,216,477/205,611,883 shares) $12.00
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Interest $90,978,322
Dividends 7,355,044
Other income 3,289,011
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income 101,622,377
Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
Trustee fees--Note C $5,786,465
Administrative expenses and salaries 449,525
Registration and filing fees 168,350
Printing, postage and stationery 153,761
Computer and related expenses 134,498
Interest--Note F 110,894
Legal fees 81,766
Other expenses 66,337
Custodian fees 58,196
Auditing fees 36,218
Insurance 10,920
- ------------------------------------------------------------------------------------------------------------------------------------
Total Expense 7,056,930
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 94,565,447
Realized and Unrealized Gain (Loss) on Investments--Note B:
Net realized gain from investment transactions 3,666,853
Change in unrealized appreciation of investments 34,622,557
- -----------------------------------------------------------------------------------------------------------------------------------
Net Gain on Investments 38,289,410
Net Increase in Net Assets Resulting from Operations $132,854,857
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months
Ended
March 31, Year Ended
1998 September 30,
(unuadited) 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in Net Assets
From Operations:
Net investment income $ 94,565,447 $138,186,031
Net realized gain from investment transactions 3,666,853 13,597,710
Change in unrealized appreciation of investments 34,622,557 118,703,536
- ------------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations 132,854,857 270,487,277
Distributions to Shareholders from Net Investment Income(89,374,717) (140,252,504)
($.48 and $1.00 per share, respectively)
From Net Trust Share Transactions--Note D 349,554,570 743,463,087
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 393,034,710 873,697,860
Net Assets:
Beginning of Period 2,074,181,767 1,200,483,907
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
End of Period (including undistributed net investment
income of $6,052,184 and $861,454, respectively) $2,467,216,477 $2,074,181,767
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of
the financial statements.
<PAGE>
<TABLE>
<CAPTION>
The accompanying notes are an integral part of
the financial statements.
Ended
March 31, 1998 Year Ended September 30,
Per Share Data (unaudited) 1997 1996 1995 1994 1993 1992~ 1991~ 1990~ 1989~ 1988~
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$11.79 $10.90 $10.33 $10.02 $9.94 $9.50 $8.83 $8.81 $11.18 $12.16 $12.89
Income From Investment Operations:
Net investment income .50 .98 .98 .98 .98 1.04 1.15 1.32 1.45 1.50 1.65
Net realized and unrealized gain (loss) on
investment .19 .91 .58 .29 .09 .42 .67 .04 (2.39) (.94) (.44)
Total from investment operations .69 1.89 1.56 1.27 1.071 .46 1.82 1.36 (.94) .56 1.21
Less Distributions:
Net investment income (.48) (1.00) (.99) (.96) (.99)(1.02) (1.15)(1.34) (1.43)(1.54) (1.94)+
Net Asset Value:
End ofPeriod $12.00 11.79 $10.90 $10.33 $10.02 $9.94 $9.50 $8.83 $8.81 $11.18 $12.16
Total Return 6.01% 18.16% 15.98% 13.44% 10.96%17.63%(8.87)%4.87% 10.62% 16.25% 21.85%
Ratio &Supplemental Data
Net assets end of period (in millions) $2,467.2$2,074.2 $1,200.5 $797.6 $582.1 $475.0 $452.8 $310.7 $277.1 $385.4 $404.2
Ratio of operating expenses to average
net assets .63%** .64% .66% .67% .70% .73% .79% .88% .78% .72% .75%
Ratio of interest expense to average
net assets .01%** .01% .03% .35% .36% .48% .65% 1.01% .69% .61% .66%
Ratio of net investment income to average
net assets 8.53%** 8.65 9.41% 9.77% 9.37% 10.53% 12.36%15.38% 14.35% 12.68% 13.16%
Portfolio turnover rate 32.78%** 33.44%32.01% 40.58% 73.36% 75.72% 59.41%33.77% 21.23% 33.61% 17.35%
Average broker commission $0.0532 $0.0516 $0.0572
<FN>
+ Includes accumulated undistributed net investment income (including original
issue discount)through December 31, 1987 as required under the excise tax
provisions of the Tax Reform Act of 1986, estimated by the trustees to be $.42
per share.
~ Audited by other auditors.
** Annualized
</FN>
</TABLE>
<PAGE>
Note A-Organization
Northeast Investors Trust (the Trust), a diversified open-end management
investment company (a Massachusetts Trust), is registered under the Investment
Company Act of 1940, as amended.
Note B-Significant Accounting Policies
Significant accounting policies of the Trust are as follows:
Valuation of Investments: Securities for which market quotations are
readily available are valued at market values determined on the basis of the
last quoted sale prices prior to the close of the New York Stock Exchange (or
the last quoted bid prices in the event there are no sales reported on that day)
in the principal market in which such securities normally are traded, as
publicly reported, or are furnished by recognized dealers in such securities.
Securities for which market quotations are not readily available (including
restricted securities and private placements, if any) are valued at their fair
value as determined in good faith under consistently applied procedures approved
by the Board of Trustees. Securities may also be valued on the basis of
valuations furnished by a pricing service that uses both dealer supplied
valuations and evaluations based on expert analysis of market data and other
factors if such valuations are believed to reflect more accurately the fair
value of such securities.
Federal Income Taxes: The Trust does not provide for federal income taxes
as it is the policy of the Trust to distribute its taxable income for each year
in taxable dividends so as to qualify as a regulated investment company under
the Internal Revenue Code.
State Income Taxes: Because the Trust has been organized by an Agreement
and Declaration of Trust executed under the laws of the Commonwealth of
Massachusetts, it is not subject to state income or excise taxes.
Net Asset Value: In determining the net asset value per share, rounding
adjustments are made for fractions of a cent to the next higher cent.
Distributions and Income: Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments for capital loss carryforwards and losses deferred due to
wash sales. Permanent book and tax differences relating to shareholder
distributions will result in reclassifications to paid-in surplus. The Trust's
distributions and dividend income are recorded on the ex-dividend date. Interest
income, which includes accretion of market discount, is accrued as earned.
Original issue discount on bonds and step-up bonds is accreted according to the
effective-yield method. Certain securities held by the Trust pay interest in the
form of cash or additional securities (known as Payment-in-kind or PIK);
interest on such securities is recorded on the accrual basis by means of the
effective-yield method.
Security Transactions: Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Note C-Trustees' Compensation
Trustees' compensation has been computed at the rate of 1/8 of 1% of the
net assets (before deduction of accrued Trustees' compensation) at the close of
each quarter, from which the Trustees have paid certain expenses specified in
the Declaration of Trust.
Note D-Shares of Beneficial Interest
At March 31, 1998, there were unlimited shares of beneficial interest authorized
with a par value of $1. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 1998 September 30, 1997
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 61,980,690 $730,689,600 118,017,888$1,336,261,827
Shares issued to shareholders
in reinvestment of distributions from
net investment income 5,218,141 60,949,832 8,383,229 94,018,470
67,198,831 791,639,432 126,401,117 1,430,280,297
Shares repurchased (37,542,305) (442,084,862)(60,675,135) (686,817,210)
Net Increase 29,656,526 $349,554,570 65,725,982 $743,463,087
</TABLE>
Note E-Purchases and Sales of Investments
Purchases and sales of securities, other than short-term securities,
aggregated $910,971,814 and $356,197,581, respectively, for the period ended
March 31, 1998.
Note F-Short-term Borrowings
Short-term bank borrowings, which do not require maintenance of
compensating balances, are generally on a demand basis and are at rates equal to
adjusted money market interest rates in effect during the period in which such
loans are outstanding. At March 31, 1998 the Trust has unused lines of credit
amounting to $120,000,000. The committed lines of credit may be terminated at
the banks' option at their annual renewal dates. Maximum amount outstanding at
any month end $47,458,212 Average amount outstanding (total of daily outstanding
principal balances divided by number of days during the period) $2,459,744
Average interest rate (annualized) 9.02%
Interest expense includes commitment fees of $36,346. 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 $132,468,000 and
$209,586,130, respectively, have been pledged to collateralize short-term
borrowings.
Note G-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.
Note H-Capital Loss Carryforward
At September 30, 1997 the Trust had $2,028,795 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 carryforward expires on September 30, 2001. <PAGE>
Ernest E. Monrad C. Earl Russell
Robert B. Minturn, Jr. Fred L. Glimp
Bruce H. Monrad J. Murray Howe
Officers
- --------------------------------------------------------------------------------
Ernest E. Monrad, Chairman
William A. Oates, Jr., President
Robert B. Minturn, Jr., Vice President & Clerk
Gordon C. Barrett, Vice President & Treasurer
Bruce H. Monrad, Vice President
Kelly A. Beatty, Asst. Vice President
Lisa A. Hislop, Asst. Vice President
Lynn A. Manton, Asst. Vice President
Custodian
- --------------------------------------------------------------------------------
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
Legal Counsel
- -------------------------------------------------------------------------------
Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Transfer Agent
- ------------------------------------------------------------------------------
Northeast Investors Trust
50 Congress Street
Boston, Massachusetts 02109
This report is prepared for the information of the shareholders of Northeast
Investors Trust and must not be given to others unless preceded or accompanied
by a copy of the current Prospectus by which all offerings of the Trust's shares
are made. It should be noted in reading this report and the letter to
shareholders that the record of past performance is not a representation as to
the Trust's future performance, and that the Trust's investments are subject to
market risks.
Shares of the Fund are sold to investors at net asset value by
Northeast Investors Trust
50 Congress Street
Boston, Massachusetts02109
800-225-6704
617-523-3588
The share price for Northeast Investors Trust is quoted daily in the Mutual
Funds section of most major newspapers under several abbreviations including: NE
Investors
