Reg. No. 2-11318
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933
/ X /
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 68
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/ X /
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
/ /
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Amendment No. 21
/ X /
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(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 December 15,1998 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 20, 1998.
<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>
NORTHEAST INVESTORS TRUST
50 Congress Street
Boston, Massachusetts 02109
(800) 225-6704
(617) 523-3588
SHARES OF BENEFICIAL INTEREST
PROSPECTUS
December 15, 1998
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 December 15, 1998, 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 and Administration......................................... 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...................... .50%
Other Expenses........................ ... .11%
----
Total Operating Expenses.................... .61%
====
</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 .......... $6 $19 $33 $74
</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, 1998; 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 year* year* year
<S> <C> <C> <C> <C>
Year Ended
September 30,
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
1997..... 0 600,818 141,712,845 .03
1998 90,826,838 36,630,591 193,834,661 .16
<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
PricewaterhouseCoopers LLP, Independent Auditors, for the years ended September
30, 1993 through September 30, 1998, and by other Auditors for the years ended
September 30, 1989 through September 30, 1992. The report of
PricewaterhouseCoopers LLP, on the financial statements and financial highlights
for the year ended September 30, 1998 is included in the Statement of Additional
Information.
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
Per Share Data
1998 1997 1996 1995 1994 1993 1992~ 1991~ 1990~ 1989~
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value:
Beginning of Period
$11.79 10.90 $10.33 $10.02 $9.94 $9.50 $8.83 $8.81 $11.18 $12.16
------ ------ ------ ----- ----- ----- ----- ------ ------ -----
From Investment
Operations:
Net investment income
1.01 .98 .98 .98 .98 1.04 1.15 1.32 1.45 1.50
Net realized and
unrealized gain (loss)
on investment (1.42) .91 .58 .29 .09 .42 .67 .04 (2.39) (.94)
Total from investment
operations (.41) 1.89 1.56 1.27 1.07 1.46 1.82 1.36 (.94) .56
Less
Distributions:
Net investment income (.96) (1.00) (.99) (.96) (.99) (1.02) (1.15) (1.34) (1.43) (1.54)
Net Asset Value:
End of Period $10.42 $11.79 $10.90 $10.33 $10.02 $9.94 $9.50 $8.83 8.81 $11.18
Total Return
(4.13)% 18.16% 15.98% 13.44% 10.96% 16.25% 21.85% 17.63% (8.87) 4.87%
Ratios & Supplemental
DataNet assets
end of period
(in millions) $2,046.7 $2,074.2 $1,200.5 $797.6 $582.1 $475.0 $452.8 $310.7 $277.1 $385.4
Ratio of operating
expenses to average
net assets .61% .64% .66% .67% .70% .73% .79% .88% .78% .72%
Ratio of interest
expense
to average net assets .09% .01% .03% .35% .36% .48% .65% 1.01% .69% .61%
Ratio of net
investment
income to average
net assets 8.73% 8.65% 9.41% 9.77% 9.37% 10.53% 12.36% 5.38% 14.35% 12.68%
Portfolio
turnover rate 63.80% 33.44% 32.01% 40.58% 73.36% 75.72% 59.41% 33.77% 21.23% 33.61%
</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,
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, 1998, approximately 90.60% of the Trust's net assets were invested
in fixed income securities and preferred stocks.
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
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 1989-1998 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 AND ADMINISTRATION
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.
The Trust has completed evaluation and testing of its internal systems
for year 2000 compliance. The year 2000 issue relates to systems designed to use
two digits rather than four to define the applicable year. Based upon the
results of the evaluation and testing the Trust believes that the year 2000
issue will not pose significant operational problems with respect to its own
systems. The Trust is working with vendors and service providers to evaluate and
test, where appropriate, their year 2000 readiness; third parties are not
subject to the Trust's control and, as a result, the Trust cannot currently
determine to what extent it might be affected by the manner in which they
address their own year 2000 issues. Expenses relating to this issue have not
been, and are not expected to be, material to the Trust and its shareholders.
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.
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, 1998. 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.................................. 7%
AAA...................................... -
AA....................................... -
A........................................ .3
BBB...................................... 2.6%
BB....................................... 22.9%
B........................................ 54.9%
CCC...................................... 11.6%
CC,C,D................................... .7%
</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
December 15, 1998
This Statement of Additional Information supplements the
Prospectus for the Trust dated December 15, 1998 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
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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 that, together with any predecessor thereof, has not been 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 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.
<PAGE>
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 be limited 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, 1998 and 1997 the rates of total portfolio
turnover were 63.80% and 33.44% respectively. Investment policy or changed
circumstances may 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 68.
.........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 59.
.........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 36.
.........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 90.
.........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 72.
.........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 74.
.........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 56.
.........GORDON C. BARRETT is a Vice President of Northeast Investment
Management, Inc., Boston, Massachusetts and a Executive Vice President and
Treasurer of Northeast Investors Growth Fund. He is 41.
.........
.........The total number of shares owned beneficially by the Trustees
and members of their immediate families on November 12, 1998 was 647,566
shares (.31%).
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 $11,565,681 for the
fiscal year ended September 30, 1998, Ernest E. Monrad received $3,565,778 as
Chairman of the Trustees, Bruce H. Monrad and Robert B. Minturn, Jr. received
$4,660,926 and $240,000 respectively, as Trustees and William A. Oates, Jr.
received $3,016,477 as President of the Trust. Each of the three Trustees who
is not also an officer of the Trust received compensation of $27,500 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, 200 Clarendon Street, Boston, Massachusetts. The custodian maintains
custody of the Trust's assets.
.........The independent accountants for the Trust are
PricewaterhouseCoopers LLP, One Post Office Square, Boston,Massachusetts.
PricewaterhouseCoopers LLP 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 fo
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, 1998, the Trust
engaged in portfolio transactions involving broker-dealers totaling
$2,338,998,429. Of this amount $362,252,720 involved trades with brokers
acting as agents in which such brokers received total brokerage commissions
of $61,062. The remaining $1,976,745,709 in portfolio trades consisted of
principal transactions with market makers and other dealers. During the
fiscal year ended September 30, 1997 brokerage commissions paid totaled
$112,604; in fiscal 1996 brokerage commissions paid totaled $26,380. All
such portfolio transactions completed by the Trust during the year ended
September 30, 1998 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 quoted sale prices (or quoted bid prices in the event there are
no sales reported) 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 Accountshowing
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) and Roth IRA
.........An individual may open his own Individual Retirement Account
(IRA) or Roth (IRA) 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 orprofit-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. Contributions to a
Roth IRA are non-deductible, but income and gains accumulate free of income
tax and distributions after age 59 1/2 are generally not taxable.
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 incurred by 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>
4
C-
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, 1998.
2. Statement of Operations for the year ended September 30, 1998.
3. Statement of Changes in Net Assets for each of the two years in the period
ended September 30, 1998.
4. Schedule of Investments as of September 30, 1998.
5. Notes to financial statements for the year ended September 30, 1998.
6. Report of PricewaterhouseCoopers LLP, 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, 1998 is as follows:
(1) (2)
Title of Class Number of Record Holders
Shares of Beneficial Interest 38,781
<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>
PricewaterhousCoopers LLP
PricewaterhouseCoopers LLP
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. 68 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 5, 1998 on our audit of
the financial statements and the financial highlights of Northeast Investors
Trust for the year ended September 30, 1998. We also consent to the reference to
our firm under the captions "Financial Highlights" and "Independent Accountants"
in the Registration Statement.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 5, 1998
<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 24th day of November
1998. 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
November 24, 1998
Ernest E. Monrad performing functions
of principal executive
officer and principal
financial and accounting
officer
s/Bruce H. Monrad Trustee November 24, 1998
Bruce H. Monrad
s/Robert B. Minturn, Jr. Trustee November 24, 1998
Robert B. Minturn, Jr.
Trustee November 24, 1998
C. Earl Russell
Trustee November 24, 1998
Fred L. Glimp
s/J. Murray Howe Trustee November 24, 1998
J. Murray Howe
<PAGE>
<TABLE>
Corporate Bonds
<CAPTION>
Market Value
Name of Issuer Principal (Note B)
<S> <C> <C>
- -----------------------------------------------------------------------------------------
Advertising- .35%
- ------------------------------------------------------------------------------------------
Outdoor Communications Sen. Sub. Notes, 9.25%, 8/15/07... 7,000,000 $ 7,175,000
Apparel-1.21%
- ------------------------------------------------------------------------------------------
Ann Taylor, Inc. Sub Notes, 8.75%, 6/15/00^.............. 2,000,000 2,037,500
Polymer Group Senior. Sub.Notes, 9%, 7/01/07^............ 5,100,000 4,870,500
Polymer Group Senior. Sub. Notes, 8.75%, 3/01/08^........ 18,922,000 17,881,290
- --------------------------------------------------------------------------------------------
24,789,290
Automobile & Truck - .07%
- -----------------------------------------------------------------------------------------------------
Speedy Muffler King, Inc. Senior Notes, 10.875%, 10/01/06 1,500,000 1,462,500
Building & Construction - 1.00%
- -----------------------------------------------------------------------------------------------------
Aluma Enterprises, Inc., 7.50%, 12/31/01................. 4,511,305 3,067,687
Associated Materials Senior Sub. Deb. Notes,9.125%,3/01/08 4,000,000 3,840,000
Henry Company Senior Notes, 10%, 4/15/08................. 2,500,000 2,375,000
Nortek, Inc. Senior Sub. Notes, 9.875%, 3/01/04.......... 5,950,000 5,801,250
Nualt Enterprises, Inc., 0/6%,12/31/04#.................. 8,031,082 5,461,136
- -----------------------------------------------------------------------------------------------------
20,545,073
Chemicals- 6.51%
- ------------------------------------------------------------------------------------------------------
Huntsman Corp. Sen. Sub. Floating Rate Notes, 7/01/07^... 39,500,000 37,525,000
Huntsman Packaging Corp.Sen. Sub. Notes, 9.125%,10/01/07^ 4,500,000 4,365,000
Huntsman Polymer Corp. Senior Notes, 11.75%, 12/01/04.... 14,000,000 14,770,000
LaRoche Ind. Sen. Sub. Notes Ser. B, 9.5%, 9/15/07^...... 18,000,000 15,660,000
PCI(Pioneer)Canada, Inc. Sen. Notes, 9.25%,10/15/07...... 4,000,000 3,200,000
Pioneer Americas Acq. Senior Notes, 9.25%, 6/15/07....... 17,500,000 14,175,000
Sterling Chemical, Inc. Sen. Sub. Notes, 11.75%, 8/15/06. 12,500,000 10,750,000
Sterling Chemical Sen. Sub. Notes Series A,11.25%,4/01/07 30,025,000 25,221,000
Sterling Chemical Holding Sen. Disc. Notes,0/12%,8/15/08# 18,980,000 7,592,000
- ---------------------------------------------------------------------------------------------------
133,258,000
Computer Software & Services - .64%
- ---------------------------------------------------------------------------------------------------
Unisys Corporation Senior Debentures, 9.75%, 9/15/16..... 4,211,000 4,253,110
Unisys Corporation Senior Notes Series B, 12%, 4/15/03^.. 8,000,000 8,920,000
- ---------------------------------------------------------------------------------------------------
13,173,110
Conglomerate - 1.15%
- ----------------------------------------------------------------------------------------------------
Jordan Industries Sen. Sub. Disc. Notes,0/11.75%,4/01/09# 21,616,713 14,050,863
Jordan Industries Senior Notes, 10.375%, 8/01/07......... 10,000,000 9,500,000
- -----------------------------------------------------------------------------------------------------
23,550,863
<PAGE>
Corporate Bonds-continued Market Value
Name of Issuer Principal (Note B)
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Giant Industries Sen. Sub. Notes, 9.75%, 11/15/03^...... 3,190,000$ 3,190,000
Hacor Energy Senior Notes, 14.875%, 7/15/02............. 4,982,000 5,729,300
Husky Oil Bonds, 8.9/11.1875%, 8/15/28#................. 20,000,000 19,550,000
Kelley Oil Senior Subordinated Notes, 10.375%, 10/15/06. 7,500,000 6,075,000
NuevoEnergy Senior Sub. Notes Series B, 8.875%, 6/01/08. 9,500,000 9,500,000
Ocean Energy, Inc.Senior Sub. Notes, 8.875%, 7/15/07.... 20,000,000 20,000,000
P & L Coal Senior Subordinated Notes, 9.625%, 5/15/08^.. 25,000,000 25,000,000
Parker Drilling Co. Senior Sub. Notes, 9.75%, 11/15/06.. 17,745,000 16,236,675
Santa Fe Energy Resource Senior Sub. Deb.11%, 5/15/04^ . 10,000,000 10,200,000
TesoroPetroleum Corp. Senior Sub. Notes, 9%, 7/01/08.... 25,000,000 24,125,000
Universal Compression Sen. Disc. Notes,0/9.875%,2/15/08#^22,500,000 13,162,500
Wiser Oil Co. Sen. Sub. Notes, 9.5%, 5/15/07............ 4,000,000 3,120,000
- ----------------------------------------------------------------------------------------------------
155,888,475
Entertainment - 1.06%
- --------------------------------------------------------------------------------------------------
Marvel Holdings Senior Notes, 0%, 4/15/98~.............. 5,000,000 50,000
Premier Parks Senior Notes, 12%, 8/15/03................ 20,000,000 21,700,000
- ---------------------------------------------------------------------------------------------------
21,750,000
Fast Food Service - .02%
- --------------------------------------------------------------------------------------------------
Boston Chicken Convertible Notes, 0%, 6/01/15............ 18,500,000 393,125
Food & Beverage - 3.93%
- -----------------------------------------------------------------------------------------------
Envirodyne Industries, Inc. Senior Notes,10.25%,12/01/01^ 20,395,000 18,967,350
Mrs. Fields Original Cookies Senior Notes,10.125%,12/01/04 3,500,000 3,290,000
Specialty Foods Corp.Senior Notes, 10.25%, 8/15/01....... 49,600,000 39,680,000
Specialty Foods Corp. Sen.Notes Series B,11.125%,10/01/02 23,040,000 18,432,000
- ---------------------------------------------------------------------------------------------
80,369,350
Food Processing - 1.78%
- ---------------------------------------------------------------------------------------------
Del Monte Foods Corp. Senior Disc. Nts. Ser.B,0%,12/15/07#24,000,000 13,680,000
Premium Standard Farms, Inc.Sen.Nts., 11%, 9/17/03....... 10,652,470 11,238,356
SC International Service Senior Sub. Notes, 9.25%, 9/01/07 12,000,000
11,580,000
- ---------------------------------------------------------------------------------------------
36,498,356
Food Service - .46%
- ----------------------------------------------------------------------------------------------
B&GFoods Senior Sub. Notes, 9.625%, 8/01/07^............. 10,000,000 9,400,000
Furniture - 1.05%
- ----------------------------------------------------------------------------------------------
Lifestyle Furn. Intl.Ltd.Sen.Sub.Notes,10.875%,8/01/06 20,000,000 21,450,000
Gaming - 19.30%
- ----------------------------------------------------------------------------------------------
Aztar Corp. Senior Sub. Notes, 11%, 10/01/02............. 1,652,000 1,639,610
Aztar Corp. Senior Sub. Notes, 13.75%, 10/01/04^......... 35,548,000 38,391,840
Boyd Gaming Senior Sub. Notes, 9.5%, 7/15/07............. 45,000,000 44,550,000
Coast Hotels &CasinoFirst Mortgage Notes, 13%, 12/15/02.. 10,000,000 11,200,000
Eldorado Resorts Senior Sub. Notes, 10.5%, 8/15/06....... 1,500,000 1,545,000
<PAGE>
Corporate Bonds-continued Market Value
Name of Issuer Principal (Note B)
- -----------------------------------------------------------------------------------------------
Gaming (continued) - 19.30%
- -----------------------------------------------------------------------------------------------
Fitzgeralds Gaming Corp. Senior Sec. Nts, 12.25%,12/15/04 5,000,000 $ 3,400,000
GBProperty Funding Corp. Mort. Notes, 10.875%, 1/15/04... 17,350,000 13,012,500
Grand Casinos, Inc. First Mortgage Nts,10.125%,12/01/03 41,786,000 44,293,160
MGMGrand, Inc. Senior Collateralized Nts,6.875%,2/06/08 27,700,000 25,484,000
Players International, Inc. Senior Nts,10.875%,4/15/05 15,000,000 15,825,000
Rio Hotel & Casino, Inc. Senior Sub. Nts,10.625%,7/15/05 2,000,000 2,180,000
Rio Hotel &Casino, Inc. Senior Sub. Notes, 9.5%, 4/15/07. 20,500,000 22,652,500
Riviera Holdings Corp. First Mortgage Notes, 10%, 8/15/04 17,000,000 15,045,000
Station Casinos, Inc.Sen.Sub.Nts Series A,9.625%,6/01/03 20,000,000 19,500,000
Station Casinos, Inc. Sen. Sub. Nts Ser.B,9.625%,6/01/03 15,000,000 14,700,000
Station Casinos, Inc. Senior Sub. Notes, 10.125%, 3/15/06 5,100,000 5,100,000
Station Casinos, Inc. Senior Sub. Notes, 9.75%, 4/15/07.. 1,000,000 970,000
Trump Atlantic City First Mortgage Notes, 11.25%, 5/01/06 90,530,000 75,592,550
Las Vegas Sands/Venetian Mortgage Notes, 12.25%, 11/15/04 34,000,000 30,600,000
Las Vegas Sands/Ven Sen. Sub. Nts., 10/14.25%, 11/15/05# 12,500,000 9,250,000
- ------------------------------------------------------------------------------------------------
394,931,160
Grocery Stores - 6.46%
- --------------------------------------------------------------------------------------------------
Fleming Co., Inc. Med Term Notes, 9.24%, 2/28/00^..... 5,000,000 4,950,000
Fleming Co., Inc. Med Term Notes Series B, 8.74%, 9/19/02 10,000,000 9,600,000
Fleming Co., Inc. Med Term Notes Series C, 6.04%, 7/19/00^ 5,000,000 4,692,500
Fleming Co., Inc. Senior Sub. Notes, 10.5%, 12/01/04^.... 20,000,000 19,150,000
Fleming Co., Inc. Sen. Sub. Nts.Ser B,10.625%,7/31/07 18,000,000 17,010,000
P&C Food Market Senior Notes, 11.5%, 10/15/01............ 11,590,000 7,301,700
Pathmark Stores Senior Sub. Notes, 9.625%, 5/01/03....... 23,000,000 21,850,000
Penn Traffic Co. Senior Notes, 10.25%, 2/15/02^.......... 32,518,000 19,510,800
Penn Traffic Co. Senior Notes, 11.50%, 4/15/06^.......... 29,395,000 17,269,563
Star Markets Senior Sub. Notes, 13%, 11/01/04............ 10,000,000 10,900,000
Victory Markets, Inc. Sub. Notes, 12.5%, 3/15/00~........ 2,000,000 2,500
- -------------------------------------------------------------------------------------------------
132,237,063
Manufacturing/Service Industry - 1.59%
- ---------------------------------------------------------------------------------------------------
Axia, Inc. Senior Sub. Notes, 10.75%, 7/15/08............ 10,000,000 9,625,000
Carson Term Loan, 9%, 11/30/98........................... 5,000,000 4,850,000
HaynesInternational Senior Notes, 11.625%, 9/01/04....... 10,000,000 10,950,000
Key Components LLCSenior Notes, 10.5%, 6/01/08........... 7,500,000 7,125,000
- ------------------------------------------------------------------------------------------------
32,550,000
Metals & Mining - 8.53%
- ------------------------------------------------------------------------------------------------
AKSteel Corporation Senior Notes, 10.75%, 4/01/04^....... 35,500,000 36,920,000
Acme Metal, Inc. Senior Notes, 10.875%, 12/15/07~........ 20,000,000 4,000,000
Armco, Inc. Senior Notes, 9.375%, 11/01/00............... 21,115,000 20,903,850
CF&IAcquisition Term Loan, 9.5%, 3/31/03................. 9,137,781 8,498,136
Inland Steel Corp.First Mortgage Nts.Ser. R,7.9%,1/15/07 6,500,000 6,532,500
Kaiser Aluminum Chemical Corp. Sub. Notes,12.75%,2/01/03. 46,230,000 44,843,100
<PAGE>
Corporate Bonds-continued Market Value
Name of Issuer Principal (Note B)
- -----------------------------------------------------------------------------------------------
Metals & Mining (continued) - 8.53%
- -----------------------------------------------------------------------------------------------
Kaiser Aluminum Chemical Corp Series B, 10.875%, 10/15/06 13,500,000$ 13,095,000
LTVSteel Co., Inc. Senior Notes, 8.2%, 9/15/07........... 14,000,000 13,160,000
National Steel Corp. First Mortgage Notes,8.375%,8/01/06 7,500,000 7,312,500
Ormet Corp. Senior Notes, 11%, 8/15/08^.................. 10,000,000 9,400,000
Weirton Steel Corp. Senior Notes, 10.875%, 10/15/99^..... 10,000,000 9,900,000
- -------------------------------------------------------------------------------------------------
174,565,086
Miscellaneous Manufacturing - .97%
- --------------------------------------------------------------------------------------------------
Amtrol, Inc. Senior Sub. Notes, 10.625%, 12/31/06........ 6,645,000 6,246,300
Evenflo Company, Inc. Senior Notes, 11.75%, 8/15/06...... 7,000,000 6,860,000
Great Lakes Corp. Senior Sub. Notes, 11.25%, 8/15/08..... 7,000,000 6,790,000
- --------------------------------------------------------------------------------------------------
19,896,300
Office Equipment - .86%
- ---------------------------------------------------------------------------------------------------
Dictaphone Corp. Senior Sub. Notes, 11.75%, 8/01/05...... 19,845,000 17,662,050
Paper/Forest Products - 7.78%
- ---------------------------------------------------------------------------------------------------
Container Corp. Senior Notes, 11.25%, 5/01/04............ 10,500,000 10,815,000
Florida Coast Paper Co. First Mortgage Nts.,12.75%,6/01/03 7,000,000 6,650,000
Four M Corporation Senior Notes, Series B, 12%, 6/01/06.. 1,500,000 1,425,000
Gaylord Container Corp. Senior Notes, 9.75%, 6/15/07..... 19,000,000 15,437,500
Gaylord Container Corp. Senior Notes, 9.375%, 6/15/07.... 15,000,000 12,000,000
Gaylord Container Corp. Senior Sub. Nts., 9.875%,2/15/08^ 30,000,000 15,000,000
Maxxam Group Holdings, Inc. Senior Notes, 12%, 8/01/03... 7,000,000 7,630,000
Packaging Resources, Inc. Senior Notes, 11.625%, 5/01/03^ 8,800,000 8,448,000
Stone Container Corp. Senior Sub. Notes, 11.5%, 10/01/04 12,580,000 12,076,800
Stone Container Corp. Senior Notes, 12.58%, 8/01/16^..... 43,100,000 42,022,500
Stone Container Corp. Senior Sub. Notes, 12.25%, 4/01/02. 10,000,000 9,275,000
Stone Container Corp. Senior Notes, 11.5%, 8/15/06^...... 20,000,000 18,200,000
WTDIndustries Senior Sub. Notes, 8%, 6/30/05............. 340,900 204,540
- ---------------------------------------------------------------------------------------------------
159,184,340
Publishing & Printing - .70%
- --------------------------------------------------------------------------------------------------
American Pad &Paper Senior Sub. Notes, 13%, 11/15/05..... 26,005,000 14,302,750
Real Estate - 2.78%
- --------------------------------------------------------------------------------------------------
Jamboree LLC Class A Senior SecuredNotes, 8.18%, 3/27/02. 5,136,000 4,930,560
Jamboree LLC Class B Senior Sub. Notes,8.93%,3/27/02 PIK 1,340,000 1,286,400
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 36,190,000
- -----------------------------------------------------------------------------------------------------
56,862,860
Recreation - 1.66%
- -----------------------------------------------------------------------------------------------------
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 8,580,000
Outboard Marine Corp. Senior Notes, 10.75%, 6/01/08...... 8,000,000 7,440,000
- ---------------------------------------------------------------------------------------------------
34,020,000
<PAGE>
Corporate Bonds-continued Market Value
Name of Issuer Principal (Note B)
- -------------------------------------------------------------------------------------------------
Retail - .70%
- --------------------------------------------------------------------------------------------------
Bradlees, Inc. Senior Sub. Notes, 11%, 8/01/02~.......... 2,000,000$ 20,000
Bradlees, Inc. Senior Sub. Notes, 9.25%, 3/01/03~........ 15,455,000 154,550
Eyecare Centers of America,Inc.Sen.Nts., 9.125%, 10/01/03 5,000,000 4,200,000
Eye Care Centers Sub. Ntes. FRN, 6mth.Libor +.398%,5/01/08 5,000,000 4,275,000
Orion Stores Secured Notes, 12.75%, 10/01/98............. 4,591,816 4,591,816
Town & Country Corp. Senior Sub. Notes, 13%, 5/31/98~.... 7,434,949 1,115,242
- -------------------------------------------------------------------------------------------------
14,356,608
Retail Food Chains - 5.15%
- -------------------------------------------------------------------------------------------------
Advantica Restaurant Group Senior Notes, 11.25%, 1/15/08. 58,768,700 56,564,874
American Restaurant Group Senior Notes, 11.5%, 2/15/03... 15,500,000 14,647,500
FRD Acquisition Senior Notes, 12.5%, 7/15/04^............ 10,000,000 9,800,000
Family Restaurants Senior Notes, 9.75%, 2/01/02.......... 18,000,000 9,900,000
Planet Hollywood Senior Sub. Notes, 12%, 4/01/05......... 12,500,000 7,000,000
Romacorp, Inc. Senior Notes, 12%, 7/01/06................ 7,500,000 7,425,000
- ---------------------------------------------------------------------------------------------------
105,337,374
Transportation - .21%
- -------------------------------------------------------------------------------------------------
Moran Transportation Co. Mortgage Notes, 11.75%, 7/15/04^ 4,000,000 4,390,000
Miscellaneous - 1.88%
- -----------------------------------------------------------------------------------------------
Hines Horticulture Senior Sub. Notes, 11.75%, 10/15/05... 1,951,000 2,019,285
Iron Mountain, Inc. Senior Sub. Notes, 10.125%, 10/01/06. 2,500,000 2,625,000
Mosler, Inc. Senior Notes, 11%, 4/15/03.................. 10,340,000 8,272,000
Precise Technology Sen. Sub. Notes, 11.125%, 6/15/07..... 7,500,000 7,275,000
Specialty Equipment Senior Sub. Notes, 11.375%, 12/01/03. 14,620,000 15,460,650
Tokheim Corporation Senior Sub. Notes, 11.5%, 8/01/06.... 2,446,000 2,763,980
- ---------------------------------------------------------------------------------------------------
38,415,915
- --------------------------------------------------------------------------------------------------
Total Corporate Bonds-85.43% (cost-$1,965,930,138) 1,748,414,648
- ---------------------------------------------------------------------------------------------------
Foreign Bonds-
Foreign Bonds - 4.90%
- ------------------------------------------------------------------------------------------------------
Greycoat PLC Finsbury Circus, 12.50%, 4/01/02 GBP 10,000,000 14,615,000
Argentina GlobalBonds, 9.75%, 9/19/27.................... 32,751,000 26,937,698
Republic of Brazil Disc Ser Z-L,FRN,Libor +.8125%,4/15/24 38,000,000 22,063,750
Republic of Korea Unsub., 8.875%, 4/15/08................ 35,000,000 30,121,000
Venezuela Par, 6.75%, 3/31/20 ........................... 10,000,000 6,581,250
- ------------------------------------------------------------------------------------------------------
Total Foreign Bonds-4.90% (cost-$112,291,697) 100,318,698
- ------------------------------------------------------------------------------------------------------
Number ofMarket Value
Stocks - Shares (Note B)
- -------------------------------------------------------------------------------------------------------
Common Stock - 11.13%
Advantica Restaurant Group+.............................. 1,217,762 5,784,369
Bankers Trust NY^........................................ 350,000 20,650,000
Chase Manhattan Corp..................................... 450,000 19,518,750
<PAGE>
Common Stock-continued Market Value
Shares (Note B)
- --------------------------------------------------------------------------------------------------------
Chubb Corp^........................................... 500,000$ 31,500,000
Citicorp.............................................. 100,000 9,293,750
Crompton &Knowles Corp................................ 93,024 1,354,662
Darling International, Inc.+.......................... 745,530 2,609,355
Gaylord Container Corp.+.............................. 1,243,799 4,042,347
Grand Union Co.+...................................... 932,146 7,690,204
International Airline Support Group+.................. 224,540 1,305,139
Jamboree Office REIT.................................. 50,307 4,276,095
JPSCapital+........................................... 1,038,823 5,453,821
J P Morgan & Co.^..................................... 200,000 16,925,000
Leucadia National Corp................................ 242,608 7,111,447
Little Switzerland, Inc.+............................. 273,659 889,392
MAXXAM, Inc.+......................................... 200,000 10,925,000
Marvel Entertainment Group+........................... 460,000 66,700
NL Industries......................................... 1,000,000 19,375,000
Specialty Equipment Co.+.............................. 400,000 7,950,000
StoneContainer Corp.+ ................................ 259,740 2,240,257
USLeather, Inc+....................................... 490,000 6,094,375
WestPoint Stevens, Inc.+^............................. 1,270,000 38,735,000
- ----------------------------------------------------------------------------------------------------------
Total Common Stocks-11.13% (cost-$215,127,617)....... 227,840,646
Preferred Stocks - .17%
- ----------------------------------------------------------------------------------------------------------
American Restaurant Group, PIK 12%.................... 3,500 3,500,000
- ----------------------------------------------------------------------------------------------------------
Total Preferred Stocks-.17% (cost-$3,500,000)......... 3,500,000
- -----------------------------------------------------------------------------------------------------------
Warrants and Units Number of Market
Value
Name of Issuer.............................. Shares or Units (Note B)
- -----------------------------------------------------------------------------------------------------------
Warrants and Units - .08%+
- -----------------------------------------------------------------------------------------------------------
Cookies USA,Inc. Warrants............................. 630 1
Federated Dept. Stores C Warrants..................... 10,000 122,500
Federated Dept. Stores D Warrants..................... 25,000 312,500
Homeland Holding Corp. Warrants....................... 6,687 66
Wherehouse Entertainment A Warrants................... 81,164 969,910
Wherehouse Entertainment B Warrants................... 14,091 109,093
Wherehouse Entertainment C Warrants................... 14,091 95,297
- ------------------------------------------------------------------------------------------------------------
Total Warrants and Units-.08% (cost-$1,097,193)...... 1,609,367
- ------------------------------------------------------------------------------------------------------------
...........Total Investments-101.71% (cost-$2,297,946,665) $2,081,683,359
==============================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
~ Non-income producing security due to default or bankruptcy filing
+ Non-income producing security
# 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)
PIK Payment in Kind
GBP Principal denoted in British Pounds Sterling
Federal Tax Information:
At September 30, 1998, the aggregate cost of investment securities fo
income tax purposes was $2,298,045,395. Net unrealized depreciation aggregated
$216,362,036 of which $77,694,895 related to appreciated investment securities
and $294,056,931 related to depreciated investment securities. The Form 1099
you receive in January 1999 will show the tax status of all distributions paid
to your account in calendar 1998.
<PAGE>
Capital Gains Distribution:
Pursuant to section 852 of the Internal Revenue Code, the fund hereby
designates $36,664,245 as capital gain for its taxable year ended September 30,
1998.
Dividends Received Deductions for Corporations:
The fund has designated 7.145% of the distributions from net investment income
as qualifying for dividends received deduction for corporations.
<PAGE>
<TABLE>
<CAPTION>
The accompanying notes are an integral part of the financial statements.
=========================================================================================================================
September 30, 1998
- ---------------------------------------------------------------------------------------------------------------------------
Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments-at market value (cost $2,297,946,665)-Note B $2,081,683,359
Interest receivable 58,313,795
Receivable for securities sold 800,359
Receivable for shares of beneficial interest sold 3,744,199
Receivable for dividends 725,000
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets 2,145,266,712
Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
Notes payable 90,826,838
Payable for shares of beneficial interest repurchased 3,778,602
Trustee fees payable-Note C 2,576,345
Accrued expenses 1,418,284
IRAfees payable 11,030
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities 98,611,099
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets $2,046,655,613
============================================================================================================================
Net Assets Consist of (Note B):
Capital, at a $1.00 par value $ 196,523,494
Paid in surplus 2,019,936,840
Accumulated net investment income 9,892,802
Accumulated net realized gain on investments 36,565,505
Net unrealized depreciation of investments (216,263,028)
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets, for 196,523,494 shares outstanding $2,046,655,613
===========================================================================================================================
Net Asset Value, offering price and redemption
price per share ($2,046,655,613/196,523,494 shares) $10.42
===========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The accompanying notes are an integral part of the financial statements
September 30, 1998
- -------------------------------------------------------------------------------------------------------------------------
Investment Income
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Interest $198,114,280
Dividends 13,897,782
Other Income 5,724,029
- ---------------------------------------------------------------------------------------------------------------------------
Total Income 217,736,091
Expenses
- ----------------------------------------------------------------------------------------------------------------------------
Trustee fees-Note C $11,565,681
Interest-Note F 2,004,261
Administrative expenses and salaries 933,994
Printing, postage and stationary 388,586
Registration and filing fees 360,893
Computer and related expenses 304,802
Custodian fees 135,389
Legal fees 119,324
Auditing fees 72,834
Telephone 72,330
Other expenses 32,951
Insurance 21,960
- --------------------------------------------------------------------------------------------------------------------------
Total Expenses 16,013,005
- --------------------------------------------------------------------------------------------------------------------------
Net Investment Income 201,723,086
Realized and Unrealized Gain (Loss) on Investments-Note B:
Net realized gain from investment transactions 37,473,557
Change in unrealized appreciation/depreciation of investments
and assets and liabilities in foreign currencies (339,027,495)
- -------------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations $(99,830,852)
=========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended September 30 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Operations:
Net investment income $201,723,086 $138,186,031
Net realized gain from investment transactions 37,473,557 13,597,710
- --------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation of investments (339,027,495) 118,703,536
- -------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (99,830,852) 270,487,277
Distributions to Shareholders from Net Investment Income(191,510,245) (140,252,504)
($.96 and $1.00 per share, respectively)
- -------------------------------------------------------------------------------------------------------------------------
From Net Trust Share Transactions-Note D 263,814,943 743,463,087
- --------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (27,526,154) 873,697,860
- --------------------------------------------------------------------------------------------------------------------------
Beginning of Period 2,074,181,767 1,200,483,907
- ---------------------------------------------------------------------------------------------------------------------------
End of Period (including undistributed net investment
income of $9,892,802 and $861,454, respectively) $2,046,655,613 $2,074,181,767
===========================================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-mos
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