Northeast Investors Trust
Dear Shareholders;
We are pleased to present our Semi-Annual Report for the six month period
ended March 31, 1999. Net assets per share grew from $10.42 to $10.54. In
addition, a capital gains distribution of $.17723 per share was paid,
and quarterly dividends totaling $.50 per share were distributed to holders.
This resulted in a positive total return of 7.89% for the six month period.
Total net assets grew from $2,046,655,613 at September 30, 1998 to
$2,352,198,421 at March 31, 1999, reflecting a turnaround in the marketplace.
A 60-year old today has seen, despite talk that inflation is dead, a 1000%
increase during his lifetime in the cost of living. It would seem that Mark
Twain's reported being dead as premature might obtain. Those that today accept
a "riskless" Treasury yield of, say, 5%,and are in the 39.6% tax bracket,
barely keep ahead on an after tax basis of even the quiescent inflation we
have today. In fact, a goodly portion of the income should be saved to
protect one's purchasing power. Hence, even to stay constant much less get
ahead economically one has to obtain more than a "riskless" return.
As to the equity markets, what John Krakauer called "high altitude
cerebral edema" in his climb of Mount Everest might well apply to these
markets today-at least certain portions of them. The rates of return
projected by today's prices fly in the face of the fact that over a 20 year
period--one of the best equity markets of history--only slightly more than
1/3 of stocks have given a return of over 10%. One could argue that today's
heights have in fact, with the very strong stock market gains these last 15
years, corrected for the superior returns of these stocks, so that future
equity market gains will now be realized only through earnings not growth,
not multiple expansion. In this context, the high yield bond coupon offers
a nearly comparable return, in our opinion, to this earnings growth, with
somewhat more predictability than future earnings and price-earning ratios
which play such a large part in stock returns.
On a different subject, as the highly respected former chairman of
Vanguard, John Bogle, points out in his new book, many of the 13,000 plus
mutual fund sextant today are treated as a product by their sponsors--the
fund supermarkets. As fiduciaries in fact, as our very names and positions
declare, as well as substantial owners of the shares personally, we view
ourselves as managers of investment accounts for you, our co-owners. This
governs our thought process with respect to the Trust.
In the recent period, we added to the energy sector which we saw as
unduly depressed, with a turnaround in oil prices so far substantiating this
thesis. Our container based and other forest products companies seem to be
enjoying rising prices at long last and the good economic conditions are
lasting longer than any in history. While this history tells us that
economies do turn, so far this economy has had the effect of strengthening the
underlying cash flow of the companies in our debt portfolio.
The year 2000 computer problem has had significant press these last
few years. In a recent speech, the President of the Federal Reserve Bank of
Boston indicated she felt that most large institutions were ready for it, but
Europe, Asia and smaller domestic companies could perhaps have problems. While
one can not of course, represent or warrant future perfection or even predict
results on anything with absolute accuracy, we believe our efforts will lead to
a satisfactory outcome at Northeast in this area.
Respectfully submitted,
Ernest E. Monrad
Chairman of the Trustees
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<TABLE>
Distribution Per Share
Fiscal At End of Fiscal Year During Fiscal Year Average
- --------------------------------------------------------------------------------
Year Approximate Full Net Asset Total From From Monthly
Ended Number of Shares Value Net Net Realized Net Asset
Sept.30 Share
holders Outstanding Per Share Assets Income Gain Value
------- ----------- --------- ------ ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1950(a) 67 27,685 $10.12 $ 280,172 $0.22 $0.0000 $ 9.86
1951 113 51,070 11.09 566,238 0.60 0.2709 10.71
1952 159 78,519 11.33 889,359 0.61 0.2597 11.28
1953 193 96,413 10.83 1,044,115 0.65 0.1046 11.57
1954 290 131,031 14.17 1,855,734 0.61 0.2269 12.75
1955 366 159,278 16.93 2,695,322 0.675 0.3886 16.30
1956 417 168,256 16.87 2,837,437 0.745 0.3185 17.65
1957 437 180,360 14.57 2,626,103 0.76 1.2450 16.72
1958 505 210,929 16.55 3,489,777 0.76 0.6658 15.75
1959 694 259,709 16.77 4,354,809 0.76 1.6951 18.36
1960 884 316,915 15.73 4,986,360 0.79 0.5663 16.58
1961 1,156 391,126 17.23 6,739,320 0.80 0.8179 17.33
1962 1,508 492,454 16.48 8,111,024 0.80 0.4345 17.45
1963 2,142 676,976 17.80 12,046,866 0.80 0.4134 17.70
1964 2,800 981,037 18.48 18,122,167 0.83 0.4899 18.36
1965 3,380 1,238,570 18.46 22,855,525 0.84 0.4642 18.80
1966 3,678 1,445,424 16.03 23,163,540 0.86 0.4346 18.08
1967 3,773 1,644,607 17.31 28,454,561 0.90 0.3157 17.08
1968 3,932 1,954,413 17.74 34,657,130 0.94 0.4357 17.31
1969 4,396 2,225,423 15.30 34,032,661 0.99 0.4378 17.07
1970 5,066 2,618,638 14.15 37,049,008 1.035 0.0000 14.57
1971 5,574 3,174,649 15.23 48,329,677 1.10 0.0000 15.04
1972 6,276 3,924,201 15.75 61,787,749 1.15 0.0000 15.74
1973 7,269 4,541,622 15.18 68,896,938 1.14 0.0000 15.62
1974 7,380 4,735,497 12.35 58,446,955 1.16 0.0000 13.95
1975 8,354 5,995,696 13.04 78,126,666 1.21 0.0000 13.10
1976 10,023 8,067,930 14.57 117,514,100 1.25 0.0000 14.02
1977 12,871 10,781,998 14.93 160,882,937 1.28 0.0000 14.96
1978 13,717 11,838,531 14.03 166,015,297 1.28 0.0000 14.34
1979 13,924 12,463,013 13.01 162,045,583 1.285 0.0000 13.89
1980 13,086 12,405,590 11.26 139,586,138 1.34 0.0000 11.78
1981 11,828 12,249,619 9.38 114,852,760 1.395 0.0000 10.35
1982 12,792 13,360,184 10.88 145,243,484 1.41 0.0000 10.01
1983 13,027 14,361,773 11.83 169,821,605 1.44 0.0000 11.96
1984 11,634 15,324,746 10.98 168,229,381 1.46 0.0000 10.34
1985 11,991 17,887,582 12.19 217,989,344 1.46 0.0000 11.77
1986 14,431 23,037,102 13.60 313,197,229 1.46 0.0000 13.17
1987 17,532 26,987,069 12.89 347,841,198 1.46 0.0000 13.63
1988 19,107 33,268,240 12.16 404,218,905 1.94 0.0000 12.13
1989 18,749 34,498,332 11.18 385,389,718 1.54 0.0000 11.64
1990 16,895 31,459,941 8.81 277,133,819 1.43 0.0000 9.78
1991 15,747 35,220,038 8.83 310,667,350 1.34 0.0000 8.36
1992 15,918 47,684,814 9.50 452,773,909 1.15 0.0000 9.22
1993 16,209 47,797,167 9.94 474,975,825 1.02 0.0000 9.68
1994 17,460 58,148,389 10.02 582,093,443 0.99 0.0000 10.27
1995 20,644 77,209,155 10.33 797,559,000 0.96 0.0000 10.01
1996 24,631 110,229,375 10.90 1,200,483,907 0.99 0.0000 10.46
1997 34,213 175,955,357 11.79 2,074,181,767 1.00 0.0000 11.32
1998 38,781 196,523,494 10.42 2,046,655,613 0.96 0.0000 11.58
1999(b) 36,796 223,251,655 10.54 2,352,198,421 0.50 0.1772 10.43
(a) From March 1, 1950, date of organization of the Trust. The shares were
initially sold on March 1,1950 at a net asset value of $10.00 per share.
(b) Six months ended March 31, 1999
</TABLE>
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<TABLE>
<S> <C>
Average Annual Total Return (unaudited)
One year ended March 31, 1999 -2.43%
Five years ended March 31, 1999 10.32%
Ten years ended March 31, 1999 10.75%
Yield calculated as of March 31, 1999 (unaudited): 9.51%
</TABLE>
<TABLE>
<S> <C> <C>
% of
Market Value Net Assets
Corporate Bonds
Advertising $ 7,525,000 .35%
Apparel 26,412,150 1.12%
Building & Construction 19,538,179 .83%
Chemicals 135,239,500 5.75%
Computer Software & Services 8,820,000 .37%
Conglomerate 30,491,029 1.30%
Energy/Natural Resources 248,716,240 10.57%
Entertainment 21,600,000 .92%
Fast Food Services 277,500 .01%
Financial Services 14,032,500 .60%
Food & Beverage 102,556,650 4.36%
Food Processing 34,832,876 1.48%
Food Service 9,700,000 .41%
Furniture 22,450,000 .95%
Gaming 314,800,038 13.38%
Grocery Stores 123,799,410 5.26%
Manufacturing/Service Industry 40,786,250 1.73%
Metals & Mining 167,765,606 7.13%
Miscellaneous Manufacturing 21,038,875 .89%
Office Equipment 14,288,400 .61%
Paper & Forest Products 183,084,920 7.78%
Petroleum & Drilling 9,720,000 .41%
Producing & Manufacturing 35,228,350 1.50%
Publishing & Printing 15,863,050 .67%
Real Estate 42,124,300 1.79%
Recreation 41,957,500 1.78%
Retail 26,040,360 1.11%
Retail Food Chains 108,585,949 4.62%
Transportation 4,370,000 .18%
Miscellaneous 20,138,455 .86%
Total Corporate Bonds 1,851,783,087 78.72%
Total Foreign Bonds 123,069,239 5.23%
Total Common Stocks 251,930,164 10.71%
Total Preferred Stocks 3,921,000 .17%
Total Warrants and Units 1,716,613 .07%
Total Repurchase Agreement 59,465,184 2.53%
Total Investments 2,291,885,287 97.43%
Cash & Receivables 70,974,552 3.02%
Total Assets 2,362,859,839 100.45%
Less Liabilities (10,661,418) (.45)%
Net Assets 2,352,198,421 100.00%
</TABLE>
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<TABLE>
Corporate Bonds Market Value
<CAPTION>
Name of Issuer Principal (Note B)
<S> <C> <C>
Advertising --.35%
Outdoor Communications Co.Sen.Sub.Notes, 9.25%, 8/15/07 7,000,000 $7,525,000
Apparel -- 1.12%
Ann Taylor, Inc. Sub. Notes, 8.75%, 6/15/00^ 2,000,000 2,032,500
Polymer Group, Inc. Senior Sub. Notes, 9%, 7/01/07^ 5,100,000 5,221,125
Polymer Group, Inc. Senior Sub. Notes, 8.75%, 3/01/08^ 18,922,000 19,158,525
26,412,150
Building & Construction -- .83%
Aluma Enterprises, Inc., 7.50%, 12/31/01 4,144,178 3,802,285
Associated Materials,Inc.Sen.Sub.Deb.Notes,9.25%,3/01/08^4,000,000 4,050,000
Henry Company Senior Notes, 10%, 4/15/08 2,500,000 2,500,000
Nortek, Inc. Senior Sub. Notes, 9.875%, 3/01/04 5,950,000 6,210,312
Nualt Enterprises, Inc., 12/6%,12/31/04 7,042,799 2,975,583
19,538,179
Chemicals-- 5.75%
Huntsman Corp. Senior Sub. FRN (Libor + .325%), 7/01/07^ 39,500,000 37,130,000
Huntsman Packaging Corp.Sen.Sub.Notes,9.125%,10/01/07^ 4,500,000 4,500,000
Huntsman Polymer Corp. Senior Notes, 11.75%, 12/01/04 14,000,000 14,945,000
LaRoche Ind. Senior Sub. Notes Ser. B, 9.5%, 9/15/07^ 18,000,000 13,500,000
PCI (Pioneer) Canada, Inc. Senior Notes, 9.25%,10/15/07 4,000,000 3,200,000
Pioneer Americas Acq. Corp. Senior Notes, 9.25%, 6/15/07 17,500,000 14,525,000
Sterling Chemical, Inc.Senior Sub.Notes,11.75%,8/15/06 12,500,000 11,750,000
Sterling Chemical, Inc.Sen.Sub.Nts.Ser A,11.25%,4/01/07 30,025,000 27,623,000
Sterling Chemical Holding Sen. Disc.Nts, 0/12%,8/15/08# 18,980,000 8,066,500
135,239,500
Computer Software & Services -- .37%
Unisys Corporation Senior Notes Series B, 12%, 4/15/03^ 8,000,000 8,820,000
Conglomerate -- 1.30%
Jordan Industries Senior Sub.Disc.Nts.,0/11.75%,4/01/09# 21,616,713 13,618,529
Jordan Industries Senior Notes Series C, 10.375%,8/01/07 7,000,000 6,947,500
Jordan Industries Senior Notes, 10.375%, 8/01/07 10,000,000 9,925,000
30,491,029
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
Energy/Natural Resources -- 10.57%
Forest Oil Corp. Senior Sub. Notes, 10.5%, 1/15/06 8,000,000 $8,240,000
Giant Industries Sen. Sub. Notes, 9.75%, 11/15/03^ 3,190,000 3,142,150
Harcor Energy, Inc. Senior Notes, 14.875%, 7/15/02 4,982,000 5,579,840
Husky Oil Ltd., 8.9/11.1875%, 8/15/28 20,000,000 19,700,000
Kelley Oil Corp. Senior Sub. Notes, 10.375%, 10/15/06 7,500,000 4,687,500
Key Energy Service, Inc. Sen. Sub. Units, 14%, 1/15/09 15,000,000 14,250,000
Nuevo Energy Co. Senior Notes, 9.5%, 4/15/06 1,145,000 1,162,175
Nuevo Energy Co. Senior Sub.Nts. Series B,8.875%, 6/01/08 9,500,000 9,310,000
Ocean Energy, Inc. Senior Sub. Notes, 8.875%, 7/15/07 20,000,000 19,850,000
P & L Coal Holdings Corp. Sen.Sub. Notes, 9.625%,5/15/08 25,000,000 25,937,500
Parker & Parsley Senior Notes, 8.875%, 4/15/05 9,330,000 9,050,100
Parker Drilling Co.Sen. Sub.Nts. Ser. D, 9.75%, 11/15/06 31,195,000 25,735,875
Pogo Producing Co. Sen. Sub. Nts. Ser. B, 8.75%, 5/15/07 2,000,000 1,860,000
Pogo Producing Co. Senior Sub. Notes, 10.375%, 2/15/09 10,000,000 10,150,000
R&B Falcon Corp. Senior Notes Series B, 6.5%, 4/15/03 5,000,000 4,200,000
R&B Falcon Corp. Senior Notes Series B, 6.75%, 4/15/05 28,340,000 22,388,600
R&B Falcon Corp Senior Notes Series B, 6.95%, 4/15/08 5,000,000 3,700,000
R&B Falcon Corp, 9.5%, 12/15/08 10,000,000 8,825,000
Santa Fe Energy Resource Comp. Sen.Sub.Deb.,11%,5/15/04^ 10,000,000 10,450,000
Tesoro Petroleum Corp. Senior Sub. Notes, 9%, 7/01/08 25,000,000 24,437,500
Universal Compression Inc.Sen.Disc.Nts,0/9.875%,2/15/08#^22,500,000 13,500,000
Wiser Oil Co. Senior Sub. Notes, 9.5%, 5/15/07 4,000,000 2,560,000
248,716,240
Entertainment -- .92%
Marvel Holdings Senior Notes, 0%, 4/15/98~ 5,000,000 50,000
Premier Parks Senior Notes, 12%, 8/15/03 20,000,000 21,550,000
21,600,000
Fast Food Service -- .01%
Boston Chicken Disc. Convertible Notes, 0%, 6/01/15~ 18,500,000 277,500
Financial Services -- .60%
Mercury Finance Senior Notes, 10%, 3/23/01 5,000,000 4,650,000
RBF Finance Comp. Senior Sec. Notes, 11%, 3/15/06 6,000,000 6,240,000
RBF Finance Comp. Senior Sec. Notes, 11.375%, 3/15/09 3,000,000 3,142,500
14,032,500
Food & Beverage -- 4.36%
Chiquita Brands Intl., Inc. Sen. Nts, 10.25%, 11/01/06 5,000,000 5,168,750
Envirodyne Industries, Inc. Senior Nts, 10.25%,12/01/01^ 20,395,000 13,868,600
Keebler Corp. Senior Sub. Notes, 10.75%, 7/01/06 10,000,000 11,137,500
Mrs. Field's Original Cookies Sen. Nts, 10.125%,12/01/04 3,500,000 3,325,000
Specialty Foods Corp. Senior Notes, 10.25%, 8/15/01 49,600,000 46,996,000
Specialty Foods Corp. Sen. Nts Ser B, 11.125%, 10/01/02 23,040,000 22,060,800
102,556,650
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
Food Processing -- 1.48%
Del Monte Foods Corp.Sen Disc. Nts.Ser.B,0%, 12/15/07# 15,595,000 $ 11,579,287
Premium Standard Farms, Inc. Senior Nts., 11%, 9/17/03 10,652,470 11,013,589
SC International Service,Inc.Sen Sub.Nts,9.25%,9/01/07^ 12,000,000 12,240,000
34,832,876
Food Service -- .41%
B&G Foods Senior, Inc. Sub. Notes, 9.625%, 8/01/07^ 10,000,000 9,700,000
Furniture-- .95%
Lifestyle Furnish.Intl.Ltd. Sen.Sub.Nts,10.875%,8/01/06 20,000,000 22,450,000
Gaming -- 13.38%
Aztar Corp. Senior Sub. Notes, 11%, 10/01/02 1,652,000 1,687,105
Aztar Corp. Senior Sub. Notes, 13.75%, 10/01/04^ 35,548,000 39,147,235
Boyd Gaming Senior Sub. Notes, 9.5%, 7/15/07 45,000,000 46,125,000
Eldorado Resorts Senior Sub. Notes, 10.5%, 8/15/06 1,500,000 1,595,625
Fitzgeralds Gaming Corp. Sen Sec. Nts, 12.25%, 12/15/04 5,000,000 2,250,000
GB Property Funding Corp. Mort. Notes, 10.875%, 1/15/04~17,350,000 9,173,813
MGM Grand, Inc. Sen. Collateralized Nts,6.875%, 2/06/08 27,700,000 25,146,060
Players International, Inc. Sen Nts, 10.875%, 4/15/05 15,000,000 16,050,000
Rio Hotel & Casino, Inc. Sen Sub. Nts, 10.625%, 7/15/05 2,000,000 2,162,500
Rio Hotel & Casino, Inc. Sen Sub. Nts, 9.5%, 4/15/07 20,500,000 22,550,000
Riviera Holdings Corp. First Mortgage Nts, 10%, 8/15/04 17,000,000 15,045,000
Station Casinos, Inc. Senior Sub. Nts, 10.125%, 3/15/06 5,100,000 5,406,000
Station Casinos, Inc. Senior Sub. Notes, 9.75%, 4/15/07 1,000,000 1,057,500
Trump Atlantic City First Mtg Nts, 11.25%, 5/01/06 90,530,000 80,571,700
Venetian /Las Vegas Sands Mtg. Notes, 12.25%, 11/15/04 34,000,000 35,020,000
Venetian/Las Vegas Sands Sen.Sub.Nts,10/14.25%,11/15/05 12,500,000 11,812,500
314,800,038
Grocery Stores -- 5.26%
Fleming Co., Inc. Medium Term Notes, 9.24%, 2/28/00^ 5,000,000 4,963,000
Fleming Co., Inc. Medium Term Nts Ser B, 8.74%,9/19/02 10,000,000 9,604,000
Fleming Co., Inc. Medium Term Nts Ser C,6.04%,7/19/00^ 5,000,000 4,759,000
Fleming Co., Inc. Senior Sub. Notes, 10.5%, 12/01/04^ 20,000,000 18,750,000
Fleming Co., Inc. Sen Sub. Nts Ser B, 10.625%,7/31/07 18,000,000 16,650,000
P&C Food Market Senior Notes, 11.5%, 10/15/01~ 11,590,000 5,447,300
Pathmark Stores Senior Sub. Notes, 9.625%, 5/01/03 23,000,000 23,575,000
Penn Traffic Co. Senior Notes, 10.25%, 2/15/02^~ 32,518,000 15,283,460
Penn Traffic Co. Senior Notes, 11.50%, 4/15/06^~ 29,395,000 13,815,650
Star Markets Co. Senior Sub. Notes, 13%, 11/01/04 10,000,000 10,950,000
Victory Markets, Inc. Sub. Notes, 12.5%, 3/15/00~ 2,000,000 2,000
123,799,410
Manufacturing/Service Industry -- 1.73%
Axia, Inc. Senior Sub. Notes, 10.75%, 7/15/08 10,000,000 9,625,000
Haynes International Senior Notes, 11.625%, 9/01/04 10,000,000 10,950,000
Key Components LLC Senior Notes, 10.5%, 6/01/08 7,500,000 7,125,000
Safelite Glass Corp.Sen Sub. Nts.Ser B,9.875%,12/15/06 7,000,000 6,536,250
Safelite Glass Corp. Senior Sub. Nts., 9.875%, 12/15/06 7,500,000 7,125,000
40,786,250
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
Metals & Mining -- 7.13%
AK Steel Corporation Senior Notes, 10.75%, 4/01/04^ 35,500,000 $ 37,133,000
Acme Metal, Inc. Senior Notes, 10.875%, 12/15/07~ 20,000,000 1,600,000
CF&I Acquisition Term Loan, 9.5%, 3/31/03 8,300,504 7,511,956
Golden Northwest Alum First Mtg Nts., 12%, 12/15/06 12,500,000 12,375,000
Inland Steel Corp. First Mtg Nts. Ser R, 7.9%,1/15/07 6,500,000 6,305,000
Kaiser Aluminum Chem Corp. Sub. Nts, 12.75%, 2/01/03 46,230,000 44,727,525
Kaiser Aluminum Chem Corp Ser B, 10.875%, 10/15/06 13,500,000 13,770,000
LTV Steel Co., Inc. Senior Notes, 8.2%, 9/15/07 14,000,000 13,090,000
National Steel Corp. First Mtg Nts, 8.375%, 8/01/06 7,500,000 7,453,125
Ormet Corp. Senior Notes, 11%, 8/15/08^ 15,000,000 13,800,000
Weirton Steel Corp. Senior Notes, 10.875%, 10/15/99^ 10,000,000 10,000,000
167,765,606
Miscellaneous Manufacturing -- .89%
Amtrol, Inc. Senior Sub. Notes, 10.625%, 12/31/06 6,645,000 6,478,875
Evenflo Company, Inc. Senior Notes, 11.75%, 8/15/06 7,000,000 7,140,000
Great Lakes Corp. Senior Sub. Notes, 11.25%, 8/15/08 7,000,000 7,420,000
21,038,875
Office Equipment -- .61%
Dictaphone Corp. Senior Sub. Notes, 11.75%, 8/01/05 19,845,000 14,288,400
Paper/Forest Products -- 7.78%
Container Corp. Senior Notes, 11.25%, 5/01/04 10,500,000 11,077,500
Crown Paper Co. Senior Sub. Notes, 11%, 9/01/05 1,500,000 1,282,500
Florida Coast Paper Co. First Mtg Nts, 12.75%, 6/01/03 7,000,000 3,080,000
Four M Corporation Senior Notes, Ser B, 12%, 6/01/06 1,500,000 1,140,000
Gaylord Container Corp. Senior Notes, 9.75%, 6/15/07 19,000,000 18,335,000
Gaylord Container Corp. Senior Notes, 9.375%, 6/15/07 15,000,000 14,268,750
Gaylord Container Corp. Sen Sub. Nts, 9.875%, 2/15/08^30,000,000 26,400,000
Maxxam Group Holdings, Inc. Senior Notes, 12%, 8/01/03 7,000,000 7,490,000
Packaging Resources, Inc. Senior Nts,11.625%, 5/01/03^ 8,800,000 9,108,000
Stone Container Corp. Senior Sub. Nts, 11.5%,10/01/04 12,580,000 13,177,550
Stone Container Corp. Senior Notes, 12.58%, 8/01/16^ 43,100,000 46,063,125
Stone Container Corp. Sen Sub. Units, 12.25%,4/01/02 10,000,000 10,050,000
Stone Container Corp. Senior Notes, 11.5%, 8/15/06^ 20,000,000 21,425,000
WTD Industries Senior Sub. Notes, 8%, 6/30/05 340,900 187,495
183,084,920
Petroleum & Drilling -- .41%
Pride International, Inc. Senior Nts, 9.375%,5/1/07 10,125,000 9,720,000
Producing & Manufacturing -- 1.50%
Motors & Gears, Inc.Senior Nts Ser D,10.75%,11/15/06 23,110,000 23,918,850
Tokheim Corp. Senior Sub. Notes, 11.375%, 8/01/08 5,500,000 5,747,500
Tokheim Corp. Junior Notes, 12%, 9/30/08 PIK 7,725,000 5,562,000
35,228,350
Publishing & Printing -- .67%
American Pad & Paper Sen Sub. Notes, 13%, 11/15/05 26,005,000 15,863,050
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
Real Estate -- 1.79%
Jamboree LLC Class A Sen Secured Nts, 8.18%, 3/27/02 5,136,000 $5,033,280
Jamboree LLC Class B Sen Sub. Nts, 8.93%, 3/27/02 PIK 1,399,000 1,371,020
Rockefeller Center Properties Conv.Deb.,0%,12/31/00 47,000,000 35,720,000
42,124,300
Recreation -- 1.78%
Coast Hotels & Casinos Sen Sub. Nts, 9.5%, 4/01/09 10,000,000 10,100,000
Genmar Holdings, Inc. Sen Sub. Nts, 13.5%, 7/15/01 18,000,000 18,180,000
Outboard Marine Corp. Debentures, 9.125%, 4/15/17^ 9,750,000 7,117,500
Outboard Marine Corp. Senior Notes, 10.75%, 6/01/08 8,000,000 6,560,000
41,957,500
Retail -- 1.11%
Bradlees, Inc. Senior Sub. Notes, 11%, 8/01/02~ 2,000,000 1,760
Bradlees, Inc. Senior Sub. Notes, 9.25%, 3/01/03~ 15,455,000 13,600
Eyecare Ctrs of America, Inc.Sen Nts,9.125%,5/01/08 10,000,000 8,700,000
Eye Care Centers Sub. FRN (Libor + .398%), 5/01/08 5,000,000 4,200,000
National Vision Senior Notes, 12.75%, 10/15/05 12,500,000 13,125,000
26,040,360
Retail Food Chains -- 4.62%
Advantica Restaurant Group Sen Nts, 11.25%,1/15/08 58,768,700 59,944,074
American Restaurant Group Sen Nts, 11.5%, 2/15/03^ 15,500,000 13,969,375
FRD Acquisition Senior Notes, 12.5%, 7/15/04^ 13,000,000 13,650,000
Family Restaurants, Inc. Sen Nts, 9.75%, 2/01/02 18,000,000 11,160,000
Planet Hollywood Intl. Sen Sub. Nts, 12%, 4/01/05 12,500,000 2,437,500
Romacorp, Inc. Senior Notes, 12%, 7/01/06 7,500,000 7,425,000
108,585,949
Transportation -- .18%
Moran Transportation Co. Mtg Nts, 11.75%, 7/15/04^ 4,000,000 4,370,000
Miscellaneous -- .86%
Hines Horticulture Senior Sub. Nts, 11.75%, 10/15/05 1,951,000 2,107,080
Iron Mountain, Inc. Sen Sub. Nts, 10.125%, 10/01/06 2,500,000 2,700,000
Mosler, Inc. Senior Notes, 11%, 4/15/03 10,340,000 8,272,000
Precise Technology, Inc.Sen Sub.Nts,11.125%,6/15/07 7,500,000 7,059,375
20,138,455
Total Corporate Bonds--78.72% (cost--$2,045,026,953) 1,851,783,087
Foreign Bonds-- Market Value
Name of Issuer Principal (Note B)
Foreign Bonds -- 5.23%
Greycoat PLC Finsbury Circus, 12.50%, 4/01/02 GBP 15,000,000 $20,816,700
Argentina Global Bonds, 9.75%, 9/19/27 32,751,000 27,101,453
Brazil C Bond Debentures, 8%, 4/15/14 11,776,200 7,441,086
Rep of Brazil Dsc.Ser Z-L FRN(Libor+.8125%),4/15/24 38,000,000 23,560,000
Republic of Korea Unsub., 8.875%, 4/15/08 35,000,000 37,231,250
Venezuela Par, 6.75%, 3/31/20 10,000,000 6,918,750
Total Foreign Bonds--5.23% (cost--$125,713,782) 123,069,239
Number of Market Value
Stocks -- Shares (Note B)
Common Stock -- 10.71%
Advantica Restaurant Group+ 1,217,762 $6,088,810
Bankers Trust NY^ 350,000 30,887,500
Chase Manhattan Corp 400,000 32,525,000
Chubb Corp^. 500,000 29,281,250
Crompton & Knowles Corp. 93,024 1,465,128
Darling International, Inc.+ 745,530 1,351,273
Gaylord Container Corp.+. 1,243,799 9,328,493
Grand Union Co.+. 932,146 10,486,643
International Airline Support Group+ 224,540 898,160
Jamboree Office REIT 50,307 4,125,174
JPS Capital+ 1,038,823 5,843,379
J P Morgan & Co.^ 200,000 24,675,000
Leucadia National Corp. 242,608 7,338,892
Little Switzerland, Inc.+ 273,659 530,214
MAXXAM, Inc.+ 200,000 10,075,000
NL Industries 1,000,000 9,000,000
Specialty Equipment Co.+ 400,000 11,050,000
Smurfit-Stone Container Corp.+ 257,143 4,966,066
Town & Country 92,057 74,566
US Leather, Inc.+ 1,007,308 2,014,616
Walter Industries, Inc. 500,000 5,625,000
WestPoint Stevens, Inc.+^ 1,270,000 44,300,000
Total Common Stocks--10.71% (cost--$215,907,941) 251,930,164
Preferred Stocks -- .17%
American Restaurant Group Units, 12% PIK 3,921 3,921,000
Total Preferred Stocks--.17% (cost--$3,927,965) 3,921,000
Warrants and Units Number of Market Value
Name of Issuer Shares or Units (Note B)
Warrants -- .07%+
Federated Dept. Stores C Warrants 10,000 $153,750
Federated Dept. Stores D Warrants 25,000 387,500
Homeland Holding Corp. Warrants 6,687 67
Marvel Class A Warrants 12,956 2,332
Marvel Class B Warrants 8,306 83
Marvel Class C Warrants 21,941 1,317
Wherehouse Entertainment A Warrants 81,164 968,936
Wherehouse Entertainment B Warrants 14,091 108,430
Wherehouse Entertainment C Warrants 14,091 94,198
Total Warrants--.07% (cost--$1,084,641) 1,716,613
Principal
Repurchase Agreement--2.53%
Investors Bank & Trust Repurchase
Agreement 4.40% due 4/1/99 59,465,184 $59,465,184
Total Repurchase Agreement--2.53% (cost--$59,465,184)** 59,465,184
Total Investments--97.43% (cost--$2,451,126,466) $ 2,291,885,287
<FN>
** Acquired on March 31, 1999. Collateralized by $62,438,668 of various U.S.
Government mortgage-backed securities, due through 12/15/23. The maturity value
is $59,472,452. As an operating policy, the Trust, through the custodian bank,
secures receipt of adequate collateral supporting repurchase agreements.-(see
Note G)
~ 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 March
31, 1999, the aggregate cost of investment securities for income tax purposes
was $2,451,126,466. Net unrealized depreciation aggregated $158,677,960 of which
$110,445,914 related to appreciated investment securities and $269,123,874
related to depreciated investment securities.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended March 31, 1999
Assets
<S> <C>
Investmentsat market value (cost $2,451,126,466 Note B ) $2,291,885,287
Interest receivable 61,604,591
Interest receivable, (foreign securities) 192,623
Receivable for securities sold 837,277
Receivable for shares of beneficial interest sold 7,595,811
Receivable for dividends 744,250
Total Assets 2,362,859,839
Liabilities Payable for investments purchased 5,126,806
Payable for shares of beneficial interest repurchased 2,427,050
Trustee fees payable Note C 2,943,972
Accrued expenses 160,620
IRA fees payable 2,970
Total Liabilities 10,661,418
Net Assets $2,352,198,421
Net Assets Consist of (Note B):
Capital, ata $1.00 par value $ 223,251,655
Paid in surplus 2,274,082,860
Accumulated net investment income 11,342,548
Accumulated net realized gain on investments 2,762,537
Net unrealized depreciation of investments (159,241,179)
Net Assets, for 223,251,655 shares outstanding $2,352,198,421
Net Asset Value, offering price and redemption
price per share ($2,352,198,421/223,251,655 shares) $10.54
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended March 31, 1999
Investment Income
<S> <C>
Interest $112,539,052
Dividends 2,331,436
Other Income 1,228,117
Total Income 116,098,605
Expenses
Trustee feesNote C $5,839,296
Interest Expense 898,910
Administrative expenses and salaries 437,022
Printing, postage and stationery 185,423
Computer and related expenses 119,133
Legal fees 52,565
Registration and filing fees 51,194
Auditing fees 39,478
Telephone 30,926
Custodian fees 27,398
Other expenses 22,309
Insurance 13,202
Total Expenses 7,716,856
Net Investment Income 108,381,749
Realized and Unrealized Gain (Loss) on InvestmentsNote B:
Net realized gain from investment transactions 4,387,096
Change in unrealized depreciation of investments
and assets and liabilities in foreign currencies 57,021,849
Net Increase in Net Assets Resulting from Operations $169,790,694
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
March 31, September 30,
1999 1998
<S> <C> <C>
Increase (Decrease) in Net Assets
From Operations:
Net investment income . $108,381,749 $201,723,086
Net realized gain from investment transactions 4,387,096 37,473,557
Change in unrealized depreciation of investments 57,021,849 (339,027,495)
Net Increase (Decrease) in Net Assets Resulting
from Operations 169,790,694 (99,830,852)
Distributions to Shareholders from Net Investment
Income($.50 and $.96 per share, respectively) (107,019,109) (191,510,245)
Distributions to Shareholders from Capital Gains (36,970,580) -
($.17723 and $0 per share, respectively)
Total Distributions (143,989,689) (191,510,245)
From Net Trust Share TransactionsNote D 279,741,803 263,814,943
Total Increase (Decrease) in Net Assets 305,542,808 (27,526,154)
Net Assets:
Beginning of Period 2,046,655,613 2,074,181,767
End of Period (including undistributed
net investmentincome of $11,342,548 and
$9,892,802, respectively) $2,352,198,421 $2,046,655,613
</TABLE>
The accompanying notes are an integral part of the financial statements.
Six months
Ended March
31, 1999 Year Ended September 30,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data (unaudited) 1998 1997 1996 1995 1994 1993 1992 1991 1990
Net Asset Value:
Beginning of Period $10.42 $11.79 $10.90 $10.33 $10.02 $9.94 $9.50 $8.83 $8.81 $11.18
Income From Investment Operations:
Net investment income .50 1.01 .98 .98 .98 .98 1.04 1.15 1.32 1.45
Net realized and unrealized gain
(loss) on investment .30 (1.42) .91 .58 .29 .09 .42 .67 .04 (2.39)
Total from investment operations .80 (.41) 1.89 1.56 1.27 1.07 1.46 1.82 1.36 (.94)
Less Distributions:
Net investment income (.50) (.96) (1.00) (.99) (.96) (.99) (1.02) (1.15) (1.34) (1.43)
Capital Gain (.18) - - - -
Total Distributions: (.68) (.96) (1.00) (.99) (.96) (.99) (1.02) (1.15) (1.34) (1.43)
Net Asset Value:
End of Period $10.54 $10.42 $11.79 $10.90 $10.33 $10.02 $9.94 $9.50 $8.83 $8.81
Total Return 7.89% (4.13)% 18.16% 15.98% 13.44% 10.96% 16.25% 21.85% 17.63% (8.87)%
Ratios & Supplemental Data
Net assets end of period
(in millions) $2,352.1 $2,046.7 $2,074.2 $1,200.5 $797.6 $582.1 $ 475.0 $452.8 $310.7 $277.1
Ratio of operating expenses to
average net assets .61%** .61% .64% .66% .67% .70% .73% .79% .88% .78%
Ratio of interest expense to average
net assets .08%** .09% .01% .03% .35% .36% .48% .65% 1.01% .69%
Ratio of net investment income
to average net assets 9.66%** 8.73% 8.65% 9.41% 9.77% 9.37% 10.53% 12.36% 15.38% 14.35%
Portfolio turnover rate 16.57%** 63.80% 33.44% 32.01% 40.58% 73.36% 75.72% 59.41% 33.77% 21.23%
**Annualized
</TABLE>
<PAGE>
Note A Organization
Northeast Investors Trust (the Trust), a diversified open-end management
investment company (a Massachusetts Trust), is registered under the Investment
Company Act of 1940, as amended. Note BSignificant Accounting Policies
Significant accounting policies of the Trust are as follows:Valuation
of Investments: Securities for which market quotations are readily
available are valued at market values determined on the basis of the last quoted
sale prices prior to the close of the New York Stock Exchange (or the last
quoted bid prices in the event there are no sales reported on that day) in the
principal market in which such securities normally are traded, as publicly
reported, or are furnished by recognized dealers in such securities. Securities
for which market quotations are not readily available (including restricted
securities and private placements, if any) are valued at
their fair value as determined in good faith under consistently applied
procedures approved by the Board of Trustees. Securities may also be valued on
the basis of valuations furnished by a pricing service that uses both dealer
supplied valuations and evaluations based on expert analysis of market data and
other factors if such valuations are believed to reflect more accurately the
fair value of such securities. Federal Income Taxes: The Trust does not provide
for federal income taxes as it is the policy of the Trust to distribute its
taxable income for each year in taxable dividends so as to qualify as a
regulated investment company under the Internal Revenue Code.
State Income Taxes: Because the Trust has been organized by an Agreement and
Declaration of Trust executed under the laws of the Commonwealth of
Massachusetts, it is not subject to state income or excise taxes. Net Asset
Value: In determining the net asset value per share, rounding adjustments are
made for fractions of a cent to the next higher cent.
Distributions and Income: Income and capital gain distributions are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for capital loss carryforwards and losses deferred due to
wash sales. Permanent book and tax differences relating to shareholder
distributions will result in reclassifications to paid-in surplus. The Trusts
distributions and dividend income are recorded on the ex-dividend date.
Interest income, which includes accretion of market discount, is accrued as
earned. Original issue discount on bonds and step-up bonds is accreted
according to the effective-yield method. Certain securities held by the
Trust pay interest in the form of cash or additional securities (known as
Payment-in-kind or PIK); interest on such securities is recorded on the
accrual basis by means of the effective-yield method.Security Transactions:
Security transactions are accounted for as of trade date. Gains and losses
on securities sold are determined on the basis of identified cost.Use of
Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note C Trustees Compensation
Trustees compensation has been computed at the rate of 1/8 of 1% of the net
assets (before deduction of accrued Trustees compensation) at the close of each
quarter, from which the Trustees have paid certain expenses specified in the
Declaration of Trust. Note DShares of Beneficial Interest
At March 31, 1999, there were unlimited shares of beneficial interest
authorized with a par value of $1. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 1999 September 30, 1998
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
Shares sold 81,643,412 $851,914,499 112,631,489 $1,326,752,223
Shares issued to shareholders
in reinvestment of distributions from
net investment income 9,602,671 99,033,572 11,101,310 129,960,243
91,246,083 950,948,071 123,732,799 1,456,712,466
Shares repurchased (64,517,922) (671,206,268) (103,164,662) (1,192,897,523)
Net Increase 26,728,161 $279,741,803 20,568,137 $263,814,943
</TABLE>
Note E Purchases and Sales of Investments
Purchases and sales of securities, other than short-term and government
securities, aggregated $263,058,886 and $177,265,450, respectively, for the
period ended March 31, 1999.
Note F Short-term Borrowings
Short-term bank borrowings, which do not require maintenance of compensating
balances, are generally on a demand basis and are at rates equal to adjusted
money market interest rates in effect during the period in which such loans are
outstanding. At March 31, 1999 the Trust has unused lines of credit amounting to
$215,000,000. The committed lines of credit may be terminated at the banks
option at their annual renewal dates. The following information relates to
aggregate short-term borrowings for the
Six month period ended March 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Maximum amount outstanding at any month end $103,826,536
Average amountoutstanding (total of daily outstanding
principal balances divided by number of days with
debt outstanding during the period) $141,181,955
Average annualized interest rate 5.83%
</TABLE>
Interest expense includes commitment fees of $74,172. Under the most
restrictive arrangement, the Trust must pledge to the banks securities having
a market value equal to or greater than 200% of the total bank borrowings.
Securities with principal amounts and market values aggregating $462,671,000
and $472,093,570, respectively, have been pledged to collateralize short-term
borrowings.
Note G Repurchase Agreement On a daily basis, the Trust invests uninvested
cash balances into repurchase agreements secured by U.S. Government
obligations. Securities pledged as collateral for repurchase agreements
are held by the Trusts custodian bank until maturity of the repurchase
agreement. Provisions of the agreement ensure that the market value of the
collateral is sufficient in the event of default. However, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
<PAGE>
Trustees
Ernest E. Monrad C. Earl Russell
Robert B. Minturn, Jr. Fred L. Glimp
Bruce H. Monrad J. Murray Howe
Officers
Ernest E. Monrad, Chairman
William A. Oates, Jr., President
Gordon C. Barrett, Executive Vice President & Treasurer
Bruce H. Monrad, Executive Vice President
Robert B. Minturn, Jr., Vice President & Clerk
Kelly A. Beatty, Asst. Vice President
Lisa A. Hislop, Asst. Vice President
Lynn A. Manton, Asst. Vice President
Nancy A. Holler, Asst. Vice President
Custodian
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
Legal Counsel
Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Transfer Agent
Northeast Investors Trust
50 Congress Street
Boston, Massachusetts 02109
This report is prepared for the information of the shareholders of Northeast
Investors Trust and must not be given to others unless preceded or accompanied
by a copy of the current Prospectus by which all offerings of the Trusts shares
are made. It should be noted in reading this report and the letter to
shareholders that the record of past performance is not a representation as to
the Trusts future performance, and that the Trusts investments are subject to
market risks. Shares of the Fund are sold to investors at net asset value by
Northeast Investors Trust 50 Congress Street
Boston, Massachusetts 02109
800-225-6704
617-523-3588
The share price for Northeast Investors Trust is quoted daily in the Mutual
Funds section of most major newspapers under several abbreviations including: NE
Investors, NE Inv Tr.
