To the Stockholders:
Enclosed is our semi-annual report for the period ended March 31, 2000.
Net asset value per share ended at $9.37, down from $10.08 per share at
September 30, 1999, mostly offset by dividends totaling $.615 during the period.
The successive raising of interest rates by the Federal Reserve had a
naturally on and off depressing effect on bond prices, adding to a perception
that a resulting economic slowdown is coming. Meanwhile, we are seeing very good
corporate earnings and price increases, such as in the paper and chemical
sections, not to mention petroleum which has been seen by all at the gas pump.
This has the effect of boosting the security behind the bonds we hold in these
sectors.
As a holder of a few foreign sovereign obligations, we have noticed
agitation for the international debt forgiveness in some areas. One is reminded
of the rather tough but true comment of President Coolidge in 1925, to the
effect that "... they hired the money, didn't they?" in response to a question
on foreign debt forgiveness. Those in a fiduciary position e.g., bank directors
and insurance and other corporate officials, inter alia, cannot accede to a
giveaway of shareholder assets. Governments can, by vote of elected officials,
give taxpayer money away, as can charitable organizations by way of grants.
As reported in our Annual Report, we have oriented the Fund's
investments toward "hard" assets, eschewing companies that are losing money and
dependent on stock and bond sales to finance their future business plans. As was
said years ago, "there's no there there" in many cases.
For certain sectors of the stock market, the current security prices in
relation to earnings have no historical analogy. In some cases growth
projections and multiples imply ultimate values exceeding our future gross
national product. Other sectors, ignored by investors, sell at more traditional
valuations. 1999 saw the shares of about one half of New York Stock Exchange
listed companies decline in price during the year.
With average dividends at 2.3% of the Value Line Index at March 31, our
yield of over five times this should, in our opinion, ultimately result in
better value for our holdings.
Moreover, the Dow Jones Industrial Average, one measure of market
performance, crossed the 10,000 mark just over a year ago. As this is written,
this average is now just over 4% higher than this. With our dividend rate well
in excess of this, and if other market sectors similarly perform (or worse), our
dividend yield could be seen as even more attractive.
Respectfully submitted,
Ernest E. Monrad
Chairman
May 5, 2000
<PAGE>
<TABLE>
Historical Information
(unaudited)
Distribution Per Share
At End of Fiscal Year During Fiscal Year Average
------------------------------------------------------------------------------------------------------------------------
Fiscal
Year Approximate Full Net Asset Total From From Monthly
Ended Number of Shares Value Net Net Realized Net Asset
Sept. 30 Shareholders 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 $0.00 $9.86
1951 113 51,070 11.09 566,238 0.6 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 16.3
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 1.245 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 0.8 0.8179 17.33
1962 1,508 492,454 16.48 8,111,024 0.8 0.4345 17.45
1963 2,142 676,976 17.8 12,046,866 0.8 0.4134 17.7
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 18.8
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 0.9 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 15.3 34,032,661 0.99 0.4378 17.07
1970 5,066 2,618,638 14.15 37,049,008 1.035 0 14.57
1971 5,574 3,174,649 15.23 48,329,677 1.1 0 15.04
1972 6,276 3,924,201 15.75 61,787,749 1.15 0 15.74
1973 7,269 4,541,622 15.18 68,896,938 1.14 0 15.62
1974 7,380 4,735,497 12.35 58,446,955 1.16 0 13.95
1975 8,354 5,995,696 13.04 78,126,666 1.21 0 13.1
1976 10,023 8,067,930 14.57 117,514,100 1.25 0 14.02
1977 12,871 10,781,998 14.93 160,882,937 1.28 0 14.96
1978 13,717 11,838,531 14.03 166,015,297 1.28 0 14.34
1979 13,924 12,463,013 13.01 162,045,583 1.285 0 13.89
1980 13,086 12,405,590 11.26 139,586,138 1.34 0 11.78
1981 11,828 12,249,619 9.38 114,852,760 1.395 0 10.35
1982 12,792 13,360,184 10.88 145,243,484 1.41 0 10.01
1983 13,027 14,361,773 11.83 169,821,605 1.44 0 11.96
1984 11,634 15,324,746 10.98 168,229,381 1.46 0 10.34
1985 11,991 17,887,582 12.19 217,989,344 1.46 0 11.77
1986 14,431 23,037,102 13.6 313,197,229 1.46 0 13.17
1987 17,532 26,987,069 12.89 347,841,198 1.46 0 13.63
1988 19,107 33,268,240 12.16 404,218,905 1.94 0 12.13
1989 18,749 34,498,332 11.18 385,389,718 1.54 0 11.64
1990 16,895 31,459,941 8.81 277,133,819 1.43 0 9.78
1991 15,747 35,220,038 8.83 310,667,350 1.34 0 8.36
1992 15,918 47,684,814 9.5 452,773,909 1.15 0 9.22
1993 16,209 47,797,167 9.94 474,975,825 1.02 0 9.68
1994 17,460 58,148,389 10.02 582,093,443 0.99 0 10.27
1995 20,644 77,209,155 10.33 797,559,000 0.96 0 10.01
1996 24,631 110,229,375 10.9 1,200,483,907 0.99 0 10.46
1997 34,213 175,955,357 11.79 2,074,181,767 1 0 11.32
1998 38,781 196,523,494 10.42 2,046,655,613 0.96 0 11.58
1999 34,735 204,309,420 10.08 2,059,107,419 0.98 0.1772 10.35
2000(b) 30,378 169,280,346 9.37 1,586,151,288 0.615 0 9.68
------------------------------------------------------------------------------------------------------------------------
(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, 2000
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Average Annual Total Return
(unaudited)
One year ended March 31, 2000 -0.87%
Five years ended March 31, 2000 8.85%
Ten years ended March 31, 2000 11.35%
SEC YIELD(unaudited)
Yield calculated as of March 31, 2000 (unaudited): 12.84%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Summary of Net Assets
March 31, 2000 (unaudited)
<S> <C> <C>
% of
Market Value Net Assets
---------------------------------------------------------------------------------------------------------------------------
Corporate Bonds
Apparel $21,707,020 1.37%
Broadcast 2,010,000 0.13%
Building & Construction 7,518,855 0.47%
Chemicals 144,357,250 9.10%
Clothing 9,200,000 0.58%
Conglomerate 30,463,198 1.92%
Electronics 7,125,000 0.45%
Energy/Natural Resources 181,701,796 11.46%
Financial Services 42,160,000 2.66%
Food & Beverage 97,409,088 6.14%
Food Processing 35,907,931 2.26%
Food Service 8,600,000 0.54%
Gaming 176,440,100 11.12%
Grocery Stores 75,782,449 4.78%
Health Care Supplies 2,425,000 0.15%
Manufacturing/Service Industry 20,502,500 1.29%
Metals & Mining 114,711,024 7.23%
Miscellaneous Manufacturing 26,295,325 1.66%
Office Equipment 19,448,100 1.23%
Oil/Gas Exploration 14,355,000 0.91%
Paper/Forest Products 145,150,430 9.15%
Products and Manufacturing 28,861,720 1.82%
Publishing & Printing 2,600,500 0.16%
Real Estate 46,282,491 2.92%
Recreation 27,712,500 1.75%
Retail 12,787,500 0.81%
Retail Food Chains 74,072,699 4.67%
Transportation 16,745,000 1.06%
Miscellaneous 15,739,780 0.99%
------------------- -------------
Total Corporate Bonds $1,408,072,256 88.78%
Total Foreign Bonds 111,029,035 7.00%
Total Common Stocks 145,670,171 9.18%
Total Preferred Stocks 18,704,270 1.18%
Total Warrants 4,963,125 0.31%
------------------- -------------
Total Investments 1,688,438,857 106.45%
Cash & Receivables 64,940,493 4.09%
------------------- -------------
Total Assets 1,753,379,350 110.54%
Less Liabilities (167,228,062) -10.54%
=================== =============
Net Assets 1,586,151,288 100.00%
</TABLE>
<TABLE>
Schedule of Investments
March 31, 2000(unaudited)
<S> <C> <C>
Corporate Bonds Market Value
Name of Issuer Principal (Note B)
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Apparel --1.37%
----------------------------------------------------------------------------------------------------------------------------
Polymer Group Senior. Sub.Notes, 9%, 7/01/07 (a) $5,100,000 $4,488,000
Polymer Group Senior. Sub. Notes, 8.75%, 3/01/08 (a) 18,922,000 17,219,020
---------------------
21,707,020
Broadcast -- .13%
----------------------------------------------------------------------------------------------------------------------------
Young Broadcasting Corp., 11.75%, 11/15/04 2,000,000 2,010,000
Building & Construction -- .47%
----------------------------------------------------------------------------------------------------------------------------
Aluma Enterprises, Inc., 7.50%, 12/31/01 2,983,146 2,550,590
Henry Company Senior Notes, 10%, 4/15/08 2,500,000 1,750,000
Nortek, Inc. Senior Sub. Notes, 9.875%, 3/01/04 2,950,000 2,802,500
Nualt Enterprises, Inc., 12%,12/31/04 6,940,922 415,765
---------------------
7,518,855
Chemicals-- 9.10%
----------------------------------------------------------------------------------------------------------------------------
General Chemical Ind Senior Senior Sub Notes, 10.625%,5/01/09 3,000,000 2,835,000
Huntsman Corp. Sen. Sub. Floating Rate Notes, 7/01/07 (a) 39,500,000 35,550,000
Huntsman Packaging Corp. Sen. Sub. Notes, 9.125%, 10/01/07 (a) 4,500,000 4,230,000
Huntsman Polymer Corp. Senior Notes, 11.75%, 12/01/04 2,000,000 2,070,000
LaRoche Ind. Sen. Sub. Notes Ser. B, 9.5%, 9/15/07 (a) ( c ) 18,000,000 2,385,000
Lyondell Senior Secured Notes, 9.625%, 5/01/07 5,000,000 4,762,500
Lyondell Chemical Senior Secured Notes, 9.875%, 5/01/07 15,000,000 14,287,500
Lyondell Chemical Senior Sub. Notes, 10.875%, 5/01/09 10,000,000 9,375,000
Pioneer Americas Acq. Senior Notes, 9.25%, 6/15/07 (a) 15,500,000 13,020,000
Sterling Chemical, Inc. Sen. Sub. Notes, 11.75%, 8/15/06 12,500,000 10,500,000
Sterling Chemical Sen. Sub. Notes Series A, 11.25%, 4/01/07 30,025,000 24,320,250
Sterling Chemical Sen. Sub. Notes Series 12.375%, 7/15/06 14,340,000 14,806,050
Sterling Chemical Holding Sen. Disc. Notes, 0/12%, 8/15/08 (b) 18,980,000 6,215,950
---------------------
144,357,250
Clothing-- .58%
----------------------------------------------------------------------------------------------------------------------------
St. John Knits Senior Sub. Notes, 12.50%, 7/1/09 10,000,000 9,200,000
Conglomerate -- 1.92%
----------------------------------------------------------------------------------------------------------------------------
Jordan Industries Sen. Sub. Disc. Notes, 0/11.75%, 4/01/09 (b) 21,616,713 14,483,198
Jordan Industries Senior Notes Series D, 10.375%, 8/01/07 7,000,000 6,580,000
Jordan Industries Senior Notes, 10.375%, 8/01/07 10,000,000 9,400,000
---------------------
30,463,198
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
----------------------------------------------------------------------------------------------------------------------------
Electronics --.45%
----------------------------------------------------------------------------------------------------------------------------
Knowles Electronics Senior Sub. Notes, 13.125%, 10/15/09 $7,500,000 $7,125,000
Energy/Natural Resources --11.46%
----------------------------------------------------------------------------------------------------------------------------
Forest Oil Senior Sub. Notes, 10.50%, 1/15/06 5,000,000 5,025,000
Giant Industries Sen. Sub. Notes, 9.75%, 11/15/03 (a) 3,190,000 3,070,375
Husky Oil Bonds, 8.9/11.1875%, 8/15/28 20,000,000 19,462,000
Kelley Oil & Gas Senior Subordinated Notes, 10.375%, 10/15/06 7,500,000 3,393,750
Kelley Oil & Gas, Company Guaranteed, 14%, 4/15/03 9,928,000 9,828,720
Key Energy Senior Sub. Notes, 14%, 1/15/09 15,000,000 16,200,000
P & L Coal Senior Subordinated Notes, 9.625%, 5/15/08 (a) 25,000,000 22,250,000
Parker Drilling Co. Senior Sub. Notes, 9.75%, 11/15/06 14,195,000 13,698,175
R&B Falcon Senior Notes Series B, 6.75%, 4/15/05 (a) 27,340,000 23,649,100
R&B Falcon Corp. 9.5%, 12/15/08 5,000,000 4,799,676
R&B Falcon Corp Senior Notes, 12.25%, 3/15/06 10,000,000 10,775,000
Swift Energy Co. Senior Sub. Notes, 10.25%, 8/01/09 10,000,000 9,600,000
Tesoro Petroleum Corp. Senior Sub. Notes, 9%, 7/01/08 25,000,000 23,250,000
Universal Compression Sen. Disc. Notes, 0/9.875%, 2/15/08 (a)(b) 22,500,000 13,500,000
Wiser Oil Co. Sen. Sub. Notes, 9.5%, 5/15/07 4,000,000 3,200,000
---------------------
181,701,796
Financial Services -- 2.66%
----------------------------------------------------------------------------------------------------------------------------
Mercury Finance Senior Secured Notes, 10%, 3/23/01 20,000,000 19,400,000
Mercury Finance Senior Notes, 10.736%, 3/23/01 4,000,000 3,900,000
Metris Companies Inc. Senior Notes, 10.125%, 7/15/06 11,000,000 10,505,000
RBF Finance Company, 11%, 3/15/06 6,000,000 6,195,000
RBF Finance Company, 11.375%, 3/15/09 2,000,000 2,160,000
---------------------
42,160,000
Food & Beverage -- 6.14%
----------------------------------------------------------------------------------------------------------------------------
Chiquita Brands Senior Notes, 10.25%, 11/01/06 (a) 8,000,000 6,200,000
Chiquita Brands International Senior Notes, 10%, 6/15/09 10,000,000 7,700,000
Envirodyne Industries, Inc. Senior Notes, 10.25%, 12/01/01 (a) 20,395,000 10,248,488
Mrs. Fields Original Cookies Senior Notes, 10.125%, 12/01/04 3,500,000 2,835,000
Specialty Foods Corp. Sen. Notes Series B, 11.125%, 10/01/02 49,600,000 47,616,000
Specialty Foods Corp. Sen. Notes Series C, 12.125%, 10/01/02 23,040,000 22,809,600
---------------------
97,409,088
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Food Processing -- 2.26%
----------------------------------------------------------------------------------------------------------------------------
Boston Chicken Convertible Notes, 0%, 6/01/15 $18,500,000 $1,850
Del Monte Foods Corp. Senior Disc. Nts. Ser. B, 0%, 12/15/07 (b) 12,595,000 9,383,275
Premium Standard Farms, Inc. Sen.Nts., 11%, 9/17/03 11,855,470 11,499,806
SC International Service Senior Sub. Notes, 9.25%, 9/01/07 (a) 16,600,000 15,023,000
---------------------
35,907,931
Food Service -- .54%
----------------------------------------------------------------------------------------------------------------------------
B&G Foods Senior Sub. Notes, 9.625%, 8/01/07 (a) 10,000,000 8,600,000
Gaming -- 11.12%
----------------------------------------------------------------------------------------------------------------------------
Boyd Gaming Senior Sub. Notes, 9.5%, 7/15/07 (a) 45,000,000 41,400,000
Fitzgeralds Gaming Corp. Senior Sec. Notes, 12.25%, 12/15/04 (c) 5,000,000 2,800,000
Players International, Inc. Senior Notes, 10.875%, 4/15/05 15,000,000 15,525,000
Riviera Holdings Corp. First Mortgage Notes, 10%, 8/15/04 (a) 17,000,000 15,002,500
Trump Atlantic City First Mortgage Notes, 11.25%, 5/01/06 90,530,000 60,655,100
Las Vegas Sands/Venetian Mortgage Notes, 12.25%, 11/15/04 34,000,000 31,620,000
Las Vegas Sands/Venetian Sen. Sub. Nts., 10/14.25%, 11/15/05 (b) 12,500,000 9,437,500
---------------------
176,440,100
Grocery Stores -- 4.78%
----------------------------------------------------------------------------------------------------------------------------
Fleming Co., Inc. Medium Term Notes Series B, 8.74%, 9/19/02 10,000,000 9,443,000
Fleming Co., Inc. Medium Term Notes Series C, 6.04%, 7/19/00 2,500,000 2,462,750
Fleming Co., Inc. Senior Sub. Notes, 10.5%, 12/01/04 (a) 20,000,000 18,000,000
Fleming Co., Inc. Senior Sub. Notes Ser B, 10.625%, 7/31/07 (a) 18,000,000 15,750,000
Pathmark Stores Senior Sub. Notes, 9.625%, 5/01/03 30,000,000 21,900,000
Penn Traffic Senior Notes, 11%, 6/29/09 (b) 10,032,560 8,226,699
---------------------
75,782,449
Health Care Supplies -- .15%
----------------------------------------------------------------------------------------------------------------------------
Global Health Sciences Company 11%, 5/1/08 5,000,000 2,425,000
Manufacturing/Service Industry -- 1.29%
----------------------------------------------------------------------------------------------------------------------------
Axia, Inc. Senior Sub. Notes, 10.75%, 7/15/08 10,000,000 7,700,000
Haynes International Senior Notes, 11.625%, 9/01/04 10,000,000 5,525,000
Key Components LLC Senior Notes, 10.5%, 6/01/08 7,500,000 6,937,500
Safelite Glass Corp. Sen. Sub. Notes Series B, 9.875%, 12/15/06 7,000,000 140,000
Safelite Glass Corp. Sen. Sub. Notes, 9.875%, 12/15/06 10,000,000 200,000
---------------------
20,502,500
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
----------------------------------------------------------------------------------------------------------------------------
Metals & Mining -- 7.23%
----------------------------------------------------------------------------------------------------------------------------
Acme Metal, Inc. Senior Notes, 10.875%, 12/15/07 (c) $20,000,000 $2,800,000
CF&I Acquisition Term Loan, 9.5%, 3/31/03 7,477,907 6,879,674
Golden Northwest Aluminum 12%, 12/15/06 12,500,000 13,062,500
Inland Steel Corp. First Mortgage Nts. Series R, 7.9%, 1/15/07 6,500,000 5,517,200
Kaiser Aluminum Chemical Corp. Sub. Notes, 12.75%, 2/01/03 46,230,000 42,762,750
Kaiser Aluminum Chemical Corp Series B, 10.875%, 10/15/06 13,432,500 12,825,000
LTV Steel Co., Inc. Senior Notes, 8.2%, 9/15/07 8,000,000 6,800,000
LTV Steel Co., Inc. Senior Notes, 11.75%, 11/15/09 7,500,000 7,275,000
National Steel Corp. First Mortgage Notes, 8.375%, 8/01/06 3,000,000 2,688,900
Ormet Corp. Senior Notes, 11%, 8/15/08 (a) 15,000,000 14,100,000
---------------------
114,711,024
Miscellaneous Manufacturing -- 1.66%
----------------------------------------------------------------------------------------------------------------------------
Amtrol, Inc. Senior Sub. Notes, 10.625%, 12/31/06 6,645,000 6,545,325
Evenflo Company, Inc. Senior Notes, 11.75%, 8/15/06 7,000,000 6,825,000
Great Lakes Corp. Senior Sub. Notes, 11.25%, 8/15/08 7,000,000 7,210,000
LLS Corporation Senior Sub. Notes, 11.625%, 8/01/09 6,000,000 5,715,000
---------------------
26,295,325
Office Equipment -- 1.23%
----------------------------------------------------------------------------------------------------------------------------
Dictaphone Corp. Senior Sub. Notes, 11.75%, 8/01/05 19,845,000 19,448,100
Oil/Gas Exploration-- .91%
----------------------------------------------------------------------------------------------------------------------------
Comstock Resources Inc. Senior Notes, 11.25%, 5/01/07 (a) 14,500,000 14,355,000
Paper/Forest Products -- 9.15%
----------------------------------------------------------------------------------------------------------------------------
American Tissue Inc. Senior Secured Notes, 12.50%, 7/15/06 16,000,000 15,760,000
Crown Paper Senior Sub. Notes, 11%, 9/01/05 (c) 14,950,000 4,485,000
Four M Corporation Senior Notes, Series B, 12%, 6/01/06 1,500,000 1,488,750
Gaylord Container Corp. Senior Notes, 9.75%, 6/15/07 19,000,000 17,575,000
Gaylord Container Corp. Senior Notes, 9.375%, 6/15/07 15,000,000 13,725,000
Gaylord Container Corp. Senior Sub. Notes, 9.875%, 2/15/08 30,000,000 25,200,000
Maxxam Group Holdings, Inc. Senior Notes, 12%, 8/01/03 7,000,000 6,387,500
Packaging Resources, Inc. Senior Notes, 11.625%, 5/01/03 (a) 8,800,000 5,280,000
Stone Container Corp. Senior Notes, 12.58%, 8/01/16 (a) 43,100,000 45,686,000
Stone Container Corp. Senior Notes, 11.5%, 8/15/06 9,000,000 9,495,000
WTD Industries Senior Sub. Notes, 8%, 6/30/05 340,900 68,180
---------------------
145,150,430
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
----------------------------------------------------------------------------------------------------------------------------
Products and Manufacturing -- 1.82%
----------------------------------------------------------------------------------------------------------------------------
Motors and Gears Senior Notes Series D, 10.75%, 11/15/06 (a) $23,110,000 $22,416,700
Tokheim Senior Sub. Notes, 11.375%, 8/1/08 8,000,000 4,880,000
Tokheim Junior 12%, 9/30/08 PIK 8,441,317 1,565,020
---------------------
28,861,720
Publishing & Printing -- .16%
----------------------------------------------------------------------------------------------------------------------------
American Pad & Paper Senior Sub. Notes, 13%, 11/15/05 (c) 26,005,000 2,600,500
Real Estate -- 2.92%
----------------------------------------------------------------------------------------------------------------------------
Jamboree LLC Class A Senior Secured Notes, 8.18%, 3/27/02 4,938,725 4,839,951
Jamboree LLC Class B Senior Sub. Notes, 8.93%, 3/27/02 PIK 1,523,000 1,492,540
Rockefeller Center Properties Conv. Deb., 0% 12/31/00 47,000,000 39,950,000
---------------------
46,282,491
Recreation -- 1.75%
----------------------------------------------------------------------------------------------------------------------------
Coast Hotels & Casino Company Gtd. Notes, 9.50%, 4/01/09 17,000,000 15,640,000
Outboard Marine Corp. Debentures, 9.125%, 4/15/17 (a) 9,750,000 5,752,500
Outboard Marine Corp. Senior Notes, 10.75%, 6/01/08 8,000,000 6,320,000
---------------------
---------------------
27,712,500
Retail -- .81%
----------------------------------------------------------------------------------------------------------------------------
Eye Care Centers Inc. Senior Notes, 9.125%, 10/01/03 10,000,000 5,600,000
Eye Care Centers Inc. Sub. Ntes. FRN, 6mth. Libor + .398%, 5/01/08 5,000,000 2,875,000
National Vision Senior Notes, 12.75%, 10/15/05 12,500,000 4,312,500
---------------------
12,787,500
Retail Food Chains -- 4.67%
----------------------------------------------------------------------------------------------------------------------------
Advantica Restaurant Group Senior Notes, 11.25%, 1/15/08 (a) 58,768,700 41,872,699
American Restaurant Group Senior Notes, 11.5%, 2/15/03 (a) 15,500,000 10,230,000
FRD Acquisition Senior Notes, 12.5%, 7/15/04 (a) 15,000,000 5,250,000
Family Restaurants Senior Notes, 9.75%, 2/01/02 18,000,000 7,245,000
Planet Hollywood Senior Sub. Notes, 12%, 4/01/05 (c) 12,500,000 3,625,000
Romacorp, Inc. Senior Notes, 12%, 7/01/06 (a) 7,500,000 5,850,000
---------------------
74,072,699
Transportation -- 1.06%
----------------------------------------------------------------------------------------------------------------------------
Avis Rent A Car Senior Sub. Notes, 11%, 5/01/09 17,000,000 16,745,000
Miscellaneous -- .99%
----------------------------------------------------------------------------------------------------------------------------
Hines Horticulture Senior Sub. Notes, 11.75%, 10/15/05 1,951,000 1,911,980
Mosler, Inc. Senior Notes, 11%, 4/15/03 10,340,000 6,927,800
Precise Technology Sen. Sub. Notes, 11.125%, 6/15/07 7,500,000 6,900,000
---------------------
15,739,780
Total Corporate Bonds-- 88.78% (cost--$1,740,258,856) 1,408,072,256
---------------------
Foreign Bonds-- Market Value
Name of issuer Principal (Note B)
----------------------------------------------------------------------------------------------------------------------------
Foreign Bonds -- 7.00%
----------------------------------------------------------------------------------------------------------------------------
Brazil C Bond Debentures, 8%, 4/15/14 $11,952,842 $9,099,075
Argentina Global Bonds, 9.75%, 9/19/27 32,751,000 28,309,309
Republic of Brazil Discount Ser Z-L, FRN, Libor +.8125%, 4/15/24 26,366,000 28,574,153
Republic of Brazil Discount 11.625%, 4/15/04 35,000,000 35,240,800
Euro Stabilization Advances, 0%, 12/15/26 (d) 132,670 52,909
Eurotunnel Reset Facility 7.03%, 12/31/50 4,000,000 2,621,489
Venezuela Par, 6.75%, 3/31/20 10,000,000 7,131,300
---------------------
Total Foreign Bonds-- (cost--$107,720,550) 111,029,035
---------------------
Number of Market Value
Stocks-- Shares (Note B)
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Common Stock -- 9.18%
----------------------------------------------------------------------------------------------------------------------------
Advantica Restaurant Group (d) 1,217,762 1,826,643
Chubb Corp. (a) 500,000 33,781,250
Darling International, Inc. (d) 745,530 1,211,486
Gaylord Container Corp. (d) 1,243,799 7,929,219
Grand Union Co. (d) 932,146 2,738,179
Homefed Corp. (d) 192,222 123,022
International Airline Support Group (d) 224,540 870,093
Jamboree Office REIT (d) 50,307 3,521,490
JPS Capital (d) 1,038,823 3,635,880
J P Morgan & Co. 100,000 13,175,000
Little Switzerland, Inc. (d) 273,659 287,068
MAXXAM, Inc. (d) 200,000 5,700,000
NL Industries 1,000,000 13,687,500
Nualt Enterprises (d) 10,752 108
Ontario Limited (d) 1,773 6
Penn Traffic Common (d) 1,906,164 13,104,877
Smurfit-Stone Container 257,142 4,355,343
Specialty Equipment Co. (d) 257,700 5,347,275
Trilanco 2 Limited (d) 99 1
Trilanco 3 Limited (d) 99 1
US Leather, Inc. (d) 1,007,308 100,730
Walter Industries Inc 500,000 3,875,000
WestPoint Stevens, Inc. (a) 1,600,000 30,400,000
---------------------
Total Common Stocks-- (cost--$199,728,604) 145,670,171
---------------------
----------------------------------------------------------------------------------------------------------------------------
Preferred Stocks -- 1.18%
----------------------------------------------------------------------------------------------------------------------------
American Restaurant Group, PIK 12.00% 4,405 881,000
R&B Falcon Corp., PIK 13.875% 5/01/09 16,057 17,823,270
---------------------
Total Preferred Stocks-- (cost--$19,238,798) 18,704,270
---------------------
Warrants Number of Market Value
Name of Issuer Shares or Units (Note B)
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Warrants -- .31% (d)
----------------------------------------------------------------------------------------------------------------------------
Bradlees Warrants $67,384 $101,750
Homeland Holding Corp. Warrants 6,687 67
Key Energy Service Warrants 15,000 1,350,000
Marvel Warrants Class A 12,956 388
Marvel Warrants Class C 21,941 219
R&B Falcon Corp. Warrants 7,000 2,450,000
Venezuela Oil Linked Payment Obligation Warrants 50,000 50
Wherehouse Entertainment A Warrants 81,164 885,499
Wherehouse Entertainment B Warrants 14,091 94,551
Wherehouse Entertainment C Warrants 14,091 80,601
---------------------
Total Warrants-- (cost--$15,855,817) 4,963,125
---------------------
Total Investments-- 106.45% (cost--$2,082,802,625) $1,688,438,857
=====================
----------------------------------------------------------------------------------------------------------------------------
(a) Pledged to collateralize short-term borrowings (See Note F)
(b) Represents a zero coupon bond that converts to a fixed rate at a
designated future date. The date shown on the schedule of investments
represents the maturity date of the security and not the date of coupon
conversion.
(c) Non-income producing security due to default or bankruptcy filing
(d) Non-income producing security
PIK Payment in Kind
GBP Principal denoted in British Pounds Sterling
Federal Tax Information:
At March 31, 2000, the aggregate cost of investment securities for income tax
purposes was $2,082,802,625. Net unrealized depreciation aggregated $394,454,694
of which $63,911,179 related to appreciated investment securities and
$458,365,873 related to depreciated investment securities. The Form 1099 you
receive in January 2001 will show the tax status of all distributions paid to
your account in calendar 2000.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
Statement of Assets
and Liabilities(unaudited)
-------------------------------------------------------------------------------------------------------------------------
Six Months Ended March 31, 2000
-------------------------------------------------------------------------------------------------------------------------
Assets
-------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments--at market value (cost $2,082,802,625)--Note B $1,688,438,857
Interest receivable 53,511,523
Receivable for securities sold 6,657,498
Receivable for shares of beneficial interest sold 4,306,472
Receivable for dividends 465,000
-----------------------
Total Assets 1,753,379,350
Liabilities
-------------------------------------------------------------------------------------------------------------------------
Notes payable--Note F 158,970,054
Payable for shares of beneficial interest repurchased 3,989,968
Trustee fees payable--Note C 1,984,311
Accrued expenses 2,283,729
-----------------------
Total Liabilities 167,228,062
Net Assets $1,586,151,288
=======================
Net Assets Consist of (Note B):
Capital, at a $1.00 par value 169,280,346
Paid in surplus 1,793,220,038
Undistributed net investment income 3,835,854
Accumulated net realized gain on investments 14,178,494
Net unrealized depreciation of investments (394,363,444)
-----------------------
-----------------------
Net Assets, for 169,280,346 shares outstanding $1,586,151,288
=======================
Net Asset Value, offering price and redemption
price per share ($1,586,151,288/169,280,346 shares) $9.37
=======================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
Statement of Operations
(unaudited)
--------------------------------------------------------------------------------------------------------------------
Six Months Ended March 31, 2000
(unaudited)
--------------------------------------------------------------------------------------------------------------------
Investment Income
--------------------------------------------------------------------------------------------------------------------
<S> <C>
Interest $106,529,030
Dividends 1,562,821
Other Income 180,575
--------------------
Total Income 108,272,426
Expenses
--------------------------------------------------------------------------------------------------------------------
Interest--Note F $5,603,949
Trustee fees--Note C 4,214,438
Administrative expenses and salaries 687,372
Legal fees 163,178
Printing, postage and stationary 136,820
Computer and related expenses 83,714
Auditing fees 46,357
Telephone 39,283
Other expenses 36,061
Custodian fees 33,947
Insurance 27,508
--------------------
--------------------
Total Expenses 11,072,627
--------------------
Net Investment Income 97,199,799
--------------------
Realized and Unrealized Gain on Investments--Note B:
Net realized loss from investment transactions 14,689,628
Change in unrealized appreciation/depreciation of investments
and assets and liabilities in foreign currencies (129,073,861)
--------------------
Net Decrease in Net Assets Resulting from Operations ($17,184,434)
====================
The accompanying notes are part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
Statement of Changes
in Net Assets(unaudited) Six Months Year Ended
Ended March 31, September 30,
Six Months Ended March 31, 2000 2000 2000
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
From Operations:
Net investment income $97,199,799 $226,030,423
Net realized gain/(loss) from investment transactions 14,689,628 (263,513)
Change in unrealized appreciation of investments (129,073,861) (49,026,555)
----------------------------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (17,184,434) 176,740,355
----------------------------------------
Distributions to Shareholders from Net Investment Income (117,345,742) (211,784,335)
($.62 and $.98 per share, respectively)
Distributions to Shareholders from Net Realized Gains - (36,970,219)
----------------------------------------
($.18 per share)
Total Distributions (117,345,742) (248,754,554)
----------------------------------------
From Net Trust Share Transactions--Note D (338,425,955) 84,466,005
----------------------------------------
Total Increase (Decrease) in Net Assets
Net Assets:
Beginning of Period 2,059,107,419 2,046,655,613
----------------------------------------
End of Period (including undistributed net investment
income of $4,079,669 and 23,981,797 respectively) $1,586,151,288 $2,059,107,419
========================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
Six Months
Ended Year Ended September 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data March 31, 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
Net Asset Value:
Beginning of
Period $10.08 $10.42 $11.79 $10.90 $10.33 $10.02 $9.94 $9.50 $8.83 $8.81
Income From Investment
Operations:
Net investment income 0.52 1.05 1.01 0.98 0.98 0.98 0.98 1.04 1.15 1.32
Net realized and
unrealized gain/(loss)
on investment -0.61 -0.23 -1.42 0.91 0.58 0.29 0.09 0.42 0.67 0.04
Total from
investment operations -0.09 0.82 -0.41 1.89 1.56 1.27 1.07 1.46 1.82 1.36
Less Distributions:
Net investment
income -0.62 -0.98 -0.96 -1.00 -0.99 -0.96 -0.99 -1.02 -1.15 -1.34
Capital Gain - -0.18 - - - - - - - -
Net Asset Value:
End of Period 9.37 $10.08 $10.42 $11.79 $10.90 $10.33 $10.02 $9.94 $9.50 $8.83
Total Return -0.96% 7.99% -4.13% 18.16% 15.98% 13.44% 10.96% 16.25% 21.85% 17.63%
Ratios & Supplemental Data
Net assets end of
period (in
millions) $1,586.2 $2,059.1 $2,046.7 $2,074.2 $1,200.5 $797.6 $582.1 $475.0 $452.8 $310.7
Ratio of operating
expenses to
average
net assets 0.60%* 0.61% 0.61% 0.64% 0.66% 0.67% 0.70% 0.73% 0.79% 0.88%
Ratio of interest
expense to average
net assets 0.61%* 0.12% 0.09% 0.01% 0.03% 0.35% 0.36% 0.48% 0.65% 1.01%
Ratio of net investment
income to average
net assets 10.60%* 9.99% 8.73% 8.65% 9.41% 9.77% 9.37% 10.53% 12.36% 15.38%
Portfolio turnover
rate 3.64%* 27.00% 63.80% 33.44% 32.01% 40.58% 73.36% 75.72% 59.41% 33.77%
*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 B-Significant Accounting Policies
Significant accounting policies of the Trust are as follows: Valuation of
Investments: Securities for which market quotations are readily available are
valued at market values determined on the basis of the last quoted sale prices
prior to the close of the New York Stock Exchange (or the last quoted bid prices
in the event there are no sales reported on that day) in the principal market in
which such securities normally are traded, as publicly reported, or are
furnished by recognized dealers in such securities. Securities for which market
quotations are not readily available (including restricted securities and
private placements, if any) are valued at their fair value as determined in good
faith under consistently applied procedures approved by the Board of Trustees.
Securities may also be valued on the basis of valuations furnished by a pricing
service that uses both dealer supplied valuations and evaluations based on
expert analysis of market data and other factors if such valuations are believed
to reflect more accurately the fair value of such securities.
Federal Income Taxes: The Trust does not provide for federal income taxes as it
is the policy of the Trust to distribute its taxable income for each year in
taxable dividends so as to qualify as a regulated investment company under the
Internal Revenue Code.
State Income Taxes: Because the Trust has been organized by an Agreement and
Declaration of Trust executed under the laws of the Commonwealth of
Massachusetts, it is not subject to state income or excise taxes.
Net Asset Value: In determining the net asset value per share, rounding
adjustments are made for fractions of a cent to the next higher cent.
Distributions and Income: Income and capital gain distributions are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to differing
treatments for capital loss carryforwards and losses deferred due to wash sales.
Permanent book and tax differences relating to shareholder distributions will
result in reclassifications to paid-in surplus. The Trust's distributions and
dividend income are recorded on the ex-dividend date. Interest income, which
includes accretion of market discount, is accrued as earned. Original issue
discount on bonds and step-up bonds is accreted according to the effective-yield
method. Certain securities held by the Trust pay interest in the form of cash or
additional securities (known as Payment-in-kind or PIK); interest on such
securities is recorded on the accrual basis by means of the effective-yield
method.
Security Transactions: Security transactions are accounted for as of trade date.
Gains and losses on securities sold are determined on the basis of identified
cost.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note C-Trustees' Compensation
Trustees' compensation has been computed at the rate of 1/8 of 1% of the net
assets (before deduction of accrued Trustees' compensation) at the close of each
quarter, from which the Trustees have paid certain expenses specified in the
Declaration of Trust.
Note D-Shares of Beneficial Interest
At March 31, 2000, there were unlimited shares of beneficial interest authorized
with a par value of $1. Transactions in shares of beneficial interest were as
follows:
<TABLE>
Six Months Ended Year Ended
March 31,2000 September 30,1999
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
Shares Sold 35,883,216 $313,819,452 133,711,418 $1,399,494,794
Shares issued to shareholders
in reinvestment of distributions
from net investment income 8,265,687 70,778,869 16,505,806 170,971,668
------------ ------------- ------------ --------------
44,148,903 384,298,321 150,217,224 1,570,466,462
Shares repurchased (79,177,977) (687,995,202) (142,431,298) (1,486,000,457)
Net Increase (Decrease) (35,029,074) ($303,396,881) 7,785,926 $84,466,005
</TABLE>
Note E-Purchases and Sales of Investments
Purchases and sales of securities, other than short-term and government
securities, aggregated $55,398,561 and $452,483,253 respectively, for the period
ended March 31, 2000.
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, 2000 the Trust has unused lines of credit amounting to
$61,029,946 and used lines of credit amounting to $158,970,054. 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 months ended March 31, 2000:
<TABLE>
<S> <C> Maximum amount outstanding at any month end $216,453,918 Average amount
outstanding (total of daily outstanding principal balances divided by number of
days with debt outstanding during the period) $182,721,832 Average annualized
interest rate 6.15% </TABLE> 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 $506,653,700 and $446,705,736, respectively, have been
pledged to collateralize short-term borrowings.
