Dear Fellow Shareholders:
Enclosed is our 51st Annual Report for the period ended September 30,
2000. Net asset value was $9.08 per share, giving us a small positive total
return of 1.29% for the fiscal year. Dividends of $1.115 were paid during the
year, meeting our primary goal, the production of current income. Three, five
and ten-year trailing average annual returns were 1.60%, 7.52%, and 11.67%.
The calendar year 2000, so far, at the date of this report, has seen
major stock indices decline as much as: 9.7% on the NASDAQ (which traded off 32%
from its March high), 7.4% on the Dow and 2.2% on the S&P 500, and even more
after that time. Those depressing equity figures have naturally had a dampening
effect on the prices of high-yield bonds, especially in the telecom, media and
technology areas which we have largely eschewed, and the six Federal Reserve
rate increases, have exacerbated (or, in the eyes of some, caused) this decline.
However, our areas - the non-"TMT" ones - in these days of alphabet names -
remained under price pressure due to general economic concerns.
In late summer, a major financial publication came up with R2R - return
to rationality - to describe the markets of 2000. We hope we never left it.
Historically, P/E multiples of over 100 in stocks have usually not panned out
well but, for the investors in these stocks, hope seemed to spring eternal for
longer than one could have expected. For our part, we intend to continue to
emphasize investments in income-oriented securities of companies operating
established businesses.
As this is played out, we continue to try to meet our goal of the
production of high current income, seeking value in what are often significant
discounts on certain corporate bonds, an approach which historically has often
led to good returns.
On the personnel front, Bruce Monrad was elected Chairman by the
Trustees at their May meeting. I shall continue as a Trustee and co-portfolio
manager. With Bruce's substantial personal and familial holdings of our shares,
a keen analytical mind and knowledge of the securities markets, and over ten
years of portfolio management experience behind him, I am confident he will
continue to serve you, the shareholders, well.
Respectfully submitted,
Ernest E. Monrad
Trustee
October 24, 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 32,850 157,648,926 9.08 1,430,592,442 1.115 0 9.47
------------------------------------------------------------------------------------------------------------------------
(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.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Average Annual Total Return
(Unaudited)
One year ended September 30, 2000 1.29%
Five years ended September 30, 2000 7.52%
Ten years ended September 30, 2000 11.67%
SEC YIELD(unaudited)
Yield calculated as of September 30, 2000 (unaudited): 13.52%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Summary of Net Assets
September 30, 2000
<S> <C> <C>
% of
Market Value Net Assets
---------------------------------------------------------------------------------------------------------------
Corporate Bonds
Apparel $18,169,500 1.27%
Broadcast 2,047,500 0.14%
Building & Construction 5,410,746 0.38%
Chemicals 123,170,800 8.61%
Clothing 9,700,000 0.68%
Conglomerate 30,030,863 2.10%
Electronics 6,975,000 0.49%
Energy/Natural Resources 159,390,065 11.14%
Financial Services 47,639,092 3.33%
Food & Beverage 64,621,570 4.52%
Food Processing 36,255,578 2.53%
Food Service 7,250,000 0.51%
Gaming 171,142,025 11.96%
Grocery Stores 48,282,397 3.37%
Health Care-Supplies 475,000 0.03%
Manufacturing/Service Industry 14,756,250 1.03%
Metals & Mining 105,238,002 7.36%
Miscellaneous Manufacturing 25,429,850 1.78%
Office Equipment 18,852,750 1.32%
Oil/Gas Exploration 15,225,000 1.06%
Paper & Forest Products 123,550,180 8.64%
Production and Manufacturing 23,546,254 1.65%
Real Estate 48,108,937 3.36%
Recreation 23,086,250 1.61%
Retail 11,725,000 0.82%
Retail Food Chains 63,317,785 4.43%
Transportation 10,875,000 0.76%
Miscellaneous 8,164,755 0.57%
--------------- ----------
Total Corporate Bonds $1,222,436,149 85.45%
Total Foreign Bonds 110,180,236 7.70%
Total Common Stocks 153,525,768 10.73%
Total Preferred Stocks 23,763,920 1.66%
Total Warrants 6,509,663 0.46%
--------------- ----------
Total Investments 1,516,415,736 106.00%
Cash & Receivables 46,260,284 3.23%
--------------- ----------
Total Assets 1,562,676,020 109.23%
Less Liabilities (132,083,578) -9.23%
=============== ==========
Net Assets 1,430,592,442 100.00%
</TABLE>
<TABLE>
Schedule of Investments
September 30, 2000
<S> <C> <C>
Corporate Bonds Market Value
Name of Issuer Principal (Note B)
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Apparel --1.27%
-------------------------------------------------------------------------------------------------------------------------------
Polymer Group, Senior Sub. Notes, 9%, 7/01/07 (a) $5,100,000 $3,978,000
Polymer Group, Senior Sub. Notes, 8.75%, 3/01/08 (a) 18,922,000 14,191,500
-----------------------
18,169,500
Broadcast -- .14%
-------------------------------------------------------------------------------------------------------------------------------
Young Broadcasting Corp., 11.75%, 11/15/04 2,000,000 2,047,500
Building & Construction -- .38%
-------------------------------------------------------------------------------------------------------------------------------
Aluma Enterprises, Inc., 7.50%, 12/31/01 2,638,841 2,256,209
Henry Company Senior Notes, 10%, 4/15/08 2,500,000 1,500,000
Nortek, Inc. Senior Sub. Notes, 9.875%, 3/01/04 1,275,000 1,231,969
Nualt Enterprises, Inc., 6%,12/31/04 7,042,799 422,568
-----------------------
5,410,746
Chemicals-- 8.61%
-------------------------------------------------------------------------------------------------------------------------------
General Chemical Ind Senior Senior Sub. Notes, 10.625%,5/01/09 3,000,000 2,400,000
Huntsman Corp. Sen. Sub. FRN, 10.2625% 7/01/07 (a) 39,500,000 33,575,000
Huntsman Polymer Corp. Senior Notes, 11.75%, 12/01/04 2,000,000 2,040,000
LaRoche Ind. Sen. Sub. Notes Ser. B, 9.5%, 9/15/07 (a) (c) 18,000,000 1,620,000
Lyondell Senior Secured Notes, 9.625%, 5/01/07 (a) 15,000,000 14,700,000
Lyondell Chemical Senior Sub. Notes, 10.875%, 5/01/09 (a) 10,000,000 9,700,000
Pioneer Americas Acq. Senior Notes, 9.25%, 6/15/07 (a) 15,500,000 7,750,000
Sterling Chemical, Inc. Sen. Sub. Notes, 11.75%, 8/15/06 12,500,000 8,750,000
Sterling Chemical Sen. Sub. Notes Series A, 11.25%, 4/01/07 30,025,000 20,417,000
Sterling Chemical Sen. Sub. Notes Series 12.375%, 7/15/06 14,340,000 14,626,800
Sterling Chemical Holding Sen. Disc. Notes, 0/12%, 8/15/08 (b) 18,980,000 7,592,000
-----------------------
123,170,800
Clothing-- .68%
-------------------------------------------------------------------------------------------------------------------------------
St. John Knits Senior Sub. Notes, 12.50%, 7/1/09 10,000,000 9,700,000
Conglomerate -- 2.10%
-------------------------------------------------------------------------------------------------------------------------------
Jordan Industries Sen. Sub. Disc. Notes, 0/11.75%, 4/01/09 (b) 21,616,713 14,050,863
Jordan Industries Senior Notes Series D, 10.375%, 8/01/07 10,000,000 9,400,000
Jordan Industries Senior Notes, 10.375%, 8/01/07 7,000,000 6,580,000
-----------------------
30,030,863
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
-------------------------------------------------------------------------------------------------------------------------------
Electronics --.49%
-------------------------------------------------------------------------------------------------------------------------------
Knowles Electronics Senior Sub. Notes, 13.125%, 10/15/09 $7,500,000 $6,975,000
Energy/Natural Resources --11.14%
-------------------------------------------------------------------------------------------------------------------------------
Giant Industries Sen. Sub. Notes, 9.75%, 11/15/03 (a) 3,190,000 3,138,163
Husky Oil Bonds, 8.9/11.1875%, 8/15/28 (e) 20,000,000 19,350,000
Kelley Oil Senior Subordinated Notes, 10.375%, 10/15/06 7,500,000 4,387,500
Kelley Oil & Gas, Company Guaranteed, 14%, 4/15/03 9,928,000 10,225,840
Key Energy Senior Sub. Notes, 14%, 1/15/09 (a) 15,000,000 17,137,500
P & L Coal Senior Subordinated Notes, 9.625%, 5/15/08 (a) 25,000,000 24,250,000
Parker Drilling Co. Senior Sub. Notes, 9.75%, 11/15/06 12,195,000 12,286,462
R&B Falcon Senior Notes Series B, 6.75%, 4/15/05 1,840,000 1,729,600
R&B Falcon Corp. Senior Notes, 12.25%, 3/15/06 10,000,000 11,900,000
Swift Energy Co. Senior Sub. Notes, 10.25%, 8/01/09 10,000,000 10,250,000
Tesoro Petroleum Corp. Senior Sub. Notes, 9%, 7/01/08 25,000,000 24,375,000
Universal Compression Sen. Disc. Notes, 0/9.875%, 2/15/08 (a) (b) 22,500,000 17,100,000
Wiser Oil Co. Sen. Sub. Notes, 9.5%, 5/15/07 4,000,000 3,260,000
-----------------------
159,390,065
Financial Services -- 3.33%
-------------------------------------------------------------------------------------------------------------------------------
Mercury Finance Senior Secured Notes, 10%, 3/23/01 20,000,000 19,400,000
Mercury Finance Senior Notes, 11.155%, 3/23/01 15,793,941 15,399,092
Metris Companies Inc. Senior Notes, 10.125%, 7/15/06 11,000,000 10,560,000
RBF Finance Company, 11.375%, 3/15/09 2,000,000 2,280,000
-----------------------
47,639,092
Food & Beverage -- 4.52%
-------------------------------------------------------------------------------------------------------------------------------
Chiquita Brands Senior Notes, 10.25%, 11/01/06 (a) 8,000,000 4,960,000
Chiquita Brands International Senior Notes, 10%, 6/15/09 (a) 10,000,000 6,100,000
Envirodyne Industries, Inc. Senior Notes, 10.25%, 12/01/01 (a) 20,395,000 13,664,650
Mrs. Fields Original Cookies Senior Notes, 10.125%, 12/01/04 3,500,000 3,045,000
Specialty Foods Corp. Sen. Notes Series B, 11.125%, 8/15/01 37,604,000 36,851,920
-----------------------
64,621,570
Food Processing -- 2.53%
-------------------------------------------------------------------------------------------------------------------------------
Boston Chicken Convertible Notes, 0%, 6/01/15 (c) 18,500,000 1,850
Del Monte Foods Corp. Senior Disc. Nts. Ser. B, 0%, 12/15/07 (b) 12,595,000 9,446,250
Premium Standard Farms, Inc. Sen.Nts., 11%, 9/17/03 11,855,470 10,788,478
SC International Service Senior Sub. Notes, 9.25%, 9/01/07 (a) 16,600,000 16,019,000
-----------------------
36,255,578
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
-------------------------------------------------------------------------------------------------------------------------------
Food Service -- .51%
-------------------------------------------------------------------------------------------------------------------------------
B&G Foods Senior Sub. Notes, 9.625%, 8/01/07 (a) $10,000,000 $7,250,000
Gaming -- 11.96%
-------------------------------------------------------------------------------------------------------------------------------
Boyd Gaming Senior Sub. Notes, 9.5%, 7/15/07 (a) 45,000,000 42,468,750
Fitzgeralds Gaming Corp. Senior Sec. Notes, 12.25%, 12/15/04 (c) 5,000,000 2,700,000
Riviera Holdings Corp. First Mortgage Notes, 10%, 8/15/04 (a) 17,000,000 15,448,750
Trump Atlantic City First Mortgage Notes, 11.25%, 5/01/06 90,530,000 62,692,025
Las Vegas Sands/Venetian Mortgage Notes, 12.25%, 11/15/04 34,000,000 35,020,000
Las Vegas Sands/Ven Sen. Sub. Nts., 10/14.25%, 11/15/05 (e) 12,500,000 12,812,500
------------------
171,142,025
Grocery Stores -- 3.37%
-------------------------------------------------------------------------------------------------------------------------------
Fleming Co., Inc. Medium Term Notes Series B, 8.74%, 9/19/02 10,000,000 9,577,000
Fleming Co., Inc. Senior Sub. Notes, 10.5%, 12/01/04 (a) 20,000,000 17,200,000
Fleming Co., Inc. Senior Sub. Notes Ser B, 10.625%, 7/31/07 (a) 18,000,000 13,680,000
Penn Traffic Senior Notes, 11%, 6/29/09 10,032,560 7,825,397
------------------
48,282,397
Health Care Supplies -- .03%
-------------------------------------------------------------------------------------------------------------------------------
Global Health Sciences Company 11%, 5/1/08 5,000,000 475,000
Manufacturing/Service Industry -- 1.03%
-------------------------------------------------------------------------------------------------------------------------------
Haynes International Senior Notes, 11.625%, 9/01/04 10,000,000 7,900,000
Key Components LLC Senior Notes, 10.5%, 6/01/08 7,500,000 6,750,000
Safelite Glass Corp. Senior Sub. Notes Ser B, 9.875%, 12/15/06 7,000,000 43,750
Safelite Glass Corp. Senior Sub. Notes, 9.875%, 12/15/06 10,000,000 62,500
-----------------------
14,756,250
Metals & Mining -- 7.36%
-------------------------------------------------------------------------------------------------------------------------------
Acme Metal, Inc. Senior Notes, 10.875%, 12/15/07 (c) 20,000,000 2,375,000
CF&I Acquisition Term Loan, 9.5%, 3/31/03 6,609,224 5,948,302
Golden Northwest Aluminum 12%, 12/15/06 12,500,000 12,750,000
Inland Steel Corp. First Mortgage Nts. Series R, 7.9%, 1/15/07 (a) 6,500,000 5,622,500
Kaiser Aluminum Chemical Corp. Sub. Notes, 12.75%, 2/01/03 46,230,000 41,144,700
Kaiser Aluminum Chemical Corp. Series B, 10.875%, 10/15/06 13,500,000 13,297,500
LTV Steel Co., Inc. Senior Notes, 8.2%, 9/15/07 8,000,000 4,000,000
LTV Steel Co., Inc. Senior Notes, 11.75%, 11/15/09 7,500,000 4,125,000
National Steel Corp. First Mortgage Notes, 8.375%, 8/01/06 3,000,000 2,100,000
Ormet Corp. Senior Notes, 11%, 8/15/08 (a) 15,000,000 13,875,000
-----------------------
105,238,002
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
-------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Manufacturing -- 1.78%
-------------------------------------------------------------------------------------------------------------------------------
Amtrol, Inc. Senior Sub. Notes, 10.625%, 12/31/06 $6,645,000 $6,179,850
Evenflo Company, Inc. Senior Notes, 11.75%, 8/15/06 7,000,000 6,790,000
Great Lakes Corp. Senior Sub. Notes, 11.25%, 8/15/08 7,000,000 6,895,000
LLS Corporation Senior Sub. Notes, 11.625%, 8/01/09 6,000,000 5,565,000
-----------------------
25,429,850
Office Equipment -- 1.32%
-------------------------------------------------------------------------------------------------------------------------------
Dictaphone Corp. Senior Sub. Notes, 11.75%, 8/01/05 19,845,000 18,852,750
Oil/Gas Exploration-- 1.06%
-------------------------------------------------------------------------------------------------------------------------------
Comstock Resources Inc. Senior Notes, 11.25%, 5/01/07 (a) 14,500,000 15,225,000
Paper/Forest Products -- 8.64%
-------------------------------------------------------------------------------------------------------------------------------
American Tissue Inc. Senior Secured Notes, 12.50%, 7/15/06 16,000,000 15,920,000
Crown Paper Senior Sub. Notes, 11%, 9/01/05 (c) 14,950,000 3,737,500
Four M Corporation Senior Notes, Series B, 12%, 6/01/06 1,500,000 1,428,750
Gaylord Container Corp. Senior Notes, 9.75%, 6/15/07 19,000,000 12,920,000
Gaylord Container Corp. Senior Notes, 9.375%, 6/15/07 15,000,000 10,050,000
Gaylord Container Corp. Senior Sub. Notes, 9.875%, 2/15/08 30,000,000 13,500,000
Maxxam Group Holdings, Inc. Senior Notes, 12%, 8/01/03 7,000,000 6,457,500
Packaging Resources, Inc. Senior Notes, 11.625%, 5/01/03 (a) 8,800,000 5,720,000
Stone Container Corp. Senior Notes, 12.58%, 8/01/16 (a) 43,100,000 44,500,750
Stone Container Corp. Senior Notes, 11.5%, 8/15/06 9,000,000 9,247,500
WTD Industries Senior Sub. Notes, 8%, 6/30/05 (c) 340,900 68,180
-----------------------
123,550,180
Products and Manufacturing -- 1.65%
-------------------------------------------------------------------------------------------------------------------------------
Motors and Gears, Inc. 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 1,040,000
Tokheim Junior 12%, 9/30/08 PIK 8,955,392 89,554
-----------------------
23,546,254
Real Estate -- 3.36%
-------------------------------------------------------------------------------------------------------------------------------
Jamboree LLC Class A Senior Secured Notes, 8.18%, 3/27/02 4,849,230 4,752,246
Jamboree LLC Class B Senior Sub. Notes, 8.93%, 3/27/02 PIK 1,557,902 1,526,691
Rockefeller Center Properties Conv. Deb., 0% 12/31/00 47,000,000 41,830,000
-----------------------
48,108,937
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
-------------------------------------------------------------------------------------------------------------------------------
Recreation -- 1.61%
-------------------------------------------------------------------------------------------------------------------------------
Coast Hotels & Casino Company Gtd. Notes, 9.50%, 4/01/09 $17,000,000 $16,766,250
Outboard Marine Corp. Debentures, 9.125%, 4/15/17 (a) 9,750,000 3,120,000
Outboard Marine Corp. Senior Notes, 10.75%, 6/01/08 8,000,000 3,200,000
--------------------
23,086,250
Retail -- .82%
-------------------------------------------------------------------------------------------------------------------------------
Eye Care Centers of America, Inc. Senior Notes, 9.125%, 10/01/03 10,000,000 5,100,000
Eye Care Centers Sub. Nts. FRN, 10.5925%, 5/01/08 5,000,000 2,500,000
National Vision Senior Notes, 12.75%, 10/15/05 12,500,000 4,125,000
--------------------
11,725,000
Retail Food Chains -- 4.43%
-------------------------------------------------------------------------------------------------------------------------------
Advantica Restaurant Group Senior Notes, 11.25%, 1/15/08 (a) 58,768,700 32,322,785
American Restaurant Group Senior Notes, 11.5%, 2/15/03 (a) 15,500,000 14,105,000
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 6,840,000
Planet Hollywood Secured PIK Notes, 12/ 10% 5/09/05 (e)(c) 3,000,000 1,050,000
Romacorp, Inc. Senior Notes, 12%, 7/01/06 (a) 7,500,000 3,750,000
-----------------------
63,317,785
Transportation -- .76%
-------------------------------------------------------------------------------------------------------------------------------
Avis Rent A Car Senior Sub. Notes, 11%, 5/01/09 10,000,000 10,875,000
Miscellaneous -- .57%
-------------------------------------------------------------------------------------------------------------------------------
Hines Horticulture Senior Sub. Notes, 11.75%, 10/15/05 1,951,000 1,960,755
Mosler, Inc. Senior Notes, 11%, 4/15/03 10,340,000 6,204,000
-----------------------
8,164,755
Total Corporate Bonds-- 85.45% (cost--$1,569,892,043) $1,222,436,149
-----------------------
Foreign Bonds-- Market Value
Name of issuer Principal (Note B)
-------------------------------------------------------------------------------------------------------------------------------
Foreign Bonds -- 7.70%
-------------------------------------------------------------------------------------------------------------------------------
Brazil C Bond Debentures, 8%, 4/15/14 $12,314,117 $9,381,879
Argentina Global Bonds, 9.75%, 9/19/27 32,751,000 25,914,229
Republic of Brazil Discount Ser Z-L, FRN, 14.5%, 4/15/24 26,366,000 29,134,430
Republic of Brazil Discount 11.625%, 4/15/04 35,000,000 36,093,750
Euro Stabilization Advances, 0%, 12/15/26 GBP (d) 302,459 98,148
Eurotunnel Tier 3, 7.03%, 12/25/25 GBP 2,500,000 2,139,000
Venezuela Par, 6.75%, 3/31/20 10,000,000 7,418,800
-----------------------
Total Foreign Bonds-- (cost--$107,619,314) 110,180,236
-----------------------
Number of Market Value
Stocks-- Shares (Note B)
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Common Stock -- 10.73%
-------------------------------------------------------------------------------------------------------------------------------
Advantica Restaurant Group (d) 1,217,762 $723,046
Chubb Corp. (a) 500,000 39,562,500
Darling International, Inc. (d) 745,530 559,148
Gaylord Container Corp. (d) 1,243,799 2,098,911
Grand Union Co. (d) 932,146 149,143
Homefed Corp. (d) 192,222 115,333
International Airline Support Group (d) 224,540 336,810
Jamboree Office REIT (d) 50,307 3,521,490
JPS Capital (d) 1,038,823 5,194,115
J P Morgan & Co. 100,000 16,375,000
Little Switzerland, Inc. (d) 273,659 213,796
MAXXAM, Inc. (d) 200,000 3,975,000
NL Industries 793,100 16,803,806
Nualt Enterprises (d) (f) 10,752 108
Ontario Limited (d) (f) 1,773 6
Pathmark Stores (d) 1,600,398 19,704,900
Penn Traffic Common (d) 1,906,164 14,534,500
Planet Hollywood (d) 132,500 397,500
Smurfit-Stone Container (d) 257,142 3,085,704
Specialty Equipment Co. (d) 82,500 2,036,719
Trilanco 2 Limited (d) (f) 98 1
Trilanco 3 Limited (d) (f) 98 1
US Leather, Inc. (d) (f) 1,007,308 100,731
Walter, Industries Inc. 500,000 4,437,500
WestPoint Stevens, Inc. (a) 1,600,000 19,600,000
--------------------
Total Common Stocks-- (cost--$228,537,450) 153,525,768
--------------------
-------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks -- 1.66%
-------------------------------------------------------------------------------------------------------------------------------
American Restaurant Group, PIK 12% 4,405 $1,762,000
R&B Falcon Corp. PIK 13.875% 5/01/09 17,189 22,001,920
-----------------------
Total Preferred Stocks-- (cost--$20,450,958) 23,763,920
-----------------------
Warrants Number of Market Value
Name of Issuer Shares or Units (Note B)
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Warrants -- .46%
-------------------------------------------------------------------------------------------------------------------------------
Bradlees Warrants (d) 67,384 $20
Key Energy Service Warrants (d) 15,000 900,000
R&B Falcon Corp. Warrants (d) 7,000 4,900,000
Venezuela Oil Linked Payment Obligation Warrants (d) (f) 50,000 50
Wherehouse Entertainment A Warrants (d) (f) 81,164 633,079
Wherehouse Entertainment B Warrants (d) (f) 14,091 44,950
Wherehouse Entertainment C Warrants (d) (f) 14,091 31,564
-----------------------
Total Warrants-- (cost--$15,855,816) 6,509,663
-----------------------
Total Investments-- 106.00% (cost--$1,942,355,581) $1,516,415,736
======================
-------------------------------------------------------------------------------------------------------------------------------
(a) All or a portion of securtity has been 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
(e) Represents a step-up 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.
(f) Seurity is valued at their fair value as determined in good faith under
consistently applied procedures approved by the Board of Trustees
PIK Payment in Kind
GBP Principal denoted in British Pounds Sterling
FRN Floating Rate Note
Federal Tax Information:
At September 30, 2000, the aggregate cost of investment securities for income
tax purposes was $1,940,894,309. Net unrealized depreciation aggregated
($424,478,573) of which $69,518,224 related to appreciated investment securities
and ($493,996,797) 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 Liablities
<S> <C>
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Year Ended September 30, 2000
-------------------------------------------------------------------------------------------------------------------------
Assets
-------------------------------------------------------------------------------------------------------------------------
Investments--at market value (cost $1,942,355,581)--Note B $1,516,415,736
Interest receivable 45,089,491
Receivable for shares of beneficial interest sold 905,793
Receivable for dividends 265,000
-----------------------
Total Assets 1,562,676,020
Liabilities
-------------------------------------------------------------------------------------------------------------------------
Notes payable--Note F $127,443,774
Payable for shares of beneficial interest repurchased 1,689,403
Trustee fees payable--Note C 1,845,865
Accrued expenses 827,015
Payable to custodian bank 277,521
-----------------------
Total Liabilities 132,083,578
Net Assets $1,430,592,442
=======================
Net Assets Consist of (Note B):
Capital, at a $1.00 par value $157,648,926
Paid in surplus 1,698,883,588
Undistributed net investment income 5,776,392
Accumulated net realized loss on investments (5,776,619)
Net unrealized depreciation on foreign currency (68,299)
Net unrealized depreciation of investments (425,871,546)
-----------------------
-----------------------
Net Assets, for 157,648,926 shares outstanding $1,430,592,442
=======================
Net Asset Value, offering price and redemption
price per share ($1,430,592,442/157,648,926 shares) $9.08
=======================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
Statement of Operations
<S> <C>
-------------------------------------------------------------------------------------------------------
Year Ended September 30, 2000
-------------------------------------------------------------------------------------------------------
Investment Income
-------------------------------------------------------------------------------------------------------
Interest $193,991,715
Dividends 5,655,786
Other Income 773,616
--------------------
Total Income 200,421,117
Expenses
-------------------------------------------------------------------------------------------------------
Interest--Note F $10,104,692
Trustee fees--Note C 7,885,532
Administrative expenses and salaries 1,196,883
Printing, postage and stationary 250,454
Legal fees 219,306
Computer and related expenses 198,455
Auditing fees 88,996
Telephone 73,687
Other expenses 73,052
Insurance 42,514
Custodian fees 40,097
--------------------
--------------------
Total Expenses 20,173,668
--------------------
Net Investment Income 180,247,449
--------------------
Realized and Unrealized Gain (Loss) on Investments--Note B:
Net realized loss from investment transactions (4,100,144)
Change in unrealized appreciation/depreciation of investments
and assets and liabilities in foreign currencies (160,650,262)
--------------------
Net Increase in Net Assets Resulting from Operations $15,497,043
====================
The accompanying notes are part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
Statement of Changes in Net Assets
<S> <C> <C>
Year Ended Year Ended
September 30, September 30,
2000 1999
----------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Operations:
Net investment income $180,247,449 $226,030,423
Net realized (loss) from investment transactions (4,100,144) (263,513)
Change in unrealized appreciation (depreciation) of investments (160,650,262) (49,026,555)
----------------------------------------
Net Increase in Net Assets Resulting
from Operations 15,497,043 176,740,355
----------------------------------------
Distributions to Shareholders from Net Investment Income (198,112,674) (211,784,335)
($1.12 and $.98 per share, respectively)
Distributions to Shareholders from Net Realized Gains - (36,970,219)
----------------------------------------
($.18 per share)
Total Distributions (198,112,674) (248,754,554)
----------------------------------------
From Net Trust Share Transactions--Note D
Total Increase (Decrease) in Net Assets (445,899,346) 84,466,005
----------------------------------------
(628,514,977) 12,451,806
Net Assets:
Beginning of Period 2,059,107,419 2,046,655,613
----------------------------------------
End of Period (including undistributed net investment
income of $5,776,392 and $23,981,797 respectively) $1,430,592,442 $2,059,107,419
========================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
Year Ended September 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data** 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 1.02 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 -0.90 -0.23 -1.42 0.91 0.58 0.29 0.09 0.42 0.67 0.04
Total from
investment operations 0.12 0.82 -0.41 1.89 1.56 1.27 1.07 1.46 1.82 1.36
Less Distributions:
Net investment
income -1.12 -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 $9.08 $10.08 $10.42 $11.79 $10.90 $10.33 $10.02 $9.94 $9.50 $8.83
Total Return 1.29% 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) $1,430.6 $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* 1.22% 0.73% 0.70% 0.65% 0.69% 1.02% 1.06% 1.21% 0.65% 1.01%
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 10.84% 9.99% 8.73% 8.65% 9.41% 9.77% 9.37% 10.53% 12.36% 15.38%
Portfolio turnover
rate 3.80% 27.00% 63.80% 33.44% 32.01% 40.58% 73.36% 75.72% 59.41% 33.77%
* Including Interest Expense
** Per share data was calculated using the average share method.
</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 in the United States of America. 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 in the United States of America
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 September 30, 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>
<S> <C> <C> <C> <C>
Year Ended Year Ended
September 30,2000 September 30,1999
Shares Amount Shares Amount
Shares Sold 74,791,378 $710,963,319 133,711,418 $1,399,494,794
Shares issued to shareholders
in reinvestment of distributions from
net investment income 14,068,805 132,097,967 16,505,806 170,971,668
88,860,183 843,061,386 150,217,224 1,570,466,462
Shares repurchased (135,520,677) (1,288,960,563) (142,431,298) (1,486,000,457)
Net Increase (Decrease) (46,660,494) ($445,899,346) 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 $67,505,777 and $599,257,058 respectively, for the period
ended September 30, 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 September 30, 2000 the Trust has unused lines of credit
amounting to $82,556,226 and used lines of credit amounting to $127,443,774. 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 period ended September 30, 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) $154,789,493 Average annualized
interest rate 6.53%
</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
$449,763,700 and $468,168,548, respectively, have been pledged to collateralize
short-term borrowings.
<PAGE>
Report of Independent Auditors
To the Shareholders and Trustees of Northeast Investors Trust
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Northeast Investors Trust (the
"Trust") at September 30, 2000, and the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles in the United States of
America.These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Trust's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments owned at September 30, 2000
by correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 10, 2000
