Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
701 Pennsylvania Avenue, N.W. Telephone: 617/542-6000
Washington, D.C. 20004 Telex: 94-0198
Telephone: 202/434-7300 Fax: 617/542-2241
Fax: 202/434-7400
Direct Dial Number
(617) 348-1669
November , 1997
Securities and Exchange Commission
450 5th Street, N. W.
Judiciary Plaza
Washington, D.C. 20549
Re: Northeast Investors Trust
File No. 2-11318
Ladies and Gentlemen:
Accompanying this letter on behalf of Northeast Investors Trust is a filing on
Form N-1A comprising Post-Effective Amendment No. 69 to the Fund's Registration
Statement under the Securities Act of 1933, as amended, and Amendment No. 22
to the Fund's Registration Statement under the Investment Company Act of 1940,
as amended. Manually executed signature pages, accountants' report and consent
have been executed prior to the time of this filing and will be retained by the
registrant for five years.
This filing contains material changes reflecting the application of plain
English rules and related changes to Form N-1A. It is in large part modeled
on the Post-Effective Amendment for Northeast Investors Growth Fund (1933
Act File No. 2-68483) which was reviewed by your staff and become effective on
May 1, 1999. It is proposed that this filing will become effective on
February 1, 2000 pursuant to paragraph (a) of Rule 485 under the 1933 Act. If
possible, we would appreciate receiving any staff comments before December 31,
1999 to allow adequate time for making changes and printing.
Sincerely yours,
Thomas J. Kelly
Enclosures
Securities Act of 1933 Registration No. 2-11318
Investment Company Act of 1940 Registration No. 881-576
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A-A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. ______ [ ]
Post-Effective Amendment No. 69 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 22 [X]
NORTHEAST INVESTORS TRUST
(Exact Name of Registrant as Specified in Charter)
50 Congress Street
Boston, Massachusetts 02109
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 523-3588
Ernest E. Monrad
President
Northeast Investor Trust
50 Congress Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copies to:
Thomas J. Kelly, Esq.
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
<PAGE>
It is proposed that the filing will become effective under Rule 485:
[ ] Immediately upon filing pursuant to paragraph (b), [ ] On
_____________________________ pursuant to paragraph (b), [ ]
60 days after filing pursuant to paragraph (a)(1), [X ] On
February 1, 2000 pursuant to paragraph (a)(1), [ ] 75 days
after filing pursuant to paragraph (a)(2).
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
NORTHEAST INVESTOR TRUST
Cross Reference Sheet
Pursuant to Rule 481(a)
Under the Securities Act of 1933
PART A
Item No. Registration Statement Caption in Prospectus
1. Front and Back Cover Pages Front and Back Cover Pages
2. Risk/Return Summary: Investment, Risks, and Overview of the Trust
Performance
3. Risk/Return Summary: Fee Table Investor Expenses
4. Investment Objectives, Principal Investment Overview of the Trust
Strategies, and Related Risks
5. Management's Discussion of Performance Annual Report; Back Cover Page
6. Management, Organization and Capital Structure Portfolio Managers; Expenses
7. Shareholder Information Shareholder Information
8. Distribution Arrangements Sales without "Sales Charge"
9. Financial Highlights Information Financial Highlights
PART B
Item No. Registration Statement Caption in Statement of Additional
Information
10. Cover Page and Table of Contents Cover Page; Table of Contents
11. Fund History The Trust
12. Description of the Fund and its Investments and The Trust; Investment
Objectives, Policies and Risks Restrictions
13. Management of the Fund Trustees and Officers; Compensation of Trustees
14. Control Persons and Principal Holders of Trustees and Officers
Securities
15. Investment Advisory and Other Services Trustees and Officers; Compensation
of Trustees; Custodian and Independent Accountants
16. Brokerage Allocation and Other Practices Brokerage
17. Capital Stock and Other Securities The Trust; Capital Shares
18. Purchase, Redemption and Pricing of Shares Price and Net Asset Value;
Shareholder Plans; Tax-Advantaged Retirement Plans
19. Taxation of the Fund Dividends, Distributions and Federal Taxes
20. Underwriters Not Applicable
21. Calculation of Performance Data Information Historical Performance
Information
22. Financial Statements Financial Statements
PART C
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
NORTHEAST INVESTORS TRUST
50 Congress Street
Boston, Massachusetts 02109
(800) 225-6704
(617) 523-3588
SHARES OF BENEFICIAL INTEREST
PROSPECTUS
February 1, 2000
The Trust's primary investment objective is the production of income.
Capital appreciation is a secondary objective of the Trust, the achievement of
which must be compatible with the primary objective.
This prospectus has information you should know before you invest.
Please read it carefully and keep it with your investment records.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
i
i
TABLE OF CONTENTS
OVERVIEW OF THE TRUST..........................................................1
OBJECTIVES..................................................................1
STRATEGIES..................................................................1
PRINCIPAL RISKS.............................................................1
SUITABILITY.................................................................2
PERFORMANCE.................................................................4
BANK LOANS.....................................................................6
FUND MANAGEMENT................................................................7
EXPENSES.......................................................................7
SALES WITHOUT "SALES CHARGE"...................................................7
SHAREHOLDER INFORMATION........................................................8
GENERAL INFORMATION.........................................................8
HOW TO INVEST...............................................................9
INVESTMENT PLANS...........................................................10
HOW TO WITHDRAW YOUR INVESTMENT............................................10
HOW TO EXCHANGE YOUR INVESTMENT............................................11
DIVIDENDS AND DISTRIBUTIONS................................................12
TAX CONSEQUENCES...........................................................13
TRUST POLICIES.............................................................13
FINANCIAL HIGHLIGHTS..........................................................13
DESCRIPTION OF S&P CORPORATE BOND RATINGS.....................................15
APPENDIX - PORTFOLIO COMPOSITION..............................................16
<PAGE>
7
OVERVIEW OF THE TRUST
Objectives
The Trust's primary objective is the production of income. Capital
appreciation is also an objective of the Trust, but its achievement must be
compatible with the primary objective.
Strategies
The Trustees invest primarily in marketable securities of established
companies which the Trustees believe provide reasonable income and which, where
consistent with this objective, may have potentialities for capital
appreciation. This would include bonds which may be purchased at a discount ,
preferred stocks, common stocks paying dividends, securities convertible into
common stocks and securities with warrants attached. For equity investments the
Trustees consider their potential for appreciation based upon both growth and
value analysis. The proportion of the Trust's assets invested in each type of
security will vary from time to time depending on market and economic
conditions. Since 1970 the Trust has emphasized fixed income securities and more
than 80% of its assets have been held in bonds or other debt securities. The
Trust does not impose any particular rating standards or maturity guidelines
which must be applied in making investment decisions. High yield fixed income
securities are typically issued with maturities of less than ten years; and the
Trust's holdings are generally within this range..
The Trust's portfolio has, since it began making major commitments to
fixed income securities, generally included debt securities which are rated as
lower than investment grade by either of the two principal rating services or
unrated securities having similar characteristics. The Trustees have usually
relied upon their own credit analysis in making decisions concerning the Trust's
portfolio. The Trust will make use of borrowed funds in order to raise
additional funds for investment or to avoid liquidating securities for cash
needs such as redemptions. Leverage is limited to one quarter of the Trust's
total assets. The amount of leverage outstanding at any one time cannot be
determined in advance. The Trustees may vary the amount of borrowings from time
to time within the authorized limits, including having no borrowings at all.
The Trust may invest for relatively short periods of time in
short-term, highly liquid securities with maturities of 180 days or less. These
securities may include commercial paper or securities issued or guaranteed by
the U.S. Government. This would be likely to happen when the Trustees believe
that liquidity is highly desirable in response to adverse market or economic
conditions and that therefore the Trust should adopt a temporary defensive
policy. When so invested the Trust may not achieve its investment objectives.
Principal Risks
Risks of Lower Rated Debt Securities. Lower rated debt securities
(sometimes referred to as "junk bonds") may be subject to increased market
volatility and can present an increased risk of investment loss. These risks
include:
* The creditworthiness of an issuer affecting its ability to make current
interest payments on debt
* Potential for loss of principal of debt securities if an issuer
goes into default or bankruptcy.
* Liquidity/Marketability of investments; i.e. potential difficulty in
disposing of securities under adverse market conditions
Lower rated securities are subject to greater sensitivity to these
risks than higher rated securities. Bonds which are rated as less than
investment grade may be more susceptible than higher rated securities to real or
perceived adverse economic conditions, such as a projected recession which
causes a lessening of confidence in the ability of highly leveraged issuers to
service outstanding debt.
You should consider the relative risk of investing in these types of
securities, which are generally not meant for short-term investments.
Interest Rate Risk. In addition to credit risk, the value of some fixed
income investments such as bonds tends to fall as interest rates rise. The
prices of lower rated debt securities are sometimes more sensitive to changes in
economic conditions.
Leverage. Borrowed funds can cause net asset value to decrease faster
in a falling market. If, for example, the Trust makes a $1,000 investment for
which it had borrowed $200 (20%) of the purchase price and the investment lost
20% of its value, to $800, the Fund would have a loss of $200 on an $800
investment, or 25% of the amount invested and be obligated to repay to $200 with
interest. Leverage can, therefore, involve additional risk.
Equity Risk. To the extent the Trust invests in equity securities it
runs the risk that deterioration in general market conditions or adverse changes
in an issuer's revenues -- or profitability can result in loss.
Financial Markets Risk. Movements in financial markets, both domestic
and foreign, may adversely affect the price of the funds investments, regardless
of how well the companies in which we invest perform. The market as a whole may
not favor the types of investments we make.
Foreign markets, particularly emerging markets, can be more volatile
than the U.S. market due to increased risks of adverse issuer, political,
regulatory, market or economic developments and can perform differently that the
U.S. market.
Suitability
The Trust may be appropriate for investors who seek one or more of the
following:
production of income over the long-term
a fund emphasizing fixed income investments in companies issuing
higher yielding, lower rated securities
You should also consider the following:
an investment in the Trust involves risk and should be part of a
balanced investment program
the Trust is generally for investors with longer-term investment
horizons
there is a risk that you could lose money by investing in the
Trust and there is no assurance that it will achieve its
investment objectives
Trust shares are not bank deposits and are not guaranteed,
endorsed or insured by any financial institution, government
entity or the FDIC
<PAGE>
Performance
The following performance related information provides some indication
of the risks of investing in the Trust by showing changes in the Trust's
performance from year to year and by comparing its average annual return with
the First Boston High Yield Index. Past performance does not guarantee future
results.
The following bar chart shows the Trust's annual total return for each
of the ten years ended December 31, 1999:
OBJECT OMITTED
Best quarter: 1st quarter 1993, up 8.21%
Worst quarter: 3rd quarter 1998, down -10.45%
<TABLE>
Average Annual Returns
<S> <C> <C> <C>
One Year Five Years Ten Years
The Trust 3.50% 10.63% 10.93%
First Boston High Yield 1.21% 8.62% 10.52%
Index1/
</TABLE>
INVESTOR EXPENSES
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Trust.
Shareholder Fees
(Fees Paid Directly From Your Investment)
Maximum Sales Charge (Load) Imposed on Purchases..................... None
Maximum Deferred Sales Charge (Load)................................. None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends.......... None
Redemption Fee....................................................... None
Annual Trust Operating Expenses
(Expenses That Are Deducted From Fund Assets)
Trustees' Fees....................................................... .50%
Distribution (12b-1 Fees)............................................ None
Other Expenses....................................................... .11%
Total Annual Trust Operating Expenses................................ .61%
Example
This example is intended to help you compare the cost of investing in
the Trust with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Trust for the time
periods indicated and redeem at the end of the period. The example also assumes
that your investment has a 5% return each year, including reinvested dividends
and distributions, and that the Trust's operating expenses remain the same.
Although your actual costs maybe higher or lower, based on these assumptions
your costs would be:
1 year 3 years 5 years 10 years
$62 $195 $340 $762
<TABLE>
BANK LOANS
The following table shows the Trust's borrowing in each of the ten
years ended September 30, 1999.
Average Average
Amount of Amount of Amount of
Debt Debt Debt
outstanding outstanding as a percentage
at end of during the of average net
Year Ended year year* assets
September 30,
<S> <C> <C> <C>
1990............................................ $36,856,000 $24,645,015 7.75%
1991............................................ 49,077,000 35,925,779 13.60%
1992............................................ 51,990,000 42,752,526 11.76%
1993............................................ 75,321,000 50,497,798 16.17%
1994............................................ 54,363,000 41,432,102 7.42%
1995............................................ 3,552,000 32,973,723 5.03%
1996............................................ 8,331,405 88,985,931 10.35%
1997............................................ 0 4,166,183 .26%
1998............................................ 90,826,838 36,630,591 1.59%
1999............................................ 197,275,213 48,732,032 2.15%
*Monthly method(sum of amounts outstanding at beginning of year and at the end of each month during the year
divided by 13)
</TABLE>
<PAGE>
FUND MANAGEMENT
The Trustees principally responsible for the day-to-day management of
the Trust's portfolio are Ernest E. Monrad and Bruce H. Monrad. Ernest E. Monrad
has served as a Trustee of the Trust since 1960 and as its Chairman since 1969.
Bruce H. Monrad has been associated with the Trust since July, 1989 as
co-portfolio manager and was appointed a Trustee in May, 1993.
From time to time a Trustee or an employee of Northeast Investors Trust
may express views regarding a particular company, security, industry or market
sector. The views expressed by any such person are the views of only that
individual as of the time expressed and do not necessarily represent the views
of the Trust or any other person in the Northeast Investors organization. Any
such views are subject to change at any time based upon market or other
conditions and Northeast Investors disclaims any responsibility to update such
views. These views may not be relied on as investment advice and, because
investment decisions for Northeast Investors Trust are based on numerous
factors, may not be relied on as an indication of trading intent on behalf of
the Trust.
Northeast Investors Trust personnel may invest in securities for their
own investment accounts, including securities that may be purchased or held by
the Trust pursuant to a Code of Ethics that establishes procedures for personal
investing and restricts certain transactions.
EXPENSES
Under the Declaration of Trust, the Trustees receive an annual fee equal to 1/2
of 1% of the principal of the Trust. The principal of the Trust for this
purpose is taken as a total of the market value of the portfolio and other
assets less all liabilities, except accrued Trustees' fees. Other than the fee
to the Trustees, the Trust pays no compensation to any person other than in the
ordinary course of business. There are other expenses of the Trust which are
paid by it directly. These include expenses such as taxes, custodian's fees
and expenses, legal and auditing fees and expenses, bookkeeping expenses, and
the expense of qualifying shares for sale under federal and state laws. The
Trust also acts as its own transfer agent and, as such, carries out all
functions relating to the maintenance of its shareholder accounts, transfers and
redemption of shares, and mailings to shareholders. It pays the expenses
relating thereto, including the compensation of persons performing these
functions and data processing expenses.
SALES WITHOUT "SALES CHARGE"
The Trust offers investors an opportunity to share in the benefits of a
mutual fund without requiring that they pay a sales commission or distribution
expense. It has no "sales charge", "load charge" or "12b-1 fees". The purchase
of shares of numerous other mutual funds requires the investor to pay amounts
for a selling commission and related expenses. This reduces the net amount
invested which the Trust actually receives.
SHAREHOLDER INFORMATION
General Information
For account, product and service information, please use the following
web site, phone number or address:
o For information over the Internet, visit the Trust's web site
at www.northeastinvestors.com
o For information over the phone use 1-800-225-6704
o For information by mail please use
Northeast Investors Trust
50 Congress Street
Boston, MA 02109
The different ways to set up (register) your account with the Trust are
listed in the following table.
Individual or Joint Tenant
For your general investment needs
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Retirement
For tax-advantaged retirement savings
Traditional Individual Retirement Accounts (IRAs)
Roth IRAs
Roth Conversion IRAs
Rollover IRAs
Educational IRAs
Keogh Plans
SIMPLE IRAs
Simplified employee Pension Plans (SEP-IRAs)
403(b) Custodial Accounts
- --------------------------------------------------------------------------------
Gifts or Transfers to a Minor (UGMA, UTMA)
To invest for a child's education or other future needs
- --------------------------------------------------------------------------------
Trust
For money being invested by a trust
- --------------------------------------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships or
other groups
How to Invest
Your initial investment must be accompanied by a completed Application,
in the form attached to this Prospectus or one that can be obtained from our web
site. You may purchase shares of the Trust at their per share net asset value
next determined after the Trust or an authorized broker or agent receives a
purchase order. There is no sales charge or commission. The Trust computes net
asset value per share by dividing the market value of all securities plus other
assets, less liabilities, by the number of shares outstanding. Net asset value
is determined as of the close of the New York Stock Exchange on each day when it
is open, based upon market quotations for the Trust's portfolio securities.
Brokers or dealers may accept purchase and sale orders for shares of the Trust
and may impose a transaction charge for this service. Any investor may, however,
purchase or redeem shares without such additional charge by dealing directly
with the Trust.
Short-term or excessive trading into and out of a fund may harm
performance by disrupting portfolio management strategies and by increasing
expenses. Accordingly, the Trust may reject any purchase orders, including
exchanges, particularly from market timers or investors who, in the Trust's
opinion, have a pattern of short-term or excessive trading or whose trading has
been or may be disruptive to the Trust.
When you place an order to buy shares, note the following:
The minimum initial investment in the Trust for each account is
$1,000.
Checks must be drawn on U.S. banks. Third party checks are not
acceptable.
The Trust does not accept cash.
Purchase orders may be sent directly or through an authorized
broker or an other authorized agent.
There is no minimum for subsequent investment either by mail,
telephone or exchange.
There is a $100,000 maximum for telephone investments.
You may participate in an automatic investment plan by completing the
appropriate section of the application. Under the Trust's automatic investment
plan regular deductions (minimum $50) will be made from your bank checking
account.
Investment Plans
The Trust offers shareholders tax-advantaged retirement plans,
including a Prototype Defined Contribution Plan for sole proprietors,
partnerships and corporations, Individual Retirement Accounts, and 403(b)
Retirement Accounts. Details of these investment plans are available from the
Trust at the address shown on the cover of this Prospectus.
How To Withdraw Your Investment
You are entitled to redeem all or any portion of the shares credited to
your account by submitting a written request for redemption to the Trust. Within
seven days after the receipt of such a request in "good order" as described
below, you will be sent an amount equal to the net asset value of the redeemed
shares. This will be the net asset value next determined at the close of the New
York Stock Exchange after the redemption request has been received.
A redemption request will be considered to have been received in "good
order" if it meets the following requirements:
The request is in writing, indicates the number of shares to
be redeemed and identifies your account. The letter must be
signed by all registered owners.
You also send in any certificates issued representing the
shares, endorsed for transfer (or accompanied by a stock power
in customary form) exactly as the shares are registered.
For redemptions in excess of $5,000, your signature has been
guaranteed by a U.S. bank or trust company, member of a
national securities exchange or other eligible guarantor
institution. Mere witnessing of a signature is not sufficient;
a specific signature guarantee must be made with respect to
all signatures. A notary public is not an acceptable
guarantor.
In the case of corporations, executors, administrators,
trustees or other organizations you enclose evidence of
authority to sell.
If shares to be redeemed represent an investment made by
check, the Trust reserves the right to delay payment until the
check has been cleared up to a maximum of 15 days.
A signature guarantee as described above is required on all
redemptions when the check is mailed to an address other than
the address of record or if an address change occurred in the
past 30 days.
Telephone redemptions will not be made (unless confirmed in
writing on the same day by hand delivered notice or facsimile
to (617) 523-5412).
Telephone instructions from the registered owner to exchange
shares of the Trust for shares of Northeast Investors Growth
Fund will be accepted.
No specific election is required in the Application to obtain telephone
exchange or purchase privileges. The Trust will employ reasonable procedures,
including requiring personal identification, prior to acting on telephone
instructions to confirm that such instructions are genuine. If the Trust does
not follow such procedures it may be liable for losses due to unauthorized or
fraudulent instructions. Otherwise it will not be liable for following
instructions communicated by telephone that it reasonably believes to be
genuine.
The Trust reserves the right to deliver assets in whole or in part in
kind in lieu of cash. The Trust is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1 percent of the net asset value of the Fund during
any 90 day period for any one shareholder. Shareholders receiving redemptions in
kind will incur brokerage costs in converting securities received to cash.
If you are an investor in a tax-advantaged retirement plan you should
consider specific taxpayer restrictions, penalties and procedures that may be
associated with redemptions from your retirement plan in order to qualify under
the provisions of the Internal Revenue Code. The Trust assumes no responsibility
for determining whether any specific redemption satisfies the conditions of
federal tax laws. That determination is your responsibility. Penalties, if any,
apply to withdrawals from the plan, not to redemptions from the Trust, and are
governed by federal tax law alone.
How to Exchange Your Investment
An exchange involves the redemption of all or a portion of the shares
of one fund and the purchase of shares of another fund.
As a shareholder, you have the privilege of exchanging shares of the
Trust for shares of Northeast Investors Growth Fund without any charge.
However, you should note the following policies and restrictions
governing exchanges:
You may exchange only between accounts that are registered in
the same name, address, and taxpayer identification number or
social security number.
Before exchanging into a fund, read its prospectus.
Exchanges may have tax consequences for you.
Each fund may temporarily or permanently terminate the exchange
privilege of any investor who makes excessive exchanges out of
the fund per calendar year.
The exchange limit may be modified for accounts held by certain
institutional retirement plans to conform to plan exchange limits
and Department of Labor regulations. See your plan materials for
further information.
Each fund may refuse exchange purchases by any group if, in
management's judgment, the fund would be unable to invest the
money effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
The funds may terminate or modify the exchange privileges in the
future.
Dividends and Distributions
The Trust earns dividends, interest and other income from its
investments, and distributes this income (less expenses) to shareholders as
dividends. The Trust also realizes capital gains from its investments, and
distributes these gains (less any losses) to shareholders as capital gain
distributions.
When you open an account, specify on your application how you want to
receive your distributions. The following options are available for the Trust's
distributions:
(1)......Reinvestment Option. Your dividends and capital gains
distributions will be automatically invested in additional
shares of the Trust.
If you do not indicate a choice on your application, you will be assigned this
option.
(2)......Cash\Reinvest Option. Your dividends will be paid in cash.
Your capital gains distributions will be automatically
reinvested in additional shares of the Trust
(3) Cash Option. Your dividends and capital gains distributions
will be paid in cash.
Note: The Trust strongly recommends the direct deposit option
for shareholders electing to receive dividends or
distributions in cash.
If you elect to receive the distributions paid in cash by check and the
U.S. Postal Service does not deliver your checks for a period of six months,
your distribution option may be converted to the Reinvestment Option. You will
not receive interest on amounts represented by uncashed distribution checks.
Tax Consequences
As with any investment, your investment in the Trust could have tax
consequences for you. If you are not investing through a tax-advantaged
retirement account, you should consider these tax consequences.
Taxes on Distributions. Distributions you receive from the Trust are
subject to federal income tax, and may also be subject to state or local taxes.
For federal tax purposes, the Trust's dividends and distributions of
short-term capital gains are taxable to you as ordinary income. The Trust's
distributions of long-term capital gains are taxable to you generally as capital
gains.
If you buy shares when the Trust has realized but not yet distributed
income or capital gains, you will be "buying a dividend" by paying the full
price for the shares and then receiving a portion of the price back in the form
of a taxable distribution.
Any taxable distributions you receive from the Trust will normally be
taxable to you when you receive them, regardless of your distribution option.
Taxes on transactions. Your redemptions, including exchanges, may
result in a capital gain or loss for federal tax purposes. A capital gain or
loss on your investment in the Trust is the difference between the cost of your
shares and price you receive when you sell them.
Trust Policies
The following policies apply to you as a shareholder.
Statements and reports that the Trust sends to you include the
following:
Confirmation statements after transactions affecting your account
balance.
Financial reports (every six months).
When you sign your account application, you will be asked to certify
that your social security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income to
the IRS. If you violate IRS regulations, the IRS can require the Trust to
withhold 31% of your taxable distributions and redemptions.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Trust's financial performance for the past 10 years. Certain information
reflects financial results for a single Trust share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Trust (assuming reinvestment of all dividends and
distributions).
This information has been audited by PricewaterhouseCoopers LLP,
Independent Accountants, for the years ended September 30, 1993 through
September 30, 1999 and by Ernst & Young LLP for the years ended September 30,
1990 through September 30, 1992. The report of PricewaterhouseCoopers LLP on the
financial statements and financial highlights for the year ended September 30,
1999 is included in the Statement of Additional Information, which is available
upon request and without charge.
<TABLE>
Year Ended September 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data 1999 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....... 1.05 1.01 .98 .98 .98 .98 1.04 1.15 1.32 1.45
Net realized and
unrealized gain
loss on
investment.. (.23) (1.42) .91 .58 .29 .09 .42 .67 .04 (2.39)
Total from
investment
operations .82 (.41) 1.89 1.56 1.27 1.07 1.46 1.82 1.36 (.94)
Less Distributions:
Net investment
income...... (.98) (.96) (1.00) (.99) (.96) (.99) (1.02) (1.15) (1.34) (1.43)
Capital Gain (.18 - - - - - - - - -
Net Asset Value:
End of Period $10.08 $10.42 $11.79 $10.90 $10.33 $10.02 $9.94 $9.50 $8.83 $8.81
Total Return 7.99% (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)... $2,059.1 $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.... .12% .09% .01% .03% .35% .36% .48% .65% 1.01% .69%
Ratio of net
investment
income to
average net
assets ... 9.99% 8.73% 8.65% 9.41% 9.77% 9.37% 10.53% 12.36% 15.38% 14.35%
Portfolio turnover
rate.......... 27.00% 63.80% 33.44% 32.01% 40.58% 73.36% 75.72% 59.41% 33.77% 21.23%
</TABLE>
<PAGE>
<TABLE>
DESCRIPTION OF S&P CORPORATE BOND RATINGS
Set forth below is description of the rating categories. The ratings of S&P
represent their opinion as to the quality of the securities that they undertake
to rate. It should be emphasized, however, that ratings are relative and
subjective and are not absolute standards of quality.
<S> <C>
AAA Highest quality. Ability to pay interest and principal very strong.
AA High quality. Ability to pay interest and principal strong.
A Medium to high quality. Ability to pay interest and
principal, but more susceptible to changes in
circumstances and the economy.
BBB Medium quality. Adequate ability to pay, but highly susceptible to adverse circumstances.
BB Speculative. Less near-term likelihood of default relative to other speculative issues.
B Current capacity to pay interest and principal, but
highly susceptible to changes in circumstances.
CCC Likely to default, where payment of interest and
principal is dependent on favorable circumstances.
CC Debt subordinate to senior debt rated CCC.
C Debt subordinate to senior debt rated CCC-
D Currently in default, where interest or principal has not been
made as promised.
</TABLE>
<PAGE>
APPENDIX - PORTFOLIO COMPOSITION
The table below reflects the composition by quality rating of the
investment portfolio of the Trust on a month-end weighted average basis for the
fiscal year ended September 30, 1999. It gives the percentage of total assets
represented by fixed income securities rated by Standard & Poor's Corporation
("S&P") and by unrated fixed income securities. The allocations in the table are
not necessarily representative of the composition of the Trust's portfolio at
other times.
S&P Rating Portfolio
Category Composition
- -------- -----------
Unrated.................................................. 11.8%
AAA...................................................... -
AA....................................................... -
A........................................................ -
BBB...................................................... 1.3%
BB....................................................... 18.3%
B........................................................ 57%
CCC...................................................... 10.2%
CC, C, D................................................. 1.4%
FOR MORE INFORMATION
You can find additional information about the Trust in the following
documents:
STATEMENT OF ADDITIONAL INFORMATION. (SAI). The SAI contains more
detailed information about the Trust and its investment limitations and
policies. A current SAI has been filed with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus
(is legally part of this prospectus).
ANNUAL AND SEMIANNUAL REPORTS. Additional information about the Trust's
investments is available in the Trust's Annual and Semiannual reports to
shareholders. In the Annual Report, you will find a discussion of the market
conditions and investment strategy that significantly affected the Trust's
performance during its last fiscal year.
You may obtain a free copy of the Trust's current Annual/Semiannual
report or SAI or make any other shareholder inquiry by writing or calling the
Trust at:
Northeast Investors Trust
50 Congress Street
Boston, MA 02109
(800) 225-6704
You can also review and copy information about the Trust at the SEC's
Public Reference Room in Washington, D.C. You can call the SEC at 1-202-942-8090
for information about the operation of the Public Reference Room. Reports and
other information about the Trust are available on the SEC's internet site at
http://www.sec.gov and copies may be obtained for a duplicating fee by
electronic request at the following E-mail address: [email protected] writing
the Public Reference Center of the Securities and Exchange Commission,
Washington, D.C. 20549-6009.
The Trust's reference number as a registrant under the Investment
Company Act of 1940 is 811-576.
TRADOCS:1281432.2(RGRC02!.DOC)
- --------
1/ The unmanaged First Boston High Yield Index, which is comprised of 1,625 high
yield bond issues, is shown for comparative purposes
B-14
NORTHEAST INVESTORS TRUST
50 Congress Street
Boston, Massachusetts 02109
(800) 225-6704
(617) 523-3588
Shares of Beneficial Interest
STATEMENT OF ADDITIONAL INFORMATION
February 1, 2000
This Statement of Additional Information supplements the Prospectus for the
Trust dated February 1, 2000 and should be read in conjunction with the
Prospectus. A copy of the Prospectus may be obtained from the Trust at the above
address. This Statement of Additional Information is not a Prospectus.
TABLE OF CONTENTS Page
The Trust B-2
Investment Objectives, Policies
and Restrictions B-2
Trustees and Officers B-4
Compensation of Trustees B-6
Custodian and Independent Accountants B-6
Brokerage B-7
Price and Net Asset Value B-7
Shareholder Plans B-8
Tax-Advantaged Retirement Plans B-9
Dividends, Distributions & Federal Taxes B-11
Capital Shares B-12
Historical Performance Information B-12
Financial Statements B-14
<PAGE>
THE TRUST
Northeast Investors Trust, herein called the Trust, is a diversified
open-end management investment company organized March 1, 1950 by an Agreement
and Declaration of Trust executed under the laws of The Commonwealth of
Massachusetts.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
As explained in the Prospectus, the purpose of the Trust is to provide
investors with a vehicle for investment under the management of the Trustees.
Through this Trust, the Trustees will seek to provide a managed, diversified
investment program, the primary objective of which shall be the production of
income. Capital appreciation is also an objective of the Trust, but its
achievement must be compatible with the primary objective.
In addition to the investment objectives and policies described in the
Prospectus, the Trust has adopted certain investment restrictions. So long as
these restrictions remain in effect, the Trustees may not: (1) Purchase any
securities which would cause more than 5% of the Trust's total assets at the
time of such purchase to be invested in the securities of any issuer, except the
United States Government. (2) Purchase any securities which would cause the
Trust at the time of such purchase to own more than 10% of any class of any
issuer. (3) Purchase the securities of any issuer that together with any
predecessor thereof have been engaged in continuous operation for less than
three years. (4) Purchase real estate or commodities or commodities contracts,
but this limitation does not preclude an investment in the securities of
organizations which deal in real estate or commodities or commodities contracts
or in securities secured by interests in real estate. (5) Purchase the
securities of any investment company, except in connection with a merger,
consolidation or acquisition or by purchase of securities of closed-end
investment companies in regular transactions in the open market. (6) Purchase
securities on margin or effect short sales of securities (7) Make loans, except
that the Trust may acquire publicly distributed bonds, debentures, notes and
other debt securities. (8) Act as an underwriter of securities except insofar as
the Trust might technically be deemed to be an underwriter for purposes of the
Securities Act of 1933 upon the disposition of certain securities. (9) Invest in
companies for the purpose of exercising management or control. (10) Invest in
puts, calls, straddles, spreads or any combinations thereof. (11) Purchase or
retain the securities of any issuer if all Trustees together own more than 1/2
of 1% of the securities of such issuer. (12) Deal as principal with the Trust in
the purchase or sale of portfolio securities. (13) Deal as agent with the Trust
in the purchase or sale of portfolio securities. (14) Invest in securities for
which there is no readily available market, if at the time of acquisition more
than 5% of the Trust's assets would be invested in such securities. (15)
Purchase participations or other direct interests in oil, gas or other mineral
exploration or development programs. (16) Invest in warrants if at the time of
acquisition more than 2% of the Trust's assets would be invested in warrants.
(17) Invest in securities of foreign issuers if at the time of acquisition more
than 10% of the Trust's assets would be invested in such securities. (18)
Purchase any security if, after giving effect to such purchase, more than 25% of
the Trust's assets would be invested in any one industry. (19) Issue senior
securities or borrow money, except that the Trust may borrow funds up to a
maximum amount equal to 25% of the Trust's total assets and may pledge assets as
security for such borrowings.
The above policies do not preclude the lending of portfolio securities
to broker-dealers. Loans of portfolio securities of the Trust will be made, if
at all, in strictest conformity with applicable federal and state rules and
regulations. While there may be delays in recovery of loaned securities or even
a loss of rights in collateral supplied should the borrower fail financially,
loans will be made only to firms deemed by the Trust's management to be of good
standing and will not be made unless, in the judgment of the Trust's management,
the consideration to be earned from such loans would justify the risk. The
purpose of such loan transactions is to afford the Trust an opportunity to
continue to earn income on the securities loaned and at the same time to earn
income on the collateral held by it.
The Trust does not intend to engage in trading for short-term profits,
and portfolio turnover will be limited in accordance with the Trust's objective
of producing income. This does not, however, preclude an occasional investment
for the purpose of short-term capital appreciation. During the fiscal years
ended September 30, 1999 and 1998 the rates of total portfolio turnover were
27.00% and 63.80% respectively. Although investment policy or changed
circumstances may require, in the opinion of the Trustees, an increased rate of
such portfolio turnover, the Trustees do not anticipate that such turnover will
be substantially in excess of that experienced by the Trust in recent years.
<PAGE>
<TABLE>
TRUSTEES AND OFFICERS
The Trustees of the Trust are Ernest E. Monrad, Bruce H. Monrad, Robert B. Minturn, Jr., C. Earl
Russell, Fred L. Glimp and J. Murray Howe. Under Massachusetts law, the Trustees are generally responsible for
the management of the Trust. The following table provides certain information about the Trust's Trustees and
officers:
<S> <C> <C>
Name, Address and Age Position(s) Held with Trust Principal Occupation(s) During Last
5 Years
Ernest E. Monrad (1) Chairman and Trustee Chairman and Trustee of the Trust
50 Congress Street
Boston, MA
Age 69
Bruce H. Monrad(1) Executive Vice President and Trustee Vice President and Trustee of the
50 Congress Street Trust
Boston, MA
Age 37
Robert B. Minturn, Jr.(1) Vice President, Clerk and Trustee of the Trust
50 Congress Street Clerk and Trustee
Boston, MA
Age 60
William A. Oates, Jr.(1) President President and Trustee of Northeast
50 Congress Street Investors Growth Fund
Boston, MA
Age 57
Gordon C. Barrett Executive Vice President and Executive Vice President and
50 Congress Street Treasurer Treasurer of the Trust
Boston, MA
Age 43
C. Earl Russell Trustee Adviser to the accounting firm of
50 Congress Street Russell, Brier & Co.
Boston, MA
Age 91
<PAGE>
Fred L. Glimp Trustee Special Assistant to President and
1350 Massachusetts Ave. former Vice President for Alumni
Cambridge, MA Affairs and Development of Harvard
Age 73 University
J. Murray Howe Trustee Of counsel to the law firm of
One Post Office Square Sullivan & Worcester
Boston, MA
Age 75
</TABLE>
(1) Indicates a Trustee who is an "interested person" under the
Investment Company Act of 1940, as amended.
The total number of shares owned beneficially by the Trustees, officers
and members of their immediate families on September 30, 1999 was 1,071,575.858
shares (.05%).
<PAGE>
COMPENSATION OF TRUSTEES
Under the Declaration of Trust, the Trustees are entitled to receive an
annual fee equal to 1/2 of 1% of the principal of the Trust, computed at the end
of each quarter year at the rate of 1/8 of 1% of the principal at the close of
such quarter. The principal of the Trust for this purpose is taken as a total of
the value of the portfolio and other assets less all liabilities, except accrued
Trustees' fees, valued set forth below under "Price and Net Asset Value". The
total Trustee fee of for each of the fiscal years ended September 30, 1997, 1998
and 1999 was $8,601,029, $11,565,681 and $11,305,545, respectively.
<TABLE>
The following table shows the aggregate compensation paid during the
fiscal year ended September 30, 1999 to the Trustees and Officers of the Trust
from the Trustees fee or otherwise.
<S> <C>
Name and Position Aggregate Compensation Paid
Ernest E. Monrad, Chairman and Trustee $3,498,873
Bruce H. Monrad, Executive Vice President and Trustee $4,527,119
Robert B. Minturn, Jr., Vice President, Clerk and Trustee $ 240,000
William A. Oates, Jr., President $2,949,574
Gordon C. Barrett, Executive Vice President and Treasurer $ 295,000
C. Earl Russell, Trustee $ 30,000
Fred L. Glimp, Trustee $ 30,000
J. Murray Howe, Trustee $ 30,000
</TABLE>
Under the Declaration of Trust, the Trustees are required to furnish
the Trust from their compensation, financial and statistical services for the
Trust and such office space as the Trust may require.
CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The custodian for the Trust is Investors Bank & Trust Company, 200
Clarendon Street , Boston, Massachusetts. The custodian maintains custody of the
Trust's assets. The Trust acts as its own Transfer and Shareholder Servicing
Agent.
The independent accountants for the Trust are PricewaterhouseCoopers
LLP, Sixty Federal Street, Boston, Massachusetts. PricewaterhouseCoopers LLP
audits the Trust's annual financial statements included in the annual report to
shareholders, reviews the Trust's filings with the Securities and Exchange
Commission on Form N-lA and prepares the Trust's federal income and excise tax
returns.
BROKERAGE
Decisions to buy and sell securities for the Trust and as to assignment
of its portfolio business and negotiation of its commission rates are made by
the Trustees. It is the Trustees' policy to obtain the best security price
available, and, in doing so, the Trustees assign portfolio executions and
negotiate commission rates in accordance with the reliability and quality of a
broker's services and their value and expected contribution to the performance
of the Trust. In order to minimize brokerage charges, the Trust seeks to execute
portfolio transactions with the principal market maker for the security to which
the transaction relates in the over-the-counter market unless it has been
determined that best price and execution are available elsewhere. Such portfolio
transactions may be carried out with broker-dealers that have provided the
Trustees or the Trust with research and other investment related services. Such
services may include furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing
portfolio analyses and reports concerning issuers, industries, securities,
economic factors and trends; and effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement). It
is not, however, the Trustees' policy to pay a higher net price to a
broker-dealer or receive a lower net price from a broker-dealer solely because
it has supplied such services. During the fiscal year ended September 30, 1999,
the Trust engaged in portfolio transactions involving broker-dealers totaling
$746,807,146. Of this amount $47,801,729 involved trades with brokers acting as
agents in which such brokers received total brokerage commissions of $38,966.
The remaining $699,005,417 in portfolio trades consisted of principal
transactions with market makers and other dealers. During the fiscal years ended
September 30, 1997 and 1998 brokerage commissions paid totaled $112,604 and
$61,062 respectively. All such portfolio transactions completed by the Trust
during the year ended September 30, 1999 were carried out with broker-dealers
that have provided the Trust with research, and other investment related
services.
PRICE AND NET ASSET VALUE
It is the current policy of the Trust that the public offering price of
shares of the Trust equal their net asset value, the Trust receiving the full
amount paid by the investor. The net asset value is determined as of the close
of the New York Stock Exchange on each day that the Exchange is open. It is the
only price available to investors whose orders were received prior to the close
of the Exchange on that day. The price to investors whose applications for
purchase are received after the close of the New York Stock Exchange or on a
non-business day will be the net asset value next determined. The net asset
value of the Trust's shares is determined by dividing the market value of the
Trust's securities, plus any cash and other assets (including dividends accrued)
less all liabilities by the number of shares outstanding. Securities and other
assets 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 furnished by recognized
dealers in such securities. Securities and other assets for which market
quotations are not readily available (including restricted securities, if any)
are valued at their fair value as determined in good faith under consistently
applied procedures approved by the Board of Trustees. Securities may also be
valued on the basis of valuations furnished by a pricing service that uses both
dealer supplied valuations and evaluations based on expert analysis of market
data and other factors if such valuations are believed to reflect more
accurately the fair value of such securities. An adjustment will be made for
fractions of a cent to the next highest cent. The Trust makes no special payment
for the daily computation of its net asset value.
SHAREHOLDER PLANS
Open Accounts
Upon making an initial investment (minimum amount $1,000), a
shareholder will automatically have an Open Account established for him on the
books of the Trust. Once any account is opened there is no limitation to the
size or frequency of investment. The shareholder will receive a confirmation
from the Trust of this and each subsequent transaction in his Account showing
the current transaction and the current number of shares held. A shareholder may
make additional investments in shares of the Trust at any time by ordering the
Trust shares at the then applicable public offering price. Share certificates
which have been issued to a shareholder may be returned to the Trust at any time
for credit to the shareholder's Open Account. Shares held in an Open Account may
be redeemed as described in the Prospectus under "How to Withdraw Your
Investment". Income dividends and capital gains distributions are credited in
shares on the payment date (which may be different than the record date) at the
applicable record date closing net asset value, unless a shareholder has elected
to receive all income dividends and/or capital gains distributions in cash.
Automatic Investment and Withdrawal Plans
These Plans have been developed to accommodate those who wish to make
purchases or sales of shares of the Trust on a continuing basis without the
imposition of any fee or service charge. Subject to the initial investment
minimum of $1,000, any shareholder maintaining an Open Account may request in
his application or otherwise in writing that investments be made through
automatic deductions (minimum $50) from his bank checking or savings account or
that withdrawals be made automatically with the redemption price paid by check
or electronic funds transfer. The shareholder may cancel his participation in
either Plan at any time, and the Trust may modify or terminate either Plan at
any time.
An investor should understand that he is investing in a security, the
price of which fluctuates, and that under the Plans he will purchase or sell
shares regardless of their price level and that if he terminates the Plan and
sells his accumulated shares at a time when their market value is less than his
cost, he will incur a loss. In the case of the Automatic Investment Plan, he
should also take into account his financial ability to continue the Plan through
periods of low prices and understand that the Plan cannot protect him against
loss in declining markets.
TAX-ADVANTAGED RETIREMENT PLANS
In addition to regular accounts, the Trust offers tax-advantaged
retirement plans which are described briefly below. Contributions to these plans
are invested in shares of the Trust; dividends and other distributions are
reinvested in shares of the Trust. Contributions may be invested in shares of
Northeast Investors Growth Fund as well as shares of the Trust.
Contributions to these retirement plans, within the limits and
circumstances specified in applicable provisions of the Internal Revenue Code,
are excludable or deductible from the participant's income for federal income
tax purposes. In addition, non-deductible or after-tax contributions may be made
to these retirement plans to the extent permitted by the Internal Revenue Code.
Reinvested dividends and other distributions accumulate free from federal income
tax while the shares of the Trust are held in the plan. Distributions from these
plans are generally included in income when received; however, after-tax or
non-deductible contributions may be recovered without additional federal income
tax. Premature distributions, insufficient distributions after age 70 1/2 or
excess contributions may result in penalty taxes.
Investors Bank & Trust Company serves as trustee or custodian of each
of the following plans. It is entitled to receive specified fees for its
services. Detailed information concerning each of the following plans (including
schedules of trustee or custodial fees) and copies of the plan documents are
available upon request to the Trust at its offices.
An individual investor or employer considering any of these retirement
plans should read the detailed information for the plan carefully and should
consider consulting an attorney or other competent advisor with respect to the
requirements and tax aspects of the plan.
Prototype Defined Contribution Plan
The Trust offers a Prototype Defined Contribution Plan suitable for
adoption by businesses conducted as sole proprietorships, partnerships or
corporations.
The employer establishes a Prototype Defined Contribution Plan by
completing an adoption agreement specifying the desired plan provisions. The
adoption agreement offers flexibility to choose appropriate coverage,
eligibility, vesting and contribution options subject to the requirements of
law. Under a supplement to the Prototype Defined Contribution Plan, an employer
may establish a salary reduction or 401(k) plan.
Traditional IRA and Roth IRA
An individual may open his own Individual Retirement Account (IRA) or
Roth IRA using a custodial account form approved for this purpose by the IRS. An
individual may have an IRA even though he is also an active participant in a
pension or profit-sharing plan or certain other plans. However, depending on the
individual's adjusted gross income and tax return filing status, contributions
for an individual who is an active participant in another plan may be partially
or entirely non-deductible. Contributions to a Roth IRA are non-deductible, but
income and gains accumulate free of income tax and distributions after age 59
1/2 are generally not taxable.
403(b) Retirement Account
Certain charitable and educational institutions may make contributions
to a 403(b) Retirement Account on behalf of an employee. The employee may enter
into a salary reduction agreement with the employer providing for the employee
to reduce his pay by the amount specified in the agreement and for the employer
to contribute such amount to the employee's 403(b) Retirement Account. Funds in
the account may generally be withdrawn only upon the participant's reaching age
59 1/2 or his termination of employment, financial hardship, disability, or
death.
<PAGE>
DIVIDENDS, DISTRIBUTIONS & FEDERAL TAXES
It is the Trust's policy to distribute net investment income and net
realized capital gains on sales of investments (less any available capital loss
carry forwards) annually. Dividends and distributions are credited in shares of
the Trust unless the shareholder elects to receive cash.
Any dividends or distributions paid shortly after a purchase of shares
by an investor will have the effect of reducing the per share net asset value of
his shares by the per share amount of the dividends or distributions.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to income taxes.
It is the policy of the Trust to distribute its net investment income
and net realized gains for each year in taxable dividends and capital gain
distributions so as to qualify as a "regulated investment company" under the
Internal Revenue Code. The Trust did so qualify during its last taxable year.
A regulated investment company which meets the diversification of
assets and source of income requirements prescribed by the Internal Revenue Code
is accorded conduit or "pass through" treatment if it distributes to its
shareholders at least 90% of its taxable income exclusive of net capital gains,
i.e., it will be taxed only on the portion of such income which it retains.
To the extent that a regulated investment company distributes the
excess of its net long-term capital gain over its net short-term capital loss
(including any capital loss carry-over from prior years), such capital gain is
not taxable to the company but it is taxable to the shareholder.
Income dividends and capital gain distributions are taxable as
described, whether received in cash or additional shares. Shareholders who have
not supplied the Trust with appropriate information with respect to their tax
identification or social security number or who are otherwise subject to back-up
withholding may have 31% of distributions withheld by the Trust.
The foregoing discussion relates to federal income taxation. Dividends
and capital gain distributions may also be subject to state and local taxes, and
shareholders should consult with a qualified tax advisor.
<PAGE>
CAPITAL SHARES
The Trust has only one class of securities--shares of beneficial
interest without par value--of which an unlimited number are authorized. Each
share has one vote and when issued, is fully paid and nonassessable. Fractional
shares may be issued and when issued, have the same rights proportionately as
full shares. The shares are transferable by endorsement or stock power in the
customary manner, but the Trust is not bound to recognize any transfer until it
is recorded on the books of the Trust. Each share is entitled to participate
equally in any dividends or distributions declared by the Trustees. In the event
of liquidation of the Trust, the holders of shares are entitled to all assets
remaining for distribution after satisfaction of all outstanding liabilities.
Distributions would be in proportion to the number of shares held. No shares
carry any conversion, subscription, or other preemptive rights.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust provides that the Trustees shall have no power
to bind the shareholders personally and requires that all contracts and other
instruments shall recite that the same are executed by the Trustees as Trustees
and not individually and that the same are executed by the Trustees as not
binding upon the Trust's assets. The Trust is advised by counsel (Mintz. Levin,
Cohn, Ferris, Glovsky and Popeo, P.C.) that under the applicable Massachusetts
decisions, no personal liability can attach to the shareholders under contracts
of the Trust containing this recital. Moreover, the Declaration of Trust
provides that any shareholder of the Trust shall be indemnified by the Trust for
all loss and expense incurred by reason of his being or having been a
shareholder of the Trust. Thus the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Trust itself would be unable to meet its obligations.
HISTORICAL PERFORMANCE INFORMATION
From time to time, the Trust may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
(ERV/P)1/N - 1 Where:
P= a hypothetical initial payment of $1000
N= number of years
ERV= ending redeemable value of a hypothetical $1000 payment made at
the beginning of the 1, 5 and 10 year periods at the end of the
year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions. The Trust may also advertise total return (a
"nonstandardized quotation") which is calculated differently from average annual
total return. A nonstandardized quotation of the total return may be a
cumulative return which measures the percentage change in the value of an
account between the beginning and end of a period, assuming no activity in the
account other than reinvestment of dividends and capital gains distributions. A
nonstandardized quotation may also indicate average annual compounded rates of
return over periods other than those specified for average annual total return.
A nonstandardized quotation of total return will always be accompanied by the
Trust's average annual total return as described above. The Trust's total return
for the one, five and ten year periods ended September 30, 1999 are set forth in
the Prospectus.
From time to time, the Trust may also advertise its yield. A yield
quotation is based on a 30-day (or one month) period and is computed by dividing
the net investment income per share earned during the period by the maximum
offering price per share on the last day of the period, according to the
following formula:
Yield = 2[(a-b/cd + 1)6 - 1] Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period
Solely for the purpose of computing yield, dividend income is
recognized by accruing 1/360 of the stated dividend rate of the security each
day that the Trust owns the security. Generally, interest earned (for the
purpose of "a" above) on debt obligations is computed by reference to the yield
to maturity of each obligation held based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day prior to the start of the 30-day (or one month) period for which
yield is being calculated, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest). With respect to the
treatment of discount and premium on mortgage or other receivables-backed
obligations which are expected to be subject to monthly paydowns of principal
and interest, gain or loss attributable to actual monthly paydowns is accounted
for as an increase or decrease to interest income during the period and discount
or premium on the remaining security is not amortized.
The performance quotations described above are based on historical
experience and are not intended to indicate future performance.
<PAGE>
To help investors better evaluate how an investment in the Trust might
satisfy their investment objective, advertisements regarding the Trust may
discuss various measures of Trust performance, including current performance
ratings and/or rankings appearing in financial magazines, newspapers and
publications which track mutual fund performance. Advertisements may also
compare Northeast Investors Trust's performance to performance as reported by
other investments, indices and averages.
FINANCIAL STATEMENTS
The following financial statements are included in this Statement of Additional
Information:
1. Report of PricewaterhouseCoopers LLP, Independent Accountants
2. Schedule of Investments as of September 30, 1999
3. Statement of Assets and Liabilities as of September 30, 1999
4. Statement of Operations for the Year Ended September 30, 1999
5. Statements of Changes in Net Assets for each of the two years
in the period ended September 30, 1999
6. Notes to Financial Statements for the year ended
September 30, 1999
<TABLE>
Corporate Bonds Market Value
<CAPTION>
Name of Issuer Principal (Note B)
<S> <C> <C>
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Apparel --1.10%
- -----------------------------------------------------------------------------------------------------------------------------------
Polymer Group Senior. Sub.Notes, 9%, 7/01/07^............ 5,100,000 $ 4,832,250
Polymer Group Senior. Sub. Notes, 8.75%, 3/01/08^........ 18,922,000 17,739,375
- -----------------------------------------------------------------------------------------------------------------------------------
22,571,625
Broadcast -- .10%
- -----------------------------------------------------------------------------------------------------------------------------------
Young Broadcasting Corp., 11.75%, 11/15/04............... 2,000,000 2,070,000
Building & Construction -- .73%
- -----------------------------------------------------------------------------------------------------------------------------------
Aluma Enterprises, Inc., 7.50%, 12/31/01................. 3,736,261 3,428,019
Associated Materials Senior Sub. Deb. Nts, 9.25%, 3/01/08^ 4,000,000 3,760,000
Henry Company Senior Notes, 10%, 4/15/08................. 2,500,000 1,650,000
Nortek, Inc. Senior Sub. Notes, 9.875%, 3/01/04.......... 5,950,000 5,845,875
Nualt Enterprises, Inc., 12%,12/31/04.................... 7,042,799 421,864
- -----------------------------------------------------------------------------------------------------------------------------------
15,105,758
Chemicals-- 7.49%
- -----------------------------------------------------------------------------------------------------------------------------------
General Chemical Ind Senior Sen. Sub. Nts.,10.625%,5/01/09 3,000,000 2,940,000
Huntsman Corp. Sen. Sub. Floating Rate Notes, 7/01/07^... 39,500,000 34,760,000
Huntsman Packaging Corp.Sen. Sub. Nts.,9.125%, 10/01/07^ 4,500,000 4,140,000
Huntsman Polymer Corp. Senior Notes, 11.75%, 12/01/04.... 14,000,000 14,700,000
LaRoche Ind. Sen. Sub. Notes Ser. B, 9.5%, 9/15/07^...... 18,000,000 9,360,000
Lyondell Senior Secured Notes, 9.625%, 5/01/07........... 5,000,000 4,975,000
Lyondell Chemical Senior Secured Notes, 9.875%, 5/01/07.. 15,000,000 14,887,500
Lyondell Chemical Senior Sub. Notes, 10.875%, 5/01/07.... 10,000,000 10,050,000
PCI(Pioneer)Canada, Inc. Sen. Notes, 9.25%,10/15/07...... 4,000,000 3,000,000
Pioneer Americas Acq. Senior Notes, 9.25%, 6/15/07....... 17,500,000 13,475,000
Sterling Chemical, Inc. Sen. Sub. Notes, 11.75%, 8/15/06. 12,500,000 7,500,000
Sterling Chemical Sen. Sub. Nts. Series A,11.25%, 4/01/07 30,025,000 17,114,250
Sterling Chemical Sen. Sub. Notes Series 12.375%, 7/15/06 14,340,000 13,479,600
Sterling Chemical Holding Sen. Disc. Nts.,0/12%, 8/15/08# 18,980,000 3,796,000
- -----------------------------------------------------------------------------------------------------------------------------------
154,177,350
Clothing-- .44%
- -----------------------------------------------------------------------------------------------------------------------------------
St. John Knits Senior Sub. Notes, 12.50%, 7/1/09......... 10,000,000 9,150,000
Computer Software & Services -- .79%
- -----------------------------------------------------------------------------------------------------------------------------------
Unisys Corporation Senior Notes Series B, 12%, 4/15/03... 15,000,000 16,237,500
Conglomerate -- 1.47%
- -----------------------------------------------------------------------------------------------------------------------------------
Jordan Industries Sen. Sub. Disc. Nts.,0/11.75%, 4/01/09# 21,616,713 14,050,863
Jordan Industries Senior Notes Series D, 10.375%, 8/01/07 7,000,000 6,650,000
Jordan Industries Senior Notes, 10.375%, 8/01/07......... 10,000,000 9,500,000
- -----------------------------------------------------------------------------------------------------------------------------------
30,200,863
<PAGE>
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
- -----------------------------------------------------------------------------------------------------------------------------------
Electronics --.36%
- -----------------------------------------------------------------------------------------------------------------------------------
Knowles Electronics Senior Sub. Notes, 13.125%, 10/15/09 7,500,000 $ 7,387,500
Energy/Natural Resources --14.04%
- -----------------------------------------------------------------------------------------------------------------------------------
Forest Oil Senior Sub. Notes, 10.50%, 1/15/06........... 8,000,000 8,280,000
Giant Industries Sen. Sub. Notes, 9.75%, 11/15/03^...... 3,190,000 3,102,275
Husky Oil Bonds, 8.9/11.1875%, 8/15/28.................. 20,000,000 19,979,800
Kelley Oil Senior Subordinated Notes, 10.375%, 10/15/06. 7,500,000 3,600,000
Kelley Oil & Gas, Company Guaranteed, 14%, 4/15/03...... 9,928,000 9,928,000
Key Energy Senior Sub. Notes, 14%, 1/15/09.............. 15,000,000 16,012,500
NuevoEnergy Senior Sub. Notes Series B, 9.5%, 6/01/08... 10,645,000 10,538,550
Ocean Energy, Inc.Senior Sub. Notes, 8.875%, 7/15/07.... 20,000,000 19,900,000
P & L Coal Senior Subordinated Notes, 9.625%, 5/15/08^.. 25,000,000 23,906,250
Parker &Parsley Senior Notes, 8.875%, 4/15/05........... 9,330,000 9,423,300
Parker &Parsley Senior Notes, 8.25%, 8/15/07............ 9,750,000 9,360,000
Parker Drilling Co. Senior Sub. Notes, 9.75%, 11/15/06.. 31,195,000 29,947,200
Pogo Prod. Senior Sub. Notes, 8.75%, 5/15/07............ 2,000,000 1,910,000
Pogo Prod. Senior Sub. Notes, 10.375%, 2/15/09.......... 10,000,000 10,400,000
R&B Falcon Senior Notes Series B, 6.5%, 4/15/03......... 15,000,000 13,350,000
R&B Falcon Senior Notes Series B, 6.75%, 4/15/05........ 28,340,000 24,089,000
R&BFalcon Corp Senior Notes Series B, 6.95%, 4/15/08.... 5,000,000 4,150,000
R&BFalcon Corp. 9.5%, 12/15/08.......................... 10,000,000 9,500,000
R&B Falcon Corp Senior Notes, 12.25%, 3/15/06........... 10,000,000 10,500,000
Swift Energy Co. Senior Sub. Notes, 10.25%, 8/01/09..... 10,000,000 10,000,000
TesoroPetroleum Corp. Senior Sub. Notes, 9%, 7/01/08.... 25,000,000 24,437,500
Universal Compression Sen. Disc. Notes, 0/9.875%, 2/15/08#^ 22,500,000 13,612,500
Wiser Oil Co. Sen. Sub. Notes, 9.5%, 5/15/07............ 4,000,000 3,260,000
- -----------------------------------------------------------------------------------------------------------------------------------
289,186,875
Financial Services -- 1.86%
- -----------------------------------------------------------------------------------------------------------------------------------
Mercury Finance Senior Secured Notes, 10%, 3/23/01....... 20,000,000 18,800,000
Metris Companies Inc. Senior Notes, 10.125%, 7/15/06..... 11,000,000 10,010,000
RBF Finance Company, 11%, 3/15/06........................ 6,000,000 6,300,000
RBF Finance Company, 11.375%, 3/15/09.................... 3,000,000 3,150,000
- -----------------------------------------------------------------------------------------------------------------------------------
38,260,000
Food & Beverage -- 5.40%
- -----------------------------------------------------------------------------------------------------------------------------------
Chiquita Brands Senior Notes, 10.25%, 11/01/06........... 5,000,000 4,400,000
Chiquita Brands International Senior Notes, 10%, 6/15/09. 10,000,000 8,700,000
Envirodyne Industries, Inc. Sen. Nts., 10.25%, 12/01/01^ 20,395,000 16,519,950
Keebler Corp. Senior Sub. Notes, 10.75%, 7/01/06......... 10,000,000 10,812,500
Mrs. Fields Original Cookies Sen. Nts., 10.125%, 12/01/04 3,500,000 3,010,000
Specialty Foods Corp.Senior Notes, 10.25%, 8/15/01 49,600,000 45,880,000
Specialty Foods Corp. Sen. Nts. Ser. B,11.125%, 10/01/02 23,040,000 21,888,000
- -----------------------------------------------------------------------------------------------------------------------------------
111,210,450
<PAGE>
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
- -----------------------------------------------------------------------------------------------------------------------------------
Food Processing -- 1.70%
- -----------------------------------------------------------------------------------------------------------------------------------
Boston Chicken Convertible Notes, 0%, 6/01/15............ 18,500,000$ 185,000
Del Monte Foods Corp. Sen. Disc. Nts. Ser. B,0%, 12/15/07#15,959,000 11,462,325
Premium Standard Farms, Inc.Sen.Nts., 11%, 9/17/03....... 11,855,470 11,499,806
SC International Service Sen. Sub. Nts., 9.25%, 9/01/07^ 12,000,000 11,760,000
- -----------------------------------------------------------------------------------------------------------------------------------
34,907,131
Food Service -- .44%
- -----------------------------------------------------------------------------------------------------------------------------------
B&GFoods Senior Sub. Notes, 9.625%, 8/01/07^............. 10,000,000 9,100,000
Gaming -- 13.56%
- -----------------------------------------------------------------------------------------------------------------------------------
Argosy Gaming Co. Senior Sub. Notes, 10.75%, 6/01/09..... 20,000,000 20,500,000
Boyd Gaming Senior Sub. Notes, 9.5%, 7/15/07............. 45,000,000 43,650,000
Eldorado Resorts Senior Sub. Notes, 10.5%, 8/15/06....... 1,500,000 1,548,750
Fitzgeralds Gaming Corp. Sen. Sec. Nts., 12.25%, 12/15/04~ 5,000,000 2,750,000
GBProperty Funding Corp. Mort. Notes, 10.875%, 1/15/04... 17,350,000 12,492,000
International Game Tech. Senior Notes, 8.375%, 5/15/09... 25,000,000 23,812,500
MGMGrand, Inc. Sen. Collateralized Notes, 6.875%,2/06/08 27,700,000 25,059,082
Players International, Inc. Sen. Notes, 10.875%, 4/15/05 15,000,000 15,881,250
Riviera Holdings Corp. First Mortgage Notes, 10%, 8/15/04 17,000,000 14,620,000
Station Casinos, Inc. Senior Sub. Notes, 10.125%, 3/15/06 5,100,000 5,227,500
Station Casinos, Inc. Senior Sub. Notes, 9.75%, 4/15/07.. 1,000,000 1,013,750
Trump Atlantic City First Mortgage Notes, 11.25%, 5/01/06 90,530,000 76,950,500
Las Vegas Sands/Venetian Mortgage Notes, 12.25%, 11/15/04 34,000,000 26,860,000
Las Vegas Sands/Ven Sen. Sub. Nts., 10/14.25%, 11/15/05# 12,500,000 8,750,000
- -----------------------------------------------------------------------------------------------------------------------------------
279,115,332
Grocery Stores -- 4.94%
- -----------------------------------------------------------------------------------------------------------------------------------
Fleming Co., Inc. Medium Term Nts., 9.24%, 2/28/00...... 5,000,000 4,972,500
Fleming Co., Inc. Medium Term Nts. Ser. B,8.74%, 9/19/02 10,000,000 9,513,700
Fleming Co., Inc. Medium Term Nts. Ser. C,6.04%, 7/19/00 5,000,000 4,827,700
Fleming Co., Inc. Senior Sub. Nts., 10.5%, 12/01/04^.... 20,000,000 18,850,000
Fleming Co., Inc. Sen. Sub. Nts. Ser B,10.625%, 7/31/07^ 18,000,000 16,695,000
Pathmark Stores Senior Sub. Notes, 9.625%, 5/01/03...... 28,000,000 27,440,000
Penn Traffic Senior Notes, 11%, 6/29/09~................ 10,032,560 8,678,164
Star Markets Senior Sub. Notes, 13%, 11/01/04........... 10,000,000 10,700,000
- -----------------------------------------------------------------------------------------------------------------------------------
101,677,064
Health Care Supplies -- .17%
- -----------------------------------------------------------------------------------------------------------------------------------
Global Health Sciences Company 11%, 5/1/08............... 5,000,000 3,600,000
Manufacturing/Service Industry -- 1.95%
- -----------------------------------------------------------------------------------------------------------------------------------
Axia, Inc. Senior Sub. Notes, 10.75%, 7/15/08............ 10,000,000 9,250,000
HaynesInternational Senior Notes, 11.625%, 9/01/04....... 10,000,000 9,000,000
Key Components LLCSenior Notes, 10.5%, 6/01/08........... 7,500,000 7,012,500
Safelite Glass Sen. Sub. Notes Series B, 9.875%, 12/15/06 7,000,000 6,125,000
Safelite Glass Corp. Senior Sub. Notes, 9.875%, 12/15/06. 10,000,000 8,750,000
- -----------------------------------------------------------------------------------------------------------------------------------
40,137,500
<PAGE>
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
- -----------------------------------------------------------------------------------------------------------------------------------
Metals & Mining -- 6.13%
- -----------------------------------------------------------------------------------------------------------------------------------
Acme Metal, Inc. Senior Notes, 10.875%, 12/15/07~........ 20,000,000 $ 4,000,000
CF&IAcquisition Term Loan, 9.5%, 3/31/03................. 8,300,504 7,885,479
Golden Northwest Aluminum 12%, 12/15/06 12,500,000 12,875,000
Inland Steel Corp. First Mtg. Nts. Ser. R,7.9%, 1/15/07 6,500,000 6,045,000
Kaiser Aluminum Chemical Corp. Sub. Nts., 12.75%, 2/01/03 46,230,000 46,692,300
Kaiser Aluminum Chemical Corp Series B, 10.875%, 10/15/06 13,500,000 13,702,500
LTVSteel Co., Inc. Senior Notes, 8.2%, 9/15/07........... 14,000,000 12,600,000
National Steel Corp. First Mtg. Nts., 8.375%, 8/01/06 7,500,000 7,031,250
Ormet Corp. Senior Notes, 11%, 8/15/08^.................. 15,000,000 13,350,000
Weirton Steel Corp. Senior Notes, 10.875%, 10/15/99...... 2,000,000 2,003,120
- -----------------------------------------------------------------------------------------------------------------------------------
126,184,649
Miscellaneous Manufacturing -- 1.28%
- -----------------------------------------------------------------------------------------------------------------------------------
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 6,860,000
Great Lakes Corp. Senior Sub. Notes, 11.25%, 8/15/08..... 7,000,000 7,070,000
LLSCorporation Senior Sub. Notes, 11.625%, 8/01/09....... 6,000,000 5,940,000
- -----------------------------------------------------------------------------------------------------------------------------------
26,415,325
Office Equipment -- .65%
- -----------------------------------------------------------------------------------------------------------------------------------
Dictaphone Corp. Senior Sub. Notes, 11.75%, 8/01/05...... 19,845,000 13,296,150
Oil/Gas Exploration-- .72%
- -----------------------------------------------------------------------------------------------------------------------------------
Comstock Resources Inc. Senior Notes, 11.25%, 5/01/07.... 14,500,000 14,862,500
Paper/Forest Products -- 9.55%
- -----------------------------------------------------------------------------------------------------------------------------------
American Tissue Inc. Sen. Secured Notes, 12.50%, 7/15/06 16,000,000 15,120,000
Container Corp. Senior Notes, 11.25%, 5/01/04............ 10,500,000 10,920,000
Crown Paper Senior Sub. Notes, 11%, 9/01/05.............. 14,950,000 11,362,000
Florida Coast Paper Co. 1st Mtg. Notes, 12.75%, 6/01/03~ 7,000,000 3,640,000
Four M Corporation Senior Notes, Series B, 12%, 6/01/06.. 1,500,000 1,380,000
Gaylord Container Corp. Senior Notes, 9.75%, 6/15/07..... 19,000,000 17,955,000
Gaylord Container Corp. Senior Notes, 9.375%, 6/15/07.... 15,000,000 13,725,000
Gaylord Container Corp. Sen. Sub. Notes, 9.875%, 2/15/08 30,000,000 26,100,000
Maxxam Group Holdings, Inc. Senior Notes, 12%, 8/01/03... 7,000,000 7,087,500
Packaging Resources, Inc. Senior Notes, 11.625%, 5/01/03^ 8,800,000 8,888,000
Stone Container Corp. Senior Sub. Notes, 11.5%, 10/01/04 12,580,000 13,020,300
Stone Container Corp. Senior Notes, 12.58%, 8/01/16^..... 43,100,000 46,117,000
Stone Container Corp. Senior Notes, 11.5%, 8/15/06^...... 20,000,000 21,150,000
WTDIndustries Senior Sub. Notes, 8%, 6/30/05............. 340,900 68,180
- -----------------------------------------------------------------------------------------------------------------------------------
196,532,980
Petroleum and Drilling-- .94%
- -----------------------------------------------------------------------------------------------------------------------------------
Pride International Inc. Senior Notes, 9.375%, 5/01/07... 10,125,000 10,175,625
Pride International Inc. Senior Notes, 10%, 6/01/09...... 9,000,000 9,225,000
- -----------------------------------------------------------------------------------------------------------------------------------
19,400,625
<PAGE>
Corporate Bonds--continued Market Value
Name of Issuer Principal (Note B)
- -----------------------------------------------------------------------------------------------------------------------------------
Products and Manufacturing -- 1.62%
- -----------------------------------------------------------------------------------------------------------------------------------
Motors and Gears Senior Notes Series D, 10.75%, 11/15/06^ 23,110,000$ 22,416,700
Tokheim Senior Sub. Notes, 11.375%, 8/1/08^.............. 5,500,000 5,335,000
Tokheim Junior 12%, 9/30/08 PIK.......................... 8,195,453 5,572,908
- -----------------------------------------------------------------------------------------------------------------------------------
33,324,608
Publishing & Printing -- .40%
- -----------------------------------------------------------------------------------------------------------------------------------
American Pad &Paper Senior Sub. Notes, 13%, 11/15/05..... 26,005,000 8,321,600
Real Estate -- 2.20%
- -----------------------------------------------------------------------------------------------------------------------------------
Jamboree LLC Class A Senior Secured Notes, 8.18%, 3/27/02 5,028,396 4,927,828
Jamboree LLC Class B Senior Sub. Nts., 8.93%, 3/27/02 PIK 1,459,000 1,429,820
Rockefeller Center Properties Conv. Deb., 0%, 12/31/00... 47,000,000 39,010,000
- -----------------------------------------------------------------------------------------------------------------------------------
45,367,648
Recreation -- 1.31%
- -----------------------------------------------------------------------------------------------------------------------------------
Coast Hotels &Casino Company Gtd. Notes, 9.50%, 4/01/09.. 17,000,000 16,065,000
Outboard Marine Corp. Debentures, 9.125%, 4/15/17^....... 9,750,000 5,070,000
Outboard Marine Corp. Senior Notes, 10.75%, 6/01/08...... 8,000,000 5,880,000
- -----------------------------------------------------------------------------------------------------------------------------------
27,015,000
Retail -- 1.14%
- -----------------------------------------------------------------------------------------------------------------------------------
Eyecare Centers of America,Inc. Sen. Nts.,9.125%,10/01/03 10,000,000 8,625,000
Eye Care Centers Sub. Nts. FRN,6mth. Libor+.398%, 5/01/08 5,000,000 4,000,000
National Vision Senior Notes, 12.75%, 10/15/05........... 12,500,000 10,875,000
- -----------------------------------------------------------------------------------------------------------------------------------
23,500,000
Retail Food Chains --4.64%
- -----------------------------------------------------------------------------------------------------------------------------------
Advantica Restaurant Group Senior Notes, 11.25%, 1/15/08. 58,768,700 51,128,769
American Restaurant Group Senior Notes, 11.5%, 2/15/03^.. 15,500,000 13,950,000
FRD Acquisition Senior Notes, 12.5%, 7/15/04^............ 15,000,000 11,700,000
Family Restaurants Senior Notes, 9.75%, 2/01/02.......... 18,000,000 9,900,000
Planet Hollywood Senior Sub. Notes, 12%, 4/01/05~........ 12,500,000 2,125,000
Romacorp, Inc. Senior Notes, 12%, 7/01/06................ 7,500,000 6,750,000
- -----------------------------------------------------------------------------------------------------------------------------------
95,553,769
Transportation -- .85%
- -----------------------------------------------------------------------------------------------------------------------------------
Avis Rent A Car Senior Sub. Notes, 11%, 5/01/09.......... 17,000,000 17,425,000
Miscellaneous -- .96%
- -----------------------------------------------------------------------------------------------------------------------------------
Hines Horticulture Senior Sub. Notes, 11.75%, 10/15/05... 1,951,000 2,058,305
Iron Mountain, Inc. Senior Sub. Notes, 10.125%, 10/01/06. 2,500,000 2,587,500
Mosler, Inc. Senior Notes, 11%, 4/15/03.................. 10,340,000 8,168,600
Precise Technology Sen. Sub. Notes, 11.125%, 6/15/07..... 7,500,000 7,050,000
- -----------------------------------------------------------------------------------------------------------------------------------
19,864,405
Total Corporate Bonds--88.93% (cost--$2,060,051,679) 1,831,159,207
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign Bonds-- Market Value
Name of issuer Principal (Note B)
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign Bonds -- 5.83%
- -----------------------------------------------------------------------------------------------------------------------------------
Greycoat PLC Finsbury Circus, 12.50%, 4/01/02 GBP 15,000,000$ 19,752,000
Brazil C Bond Debentures, 8%, 4/15/14.................... 11,952,842 7,418,292
Argentina GlobalBonds, 9.75%, 9/19/27.................... 32,751,000 27,347,085
Rep. of Brazil Disc. Ser Z-L, FRN, Libor +.8125%, 4/15/24 38,000,000 23,773,940
Rep. of Brazil Disc. 11.625%, 4/15/04 35,000,000 32,615,800
Euro Stabilization Advances, 0%, 12/15/26............GBP 132,670 43,675
Eurotunnel Reset Facility 7.03%, 12/31/50............GBP 4,000,000 2,633,600
Venezuela Par, 6.75%, 3/31/20 ........................... 10,000,000 6,518,800
- -----------------------------------------------------------------------------------------------------------------------------------
Total Foreign Bonds--5.83% (cost--$129,442,890) 120,103,192
- -----------------------------------------------------------------------------------------------------------------------------------
Number ofMarket Value
Stocks -- Shares (Note B)
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock -- 10.56%
- -----------------------------------------------------------------------------------------------------------------------------------
Advantica Restaurant Group+..............................1,217,762 3,691,341
Chase Manhattan Corp.................................... 400,000 30,150,000
Chubb Corp^........................................... 500,000 24,906,250
Darling International, Inc.+.......................... 745,530 1,025,104
Gaylord Container Corp.+.............................. 1,243,799 8,862,068
Grand Union Co.+...................................... 932,146 12,729,619
International Airline Support Group+.................. 224,540 954,295
Jamboree Office REIT.................................. 50,307 3,269,955
JPSCapital+........................................... 1,038,823 2,726,910
J P Morgan & Co.^..................................... 200,000 22,850,000
Leucadia National Corp................................ 242,608 5,094,768
Little Switzerland, Inc.+............................. 273,659 111,174
MAXXAM, Inc.+......................................... 200,000 10,287,500
NL Industries......................................... 1,000,000 12,625,000
Nualt Enterprises..................................... 10,752 107
Ontario Limited....................................... 1,773 6
Penn Traffic Common................................... 1,906,164 16,202,394
Smurfit-Stone Container............................... 257,142 5,560,696
Specialty Equipment Co.+.............................. 388,700 9,814,675
Trilanco 2 Limited.................................... 98.48 1
Trilanco 3 Limited.................................... 98.48 1
USLeather, Inc+....................................... 1,007,308 2,014,616
Walter Industries Inc................................. 500,000 6,687,500
WestPoint Stevens, Inc.+^............................. 1,600,000 37,800,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks--10.56% (cost--$233,229,925)........ 217,363,980
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks -- .53%
- -----------------------------------------------------------------------------------------------------------------------------------
American Restaurant Group, PIK 12%.................... 4,156 3,921,020
R&BFalcon Corp. 5/01/09............................... 7,267 6,903,650
- -----------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks--.53% (cost--$9,989,598)......... 10,824,670
- -----------------------------------------------------------------------------------------------------------------------------------
Warrants Number of Market
Value
Name of Issuer Shares or Units (Note B)
- -----------------------------------------------------------------------------------------------------------------------------------
Warrants -- .19%+
- -----------------------------------------------------------------------------------------------------------------------------------
Bradlees Warrants..................................... 67,384 711,845
Homeland Holding Corp. Warrants....................... 6,687 66
Key Energy Service Warrants........................... 15,000 300,000
Marvel Warrants Class A............................... 12,956 389
Marvel Warrants Class C............................... 21,941 219
R&BFalcon Corp. Warrants.............................. 7,000 1,750,000
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--.19% (cost--$15,855,817) 3,823,220
- -----------------------------------------------------------------------------------------------------------------------------------
...........Total Investments--106.03% (cost--$2,448,569,909) $2,183,274,269
================================================================================
</TABLE>
~Non-income producing security due to default or bankruptcy filing
+ Non-income producing security
# Represents a zero coupon bond that converts to a fixed rate at a
designated future date. The date shown on the schedule of investments
represents the maturity date of the security and not the date of coupon
conversion.
^ Pledged to collateralize short-term borrowings (See Note F)
PIK Payment in Kind
GBP Principal denoted in British Pounds Sterling
Federal Tax Information:
At September 30, 1999, the aggregate cost of investment securities for income
tax purposes was $2,448,661,159. Net unrealized depreciation aggregated
$265,386,890 of which $79,653,255 related to appreciated investment securities
and $345,040,645 related to depreciated investment securities. The Form 1099 you
receive in January 2000 will show the tax status of all distributions paid to
your account in calendar 1999.
Capital Gain Distribution: (unaudited)
Pursuant to section 852 of the Internal Revenue Code, the Fund thereby
designates $299,890 as capital gain for its taxable year ended
September 30,1999.
Dividends Received Deductions for Corporations:
The fund has designated 2.83% of the distributions from net investment income as
qualifying for dividends received deduction for corporations.
<PAGE>
<TABLE>
<CAPTION>
The accompanying notes are an integral part of the financial statements.
- -----------------------------------------------------------------------------------------------------------------------------------
September 30, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments--at market value (cost $2,448,569,909)--Note B $2,183,274,269
Interest receivable 62,214,049
Miscellaneous receivable, foreign securities 894,438
Receivable for securities sold 22,956,083
Receivable for shares of beneficial interest sold 1,771,444
Receivable for dividends 393,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets 2,271,503,283
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Notes payable--Note F 197,275,213
Payable for securities purchased 7,346,550
Payable for shares of beneficial interest repurchased 4,158,220
Trustee fees payable--Note C 2,672,137
Accrued expenses 936,984
Miscellaneous payable 6,760
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 212,395,864
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets $2,059,107,419
===================================================================================================================================
Net Assets Consist of (Note B):
Capital, at a $1.00 par value $204,309,420
Paid in surplus 2,096,616,919
Undistributed net investment income 23,981,797
Accumulated net realized loss on investments (511,134)
Net unrealized depreciation of investments (265,289,583)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, for 204,309,420 shares outstanding $2,059,107,419
===================================================================================================================================
Net Asset Value, offering price and redemption
price per share ($2,059,107,419/204,309,420 shares) $10.08
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The accompanying notes are an integral part of the financial statements.
- -----------------------------------------------------------------------------------------------------------------------------------
September 30, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Interest $231,387,350
Dividends 6,425,384
Other Income 4,691,303
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income 242,504,037
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Trustee fees--Note C $11,396,105
Interest--Note F 2,877,280
Administrative expenses and salaries 872,013
Printing, postage and stationary 445,190
Computer and related expenses 243,024
Registration and filing fees 195,073
Other expenses 124,163
Legal fees 104,903
Auditing fees 79,555
Telephone 61,853
Custodian fees 47,711
Insurance 26,744
- -----------------------------------------------------------------------------------------------------------------------------------
Total Expenses 16,473,614
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 226,030,423
- -----------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments--Note B:
Net realized loss from investment transactions (263,513)
Change in unrealized appreciation/depreciation of investments
and assets and liabilities in foreign currencies (49,026,555)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations $176,740,355
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The accompanying notes are part of the financial statements.
<S> <C> <C>
Year Ended September 30 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Operations:
Net investment income $226,030,423 $201,723,086
Net realized (gain/loss) from investment transactions (263,513) 37,473,557 Change in unrealized appreciation of
investments (49,026,555) (339,027,495)
------------ -------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 176,740,355 (99,830,852)
Distributions to Shareholders from Net Investment Income(211,784,335) (191,510,245)
($.98 and $.96 per share, respectively)
Distributions to Shareholders from Net Realized Gains (36,970,219) --
($.18 per share)
From Net Trust Share Transactions--Note D 84,466,005 263,814,943
Total Increase (Decrease) in Net Assets 12,451,806 (27,526,154)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period 2,046,655,613 2,074,181,767
- -----------------------------------------------------------------------------------------------------------------------------------
End of Period (including undistributed net investment
income of $23,981,797 and $9,892,802, respectively) $2,059,107,419 $2,046,655,613
===================================================================================================================================
===================================================================================================================================
</TABLE>
Report of Independent Accountants
To the Board of Trustees and Shareholders of Northeast Investors Trust
In planning and performing our audit of the financial statements of Northeast
Investors Trust (the Trust) for the year ended September 30, 1999, we
considered its internal control, including control activities for safeguarding
securities, in order to determine our auditing procedures for the purpose of
expressing our opinion on the financial statements and to comply with the
requirements of Form N-SAR, not to provide assurance on internal control.
The management of the Trust is responsible for establishing and maintaining
internal control. In fulfilling this responsibility, estimates and judgments
by management are required to assess the expected benefits and related costs
of controls. Generally, controls that are relevant to an audit pertain to the
entitys objective of preparing financial statements for external purposes that
are fairly presented in conformity with generally accepted accounting
principles. Those controls include the safeguarding of assets against
unauthorized acquisition, use or disposition.
Because of inherent limitations in internal control, errors or fraud may occur
and not be detected. Also, projection of any evaluation of internal control to
future periods is subject to the risk that controls may become inadequate
because of changes in conditions or that the effectiveness of their design
and operation may deteriorate.
Our consideration of internal control would not necessarily disclose all
matters in internal control that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants.
A material weakness is a condition in which the design or operation of one or
more of the internal control components does not reduce to a relatively low
level the risk that misstatements caused by error or fraud in amounts that
would be material in relation to the financial statements being audited
may occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving internal control and its operation, including controls for
safeguarding securities, that we consider to be material weaknesses as defined
above as of September 30, 1999.
This report is intended solely for the information and use of the Board of
Trustees, management and the Securities and Exchange Commission and is not
intended to be and should not be used by anyone other than these specified
parties.
PricewaterhouseCoopers LLP
November 5, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<S> <C>
<PERIOD-START> OCT-01-1998
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 2,448,569,909
<INVESTMENTS-AT-VALUE> 2,183,274,269
<RECEIVABLES> 88,229,014
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,271,503,283
<PAYABLE-FOR-SECURITIES> 7,346,550
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 205,049,314
<TOTAL-LIABILITIES> 212,395,864
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,096,616,919
<SHARES-COMMON-STOCK> 204,309,420
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<DIVIDEND-INCOME> 6,425,384
<INTEREST-INCOME> 231,387,350
<OTHER-INCOME> 4,691,303
<EXPENSES-NET> 16,473,614
<NET-INVESTMENT-INCOME> 226,030,423
<REALIZED-GAINS-CURRENT> (263,513)
<APPREC-INCREASE-CURRENT> (49,026,555)
<NET-CHANGE-FROM-OPS> 176,740,355
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 211,784,335
<DISTRIBUTIONS-OF-GAINS> 36,970,219
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<NUMBER-OF-SHARES-SOLD> 133,711,418
<NUMBER-OF-SHARES-REDEEMED> 142,431,298
<SHARES-REINVESTED> 16,505,806
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<GROSS-ADVISORY-FEES> 11,396,105
<INTEREST-EXPENSE> 2,877,280
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<AVERAGE-NET-ASSETS> 2,313,950,358
<PER-SHARE-NAV-BEGIN> 10.42
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[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>