UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-03074
Northeast Investors Growth Fund
(Exact name of registrant as specified in charter)
150 Federal Street
Boston, MA 02110
(Address of principal executive offices) (Zip code)
David Randall
150 Federal Street
Boston, MA 02110
(Name and address of agent for service)
Registrant's telephone number, including area code: 617-523-3588
Date of fiscal year end: December 31, 2004
Date of reporting period: June 30, 3004
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of
the information collection burden estimate and any suggestions for reducing
the burden to Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection
of information under the clearance requirements of 44 U.S.C. 3507.
Item 1. Reports to Stockholders.
NORTHEAST
INVESTORS
GROWTH FUND
A NO-LOAD FUND
Semi-Annual Report
For the Period Ended
June 30, 2004
Table of Contents
Letter to Shareholders 3
Portfolio Transactions 4
Fund Performance 6
Investment Sectors 8
Schedule of Investments 9
Financial Statements 13
Financial Highlights 16
Notes to the Financial Statements 17
Trustees & Officers 20
Dear Fellow Shareholders:
Northeast Investors Growth Fund had a good six-month period ending June 30, 2004
by recording a positive +4.0% return versus +3.44% for the S&P 500. This
six-month period followed a successful advance last year, 2003, +28.4% versus
the S&P 500 +28.9%.
In the first half of this year, we trimmed some of our larger holdings and added
to some of our smaller positions. We, in effect, rebalanced the portfolio with
an eye toward spreading the risk and with the intention of putting our money
into positions where we have the greatest conviction for expected continued
strong returns over the balance of the year. These changes are holding our
turnover rate at about 25%, although we do not anticipate this somewhat
heightened activity to be a lasting characteristic.
We are concerned that our expense ratio has increased somewhat, due in large
part, to our costs spread over a smaller asset base. Much of the increase in
costs has come because of heightened regulatory requirements imposed on the
mutual fund industry in general. However, we are closely monitoring all costs
and are exercising care to provide for the lowest expense ratio practicable
consistent with sound industry practices.
During the past three months, with the heightened market volatility, we have
eliminated the borrowing, or leverage, that we had used fairly consistently
during past years. With the recent prospects for higher interest rates, higher
inflation, higher oil prices, and perhaps a slower economy, we would anticipate
continuing this posture for the foreseeable future. Given the markets' weakness
in July and August, this looks like the right choice.
It is a pleasure to report that our directors elected F. Washington Jarvis, III
as a new director of your fund. Mr. Jarvis retired in June after 30 years as
Headmaster of The Roxbury Latin School, West Roxbury, Massachusetts.
We are enthusiastic about the composition of the investments in the fund and the
areas of emphasis we have chosen. As we move past the summer into fall
elections, we are guardedly optimistic about our economic outlook, budgetary and
security concerns aside, and our improving earnings environment.
As in the past, please write or call me directly with any questions or comments
you might have. Our daily closing price is the bottom line and of continued keen
concern to us all.
Yours sincerely,
William A. Oates, Jr.
President
August 10, 2004
Portfolio Transactions (unaudited)
January 1, 2004-June 30, 2004
Additions to Existing Holdings
Additions Now Own
Anthem, Inc. 14,700 33,200
Boston Scientific Corp. 14,000 75,500
Dell, Inc. 19,400 86,600
eBay, Inc. 5,000 48,000
General Electric Co. 16,000 170,500
Home Depot, Inc. 22,000 68,000
Iron Mountain, Inc.~ 28,525 67,575
Procter & Gamble Co. 24,600 58,800
Teva Pharmaceutical Industries Ltd~ 51,900 87,000
Zimmer Holdings, Inc. 1,200 49,000
New Holdings
Now Own
American International Group, Inc. 21,000
Bank of America Corp.^ 54,435
Genentech, Inc. 43,000
International Game Technology 30,000
Eliminations/Reductions of Holdings
Sold Now Own
3M Co. 1,000 48,000
Abbott Laboratories 37,000 0
Amgen, Inc. 18,700 20,300
Analog Devices 10,000 54,000
Barr Pharmaceuticals, Inc. 34,200 0
Best Buy Co., Inc. 30,100 20,900
Cabot Corp. 48,000 34,000
Cisco Systems, Inc. 38,000 95,000
Citigroup, Inc. 30,000 85,500
Comcast Corp., Class A 48,900 0
Corning, Inc. 98,000 296,000
Cox Communications, Inc. 15,000 51,000
Eaton Vance Corp. 13,000 100,000
Eli Lilly & Co. 21,900 0
Fifth Third Bancorp 18,000 41,050
FleetBoston Financial Corp.* 110,634 0
Gillette Co. 26,000 55,000
Intel Corp. 37,000 91,400
International Business Machines Corp. 9,500 32,300
Intuit, Inc. 27,500 0
Johnson & Johnson 19,400 33,000
Medtronic, Inc. 17,000 32,800
Mellon Financial Corp. 80,000 42,500
Microsoft Corp. 29,000 155,000
Pfizer, Inc. 13,000 108,731
Royal Dutch Petroleum 37,200 0
State Street Corp. 47,000 34,400
Sysco Corp. 36,000 0
Time Warner, Inc. 3,000 130,000
Walt Disney Co. 53,000 89,000
Wal-Mart Stores, Inc. 17,000 59,600
Whole Foods Market, Inc. 12,000 44,200
XM Satellite Radio Holdings, Class A 36,000 50,000
Zions Bancorporation 26,700 47,700
~ Results of a stock split
^ Acquired through merger with FleetBoston Financial Corp.
* Results of a merger with Bank of America Corp.
Average Annual Total Return (unaudited)
One year ended June 30, 2004 21.11%
Five years ended June 30, 2004 -3.26%
Ten years ended June 30, 2004 11.89%
The following graph compares the cumulative total shareholder return on the
Northeast Investors Growth Fund shares over the ten preceding years to the
cumulative total share return on the Standard & Poor's 500 Index. Assuming an
investment of $10,000 in both at their closing prices on January 1, 1994 and
reinvestment of dividends and capital gains. For management's discussion of the
Growth Fund's 2004 performance, including strategies and market conditions
which influenced such performance, see the President's letter to shareholders.
Table Omitted
<table>
<s> <c> <c> <c> <c> <c> <c>
Six Months
Ended
June 30,
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Northeast
Investors
Growth $9,993 $13,636 $16,991 $23,325 $31,102 $40,162 $34,154 $28,296 $21,882 $28,094 $29,217
Fund
Standard
& Poor's $10,128 $13,888 $17,037 $22,677 $29,103 $35,226 $32,021 $28,217 $21,981 $28,285 $29,258
500 Index
</table>
Returns and Per Share Data
<table>
<s> <c> <c> <c> <c> <c>
Six Months
Ended
Year Ended December 31, June 30,
2004
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 (unaudited)
Net Asset Value 8.13 10.59 12.15 15.84 20.47 26.08 20.23 15.43 11.91 15.26 15.87
Income Dividend 0.06 0.07 0.05 0.06 0.05 0.02 0.00 0.00 0.02 0.03 0.00
Capital Gains Dist. 0.17 0.44 0.98 0.77 0.55 0.31 2.05 1.44 0.00 0.00 0.00
NEIG Return (%) -0.07 36.46 24.60 37.28 33.34 29.13 -14.96 -17.15 -22.67 28.39 4.00
S&P 500 Return (%) 1.28 37.12 22.68 33.10 28.34 21.04 -9.10 -11.88 -22.10 28.68 3.44
Table Omitted
</table>
Ten Largest Investment Holdings (unaudited)
June 30, 2004
Ten Largest Investment Holdings
Market
Cost Value
General Electric Co. $6,043,365 $5,524,200
Exxon Mobil Corp. 4,437,477 5,146,320
Bank of America Corp. 3,855,695 4,606,290
Microsoft Corp. 6,196,058 4,426,800
eBay, Inc. 2,440,068 4,413,600
Zimmer Holdings, Inc. 2,446,039 4,321,800
3M Co. 2,829,041 4,320,480
Whole Foods Market, Inc. 1,958,198 4,218,890
Citigroup, Inc. 3,056,469 3,975,750
Corning, Inc. 1,772,772 3,865,760
Investment Sectors As a Percentage of Net Assets (unaudited)
Integrated Oil & Gas 7.14%
Pharmaceuticals/Drug 6.10%
Conglomerate 7.07%
Banks 9.81%
Other 46.30%
Biotechnology 4.36%
Communications Equipment 4.39%
Health Care Equipment 6.57%
Financial/Custody 9.02%
Computer Hardware 4.27%
Market value of securities equals 105.03% of Net Assets.
Chart Omitted
<table>
<s> <c> <c> <c> <c>
Schedule of Investments June 30, 2004 (unaudited)
Number Market Percent
Common Stocks of Value of Net
Name of Issuer Shares (Note B) Assets
Air Freight & Logistics
United Parcel Service, Inc. 29,500 $ 2,217,515 1.59%
Asset Management & Custodian
Eaton Vance Corp. 100,000 3,821,000
Mellon Financial Corp. 42,500 1,246,525
State Street Corp. 34,400 1,686,976
-----------
6,754,501 4.85%
Biotechnology
Amgen, Inc.^ 20,300 1,107,771
Genentech, Inc.^ 43,000 2,416,600
Gilead Sciences, Inc.^ 38,000 2,546,000
-----------
6,070,371 4.36%
Broadcast Cable TV
Cox Communications, Inc.^ 51,000 1,417,290 1.02%
Casino & Gaming
International Game Techonology 30,000 1,158,000 0.83%
Communications Equipment
Cisco Systems, Inc.^ 95,000 2,251,500
Corning, Inc.*^ 296,000 3,865,760
-----------
6,117,260 4.39%
Computer & Electronics
Best Buy Co., Inc.*^ 20,900 1,060,466 0.76%
Computer Hardware
Dell, Inc.^ 86,600 3,102,012
International Business Machines Corp. 32,300 2,847,245
-----------
5,949,257 4.27%
Conglomerate
3M Co.* 48,000 4,320,480
General Electric Co.* 170,500 5,524,200
-----------
9,844,680 7.07%
Consumer Finance
American Express Co. 35,500 1,823,990 1.31%
Data Processing
First Data Corp. 68,000 3,027,360
Iron Mountain, Inc.^ 67,575 2,174,113
-----------
5,201,473 3.74%
Diversified Banks
Bank of America Corp. 54,435 4,606,290
Bank One Corp.* 57,000 2,907,000
-----------
7,513,290 5.40%
Diversified Chemical
Cabot Corp. 34,000 1,383,800 0.99%
Diversified Financial Services
Citigroup, Inc.* 85,500 3,975,750 2.86%
Food Retail
Whole Foods Market, Inc.# 44,200 4,218,890 3.03%
Health Care Equipment
Boston Scientific Corp.^ 75,500 3,231,400
Medtronic, Inc. 32,800 1,598,016
Zimmer Holdings, Inc.^ 49,000 4,321,800
-----------
9,151,216 6.57%
Home Improvement-Retail
Home Depot, Inc. 68,000 2,393,600 1.72%
Household Products
Proctor & Gamble Co. 58,800 3,201,072 2.30%
Internet Retail
eBay, Inc.^ 48,000 4,413,600 3.17%
Integrated Oil & Gas
B P Amoco, PLC 51,200 2,742,784
ChevronTexaco Corp. 21,800 2,051,598
Exxon Mobil Corp.* 115,882 5,146,319
-----------
9,940,701 7.14%
Major Regional Banks
Banknorth Group, Inc. 31,000 1,006,880
Fifth Third Bancorp 41,050 2,207,669
Zions Bancorporation 47,700 2,931,165
-----------
6,145,714 4.41%
Managed Health
Anthem, Inc.#^ 33,200 2,973,392 2.14%
Movies & Entertainment
Time Warner, Inc.^ 130,000 2,285,400
Walt Disney Co.* 89,000 2,268,610
-----------
4,554,010 3.27%
Multi-Line Insurance
American International Group, Inc. 21,000 1,496,880 1.08%
Personal Products
Gillette Co. 55,000 2,332,000 1.68%
Pharmaceuticals/Drug
Johnson & Johnson* 33,000 1,838,100
Pfizer, Inc. 108,731 3,727,299
Teva Pharmaceutical Industries, LTD# 87,000 2,922,330
------------
8,487,729 6.10%
Radio
XM Satellite Radio Holdings, Class A#^ 50,000 1,364,500 0.98%
Retail-General
Wal-Mart Stores, Inc. 59,600 3,144,496 2.26%
Semiconductors
Analog Devices, Inc. 54,000 2,542,320
Intel Corp.* 91,400 2,522,640
------------
5,064,960 3.64%
Soft Drinks
PepsiCo, Inc. 54,100 2,914,908 2.09%
Systems Software
Microsoft Corp.^ 155,000 4,426,800 3.18%
Total Common Stocks (Cost-$112,864,580) 136,712,111 98.20%
------------
Repurchase Agreement
Investors Bank & Trust Co. Repurchase Agreement
0.70% due 7/1/04@ $ 2,584,598
Total Repurchase Agreement (Cost-$2,584,598) $ 2,584,598 1.86%
Cash Equivalents
Dreyfus Cash Management Plus Fund~-1.17601% $ 3,000,000
Merrill Lynch & Co.~-1.54% 3,000,000
Merrimac Cash Fund-Premium Class~-1.11204% 919,522
------------
Total Cash Equivalents (Cost-$6,919,522) $ 6,919,522 4.97%
Total Investment Portfolio (Cost-$122,368,700) 146,216,231 105.03%
Net Other Assets (7,005,565) -5.03%
Total Net Assets $139,210,666 100.00%
@ Acquired on June 30, 2004. Collateralized by $2,713,828 of market value of U.S. Government mortgagebacked
securities due through 04/25/16. The maturity value is $2,584,648.
* All or a portion of this security is pledged to collateralize short-term borrowings
^ Non-income producing security
# All or a portion of this security is currently out on loan
~ Security held as collateral for securities on loan. The rate quotes is the annualized seven-day yield of the
fund at period end. (See Note I)
The accompanying notes are an integral part of the financial statements.
</table>
Statement of Assets and Liabilities (unaudited)
June 30, 2004
Assets
Investments-at market value (including securities loaned of $6,538,543)
(cost $122,368,700)-See Note I $146,216,231
Dividends receivable 75,875
Interest receivable 50
Receivable for shares of beneficial interest sold 6,748
------------
Total Assets $146,298,904
Liabilities
Collateral on securities loaned, at value-see note I $6,919,522
Payable for shares of beneficial interest repurchased 33,181
Accrued investment advisory fee 63,182
Accrued expenses 72,303
------------
Total Liabilities 7,088,188
Net Assets $139,210,716
------------
------------
Net Assets Consist of:
Capital paid-in $126,140,779
Accumulated net realized loss (10,777,594)
Net unrealized appreciation of investments 23,847,531
------------
Net Assets $139,210,716
------------
Net Asset Value, offering price and redemption price per share
($139,210,716/8,776,791 shares) $15.87
The accompanying notes are an integral part of the financial statements.
Statement of Operations (unaudited)
Six Months Ended June 30, 2004
Investment Income
Dividend income $860,560
Other income 4,691
----------
Total Income 865,251
Expenses
Investment advisory fee $395,025
Administrative expenses and salaries 244,923
Interest fee 92,245
Printing, postage and stationary 58,400
Audit fees 40,950
Computer and related expenses 40,290
Legal fees 40,100
Registration and filing fees 19,375
Insurance 18,200
Telephone expense 14,050
Trustee fees 10,010
Commitment fee 9,186
Custodian fees 4,688
Miscellaneous fees 6,189
---------
Total Expenses 993,631
Net Investment Income (Loss) (128,380)
---------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain from investment transactions $6,403,757
Change in unrealized appreciation (depreciation) of investments (846,417)
----------
Net gain on investments 5,557,340
Net Increase in Net Assets Resulting from Operations $5,428,960
The accompanying notes are an integral part of the financial statements.
<table>
<s> <c> <c> <c> <c>
Statements of Changes in Net Assets
Six Months
Ended
June 30, Year Ended
2004 December 31,
(unaudited) 2003
Increase (Decrease) in Net Assets
From Operations:
Net investment income (loss) $(128,380) $271,509
Net realized gain (loss) from investment transactions 6,403,757 (3,955,081)
Change in unrealized appreciation (depreciation) of investments (846,417) 36,617,308
---------- -----------
Net Increase in Net Assets
Resulting from Operations 5,428,960 32,933,736
---------- -----------
Distributions to Shareholders
From net investment income (loss) - (279,662)
---------- -----------
Total Distributions - (279,662)
---------- -----------
From Net Fund Share Transactions (7,778,787) (17,079,254)
---------- -----------
Total Increase (Decrease) in Net Assets (2,349,827) 15,574,820
Net Assets:
Beginning of Period 141,560,543 125,985,723
----------- -----------
End of Period $139,210,716 $141,560,543
----------- -----------
The accompanying notes are an integral part of the financial statements.
</table>
<table>
<s> <c> <c> <c> <c>
Financial Highlights
Six Months
Ended
June 30,
2004 Year Ended December 31,
(unaudited) 2003 2002 2001 2000 1999
Per Share Data^
Net Asset Value:
Beginning of Period $15.26 $11.91 $15.43 $20.23 $26.08 $20.47
------ ------ ------ ------ ------ ------
Income From Investment
Operations:
Net investment income(loss) (0.02) 0.03 0.02 (0.01) (0.09) 0.01
Net realized and unrealized
gain (loss) on investment 0.63 3.35 (3.52) (3.35) (3.71) 5.93
----- ----- ----- ----- ----- -----
Total from investment
operations 0.61 3.38 (3.50) (3.36) (3.80) 5.94
----- ----- ----- ----- ----- -----
Less Distributions:
Net investment income - (0.03) (0.02) - - (0.02)
Capital gain - - - (1.44) (2.05) (0.31)
----- ----- ----- ----- ----- -----
Total Distributions - (0.03) (0.02) (1.44) (2.05) (0.33)
Net Asset Value:
End of Period $15.87 $15.26 $11.91 $15.43 $20.23 $26.08
------ ------ ------- ------ ------- ------
Total Return 4.00%* 28.39% -22.67% -17.15% -14.96% 29.13%
Ratios & Supplemental Data
Net assets end of period
(in thousands) $139,211 $141,561 $125,986 $187,218 $272,222 $357,650
Ratio of operating expenses to
average net assets (includes
interest expenses) 1.43%~ 1.43% 1.31% 1.14% 0.97% 0.85%
Ratio of interest expense to
average net assets 0.13%~ 0.22% 0.21% 0.14% 0.22% 0.10%
Ratio of net investment
income(loss)
to average net assets -0.18%~ 0.21% 0.17% -0.05% -0.34% 0.03%
Portfolio turnover rate 25% 25% 26% 30% 33% 31%
^ Average share method used to calculate per share data
* Not annualized
~ Annualized
</table>
Notes to Financial Statements (unaudited)
Note A-Organization
Northeast Investors Growth Fund (the "Fund") is a diversified, no-load,
open-end, series-type management investment company registered under the
Investment Company Act of 1940, as amended. The Fund presently consists of one
portfolio and is organized as a Massachusetts business trust.
The Fund's objective is to produce long term growth for its shareholders.
Note B-Significant Accounting Policies
Significant accounting policies of the Fund are as follows:
Valuation of Investments: Investments in securities traded on national
securities exchanges are valued based upon closing prices on the exchanges.
Securities traded in the over-the-counter market and listed securities with no
sales on the date of valuation are valued at closing bid prices. Repurchase
agreements are valued at cost with earned interest included in interest
receivable. Other short-term investments, when held by the Fund, are valued at
cost plus earned discount or interest which approximates market value.
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.
Security Transactions: Investment security transactions are recorded on the date
of purchase or sale. Net realized gain or loss on sales of investments is
determined on the basis of identified cost.
Federal Income Taxes: No provision for federal income taxes is necessary since
the Fund has elected to qualify under subchapter M of the Internal Revenue Code
and its policy is to distribute all of its taxable income, including net
realized capital gains, within the prescribed time periods.
State Income Taxes: Because the Fund has been organized by an Agreement and
Declaration of Trust executed under the laws of the Commonwealth of
Massachusetts, it is not subject to state income or excise taxes.
Distributions and Income: Income and capital gain distributions are determined
in accordance with income tax regulations which may differ from accounting
principles generally accepted in the United States. These differences are
primarily due to differing treatments for capital loss carryovers and losses
deferred due to wash sales. Permanent book and tax differences relating to
shareholder distributions will result in reclassifications to paid-incapital.
The Fund's distributions and dividend income are recorded on the ex-dividend
date. Interest income, which consists of interest from repurchase agreements, is
accrued as earned.
Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Note C-Investment Advisory and Service Contract and Affiliated Expenses
The Fund has its investment advisory and service contract with Northeast
Management & Research Company, Inc. (the "Advisor"). Under the contract, the
Fund pays the Advisor an annual fee at a maximum rate of 1% of the first
$10,000,000 of the Fund's average daily net assets, 3/4 of 1% of the next
$20,000,000 and 1/2 of 1% of the average daily net assets in excess of
$30,000,000, in monthly installments on the basis of the average daily net
assets during the month preceding payment. All trustees except Messrs. John C.
Emery and Michael Baldwin are officers or directors of the Advisor. The
compensation of all disinterested trustees of the Fund is borne by the Fund.
Under the Fund's Investment Advisory Agreement (the "Agreement"), personnel of
the Advisor provide the Fund with advice and assistance in the choice of
investments and the execution of securities transactions, and otherwise
maintain the Fund's organization. The Advisor also provides the Fund with
necessary office space and portfolio accounting and bookkeeping services. The
salaries of all officers of the Fund and of all Directors who are "affiliated
persons" of the Fund or of the Advisor, and all personnel of the fund or of the
Advisor performing services relating to research, statistical and investment
activities are paid by the Advisor.
The Fund pays expenses, including the salaries of employees engaged in
activities, related to its role as transfer, dividend paying and shareholder
servicing agent.
Note D-Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments, other than
short-term securities, aggregated $36,372,185 and $42,775,943, respectively,
for the six months ended June 30, 2004.
Note E-Shares of Beneficial Interest
At June 30, 2004, there was an unlimited number of shares of beneficial interest
authorized with no par value. Transactions in shares of beneficial interest were
as follows:
<table>
<s> <c> <c> <c>
June 30, 2004 December 31, 2003
Shares Amount Shares Amount
Shares sold 199,993 $ 3,101,223 441,531 $ 5,812,191
Shares issued to shareholders in
reinvestment of distributions
from net investment income
and realized gains from
security transactions 0 $ 0 16,607 $ 244,620
--------- ------------- -------- ------------
199,993 $ 3,101,223 458,138 $ 6,056,811
Shares repurchased (701,409) $(10,880,010) (1,764,370) $(23,136,065)
--------- ------------- ----------- --------------
Net decrease (501,416) $ (7,778,787) (1,306,232) $(17,079,254)
</table>
Note F-Repurchase Agreement
On a daily basis, the Fund invests any cash balances into repurchase agreements
hypothecated by U.S. Government obligations. Securities pledged as collateral
for repurchase agreements are held by the Fund's custodian bank until maturity
of the repurchase agreement. Provisions of the agreement ensure that the market
value of the collateral is sufficient in the event of default. However, in the
event of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral may be subject to legal proceedings.
Note G-Committed Line of Credit
Short-term bank borrowings, which do not require maintenance of compensating
balances, are generally on a demand basis and are at rates equal to adjusted
money market interest rates in effect during the period in which such loans are
outstanding. The Fund has entered an agreement which enables the Fund to borrow
up to $25,000,000 from an unsecured line of credit with State Street Bank and
Trust. At June 30, 2004, the Fund had unused lines of credit amounting to
$25,000,000. In addition the fund pays a commitment fee of 0.12% per annum,
payable at the end of each quarter based on the unused portion of the line of
credit.
The following information relates to aggregate short-term borrowings during the
year ended June 30, 2004:
Average amount outstanding (total of daily outstanding principal balances
divided by number of days during the period) $10,229,962
Weighted average interest rate (actual interest expense on short-term borrowing
divided by average short-term borrowings outstanding) 0.90%
Note H-Additional Tax Information
The tax character of distributions paid during the fiscal year ended December
31, 2002 and 2003 were $251,524 and $279,662 respectively, and were classified
as ordinary income.
As of December 31, the components of accumulated earnings (losses) on a tax
basis were as follows:
2003
Capital loss carryforward $(17,181,351)
Unrealized gains (losses)-net 24,693,948
--------------
Total accumulated earnings (losses-net) $ 7,512,597
* The capital loss carryforward will expire as follows:
Expiration
Year Amount
- ---- ----------
2009 $9,087,084
2011 $8,094,267
At December 31, the Fund's aggregate security unrealized gains and losses based
on cost for U.S. federal income tax purposes was as follows:
2003
----
Tax cost $144,286,113
Gross unrealized gain 29,308,144
Gross unrealized loss (4,614,196)
Net unrealized security gain (loss) $ 24,693,948
Note I-Securities Lending
The Fund may seek additional income by lending portfolio securities to qualified
institutions. The Fund will receive cash or securities as collateral in an
amount equal to at least 102% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains and
losses. If the borrower fails to return the securities and the value of the
collateral has declined during the term of the loan, the Fund will bear the
loss. At June 30, 2004, the value of securities loaned and the value of
collateral was $6,538,543 and $6,919,522, respectively. During the six months
ended June 30, 2004, income from securities lending amounted to $2,398. The
value of loaned securities and cash collateral at year end are disclosed on the
Fund's statement of assets and liabilities.
Trustees and Officers
The Trustees of Northeast Investors Growth Fund are William A. Oates Jr.,
Ernest E. Monrad, Robert B. Minturn, John C. Emery, and Michael Baldwin. Under
Massachusetts law, the Trustees are generally responsible for the management of
Northeast Investors Growth Fund. The following table provides certain
information about the Fund's Trustees and Officers:
The Statement of Additional Information (SAI) contains additional information
about the trustees and is available without charge upon request by calling the
Fund at 1-800-225-6704.
<table>
<s> <c> <c> <c> <c>
Principal
Length of Occupation(s) Other
Position(s) Held Time During Directorships
Name, Address and Age with Trust Served(1) Last 5 Years held by Trustee
AFFILIATED TRUSTEES AND FUND OFFICERS
William A. Oates, Jr. President and 23 years Trustee and
150 Federal Street Trustee President of
Boston, MA Northeast Investors
Age 62 Growth Fund
Ernest E. Monrad Trustee 23 years Trustee of Century Shares
150 Federal Street Northeast Investors Trust
Boston, MA Trust Century Capital
Age 74 Management Trust
The New America
High Income Fund,
Inc.
Northeast Investors
Trust
Gordon C. Barrett Senior Vice 10 years Officer of
150 Federal Street President and Northeast Investors
Boston, MA Chief Financial Growth Fund,
Age 47 Officer Northeast Investors
Trust, Northeast
Investment
Management, Inc.
Robert B. Minturn Trustee, Clerk, 23 years Clerk and Trustee Northeast Investors
150 Federal Street and Vice of Northeast Trust
Boston, MA President Investors Trust
Age 64
INDEPENDENT TRUSTEES
John C. Emery Trustee 23 years Partner, Law Firm
One Post Office Square of Sullivan &
Boston, MA Worcester
Age 73
Michael Baldwin Trustee 4 years Baldwin Brothers
3 Barnabas Road
Marion, MA
Age 63
(1) The Trustees serve until their resignation or the appointment of a successor and
the officers serve at the pleasure of the Trustees.
</table>
Trustees
William A. Oates, Jr.
Ernest E. Monrad
Robert B. Minturn
John C. Emery
Michael Baldwin
Officers
William A. Oates, Jr., President
Gordon C. Barrett, Senior Vice President & CFO
Ernest E. Monrad, Assistant Treasurer
Robert B. Minturn, Vice President & Clerk
Bruce H. Monrad, Vice President
Richard J. Semple, Vice President
David A. Randall, Vice President
Investment Advisor
Northeast Management & Research Company, Inc.
150 Federal Street
Boston, Massachusetts 02110
Custodian
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02205
Legal Counsel
Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Transfer Agent
Northeast Investors Growth Fund
150 Federal Street
Boston, Massachusetts 02110
This report is prepared for the information of the shareholders of Northeast
Investors Growth Fund and must not be given to others unless preceded or
accompanied by a copy of the current Prospectus by which all offerings of the
Fund shares are made. It should be noted in reading this report and the letter
to shareholders that the record of past performance is not a representation as
to the Fund's future performance, and that the Fund's investments are subject
to market risks.
Shares of the Fund are sold to investors at net asset value by
Northeast Investors Growth Fund
150 Federal Street
Boston, Massachusetts 02110
800-225-6704 617-523-3588
www.northeastinvestors.com
The share price for Northeast Investors Growth Fund is quoted daily in the
Mutual Funds section of most major newspapers under several abbreviations
including: NE Inv GR, NE Investor.
Item 2. Code of Ethics.
Not applicable for semi-annual report.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual report.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual report.
Item 5. Audit Committee of Listed Registrants.
Not applicable to the registrant.
Item 6. Schedule of Investments
Included as part of Item 1 above.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable to the registrant.
Item 8. Purchase of Equity Securities by Closed-End Management Company and
Affiliated Purchasers
Not applicable to the registrant.
Item 9. Controls and Procedures.
(a) The registrant's principal executive and financial officers,
after evaluating the effectiveness of the registrant's disclosure controls
and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of
1940, as amended), have concluded that, based on such evaluation, the
registrant's disclosure controls and procedures were effective as of a date
within 90 days of the filing of this report.
(b) The registrant's principal executive officer and principal
financial officer are aware of no changes in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal half-year that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
Item 10. Exhibits.
(a) 99.CERT Separate certifications by the registrant's principal
executive officer and principal financial officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the
Investment Company Act of 1940, are attached.
(b) 99.906CERT A certification by the registrant's principal executive
officer and principal financial officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the
Investment Company Act of 1940, is attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Northeast Investors Growth Fund
By (Signature and Title)
William A. Oates, Jr.
President
(principal executive officer)
Date: September 2, 2004
By (Signature and Title)
Gordon C. Barrett
Treasurer
(principal financial officer)
Date: September 2, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)
William A. Oates, Jr.
President
(principal executive officer)
Date: September 2, 2004
By (Signature and Title)
Gordon C. Barrett
Treasurer
(principal financial officer)
Date: September 2, 2004
Exhibit 99.CERT
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
I, William A. Oates, Jr., certify that:
1. I have reviewed this report on Form N-CSR of Northeast Investors Growth Fund;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations, changes in net assets, and
cash flows (if the financial statements are required to include a statement of
cash flows) of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of a date within 90 days prior to
the filing date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: September 2, 2004
William A. Oates, Jr.
President
(principal executive officer)
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
I, Gordon C. Barrett, certify that:
1. I have reviewed this report on Form N-CSR of Northeast Investors Growth
Fund;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations, changes in net assets, and
cash flows (if the financial statements are required to include a statement of
cash flows) of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of a date within 90 days prior to
the filing date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal half-year (the registrant's second fiscal half-year in the case of
an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: September 2, 2004
Gordon C. Barrett
Treasurer
(principal financial officer)
Exhibit 99.906CERT
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a)
and (b) of section 1350, chapter 63 of title 18, United States Code), each of
the undersigned officers of Northeast Investors Growth Fund, a Massachusetts
business trust (the "Registrant"), does hereby certify, to such officer's
knowledge, that:
The report on Form N-CSR for the period ended June 30, 2004 of the Company (the
"Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, and the information contained in the
N-CSR fairly presents, in all material respects, the financial condition and
results of operations of the Registrant.
Dated: September 2, 2004
William A. Oates, Jr.
President
(Principal Executive Officer)
Dated: September 2, 2004
Gordon C. Barrett
Treasurer
(Principal Financial Officer)
The foregoing certification is being furnished solely pursuant to section
906 of the Sarbanes-Oxley Act of 2002 and is not being filed as a separate
disclosure document.
A signed original of this written statement required by Section 906 has been
provided to the Registrant and will be retained by the Registrant and furnished
to the Securities and Exchange Commission or its staff upon request.