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: December 31, 2004
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
Annual Report
For the Year Ended
December 31, 2004
Table of Contents
Letter to Shareholders............................. 3
Portfolio Transactions (unaudited)................. 4
Fund Performance................................... 6
Summary of Net Assets.............................. 9
Schedule of Investments........................... 10
Financial Statements.............................. 13
Notes to the Financial Statements................. 17
Report of Independent Registered Public
Accounting Firm................................... 20
Trustees & Officers............................... 21
Dear Fellow Shareholders:
The year 2004 was another positive one for Northeast Investors Growth Fund.
Although our total return of +8.56% did not outperform the S&P 500 at +10.88%,
we feel we are positioned well for the coming year. In 2004 we did not own any
telecommunication service and utility stocks. Both of these areas outperformed
the index last year. In addition, we were overweighted in the technology area
which underperformed the benchmark. These factors were the main reason for our
underperformance.
As you review this report, the Portfolio Transactions, as set forth on
page 4, detail investment changes made in the Fund. During the year we pulled
back substantially from the pharmaceutical area, with complete sales of Abbott
Laboratories, Eli Lilly & Co. and Pfizer, Inc. We still are represented in this
area through investments in Johnson & Johnson and Teva Pharmaceuticals and in
the biotechnology industry with investments in Amgen, Inc., Genentech, Inc.,
and Gilead Sciences, Inc. We expect the various pressures facing the bigger
pharmaceutical companies to dampen investment returns. At the same time we
expect future growth to come from the biotechnology area, as well as from the
purveyors of generic drugs.
The other major guiding portfolio trends are in the energy and financial areas.
We increased the Fund's exposure to energy based on our belief that oil prices
will not return to the lower levels experienced in past years. We like the
banking and financial services stocks where earnings and dividends steadily
increase and consolidation in the industry continues. Consistent with these
trends, Exxon Mobil Corp., Eaton Vance Corp. and Bank of America Corp. are
three of our largest five holdings, the other two being General Electric Co. and
eBay, Inc.
During 2004 our use of leverage diminished greatly and was completely eliminated
by year end. We may still use borrowed money from time to time, but rising
interest rates and increased market volatility makes us cautious.
We were pleased to make a dividend payment in December of almost five cents per
share. The expense ratio moved lower despite the significant pressure of
increased regulatory work mandated throughout the industry. While many of these
changes were sadly needed, the extra expenses for smaller funds, such as
ourselves, are harder to bear.
Today, any investment conversation almost immediately goes to "results" - how
one is doing versus popular benchmarks of performance. These conversations often
ignore risk and style. In managing this Fund, we hope to create a portfolio of
quality companies that we would like to own, or choose to own ourselves. The
final benchmark is this question - Would we feel comfortable buying this company
for ourselves, our family and our friends? We view our investors in the same
light.
We hope this approach is fundamentally different from a host of other funds and
sets us apart in a unique way. Everyone working with me has a personal stake in
the results through their own ownership as shareholders.
We are interested in increasing our shareholder base and, therefore, any
referrals to us would be most appreciated. In the meantime we are concentrated
as always on seeking good investments, which will grow and prosper in the days
and years to come.
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
February 14, 2005
Portfolio Transactions (unaudited)
January 1, 2004-December 31, 2004
Additions to Existing Holdings
Additions Now Own
American Express Co. 2,000 37,500
ChevronTexaco Corp. 21,800 43,600
Dell, Inc. 19,400 86,600
eBay, Inc. 6,200 49,200
General Electric Co. 16,000 170,500
Gilead Sciences, Inc. 38,000 76,000
Home Depot, Inc. 31,300 77,300
Iron Mountain, Inc. 28,525 67,575
Procter & Gamble Co.~ 24,600 58,800
Teva Pharmaceutical Industries LTD 51,900 87,000
United Parcel Service, Inc. 1,400 30,900
Zimmer Holdings, Inc. 1,200 49,000
New Holdings
Now Own
Apple Computer, Inc. 35,000
Bank of America Corp. 108,870
Encana Corp. 17,500
Genentech, Inc. 45,100
Goldman Sachs Group 8,800
Harley-Davidson, Inc. 8,600
Kinetic Concepts, Inc. 6,000
Starbucks Corp. 27,000
Wellpoint, Inc.@ 33,200
Eliminations/Reductions of Holdings
Sold Now Own
3M Co. 1,000 48,000
Abbott Laboratories 37,000 0
Amgen, Inc. 10,100 28,900
Analog Devices, Inc. 10,000 54,000
Anthem, Inc.@ 33,200 0
Banknorth Group, Inc. 31,000 0
Barr Pharmaceuticals, Inc. 34,200 0
Best Buy Co., Inc. 19,700 31,300
Boston Scientific Corp. 2,000 59,500
Cabot Corp. 82,000 0
Cisco Systems, Inc. 38,000 95,000
Citigroup, Inc. 52,200 63,300
Comcast Corp., Class A 48,900 0
Corning, Inc. 46,000 348,000
Cox Communications, Inc. 66,000 0
Eaton Vance Corp. 13,000 100,000
Eli Lilly & Co. 21,900 0
Fifth Third Bancorp 6,000 53,050
FleetBoston Financial Corp.* 110,634 0
Portfolio Transactions (continued) (unaudited)
January 1, 2004-December 31, 2004
Eliminations/Reductions of Holdings (continued)
Sold Now Own
Gillette Co. 21,400 59,600
Intel Corp. 37,000 91,400
International Business Machines Corp. 9,500 32,300
Intuit, Inc. 27,500 0
Johnson & Johnson 9,500 42,900
JPMorgan Chase & Co.+ 57,000 0
Medtronic, Inc. 25,000 24,800
Mellon Financial Corp. 122,500 0
Microsoft Corp. 29,000 155,000
Pfizer, Inc. 121,731 0
Royal Dutch Petroleum 37,200 0
State Street Corp. 81,400 0
Sysco Corp. 36,000 0
Time Warner, Inc. 3,000 130,000
Walt Disney Co. 45,000 97,000
Wal-Mart Stores, Inc. 26,500 50,100
Whole Foods Market, Inc. 12,000 44,200
XM Satellite Radio Holdings, Class A 23,000 63,000
Zions Bancorporation 26,700 47,700
~ All or a portion was a result of a stock split
^ Acquired through merger with FleetBoston Financial Corp.
* Merged with Bank of America Corp.
@ Name change from Anthem, Inc. to Wellpoint, Inc.
+ Bank One Corp. was acquired by JPMorgan Chase & Co.
Average Annual Total Return
One year ended December 31, 2004.................................... 8.56%
Five years ended December 31, 2004................................. -5.36%
Ten years ended December 31, 2004.................................. 11.80%
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 December 31, 1994 and
reinvestment of dividends and capital gains. The graph does not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or the
redemption of Fund share. Keep in mind that past performance does not guarantee
future returns, and an investment in the Fund is not guaranteed. 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>
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Northeast
Investors $13,636 $16,991 $23,325 $31,102 $40,162 $34,154 $28,296 $21,882 $28,094 $30,499
Growth
Fund
Standard
& Poor's $13,888 $17,037 $22,677 $29,103 $35,226 $32,021 $28,217 $21,981 $28,285 $31,362
500 Index
</table>
About Your Fund's Expenses
<table>
<s> <c> <c> <c> <c>
Beginning Account Value Ending Account Value Expenses Paid During Period
6/30/2004 12/31/2004 6/30/2004 - 12/31/2004
Actual Return
4.39% $1,000.00 $1,043.91 $5.94
Hypothetical
(5% return before expenses) $1,000.00 $1,019.07 $6.13
</table>
Example:
As a shareholder of the Fund, you incur ongoing costs, including management
fees, and other fund expenses. This example is intended to help you understand
these expenses of investing in the fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period, 6/30/2004 - 12/31/2004.
Actual Expenses:
The first line of the table above provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on you account during this period.
Hypothetical Example for Comparison Purposes:
The second line of the table above provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is
not the Fund's actual return. The hypothetical account values and expenses may
not be used to estimate the actual ending account balance or expenses you paid
for the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of other funds.
Returns and Per Share Data
<table>
<s> <c> <c> <c>
Year Ended December 31,
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Net Asset Value 10.59 12.15 15.84 20.47 26.08 20.23 15.43 11.91 15.26 16.52
Income Dividend 0.07 0.05 0.06 0.05 0.02 0.00 0.00 0.02 0.03 0.05
Capital Gains Dist. 0.44 0.98 0.77 0.55 0.31 2.05 1.44 0.00 0.00 0.00
NEIG Return (%) 36.46 24.60 37.28 33.34 29.13 -14.96 -17.15 -22.67 28.39 8.56
S&P 500 Return (%) 37.12 22.68 33.10 28.34 21.04 -9.10 -11.88 -22.10 28.68 10.88
Table Omitted
</table>
Ten Largest Investment Holdings
December 31, 2004
Ten Largest Investment Holdings
Market
Cost Value
General Electric Co. $6,043,365 $6,223,250
Exxon Mobil Corp. 4,437,477 5,940,111
eBay, Inc. 2,547,065 5,723,928
Eaton Vance Corp. 2,328,401 5,215,000
Bank of America Corp. 3,855,695 5,115,801
Whole Foods Market, Inc. 1,958,198 4,214,470
Microsoft Corp. 6,196,058 4,141,600
Corning, Inc. 2,371,294 4,095,960
3M Co. 2,829,041 3,939,360
Zimmer Holdings, Inc. 2,446,039 3,925,880
Summary of Net Assets
December 31, 2004
% of
Market Net
Value Assets
Common Stocks
Air Freight & Logistics $ 2,640,714 1.94%
Asset Management & Custodian 5,215,000 3.83%
Automobile & Truck 522,450 0.38%
Biotechnology 6,968,419 5.11%
Communications Equipment 5,931,360 4.35%
Computer & Electronics 1,859,846 1.37%
Computer Hardware 9,087,458 6.67%
Conglomerate 10,162,610 7.46%
Consumer Finance 2,113,875 1.55%
Data Processing 4,953,082 3.64%
Diversified Banks 5,115,801 3.76%
Diversified Financial Services 3,049,794 2.24%
Food Retail 4,214,470 3.09%
Health Care Equipment 7,730,721 5.67%
Home Improvement Retail 3,303,802 2.43%
Household Products 3,238,704 2.38%
Integrated Oil & Gas 11,219,627 8.24%
Internet Retail 5,723,928 4.20%
Investment Bank & Brokerage 915,552 0.67%
Major Regional Banks 5,754,296 4.22%
Managed Health 3,818,000 2.80%
Movies & Entertainment 5,225,100 3.84%
Oil/Gas Exploration 998,550 0.73%
Personal Products 2,668,888 1.96%
Pharmaceuticals/Drug 5,318,538 3.90%
Radio 2,370,060 1.74%
Restaurants 1,683,720 1.24%
Retail-General 2,646,282 1.94%
Semiconductors 4,131,526 3.03%
Soft Drinks 2,824,020 2.07%
Systems Software 4,141,600 3.04%
Total Common Stocks 135,547,793 99.49%
Total Repurchase Agreement 839,025 0.62%
Total Investment Portfolio 136,386,818 100.11%
Net Other Assets (148,816) -0.11%
Total Net Assets 136,238,002 100.00%
<table>
<s> <c> <c> <c> <c>
Schedule of Investments December 31, 2004
Number Market Percent
Common Stocks of Value of Net
Name of Issuer Shares (Note B) Assets
Air Freight & Logistics
United Parcel Service, Inc. 30,900 $ 2,640,714 1.94%
Asset Management & Custodian
Eaton Vance Corp.* 100,000 5,215,000 3.83%
Automobile & Truck
Harley-Davidson, Inc. 8,600 522,450 0.38%
Biotechnology
Amgen, Inc.^ 28,900 1,853,935
Genentech, Inc.^ 45,100 2,455,244
Gilead Sciences, Inc.^ 76,000 2,659,240
---------
6,968,419 5.11%
Communications Equipment
Cisco Systems, Inc.^ 95,000 1,835,400
Corning, Inc.*^ 348,000 4,095,960
---------
5,931,360 4.35%
Computer & Electronics
Best Buy Co., Inc.* 31,300 1,859,846 1.37%
Computer Hardware
Apple Computer, Inc.^ 35,000 2,254,000
Dell, Inc.*^ 86,600 3,649,324
International Business Machines Corp. 32,300 3,184,134
---------
9,087,458 6.67%
Conglomerate
3M Co.* 48,000 3,939,360
General Electric Co.* 170,500 6,223,250
---------
10,162,610 7.46%
Consumer Finance
American Express Co. 37,500 2,113,875 1.55%
Data Processing
First Data Corp. 68,000 2,892,720
Iron Mountain, Inc.^ 67,575 2,060,362
---------
4,953,082 3.64%
Diversified Banks
Bank of America Corp. 108,870 5,115,801 3.76%
Diversified Financial Services
Citigroup, Inc.*^ 63,300 3,049,794 2.24%
Food Retail
Whole Foods Market, Inc.* 44,200 $ 4,214,470 3.09%
Health Care Equipment
Boston Scientific Corp.^ 59,500 2,115,225
Kinetic Concepts, Inc.^ 6,000 457,800
Medtronic, Inc. 24,800 1,231,816
Zimmer Holdings, Inc.*^ 49,000 3,925,880
---------
7,730,721 5.67%
Home Improvement Retail
Home Depot, Inc. 77,300 3,303,802 2.43%
Household Products
Procter & Gamble Co. 58,800 3,238,704 2.38%
Integrated Oil & Gas
B P Amoco, PLC 51,200 2,990,080
ChevronTexaco Corp. 43,600 2,289,436
Exxon Mobil Corp.* 115,882 5,940,111
---------
11,219,627 8.24%
Internet Retail
eBay, Inc.^ 49,200 5,723,928 4.20%
Investment Bank & Brokerage
Goldman Sachs Group^ 8,800 915,552 0.67%
Major Regional Banks
Fifth Third Bancorp 53,050 2,509,265
Zions Bancorporation* 47,700 3,245,031
----------
5,754,296 4.22%
Managed Health
Wellpoint, Inc.^ 33,200 3,818,000 2.80%
Movies & Entertainment
Time Warner, Inc.^ 130,000 2,528,500
Walt Disney Co.* 97,000 2,696,600
---------
5,225,100 3.84%
Oil/Gas Exploration
Encana Corp. 17,500 998,550 0.73%
Personal Products
Gillette Co. 59,600 2,668,888 1.96%
Pharmaceuticals/Drug
Johnson & Johnson* 42,900 2,720,718
Teva Pharmaceutical Industries, LTD 87,000 2,597,820
---------
5,318,538 3.90%
Radio
XM Satellite Radio Holdings, Class A^ 63,000 2,370,060 1.74%
Restaurants
Starbucks Corp.^ 27,000 1,683,720 1.24%
Retail-General
Wal-Mart Stores, Inc. 50,100 2,646,282 1.94%
Semiconductors
Analog Devices, Inc. 54,000 1,993,680
Intel Corp.* 91,400 2,137,846
---------
4,131,526 3.03%
Soft Drinks
PepsiCo, Inc. 54,100 2,824,020 2.07%
Systems Software
Microsoft Corp.* 155,000 4,141,600 3.04%
Total Common Stocks (Cost-$106,449,716) $135,547,793 99.49%
-----------
Repurchase Agreement
Investors Bank & Trust Co. Repurchase Agreement,
1.75% due 1/3/05 @ 839,025
Total Repurchase Agreement (Cost-$839,025) $ 839,025 0.62%
--------
Total Investment Portfolio (Cost-$107,288,741) 136,386,818 100.11%
-----------
Net Other Assets (148,816) -0.11%
Total Net Assets $136,238,002 100.00%
-----------
-----------
@Acquired on December 31, 2004. Collateralized by $880,494 of market value of U.S. Government
mortgage-backed securities due through 12/25/33. The maturity value is $839,147.
* All or a portion of this security is pledged to collateralize short-term borrowings
^ Non-income producing security
The accompanying notes are an integral part of the financial statements.
</table>
Statement of Assets and Liabilities
December 31, 2004
Assets
Investments-at market value (cost $107,288,741) $136,386,818
Dividends receivable 110,076
Other receivables 11,061
Receivable for shares sold 4,160
------------
Total Assets 136,512,115
Liabilities
Payable for shares repurchased 117,973
Accrued investment advisory fee 66,428
Accrued expenses 89,712
------------
Total Liabilities 274,113
------------
Net Assets $136,238,002
------------
------------
Net Assets Consist of:
Capital paid-in $118,030,209
Undistributed net investment income 417
Accumulated net realized loss on investment transactions (10,890,701)
Net unrealized appreciation of investments 29,098,077
------------
Net Assets $136,238,002
------------
------------
Net Asset Value, offering price and redemption price per share
($136,238,002/8,250,017 shares) $16.52
------------
------------
The accompanying notes are an integral part of the financial statements.
Statement of Operations
December 31, 2004
Investment Income
Dividend income 2,158,780
Interest income 6,298
Other income 22,107
---------
Total Income 2,187,185
---------
---------
Expenses
Investment advisory fee 777,606
Administrative expenses and salaries 457,396
Interest fee 92,267
Printing, postage, and stationary 90,000
Audit fees 73,125
Legal fees 70,400
Computer and related expenses 68,480
Registration and Filing fees 41,625
Insurance 39,000
Trustee fees 25,000
Telephone expense 22,150
Commitment fee 22,091
Custodian fees 10,910
Miscellaneous fees 8,345
----------
Total Expenses 1,798,395
----------
Net Investment Income 388,790
----------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain from investment transactions $6,290,650
Net change in unrealized appreciation of investments 4,404,129
----------
Net realized and unrealized gain on investments 10,694,779
----------
Net Increase (Decrease) in Net Assets Resulting from Operations $11,083,569
The accompanying notes are an integral part of the financial statements.
<table>
<s> <c> <c> <c> <c>
Statements of Changes in Net Assets
Year Ended Year Ended
December 31 December 31,
2004 2003
Increase (Decrease) in Net Assets
From Operations:
Net investment income $388,790 $271,509
Net realized gain (loss) from investment transactions 6,290,650 (3,955,081)
Net change in unrealized appreciation of investments 4,404,129 36,617,308
--------- ----------
Net Increase in Net Assets
Resulting from Operations 11,083,569 32,933,736
---------- ----------
Distributions to Shareholders from Net Investment Income (388,373) (279,662)
From Net Fund Share Transactions (16,017,737) (17,079,254)
----------- ------------
Total Increase (Decrease) in Net Assets (5,322,541) 15,574,820
Net Assets:
Beginning of Year 141,560,543 125,985,723
----------- -----------
End of Year $136,238,002 $141,560,543
----------- -----------
----------- -----------
</table>
The accompanying notes are an integral part of the financial statements.
<table>
<s> <c> <c> <c> <c>
Financial Highlights
Year Ended December 31,
2004 2003 2002 2001 2000
Per Share Data^
Net Asset Value:
Beginning of Period $15.26 $11.91 $15.43 $20.23 $26.08
Income From Investment Operations:
Net investment income/(loss) 0.04 0.03 0.02 (0.01) (0.09)
Net realized and unrealized gain
(loss) on investment 1.27 3.35 (3.52) (3.35) (3.71)
Total from investment operations 1.31 3.38 (3.50) (3.36) (3.80)
Less Distributions:
Net investment income (0.05) (0.03) (0.02) 0.00 0.00
Capital Gain 0.00 0.00 0.00 (1.44) (2.05)
Total Distributions (0.05) (0.03) (0.02) (1.44) (2.05)
Net Asset Value:
End of Period $16.52 $15.26 $11.91 $15.43 $20.23
Total Return 8.56% 28.39% -22.67% -17.15% -14.96%
Ratios & Supplemental Data
Net assets end of period
(in thousands) $136,238 $141,561 $125,986 $187,218 $272,222
Ratio of operating expenses to
average net assets (includes interest
expense) 1.32% 1.43% 1.31% 1.14% 0.97%
Ratio of interest expense to
average net assets 0.07% 0.22% 0.21% 0.14% 0.22%
Ratio of net investment income to
average net assets 0.29% 0.21% 0.17% -0.05% -0.34%
Portfolio turnover rate 19% 25% 26% 30% 33%
^ Average share method used to calculate per share data
</table>
Notes to Financial Statements
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 U.S. generally
accepted accounting principles. 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-in-capital. 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
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Note C-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, Michael Baldwin and F. Washington Jarvis 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 $27,110,560 and $60,567,603, respectively, for
the year ended December 31, 2004.
Note E-Shares of Beneficial Interest
At December 31, 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> <c>
2004 2003
-------------------------- -------------------------
Shares Amount Shares Amount
Shares sold 286,607 $ 4,460,343 441,531 $ 5,812,191
Shares issued to shareholders in
reinvestment of distributions from
net investment income and
realized gains from security
transactions 20,568 338,969 16,607 244,620
----------- ---------- ---------- ----------
307,175 $ 4,799,312 458,138 $ 6,056,811
Shares repurchased (1,335,365) $(20,817,049) (1,764,370) $(23,136,065)
------------ ---------- ----------- -----------
Net Increase (1,028,190) $(16,017,737) (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. At December 31, 2004, the Fund had unused lines of credit amounting
to $25,000,000 and there was no outstanding balance. In addition the fund pays a
commitment fee of 0.10% per annum, payable at the end of each quarter based on
the unused portion of the line of credit. The committed lines of credit may be
terminated at the banks' option at their annual renewal dates.
The following information relates to aggregate short-term borrowings during the
year ended December 31, 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, 2003 and 2004 were $279,662 and $388,373 respectively, and were classified
as ordinary income.
As of December 31, the components of accumulated earnings (losses) on a tax
basis were as follows:
2004
Capital loss carryforward* $(9,792,426)
Unrealized gains (losses)-net 28,826,030
--------------
Total accumulated unrealized earnings (losses-net) $ 19,033,604
* The capital loss carryforward will expire as follows:
Expiration
Year Amount
- ---- ----------
2009 $1,698,159
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:
2004
----
Tax cost $107,560,788
Gross unrealized gain 32,105,822
Gross unrealized loss (3,279,792)
Net unrealized security gain (loss) $ 28,826,030
The difference between book-basis and tax-basis unrealized gains (losses) is
primarily attributable to wash sales.
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 December
31, 2004, there were no securities on loan. During the year ended December 31,
2004, income from securities lending amounted to $3,302.
Report of Independent Registered
Public Accounting Firm
To the Shareholders and Board of Trustees of
Northeast Investors Growth Fund:
We have audited the accompanying statement of assets and liabilities of
Northeast Investors Growth Fund (the Fund), including the schedule of
investments, as of December 31, 2004, and the related statement of operations
for the year then ended, and the statements of changes in net assets and the
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for each of the three years in the period ended December 31, 2002
were audited by other auditors whose report dated February 14, 2003 expressed an
unqualified opinion on those financial statements and financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and financial
highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our procedures included confirmation of securities owned as of December 31,
2004, by correspondence with the custodian. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Northeast Investors Growth Fund at December 31, 2004, the results of its
operations for the year then ended, the changes in its net assets and financial
highlights for each of the two years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
February 11, 2005
Trustees and Officers
The Trustees of Northeast Investors Growth Fund are William A. Oates Jr.,
Ernest E. Monrad, Robert B. Minturn, John C. Emery, Michael Baldwin, and
F. Washington Jarvis. 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> <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 24 years Trustee and
150 Federal Street Trustee President of
Boston, MA Northeast Investors
Age 62 Growth Fund
Ernest E. Monrad Trustee 24 years Trustee of Century Shares
150 Federal Street Northeast Investors Trust
Boston, MA Trust Century Small Cap
Age 74 Select
The New America
High Income Fund,
Inc.
Northeast Investors
Trust
Gordon C. Barrett Senior Vice 11 years Officer of
150 Federal Street President and Northeast Investors
Boston, MA Chief Financial Growth Fund,
Age 48 Officer Northeast Investors
Trust, Northeast
Investment
Management, Inc.
Robert B. Minturn Trustee, Clerk, 24 years Clerk and Trustee Northeast Investors
150 Federal Street Vice President, of Northeast Trust
Boston, MA and Cheif Legal Investors Trust
Age 65 Officer
INDEPENDENT TRUSTEES
John C. Emery Trustee 24 years Partner, Law Firm
One Post Office Square of Sullivan &
Boston, MA Worcester
Age 74
Michael Baldwin Trustee 5 years Partner, Baldwin
3 Barnabas Road Brothers, Inc.
Marion, MA
Age 64
F. Washington Jarvis Trustee 1 year Retired;
1241 Adams Street Headmaster at
Dorchester, MA Roxbury Latin
Age 65 School until
June 30, 2004
(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
F. Washington Jarvis
Officers
William A. Oates, Jr., President
Gordon C. Barrett, Senior Vice President & Chief Financial Officer
Ernest E. Monrad, Assistant Treasurer
Robert B. Minturn, Vice President, Clerk, and Chief Legal Officer
Richard J. Semple, Vice President & Chief Compliance Officer
Bruce H. Monrad, Vice President
David A. Randall, Vice President
Investment Advisors
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
Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
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.
For a free copy of the Fund's proxy voting guidelines and proxy voting record
visit www.northeastinvestors.com/growth/proxypolicy.stm, call 1-800-225-6704 or
visit the Securities and Exchange Commission (SEC)'s web site at www.sec.gov.
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.
The registrant has adopted a code of ethics that applies to the registrant's
principal executive officer and principal financial officer. A copy of the
code of ethics has been filed as Exhibit to registrant's Report on Form N-CSR
for its fiscal year ended December 31, 2003. The registrant has not made any
amendment to its code of ethics during the covered period. The registrant has
not granted any waivers from any provisions of the code of ethics during the
covered period.
Item 3. Audit Committee Financial Expert.
The registrant does not have an Audit Committee Financial Expert. Although the
members of the registrant's Audit Committee have a variety of business and
investment experience, none of them has been determined to meet the technical
qualifications required in order to meet the definition of an Audit Committee
Financial Expert under this Item. Certain of the registrant's trustees who are
considered to be "interested persons" as defined in Section 2(a)(19) under the
Investment Company of 1940, as amended, do possess such qualifications, but it
has been determined that the Audit Committee should consist entirely of
independent trustees. The Audit Committee, under its charter, has the ability
to retain independent advisers if it deems it necessary or appropriate without
the need to seek approval from the management of the Fund.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees. The aggregate fees billed for the registrant's
fiscal years ended December 31, 2004 and December 31, 2003 for professional
services rendered by the registrant's principal accountant for audit of its
annual financial statements or services that are normally provided by such
accountant in connection with statutory and regulatory filings were $42,000 and
$40,000 respectively.
(b) Audit-Related Fees The aggregate fees billed for the
registrant's fiscal year ended December 31, 2004 and December 31, 2003 for
assurance and related services by the registrant's principal accountant
reasonably related to the performance of audit of the registrant's financial
statements and not reported under Paragraph (a) of this Item were $16,250 and
$29,500 respectively. Such services consisted of a report of the Fund's transfer
agent internal controls pursuant to rule 17AD-13, semi-annual report review and
a report on the Fund's anti-money laundering controls and policies.
(c) Tax Fees. The aggregate fees billed in the registrant's
fiscal years ended December 31, 2004 and December 30, 2003 for professional
services rendered by the registrant's principal accountant for tax matters were
$6000 and $5000 respectively. Such services consisted of the preparation of the
registrant's federal income and excise tax returns.
(d) All other Fees. No products or services were provide to the
registrant during its last two fiscal years by its principal accountants other
than the services reported in Paragraphs (a) - (c) of this item.
(e) It is the registrant's policy that all audit and non-audit
services provided by the registrant's principal accountant be approved in
advance by the Audit Committee, and all of the services described in Paragraphs
(a) - (d) of this item were so approved.
(f) The registrant has been advised by its independent accountants
that less than 50% of the hours expended on the principal accountant's
engagement to audit the registrant's financial statements were attributed to
work by persons other than the principal accountants' full-time, permanent
employees.
(g) No non-audit services were provided by the registrant's
principal accountant to the registrant's investment adviser. There is no entity
affiliated with registrant's investment adviser that provides ongoing services
to the registrant.
(h) Not applicable to the registrant.
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. Portfolio Manager of Closed-End Management Investment Companies
Not applicable to the registrant.
Item 9. Purchase of Equity Securities by Closed-End Management Company and
Affiliated Purchasers
Not applicable to the registrant.
Item 10. Submission of Matters to a Vote of Security Holders.
No material changes have been made with respect to procedures by which
shareholders may recommend nominees for trustee during the covered period.
Item 11. 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 12. 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: March 9, 2005
By (Signature and Title)
Gordon C. Barrett
Chief Financial Officer
(principal financial officer)
Date: March 9, 2005
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: March 9, 2005
By (Signature and Title)
Gordon C. Barrett
Chief Financial Officer
(principal financial officer)
Date: March 9, 2005
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: March 9, 2005
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: March 9, 2005
Gordon C. Barrett
Chief Financial Officer
(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 December 31, 2004 of the
Registrant (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: March 9, 2005
William A. Oates, Jr.
President
(Principal Executive Officer)
Dated: March 9, 2005
Gordon C. Barrett
Chief Financial Officer
(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.