<PAGE>
CGM
AMERICAN
TAX FREE FUND
7th Quarterly Report
June 30, 1995
A No-Load Fund
[CGM LOGO]
Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
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TO OUR SHAREHOLDERS:
--------------------------------------------------------------------------------
CGM American Tax Free Fund increased 2.4% during the second quarter of 1995 as
did the Lehman Municipal Bond Index. For the first six months of the year, CGM
American Tax Free Fund rose 8.7% compared to 9.6% for the Lehman Municipal
Bond Index.
In the first quarter of 1995, evidence of a weakening economy appeared in the
auto and housing sectors. The trend continued throughout the second quarter
spreading to retail sales and cutting construction spending by 1.5% in May to
make the month the worst in four years for construction spending and the
second down month in a row. Signs of weakness also took their toll on consumer
confidence as measured by an index drop from 102 in April to 92.8 in May.
In its attempt to contain inflation, has the Federal Reserve Board engineered
the very first "soft landing" (slowdown without recession), or has it ushered
in a recession? Though the answer remains to be seen, we favor the soft
landing scenario. Lower interest rates will encourage consumer spending in the
months ahead. In fact, signs of an increase in consumer spending were already
evident in late June and employment gains were well above average. Personal
income should continue to rise and the weaker dollar might well stimulate
exports.
Interest rates on long-term government bonds have retraced more than 70% to
6.5% from 8.3% in the fall of 1994. We expect the decline in rates to carry
into 1996 as we experience a slow growth economy with no immediate threat of
higher inflation. In early July, the prospect of continuing low inflation
prompted the Federal Reserve Board to reduce the Federal Funds rate one
quarter of a percent to 5.75%.
The tax exempt market continued to rally through the second quarter though
activity was somewhat muted relative to the earlier part of the year. Despite
solid demand in the face of curtailed new issue supply, a combination of
factors including the threat of tax reform, lower interest rates, Orange
County's unwillingness to avoid bankruptcy and a general interest in the stock
market, left municipal bonds sharply underperforming their taxable
counterparts.
The CGM American Tax Free Fund portfolio holds significant positions in the
industrial development/pollution control, and housing sectors as well as in
insured securities. The three largest holdings are Hodge, Louisiana (Stone
Container), Howard County, Maryland (Chase Glen Apartments-Avalon Corporation)
and Maryland Health & Higher Education (Francis Scott Key Medical Center).
/s/ Robert L. Kemp
Robert L. Kemp
President
July 10, 1995
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INVESTMENT PERFORMANCE
(unaudited)
--------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 1995
CGM AMERICAN LIPPER GENERAL MUNICIPAL
TAX FREE FUND DEBT FUND AVERAGE
------------- ------------------------
1 Year .......................... +8.5% +7.7%
6 Months ........................ +8.7 +9.0
3 Months ........................ +2.4 +1.9
The Fund's total return since inception (November 10, 1993) through June 30,
1995 is +1.6%. The adviser has agreed to absorb the Fund's total operating
expenses through December 31, 1995. Otherwise, the Fund's total return since
inception, and for the one year, six-month and three-month periods ended June
30, 1995, would have been lower.
Lipper Analytical Services, Inc. is an independent mutual fund ranking
service.
The performance data contained in the report represent past performance, which
is no guarantee of future results. The investment return and the principal
value of an investment in the Fund will fluctuate so that investors' shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
BOARD OF TRUSTEES
PETER O. BROWN
NICHOLAS J. GRANT
G. KENNETH HEEBNER
ROBERT L. KEMP
ROBERT B. KITTREDGE
LAURENS MACLURE
JAMES VAN DYKE QUEREAU, JR.
J. BAUR WHITTLESEY
OFFICERS
ROBERT L. KEMP, President
G. KENNETH HEEBNER, Vice President
LESLIE A. LAKE, Vice President and Secretary
KATHLEEN S. HAUGHTON, Vice President
MARTHA I. MAGUIRE, Vice President
JANICE H. SAUL, Vice President
W. DUGAL THOMAS, Vice President
MARY L. STONE, Assistant Vice President
FRANK N. STRAUSS, Treasurer
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
Boston, Massachusetts 02110
TRANSFER AND DIVIDEND PAYING
AGENT AND CUSTODIAN OF ASSETS
STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts 02102
SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY
BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 8511
Boston, Massachusetts 02266-8511
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CGM AMERICAN TAX FREE FUND
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INVESTMENTS AS OF JUNE 30, 1995
(unaudited)
MUNICIPAL BONDS -- 96.8% OF TOTAL NET ASSETS
FACE
AMOUNT VALUE(a)
------ --------
CALIFORNIA -- 2.2%
Castaic Unified School District, 0%, 5/01/18 ..... $1,000,000 $ 243,890
-----------
FLORIDA -- 2.4%
Polk County Industrial Development Authority
Revenue Bonds (IMC Fertilizer), 7.525%, 1/01/15 250,000 262,030
-----------
ILLINOIS -- 6.6%
Chicago Toll Bridge, 6.50%, 1/01/10 .............. 250,000 246,542
Illinois Health Facilities Authority Revenue
Bonds (Lutheran Health System), 6.00%, 4/01/18 . 500,000 472,155
-----------
718,697
-----------
KENTUCKY -- 4.6%
Kenton County Airport Revenue Bonds (Delta
Airlines), 6.75%, 2/01/02 ...................... 500,000 503,120
-----------
LOUISIANA -- 9.9%
Hodge Utility Revenue Bonds (Stone Container),
9.00%, 3/01/10 ................................. 1,000,000 1,074,070
-----------
MARYLAND -- 12.4%
Howard County Multifamily, Chase Glen Apartments,
7.00%, 7/01/24 ................................. 750,000 789,270
Maryland State Health & Higher Education (Francis
Scott Key Medical Center), 5.00%, 7/01/23 ...... 650,000 558,461
-----------
1,347,731
-----------
MASSACHUSETTS -- 4.0%
Massachusetts State Health & Education
(Newton-Wellesley Hospital), 7.00%, 7/01/15 .... 200,000 217,052
Massachusetts State Turnpike Authority,
5.125%, 1/01/23 ................................ 250,000 217,998
-----------
435,050
-----------
MICHIGAN -- 9.6%
Greater Detroit Resource Recovery, 9.25%, 12/13/08 500,000 521,535
Michigan State Housing Development, 7.05%, 10/01/12 500,000 524,350
-----------
1,045,885
-----------
MINNESOTA -- 4.9%
Ramsey & Washington Counties (Resource Recovery
Revenue), 6.75%, 12/01/06 ...................... 500,000 532,395
-----------
NEVADA -- 2.5%
Clark County Industrial Development Revenue
Bonds (Nevada Power), 7.20%, 10/01/22 ......... 250,000 269,402
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NEW YORK -- 7.7%
Metro Transportation Authority, 5.45%, 7/01/07 ... 250,000 239,185
New York City General Obligation Bonds
Series B, 8.25%, 6/01/05 ....................... 100,000 115,152
New York State Dormitory Authority Revenue Bonds,
5.75%, 7/01/13 ................................. 250,000 236,350
New York State Dormitory Authority Revenue Bonds,
5.875%, 5/15/11 ................................ 250,000 242,338
-----------
833,025
-----------
See accompanying notes to financial statements
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CGM AMERICAN TAX FREE FUND
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INVESTMENTS AS OF JUNE 30, 1995 (CONTINUED)
(unaudited)
MUNICIPAL BONDS -- (CONTINUED)
FACE
AMOUNT VALUE(a)
------ --------
NORTH CAROLINA -- 4.3%
Fayetteville Public Works Co., 5.375%, 3/01/20 ... $ 250,000 $ 231,815
Greensboro Enterprise System Revenue,
5.375%, 6/01/19 ................................ 250,000 234,190
-----------
466,005
-----------
PENNSYLVANIA -- 2.4%
Pennsylvania State Higher Education
(Temple University), 7.40%, 10/01/10 ........... 250,000 261,658
-----------
PUERTO RICO -- 2.4%
Puerto Rico Electric Power Authority,
6.125%, 7/01/09 ................................ 250,000 256,260
-----------
TEXAS -- 5.9%
Alliance Airport Authority Special Facilities
Revenue Bonds (American Airlines Inc. Project),
7.00%, 12/01/11 ................................ 250,000 259,650
Arlington General Obligation Bonds, 5.375%, 8/15/12 400,000 379,604
-----------
639,254
-----------
VIRGINIA -- 11.9%
Augusta County Industrial Development Authority
(Augusta Hospital Corp.), 5.50%, 9/01/15 ....... 500,000 472,060
Hopewell Industrial Development Authority
(Stone Container), 8.25%, 6/01/16 .............. 125,000 135,397
Richmond Metropolitan Expressway Authority,
5.75%, 7/15/22 ................................. 250,000 242,335
Roanoke County Water Systems, 5.00%, 7/01/21 ..... 500,000 437,560
-----------
1,287,352
-----------
WASHINGTON -- 3.1%
Bellevue Convention Center, 0%, 2/01/17 .......... 1,290,000 342,043
-----------
TOTAL MUNICIPAL BONDS (Identified Cost $10,427,642) 10,517,867
-----------
SHORT TERM INVESTMENT -- 1.2%
Chevron Oil Finance Company, 5.90%, 7/03/95
(Cost $125,000) ................................ 125,000 125,000
-----------
TOTAL INVESTMENTS -- 98.0%
(Identified Cost $10,552,642)(b) ................... 10,642,867
Cash and Receivables ............................. 236,445
Liabilities ...................................... (16,247)
-----------
TOTAL NET ASSETS -- 100.0% ......................... $10,863,065
===========
(a) See Note 1A.
(b) Federal Tax Information: At June 30, 1995 the net unrealized appreciation on
investments based on cost of $10,552,642 for Federal income tax purposes was
as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ....... $ 173,947
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ....... (83,722)
-----------
Net unrealized appreciation ................................ $ 90,225
===========
See accompanying notes to financial statements
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CGM AMERICAN TAX FREE FUND
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STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995
(unaudited)
ASSETS
Investments at value (Identified
cost -- $10,552,642) ...................... $10,642,867
Cash ........................................ 9,076
Receivable for:
Shares of the Fund sold ................... $ 13,400
Dividends and interest .................... 213,969 227,369
-------- -----------
10,879,312
-----------
LIABILITIES
Payable for:
Shares of the Fund redeemed ............... $ 1,000
Expense advance from adviser .............. 15,247 16,247
-------- -----------
NET ASSETS .................................... $10,863,065
===========
Net Assets consist of:
Capital paid-in ........................................... $11,774,860
Undistributed net investment Income ....................... 58,850
Accumulated net realized loss ............................. (1,060,870)
Unrealized appreciation on investments -- net ............. 90,225
-----------
NET ASSETS .................................................... $10,863,065
===========
Shares of beneficial interest outstanding, no par value .... 1,163,471
===========
Net asset value per share* .................................. $9.34
===========
*Shares of the Fund are sold and redeemed at net asset value
($10,863,065 / 1,163,471).
<PAGE>
CGM AMERICAN TAX FREE FUND
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STATEMENT OF OPERATIONS
Six Months Ended June 30, 1995
(unaudited)
INVESTMENT INCOME
Income
Interest ................................................. $ 352,331
------------
Expenses
Management fees .......................................... 31,548
Trustees' fees ........................................... 12,500
Accounting and Administration ............................ 2,000
Custodian ................................................ 30,900
Transfer agent ........................................... 15,450
Audit and tax services ................................... 12,500
Legal .................................................... 12,000
Printing ................................................. 12,000
Registration ............................................. 9,500
Miscellaneous ............................................ 675
------------
139,073
Less expenses assumed by the
investment adviser ..................................... (139,073)
------------
Net investment income .................................... 352,331
------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS
Realized loss on investments -- net ........................ (53,447)
Unrealized appreciation -- net ............................. 572,895
------------
Net gain on investments .................................... 519,448
------------
NET INCREASE IN ASSETS FROM
OPERATIONS ................................................. $ 871,779
============
See accompanying notes to financial statements
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CGM AMERICAN TAX FREE FUND
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STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31,
(UNAUDITED) 1994
------------- -------------
FROM OPERATIONS
Net investment income ................... $ 352,331 $ 675,960
Net realized loss from investments ...... (53,447) (1,007,423)
Unrealized appreciation (depreciation) .. 572,895 (558,299)
------------ ------------
Increase (decrease) in net
assets from operations .............. 871,779 (889,762)
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ................... (293,481) (684,475)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............ 885,629 10,976,478
Net asset value of shares issued in
connection with reinvestment of:
Dividends from net investment income 230,522 530,608
------------ ------------
1,116,151 11,507,086
Cost of shares redeemed ................. (981,137) (4,569,157)
------------ ------------
Increase in net assets derived from
capital share transactions .......... 135,014 6,937,929
------------ ------------
Total increase in net assets ............ 713,312 5,363,692
NET ASSETS
Beginning of period (including
undistributed net investment income of
$0 and $213, respectively) ............ 10,149,753 4,786,061
------------ ------------
End of period (including
undistributed net investment income of
$58,850 and $0, respectively) ......... $ 10,863,065 $ 10,149,753
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares .............. 96,008 1,117,831
Issued in connection with reinvestment of:
Dividends from net investment income .. 24,927 57,877
------------ ------------
120,935 1,175,708
Redeemed .............................. (106,994) (493,208)
------------ ------------
Net change ............................ 13,941 682,500
============ ============
See accompanying notes to financial statements
<PAGE>
CGM AMERICAN TAX FREE FUND
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FINANCIAL HIGHLIGHTS
FOR THE
SIX MONTHS FOR THE PERIOD
ENDED FOR THE YEAR NOVEMBER 10, 1993(c)
JUNE 30, 1995 ENDED THROUGH
(UNAUDITED) DECEMBER 31, 1994 DECEMBER 31, 1993
------------- ----------------- -------------------
For a share of the Fund outstanding throughout each period:
Net asset value at the
beginning of period .. $ 8.83 $10.25 $10.00
------ ------ ------
Net investment income (a) 0.31 0.58 0.04
Dividends from net
investment income .... (0.26) (0.58) (0.04)
Net realized and
unrealized gain (loss)
on investments ....... 0.46 (1.42) 0.25
------ ------ ------
Net increase (decrease)
in net asset value ... 0.51 (1.42) 0.25
------ ------ ------
Net asset value at end
of period ............ $ 9.34 $ 8.83 $10.25
====== ====== ======
Total Return (%) (b) ... 8.7(d) -8.2 2.9(d)
Ratios:
Operating expenses to
average net assets (%) 0 0 0
Operating expenses to
average net assets
before waive ......... 2.64(e) 2.42 3.59(e)
Net income to average
net assets (%) ....... 6.70(e) 6.39 4.95(e)
Portfolio turnover (%) . 158(e) 169 0
Net assets at end of
period (in thousands) 10,863 10,150 4,786
(a) Net of fees waived
amounted to ........ $ 0.12 $ 0.22 $ 0.03
(b) The total return would have been lower had the total fees not been waived
or reimbursed during the period.
(c) Commencement of operations.
(d) Not computed on an annualized basis.
(e) Computed on an annualized basis.
See accompanying notes to financial statements
<PAGE>
CGM AMERICAN TAX FREE FUND
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NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1995
(unaudited)
1. The Fund is a series of CGM Trust which is organized as a Massachusetts
business trust under the laws of Massachusetts pursuant to an Agreement and
Declaration of Trust. The Trust is registered under the Investment Company Act
of 1940 as an open-end management investment company. The Trust has three
other funds whose financial statements are not presented herein. The Fund
commenced operations on November 10, 1993.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
A. SECURITY VALUATION -- Debt securities are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees, which determines valuations for normal, institutional-size
trading units of such securities using market information, transactions
for comparable securities and various relationships between securities
which are generally recognized by institutional traders. Short-term
investments having a maturity of sixty days or less are stated at
amortized cost, which approximates value.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed) and dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. Interest income is
increased by the accretion of discount. Premium is amortized against
interest income with a corresponding decrease in the cost basis. Net gain
or loss on securities sold is determined on the identified cost basis.
C. FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies, and to distribute to its shareholders all of its
taxable and tax exempt income and net realized capital gains, within the
prescribed time period. Accordingly, no provision for federal income tax
has been made. At December 31, 1994, the capital loss carryover available
to offset future realized gains aggregated approximately $1,007,000 and
expires in the year 2002.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions
are recorded by the Fund on the ex-dividend date. The classification of
income and capital gains distributions is determined in accordance with
income tax regulations. Permanent book and tax differences relating to
shareholder distributions will result in reclassifications to paid-in
capital and may affect net investment income per share. Undistributed net
investment income, accumulated net investment loss, or distributions in
excess of net investment income may include temporary book and tax
differences which will reverse in a subsequent period. Any taxable income
or gain remaining at fiscal year end is distributed in the following year.
E. ORGANIZATION EXPENSE -- Costs incurred in 1993 in connection with the
Fund's organization and registration amounting to $59,606 have been paid
by Capital Growth Management Limited Partnership.
F. OTHER -- The Fund has greater than 10% of its net assets at June 30, 1995
invested in Maryland and Virginia. There are certain risks arising from
geological concentration in any state. Certain revenue or tax related
events in a state may impair the ability of certain issuers of municipal
securities to pay principal and interest on their obligations.
<PAGE>
CGM AMERICAN TAX FREE FUND
------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited)
2. PURCHASES AND SALES OF SECURITIES -- For the period ended June 30, 1995,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $8,041,069 and $8,193,883,
respectively. There were no purchases or sales of United States government
obligations.
3. A. MANAGEMENT FEES -- During the period ended June 30, 1995, the Fund
incurred management fees of $31,548 payable to the Fund's investment
adviser, Capital Growth Management Limited Partnership (CGM), certain
officers and directors of which are also officers and trustees of the
Fund. The management agreement provides for a fee at the annual rate
of 0.60% on the first $500 million of the Fund's average daily net
assets, 0.55% of the next $500 million and 0.45% of such assets in
excess of $1 billion. CGM waived its entire fee. See Note 4.
B. OTHER EXPENSES -- CGM performs certain administrative, accounting and
other services for the Fund. The expenses of those services, which are
paid to CGM by the Fund, include the following: (i) expenses for
personnel performing bookkeeping, accounting, internal auditing and
financial reporting functions and clerical functions relating to the
Fund; (ii) expenses for services required in connection with the
preparation of registration statements and prospectuses, shareholder
reports and notices, proxy solicitation material furnished to
shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance; and (iii) registration, filing and
other fees in connection with requirements of regulatory authorities.
For the period ended June 30, 1995, these expenses amounted to $2,000
and are shown separately in the financial statements as Accounting and
Administration. The entire expense was waived by CGM. See Note 4.
C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to its officers or to any trustees who are directors,
officers or employees of CGM, or any affiliate of CGM, other than
registered investment companies. Each other trustee is compensated by
the Fund at the rate of $3,000 per year plus travel expenses for each
meeting attended. In addition, the chairman of the Independent
Trustees Committee receives an annual retainer of $1,000.
4. EXPENSE LIMITATION -- Until December 31, 1995, and, thereafter, until
further notice to the Fund, CGM has voluntarily agreed to waive its management
fee and to assume all expenses of the Fund. For the period ended June 30,
1995, CGM waived its entire management fee of $31,548, the entire Accounting
and Administration expense of $2,000, and assumed Fund expenses of $105,525.
<PAGE>
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
---------------------------------
TELEPHONE NUMBERS
For information about:
[] Account Procedures and Status
[] Redemptions
[] Exchanges
Call 800-343-5678
[] New Account Procedures
[] Prospectuses
[] Performance
Call 800-345-4048
---------------------------------
MAILING ADDRESSES
FOR EXISTING ACCOUNTS
Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511
FOR NEW ACCOUNT APPLICATIONS ONLY
The CGM Funds
P.O. Box 449
Boston, MA 02117-0449
---------------------------------
This report has been prepared for the shareholders of the Fund and is not
authorized for distribution to current or prospective investors in the Fund
unless it is accompanied or preceded by a prospectus.
AQR2 Printed in U.S.A.
