<PAGE>
CGM
REALTY FUND
5th 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:
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CGM Realty Fund increased 4.4% during the second quarter of 1995 compared to a
return of 5.9% for the National Association of Real Estate Investment Trusts'
Equity REIT Index over the same period. For the first six months of the year,
CGM Realty Fund increased 5.1% compared to a return of 5.7% for the NAREIT
Equity REIT 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%.
While the diminished threat of inflation and weaker business activity helped
bring about lower interest rates for the bond market, the driving force behind
the equity market has been rising corporate profits. One year ago, the
estimate of earnings per share of the S&P Index was $27. The S&P Index was at
444, a price 16.5 times earnings. Today, after an increase of 23%, the S&P
Index has reached 544. However, the current earnings estimate of $34 prices
the market once again at roughly 16 times earnings.
In the commercial real estate market, hotels and office properties continue to
show the greatest strength. We increased the CGM Realty Fund portfolio
positions in hotel and office REITs since the growth in capacity of these
property types is significantly lower than demand and the outlook for higher
occupancy levels and increased rents is favorable for the next several years.
We continue to hold a number of apartment REITs though new construction has
reduced the potential for occupancy and rent increases in certain geographic
regions.
CGM Realty Fund is 32% invested in hotel REITs; 30% in apartment REITs; 22% in
office and industrial REITs; and 15% in storage REITs. The Fund's three
largest holdings are Felcor Suite Hotels, Inc., Cali Realty Corp. and Highwood
Properties Inc.
/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
NATIONAL
ASSOCIATION OF
REAL ESTATE
INVESTMENT TRUSTS
CGM (NAREIT)
REALTY FUND EQUITY REIT INDEX
----------- -----------------
1 Year .................. +5.5% +3.6%
6 Months ................ +5.1 +5.7
3 Months ................ +4.4 +5.9
The Fund's average annual total return since inception (May 13, 1994) through
June 30, 1995 is +4.7%. The adviser has agreed to limit the Fund's total
operating expenses to 1.00% of its average net assets 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.
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.
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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
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 REALTY FUND
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INVESTMENTS AS OF JUNE 30, 1995
(unaudited)
REAL ESTATE INVESTMENT TRUSTS -- 98.9% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
APARTMENTS -- 30.3%
Associated Estates Realty Corporation .......... 68,400 $ 1,444,950
Bay Apartment Community, Inc. .................. 108,800 2,121,600
Evans Withycombe Residential ................... 90,500 1,843,938
Mid-America Apartment Communities, Inc. ........ 71,100 1,777,500
Oasis Residential, Inc. ........................ 82,500 1,794,375
South West Property Trust, Inc. ................ 152,000 1,748,000
Walden Residential Properties, Inc. ............ 50,000 918,750
-----------
11,649,113
-----------
HOTELS -- 31.8%
Equity Inns, Inc. .............................. 181,000 1,945,750
Felcor Suite Hotels, Inc. ...................... 200,000 5,100,000
Innkeepers USA Trust ........................... 228,000 2,023,500
RFS Hotel Investments, Inc. .................... 67,000 1,021,750
Winston Hotels ................................. 211,500 2,115,000
-----------
12,206,000
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OFFICE & INDUSTRIAL -- 21.9%
Beacon Properties Corporation .................. 100,300 1,993,462
Cali Realty Corporation ........................ 116,400 2,255,250
Highwoods Properties, Inc. ..................... 84,500 2,154,750
Reckson Associates Realty Corporation .......... 83,300 2,020,025
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8,423,487
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SELF-STORAGE -- 14.9%
Shurgard Storage Centers, Inc. ................. 81,900 1,883,700
Sovran Self Storage, Inc. ...................... 80,000 1,840,000
Storage USA, Inc. .............................. 71,000 2,014,625
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5,738,325
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TOTAL REAL ESTATE INVESTMENT TRUSTS
(Identified Cost $36,538,337) ............................ 38,016,925
-----------
See accompanying notes to financial statements
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CGM REALTY FUND
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INVESTMENTS AS OF JUNE 30, 1995 (CONTINUED)
(unaudited)
FACE
AMOUNT VALUE(a)
SHORT-TERM INVESTMENT -- 0.9% ------ --------
Chevron Oil Finance Company, 5.90%, 7/03/95
(Cost $350,000) ............................. $350,000 $ 350,000
-----------
TOTAL INVESTMENTS -- 99.8% (Identified Cost
$36,888,337)(b) ......................................... 38,366,925
Cash and Receivables .................................. 410,194
Liabilities ........................................... (338,701)
-----------
TOTAL NET ASSETS -- 100% .................................. $38,438,418
===========
(a) See Note 1A.
(b) Federal Tax Information: At June 30, 1995 the net unrealized appreciation on
investments based on cost of $36,888,337 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 ........ $ 1,899,590
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........ (421,002)
-----------
Net unrealized appreciation ............................... $ 1,478,588
===========
See accompanying notes to financial statements
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CGM REALTY FUND
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STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995
(unaudited)
ASSETS
Investments at value (Identified
cost -- $36,888,337) ........................ $38,366,925
Cash ......................................... 4,578
Receivable for:
Shares of the Fund sold ..................... $ 21,353
Dividends and interest ...................... 329,999 351,352
--------
Unamortized organizational expenses .......... 54,264
-----------
38,777,119
-----------
LIABILITIES
Payable for:
Securities purchased ........................ $252,713
Shares of the Fund redeemed ................. 35,386 288,099
--------
Accrued expenses:
Trustees' fees .............................. 6,000
Other expenses .............................. 44,602 50,602
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338,701
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NET ASSETS .................................... $38,438,418
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Net Assets consist of:
Capital paid-in ............................................. $37,552,898
Undistributed net investment income ......................... 884,952
Accumulated net realized loss ............................... (1,478,020)
Unrealized appreciation on investments -- net ............... 1,478,588
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NET ASSETS .................................................... $38,438,418
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Shares of beneficial interest outstanding, no par value ...... 3,826,282
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Net asset value per share* ................................... $10.05
===========
*Shares of the Fund are sold and redeemed at net asset value
($38,438,418 / 3,826,282).
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STATEMENT OF OPERATIONS
Six Months Ended June 30, 1995
(unaudited)
INVESTMENT INCOME
Income
Dividends ................................................... $1,369,857
Interest .................................................... 11,722
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1,381,579
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Expenses
Management fees ............................................. 154,305
Trustees' fees .............................................. 11,100
Accounting and Administration ............................... 6,150
Custodian ................................................... 25,500
Transfer agent .............................................. 47,600
Audit and tax services ...................................... 10,000
Legal ....................................................... 20,250
Printing .................................................... 15,750
Registration ................................................ 18,000
Miscellaneous ............................................... 875
Amortization of organizational expense ...................... 6,961
----------
316,491
Less expenses assumed by the investment adviser .............. (134,956)
----------
Net investment income ........................................ 1,200,044
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REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Realized loss on investments -- net ......................... (1,080,451)
Unrealized appreciation -- net .............................. 1,698,407
----------
Net gain on investments ..................................... 617,956
----------
NET INCREASE IN ASSETS FROM OPERATIONS ........................ $1,818,000
==========
See accompanying notes to financial statements
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CGM REALTY FUND
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STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS FOR THE PERIOD
ENDED MAY 13, 1994,*
JUNE 30, 1995 THROUGH
(UNAUDITED) DECEMBER 31, 1994
------------- -----------------
FROM OPERATIONS
Net investment income ................... $ 1,200,044 $ 987,137
Net realized loss from investments ...... (1,080,451) (420,897)
Unrealized appreciation (depreciation) .. 1,698,407 (219,819)
----------- -----------
Increase in net assets from operations 1,818,000 346,421
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FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ................... (558,097) (720,804)
Paid-in capital ......................... -- (265,775)
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(558,097) (986,579)
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FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............ 8,820,758 38,418,398
Net asset value of shares issued in
connection with reinvestment of:
Dividends from net investment income .. 495,829 644,564
Distributions from paid-in capital .... -- 237,664
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9,316,587 39,300,626
Cost of shares redeemed ................. (6,414,848) (4,383,692)
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Increase in net assets derived from
capital share transactions .......... 2,901,739 34,916,934
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Total increase in net assets ............ 4,161,642 34,276,776
NET ASSETS
Beginning of period (including
undistributed net investment income of
$243,005 and $0, respectively) ........ 34,276,776 0
----------- -----------
End of period (including undistributed
net investment income of $884,952 and
$243,005, respectively) ............... $38,438,418 $34,276,776
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares .............. 900,142 3,909,351
Issued in connection with reinvestment of:
Dividends from net investment income .. 51,595 66,788
Distributions from paid-in capital .... -- 24,626
----------- -----------
951,737 4,000,765
Redeemed .............................. (655,476) (470,744)
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Net change ............................ 296,261 3,530,021
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*Commencement of operations.
See accompanying notes to financial statements
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CGM REALTY FUND
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FINANCIAL HIGHLIGHTS
FOR THE
SIX MONTHS FOR THE PERIOD
ENDED MAY 13, 1994(c)
JUNE 30, 1995 THROUGH
(UNAUDITED) DECEMBER 31, 1994
-------------- -----------------
For a share of the Fund outstanding throughout each period:
Net asset value at the beginning of period $ 9.71 $10.00
------ ------
Net investment income (a) ................. 0.38 0.31
Dividends from net investment income ...... (0.15) (0.23)
Distribution from paid-in capital ........ -- (0.08)
Net realized and unrealized gain (loss) on
investments ............................. 0.11 (0.29)
------ ------
Net increase (decrease) in net asset value 0.34 (0.29)
------ ------
Net asset value at end of period .......... $10.05 $ 9.71
====== ======
Total Return (%) (b) ...................... 5.1(d) 0.2(d)
Ratios:
Operating expenses to average net assets (%) 1.00(e) 1.00(e)
Operating expenses to average net assets
before expense limitation (%) ........... 1.74(e) 2.00(e)
Net income to average net assets (%) ...... 6.61(e) 7.40(e)
Portfolio turnover (%) .................... 114(e) 47(e)
Net assets at end of period (in thousands) 38,438 34,277
(a) Net of reimbursement which amounted to $ 0.04 $ 0.04
(b) The total return would have been lower had certain expenses not been reduced
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
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CGM REALTY 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 May 13, 1994.
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 -- Equity securities are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees, which service provides the last reported sale price for
securities listed on a national securities exchange or on the NASDAQ
national market system or, if no sale was reported and in the case of
over-the-counter securities not so listed, the last reported bid price.
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. 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 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 $381,000 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. Dividend income received by the Fund from its
investment in REITs may for tax purposes consist of ordinary income,
capital gains and return of capital. These dividends, when distributed by
the Fund, are passed through to the Fund's shareholders with these same
tax characteristics. For 1994, the resulting return of capital component
of the Fund's distributions totalled $272,536. 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 1994 in connection with the
Fund's organization and registration amounting to $70,186 have been paid
by the Fund. These costs are being amortized over 60 months beginning May
13, 1994.
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CGM REALTY FUND
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NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited)
2. PURCHASES AND SALE 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 $23,919,093 and $20,406,699,
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 $154,305, 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 0.85% on the first $500 million of the Fund's average daily net
assets and 0.75% on amounts in excess of $500 million. CGM waived a
portion of its 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 $6,150
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 reduce its
management fee and, if necessary, to assume expenses of the Fund in order to
limit the Fund's expenses to an annual rate of 1.00% of average daily net
assets. As a result of the Fund's expenses exceeding the voluntary expense
limitation, CGM waived $128,806 of its management fee and the entire
Accounting and Administrative expense of $6,150. The Fund incurred operating
expenses of $181,535, representing 1.00% of the average daily net assets.
<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.
RQR2 Printed in U.S.A.
