<PAGE>
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Fixed Income Fund grew 1.3% during the second quarter of 1996 compared to
an increase of 0.5% for the Merrill Lynch Master Bond Index for the same
period. For the first six months of the year, CGM Fixed Income Fund grew 8.2%
compared to the Merrill Lynch Master Bond Index which decreased -1.3%.
A year ago the big question was, had the Federal Reserve Board ushered in a
recession, or had it successfully engineered the economy's first "soft
landing" (slowdown without recession)? "Soft landing" was the verdict by year-
end when the economy once again picked up momentum. Additional economic muscle
emerged in the first three months of 1996 and the second quarter of this year
was stronger still. Most second quarter estimates point to a real gain of
4.0%-4.5% in the Gross Domestic Product. Other manifestations of a continuing
economic advance abound: employment levels have never been higher; profits are
at record levels; and common stock prices have recently driven leading indices
to new all-time highs. In June, an acceleration in the pace of economic growth
paired with continued low unemployment levels resulted in a significant jump
in wages which may re-ignite fears of inflation. A preferable alternative
would be slower economic growth throughout the remainder of the year--perhaps
at a rate of 2% real growth--without a significant hike in interest rates.
The surge in corporate profits in 1995 was dramatic, aided in part by the
weak dollar. This year the dollar has been very strong against the Yen and is
rising somewhat against the German Mark. The combination of slow economic growth
and U.S. currency strength will mean lower quarterly earnings for many companies
compared to last year, though on balance, many sectors continue to do well. We
expect the market to become increasingly selective and are watching interest
rates, which have increased from 6% in January to 7.1% today without deterring
the overall equity market.
CGM Fixed Income Fund continues to seek out and benefit from unrecognized credit
values as well as from the strong underlying equity exposure of convertible
holdings. CGM Fixed Income Fund is 8.3% invested in U.S. Treasury bills and
holds important positions in airlines and money center banks. The three largest
company investments are Chase Manhattan Bank, Continental Airlines, Inc. and
Alaska Air Group, Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
July 10, 1996
<PAGE>
CGM FIXED INCOME FUND
- ------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
- ------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 1996
CGM FIXED THE FUND'S AVERAGE
INCOME FUND ANNUAL TOTAL ETURN
----------- -------------------
3 Years................................ +35.0% +10.5%
1 Year................................. +17.4 +17.4
3 Months............................... + 1.3 --
The Fund's average annual total return from inception (March 17, 1992)
through June 30, 1996 is +12.3%. The adviser has agreed to limit the Fund's
total operating expenses to 0.85% of its average net assets annually through
December 31, 1996. Otherwise the total return since inception, and for the
three-year, one-year and three-month periods ended June 30, 1996, 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.
<PAGE>
CGM FIXED INCOME FUND
- --------------------------------------------------------------------------------
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
<PAGE>
CGM FIXED INCOME FUND
- -------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 1996
(unaudited)
BONDS, NOTES AND BILLS -- 57.4% OF TOTAL NET ASSETS
FACE
AMOUNT VALUE(A)
------ --------
AIRLINES -- 9.2%
AMR Corp., 9.00%, 8/01/12 ..................... $1,150,000 $ 1,243,380
Alaska Air Group, Inc., 6/15/05 (Convertible) . 1,500,000 2,062,500
-----------
3,305,880
-----------
AUTO AND RELATED -- 2.4%
Poindexter JB, Inc., 12.50%, 5/15/04 .......... 1,000,000 845,000
-----------
BASIC MATERIALS -- 3.0%
USX Marathon Group, 9.125%, 1/15/13 ........... 1,000,000 1,085,160
-----------
BROKERS/INVESTMENT SERVICES -- 2.9%
Lehman Brothers Holdings, Inc., 8.50%, 5/01/07 1,000,000 1,050,520
-----------
CHEMICALS -- SPECIALTY -- 2.0%
Polymer Group, Inc., 12.25%, 7/15/02 .......... 667,000 720,360
-----------
HOTELS AND RESTAURANTS -- 2.4%
Flagstar Corp., 10.75%, 9/15/01 ............... 1,000,000 870,000
-----------
INSURANCE -- 4.2%
Conseco, Inc., 8.125%, 2/15/03 ................ 1,500,000 1,520,115
-----------
MEDIA -- 2.5%
TCI Communications, Inc., 7.875%, 2/15/26 ..... 1,000,000 880,740
-----------
PLASTICS -- 5.6%
Berry Plastics Corp., 12.25%, 4/15/04 ......... 1,000,000 1,065,000
Geon Co., 6.875%, 12/15/05 .................... 1,000,000 928,320
-----------
1,993,320
-----------
RETAIL -- 6.4%
Fruit of the Loom, Inc., 7.375%, 11/15/23 ..... 1,000,000 889,970
TJX Companies, Inc., 7.00%, 6/15/05 ........... 1,500,000 1,419,210
-----------
2,309,180
-----------
TELEPHONE -- 2.6%
360 Communications, 7.50%, 3/01/06 ............ 1,000,000 948,780
-----------
TRANSPORTATION -- 2.9%
Overseas Shipholding Group, 8.75%, 12/01/13 ... 1,000,000 1,021,720
-----------
U.S. GOVERNMENT -- 8.3%
United States Treasury Bills, 4.93%, 8/29/96 .. 3,000,000 2,975,550
-----------
See accompanying notes to financial statememts
<PAGE>
CGM FIXED INCOME FUND
- -------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 1996 (CONTINUED)
(unaudited)
BONDS, NOTES AND BILLS -- (CONTINUED)
FACE
AMOUNT VALUE(A)
------ --------
UTILITIES -- 3.0%
Great Lakes Power, Inc., 9.00%, 8/01/04 ....... $1,000,000 $ 1,057,980
-----------
TOTAL BONDS, NOTES AND BILLS
(Identified Cost $20,315,031) .................. 20,584,305
-----------
PREFERRED STOCKS -- 29.2% SHARES
------
AIRLINES -- 6.1%
Continental Airlines, Inc., $4.25 (Convertible) 30,000 2,175,000
-----------
OFFSHORE DRILLING -- 9.6%
Noble Drilling Corp., $1.50 (Convertible) ..... 49,000 1,727,250
Reading & Bates Corp., $1.625 (Convertible) ... 26,000 1,709,500
-----------
3,436,750
-----------
REAL ESTATE INVESTMENT TRUSTS -- 10.8%
Avalon Properties, Inc., $2.25 ................ 61,000 1,471,625
Felcor Suite Hotels, Inc., $1.95 (Convertible). 37,000 925,000
Rouse Capital, $2.313 ......................... 59,225 1,473,222
-----------
3,869,847
-----------
TELEPHONE -- 2.7%
MCI Capital, $2.00 ............................ 40,000 985,000
-----------
TOTAL PREFERRED STOCKS
(Identified Cost $9,987,646) ................... 10,466,597
-----------
COMMON STOCK -- 8.7%
Chase Manhattan Corp.
(Identified Cost $1,908,750) ................. 43,930 3,102,556
-----------
COMMON STOCK WARRANTS -- 0%
BPC Holdings Corp. Exp 4/15/04
(Identified Cost $0) ......................... 1,000 10,000
-----------
FACE
SHORT-TERM INVESTMENT -- 0.5% AMOUNT
------
American Express Credit Corp., 5.39%, 7/01/96
(Cost $175,000) .............................. $ 175,000 175,000
-----------
TOTAL INVESTMENTS -- 95.8% (Identified Cost $32,386,427)(b) ... 34,338,458
Cash and Receivables ........................................ 1,579,637
Liabilities ................................................. (78,839)
-----------
TOTAL NET ASSETS -- 100.0% .................................... $35,839,256
===========
(a) See Note 1A.
(b) Federal Tax Information: At June 30, 1996 the net unrealized appreciation
of investments based on cost of $32,386,427 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 ............. $ 2,526,532
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value .......... (574,501)
-----------
Net unrealized appreciation .................................. $ 1,952,031
===========
See accompanying notes to financial statements
<PAGE>
CGM FIXED INCOME FUND
- ------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
June 30, 1996
(unaudited)
ASSETS
Investments at value (Identified
cost -- $32,386,427) .................... $34,338,458
Cash ..................................... 3,658
Receivable for:
Securities sold ............ $1,064,217
Shares of the Fund sold .... 63,378
Dividends and interest ..... 437,537 1,565,132
----------
Unamortized organization expenses ......... 10,847
-----------
35,918,095
-----------
LIABILITIES
Payable for:
Shares of the Fund redeemed ............. 11,601
Accrued expenses:
Trustees' fees .............. 5,595
Other expenses .............. 61,643 67,238
----------- -----------
78,839
-----------
NET ASSETS ................................ $35,839,256
===========
Net Assets consist of:
Capital paid-in ......................... $33,145,503
Undistributed net investment income ..... 224,294
Accumulated net realized gain ........... 517,428
Unrealized appreciation on
investments -- net ..................... 1,952,031
-----------
NET ASSETS ................................ $35,839,256
===========
Shares of beneficial interest outstanding,
no par value ........................... 2,973,587
===========
Net asset value per share* ............... $12.05
===========
*Shares of the Fund are sold and redeemed at net asset value
($35,839,256 / 2,973,587).
STATEMENT OF
OPERATIONS
Six Months Ended June 30, 1996
(unaudited)
INVESTMENT INCOME
Income
Dividends .................................................. $ 258,700
Interest ................................................... 926,342
-----------
1,185,042
-----------
Expenses
Management fees ............................................ 92,577
Trustees' fees ............................................. 11,250
Accounting and Administration .............................. 5,000
Custodian .................................................. 26,400
Transfer agent ............................................. 28,800
Audit and tax services ..................................... 15,000
Legal ...................................................... 16,500
Printing ................................................... 12,500
Registration ............................................... 10,800
Amortization of organization expense ....................... 7,617
Miscellaneous .............................................. 420
-----------
226,864
Less expenses assumed by the investment adviser .............. (83,790)
-----------
Net investment income ........................................ 1,041,968
-----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Realized gain on investments -- net ......................... 2,675,537
Unrealized depreciation -- net .............................. (1,095,476)
-----------
Net gain on investments ..................................... 1,580,061
-----------
NET INCREASE IN ASSETS FROM OPERATIONS ....................... $ 2,622,029
===========
See accompanying notes to financial statements
<PAGE>
CGM FIXED INCOME FUND
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1996 DECEMBER 31,
(UNAUDITED) 1995
----------- ------------
FROM OPERATIONS
Net investment income .............. $ 1,041,968 $ 1,970,864
Net realized gain from investments . 2,675,537 484,460
Unrealized appreciation (depreciation) (1,095,476) 4,798,806
----------- -----------
Increase in net assets from
operations ...................... 2,622,029 7,254,130
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .............. (817,674) (1,988,267)
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ....... 5,185,606 4,706,339
Net asset value of shares issued in
connection with reinvestment of:
Dividends from net investment
income ......................... 670,336 1,626,393
----------- -----------
5,855,942 6,332,732
Cost of shares redeemed ............ (3,614,015) (8,477,577)
----------- -----------
Increase (decrease) in net assets
derived from capital share
transactions ................... 2,241,927 (2,144,845)
----------- -----------
Total increase in net assets ....... 4,046,282 3,121,018
NET ASSETS
Beginning of period ................ 31,792,974 28,671,956
----------- -----------
End of period (including undistributed
net investment income of
$224,294 and $0, respectively) ... $35,839,256 $31,792,974
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ......... 435,798 440,355
Issued in connection with
reinvestment of:
Dividends from net investment
income ......................... 56,264 152,155
----------- ------------
492,062 592,510
Redeemed ......................... (305,354) (800,310)
----------- ------------
Net change ....................... 186,708 (207,800)
=========== ============
See accompanying notes to financial statements
<PAGE>
CGM FIXED INCOME FUND
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
SIX MONTHS FOR THE PERIOD
ENDED YEAR ENDED DECEMBER 31, MARCH 17, 1992(C)
JUNE 30, 1996 -------------------------- THROUGH
(UNAUDITED) 1995 1994 1993 DECEMBER 31, 1992
------------- ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
For a share of the Fund
outstanding throughout
each period:
Net asset value at the
beginning of period ......... $11.41 $ 9.57 $11.17 $10.26 $10.00
------ ------ ------ ------ ------
Net investment income (a) ..... 0.36 0.70 0.73 0.67 0.50
Dividends from net investment
income ...................... (0.29) (0.70) (0.73) (0.67) (0.49)
Net realized and unrealized
gain (loss) on investments .. 0.57 1.84 (1.60) 1.23 0.40
Distribution from net realized
gain ........................ -- -- -- (0.32) (0.13)
Distribution from paid-in
capital ..................... -- -- -- -- (0.02)
------ ------ ------ ------ ------
Net increase (decrease)
in net asset value .......... 0.64 1.84 (1.60) 0.91 0.26
------ ------ ------ ------ ------
Net asset value at the
end of period ............... $12.05 $11.41 $ 9.57 $11.17 $10.26
====== ====== ====== ====== ======
Total Return (%) (b) .......... 8.2(d) 27.3 -8.0 18.9 9.2(d)
Ratios:
Operating expenses to average
net assets (%) .............. 0.85(e) 0.85 0.85 0.85 0.85(e)
Operating expenses to average
net assets before expense
limitation (%) .............. 1.35(e) 1.53 1.46 2.02 3.21(e)
Net investment income to
average net assets (%) ...... 6.19(e) 6.46 7.00 6.30 7.29(e)
Portfolio turnover (%) ........ 181(e) 148 129 149 212(e)
Average commission rate(f) .... $ 0.0700 -- -- -- --
Net assets at end of period
(in thousands) .............. $35,839 $31,793 $28,672 $32,883 $9,467
(a) Net of reimbursement
which amounted to ......... $ 0.03 $ 0.07 $ 0.06 $ 0.12 $ 0.16
(b) The total return would have been lower had certain expenses not been reimbursed during the period.
(c) Commencement of operations.
(d) Not computed on an annualized basis.
(e) Computed on an annualized basis.
(f) SEC regulations require portfolios to disclose the average commission rate paid on trades for which commissions were
charged for fiscal years beginning on or after September 1, 1995.
</TABLE>
See accompanying notes to financial statements
<PAGE>
CGM FIXED INCOME FUND
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1996
(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 a diversified, open-end management investment company. The Trust
has three other funds whose financial statements are not presented herein. The
Fund commenced operations on March 17, 1992. The investment objective of the
Fund is to maximize total return by investing in debt securities and preferred
stock that provide current income, capital appreciation or a combination of
both income and appreciation.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
financial statements are prepared in conformity with generally accepted
accounting principles which require 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.
A. SECURITY VALUATION -- Corporate 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. United States
government debt securities are valued at the current closing bid, as last
reported by a pricing service approved by the Board of Trustees. 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. 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 income and net realized capital gains within the prescribed time
period. Accordingly, no provision for federal income tax has been made. At
December 31, 1995, the capital loss carryover available to offset future
realized gains aggregated approximately $2,155,000 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 may result in reclassifications to paid-in
capital. 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.
<PAGE>
CGM FIXED INCOME FUND
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited)
E. ORGANIZATION EXPENSE -- Costs incurred in 1992 in connection with the
Fund's organization and registration amounting to $76,426 have been paid
by the Fund. These costs are being amortized over 60 months beginning
March 17, 1992.
2. PURCHASES AND SALE OF SECURITIES -- For the six months ended June 30,
1996, purchases and sales of securities other than United States government
obligations and short-term investments aggregated $22,459,364 and $22,201,178,
respectively. Purchases and sales of United States government obligations
aggregated $11,158,735 and $7,160,242, respectively.
3. A. MANAGEMENT FEES -- During the six months ended June 30, 1996, the Fund
incurred management fees of $92,577, 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 0.55% on the first $200 million of the Fund's average daily net
assets, 0.45% of the next $300 million and 0.35% of such assets 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 six months ended June 30, 1996 these expenses amounted to
$5,000 and are shown separately in the financial statements as
Accounting and Administration.
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 with an annual base fee of $3,000 plus travel expenses for
each meeting attended and an annual variable fee calculated based on
the proportion of the Fund's average net assets to the aggregate
average net assets of the CGM Funds, which for 1996 is $397. In
addition, the chairman of the Independent Trustees Committee receives
an annual retainer of $1,000.
4. EXPENSE LIMITATION -- Until December 31, 1996 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 0.85% of average daily net
assets. As a result of the Fund's expenses exceeding the voluntary expense
limitation, CGM waived $83,790 of its management fee. The Fund incurred
operating expenses of $143,074, representing 0.85% 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.
FQR2 Printed in U.S.A.
CGM
FIXED INCOME
FUND
17th Quarterly Report
June 30, 1996
A No-Load Fund
[FENCER LOGO]
Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
<PAGE>
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Mutual Fund declined -0.4% during the second quarter of 1996 compared to an
increase of 4.5% in the Standard and Poor's 500 Index and a rise of 0.5% in the
Merrill Lynch Master Bond Index for the same period. For the first six months of
the year, CGM Mutual Fund increased 5.8%, the S+P 500 grew 10.1%, and the
Merrill Lynch Master Bond Index decreased -1.3%.
A year ago the big question was, had the Federal Reserve Board ushered in a
recession, or had it successfully engineered the economy's first "soft landing"
(slowdown without recession)? "Soft landing" was the verdict by year-end when
the economy once again picked up momentum. Additional economic muscle emerged in
the first three months of 1996 and the second quarter of this year was stronger
still. Most second quarter estimates point to a real gain of 4.0%-4.5% in the
Gross Domestic Product. Other manifestations of a continuing economic advance
abound: employment levels have never been higher; profits are at record levels;
and common stock prices have recently driven leading indices to new all-time
highs. In June, an acceleration in the pace of economic growth paired with
continued low unemployment levels resulted in a significant jump in wages which
may re-ignite fears of inflation. A preferable alternative would be slower
economic growth throughout the remainder of the year--perhaps at a rate of 2%
real growth--without a significant hike in interest rates.
The surge in corporate profits in 1995 was dramatic, aided in part by the weak
dollar. This year the dollar has been very strong against the Yen and is rising
somewhat against the German Mark. The combination of slow economic growth and
U.S. currency strength will mean lower quarterly earnings for many companies
compared to last year, though on balance, many sectors continue to do well. We
expect the market to become increasingly selective and are watching interest
rates, which have increased from 6% in January to 7.1% today without deterring
the overall equity market.
CGM Mutual Fund is 25% invested in U.S. Treasury bills and corporate bonds. The
equity portion of the portfolio includes important positions in banks, oil
drilling service companies and airlines. The Fund's largest holdings are Chase
Manhattan Bank, UAL Corporation and Philip Morris Companies, Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
July 10, 1996
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
- ------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 1996
CGM MUTUAL THE FUND'S AVERAGE
FUND ANNUAL TOTAL RETURN
---------- --------------------
10 Years ................................... +207.1% +11.9%
5 Years ................................... + 85.5 +13.2
1 Year .................................... + 14.1 +14.1
3 Months .................................. - 0.4 --
The percentage figures for the Fund are based upon the beginning net asset
values of $25.11, $25.01, $28.64 and $31.24, respectively, and the June 30, 1996
asset value of $30.96 per share assuming the reinvestment of income dividends,
capital gains and paid-in capital distributions during such respective periods.
The performance data contained in this report represent past performance, which
is no guarantee of future results. The investment return on, 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>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
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
<PAGE>
<TABLE>
<CAPTION>
CGM MUTUAL FUND
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
25 YEAR INVESTMENT RECORD
DECEMBER 31, 1970 -- JUNE 30, 1996 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------------
IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1970
- ----------------------------------------------------------------------------------------------------------------------------------
-- AND HAD TAKEN ALL DIVIDENDS OR -- HAD REINVESTED ALL DIVIDENDS AND CAPITAL
AND DISTRIBUTIONS IN CASH GAINS DISTRIBUTIONS IN ADDITIONAL SHARES
---------------------------------------- ----------------------------------------------------------------------
During the Year
You Would Have Received Which Would Represent
--------------------------- -------------------------------------------
The Value of A Cumulative
The Net Your Original Change
Asset Value Per Share Per Share Investment An Expressed
On of Your Capital Gains Income At Each Annual As An Index With
December Share Would Distributions Dividends Year End Total Return December 31,
31 Have Been of of Would Have Been of 1970 = 100.0
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1970 13.89 100.0
1971 15.37 0.35 0.41 16.21 + 16.7 116.7
1972 16.20 0.35 0.42 17.98 + 10.9 129.4
1973 14.20 0.42 0.42 16.63 - 7.5 119.7
1974 10.27 -- 0.46 12.51 - 24.8 90.0
1975 12.44 -- 0.43 15.70 + 25.5 113.0
1976 13.96 -- 0.43 18.20 + 15.9 131.0
1977 12.88 -- 0.52 17.45 - 4.1 125.6
1978 12.83 -- 0.65 18.31 + 4.9 131.8
1979 13.81 -- 0.72 20.82 + 13.7 149.9
1980 14.85 -- 0.88 23.90 + 14.8 172.1
1981 13.90 -- 0.97 23.92 + 0.1 172.3
1982 18.16 -- 1.09 33.73 + 41.0 242.9
1983 18.81 -- 1.09 37.07 + 9.9 266.9
1984 17.01 1.86 0.95 39.41 + 6.3 283.7
1985 21.53 -- 1.08 53.01 + 34.5 381.6
1986 22.86 2.75 0.94 66.32 + 25.1 477.4
1987 20.40 4.52 1.06 75.41 + 13.7 542.8
1988 19.94 -- 1.10 77.82 + 3.2 560.2
1989 22.34 0.95 0.93 94.71 + 21.7 681.8
1990 21.64 -- 0.93* 95.75 + 1.1 689.3
1991 26.80 2.64 0.97 134.91 + 40.9 971.2
1992 26.02 1.42 0.93 143.14 + 6.1 1030.4
1993 28.88 1.93 0.86 174.34 + 21.8 1255.0
1994 25.05 -- 1.04 157.43 - 9.7 1133.3
1995 29.43 0.89 0.77 195.69 + 24.3 1408.7
1996(6/30) 30.96 -- 0.16 207.04 + 5.8** 1490.4
------ ------ ------
Totals $18.08 $20.21 +1390.4
- -----------------------------------------------------------------------------------------------------------------------------------
*Includes $0.05 per share distributed from paid-in capital.
**Total return for the six months ended June 30, 1996.
Shares were first offered on November 5, 1929; the net asset value per share, adjusted for stock splits and dividends, was $8.33.
- -----------------------------------------------------------------------------------------------------------------------------------
The performance data contained in this report represent past performance, which is no guarantee of future results. The
investment return on, 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.
</TABLE>
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 1996
(unaudited)
COMMON STOCKS -- 73.2% OF TOTAL NET ASSETS
SHARES VALUE(A)
------ --------
AEROSPACE -- 5.2%
Boeing Company .......................... 680,000 $ 59,245,000
--------------
AIRLINES -- 8.5%
UAL Corporation (b) ..................... 1,809,600 97,266,000
--------------
BANKS -- MONEY CENTER -- 16.4%
Chase Manhattan Corporation ............. 1,580,000 111,587,500
Citicorp ................................ 927,500 76,634,687
--------------
188,222,187
--------------
BEVERAGE AND TOBACCO -- 1.2%
Anheuser Busch Companies, Inc. .......... 190,000 14,250,000
--------------
FOOD -- RETAILERS/WHOLESALERS -- 6.8%
Philip Morris Companies, Inc. ........... 755,000 78,520,000
--------------
INSURANCE -- 5.3%
American International Group, Inc. ...... 622,000 61,344,750
--------------
LEISURE -- 0.9%
Eastman Kodak Company ................... 125,000 9,718,750
--------------
MISCELLANEOUS -- 5.2%
NIKE, Inc. .............................. 584,000 60,006,000
--------------
OIL SERVICE -- 14.8%
Baker Hughes, Inc. ...................... 1,370,000 45,038,750
Halliburton Company ..................... 1,170,000 64,935,000
Schlumberger LTD ........................ 720,000 60,660,000
--------------
170,633,750
--------------
REAL ESTATE INVESTMENT TRUSTS -- 8.9%
Felcor Suite Hotels, Inc. ............... 1,888,500 57,599,250
Highwoods Properties, Inc. .............. 140,000 3,867,500
RFS Hotel Investments, Inc. ............. 1,000,000 15,500,000
Starwood Lodging Trust .................. 695,000 25,280,625
--------------
102,247,375
--------------
TOTAL COMMON STOCKS (Identified Cost
$681,924,976) ........................... 841,453,812
--------------
PREFERRED STOCK -- 1.4%
AIRLINES -- 1.4%
Trans World Airlines, Inc. $4.00 ........ 330,000 16,087,500
--------------
TOTAL PREFERRED STOCK
(Identified Cost $16,882,500) ........... 16,087,500
--------------
See accompanying notes to financial statements
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 1996 (CONTINUED)
(unaudited)
FACE
AMOUNT VALUE(A)
------ -----
BONDS AND BILLS -- 25.0%
INDUSTRIAL BONDS -- 4.2%
Kaiser Aluminum & Chemical Corporation,
12.75%, 2/01/03 ........................... $20,000,000 $ 21,100,000
Rohr, Inc., 11.625%, 5/15/03 ............... 5,000,000 5,425,000
Stone Container Corporation, 9.875%, 2/01/01 23,000,000 22,310,000
--------------
48,835,000
--------------
UNITED STATES TREASURY -- 20.8%
United States Treasury Bills, 4.91%, 8/15/96 207,000,000 205,708,837
United States Treasury Bills, 5.05%, 9/19/96 33,400,000 33,024,584
--------------
238,733,421
--------------
TOTAL BONDS AND BILLS
(Identified Cost $289,254,530) ........................... 287,568,421
--------------
TOTAL INVESTMENTS -- 99.6% (Identified Cost $988,062,006)(c) 1,145,109,733
Cash and Receivables ..................................... 8,272,757
Liabilities .............................................. (3,930,642)
--------------
TOTAL NET ASSETS -- 100% ................................... $1,149,451,848
==============
(a) See Note 1A.
(b) Non-income producing security.
(c) Federal Tax Information: At June 30, 1996, the net unrealized appreciation
on investments based on cost of $988,062,006 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........ $ 161,535,317
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ....... (4,487,590)
---------------
Net unrealized appreciation ................................ $ 157,047,727
==============
See accompanying notes to financial statements
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
June 30, 1996
(unaudited)
ASSETS
Investments at value (Identified cost -- $988,062,006) .. $1,145,109,733
Cash .................................................... 97,028
Receivable for:
Securities sold .......................... $3,927,649
Shares of the Fund sold .................. 959,955
Dividends and interest ................... 3,288,125 8,175,729
---------- --------------
1,153,382,490
--------------
LIABILITIES
Payable for:
Securities purchased ..................... $1,556,860
Shares of the Fund redeemed .............. 1,240,187 2,797,047
----------
Accrued expenses:
Management fees .......................... 643,717
Trustees' fees ........................... 27,500
Accounting and Administration ............ 6,917
Other expenses ........................... 455,461 1,133,595
---------- --------------
3,930,642
--------------
NET ASSETS ................................................ $1,149,451,848
==============
Net Assets consist of:
Capital paid-in ....................................... $ 953,356,911
Undistributed net investment income ................... 6,707,083
Accumulated net realized gain ......................... 32,340,127
Unrealized appreciation on investments -- net ......... 157,047,727
--------------
NET ASSETS ................................................ $1,149,451,848
==============
Shares of beneficial interest outstanding, no par value . 37,126,024
==============
Net asset value per share* .............................. $30.96
==============
*Shares of the Fund are sold and redeemed at net asset value
($1,149,451,848 / 37,126,024).
<PAGE>
STATEMENT OF
OPERATIONS
Six Months Ended June 30, 1996
(unaudited)
INVESTMENT INCOME
Income
Dividends (net of withholding tax of $28,162) ........... $ 8,729,113
Interest ................................................ 9,245,744
-----------
17,974,857
-----------
Expenses
Management fees ......................................... 3,937,052
Trustees' fees .......................................... 55,000
Accounting and Administration ........................... 41,500
Custodian ............................................... 92,000
Transfer agent .......................................... 950,000
Audit and tax services .................................. 16,500
Legal ................................................... 30,000
Printing ................................................ 55,000
Registration ............................................ 22,000
Miscellaneous ........................................... 8,138
-----------
5,207,190
-----------
Net investment income ..................................... 12,767,667
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments -- net ..................... 35,007,920
Unrealized appreciation -- net .......................... 17,575,439
-----------
Net gain on investments ................................. 52,583,359
-----------
NET INCREASE IN ASSETS FROM OPERATIONS ...................... $65,351,026
===========
See accompanying notes to financial statements
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995
-------------- --------------
FROM OPERATIONS
Net investment income .................. $ 12,767,667 $ 28,544,933
Net realized gain from investments ..... 35,007,920 64,726,578
Unrealized appreciation ................ 17,575,439 149,522,113
--------------- ---------------
Increase in net assets from
operations ......................... 65,351,026 242,793,624
--------------- ---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................. (6,060,584) (30,206,254)
Net realized gain on investments ....... -- (33,830,922)
--------------- ---------------
(6,060,584) (64,037,176)
--------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ........... 52,044,930 99,581,131
Net asset value of shares issued in
connection with reinvestment of:
Dividends from net investment
income ............................. 5,424,806 27,004,558
Distributions from net realized gain.. -- 31,302,777
--------------- ---------------
57,469,736 157,888,466
Cost of shares redeemed ................ (121,747,089) (245,581,485)
--------------- ---------------
Decrease in net assets derived from
capital share transactions ......... (64,277,353) (87,693,019)
--------------- ---------------
Total increase (decrease) in net
assets ............................... (4,986,911) 91,063,429
NET ASSETS
Beginning of period .................... 1,154,438,759 1,063,375,330
--------------- ---------------
End of period (including undistributed
net investment income of $6,707,083
and $0, respectively) ................ $ 1,149,451,848 $ 1,154,438,759
=============== ===============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............. 1,711,548 3,595,533
Issued in connection with reinvestment..
of:
Dividends from net investment income.. 177,771 945,112
Distributions from net realized gain.. 0 1,063,635
--------------- ---------------
1,889,319 5,604,280
Redeemed ............................. (3,993,499) (8,827,153)
--------------- ---------------
Net change ........................... (2,104,180) (3,222,873)
=============== ===============
See accompanying notes to financial statements
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1996 --------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
For a share of the Fund outstanding throughout each period:
Net asset value at the beginning of period ................ $29.43 $25.05 $28.88 $26.02 $26.80 $21.64
------ ------ ------ ------ ------ ------
Net investment income ..................................... 0.34 0.73 1.09 0.92 0.93 0.97
Dividends from net investment income ...................... (0.16) (0.77) (1.04) (0.86) (0.93) (0.97)
Net realized and unrealized gain (loss) on investments .... 1.35 5.31 (3.88) 4.73 0.64 7.80
Distribution from net realized gain ....................... -- (0.89) -- (1.81) (1.42) (2.64)
Distribution in excess of net realized gain ............... -- -- -- (0.12) -- --
------ ------ ------ ------ ------ ------
Net increase (decrease) in net asset value ................ 1.53 4.38 (3.83) 2.86 (0.78) 5.16
------ ------ ------ ------ ------ ------
Net asset value at end of period .......................... $30.96 $29.43 $25.05 $28.88 $26.02 $26.80
====== ====== ====== ====== ====== ======
Total Return (%) .......................................... 5.8 24.3 -9.7 21.8 6.1 40.9
Ratios:
Operating expenses to average net assets (%) .............. 0.90* 0.91 0.92 0.93 0.93 0.93
Net investment income to average net assets (%) ........... 2.21* 2.55 4.39 3.45 3.74 3.80
Portfolio turnover (%) 281* 291 173 97 121 201
Average commission rate** ................................. $0.0691 -- -- -- -- --
Net assets at end of period (in thousands)($).............. 1,149,452 1,154,439 1,063.375 947,115 548,630 401,887
* Computed on an annualized basis
** SEC regulations require portfolios to disclose the average commission rate paid on trades for which commissions were charged
for fiscal years beginning on or after September 1, 1995.
See accompanying notes to financial statements
</TABLE>
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1996
(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 a diversified, open-end management investment company. The Trust has
three other funds whose financial statements are not presented herein. The
Fund's objective is reasonable long-term capital appreciation with a prudent
approach to protection of capital from undue risks. Current income is a
consideration in the selection of the Fund's portfolio securities, but it is not
a controlling factor.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
financial statements are prepared in conformity with generally accepted
accounting principles which require 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.
A. SECURITY VALUATION -- Equity securities are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees, which 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. Corporate 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. United States government debt securities are valued
at the current closing bid, as last reported by a pricing service approved
by the Board of Trustees. 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.
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 be comprised, for tax purposes, 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. Permanent book and tax differences relating to shareholder
distributions may result in reclassifications to paid-in capital.
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.
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited)
2. PURCHASES AND SALES OF SECURITIES -- For the six months ended June 30, 1996,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $1,101,638,111 and
$1,160,949,408, respectively. Purchases and sales of United States government
obligations aggregated $496,139,624 and $247,730,774, respectively.
3. A. MANAGEMENT FEES -- During the six months ended June 30, 1996, the Fund
incurred management fees of $3,937,052, paid or 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 between the Fund and
CGM provides for a fee at the annual rate of 0.75% on the first $200
million of the Fund's average daily net assets, 0.70% of the next $300
million and 0.65% of such assets in excess of $500 million.
B. OTHER EXPENSES -- CGM performs certain administrative, accounting and
other services for the Fund. The expense 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.
The Accounting and Administration expense of $41,500 is shown separately
in the financial statements.
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
with an annual base fee of $3,000 plus travel expenses for each meeting
attended and an annual variable fee calculated based on the proportion
of the Fund's average net assets to the aggregate average net assets of
the CGM Funds, which for 1996 is $14,835. In addition, the chairman of
the Independent Trustees Committee receives an annual retainer of
$1,500.
<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.
MQR2 Printed in U.S.A.
CGM
MUTUAL FUND
265th Quarterly Report
June 30, 1996
A No-Load Fund
[FENCER LOGO]
Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
<PAGE>
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM American Tax Free Fund increased 0.5% during the second quarter of 1996
compared to the Lehman Municipal Bond Index which rose 0.8% over the same
period. For the first six months of the year, CGM American Tax Free Fund
declined -2.1% compared to the Lehman Municipal Bond Index which decreased
- -0.5%.
A year ago the big question was, had the Federal Reserve Board ushered in a
recession, or had it successfully engineered the economy's first "soft landing"
(slowdown without recession)? "Soft landing" was the verdict by year-end when
the economy once again picked up momentum. Additional economic muscle emerged in
the first three months of 1996 and the second quarter of this year was stronger
still. Most second quarter estimates point to a real gain of 4.0%-4.5% in the
Gross Domestic Product. Other manifestations of a continuing economic advance
abound: employment levels have never been higher; profits are at record levels;
and common stock prices have recently driven leading indices to new all-time
highs. In June, an acceleration in the pace of economic growth paired with
continued low unemployment levels resulted in a significant jump in wages which
may re-ignite fears of inflation. A preferable alternative would be slower
economic growth throughout the remainder of the year--perhaps at a rate of 2%
real growth--without a significant hike in interest rates.
With investor buying interest focused on a rising stock market, municipal bonds
as a class have underperformed so far in 1996. Performance of CGM American Tax
Free Fund improved in the second quarter when the average maturity of the
portfolio was shortened reflecting a bias toward rising rates. The portfolio has
taken a more defensive posture focusing on higher coupon holdings and higher
yielding industrial and pollution control issues where credit dynamics are
improving. The Fund's three largest holdings are Hodge, Louisiana (Stone
Container), Howard County, Maryland Multi-family Housing (Avalon Corp.) and Dade
County, Florida Water and Sewer Systems.
/s/ Robert L. Kemp
Robert L. Kemp
President
July 10, 1996
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
- ------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 1996
CGM AMERICAN LIPPER GENERAL MUNICIPAL
TAX FREE FUND DEBT FUND AVERAGE
------------- ------------------------
1 Year ............................. +6.2% +5.7%
3 Months ........................... +0.5 +0.5
The Fund's average annual total return since inception (November 10, 1993)
through June 30, 1996 is +3.3%. The adviser has agreed to absorb the Fund's
total operating expenses through December 31, 1996. Otherwise, the Fund's total
return since inception, and for the one-year, and three-month periods ended June
30, 1996 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. 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>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
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
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 1996
(unaudited)
MUNICIPAL BONDS -- 94.0% OF TOTAL NET ASSETS
FACE
AMOUNT VALUE(A)
------ --------
CALIFORNIA -- 10.6%
California Housing Finance Agency, 6.00%, 8/01/15 $ 250,000 $ 249,140
Los Angeles Regional Airport, 6.875%, 11/15/12 . 500,000 521,390
San Jose Redevelopment Tax Allocation,
5.00%, 8/01/20 ................................ 500,000 441,925
-----------
1,212,455
-----------
FLORIDA -- 20.1%
Dade County Water & Sewer Systems,
6.25%, 10/01/11 ............................... 500,000 537,775
Gainesville Utility Systems, 5.75%, 10/01/09 .... 500,000 517,315
Orlando & Orange County Expressway,
5.95%, 7/01/23 ................................ 500,000 494,040
Polk County Industrial Development Authority
Revenue Bonds (IMC Fertilizer), 7.525%, 1/01/15 250,000 259,613
Volusia County Facilities Authority,
6.125%, 10/15/16 ............................. 500,000 495,645
-----------
2,304,388
-----------
KENTUCKY -- 4.5%
Kenton County Airport Revenue Bonds (Delta
Airlines), 6.75%, 2/01/02 ..................... 500,000 521,605
-----------
LOUISIANA -- 9.5%
Hodge Utility Revenue Bonds (Stone
Container), 9.00%, 3/01/10 .................... 1,000,000 1,085,740
-----------
MARYLAND -- 7.0%
Howard County Multifamily, Chase
Glen Apartments, 7.00%, 7/01/24 ............... 750,000 805,927
-----------
MASSACHUSETTS -- 2.5%
University of Massachusetts Building
Authority, 6.625%, 5/01/08 .................... 260,000 287,550
-----------
MICHIGAN -- 6.6%
Michigan State Housing Development, 7.05%,
10/01/12 ...................................... 450,000 474,300
Milan Area Schools, 5.00%, 5/01/13 ............. 300,000 279,903
-----------
754,203
-----------
MINNESOTA -- 4.6%
Ramsey & Washington Counties (Resource
Recovery Revenue), 6.75%, 12/01/06 ............ 500,000 527,570
-----------
MISSOURI -- 2.1%
Missouri State Environment Improvement,
5.50%, 12/01/13 ............................... 250,000 240,508
-----------
NEW YORK -- 8.5%
New York General Obligation Bonds,
6.125%, 8/01/06 ............................... 350,000 372,866
New York General Obligation Bonds
Series B, 8.25%, 6/01/05 ...................... 100,000 114,455
New York State Dormitory Authority Revenue Bonds,
5.75%, 7/01/13 ................................ 250,000 240,820
New York State Dormitory Authority Revenue Bonds,
5.875%, 5/15/11 ............................... 250,000 246,690
-----------
974,831
-----------
See accompanying notes to financial statements
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 1996 (CONTINUED)
(unaudited)
MUNICIPAL BONDS -- (CONTINUED)
FACE
AMOUNT VALUE(A)
------ --------
NORTH CAROLINA -- 3.1%
Shelby Comb Enterprise, 5.625%, 5/01/14 ......... 370,000 360,424
-----------
OHIO -- 4.3%
Cleveland Waterworks Revenue, 5.75%, 1/01/21 .... 500,000 493,530
-----------
PUERTO RICO -- 2.3%
Puerto Rico Electric Power Authority,
6.125%, 7/01/09 ............................... 250,000 264,370
-----------
TEXAS -- 2.3%
Alliance Airport Authority Special Facilities
Revenue Bonds (American Airlines Inc. Project),
7.00%, 12/01/11 ............................... 250,000 269,650
-----------
VIRGINIA -- 6.0%
Fairfax County Industrial Development Authority,
5.50%, 8/15/09 ................................ 500,000 493,535
Hopewell Industrial Development Authority
(Stone Container), 8.25%, 6/01/16 ............. 175,000 189,808
-----------
683,343
-----------
TOTAL MUNICIPAL BONDS (Identified Cost $10,647,764) ........... 10,786,094
-----------
SHORT TERM INVESTMENT -- 4.8%
American Express Credit Corp., 5.39%, 7/01/96
(Cost $555,000) ................................ 555,000 555,000
-----------
TOTAL INVESTMENTS -- 98.8% (Identified Cost $11,202,764)(b) ... 11,341,094
Cash and Receivables ........................................ 209,645
Liabilities ................................................. (68,055)
-----------
TOTAL NET ASSETS -- 100.0% .................................... $11,482,684
===========
(a) See Note 1A.
(b) Federal Tax Information: At June 30, 1996 the net unrealized appreciation
on investments based on cost of $11,202,764 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 ..... $ 184,714
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ..... (46,384)
-----------
Net unrealized appreciation ................................ $ 138,330
===========
See accompanying notes to financial statements
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
June 30, 1996
(unaudited)
ASSETS
Investments at value (Identified cost -- $11,202,764) ......... $11,341,094
Cash .......................................................... 4,219
Receivable for:
Shares of the Fund sold ...................... $ 578
Dividends and interest ....................... 204,848 205,426
-------- -----------
11,550,739
-----------
LIABILITIES
Payable for:
Shares of the Fund redeemed ................. $15,338
Expense advance from adviser ................ 52,717 68,055
------- -----------
NET ASSETS ...................................................... $11,482,684
===========
Net Assets consist of:
Capital paid-in ............................................. $12,425,206
Undistributed net investment income ......................... 58,715
Accumulated net realized loss ............................... (1,139,567)
Unrealized appreciation on investments -- net ............... 138,330
-----------
NET ASSETS ...................................................... $11,482,684
===========
Shares of beneficial interest outstanding, no par value ...... 1,232,444
===========
Net asset value per share* .................................... $9.32
===========
*Shares of the Fund are sold and redeemed at net asset value
($11,482,684 / 1,232,444).
STATEMENT OF
OPERATIONS
Six Months Ended June 30, 1996
(unaudited)
INVESTMENT INCOME
Income
Interest ................................................. $ 351,918
------------
Expenses
Management fees .......................................... 34,510
Trustees' fees ........................................... 10,500
Accounting and Administration ............................ 2,000
Custodian ................................................ 27,600
Transfer agent ........................................... 14,000
Audit and tax services ................................... 9,750
Legal .................................................... 12,000
Printing ................................................. 9,480
Registration ............................................. 10,020
Miscellaneous ............................................ 252
------------
130,112
Less expenses assumed by the
investment adviser ..................................... (130,112)
------------
Net investment income .................................... 351,918
------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS
Realized loss on investments -- net ........................ (252,581)
Unrealized depreciation -- net ............................. (363,477)
------------
Net loss on investments .................................... (616,058)
------------
NET DECREASE IN ASSETS FROM
OPERATIONS ................................................. $ (264,140)
============
See accompanying notes to financial statements
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995
----------------- -----------------
FROM OPERATIONS
Net investment income ............ $ 351,918 $ 715,549
Net realized gain (loss) from
investments .................... (252,581) 120,437
Unrealized appreciation
(depreciation) ................. (363,477) 984,477
------------ -----------
Increase (decrease) in net
assets from operations ....... (264,140) 1,820,463
------------ -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ............ (294,274) (714,478)
------------ -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ..... 1,015,451 1,944,958
Net asset value of shares issued
in connection with reinvestment of:
Dividends from net investment
income ....................... 226,599 556,800
------------ -----------
1,242,050 2,501,758
Cost of shares redeemed .......... (1,056,241) (1,902,207)
------------ -----------
Increase in net assets derived
from capital share
transactions ................. 185,809 599,551
------------ -----------
Total increase (decrease) in net
assets ......................... (372,605) 1,705,536
NET ASSETS
Beginning of period .............. 11,855,289 10,149,753
------------ -----------
End of period (including undistributed
net investment income of $58,715
and $1,071, respectively) ...... $ 11,482,684 $11,855,289
============ ===========
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ....... 107,592 208,109
Issued in connection with
reinvestment of:
Dividends from net investment
income ....................... 24,016 59,184
------------ -----------
131,608 267,293
Redeemed ....................... (112,405) (203,582)
------------ -----------
Net change ..................... 19,203 63,711
============ ===========
See accompanying notes to financial statements
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR THE FOR THE PERIOD
SIX MONTHS NOVEMBER 10,
ENDED YEAR ENDED DECEMBER 31, 1993(C) THROUGH
JUNE 30, 1996 -------------------------- DECEMBER 31,
(UNAUDITED) 1995 1994 1993
------------- ------------ ------------ ------------
For a share of the Fund outstanding throughout each period:
Net asset value at
the beginning of
period ......... $ 9.77 $ 8.83 $10.25 $10.00
------ ------ ------ ------
Net investment
income (a) ..... 0.29 0.61 0.58 0.04
Dividends from net
investment income (0.24) (0.61) (0.58) (0.04)
Net realized and
unrealized gain
(loss) on
investments .... (0.50) 0.94 (1.42) 0.25
------ ------ ------ ------
Net increase
(decrease) in
net asset value (0.45) 0.94 (1.42) 0.25
------ ------ ------ ------
Net asset value at
end of period ... $ 9.32 $ 9.77 $ 8.83 $10.25
====== ====== ====== ======
Total Return (%) (b) -2.1(d) 18.0 -8.2 2.9(d)
Ratios:
Operating expenses to
average net
assets (%) ....... 0 0 0 0
Operating expenses
to average net
assets before
waiver (%) ..... 2.26(e) 2.59 2.42 3.59(e)
Net investment
income to average
net assets (%) . 6.12(e) 6.50 6.39 4.95(e)
Portfolio turnover (%) 156(e) 125 169 0
Net assets at end
of period (in
thousands) ..... $11,483 $11,855 $10,150 $ 4,786
(a) Net of fees waived and
reimbursed amounted
to ........... $ 0.11 $ 0.24 $ 0.22 $ 0.03
(b) The total return would have been lower had the total fees and expenses 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
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1996
(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 a diversified, 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 primary investment objective of
the Fund is to provide high current income exempt from federal income tax. The
Fund's secondary investment objective is capital appreciation.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
financial statements are prepared in conformity with generally accepted
accounting principles which require 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.
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. The Fund
may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices. 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, 1995, the capital loss carryover available to offset future
realized gains aggregated approximately $887,000 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 may result in reclassifications to paid-in
capital. 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.
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited)
E. OTHER -- The Fund has greater than 10% of its net assets at June 30, 1996
invested in California and Florida. There are certain risks arising from
geographical 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.
2. PURCHASES AND SALES OF SECURITIES -- For the six months ended June 30, 1996,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $8,789,162 and $8,929,411,
respectively. There were no purchases or sales of United States government
obligations.
3. A. MANAGEMENT FEES -- During the six months ended June 30, 1996, the Fund
incurred management fees of $34,510 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 six months ended June 30, 1996, 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 with
an annual base fee of $3,000 plus travel expenses for each meeting
attended and an annual variable fee calculated based on the proportion
of the Fund's average net assets to the aggregate average net assets of
the CGM Funds, which for 1996 is $146. In addition, the chairman of the
Independent Trustees Committee receives an annual retainer of $1,000.
4. EXPENSE LIMITATION -- Until December 31, 1996, 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 six months ended June 30, 1996, CGM
waived its entire management fee of $34,510, the entire Accounting and
Administration expense of $2,000, and assumed Fund expenses of $93,602.
<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.
CGM
AMERICAN
TAX FREE FUND
11th Quarterly Report
June 30, 1996
A No-Load Fund
[FENCER LOGO]
Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
<PAGE>
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Realty Fund increased 1.3% during the second quarter of 1996 compared
to the National Association of Real Estate Investment Trust's (NAREIT) Equity
REIT Index which rose 4.5%. Over the first six months of the year, CGM Realty
Fund grew 8.4% compared to an increase of 6.8% in the NAREIT Equity REIT Index
for the same period.
A year ago the big question was, had the Federal Reserve Board ushered in a
recession, or had it successfully engineered the economy's first "soft landing"
(slowdown without recession)? "Soft landing" was the verdict by year-end when
the economy once again picked up momentum. Additional economic muscle emerged in
the first three months of 1996 and the second quarter of this year was stronger
still. Most second quarter estimates point to a real gain of 4.0%-4.5% in the
Gross Domestic Product. Other manifestations of a continuing economic advance
abound: employment levels have never been higher; profits are at record levels;
and common stock prices have recently driven leading indices to new all-time
highs. In June, an acceleration in the pace of economic growth paired with
continued low unemployment levels resulted in a significant jump in wages which
may re-ignite fears of inflation. A preferable alternative would be slower
economic growth throughout the remainder of the year -- perhaps at a rate of 2%
real growth -- without a significant hike in interest rates.
The surge in corporate profits in 1995 was dramatic, aided in part by the weak
dollar. This year the dollar has been very strong against the Yen and is rising
somewhat against the German Mark. The combination of slow economic growth and
U.S. currency strength will mean lower quarterly earnings for many companies
compared to last year, though on balance, many sectors continue to do well. We
expect the market to become increasingly selective and are watching interest
rates, which have increased from 6% in January to 7.1% today without deterring
the overall equity market.
Approximately one half of CGM Realty Fund assets are invested in hotel REITs
which are experiencing strong cash flow growth because of rising occupancy and
room rates. The Fund is also significantly invested in apartment REITs in
markets where local economic conditions favor rising rental rates. CGM Realty
Fund is 54% invested in hotel REITs; 28% in apartment REITs; 13% in office and
industrial REITs; and 5% in retail REITs. The Fund's largest holdings are Felcor
Suite Hotels, Inc., Winston Hotels and Patriot American Hospitality.
/s/ Robert L. Kemp
Robert L. Kemp
President
July 10, 1996
<PAGE>
CGM REALTY FUND
- ------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
- ------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 1996
CGM (NAREIT)
REALTY FUND EQUITY REIT INDEX
----------- -------------------
1 Year .................. +23.5% +16.5%
3 Months ................ + 1.3 + 4.5
The Fund's average annual total return since inception (May 13, 1994) through
June 30, 1996 is +13.1%. The adviser has agreed to limit the Fund's total
operating expenses to 1.00% of its average net assets through December 31, 1996.
Otherwise, the Fund's total return since inception and for the one-year, and
three-month periods ended June 30, 1996 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.
<PAGE>
CGM REALTY FUND
- ------------------------------------------------------------------------------
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
<PAGE>
CGM REALTY FUND
- ------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 1996
(unaudited)
REAL ESTATE INVESTMENT TRUSTS -- 99.3% OF TOTAL NET ASSETS
SHARES VALUE(A)
------ --------
APARTMENTS -- 28.2%
Bay Apartment Community, Inc. ................... 144,000 $ 3,726,000
Essex Property Trust ............................ 175,000 3,762,500
Home Properties New York, Inc. .................. 174,000 3,523,500
Mid-America Apartment Communities, Inc. ......... 139,500 3,539,812
Pacific Gulf Properties, Inc. ................... 179,400 3,004,950
Walden Residential Properties, Inc. ............. 176,000 3,586,000
-----------
21,142,762
-----------
HOTELS -- 53.7%
Equity Inns, Inc. ............................... 310,000 3,565,000
Felcor Suite Hotels, Inc. ....................... 327,500 9,988,750
Innkeepers USA Trust ............................ 375,000 3,750,000
Jameson Inns, Inc. .............................. 372,500 3,678,438
Patriot American Hospitality .................... 131,000 3,880,875
RFS Hotel Investments, Inc. ..................... 245,000 3,797,500
Starwood Lodging Trust .......................... 104,500 3,801,188
Sunstone Hotel Investments, Inc. ................ 348,000 3,784,500
Winston Hotels .................................. 339,000 3,940,875
-----------
40,187,126
-----------
OFFICE AND INDUSTRIAL -- 12.6%
Beacon Properties Corporation ................... 126,800 3,249,250
Cali Realty Corporation ......................... 99,400 2,410,450
Reckson Associates Realty Corporation ........... 115,400 3,808,200
-----------
9,467,900
-----------
REGIONAL MALLS AND SHOPPING CENTERS -- 4.8%
Macerich Company ................................ 169,500 3,559,500
-----------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(Identified Cost $67,310,875) .......................... 74,357,288
-----------
See accompanying notes to financial statements
<PAGE>
CGM REALTY FUND
- ------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 1996 (CONTINUED)
(unaudited)
FACE
AMOUNT VALUE(A)
------- --------
SHORT-TERM INVESTMENT -- 0.2%
American Express Credit Corp., 5.39%, 7/01/96
(Cost $180,000) .............................. $180,000 $ 180,000
-----------
TOTAL INVESTMENTS -- 99.5% (Identified Cost $67,490,875(b) . 74,537,288
Cash and Receivables ..................................... 701,136
Liabilities .............................................. (332,133)
-----------
TOTAL NET ASSETS -- 100% ................................... $74,906,291
===========
(a) See Note 1A.
(b) Federal Tax Information: At June 30, 1996 the net unrealized appreciation
on investments based on cost of $67,490,875 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........ $ 7,452,654
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value........ (406,241)
-----------
Net unrealized appreciation................................. $ 7,046,413
===========
See accompanying notes to financial statements
<PAGE>
CGM REALTY FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
(unaudited)
ASSETS
Investments at value (Identified cost -- $67,490,875).......... $74,537,288
Cash .......................................................... 3,471
Receivable for:
Securities sold ............................... $ 51,358
Shares of the Fund sold ....................... 101,969
Dividends and interest ........................ 504,151 657,478
--------
Unamortized organizational expenses ........................... 40,187
-----------
75,238,424
-----------
LIABILITIES
Payable for:
Securities purchased .......................... $205,715
Shares of the Fund redeemed ................... 24,654 230,369
--------
Accrued expenses:
Management fees ............................... 33,894
Trustees' fees ................................ 5,795
Accounting and Administration ................. 1,500
Other expenses ................................ 60,575 101,764
-------- -----------
332,133
-----------
NET ASSETS ...................................................... $74,906,291
===========
Net Assets consist of:
Capital paid-in .............................................. $65,731,123
Undistributed net investment income .......................... 1,115,258
Accumulated net realized gain ................................ 1,013,497
Unrealized appreciation on investments -- net ................ 7,046,413
-----------
NET ASSETS ...................................................... $74,906,291
===========
Shares of beneficial interest outstanding, no par value ....... 6,419,232
===========
Net asset value per share* ..................................... $11.67
===========
*Shares of the Fund are sold and redeemed at net asset value
($74,906,291 / 6,419,232).
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996
(unaudited)
INVESTMENT INCOME
Income:
Dividends ................................................... $2,193,416
Interest .................................................... 18,655
----------
2,212,071
----------
Expenses:
Management fees ............................................. 277,802
Trustees' fees .............................................. 12,000
Accounting and Administration ............................... 9,000
Custodian ................................................... 32,700
Transfer agent .............................................. 54,600
Audit and tax services ...................................... 12,600
Legal ....................................................... 21,000
Printing .................................................... 22,500
Registration ................................................ 14,500
Amortization of organizational expense ...................... 7,000
Miscellaneous ............................................... 498
----------
464,200
Less expenses assumed by the investment adviser .............. (137,374)
----------
Net investment income ........................................ 1,885,245
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments -- net ......................... 2,531,953
Unrealized appreciation -- net .............................. 581,340
----------
Net gain on investments ..................................... 3,113,293
----------
NET INCREASE IN ASSETS FROM OPERATIONS ........................ $4,998,538
==========
See accompanying notes to financial statements
<PAGE>
CGM REALTY FUND
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995
------------- ------------
FROM OPERATIONS
Net investment income ................... $ 1,885,245 $ 2,159,982
Net realized gain (loss) from investments 2,531,953 (1,370,138)
Unrealized appreciation ................. 581,340 6,607,117
----------- -----------
Increase in net assets from operations 4,998,538 7,396,961
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ................... (769,987) (2,169,764)
Tax return of capital ................... -- (561,236)
----------- -----------
(769,987) (2,731,000)
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............ 33,394,970 18,117,842
Net asset value of shares issued in
connection with reinvestment of:
Dividends from net investment income .. 658,415 1,918,906
Distributions from tax return of
capital ............................. -- 496,331
----------- -----------
34,053,385 20,533,079
Cost of shares redeemed ................. (11,070,037) (11,781,424)
----------- -----------
Increase in net assets derived from
capital share transactions .......... 22,983,348 8,751,655
----------- -----------
Total increase in net assets ............ 27,211,899 13,417,616
NET ASSETS
Beginning of period ..................... 47,694,392 34,276,776
----------- -----------
End of period (including undistributed
net investment income of $1,115,258 and
$241,433, respectively) ............... $74,906,291 $47,694,392
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares .............. 2,953,296 1,790,175
Issued in connection with reinvestment of:
Dividends from net investment income .. 58,215 186,107
Distributions from tax return of
capital ............................. -- 48,137
----------- -----------
3,011,511 2,024,419
Redeemed .............................. (970,845) (1,175,874)
----------- -----------
Net change ............................ 2,040,666 848,545
=========== ===========
See accompanying notes to financial statements
<PAGE>
CGM REALTY FUND
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FINANCIAL HIGHLIGHTS
FOR THE
SIX MONTHS FOR THE PERIOD
ENDED FOR THE MAY 13, 1994(C)
JUNE 30, 1996 YEAR ENDED THROUGH
(UNAUDITED) DECEMBER 31, 1995 DECEMBER 31, 1994
-------------- ------------------ -----------------
For a share of the Fund outstanding throughout each period:
Net asset value at the
beginning of period ... $10.89 $ 9.71 $10.00
------ ------ ------
Net investment income(a) 0.30 0.54 0.31
Dividends from net
investment income ..... (0.13) (0.54) (0.23)
Distribution from tax
return of capital .... -- (0.14) (0.08)
Net realized and unrealized
gain (loss) on
investments ........... 0.61 1.32 (0.29)
------ ------ ------
Net increase (decrease)
in net asset value .. 0.78 1.18 (0.29)
------ ------ ------
Net asset value at end
of period ........... $11.67 $10.89 $ 9.71
====== ====== ======
Total Return (%) (b) .. 8.4(d) 19.8 0.2(d)
Ratios:
Operating expenses to
average net assets (%) 1.00(e) 1.00 1.00(e)
Operating expenses to
average net assets
before expense
limitation (%) ...... 1.42(e) 1.68 2.00(e)
Net income to average
net assets (%) ...... 5.77(e) 5.51 7.40(e)
Portfolio turnover (%) 51(e) 85 47(e)
Average commission rate (f) $0.0659 -- --
Net assets at end of
period (in thousands) . $74,906 $47,694 $34,277
(a) Net of reimbursement
which amounted to .. $ 0.02 $ 0.07 $ 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.
(f) SEC regulations require portfolios to disclose the average commission rate
paid on trades for which commissions were charged for fiscal years
beginning on or after September 1, 1995.
See accompanying notes to financial statements
<PAGE>
CGM REALTY FUND
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NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1996
(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 a diversified, 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 Fund's investment objective is
above-average income and long-term growth of capital. The Fund intends to pursue
its objective by investing primarily in equity securities of companies in the
real estate industry.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
financial statements are prepared in conformity with generally accepted
accounting principles which require 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.
A. SECURITY VALUATION -- Equity securities are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees, which 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, 1995, the capital loss carryovers available to offset future gains were
$381,021 expiring in the year 2002, and approximately $1,155,000 expiring in
2003.
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. The portion derived from capital gains
and return of capital will result in a reduction of the Fund's dividend
income and an increase in realized and unrealized gain on investments. These
dividends, when distributed by the Fund, are passed through to the Fund's
shareholders with these same tax characteristics. For 1995, the resulting
return of capital component of the Fund's distributions totaled $561,236.
Permanent book and tax differences relating to shareholder distributions may
result in reclassifications to paid-in capital. 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.
<PAGE>
CGM REALTY FUND
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NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited)
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.
2. PURCHASES AND SALE OF SECURITIES -- For the six months ended June 30, 1996,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $40,456,291 and $16,306,959,
respectively. There were no purchases or sales of United States government
obligations.
3. A. MANAGEMENT FEES -- During the six months ended June 30, 1996, the Fund
incurred management fees of $277,802, paid or 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 six months ended June 30, 1996 these expenses amounted to $9,000
and are shown separately in the financial statements as Accounting and
Administration.
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
with an annual base fee of $3,000 plus travel expenses for each meeting
attended and an annual variable fee calculated based on the proportion
of the Fund's average net assets to the aggregate average net assets of
the CGM Funds, which for 1996 is $530. In addition, the chairman of the
Independent Trustees Committee receives an annual retainer of $1,000.
4. EXPENSE LIMITATION -- Until December 31, 1996 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
$137,374 of its management fee. The Fund incurred operating expenses of
$326,826, representing 1.00% of the average daily net assets.
<PAGE>
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
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TELEPHONE NUMBERS
For information about:
[] Account Procedures and Status
[] Redemptions
[] Exchanges
Call 800-343-5678
[] New Account Procedures
[] Prospectuses
[] Performance
Call 800-345-4048
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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
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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.
CGM
REALTY FUND
9th Quarterly Report
June 30, 1996
A No-Load Fund
Investment Adviser
[FENCER LOGO]
Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
