<PAGE>
TO OUR SHAREHOLDERS:
- --------------------------------------------------------------------------------
CGM Fixed Income Fund rose 6.8% during the first quarter of 1996 outperforming
the Merrill Lynch Master Bond Index which fell -1.8% over the same period.
Heading into the first quarter, evidence began to surface of a slowing in
business activity, which prompted the Federal Reserve Board to lower interest
rates twice. The "Blizzard of '96" exacerbated the slowdown, spooking some
investors into believing recession was on its way. Fears, however, were abruptly
extinguished on March 8th when February employment numbers were released
indicating an increase of 705,000 new jobs. Since then, other indicators have
followed suit to confirm strength in the economy. While a few signals to the
contrary remain, we expect the trend to be one of continuing slow growth.
The combination of relatively low inflation, full employment, and an expanding
economy is optimal and, we believe, here to stay for a while longer.
Nonetheless, commodity prices are beginning to stir. Grain, metal, and oil
prices are up, not yet at levels which could stimulate immediate inflation, but
enough to warrant attention.
Mixed signals are to be expected in a "slow-growth" environment. The personal
computer industry, in particular, is already reeling from supply and demand
imbalances. Supply has so overpowered demand that even lower product prices have
been ineffectual in restoring balance. We do not interpret this as a sign of
economic weakness so much as just an incidence of capacity far exceeding demand
and one that will be corrected in time.
Bond investors appear to be sensitive to recent changes in the economic climate;
long-term rates reversed direction in January and jumped from 5.97% to 6.75% by
the end of the quarter. In the equities market, we believe the robust employment
numbers along with other strong economic data will give rise to opportunities in
individual companies that are the result of higher-than-expected earnings rather
than rising price-to-earnings ratios.
CGM Fixed Income Fund profited from the solid performance of the portfolio's
lower rated industrial credits within the investment grade sector and from a
strong showing on the part of convertible securities. The portfolio is
structured with a bias toward cyclical companies on the expectation of a rising
economy. CGM Fixed Income Fund holds important positions in banks, airlines and
Treasuries. The three largest company holdings are Chemical Banking Corporation,
Alaska Air Group, Inc. and Continental Airlines, Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
April 8, 1996
- -------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
Total Return for Periods Ended March 31, 1996
CGM FIXED THE FUND'S AVERAGE
INCOME FUND ANNUAL TOTAL RETURN
----------- -------------------
3 Years ................................. +38.5% +11.5%
1 Year .................................. +27.4 +27.4
3 Months ................................ +6.8 --
The Fund's average annual total return from inception (March 17, 1992) through
March 31, 1996 is +12.7%. 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 March 31, 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>
<TABLE>
<CAPTION>
INVESTMENTS AS OF MARCH 31, 1996
(unaudited)
BONDS, NOTES & BILLS -- 78.4% OF TOTAL NET ASSETS
FACE
AMOUNT VALUE(a)
------ --------
<S> <C> <C>
AIRLINES -- 17.8%
AMR Corp., 9.00%, 8/01/12 ................................. $1,150,000 $ 1,251,579
Alaska Air Group, Inc., 6.50%, 6/15/05 (Convertible) ...... 1,500,000 2,055,000
Trans World Airlines, Inc., 12.00%, 11/03/98 .............. 1,000,000 990,000
UAL Corp., 6.375%, 2/01/25 (Convertible) .................. 1,500,000 1,792,500
-----------
6,089,079
-----------
AUTO AND RELATED -- 2.4%
Poindexter JB, Inc., 12.50%, 5/15/04 ...................... 1,000,000 810,000
-----------
BASIC MATERIALS -- 6.3%
Medusa Corp., 6.00%, 11/15/03 ............................. 1,000,000 1,040,000
USX Marathon Group, 9.125%, 1/15/13 ....................... 1,000,000 1,102,230
-----------
2,142,230
-----------
BROKERS/INVESTMENT SERVICES -- 6.0%
Lehman Brothers Holdings, Inc., 8.50%, 5/01/07 ............ 1,000,000 1,079,220
Paine Webber Group, Inc., 7.625%, 2/15/14 ................. 1,000,000 964,410
-----------
2,043,630
-----------
CHEMICALS -- SPECIALTY -- 3.1%
Polymer Group, Inc., 12.25%, 7/15/02 ...................... 1,000,000 1,060,000
-----------
FOREST PRODUCTS -- 3.1%
Georgia Pacific Corp., 9.50%, 5/15/22 ..................... 1,000,000 1,063,800
-----------
HOME BUILDING PRODUCTS -- 3.1%
Centex Corp., 8.75%, 3/01/07 .............................. 1,000,000 1,053,950
-----------
HOTELS AND RESTAURANTS -- 2.6%
Flagstar Corp., 10.75%, 9/15/01 ........................... 1,000,000 900,000
-----------
INSURANCE -- 3.0%
Conseco, Inc., 8.125, 2/15/03 ............................. 1,000,000 1,012,830
-----------
<PAGE>
<CAPTION>
INVESTMENTS AS OF MARCH 31, 1996 (CONTINUED)
(unaudited)
BONDS, NOTES & BILLS -- (CONTINUED)
FACE
AMOUNT VALUE(a)
------ --------
<S> <C> <C>
MACHINERY -- 0.7%
AGCO Corp., 8.50% 3/15/06 ................................. $ 250,000 $ 251,875
-----------
MEDIA -- 2.8%
TCI Communications, Inc., 7.875%, 2/15/26 ................. 1,000,000 941,160
-----------
PLASTICS -- 3.2%
Berry Plastics Corp., 12.25%, 4/15/04 ..................... 1,000,000 1,080,000
-----------
RAILROAD -- 2.6%
Kansas City Southern Industries, Inc., 7.00, 12/15/25 ..... 1,000,000 902,060
-----------
RETAIL -- 2.6%
Fruit of the Loom, Inc., 7.375%, 11/15/23 ................. 1,000,000 899,740
-----------
U.S. GOVERNMENT -- 16.0%
United States Treasury Bills, 5.016%, 5/30/96 ............. 5,500,000 5,454,405
-----------
UTILITIES -- 3.1%
Great Lakes Power, Inc., 9.00%, 8/01/04 ................... 1,000,000 1,063,820
-----------
TOTAL BONDS, NOTES & BILLS (Identified Cost $26,259,742) .................... 26,768,579
-----------
CONVERTIBLE PREFERRED STOCKS -- 10.2%
SHARES
------
AIRLINES -- 5.8%
Continental Airlines, Inc., $4.25 ............................... 30,000 1,980,000
-----------
REAL ESTATE INVESTMENT TRUSTS -- 4.4%
Avalon Properties, Inc., $2.25 .................................. 60,000 1,492,500
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (Identified Cost $3,097,950) ............. 3,472,500
-----------
COMMON STOCK -- 9.1%
Chemical Banking Corp. (Identified Cost $1,908,750) ....... 43,930 3,097,065
-----------
COMMON STOCK WARRANTS -- 0%
BPC Holdings Corp., Exp. 4/15/04 (Identified Cost $0) ..... 1,000 10,000
-----------
<PAGE>
<CAPTION>
INVESTMENTS AS OF MARCH 31, 1996 (CONTINUED)
(unaudited)
FACE
AMOUNT VALUE
------ -----
<S> <C> <C>
SHORT TERM INVESTMENT -- 1.1%
American Express Credit Corp., 5.40%, 4/01/96 (Cost
$385,000) ................................................. $385,000 $ 385,000
-----------
TOTAL INVESTMENTS -- 98.8% (Identified Cost $31,651,442) .................... 33,733,144
Cash and Receivables ...................................................... 3,717,259
Liabilities ............................................................... (3,298,911)
-----------
TOTAL NET ASSETS -- 100% .................................................... $34,151,492
===========
<FN>
(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 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, reported bid price. Short-term
investments having a maturity of sixty days or less are stated at amortized cost, which
approximates value.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
TELEPHONE NUMBERS
---------------------------------------------------------------------------
For information about:
[] Account Procedures and Status [] New Account Procedures
[] Redemptions [] Prospectuses
[] Exchanges [] Performance
Call 800-343-5678 Call 800-345-4048
------------------------------------
MAILING ADDRESSES
------------------------------------
FOR EXISTING ACCOUNTS FOR NEW ACCOUNT APPLICATIONS ONLY
CGM Shareholder Services The CGM Funds
c/o Boston Financial Data Services P.O. Box 449
P.O. Box 8511 Boston, MA 02117-0449
Boston, MA 02266-8511
- --------------------------------------------------------------------------------
<PAGE>
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
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.
FQR1 Printed in U.S.A.
CGM
FIXED INCOME
FUND
16th Quarterly Report
March 31, 1996
A No-Load Fund
[FENCER LOGO]
Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
<PAGE>
TO OUR SHAREHOLDERS:
CGM Mutual Fund increased 6.2% during the first quarter of 1996 compared to an
increase of 5.4% for the Standard and Poor's 500 Index and a decrease of -1.8%
for the Merrill Lynch Master Bond Index for the same period.
Heading into the first quarter, evidence began to surface of a slowing in
business activity, which prompted the Federal Reserve Board to lower interest
rates twice. The "Blizzard of '96" exacerbated the slowdown, spooking some
investors into believing recession was on its way. Fears, however, were abruptly
extinguished on March 8th when February employment numbers were released
indicating an increase of 705,000 new jobs. Since then, other indicators have
followed suit to confirm strength in the economy. While a few signals to the
contrary remain, we expect the trend to be one of continuing slow growth.
The combination of relatively low inflation, full employment and an expanding
economy is optimal and, we believe, here to stay for a while longer.
Nonetheless, commodity prices are beginning to stir. Grain, metal, and oil
prices are up, not yet at levels which could stimulate immediate inflation, but
enough to warrant attention.
Mixed signals are to be expected in a "slow-growth" environment. The personal
computer industry, in particular, is already reeling from supply and demand
imbalances. Supply has so overpowered demand that even lower product prices have
been ineffectual in restoring balance. We do not interpret this as a sign of
economic weakness so much as just an incidence of capacity far exceeding demand
and one that will be corrected in time.
Bond investors appear to be sensitive to recent changes in the economic climate;
long-term rates reversed direction in January and jumped from 5.97% to 6.75% by
the end of the quarter. In the equities market, we believe the robust employment
numbers along with other strong economic data will give rise to opportunities in
individual companies that are the result of higher-than-expected earnings
rather than rising price-to-earnings ratios.
CGM Mutual Fund is 22% invested in U.S. Treasury Bills and 4% in high-coupon
bonds. The largest equity positions are in money center banks, airlines and real
estate investment trusts. The Fund's three largest company holdings are Chemical
Banking Corporation, UAL Corporation and Northwest Airlines Corporation.
/s/ Robert L. Kemp
Robert L. Kemp
President
April 8, 1996
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
Total Return for Periods Ended March 31, 1996
THE FUND'S AVERAGE
CGM MUTUAL FUND ANNUAL TOTAL RETURN
--------------- -------------------
10 Years ............................. +227.3% +12.6%
5 Years .............................. + 85.0 +13.1
1 Year ............................... + 28.9 +28.9
3 Months ............................. + 6.2 --
The percentage figures for the Fund are based upon the beginning net asset
values of $23.85, $25.37, $25.65 and $29.43, respectively, and the March 31,
1996 asset value of $31.24 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>
<TABLE>
<CAPTION>
INVESTMENTS AS OF MARCH 31, 1996
(unaudited)
COMMON STOCKS -- 72.4% OF TOTAL NET ASSETS SHARES VALUE(a)
------ --------
<S> <C> <C>
AEROSPACE -- 5.5%
Boeing Company ............................................ 746,000 $ 64,622,250
--------------
AIRLINES -- 14.5%
Northwest Airlines Corporation ............................ 1,515,000 77,643,750
UAL Corporation ........................................... 452,400 94,325,400
--------------
171,969,150
--------------
BANKS -- MONEY CENTER -- 15.9%
Chemical Banking Corporation .............................. 1,580,000 111,390,000
Citicorp .................................................. 967,500 77,400,000
--------------
188,790,000
--------------
BANKS -- REGIONAL -- 2.7%
Wells Fargo & Company ..................................... 123,500 32,233,500
--------------
BASIC MATERIALS -- 3.4%
British Steel PLC ADR ..................................... 1,370,000 40,415,000
--------------
CHEMICALS -- MAJOR -- 0.2%
Dow Chemical Company ...................................... 30,000 2,606,250
--------------
FOOD -- RETAILERS/WHOLESALERS -- 5.6%
Philip Morris Companies, Inc. ............................. 755,000 66,251,250
--------------
FREIGHT TRANSPORTATION -- 3.2%
Burlington Northern Santa Fe Corporation .................. 463,000 38,023,875
--------------
MISCELLANEOUS -- 2.9%
NIKE, Inc. ................................................ 426,000 34,612,500
--------------
OFFICE EQUIPMENT AND SUPPLIES -- 4.7%
International Business Machines ........................... 502,000 55,784,750
--------------
OIL -- MAJOR INTEGRATED -- 5.3%
Atlantic Richfield Company ................................ 106,500 12,673,500
Texaco, Inc. .............................................. 417,000 35,862,000
Total SA ADR .............................................. 435,000 14,790,000
--------------
63,325,500
--------------
REAL ESTATE INVESTMENT TRUSTS -- 8.5%
Beacon Properties Corporation ............................. 1,125,000 29,671,875
Felcor Suite Hotels, Inc. ................................. 1,868,500 57,923,500
RFS Hotel Investments, Inc. ............................... 790,000 13,726,250
--------------
101,321,625
--------------
TOTAL COMMON STOCKS (Identified Cost $684,165,929) ......................... 859,955,650
--------------
<PAGE>
<CAPTION>
INVESTMENTS AS OF MARCH 31, 1996 (CONTINUED)
(unaudited)
PREFERRED STOCK -- 1.4% SHARES VALUE(a)
------ --------
<S> <C> <C>
AIRLINES -- 1.4%
Transworld Airlines, Inc. $4.00 ........................... 300,000 $ 17,025,000
--------------
TOTAL PREFERRED STOCK (Identified Cost $15,000,000) ........................ 17,025,000
--------------
BONDS AND BILLS -- 26.0% FACE
AMOUNT
------
<S> <C> <C>
INDUSTRIAL BONDS -- 4.1%
Kaiser Aluminum & Chemical Corporation, 12.75%,
2/01/03 ............................................ $ 20,000,000 21,200,000
Rohr, Inc., 11.625%, 5/15/03 ......................... 5,000,000 5,550,000
Stone Container Corporation, 9.875%, 2/01/01 ......... 23,000,000 21,620,000
--------------
48,370,000
--------------
UNITED STATES TREASURY -- 21.9%
United States Treasury Bills, 4.774%, 5/23/96 ........ 224,600,000 223,031,487
United States Treasury Bills, 4.977%, 6/20/96 ........ 37,000,000 36,589,670
--------------
259,621,157
--------------
TOTAL BONDS AND BILLS (Identified Cost $310,149,593) ....................... 307,991,157
--------------
SHORT-TERM INVESTMENT -- 0.8%
American Express Credit Corp., 5.40%, 4/01/96 (Cost
$9,735,000) ........................................ 9,735,000 9,735,000
--------------
TOTAL INVESTMENTS -- 100.6% (Identified Cost $1,019,050,522) ............. 1,194,706,807
Cash and Receivables ..................................................... 23,946,526
Liabilities .............................................................. (31,019,309)
--------------
TOTAL NET ASSETS -- 100% ................................................. $1,187,634,024
==============
<FN>
(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 (other
than short-term notes having a maturity of less than sixty days) are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of Trustees, which
service 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.
U.S. 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 notes having a maturity of
less than sixty days are stated at amortized cost, which approximates value.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
TELEPHONE NUMBERS
---------------------------------------------------------------------------
For information about:
[] Account Procedures and Status [] New Account Procedures
[] Redemptions [] Prospectuses
[] Exchanges [] Performance
Call 800-343-5678 Call 800-345-4048
------------------------------------
MAILING ADDRESSES
------------------------------------
FOR EXISTING ACCOUNTS FOR NEW ACCOUNT APPLICATIONS ONLY
CGM Shareholder Services The CGM Funds
c/o Boston Financial Data Services P.O. Box 449
P.O. Box 8511 Boston, MA 02117-0449
Boston, MA 02266-8511
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
25 YEAR INVESTMENT RECORD
DECEMBER 31, 1970 -- MARCH 31, 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 A
of Cumulative
Your Change
Original Expressed
The Net Per Share Investment As An
Asset Value Capital Per Share At Each An Index With
On of Your Gains Income Year End Annual December
December Share Would Distributions Dividends Would Have Total Return 31,
31 Have Been of of 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(3/31) 31.24 -- -- 207.82 + 6.2** 1496.0
------ ------ ------
Totals $18.08 $20.05 +1396.0
- --------------------------------------------------------------------------------------------------------------------
<FN>
*Includes $0.05 per share distributed from paid-in capital.
**Total return for the three months ended March 31, 1996.
The table above covers the period from the end of 1970 to March 31, 1996. Shares were first offered on November 5,
1929; the ne t 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>
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
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.
MQR1 Printed in U.S.A.
CGM
MUTUAL FUND
264th Quarterly Report
March 31, 1996
A No-Load Fund
[FENCER LOGO]
Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
<PAGE>
TO OUR SHAREHOLDERS:
CGM American Tax Free Fund decreased -2.6% during the first quarter of 1996
compared to a drop of -1.2% in the Lehman Municipal Bond Index for the same
period.
Heading into the first quarter, evidence began to surface of a slowing in
business activity, which prompted the Federal Reserve Board to lower interest
rates twice. The "Blizzard of '96" exacerbated the slowdown, spooking some
investors into believing recession was on its way. Fears, however, were abruptly
extinguished on March 8th when February employment numbers were released
indicating an increase of 705,000 new jobs. Since then, other indicators have
followed suit to confirm strength in the economy. While a few signals to the
contrary remain, we expect the trend to be one of continuing slow growth.
The combination of relatively low inflation, full employment, and an expanding
economy is optimal and, we believe, here to stay for a while longer.
Nonetheless, commodity prices are beginning to stir. Grain, metal, and oil
prices are up, not yet at levels which could stimulate immediate inflation, but
enough to warrant attention.
Mixed signals are to be expected in a "slow-growth" environment. The personal
computer industry, in particular, is already reeling from supply and demand
imbalances. Supply has so overpowered demand that even lower product prices have
been ineffectual in restoring balance. We do not interpret this as a sign of
economic weakness so much as just an incidence of capacity far exceeding demand
and one that will be corrected in time.
Bond investors appear to be sensitive to recent changes in the economic climate;
long-term rates reversed direction in January and jumped from 5.97% to 6.75% by
the end of the quarter. In the municipal bond market, the supply of new issues
- -- as well as the demand -- has been light, especially for long paper in an
environment where the stock market holds considerably more appeal. In addition,
nearly one half of all new issues has come to market insured which forces
municipals to trade more like commodities, leaving little to entice the
credit-savvy investor.
The CGM American Tax Free Fund portfolio was structured slightly longer than the
market and benefited early in the quarter as rates fell. However, the March bond
sell-off compromised the Fund's overall performance for the quarter. CGM
American Tax Free Fund holds signficant positions in industrial development,
insured and housing bonds. The 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
April 8, 1996
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
Total Return for Periods Ended March 31, 1996
CGM AMERICAN LIPPER GENERAL MUNICIPAL
TAX FREE FUND DEBT FUND AVERAGE
------------- ------------------------
1 Year ........................... +8.3% +7.2%
3 Months ......................... -2.6 -1.9
The Fund's average annual total return since inception (November 10, 1993)
through March 31, 1996 is +3.5%. 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
March 31, 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>
<TABLE>
<CAPTION>
INVESTMENTS AS OF MARCH 31, 1996
(unaudited)
MUNICIPAL BONDS -- 97.9% OF TOTAL NET ASSETS
FACE
AMOUNT VALUE(a)
------ --------
<S> <C> <C>
FLORIDA -- 17.8%
Dade County Water & Sewer Systems, 6.25%, 10/01/11 ........................ $ 500,000 $ 540,395
Gainesville Utility Systems, 5.75%, 10/01/09 .............................. 500,000 520,510
Orlando & Orange County Expressway, 5.95%, 7/01/23 ........................ 500,000 491,340
Polk County Industrial Development Authority Revenue Bonds (IMC
Fertilizer), 7.525%, 1/01/15 ............................................ 250,000 261,805
Volusia County Facilities Authority, 6.125%, 10/15/16 ..................... 250,000 247,838
-----------
2,061,888
-----------
KENTUCKY -- 4.5%
Kenton County Airport Revenue Bonds (Delta Airlines), 6.75%, 2/01/02 ...... 500,000 522,650
-----------
LOUISIANA -- 9.4%
Hodge Utility Revenue Bonds (Stone Container), 9.00%, 3/01/10 ............. 1,000,000 1,089,020
-----------
MARYLAND -- 7.0%
Howard County Multifamily, Chase Glen Apartments, 7.00%, 7/01/24 .......... 750,000 808,732
-----------
MASSACHUSETTS -- 4.4%
Massachusetts State Health & Education (Newton-Wellesley Hospital),
7.00%, 7/01/15 .......................................................... 200,000 221,416
University of Massachusetts Building Authority, 6.625%, 5/01/08 ........... 260,000 292,159
-----------
513,575
-----------
MICHIGAN -- 15.5%
Detroit Sewer Disposal Revenue, 5.25%, 7/01/21 ............................ 500,000 460,015
Okemos Public School District, 0%, 5/01/15 ................................ 1,600,000 518,928
Michigan State Housing Development, 7.05%, 10/01/12 ....................... 500,000 527,330
Milan Area Schools, 5.00%, 5/01/13 ........................................ 300,000 281,928
-----------
1,788,201
-----------
MINNESOTA -- 4.6%
Ramsey & Washington Counties (Resource Recovery Revenue), 6.75%, 12/01/06 500,000 529,870
-----------
<PAGE>
<CAPTION>
INVESTMENTS AS OF MARCH 31, 1996 (CONTINUED)
(unaudited)
MUNICIPAL BONDS -- (CONTINUED)
FACE
AMOUNT VALUE(A)
------ --------
<S> <C> <C>
NEW YORK -- 10.6%
New York General Obligation Bonds, 6.125%, 8/01/06 ........................ $ 350,000 $ 376,166
New York General Obligation Bonds Series B, 8.25%, 6/01/05 ................ 100,000 115,744
New York State Dormitory Authority Revenue Bonds, 5.50%, 7/01/05 .......... 250,000 246,598
New York State Dormitory Authority Revenue Bonds, 5.75%, 7/01/13 .......... 250,000 242,270
New York State Dormitory Authority Revenue Bonds, 5.875%, 5/15/11 ......... 250,000 247,883
-----------
1,228,661
-----------
NORTH CAROLINA -- 1.9%
Charlotte CTFS, 5.00%, 12/01/21 ........................................... 250,000 222,837
-----------
OKLAHOMA -- 2.2%
Tulsa Municipal Airport, 6.25%, 6/01/20 ................................... 250,000 249,355
-----------
PUERTO RICO -- 2.3%
Puerto Rico Electric Power Authority, 6.125%, 7/01/09 ..................... 250,000 262,850
-----------
TEXAS -- 2.3%
Alliance Airport Authority Special Facilities Revenue Bonds (American
Airlines Inc.
Project), 7.00%, 12/01/11 ............................................... 250,000 269,047
-----------
VIRGINIA -- 15.4%
Chesapeake Bay Bridge & Tunnel, 5.75%, 7/01/25 ............................ 400,000 395,492
Fairfax County Industrial Development Authority, 5.50%, 8/15/09 ........... 500,000 496,225
Hopewell Industrial Development Authority (Stone Container), 8.25%, 6/01/16 175,000 189,941
Portsmouth, Virginia, 5.00%, 8/01/17 ...................................... 500,000 454,780
Richmond Metropolitan Expressway Authority, 5.75%, 7/15/22 ................ 250,000 243,693
-----------
1,780,131
-----------
TOTAL MUNICIPAL BONDS (Identified Cost $11,210,935) ......................................... 11,326,817
-----------
<PAGE>
<CAPTION>
INVESTMENTS AS OF MARCH 31, 1996 (CONTINUED)
(unaudited)
FACE
AMOUNT VALUE(a)
------ --------
<S> <C> <C>
SHORT TERM INVESTMENT -- 7.6%
American Express Credit Corp., 5.40%, 4/01/96 ............................. $ 440,000 $ 440,000
Chevron Oil Finance Company, 5.30%, 4/01/96 ............................... 435,000 435,000
-----------
TOTAL SHORT TERM INVESTMENTS (Cost $875,000) ................................................ 875,000
-----------
TOTAL INVESTMENTS -- 105.5% (Identified Cost $12,085,935) ................................... 12,201,817
Cash and Receivables .............................................................. 655,935
Liabilities ....................................................................... (1,294,719)
-----------
TOTAL NET ASSETS -- 100.0% .................................................................. $11,563,033
===========
<FN>
(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.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
TELEPHONE NUMBERS
---------------------------------------------------------------------------
For information about:
[] Account Procedures and Status [] New Account Procedures
[] Redemptions [] Prospectuses
[] Exchanges [] Performance
Call 800-343-5678 Call 800-345-4048
------------------------------------
MAILING ADDRESSES
------------------------------------
FOR EXISTING ACCOUNTS FOR NEW ACCOUNT APPLICATIONS ONLY
CGM Shareholder Services The CGM Funds
c/o Boston Financial Data Services P.O. Box 449
P.O. Box 8511 Boston, MA 02117-0449
Boston, MA 02266-8511
- --------------------------------------------------------------------------------
<PAGE>
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
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.
AQR1 Printed in U.S.A.
CGM
AMERICAN
TAX FREE FUND
10th Quarterly Report
March 31, 1996
A No-Load Fund
[FENCER LOGO]
Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
<PAGE>
TO OUR SHAREHOLDERS:
CGM Realty Fund increased 7.0% during the first quarter of 1996 compared to the
National Association of Real Estate Investment Trust's (NAREIT) Equity REIT
index which rose 2.3% over the same period.
Heading into the first quarter, evidence began to surface of a slowing in
business activity, which prompted the Federal Reserve Board to lower interest
rates twice. The "Blizzard of '96" exacerbated the slowdown, spooking some
investors into believing recession was on its way. Fears, however, were abruptly
extinguished on March 8th when February employment numbers were released
indicating an increase of 705,000 new jobs. Since then, other indicators have
followed suit to confirm strength in the economy. While a few signals to the
contrary remain, we expect the trend to be one of continuing slow growth.
The combination of relatively low inflation, full employment, and an expanding
economy is optimal and, we believe, here to stay for a while longer.
Nonetheless, commodity prices are beginning to stir. Grain, metal, and oil
prices are up, not yet at levels which could stimulate immediate inflation, but
enough to warrant attention.
Mixed signals are to be expected in a "slow-growth" environment. The personal
computer industry, in particular, is already reeling from supply and demand
imbalances. Supply has so overpowered demand that even lower product prices have
been ineffectual in restoring balance. We do not interpret this as a sign of
economic weakness so much as just an incidence of capacity far exceeding demand
and one that will be corrected in time.
Bond investors appear to be sensitive to recent changes in the economic climate;
long-term rates reversed direction in January and jumped from 5.97% to 6.75% by
the end of the quarter. In the equities market, we believe the robust employment
numbers along with other strong economic data will give rise to opportunities in
individual companies that are the result of higher-than- expected earnings
rather than rising price-to-earnings ratios.
CGM Realty Fund maintained a very large position in hotel REITs because this
property type continues to offer the highest growth among REIT sectors at a
modest valuation. The Fund is 53% invested in hotel REITs; 23% invested in
apartment REITs; 11% in office and industrial REITs; 8% in storage REITs and 4%
in retail REITs. The Fund's three largest holdings are Felcor Suite Hotels,
Inc., Walden Residential Properties, Inc. and Starwood Lodging Trust.
/s/ Robert L. Kemp
Robert L. Kemp
President
April 8, 1996
<PAGE>
INVESTMENT PERFORMANCE
(unaudited)
Total Return for Periods Ended March 31, 1996
NAREIT
CGM REALTY FUND EQUITY REIT INDEX
--------------- -----------------
1 Year ............................. +27.2% +18.1%
3 Months ........................... + 7.0 + 2.3
The Fund's average annual total return since inception (May 13, 1994) through
March 31, 1996 is +14.2%. 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 March 31, 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>
INVESTMENTS AS OF MARCH 31, 1996
(unaudited)
REAL ESTATE INVESTMENT TRUSTS -- 99.1% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
APARTMENTS -- 23.1%
Essex Property Trust ............................... 166,000 $ 3,444,500
Home Properties New York, Inc. ..................... 169,000 3,358,875
Mid-America Apartment Communities, Inc. ............ 118,500 3,051,375
Pacific Gulf Properties, Inc. ...................... 117,900 2,181,150
Walden Residential Properties, Inc. ................ 164,000 3,587,500
-----------
15,623,400
-----------
HOTELS -- 52.7%
Equity Inns, Inc. .................................. 264,000 3,366,000
Felcor Suite Hotels, Inc. .......................... 303,500 9,408,500
Innkeepers USA Trust ............................... 355,000 3,328,125
Jameson Inns, Inc. ................................. 258,500 2,827,344
Patriot American Hospitality ....................... 127,000 3,349,625
RFS Hotel Investments, Inc. ........................ 198,000 3,440,250
Starwood Lodging Trust ............................. 104,500 3,526,875
Sunstone Hotel Investments, Inc. ................... 332,000 3,403,000
Winston Hotels ..................................... 245,000 3,001,250
-----------
35,650,969
-----------
OFFICE AND INDUSTRIAL -- 10.9%
Beacon Properties Corporation....................... 123,800 3,265,225
Cali Realty Corporation............................. 99,400 2,224,075
Reckson Associates Realty Corporation .............. 61,300 1,877,313
-----------
7,366,613
-----------
<PAGE>
INVESTMENTS AS OF MARCH 31, 1996 (CONTINUED)
(unaudited)
REAL ESTATE INVESTMENT TRUSTS -- (CONTINUED)
SHARES VALUE(a)
------ --------
REGIONAL MALLS AND SHOPPING CENTERS -- 4.2%
Macerich Company ................................... 144,500 $ 2,835,812
-----------
SELF-STORAGE -- 8.2%
Shurgard Storage Centers, Inc. ..................... 90,000 2,362,500
Sovran Self Storage, Inc. .......................... 119,200 3,233,300
-----------
5,595,800
-----------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Identified Cost
$59,922,658) ................................................. 67,072,594
-----------
FACE
AMOUNT
------
SHORT-TERM INVESTMENT -- 0.5%
American Express Credit Corp., 5.40%, 4/01/96 (Cost
$360,000) ........................................ $360,000 360,000
-----------
TOTAL INVESTMENTS -- 99.6% (Identified Cost $60,282,658) ....... 67,432,594
Cash and Receivables ......................................... 660,793
Liabilities .................................................. (413,900)
-----------
TOTAL NET ASSETS -- 100.0% ................................... $67,679,487
===========
(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 notes
having a maturity of less than sixty days are stated at amortized cost,
which approximates value.
<PAGE>
- --------------------------------------------------------------------------------
TELEPHONE NUMBERS
---------------------------------------------------------------------------
For information about:
[] Account Procedures and Status [] New Account Procedures
[] Redemptions [] Prospectuses
[] Exchanges [] Performance
Call 800-343-5678 Call 800-345-4048
------------------------------------
MAILING ADDRESSES
------------------------------------
FOR EXISTING ACCOUNTS FOR NEW ACCOUNT APPLICATIONS ONLY
CGM Shareholder Services The CGM Funds
c/o Boston Financial Data Services P.O. Box 449
P.O. Box 8511 Boston, MA 02117-0449
Boston, MA 02266-8511
- --------------------------------------------------------------------------------
<PAGE>
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
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.
RQR1 Printed in U.S.A.
CGM
REALTY FUND
8th Quarterly Report
March 31, 1996
A No-Load Fund
[FENCER LOGO]
Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
