CGM TRUST, N-30D, 1996-02-22

CGM TRUST
N-30D, 1996-02-22

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<PAGE>

TO OUR SHAREHOLDERS:

- ------------------------------------------------------------------------------

We are pleased to report CGM Fixed Income Fund increased 27.3% during the year
just ended, comparing favorably with the Merrill Lynch Master Bond Index which
rose 18.5% during 1995. For the fourth quarter of the year, CGM Fixed Income
Fund returned 3.3% compared to the Merrill Lynch Master Bond Index which
increased 4.3% over the same period.

THE YEAR IN REVIEW AND INVESTMENT OUTLOOK
1995 was a banner year both for the U.S. economy and the securities markets.
Favorable trends established the previous year prevailed throughout 1995, almost
without exception. We continued to enjoy strong job growth, increased
productivity and higher corporate profits combined with moderate inflation as
measured by the Consumer Price Index. In November, the CPI stalled at October's
level, a positive indicator cited by the Federal Reserve Board as a reason to
lower the Federal Funds rate a quarter of a percent on December 19. The economy
is slowing and the Federal Reserve Board may well be calling for short-term
interest rates to come down in order to stimulate business.

The U.S. business outlook is also influenced by trends in other industrialized
nations, many of which are already lowering interest rates in an effort to spark
sluggish economies. Such precedent permits U.S. policymakers latitude in
reducing domestic short-term rates from current relatively high levels.

While economic slowing will raise some questions about future corporate profits,
those companies with prospects for increased earnings could find that lower
rates mean higher stock prices. Last year was a case in point when a surge in
corporate profits occurred while long-term interest rates declined producing the
sensational equity gains of 1995. Although we expect the combination of further
gains in corporate profits and slightly lower interest rates will lead to higher
securities markets, we anticipate increases will be more modest and the overall
environment, more volatile than that of 1995.

CGM Fixed Income Fund outperformed the averages as a result of portfolio
maturity and duration, both of which were slightly longer than market;
significant exposure to lower investment grade corporate debt where quality
spreads continued to narrow throughout the year; and, substantial holdings in
bank and airline convertibles which benefited from strong underlying stock
performance.

The CGM Fixed Income Fund portfolio maturity remains a bit longer than the
market with a distinct nod to corporate debt and convertible securities. The
three largest industry positions are airlines, money center banks and media. The
three largest holdings are Citicorp, Chemical Banking Corporation and Delta Air
Lines, Inc.

/s/ Robert L. Kemp
Robert L. Kemp
President

/s/ Janice H. Saul
Janice H. Saul
Portfolio Manager

/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager

January 10, 1996

<PAGE>

COMPARISONS OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CGM FIXED INCOME FUND AND THE MERRILL LYNCH MASTER BOND INDEX
assuming reinvestment of dividends and capital gains

- -------------------------------------
Average Annual Total Return
- -------------------------------------
1 year Life of Fund*
27.3% 11.7%
*(March 17, 1992 -- December 31, 1995)
- -------------------------------------
Past performance is no indication
of future results
- -------------------------------------

CGM Merrill
3/17/92 10000.0 10000.0
1992 10920.0 10970.0
1993 12985.0 12067.0
1994 11943.0 11727.0
1995 15167.0 13897.0

CGM FIXED INCOME FUND PORTFOLIO MANAGERS

- ------------------------------------------------------------------------------
G. Kenneth Heebner has managed CGM Fixed Income Fund with Janice Saul since June
1993. In 1989, Mr. Heebner founded Capital Growth Management Limited Partnership
with Robert L. Kemp. Prior to establishing the new company, Mr. Heebner managed
mutual fund portfolios at Loomis, Sayles and Company. He currently is
responsible for managing CGM Fixed Income Fund's investments convertible into
equity securities. In addition to co-managing CGM Fixed Income Fund, Mr. Heebner
manages CGM Capital Development Fund, CGM Mutual Fund, CGM Realty Fund, and two
other mutual funds. Janice H. Saul brings to her role as co-manager of CGM Fixed
Income Fund more than a decade of investment experience. She joined Capital
Growth Management in June 1993. Prior to that, she was at Loomis, Sayles and
Company where she ran private accounts for nine years and managed a long-term
municipal bond fund from May 1991 until May 1993. Ms. Saul was associate
portfolio manager of CGM Fixed Income Fund from June through November 1993 and
was named co-manager of the portfolio in December 1993. Ms. Saul is responsible
for managing CGM Fixed Income Fund's debt securities and also manages CGM
American Tax Free Fund.

<PAGE>

INVESTMENT PERFORMANCE

(unaudited)

- ------------------------------------------------------------------------------
Total Return for Periods Ended December 31, 1995

CGM FIXED LIPPER GENERAL
INCOME FUND BOND FUND AVERAGE
----------- -------------------
3 Years .................................... +39.2% +28.1%
1 Year ..................................... +27.3 +18.0
3 Months ................................... + 3.3 + 4.1

The Fund's average annual total returns for both the three-year period ended
December 31, 1995 and from inception (March 17, 1992) through December 31, 1995
is 11.7%. 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 for each period would be 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.

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 DECEMBER 31, 1995
BONDS & NOTES -- 64.4% OF TOTAL NET ASSETS

FACE
AMOUNT VALUE(A)
------ --------
AIRLINES -- 8.8%
AMR Corp., 9.00%, 8/01/12 ............... $1,000,000 $ 1,127,770
UAL Corp., 6.375%, 2/01/25 (Convertible) . 1,500,000 1,680,000
-----------
2,807,770
-----------
AUTO & RELATED -- 2.7%
Poindexter JB, Inc., 12.50%, 5/15/04 ..... 1,000,000 840,000
-----------

BASIC MATERIALS -- 3.6%
USX Marathon Group,

9.125%, 1/15/13 ...... 1,000,000 1,149,740
-----------

BROKERS/INVESTMENT SERVICES -- 3.5%
Lehman Brothers Holdings, Inc., 8.50%,
5/01/07 ................................ 1,000,000 1,122,120
-----------

CHEMICALS -- SPECIALTY -- 3.2%
Polymer Group, Inc., 12.25%, 7/15/02 .... 1,000,000 1,030,000
-----------

FOREST PRODUCTS -- 6.9%
Georgia Pacific Corp., 9.50%, 5/15/22 .... 1,000,000 1,163,880
Noranda, Inc., 6.875%, 11/15/05 .......... 1,000,000 1,022,940
-----------
2,186,820
-----------
HOME BUILDING PRODUCTS -- 3.5%
Centex Corp., 8.75%, 3/01/07 ............. 1,000,000 1,115,450
-----------

HOTELS & RESTAURANTS -- 2.9%
Flagstar Corp., 10.75%, 9/15/01 ......... 1,000,000 910,000
-----------

MEDIA -- 8.1%
News America Holdings, Inc. 7.60%,
10/11/15 ............................... 1,500,000 1,534,125
Tele Communications, Inc., 8.75%, 2/15/23. 1,000,000 1,048,330
-----------
2,582,455
-----------
METALS & MINING -- 3.6%
Newmont Gold Co., 9.25%, 7/05/12 ....... 1,000,000 1,147,500
-----------

PERIPHERALS -- 4.3%
Seagate Technology, 5.00%, 11/1/03
(Convertible) ......................... 750,000 1,374,375
-----------

PLASTICS -- 3.3%
Berry Plastics Corp., 12.25%, 4/15/04 .. 1,000,000 1,050,000
-----------
U.S. GOVERNMENT -- 6.5%
United States Treasury Bonds, 6.25%,
8/15/23 ............................... 1,250,000 1,286,138
United States Treasury Notes, 5.875%,
11/15/05 .............................. 750,000 766,875
-----------
2,053,013
-----------
UTILITIES -- 3.5%
Great Lakes Power, Inc., 9.00%, 8/01/04 . 1,000,000 1,118,600
-----------
TOTAL BONDS AND NOTES (Identified Cost
$19,488,545) ............................ 20,487,843
-----------

See accompanying notes to financial statements
<PAGE>

CGM FIXED INCOME FUND
- ----------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
CONVERTIBLE PREFERRED STOCKS -- 25.8%

FACE
AMOUNT VALUE(A)
------ --------
AIRLINES -- 10.6%
Delta Air Lines, Inc., $3.50 ............ 30,000 $ 1,781,250
Continental Airlines, Inc., $4.25 ....... 30,000 1,590,000
-----------
3,371,250
-----------
BANKS -- MONEY CENTER -- 8.7%
Citicorp, $5.375 ........................ 15,000 2,745,000
-----------
MACHINERY -- 4.9%
Case Corp., $4.50 ....................... 15,000 1,560,000
-----------
REAL ESTATE INVESTMENT TRUSTS -- 1.6%
Oasis Residential, Inc., $2.25 .......... 20,000 515,000
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Identified Cost $6,830,178) ............ 8,191,250
-----------
COMMON STOCK -- 8.1%
Chemical Banking Corp. (Identified Cost
$1,908,750) ........................... 43,930 2,580,887
-----------
COMMON STOCK WARRANTS -- 0.1%
BPC Holdings Corp. Exp 4/15/04
(Identified Cost $0) ................... 1,000 15,000
-----------
FACE
AMOUNT
------
SHORT-TERM INVESTMENT -- 0.4%
Chevron Oil Finance Company, 5.75%,
1/02/96 (Cost $140,000) ............... $ 140,000 140,000
-----------
TOTAL INVESTMENTS -- 98.8% (Identified Cost
$28,367,473)(b) ......................... 31,414,980
Cash and Receivables .................... 544,272
Liabilities ............................. (166,278)
-----------
TOTAL NET ASSETS -- 100.0% ................ $31,792,974
===========
(a) See Note 1A.
(b) Federal Tax Information: At December 31, 1995 the net unrealized
appreciation of investments based on cost of $28,370,295 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 ............................................. $ 3,258,634
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ........................................... (213,949)
-----------
Net unrealized appreciation .............................. $ 3,044,685
===========

See accompanying notes to financial statements
<PAGE>

CGM FIXED INCOME FUND
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

ASSETS
Investments at value (Identified cost -- $28,367,473) $31,414,980
Cash ............................................... 216
Receivable for:
Shares of the Fund sold ........................... $ 17,298
Dividends and interest ............................ 508,294 525,592
--------
Unamortized organization expenses ................... 18,464
-----------
31,959,252
-----------
LIABILITIES
Payable for:
Shares of the Fund redeemed ....................... $ 51,836
Distributions declared ............................ 25,408 77,244
--------
Accrued expenses:
Trustees' fees .................................... 9,500
Expense advance from adviser ...................... 6,612
Other expenses .................................... 72,922 89,034
-------- -----------
166,278
-----------
NET ASSETS .......................................... $31,792,974
===========
Net Assets consist of:
Capital paid-in ................................... $30,903,576
Accumulated net realized loss ..................... (2,158,109)
Unrealized appreciation on investments -- net ..... 3,047,507
-----------
NET ASSETS .......................................... $31,792,974
===========
Shares of beneficial interest outstanding,
no par value .................................... 2,786,879
===========
Net asset value per share* ......................... $11.41
===========

*Shares of the Fund are sold and redeemed at net asset value
($31,792,974 / 2,786,879).

STATEMENT OF OPERATIONS

Year Ended December 31, 1995

INVESTMENT INCOME
Income
Dividends .................................................. $ 377,694
Interest ................................................... 1,852,325
------------
2,230,019
------------
Expenses
Management fees ............................................ 167,688
Trustees' fees ............................................. 39,060
Accounting and Administration .............................. 10,200
Custodian .................................................. 56,900
Transfer agent ............................................. 61,100
Audit and tax services ..................................... 33,800
Legal ...................................................... 27,400
Printing ................................................... 32,046
Registration ............................................... 21,419
Amortization of organization expense ....................... 15,275
Miscellaneous .............................................. 543
------------
465,431
Less expenses assumed by the investment adviser .............. (206,276)
------------
Net investment income ........................................ 1,970,864
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments -- net ......................... 484,460
Unrealized appreciation -- net .............................. 4,798,806
------------
Net gain on investments ..................................... 5,283,266
------------
NET INCREASE IN ASSETS FROM OPERATIONS ....................... $ 7,254,130
============

See accompanying notes to financial statements

<PAGE>

CGM FIXED INCOME FUND
- --------------------------------------------------------------------------

STATEMENT OF CHANGES IN NET ASSETS

YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994
----------- -----------
FROM OPERATIONS
Net investment income .............. $ 1,970,864 $ 2,358,599
Net realized gain (loss) from
investments ...................... 484,460 (2,642,569)
Unrealized appreciation
(depreciation) .................... 4,798,806 (2,637,334)
----------- -----------
Increase (decrease) in net assets
from operations ................ 7,254,130 (2,921,304)
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .............. (1,988,267) (2,365,025)
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ....... 4,706,339 14,341,336
Net asset value of shares issued in
connection with reinvestment of:
Dividends from net investment
income ......................... 1,626,393 1,974,015
----------- -----------
6,332,732 16,315,351
Cost of shares redeemed ............ (8,477,577) (15,240,426)
----------- -----------
Increase (decrease) in net assets
derived from capital share
transactions ................... (2,144,845) 1,074,925
----------- -----------
Total increase (decrease) in net
assets ........................... 3,121,018 (4,211,404)
NET ASSETS
Beginning of period ................ 28,671,956 32,883,360
----------- -----------
End of period (including
undistributed net investment
income of $0 and $0, respectively) $31,792,974 $28,671,956
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ......... 440,355 1,319,688
Issued in connection with
reinvestment of:
Dividends from net investment
income ......................... 152,155 191,354
----------- -----------
592,510 1,511,042
Redeemed ......................... (800,310) (1,460,881)
----------- -----------
Net change ....................... (207,800) 50,161
=========== ===========

See accompanying notes to financial statements

<PAGE>
CGM FIXED INCOME FUND

- ------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR FOR THE YEAR MARCH 17, 1992<F3>
ENDED ENDED ENDED THROUGH
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
For a share of the Fund outstanding throughout
each period:
Net asset value at the beginning of period ......... $ 9.57 $11.17 $10.26 $10.00
------ ------ ------ ------
Net investment income <F1> .......................... 0.70 0.73 0.67 0.50
Dividends from net investment income ................ (0.70) (0.73) (0.67) (0.49)
Net realized and unrealized gain (loss) on
investments ....................................... 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 .......... 1.84 (1.60) 0.91 0.26
------ ------ ------ ------
Net asset value at the end of period ............... $11.41 $ 9.57 $11.17 $10.26
====== ====== ====== ======
Total Return (%)<F2> ................................ 27.3 -8.0 18.9 9.2<F4>
Ratios:
Operating expenses to average net assets (%) ........ 0.85 0.85 0.85 0.85<F5>
Operating expenses to average net assets before
expense limitation (%) ............................ 1.53 1.46 2.02 3.21<F5>
Net investment income to average net assets (%) ..... 6.46 7.00 6.30 7.29<F5>
Portfolio turnover (%) .............................. 148 129 149 212<F5>
Net assets at end of period (in thousands) .......... $31,793 $28,672 $32,883 $9,467
<F1> Net of reimbursement which amounted to .......... $ 0.07 $ 0.06 $ 0.12 $ 0.16
<F2> The total return would have been lower had certain expenses not been
reimbursed during the period.
<F3> Commencement of operations.
<F4> Not computed on an annualized basis.
<F5> Computed on an annualized basis.

See accompanying notes to financial statements
</TABLE>

<PAGE>

CGM FIXED INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1995

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 REALTY FUND
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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 SALES OF SECURITIES -- For the year ended December 31, 1995,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $38,704,198 and $42,701,457,
respectively. Purchases and sales of United States government obligations
aggregated $5,121,016 and $3,173,711, respectively.

3. A. MANAGEMENT FEES -- During the year ended December 31, 1995, the Fund
incurred management fees of $167,688 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 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 year ended December 31, 1995 these expenses amounted to $10,200 and
are shown separately in the financial statements as Accounting and
Administration. The entire expense was waived by CGM. See Note 4.

C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to its officers or to any trustees who are directors, officers
or employees of CGM, or any affiliate of CGM, other than registered
investment companies. Each other trustee is compensated by the Fund at
the rate of $6,000 per year plus travel expenses for each meeting
attended. In addition, the Chairman of the Independent Trustees Committee
receives an annual retainer of $1,000.

4. EXPENSE LIMITATION -- Until December 31, 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 its
entire management fee of $167,688, the entire Accounting and Administration
expense of $10,200, and assumed Fund operating expenses of $28,388. The Fund
incurred operating expenses of $259,155, representing 0.85% of the average daily
net assets.

<PAGE>

CGM FIXED INCOME FUND
- ------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Trustees and Shareholders of CGM Fixed Income Fund:

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CGM Fixed Income Fund at December
31, 1995, the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated in conformity with generally
accepted accounting principles. These financial statements and the financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.

PRICE WATERHOUSE LLP
Boston, Massachusetts
February 6, 1996

- ------------------------------------------------------------------------------
SHAREHOLDER MEETING -- DECEMBER 29, 1995
(unaudited)

On December 29, 1995 the Fund had a Special Meeting of its Shareholders. At that
meeting, Shareholders approved an Advisory Agreement between the Fund and
Capital Growth Management Limited Partnership, with no change from the terms of
the existing agreement and no change in the operation and management of the
Fund, (by a share vote of 1,655,953.656 in favor, 22,267.555 against and
53,676.643 abstentions) and ratified the selection of Price Waterhouse LLP as
the Fund's independent accountants for the year ending December 31, 1995 (by a
share vote of 1,679,674.573 in favor, 13,745.925 against and 38,477.356
abstentions).

<PAGE>

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110

- ------------------------------------------------------------------------------
TELEPHONE NUMBERS

For information about:

O Account Procedures and Status

O Redemptions

O Exchanges
Call 800-343-5678

o New Account Procedures

o Prospectuses

o 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.

FAR95 Printed in U.S.A.

CGM
FIXED INCOME
FUND

4th Annual Report
December 31, 1995

A No-Load Fund

[Logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
<PAGE>

TO OUR SHAREHOLDERS:

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CGM Mutual Fund increased 24.3% during 1995 compared to the Standard and Poor's
500 Index which returned 37.5% and the Merrill Lynch Master Bond Index which
rose 18.5% for the year. During the fourth quarter of 1995, CGM Mutual Fund
increased 1.2% while the S&P 500 rose 6.0% and the Merrill Lynch Master Bond
Index increased 4.3%.

THE YEAR IN REVIEW AND INVESTMENT OUTLOOK

1995 was a banner year both for the U.S. economy and the securities markets.
Favorable trends established the previous year prevailed throughout 1995, almost
without exception. We continued to enjoy strong job growth, increased
productivity and higher corporate profits combined with moderate inflation as
measured by the Consumer Price Index. In November, the CPI stalled at October's
level, a positive indicator cited by the Federal Reserve Board as a reason to
lower the Federal Funds rate a quarter of a percent on December 19. The economy
is slowing and the Federal Reserve Board may well be calling for short-term
interest rates to come down in order to stimulate business.

While the economic slowing will raise some questions about future corporate
profits, those companies with prospects for increased earnings could find that
lower rates mean higher stock prices. Last year was a case in point when a surge
in corporate profits occurred while long-term interest rates declined producing
the sensational equity gains of 1995. Although we expect the combination of
further gains in corporate profits and slightly lower interest rates will lead
to higher securities markets, we anticipate increases will be more modest and
the overall environment, more volatile than that of 1995.

PORTFOLIO STRATEGY

The CGM Mutual Fund portfolio mix remained roughly 25% fixed income securities
and 75% common stocks or securities convertible into common stocks during 1995.

A major position in real estate investment trusts was cut back from nearly one
quarter of the Fund at the beginning of the year to less than 5% of the
portfolio at mid-year where it remains today. Commodity cyclical companies,
which constituted more than 20% of the portfolio early in 1995, were eliminated
and proceeds from those sales as well as the real estate investment trusts were
invested in banks, airlines and technology stocks. The technology stocks were
sold later in the year, but the Fund continued to hold major positions in bank
and airline stocks at year-end, attesting to a continued positive outlook for
these industries.

Fund performance was favorably affected by investments in bank, airline and
technology stocks during 1995 and negatively influenced by real estate
investment trusts and treasury bills.

The CGM Mutual Fund portfolio is approximately 25% invested in government and
corporate bonds with the remainder of holdings in companies with a promising
earnings outlook. The three largest company holdings are Chemical Banking
Corporation, Citicorp and Northwest Airlines Corporation.

/s/ Robert L. Kemp
Robert L. Kemp
President

/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 10, 1996

<PAGE>

COMPARISONS OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CGM MUTUAL FUND,
THE UNMANAGED S&P 500, AND THE MERRILL LYNCH MASTER BOND INDEX
assuming reinvestment of dividends and capital gains

---------------------------------
Average Annual Total Return
---------------------------------
1 year 5 year 10 year
24.3% 15.4% 13.9%
---------------------------------
Past performance is no indication
of future results
---------------------------------

CGM Unmanaged Merrill
10000.0 10000.0 10000.0
1986 12510.0 11870.0 11520.0
1987 14224.0 12452.0 11797.0
1988 14679.0 14519.0 12740.0
1989 17864.0 19107.0 14549.0
1990 18061.0 18514.0 15873.0
1991 25448.0 24143.0 18397.0
1992 27000.0 25977.0 19795.0
1993 32886.0 28601.0 21775.0
1994 29686.0 28976.0 21165.0
1995 36873.0 39842.0 25081.0

CGM MUTUAL FUND PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
G. Kenneth Heebner has managed CGM Mutual Fund since 1981. In 1989, Mr.
Heebner founded Capital Growth Management Limited Partnership with Robert L.
Kemp. Prior to establishing the new company, Mr. Heebner was at Loomis,
Sayles and Company where he managed the Fund, then known as Loomis-Sayles
Mutual Fund. In addition to CGM Mutual Fund, Mr. Heebner currently manages CGM
Capital Development Fund and CGM Realty Fund as well as two other mutual
funds. He also co-manages CGM Fixed Income Fund with Janice Saul.

INVESTMENT PERFORMANCE
(unaudited)
- ------------------------------------------------------------------------------
Total Return for Periods Ended December 31, 1995

CGM
MUTUAL FUND
-----------
10 Years ........................................................ +268.7%
5 Years ........................................................ +104.3
1 Year ......................................................... + 24.3
3 Months ....................................................... + 1.2

<PAGE>

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BOARD OF TRUSTEES
PETER O. BROWN
NICHOLAS J. GRANT
G. KENNETH HEEBNER
ROBERT L. KEMP
ROBERT B. KITTREDGE
LAURENS MACLURE
JAMES VAN DYKE QUEREAU, JR.
J. BAUR WHITTLESEY

OFFICERS
ROBERT L. KEMP, President
G. KENNETH HEEBNER, Vice President
LESLIE A. LAKE, Vice President and Secretary
KATHLEEN S. HAUGHTON, Vice President
MARTHA I. MAGUIRE, Vice President
W. DUGAL THOMAS, Vice President
MARY L. STONE, Assistant Vice President
FRANK N. STRAUSS, Treasurer

INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
Boston, Massachusetts 02110

TRANSFER AND DIVIDEND PAYING
AGENT AND CUSTODIAN OF ASSETS
STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts 02102

SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY
BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 8511
Boston, Massachusetts 02266-8511

<PAGE>

<TABLE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------------------------------------------------
25 YEAR INVESTMENT RECORD
DECEMBER 31, 1970 -- DECEMBER 31, 1995 (UNAUDITED)
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IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1970
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-- 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 Wnich Would Represent
--------------------------- ----------------------------------
The Value of A Cumulative
Your Original Change
The 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
------ ------ ------
Totals $18.08 $20.05 +1308.7
- --------------------------------------------------------------------------------------------------------------------------
*Includes $0.05 per share distributed from paid-in capital.

The table above covers the period from December 31, 1970 to December 31, 1995. 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 DECEMBER 31, 1995
COMMON STOCKS -- 73.4% OF TOTAL NET ASSETS

SHARES VALUE(A)
------ --------
AEROSPACE -- 4.8%
Boeing Company ............................ 703,000 $ 55,097,625
------------
AIRLINES -- 13.6%
Northwest Airlines Corporation(b) ......... 1,590,000 81,090,000
UAL Corporation (b) ....................... 427,400 76,290,900
------------
157,380,900
------------
BANKS -- MONEY CENTER -- 17.2%
Bankers Trust New York Corporation ........ 274,000 18,221,000
Chemical Banking Corporation .............. 1,580,000 92,825,000
Citicorp .................................. 1,307,500 87,929,375
------------
198,975,375
------------
CHEMICALS -- SPECIALTY -- 10.8%
IMC Global, Inc. .......................... 1,620,000 66,217,500
Potash Corporation of Saskatchewan, Inc. .. 820,000 58,117,500
------------
124,335,000
------------
DRUGS -- 2.1%
Eli Lilly & Company ....................... 70,000 3,937,500
Merck & Company, Inc. ..................... 300,000 19,725,000
------------
23,662,500
------------
FOOD -- RETAILERS/WHOLESALERS -- 5.9%
Philip Morris Companies, Inc. ............. 755,000 68,327,500
------------
FREIGHT TRANSPORTATION -- 3.9%
Burlington Northern Santa Fe Corporation .. 573,000 44,694,000
------------
MISCELLANEOUS -- 6.6%
NIKE, Inc. ................................ 1,096,000 76,309,000
------------
PERIPHERALS -- 4.3%
Seagate Technology(b) ..................... 1,040,000 49,400,000
------------
REAL ESTATE INVESTMENT TRUSTS -- 4.2%
Felcor Suite Hotels, Inc. ................. 1,763,500 48,937,125
------------
TOTAL COMMON STOCKS (Identified Cost
$711,171,454) ............................. 847,119,025
------------

See accompanying notes to financial statements
<PAGE>

CGM MUTUAL FUND
- -----------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
BONDS -- 25.4%
FACE
AMOUNT VALUE(A)
------ --------

INDUSTRIAL BONDS -- 4.3%
Kaiser Aluminum & Chemical Corporation,
12.75%, 2/01/03 ......................... $20,000,000 $ 21,900,000
Rohr, Inc., 11.625%, 5/15/03 .............. 5,000,000 5,362,500
Stone Container Corporation,
9.875%, 2/01/01 ......................... 23,000,000 22,367,500
--------------
49,630,000
--------------
UNITED STATES TREASURY -- 21.1%
United States Treasury Bonds,
7.625%, 2/15/25 ......................... 199,616,000 244,092,441
--------------
TOTAL BONDS (Identified Cost $290,199,718) .. 293,722,441
--------------

SHORT-TERM INVESTMENT -- 0.3%
Chevron Oil Finance Company, 5.75%,
1/02/96 (Cost $3,210,000) ............... 3,210,000 3,210,000
--------------
TOTAL INVESTMENTS -- 99.1% (Identified Cost
$1,004,581,172)(c) .................................... 1,144,051,466
Cash and Receivables .................................. 91,260,128
Liabilities ........................................... (80,872,835)
--------------
TOTAL NET ASSETS -- 100% ................................ $1,154,438,759
==============

(a) See Note 1A.
(b) Non-income producing security.
(c) Federal Tax Information: At December 31, 1995, the net unrealized
appreciation on investments based on cost of $1,007,248,965 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 ..................................... $150,095,980
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ........................................ (13,293,479)
------------
Net unrealized appreciation ......................... $136,802,501
============

See accompanying notes to financial statements
<PAGE>

CGM MUTUAL FUND
- ------------------------------------------------------------------------------

STATEMENT OF
ASSETS AND LIABILITIES

December 31, 1995

ASSETS
Investments at value (Identified cost --
$1,004,581,172).......................... $1,144,051,466
Cash ...................................... 3,047
Receivable for:
Securities sold ......................... $80,910,730
Shares of the Fund sold ................. 827,232
Dividends and interest .................. 9,519,119 91,257,081
----------- --------------
1,235,311,594
--------------
LIABILITIES
Payable for:
Securities purchased .................... $ 74,370,252
Shares of the Fund redeemed ............. 2,158,579
Distributions declared .................. 3,201,721 79,730,552
------------
Accrued expenses:
Management fees ......................... 668,017
Trustees' fees .......................... 63,560
Accounting and Administration ........... 6,667
Other expenses .......................... 404,039 1,142,283
------------ --------------
80,872,835
--------------
NET ASSETS ................................................ $1,154,438,759
==============
Net Assets consist of:
Capital paid-in ....................................... $1,017,636,258
Accumulated net realized loss ......................... (2,667,793)
Unrealized appreciation on investments -- net ......... 139,470,294
--------------
NET ASSETS ................................................ $1,154,438,759
==============
Shares of beneficial interest outstanding, no par value . 39,230,204
==============
Net asset value per share* .............................. $29.43
==============
*Shares of the Fund are sold and redeemed at net asset value
($1,154,438,759 / 39,230,204).

See accompanying notes to financial statements
<PAGE>

STATEMENT OF OPERATIONS

Year Ended December 31, 1995

INVESTMENT INCOME
Income
Dividends (net of withholding tax of $334,123) .......... $ 17,871,907
Interest ................................................ 20,822,030
------------
38,693,937
------------
Expenses
Management fees ......................................... 7,637,552
Trustees' fees .......................................... 63,906
Accounting and Administration ........................... 80,000
Custodian ............................................... 185,000
Transfer agent .......................................... 1,824,000
Audit and tax services .................................. 35,950
Legal ................................................... 52,000
Printing ................................................ 132,700
Registration ............................................ 116,050
Miscellaneous ........................................... 21,846
------------
10,149,004
------------
Net investment income ..................................... 28,544,933
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments -- net ..................... 64,726,578
Unrealized appreciation -- net .......................... 149,522,113
------------
Net gain on investments ................................. 214,248,691
------------
NET INCREASE IN ASSETS FROM OPERATIONS ...................... $242,793,624
============

See accompanying notes to financial statements
<PAGE>

CGM MUTUAL FUND
- --------------------------------------------------------------------------

STATEMENT OF CHANGES IN NET ASSETS

YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994
------------- -------------
OPERATIONS
Net investment income ........ $ 28,544,933 $ 48,443,314
Net realized gain (loss) from
investments ................ 64,726,578 (34,802,351)
Unrealized appreciation
(depreciation) ............. 149,522,113 (129,938,895)
------------- -------------
Increase (decrease) in net
assets from operations ... 242,793,624 (116,297,932)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ... (30,206,254) (43,781,553)
From net realized gain on
investment ................. (33,830,922) --
------------- -------------
(64,037,176) (43,781,553)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares . 99,581,131 425,388,301
Net asset value of shares
issued in connection with
reinvestment of:
Dividends from net
investment income ........ 27,004,558 39,044,764
Dividends from net realized
gain ..................... 31,302,777 --
------------- -------------
157,888,466 464,433,065
Cost of shares redeemed ...... (245,581,485) (188,093,510)
------------- -------------
Increase (decrease) in net
assets derived from
capital share transactions (87,693,019) 276,339,555
------------- -------------
Total increase in net assets . 91,063,429 116,260,070

NET ASSETS
Beginning of period .......... 1,063,375,330 947,115,260
------------- -------------
End of the period (including
undistributed net investment
income of $0 and $4,784,966,
respectively) .............. $1,154,438,759 $1,063,375,330
============== ==============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ... 3,595,533 15,228,603
Issued in connection with
reinvestment of:
Dividends from net
investment income ........ 945,112 1,506,420
Distributions from net
realized gain ............ 1,063,635 --
------------- -------------
5,604,280 16,735,023
Redeemed ................... (8,827,153) (7,079,826)
------------- -------------
Net change ................. (3,222,873) 9,655,197
========== =========

See accompanying notes to financial statements
<PAGE>

CGM MUTUAL FUND
- -------------------------------------------------------------------------------

<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
For a share of the Fund outstanding throughout each period:
Net asset value at the beginning of period ................ $25.05 $28.88 $26.02 $26.80 $21.64
------ ------ ------ ------ ------
Net investment income ..................................... 0.73 1.09 0.92 0.93 0.97
Dividends from net investment income ...................... (0.77) (1.04) (0.86) (0.93) (0.97)
Net realized and unrealized gain (loss) on investments .... 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) -- --
Distribution from paid-in capital ......................... -- -- -- -- --
------ ------ ------ ------ ------
Net increase (decrease) in net asset value ................ 4.38 (3.83) 2.86 (0.78) 5.16
------ ------ ------ ------ ------
Net asset value at end of period .......................... $29.43 $25.05 $28.88 $26.02 $26.80
====== ====== ====== ====== ======
Total Return (%) .......................................... 24.3 -9.7 21.8 6.1 40.9

Ratios:
Operating expenses to average net assets (%) .............. 0.91 0.92 0.93 0.93 0.93
Net investment income to average net assets (%) ........... 2.55 4.39 3.45 3.74 3.80
Portfolio turnover (%) .................................... 291 173 97 121 201
Net assets at end of period (in thousands) ($) ............ 1,154,439 1,063,375 947,115 548,630 401,887

See accompanying notes to financial statements

</TABLE>

<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1995

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.

A. SECURITY VALUATION -- Equity securities are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees, which service provides the last reported sale price for securities
listed on a national securities exchange or on the NASDAQ national market
system or, if no sale was reported and in the case of over-the-counter
securities not so listed, the last reported bid price. 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.

<PAGE>

CGM MUTUAL FUND
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- CONTINUED

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.

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. For 1995, return of capital and capital gain distributions
from REITs totaled $2,067,256 and $99,891, respectively, resulting in a
reduction of the Fund's dividend income and an increase in its realized and
unrealized gain on investments. 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.

2. PURCHASES AND SALES OF SECURITIES -- For the year ended December 31, 1995,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $2,214,583,140 and
$2,305,359,349, respectively. Purchases and sales of United States government
obligations aggregated $1,158,883,931 and $629,235,111, respectively.

3. A. MANAGEMENT FEES -- During the year ended December 31, 1995, the Fund
incurred management fees of $7,637,552, 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 were
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 $80,000 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 at
the rate of $10,000 per year plus travel expenses for each meeting
attended. In addition, the chairman of the Independent Trustees
Committee receives an annual retainer of $1,500.

<PAGE>

CGM MUTUAL FUND
- ------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Trustees and Shareholders of CGM Mutual Fund:

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CGM Mutual Fund at December 31,
1995, the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated in conformity with generally
accepted accounting principles. These financial statements and the financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
Boston, Massachusetts
February 6, 1996

- ------------------------------------------------------------------------------
SHAREHOLDER MEETING -- DECEMBER 29, 1995
(unaudited)

On December 29, 1995 the Fund had a Special Meeting of its Shareholders. At that
meeting, Shareholders approved an Advisory Agreement between the Fund and
Capital Growth Management Limited Partnership, with no change from the terms of
the existing agreement and no change in the operation and management of the
Fund, (by a share vote of 20,401,894.104 in favor, 284,638.075 against and
840,815.905 abstentions) and ratified the selection of Price Waterhouse LLP as
the Fund's independent accountants for the year ending December 31, 1995 (by a
share vote of 20,737,434.922 in favor, 207,742.727 against and 582,170.435
abstentions).

<PAGE>

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110

- ------------------------------------------------------------------------------
TELEPHONE NUMBERS

For information about:
o Account Procedures and Status

o Redemptions

o Exchanges
Call 800-343-5678

o New Account Procedures

o Prospectuses

o 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
- ------------------------------------------------------------------------------

MAR95 Printed in U.S.A.

CGM
MUTUAL FUND

66th Annual Report
December 31, 1995

A No-Load Fund

[Fencer Logo]

Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
<PAGE>

TO OUR SHAREHOLDERS:
- ------------------------------------------------------------------------------
CGM American Tax Free Fund increased 18.0% during the year just ended compared
to the Lehman Municipal Bond Index which rose 17.5% during 1995. For the fourth
quarter of the year, CGM American Tax Free Fund returned 5.3% compared to the
Lehman Municipal Bond Index which increased 4.1% over the same period.

PORTFOLIO STRATEGY
In 1995, the bond market returned the third best single-year performance on
record. A slow growth economy, low inflation, Federal Reserve Board
accommodation and deficit reduction discussions all contributed to the favorable
market. Best returns came from long Treasuries; however, average returns in the
corporate bond and convertible debt and preferred markets ranged from 22-25%.
Municipal bond performance was limited slightly by flat tax fears and, to a
lesser degree, a cut in the capital gains rate which would make stocks even more
attractive as well as a sharp decline in interest rates. Best returns in the
municipal bond market were achieved by maintaining a long maturity exposure
throughout 1995 and taking advantage of lower quality credits where spreads
continue to narrow. More value was added by correctly anticipating lower
interest rates.

CGM American Tax Free Fund outperformed the averages in 1995 on account of
higher yielding, lower quality holdings and a reasonably long portfolio
maturity. The Fund's three largest sectors are industrial/pollution control,
water/sewer and insured bonds. The three largest holdings are Hodge Louisiana
(Stone Container), Howard County, Maryland Multi-family Housing (Avalon
Properties) and Dade County, Florida Water/Sewer Revenue.

/s/ Robert L. Kemp

Robert L. Kemp
President

/s/ Janice H. Saul

Janice H. Saul
Portfolio Manager
January 10, 1996
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CGM AMERICAN TAX FREE
FUND AND THE LEHMAN MUNICIPAL BOND FUND INDEX
assuming reinvestment of dividends and capital gains

Average Annual Total Return
- ----------------------------------------------------
1 Year Life of Fund*
18.0% 5.2%

*(November 10, 1993 - December 31, 1995)
- ----------------------------------------------------
Past performance is no indication of future results

PLOT POINTS

CGM Lehman
11/10/93 10000.0 10000.0
1993 10290.0 10210.0
1994 9446.0 9679.0
1995 11146.0 11373.0

CGM AMERICAN TAX FREE FUND
PORTFOLIO MANAGER
- ------------------------------------------------------------------------------

Janice H. Saul joined Capital Growth Management in June 1993, and assumed
management of CGM American Tax Free Fund at its inception, November 10, 1993.
Ms. Saul's experience with municipal securities began in 1979 at Scudder,
Stevens, and Clark. In 1983, she joined Loomis, Sayles and Company where she ran
private accounts for nine years. From 1991 until May 1993, Ms. Saul managed a
new long-term municipal bond fund at Loomis, Sayles and Company. Ms. Saul
currently is also co-manager of CGM Fixed Income Fund.

INVESTMENT PERFORMANCE
(unaudited)
- ------------------------------------------------------------------------------
Total Return for Periods Ended December 31, 1995

CGM AMERICAN LIPPER GENERAL MUNICIPAL
TAX FREE FUND DEBT FUND AVERAGE
-------------- --------------------------
1 Year ............................. +18.0% +16.8%
3 Months ........................... + 5.3 + 4.7

The Fund's average annual total return since inception (November 10, 1993)
through December 31, 1995 is +5.2%. 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 December 31, 1995 would have been lower.

Lipper Analytical Services, Inc. is an independent mutual fund ranking
service.

- ------------------------------------------------------------------------------
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
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INVESTMENTS AS OF DECEMBER 31, 1995
MUNICIPAL BONDS -- 97.3% OF TOTAL NET ASSETS
FACE
AMOUNT VALUE(A)
------ --------

FLORIDA -- 7.0%
Dade County Water & Sewer Systems,
6.25%, 10/01/11 $ 500,000 $ 558,205
Polk County Industrial Development Authority
Revenue Bonds (IMC Fertilizer),
7.525%, 1/01/15 250,000 266,575
-----------
824,780
-----------
ILLINOIS -- 2.2%
Metropolitan Pier & Exposition Authority,
0%, 6/15/15 ................................ 500,000 168,875
Metropolitan Pier & Exposition Authority, 0%,
0%, 6/15/25 ................................ 500,000 96,640
-----------
265,515
-----------
KENTUCKY -- 4.5%
Kenton County Airport Revenue Bonds (Delta
Airlines), 6.75%, 2/01/02 ................. 500,000 536,405
-----------
LOUISIANA -- 9.4%
Hodge Utility Revenue Bonds (Stone Container),
9.00%, 3/01/10 ............................ 1,000,000 1,111,960
-----------
MARYLAND -- 9.0%
Howard County Multifamily, Chase Glen
Apartments (Avalon Properties), 7.00%,
7.00%, 7/01/24 .......................... 750,000 823,372
Maryland State Health & Higher Education
(Greater Baltimore Medical Center),
5.00%,7/01/13 ........................... 250,000 244,020
-----------
1,067,392
-----------
MASSACHUSETTS -- 8.5%
Massachusetts State Health & Education
(Newton-Wellesley Hospital), 7.00%, 7/01/15 200,000 226,176
Massachusetts State Water Resource Authority,
5.00%, 12/01/25 (b) ...................... 500,000 477,590
University of Massachusetts Building Authority,
6.625%, 5/01/08 ........................... 260,000 301,103
-----------
1,004,869
-----------
MICHIGAN -- 20.2%
Detroit Sewer Disposal Revenue, 5.25%, 7/01/21 500,000 495,140
Greater Detroit Resource Recovery,
9.25%, 12/13/08 ............................ 500,000 516,250
Okemos Public School District, 0%, 5/01/15 ... 1,600,000 555,472
Michigan State Housing Development,
7.05%, 10/01/12 ............................ 500,000 538,615
Milan Area Schools, 5.00%, 5/01/13 ........... 300,000 292,845
-----------
2,398,322
-----------
MINNESOTA -- 6.5%
Ramsey & Washington Counties (Resource
Recovery Revenue), 6.75%, 12/01/06 (c)...... 500,000 536,400
Southern Minnesota Municipal Power Agency,
0%, 1/01/22 ................................ 420,000 104,345
Southern Minnesota Municipal Power Agency,
0%, 1/01/24 ................................ 580,000 129,456
-----------
770,201
-----------
See accompanying notes to financial statements
<PAGE>

CGM AMERICAN TAX FREE FUND
- ------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)
MUNICIPAL BONDS -- (CONTINUED)
FACE
AMOUNT VALUE(A)
------ --------
NEW YORK -- 7.5%
New York General Obligation Bonds Series B,
8.25%, 6/01/05 ............................. $ 100,000 $ 117,406
New York State Dormitory Authority Revenue
Bonds, 5.50%, 7/01/05 ...................... 250,000 254,063
New York State Dormitory Authority Revenue
Bonds, 5.75%, 7/01/13 ...................... 250,000 253,030
New York State Dormitory Authority Revenue
Bonds, 5.875%, 5/15/11 ..................... 250,000 258,830
-----------
883,329
-----------
NORTH CAROLINA -- 4.1%
Charlotte Certificates of Participation
Convention Center, 5.00%, 12/01/21 ......... 250,000 237,125
Fayetteville Public Works Co.,
5.375%, 3/01/20 ............................ 250,000 250,707
-----------
487,832
-----------
PUERTO RICO -- 2.3%
Puerto Rico Electric Power Authority,
6.125%, 7/01/09 ............................ 250,000 274,773
-----------
TEXAS -- 6.5%
Alliance Airport Authority Special
Facilities Revenue Bonds (American
Airlines Inc. Project), 7.00%, 12/01/11 ... 250,000 278,107
San Antonio Electric & Gas, 5.00%, 2/01/12 ... 500,000 493,995
-----------
772,102
-----------
VIRGINIA -- 9.6%
Hopewell Industrial Development Authority (Stone
Container), 8.25%, 6/01/16 ................. 175,000 193,531
Richmond Metropolitan Expressway Authority,
5.75%, 7/15/22 ............................. 250,000 254,068
Roanoke County Water Systems, 5.00%, 7/01/21 . 500,000 476,465
Virginia College Building Authority,
5.75%, 1/01/14 ............................. 200,000 210,076
-----------
TOTAL MUNICIPAL BONDS (Identified Cost $11,029,813).......... 1,134,140
-----------
11,531,620
-----------
SHORT TERM INVESTMENTS -- 5.8%
American Express Credit Corp., 5.65%, 1/02/96 . 345,000 345,000
Chevron Oil Finance Company, 5.75%, 1/02/96 ... 345,000 345,000
-----------
TOTAL SHORT TERM INVESTMENTS (Identified Cost $690,000) ..... 690,000
-----------
TOTAL INVESTMENTS -- 103.1% (Identified Cost $11,719,813)(d) 12,221,620
Cash and Receivables ...................................... 194,722
Liabilities ............................................... (561,053)
-----------
TOTAL NET ASSETS -- 100.0% .................................. $11,855,289
===========
(a) See Note 1A.
(b) Security purchased on a delayed delivery basis.
(c) Security is segregated as collateral for delayed delivery purchase.
(d) Federal Tax Information: At December 31, 1995 the net unrealized
appreciation on investments based on cost of $11,719,813 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 ..... $ 524,514
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ..... (22,707)
-----------
Net unrealized appreciation ................................ $ 501,807
===========
See accompanying notes to financial statements
<PAGE>

CGM AMERICAN TAX FREE FUND
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

ASSETS
Investments at value (Identified
cost -- $11,719,813) ................... $12,221,620
Cash ..................................... 2,921
Receivable for:
Shares of the Fund sold ................ $ 300
Dividends and interest ................. 191,501 191,801
-------- -----------
12,416,342
-----------
LIABILITIES
Payable for:
Securities purchased ................... $476,297
Shares of the Fund redeemed ............ 8,051
Distributions declared ................. 14,134
Expense advance from adviser ........... 62,571 561,053
-------- -----------
NET ASSETS ................................. $11,855,289
===========
Net Assets consist of:
Capital paid-in ........................ $12,239,397
Undistributed net investment income .... 1,071
Accumulated net realized loss .......... (886,986)
Unrealized appreciation on investments -- net 501,807
-----------
NET ASSETS ................................. $11,855,289
===========
Shares of beneficial interest outstanding,
no par value .......................... 1,213,241
===========
Net asset value per share* ............... $9.77
===========

*Shares of the Fund are sold and redeemed at net asset value
($11,855,289 / 1,213,241).

See accompanying notes to financial statements

<PAGE>

STATEMENT OF OPERATIONS

Year Ended December 31, 1995

INVESTMENT INCOME
Income
Interest .................................................. $ 715,549
----------
Expenses
Management fees ........................................... 66,010
Trustees' fees ............................................ 21,470
Accounting and Administration ............................. 4,000
Custodian ................................................. 61,261
Transfer agent ............................................ 26,923
Audit and tax services .................................... 31,900
Legal ..................................................... 24,567
Printing .................................................. 27,078
Registration .............................................. 21,299
Miscellaneous ............................................. 281
----------
284,789
Less expenses assumed by the
investment adviser ...................................... (284,789)
----------
Net investment income ..................................... 715,549
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments -- net ......................... 120,437
Unrealized appreciation -- net .............................. 984,477
----------
Net gain on investments ..................................... 1,104,914
----------
NET INCREASE IN ASSETS FROM OPERATIONS ........................ $1,820,463
==========

See accompanying notes to financial statements
<PAGE>

CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------

STATEMENT OF CHANGES IN NET ASSETS

YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994
--------------- ---------------
FROM OPERATIONS
Net investment income .............. $ 715,549 $ 675,960
Net realized gain (loss) from
investments ...................... 120,437 (1,007,423)
Unrealized appreciation
(depreciation) .................... 984,477 (558,299)
----------- -----------
Increase (decrease) in net assets
from operations ................ 1,820,463 (889,762)
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .............. (714,478) (684,475)
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ....... 1,944,958 10,976,478
Net asset value of shares issued in
connection with reinvestment of:
Dividends from net investment
income .......................... 556,800 530,608
----------- -----------
2,501,758 11,507,086
Cost of shares redeemed ............ (1,902,207) (4,569,157)
----------- -----------
Increase in net assets derived
from capital share transactions 599,551 6,937,929
----------- -----------
Total increase in net assets ....... 1,705,536 5,363,692
NET ASSETS
Beginning of period ................ 10,149,753 4,786,061
----------- -----------
End of period (including
undistributed net investment
income of $1,071 and $0,
respectively) .................... $11,855,289 $10,149,753
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ......... 208,109 1,117,831
Issued in connection with
reinvestment of:
Dividends from net investment
income ......................... 59,184 57,877
----------- -----------
267,293 1,175,708
Redeemed ......................... (203,582) (493,208)
----------- -----------
Net change ....................... 63,711 682,500
=========== ===========

See accompanying notes to financial statements
<PAGE>

CGM AMERICAN TAX FREE FUND
- ------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE NOVEMBER 10, 1993<F3>
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- ----------------- -----------------

<S> <C> <C> <C>
For a share of the Fund outstanding throughout each period:
Net asset value at the beginning of period ........... $ 8.83 $10.25 $10.00
------ ------ ------
Net investment income<F1> ............................ 0.61 0.58 0.04
Dividends from net investment income (0.61) (0.58) (0.04)
Net realized and unrealized gain (loss) on investments 0.94 (1.42) 0.25
------ ------ ------
Net increase (decrease) in net asset value ........... 0.94 (1.42) 0.25
------ ------ ------
Net asset value at end of period ..................... $ 9.77 $ 8.83 $10.25
====== ====== ======

Total Return (%)<F2>.................................. 18.0 -8.2 2.9<F4>

Ratios:
Operating expenses to average net assets (%) ......... 0 0 0
Operating expenses to average net assets before waiver(%) 2.59 2.42 3.59<F5>
Net investment income to average net assets (%) ...... 6.50 6.39 4.95<F5>
Portfolio turnover(%) ................................ 125 169 0

Net assets at end of period (in thousands) ........... $11,855 $10,150 $4,786

<FN>
<F1> Net of fees waived and reimbursed amounted to ... $ 0.24 $ 0.22 $ 0.03
<F2> The total return would have been lower had the total fees and expenses not been waived and reimbursed during the period.
<F3> Commencement of operations.
<F4> Not computed on an annualized basis.
<F5> Computed on an annualized basis.
</TABLE>

See accompanying notes to financial statements
<PAGE>

CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1995

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.

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.

E. OTHER -- The Fund has greater than 10% of its net assets at December 31,
1995 invested in Michigan. 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.

<PAGE>

CGM AMERICAN TAX FREE FUND
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. PURCHASES AND SALES OF SECURITIES -- For the year ended December 31, 1995,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $13,659,267 and $13,399,267,
respectively. There were no purchases or sales of United States government
obligations.

3. A. MANAGEMENT FEES -- During the year ended December 31, 1995, the Fund
incurred management fees of $66,010 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 year ended December 31, 1995, these expenses amounted to $4,000
and are shown separately in the financial statements as Accounting and
Administration. The entire expense was waived by CGM.
See Note 4.

C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to its officers or to any trustees who are directors, officers
or employees of CGM, or any affiliate of CGM, other than registered
investment companies. Each other trustee is compensated by the Fund at
the rate of $3,000 per year plus travel expenses for each meeting
attended. In addition, the chairman of the Independent Trustees
Committee receives an annual retainer of $1,000.

4. EXPENSE LIMITATION -- Until December 31, 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 year ended December 31, 1995, CGM
waived its entire management fee of $66,010, the entire Accounting and
Administration expense of $4,000, and assumed Fund expenses of $214,779.

<PAGE>

CGM AMERICAN TAX FREE FUND
- ------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of CGM American Tax Free Fund:

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CGM American Tax Free Fund at
December 31, 1995, the results of its operations, the changes in its net assets
and the financial highlights for the periods indicated in conformity with
generally accepted accounting principles. These financial statements and the
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
Boston, Massachusetts
February 6, 1996

- ------------------------------------------------------------------------------
SHAREHOLDER MEETING -- DECEMBER 29, 1995
(unaudited)

On December 29, 1995 the Fund had a Special Meeting of its Shareholders. At that
meeting, Shareholders approved an Advisory Agreement between the Fund and
Capital Growth Management Limited Partnership, with no change from the terms of
the existing agreement and no change in the operation and management of the
Fund, (by a share vote of 788,866.867 in favor, 14,364.901 against and
17,693.508 abstentions) and ratified the selection of Price Waterhouse LLP as
the Fund's independent accountants for the year ending December 31, 1995 (by a
share vote of 807,909.097 in favor, 1,873.766 against and 11,142.413
abstentions).
<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
- ------------------------------------------------------------------------------

AAR95 Printed in U.S.A.

CGM
AMERICAN
TAX FREE FUND

3rd Annual Report
December 31, 1995

A No-Load Fund

[Fencer logo]

Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
<PAGE>

TO OUR SHAREHOLDERS:
- ------------------------------------------------------------------------------
We are pleased to report CGM Realty Fund increased 19.8% during 1995,
comparing favorably to the National Association of Real Estate Investment
Trust's Equity REIT Index which rose 15.3% during the year just past. For the
fourth quarter of 1995, CGM Realty Fund returned 5.3% compared to the NAREIT
Equity REIT Index which increased 4.1% over the same period.

THE YEAR IN REVIEW AND INVESTMENT OUTLOOK
1995 was a banner year both for the U.S. economy and the securities markets.
Favorable trends established the previous year prevailed throughout 1995,
almost without exception. We continued to enjoy strong job growth, increased
productivity and higher corporate profits combined with moderate inflation as
measured by the Consumer Price Index. In November, the CPI stalled at
October's level, a positive indicator cited by the Federal Reserve Board as a
reason to lower the Federal Funds rate a quarter of a percent on
December 19. The economy is slowing and the Federal Reserve Board may well be
calling for short-term interest rates to come down in order to stimulate
business.

The U.S. business outlook is also influenced by trends in other industrialized
nations, many of which are already lowering interest rates in an effort to
spark sluggish economies. Such precedent permits U.S. policymakers latitude in
reducing domestic short-term rates from current relatively high levels.

While economic slowing will raise some questions about future corporate
profits, those companies with prospects for increased earnings could find that
lower rates mean higher stock prices. Last year was a case in point when a
surge in corporate profits occurred while long-term interest rates declined
producing the sensational equity gains of 1995. Although we expect the
combination of further gains in corporate profits and slightly lower interest
rates will lead to higher securities markets, we anticipate increases will be
more modest. Real estate securities, however, could make a strong showing
despite a more volatile overall environment than that of 1995.

PORTFOLIO STRATEGY
CGM Realty Fund performance benefited from rising cash flows and dividends of
the portfolio companies as well as declining interest rates fostered by a low
inflation, slow growth economy.

The Fund began the year with 60% of the portfolio invested in apartment REITs.
Over the course of the year, most of these stocks were replaced with hotel,
office and storage REITs as new opportunities became available. At year end,
44% of the Fund's portfolio was invested in hotel REITs since a number of
these companies are distinguished by lower valuations and higher current
yields than companies with comparable growth prospects in other property
classes.

CGM Realty Fund is 44% invested in hotel REITs; 20% in office and industrial
REITs; 15% in apartment REITs; 15% in storage REITs; and 5% in retail REITs.
The Fund's three largest holdings are Felcor Suite Hotels, Inc., Bay Apartment
Communities, Inc. and Cali Realty Corp.

/s/ Robert L. Kemp

Robert L. Kemp
President

/s/ G. Kenneth Heebner

G. Kenneth Heebner
Portfolio Manager

January 10, 1996
<PAGE>

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CGM REALTY FUND AND THE UNMANAGED S&P 500
assuming reinvestment of dividends and capital gains

Average Annual Total Return
- -----------------------------------------------
1 Year Life of Fund*
19.8% 11.8%

*(5/13/94 - 12/31/95)
- -----------------------------------------------

Past performance is no indication of future results

CGM Unmanaged
5/13/94 10000.0 10000.0
1994 10020.0 10079.0
1995 12004.0 13859.0

CGM REALTY FUND PORTFOLIO MANAGER

G. Kenneth Heebner has managed CGM Realty Fund since its inception on May 13,
1994. In 1989, Mr. Heebner founded Capital Growth Management Limited Partnership
with Robert L. Kemp. Prior to establishing the new company, Mr. Heebner managed
mutual funds at Loomis, Sayles and Company. In addition to CGM Realty Fund, he
currently manages CGM Capital Development Fund, CGM Mutual Fund, and two other
mutual funds. He also co-manages CGM Fixed Income Fund with Janice Saul.

INVESTMENT PERFORMANCE
(unaudited)
- ------------------------------------------------------------------------------
Total Return for Periods Ended December 31, 1995

NATIONAL
ASSOCIATION OF
REAL ESTATE
INVESTMENT TRUSTS
CGM (NAREIT)
REALTY FUND EQUITY REIT INDEX
-------- -------------------
1 Year .................. +19.8% +15.3%
3 Months ................ + 5.3 + 4.1

The Fund's average annual total return since inception (May 13, 1994) through
December 31, 1995 is 11.8%. 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 December 31, 1995 would have been lower.

<PAGE>

BOARD OF TRUSTEES

PETER O. BROWN
NICHOLAS J. GRANT
G. KENNETH HEEBNER
ROBERT L. KEMP
ROBERT B. KITTREDGE
LAURENS MACLURE
JAMES VAN DYKE QUEREAU, JR.
J. BAUR WHITTLESEY

OFFICERS

ROBERT L. KEMP, President
G. KENNETH HEEBNER, Vice President
LESLIE A. LAKE, Vice President and Secretary
KATHLEEN S. HAUGHTON, Vice President
MARTHA I. MAGUIRE, Vice President
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 DECEMBER 31, 1995
REAL ESTATE INVESTMENT TRUSTS -- 98.8% OF TOTAL NET ASSETS

SHARES VALUE(A)
------ --------

APARTMENTS -- 15.3%
Bay Apartment Communities, Inc. ......... 108,800 $ 2,638,400
Home Properties New York, Inc. .......... 124,000 2,123,500
Walden Residential Properties, Inc. ..... 120,000 2,505,000
-----------
7,266,900
-----------

HOTELS -- 43.6%
Equity Inns, Inc. ....................... 200,000 2,300,000
Felcor Suite Hotels, Inc. ............... 228,000 6,327,000
Innkeepers USA Trust .................... 260,000 2,372,500
Patriot American Hospitality ............ 93,000 2,394,750
RFS Hotel Investments, Inc. ............. 152,000 2,337,000
Sunstone Hotel Investments, Inc. ........ 248,000 2,542,000
Winston Hotels .......................... 211,500 2,511,563
-----------
20,784,813
-----------

OFFICE & INDUSTRIAL -- 20.4%
Beacon Properties Corporation ........... 104,300 2,398,900
Cali Realty Corporation ................. 116,400 2,546,250
Highwoods Properties, Inc. .............. 83,500 2,358,875
Reckson Associates Realty Corporation ... 82,300 2,417,562
-----------
9,721,587
-----------

REGIONAL MALLS & SHOPPING CENTERS -- 4.5%
Macerich Company ........................ 108,000 2,160,000
-----------

SELF-STORAGE -- 15.0%
Shurgard Storage Centers, Inc. .......... 86,900 2,346,300
Sovran Self Storage, Inc. ............... 93,500 2,466,063
Storage USA, Inc. ....................... 72,000 2,349,000
-----------
7,161,363
-----------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(Identified Cost $40,629,590) ......... 47,094,663
-----------

See accompanying notes to financial statements
<PAGE>

CGM REALTY FUND
- -----------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1995 (CONTINUED)

FACE
SHORT-TERM INVESTMENT -- 2.3% AMOUNT VALUE(A)
------ --------

Chevron Oil Finance Company, 5.75%, 1/02/96
(Cost $1,115,000) ....................... $1,115,000 $ 1,115,000
-----------

TOTAL INVESTMENTS -- 101.1% (Identified Cost
$41,744,590)(b) .............................. 48,209,663
Cash and Receivables ................ 734,893
Liabilities ......................... (1,250,164)
-----------
TOTAL NET ASSETS -- 100% .................... $47,694,392
===========

(a) See Note 1A.
(b) Federal Tax Information: At December 31, 1995 the net unrealized
appreciation on investments based on cost of $41,684,706 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 ............................................ $ 6,524,957
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost
over value .......................................... 0
-----------
Net unrealized appreciation ............................ $ 6,524,957
===========

See accompanying notes to financial statements
<PAGE>

CGM REALTY FUND
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

ASSETS
Investments at value
(Identified cost -- $41,744,590) $48,209,663
Cash ............................. 962
Receivable for:
Shares of the Fund sold ......... $ 190,371
Dividends and interest .......... 496,373 686,744
-----------
Unamortized organizational expenses 47,187
-----------
48,944,556
-----------
LIABILITIES
Payable for:
Securities purchased ................ $1,015,810
Shares of the Fund redeemed ......... 26,091

Distributions declared .............. 120,552 1,162,453
----------
Accrued expenses:
Management fees ..................... 8,002
Trustees' fees ...................... 5,000
Accounting and Administration ....... 1,025
Other expenses ...................... 73,684 87,711
----------- -----------
1,250,164
-----------
NET ASSETS .................................................... $47,694,392
===========
Net Assets consist of:
Capital paid-in ............................................. $42,747,775
Accumulated net realized loss ............................... (1,518,456)
Unrealized appreciation on investments -- net ............... 6,465,073
-----------
NET ASSETS .................................................... $47,694,392
===========
Shares of beneficial interest outstanding, no par value ..... 4,378,566
===========
Net asset value per share* ................................... $10.89
===========

*Shares of the Fund are sold and redeemed at net asset value
($47,694,392 / 4,378,566).

See accompanying notes to financial statements
<PAGE>

STATEMENT OF OPERATIONS

Year Ended December 31, 1995

INVESTMENT INCOME
Income
Dividends ................................................... $2,524,997
Interest .................................................... 27,060
----------
2,552,057
----------
Expenses
Management fees ............................................. 333,264
Trustees' fees .............................................. 21,446
Accounting and Administration ............................... 12,300
Custodian ................................................... 48,527
Transfer agent .............................................. 87,251
Audit and tax services ...................................... 26,300
Legal ....................................................... 44,413
Printing .................................................... 39,400
Registration ................................................ 32,272
Amortization of organizational expense ...................... 14,038
Miscellaneous ............................................... 696
----------
659,907
Less expenses assumed by the investment adviser .............. (267,832)
----------
Net investment income ........................................ 2,159,982
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized loss on investments -- net ......................... (1,370,138)
Unrealized appreciation -- net .............................. 6,607,117
----------
Net gain on investments ..................................... 5,236,979
----------
NET INCREASE IN ASSETS FROM OPERATIONS ........................ $7,396,961
==========

See accompanying notes to financial statements
<PAGE>

CGM REALTY FUND
- ------------------------------------------------------------------------------

STATEMENT OF CHANGES IN NET ASSETS

FOR THE PERIOD
MAY 13, 1994,*
YEAR ENDED THROUGH
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
FROM OPERATIONS
Net investment income ............... $ 2,159,982 $ 987,137
Net realized loss from investments .. (1,370,138) (420,897)
Unrealized appreciation
(depreciation) ..................... 6,607,117 (219,819)
----------- -----------
Increase in net assets from
operations ...................... 7,396,961 346,421
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ............... (2,169,764) (720,804)
Tax return of capital ............... (561,236) (265,775)
----------- -----------
(2,731,000) (986,579)
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ........ 18,117,842 38,418,398
Net asset value of shares issued in
connection with reinvestment of:
Dividends from net investment
income .......................... 1,918,906 644,564
Distributions from tax return of
capital ......................... 496,331 237,664
----------- -----------
20,533,079 39,300,626
Cost of shares redeemed ............. (11,781,424) (4,383,692)
----------- -----------
Increase in net assets derived from
capital share transactions ...... 8,751,655 34,916,934
----------- -----------
Total increase in net assets ........ 13,417,616 34,276,776

NET ASSETS
Beginning of period ................. 34,276,776 0
----------- -----------
End of period (including
undistributed net investment income
of $0 and $243,005, respectively) . $47,694,392 $34,276,776
=========== ===========

NUMBER OF SHARES OF THE FUND:
Issued from sale of shares .......... 1,790,175 3,909,351
Issued in connection with
reinvestment of:
Dividends from net investment income 186,107 66,788
Distributions from tax return of
capital ......................... 48,137 24,626
----------- -----------
2,024,419 4,000,765
Redeemed .......................... (1,175,874) (470,744)
----------- -----------
Net change ........................ 848,545 3,530,021
=========== ===========

*Commencement of operations.

See accompanying notes to financial statements
<PAGE>

CGM REALTY FUND
- ------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE MAY 13, 1994<F3>
YEAR ENDED THROUGH
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
For a share of the Fund outstanding throughout each period:
Net asset value at the beginning of period ................ $ 9.71 $10.00
------ ------
Net investment income<F1> ................................. 0.54 0.31
Dividends from net investment income ...................... (0.54) (0.23)
Distribution from tax return of capital .................. (0.14) (0.08)
Net realized and unrealized gain (loss) on investments .... 1.32 (0.29)
------ ------
Net increase (decrease) in net asset value ................ 1.18 (0.29)
------ ------
Net asset value at end of period .......................... $10.89 $ 9.71
====== ======

Total Return (%)<F2> ...................................... 19.8 0.2<F4>

Ratios:
Operating expenses to average net assets (%) .............. 1.00 1.00<F5>
Operating expenses to average net assets before expense
limitation (%) .......................................... 1.68 2.00<F5>
Net investment income to average net assets (%) ........... 5.51 7.40<F5>
Portfolio turnover (%) .................................... 85 47<F5>

Net assets at end of period (in thousands) ................ $47,694 $34,277

<FN>
<F1> Net of reimbursement which amounted to ................ $ 0.07 $ 0.04
<F2> The total return would have been lower had certain
expenses not been reduced during the period.
<F3> Commencement of operations.
<F4> Not computed on an annualized basis.
<F5> Computed on an annualized basis.
</TABLE>

See accompanying notes to financial statements
<PAGE>

CGM REALTY FUND
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1995

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.

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
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (continued)

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 year ended December 31, 1995,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $41,540,047 and $32,999,492,
respectively. There were no purchases or sales of United States government
obligations.

3. A. MANAGEMENT FEES -- During the year ended December 31, 1995, the Fund
incurred management fees of $333,264, 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 year ended December 31, 1995 these expenses amounted to
$12,300 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 at the rate of $3,000 per year plus travel expenses for each
meeting attended. In addition, the chairman of the Independent
Trustees Committee receives an annual retainer of $1,000.

4. EXPENSE LIMITATION -- Until December 31, 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 $267,832 of its management fee. The Fund incurred
operating expenses of $392,075, representing 1.00% of the average daily net
assets.
<PAGE>

CGM REALTY FUND
- ------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Trustees and Shareholders of CGM Realty Fund:

In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of CGM Realty Fund at
December 31, 1995, the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated in conformity
with generally accepted accounting principles. These financial statements and
the financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
Boston, Massachusetts
February 6, 1996

- ------------------------------------------------------------------------------
SHAREHOLDER MEETING -- DECEMBER 29, 1995
(unaudited)

On December 29, 1995 the Fund had a Special Meeting of its Shareholders. At
that meeting, Shareholders approved an Advisory Agreement between the Fund and
Capital Growth Management Limited Partnership, with no change from the terms
of the existing agreement and no change in the operation and management of the
Fund, (by a share vote of 2,242,173.614 in favor, 24,949.193 against and
70,366.534 abstentions) and ratified the selection of Price Waterhouse LLP as
the Fund's independent accountants for the year ending December 31, 1995 (by a
share vote of 2,253,337.682 in favor, 27,522.955 against and 56,628.704
abstentions).

<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
- ------------------------------------------------------------------------------

RAR95 Printed in U.S.A.

CGM
REALTY FUND

2nd Annual Report
December 31, 1995

A No-Load Fund

[Fencer logo]

Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership