<PAGE>
Registration Nos. 2-10653
811-82
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ----- |_|
Post-Effective Amendment No. 84 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 39 |X|
(Check appropriate box or boxes)
CGM TRUST
(Exact Name of Registrant as Specified in Charter)
One International Place, Boston, Massachusetts 02110
(Address of Principal Executive Offices)
(617) 737-3225
(Registrant's Telephone Number, including Area Code)
Edward T. O'Dell, Jr. P.C. and Philip H. Newman, Esq.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box)
|X| immediately upon filing pursuant to |_| on ---------- pursuant to
paragraph (b) paragraph (b)
|_| 60 days after filing pursuant |_| on ---------- pursuant to
to paragraph (a)(1) paragraph (a)(1)
|_| 75 days after filing pursuant |_| on ------------ pursuant to
to paragraph (a)(2) paragraph (a)(2) of rule 485
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
CGM TRUST
CROSS REFERENCE SHEET
Items required by Form N-1A
Item No.
of Form N-1A Location/Caption in Prospectus
- ------------ ------------------------------
1 ......................................... Cover Page
2 ......................................... Schedule of Fees
3 ......................................... Not Applicable
4 ......................................... Investment Objective and
Policies, Risk Factors
Additional Facts About the
Fund, Cover Page
5 ......................................... The Fund's Investment Manager;
How to Purchase Shares; Back
Cover Page; Additional Facts
About the Fund
5A ......................................... Not Applicable
6 ......................................... How to Purchase Shares; Cover
Page; Dividends, Capital Gains
and Taxes
7 ......................................... Back Cover Page; How to
Purchase Shares; Shareholder
Services, Pricing the Shares
8 ......................................... How to Redeem Shares
9 ......................................... None
<PAGE>
Item No. Location/Caption in Statement
of Form N-1A of Additional Information
- ------------ -------------------------
10 ......................................... Cover Page
11 ......................................... Table of Contents
12 ......................................... Not Applicable
13 ......................................... Investment Objective, Policies
and Restrictions; Portfolio
Turnover
14 ......................................... Management of the Fund
15 ......................................... Description of the Trust
16 ......................................... Management of the Fund--
Investment Advisory and Other
Services
17 ......................................... Portfolio Transactions and
Brokerage
18 ......................................... Description of the Trust
19 ......................................... How to Buy Shares; Net Asset
Value and Public Offering
Price; Shareholder Services
20 ......................................... Income Dividends, Capital Gain
Distributions and Tax Status
21 ......................................... Not Applicable
22 ......................................... Advertising and Performance
Information
23 ......................................... Not Applicable
<PAGE>
PART A
Prospectus for CGM Focus Fund
Not included in this Registration Statement
is the Prospectus for each of CGM Mutual Fund, CGM Realty Fund,
CGM Fixed Income Fund and CGM American Tax Free Fund.
<PAGE>
CGM FOCUS FUND
CGM Focus Fund (the "Fund") is a non-diversified and flexibly managed mutual
fund and a series of CGM Trust (the "Trust"), a registered, open-end, no-load
management investment company. The Fund's investment objective is long-term
growth of capital. The Fund intends to pursue its objective by investing in a
core position of equity securities. In addition, should the investment outlook
of the Fund's investment manager so warrant, the Fund may engage in a variety of
investment techniques designed to capitalize on declines in the price of
specific equity securities of one or more companies. The Fund's investment
manager is Capital Growth Management Limited Partnership ("CGM" or the
"Investment Manager").
PROSPECTUS
September 3, 1997
This prospectus sets forth the information you should know before investing
in the Fund. It should be retained for future reference. A Statement of
Additional Information about the Fund dated September 3, 1997 (the "Statement")
has been filed with the Securities and Exchange Commission (the "SEC") and is
available free of charge. Write to the Trust, c/o CGM Investor Services, 222
Berkeley Street, Boston, MA 02116 or call the telephone number listed below to
obtain a Statement. The SEC maintains a Web site (http:// www.sec.gov) that
contains the Statement, material incorporated by reference, and other
information regarding the Fund. The Statement contains more detailed information
about the Fund and, as amended or supplemented from time to time, is
incorporated into this prospectus by reference.
- -------------------------------------------------------------------------------
For additional information about:
[] Account procedures and status [] New account procedures
[] Redemptions [] Prospectuses
[] Exchanges [] Performance
Call 800-343-5678 Call 800-345-4048
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Schedule of Fees ...................................................... 2
Investment Objective and Policies ..................................... 3
Risk Factors .......................................................... 5
The Fund's Investment Manager ......................................... 6
The Portfolio Manager ................................................. 6
How to Purchase Shares ................................................ 7
Shareholder Services .................................................. 8
How to Redeem Shares .................................................. 9
Telephone Transactions ................................................ 11
Dividends, Capital Gains and Taxes .................................... 11
Pricing of Shares ..................................................... 13
Performance Information ............................................... 13
Additional Facts About the Fund ....................................... 13
Appendix A -- Certain Investment Techniques ........................... 15
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
CGM FOCUS FUND
SCHEDULE OF FEES
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) ............................... None
Redemption Fees* .................................................. None
Exchange Fees ..................................................... None
Annual Fund Operating Expenses, After Expense Limitation
(as a percentage of estimated average net assets)
Management Fees, After Waiver ..................................... 0.41%
12b-1 Fees ........................................................ None
Other Expenses .................................................... 0.79%
---
Total Fund Operating Expenses, After Expense Limitation ........... 1.20%
- ----------
* A wire fee (currently $5.00) will be deducted from proceeds if a shareholder
elects to transfer redemption proceeds by wire.
The purpose of this fee schedule is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly if you
invest in the Fund. The percentage shown for Other Expenses is an annualized
amount based on estimated average net assets of $25 million. CGM has voluntarily
agreed, until December 31, 1998, and thereafter until further notice to the
Fund, to waive its management fees and, if necessary, to bear certain expenses
associated with operating the Fund, to the extent necessary to limit the Fund's
total operating expenses to an annual rate of 1.20% of the Fund's average net
assets. The percentages shown for Management Fees and Total Fund Operating
Expenses reflect current fees after such voluntary waivers and reimbursements.
Without the voluntary waivers and reimbursements, the Management Fees and Total
Fund Operating Expenses as a percentage of average net assets would be 1.00% and
1.79%, respectively.
The following example illustrates the approximate expenses that you would
incur on a $1,000 investment over the following periods, assuming a 5% annual
rate of return and redemption at the end of each period.
CUMULATIVE
---------------------------
1 YEAR 3 YEARS
------ -------
$12 $38
Please keep in mind that the example shown above is hypothetical and assumes
that the current fee waiver and expense reimbursement will remain in effect. The
information above should not be considered a representation of past or future
return or expenses; the actual return and expenses may be more or less.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
OVERVIEW
The Fund's investment objective is long-term growth of capital. The Fund
intends to pursue its objective by investing in a core position of equity
securities. In addition, should the investment outlook of the Investment Manager
so warrant, the Fund may engage in a variety of investment techniques designed
to capitalize on declines in the price of specific equity securities of one or
more companies. For example, the Fund may establish "short" positions in
specific securities or stock indexes through short sales or investments in a
variety of derivative instruments, including options, futures contracts and
options on futures. The Fund may also establish "long" positions in specific
securities or stock indexes through options, futures contracts and options on
futures. These investment techniques involve special risks. The Fund is flexibly
managed, with the ability to maintain exposure, either through long or short
positions, to the equity securities of domestic and foreign issuers of varied
market capitalizations and industry focus. There are no assurances that the Fund
will achieve its objective and the Fund may change its objective without
shareholder approval.
The Investment Manager believes that the Fund's investment strategy of
maintaining exposure to a relatively small number of companies offers the
potential for higher long-term returns than would otherwise be available through
exposure to a larger number of companies. Of course, this strategy may increase
the risk of loss and the volatility of the Fund. For these reasons, the Fund is
appropriate for investors seeking long-term exposure to the equity markets and
who are willing to accept the risks associated with a non-diversified portfolio.
CERTAIN INVESTMENT TECHNIQUES
The Fund may engage in certain investment techniques described below,
including short sales, the sale of stock index futures contracts and the
purchase of put options on securities, stock indexes and futures contracts. The
Fund may also establish long positions in specific securities or stock indexes
by the purchase of stock index futures contracts and call options on securities,
stock indexes and stock index futures contracts. Appendix A contains a more
complete description of these techniques and the Section entitled "Risk Factors"
describes certain risks associated with these techniques.
Short Sales. The Fund may sell securities short. A short sale is a
transaction in which the Fund sells a security it does not own in anticipation
that the market price of that security will decline. When the Fund makes a short
sale, it must borrow the security sold short to make delivery to the buyer. The
Fund then is obligated to replace the security borrowed by purchasing the
security at the market price at the time of replacement. While the short sale is
outstanding, the Fund is required to collateralize its obligations, which has
the practical effect of limiting the extent to which the Fund may engage in
short sales.
Options on Securities and Stock Indexes. The Fund may purchase put and call
options on equity securities and stock indexes. A put option on an equity
security gives the purchaser of the option, in exchange for the payment of a
premium, the right to sell and the writer, if the purchaser exercises his right,
the obligation to buy the underlying security at the exercise price during the
option period. The Fund may also purchase call options on securities and stock
indexes. A call option on an equity security gives the purchaser of the option
the right to buy and the writer, if the purchaser exercises his right, the
obligation to sell the underlying security at the exercise price during the
option period. Options on stock indexes give the holder the right to receive an
amount of cash upon exercise of the option. Receipt of this cash amount will
depend upon the closing level of the stock index upon which the option is based
being greater than (in the case of a call) or less than (in the case of a put)
the exercise price of the option. The options purchased by the Fund may be
exchange-listed options ("OCC Options") or over-the-counter options ("OTC
Options"). OCC Options are issued by the Options Clearing Corporation
("OCC").The OCC is a clearing organization for financial derivative instruments
and guarantees the performance of the obligations of the parties to such
options.
Futures Contracts and Related Options. The Fund may sell stock index futures
contracts. A stock index futures contract obligates the seller to deliver (and
the purchaser to take delivery of) an amount of cash equal to a specific dollar
amount multiplied by the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made. The Fund may also purchase stock index futures contracts as a substitute
for a comparable market position in the underlying securities. The Fund may also
purchase put and call options on stock index futures contracts. Options on
futures contracts are similar to options on securities except that an option on
a futures contract gives the purchaser the right, in exchange for the premium
paid, to assume a position in a futures contract. Whether the Fund realizes a
gain or loss from futures activities depends generally upon movements in the
price of the underlying commodity.
TEMPORARY DEFENSIVE POLICY
For temporary defensive purposes, the Fund may invest, without limitation,
in securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"); certificates of deposit,
demand and time deposits and bankers' acceptances of banks whose deposits are
insured by the Federal Deposit Insurance Corporation and have assets of at least
$1 billion, including U.S. branches of foreign banks and foreign branches of
U.S. banks; prime commercial paper, including master demand notes; and
repurchase agreements secured by U.S. Government Securities.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with banks and primary dealers
in U.S. Government Securities pursuant to which the Fund buys a security at one
price and simultaneously agrees to sell it back at a specified date and higher
price. Should the counterparty to the repurchase agreement declare bankruptcy or
otherwise default on its obligation, the Fund could experience difficulties and
delays in selling the underlying security and recovering its cash and a possible
loss if the value of the security decreases in the interim.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities.
Securities that may be resold without registration pursuant to Rule 144A may be
treated as liquid for these purposes, subject to the supervision and oversight
of the Board of Trustees, in accordance with guidelines established by the Board
of Trustees to determine whether there is a readily available market for such
securities.
PORTFOLIO TURNOVER
The Fund's objective is long-term growth of capital and the Fund does not
purchase securities with the intention of engaging in short-term trading. The
Fund, however, will sell any particular security and reinvest proceeds when it
is deemed prudent by the Investment Manager, regardless of the length of the
holding period. This policy may result in higher securities transaction costs.
To the extent that this policy results in gains on investments, the Fund will
make distributions to its shareholders, which may accelerate the shareholders'
tax liabilities. The Fund's portfolio turnover rate is not expected to exceed
300% during its initial year of operations, although the actual rate could be
higher. The Fund's investments in short sales, options and futures contracts
that mature in less than one year are excluded for purposes of computing the
Fund's portfolio turnover.
BORROWING
The Fund may borrow to increase its holdings of portfolio securities and
other instruments or for liquidity purposes. At all times when borrowings are
outstanding the Fund must maintain at least 300% "asset coverage," meaning that
the total assets of the Fund must have a value of at least 300% of all amounts
borrowed. The Fund's borrowing policies are fundamental and, therefore, may not
be changed without shareholder approval.
RISK FACTORS
MARKET RISKS
As with any mutual fund that invests in equity securities, the Fund is
subject to the risk that the price of the equity securities in its portfolio
will decline over short or extended periods. In addition, if the Fund maintains
a "long position" in equity securities or in stock indexes through options,
futures contracts or options on futures, the Fund is also subject to the risk of
loss if the price of the underlying security or index decreases between the date
of employment of the technique and the date on which the Fund terminates the
position. Moreover, as a mutual fund with short positions in equity securities
or stock indexes resulting from short sales, the sale of stock index futures
contracts or the purchase of put options on securities, stock indexes and
futures contracts, the Fund is subject to the risk of loss if the price of the
underlying security or index increases between the date of the employment of the
technique and the date on which the Fund terminates the position.
RISKS ASSOCIATED WITH CERTAIN INVESTMENT TECHNIQUES
The Fund's use of short sales or other derivative instruments such as
transactions in stock index futures contracts and options on securities, stock
indexes and future contracts involves distinct investment risks and transaction
costs. While the use of these investment techniques can be used to further the
Fund's investment objective, under certain market conditions, they can increase
the volatility of the Fund and decrease the liquidity of the Fund. If the Fund
uses these techniques at inappropriate times or judges market conditions
incorrectly, such investments may lower the Fund's return or result in a loss.
The Fund's potential loss from an uncovered short position in an equity security
or stock index resulting from a short sale or the sale of a futures contract is
unlimited. The Fund also could experience losses if these investment techniques
were poorly correlated with its other investments, or if the Fund were unable to
liquidate its position because of an illiquid secondary market. The market for
many derivative instruments is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for these instruments. Other risks inherent in the use of these
investment techniques include adverse changes in the value of the derivative
instruments, imperfect correlation between the price of the instrument and
movements in the price of the underlying securities, and the fact that the
skills needed to use these investment techniques are different from those needed
to select portfolio securities. The use of these investment techniques will
allow the Fund to increase its exposure and effectively leverage its portfolio
to a greater extent than would be the case in the absence of the use of such
investment techniques. Certain additional risks associated with these investment
techniques are described in Appendix A.
RISKS OF LACK OF DIVERSIFICATION
As a non-diversified mutual fund, the Fund is able to take larger positions
in a smaller number of companies than a comparable diversified fund. Therefore,
the value of the Fund will likely be subject to greater fluctuation than a
diversified fund as a result of any change in the value of one or more equity
securities or other instruments in its portfolio.
RISKS ASSOCIATED WITH SMALL AND MEDIUM MARKET CAPITALIZATION COMPANIES
Equity securities of small and medium market capitalization companies entail
greater risk than the equity securities of larger, well established companies.
These companies tend to have smaller revenues, narrower product lines, less
management depth and experience, and smaller shares of their product or service
markets than larger market capitalization companies. In many instances, the
frequency and volume of trading of small and medium market capitalization
companies is substantially less than is typical of larger companies. Therefore,
the securities of such companies may be subject to wider price fluctuations.
Investors should be aware that, based on the foregoing factors, an investment in
the Fund may be subject to greater price fluctuations than an investment in a
fund that invests exclusively in large market capitalization companies.
FOREIGN SECURITIES RISK
The Fund may invest indirectly through American Depository Receipts in
foreign issuers. The value of these investments, as measured in U.S. dollars,
may be affected favorably or unfavorably by changes in currency rates and
exchange control regulations. There may be less publicly available information
about a foreign issuer. In addition, foreign issuers are not subject to uniform
accounting and financial reporting standards, practices and requirements
comparable to those applicable to U.S. issuers.
RISKS OF BORROWING
The Fund may borrow for leveraging purposes (i.e., for the purpose of
purchasing portfolio securities and other instruments). Leveraging by means of
borrowing will exaggerate the effect of any increase or decrease in the value of
securities or other investments in the Fund's portfolio on the Fund's net asset
value and, therefore, may increase the volatility of the Fund. Money borrowed
will be subject to interest and other costs (which may include commitment fees
and/or the cost of maintaining minimum average balances), which costs may exceed
the income received from the securities or other instruments purchased with
borrowed funds. It is anticipated that such borrowings would be pursuant to a
negotiated loan agreement with a bank or by means of reverse repurchase
agreements with other institutional lenders, such as broker-dealers.
THE FUND'S INVESTMENT MANAGER
The Fund's investment manager is Capital Growth Management Limited
Partnership, One International Place, Boston, Massachusetts 02110. CGM, an
investment advisory firm founded in 1989, manages nine mutual fund portfolios
and advisory accounts for other clients. The general partner of CGM is a
corporation controlled equally by Robert L. Kemp and G. Kenneth Heebner, who are
trustees and officers of the Fund.
In addition to selecting and reviewing the Fund's investments, CGM provides
executive and other personnel for the management of the Fund. The Trust's Board
of Trustees supervises CGM's conduct of the affairs of the Fund.
Until December 31, 1998, and thereafter until further notice to the Fund,
CGM has voluntarily agreed to limit its management fees and, if necessary, to
bear certain expenses associated with operating the Fund, in order to limit the
Fund's total operating expenses to an annual rate of 1.20% of the Fund's average
net assets. Without these waivers and reimbursements, the investment management
fee would be 1.00% of the first $500 million of the Fund's daily net asset
value, 0.95% of the next $500 million of such value, and 0.90% of such value in
excess of $1 billion.
THE PORTFOLIO MANAGER
G. Kenneth Heebner is the manager of CGM Focus Fund. In 1989, Mr. Heebner
founded CGM with Robert L. Kemp. Prior to establishing the new company, Mr.
Heebner managed mutual fund portfolios at Loomis Sayles & Company,
Incorporated. He currently manages CGM Capital Development Fund, CGM Mutual
Fund and CGM Realty Fund, and with Janice H. Saul, co-manages CGM Fixed Income
Fund.
HOW TO PURCHASE SHARES
The Trust sells shares of the Fund directly to investors without any sales
load. You may make an initial purchase of Fund shares by submitting a completed
application form and payment to:
The CGM Funds
P.O. Box 449
Boston, Massachusetts 02117-0449
The minimum initial investment is $2,500 for regular accounts and $1,000 for
retirement plans (see "Shareholder Services; -- Retirement Plans") and accounts
set up under the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers
to Minors Act ("UTMA"). Subsequent investments must be at least $50. See
"Shareholder Services" below for further information about minimum investments
in certain other circumstances.
All investments made by check should be in U.S. dollars and made payable to
CGM Focus Fund. Third party checks (i.e. checks not payable to CGM Focus Fund)
are generally not accepted and checks drawn on credit card accounts will not be
accepted.
After accepting an order, the Trust forwards the application and payment to
the CGM Shareholder Services Department ("CGM Shareholder Services") of Boston
Financial Data Services, Inc. ("BFDS"), which is the shareholder servicing agent
for State Street Bank and Trust Company ("State Street Bank"). CGM Shareholder
Services then opens an account, applies the payment to the purchase of full and
fractional shares, and mails a statement of the account confirming the
transaction.
After your account has been established, you may send subsequent investments
at any time directly to the shareholder servicing agent at the following
address:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, Massachusetts 02266-8511
The remittance for any subsequent investment must be accompanied by either
the Additional Investment Stub detached from a statement of account, or a note
containing sufficient information to identify the account, i.e., the Fund name,
your account number, your name and social security number.
Subsequent investments may also be made by federal funds wire. Instruct your
bank to wire federal funds to State Street Bank and Trust Company, ABA#
011000028. The text of the wire should read as follows: "DDA 99046336, $ Amount,
STATE ST BOS ATTN Mutual Funds. Credit CGM Focus Fund, Shareholder Name,
Shareholder Account Number." Your bank may charge you a fee for transmitting
funds by wire.
The Trust reserves the right to reject any purchase order, including orders
in connection with exchanges, for any reason the Trust, in its sole discretion,
deems appropriate. Although the Trust does not anticipate that it will do so,
the Trust reserves the right to suspend, change or withdraw the offering of
shares of the Fund.
The price you pay will be the per share net asset value next calculated
after a proper investment order is received by the Trust or by CGM Shareholder
Services.
If you wish transactions in your account to be effected by another person
under a power of attorney from you, special rules apply. Please contact the
Trust or CGM Shareholder Services for details.
An investor will not receive any certificates for shares unless the investor
requests them in writing from CGM Shareholder Services. The Trust's system for
recording investments eliminates the problems of handling and safekeeping
certificates.
The Fund may accept telephone orders from certain broker-dealers or service
organizations which have been previously approved by the Fund. It is the
responsibility of such broker-dealers or service organizations to promptly
forward purchase orders and payments for shares to the Fund. Shares of the Fund
may be purchased through certain broker-dealers or service organizations who may
charge the investor a transaction fee or other fee for their services at the
time of purchase and/or redemption. Such fees would not otherwise be charged if
the shares were purchased or redeemed directly from the Fund.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services as more fully described
in the Statement. Explanations and forms are available from the Trust.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of money market funds
currently distributed by New England Funds, L.P. ("Money Market Funds"). You may
also exchange shares for shares of CGM Mutual Fund, CGM Fixed Income Fund, CGM
American Tax Free Fund or CGM Realty Fund. Additionally, you may exchange shares
for shares of CGM Capital Development Fund, but only if you were a shareholder
of CGM Capital Development Fund on September 24, 1993, and have remained a
shareholder continuously since that date. CGM Capital Development Fund shares
are not generally available to other persons except in special circumstances
that have been approved by, or under the authority of, the Board of Trustees of
that Fund.
All exchanges may be made without charge. You may make an exchange by
written instruction or, if a written authorization for telephone exchanges is on
file with CGM Shareholder Services, you may call 800-343-5678. See "Telephone
Transactions." Exchanges must be for amounts of at least $1,000. Under certain
circumstances, before an exchange can be made, additional documents may be
required to verify the authority or legal capacity of the person seeking the
exchange. If you wish to make an exchange into a new account, the exchange must
satisfy the applicable minimum initial investment requirements. Exchange
requests cannot be revoked once they have been received in good order.
Investors should not view the exchange privilege as a means for taking
advantage of short-term swings in the market, and the Fund limits the number of
exchanges each shareholder may make to four exchanges per account (or two round
trips) per calendar year. Monthly automatic exchanges from the Money Market
Funds to the Fund are exempt from this restriction. The Trust also reserves the
right to prohibit exchanges during the first 15 days following an investment in
the Fund. The Trust may terminate or change the terms of the exchange privilege.
In general, shareholders will receive notice of any material change to the
exchange privilege at least 60 days prior to the change. For federal income tax
purposes, an exchange constitutes a sale of shares, which may result in a
capital gain or loss.
SYSTEMATIC WITHDRAWAL PLAN
If the value of your account is at least $10,000, you may have periodic cash
withdrawals automatically paid to you or any person you designate. If checks are
returned to the Fund as "undeliverable" or remain uncashed for more than six
months, the plan will be cancelled. Undeliverable or uncashed checks shall be
cancelled and such amounts shall be reinvested in the Fund at the per share net
asset value determined as of the date of cancellation of such checks.
AUTOMATIC INVESTMENT PLAN ("AIP")
Once your account has been established, voluntary monthly investments of at
least $50 may be made automatically by pre-authorized withdrawals from your
checking account. Please contact CGM Shareholder Services at 800-343-5678 to
determine the requirements associated with debits from savings banks and credit
unions. Debits from money market accounts are not acceptable. You may terminate
your participation in the AIP by sending written notice to CGM Shareholder
Services, c/o Boston Financial Data Services, Inc., P.O. Box 8511, Boston,
Massachusetts 02266-8511 or by calling 800-343-5678 more than 14 days prior to
the next scheduled debit date. The Fund may terminate your participation in the
AIP immediately in the event that any item is unpaid by your financial
institution. The Fund may terminate or modify the AIP at anytime. Additional
information about this Plan is set forth in the Statement.
RETIREMENT PLANS
The Fund's shares may be purchased by tax-deferred retirement plans. CGM
makes available retirement plan forms and plan documents for IRAs, SEP-IRAs,
403(b)(7) custodial accounts, and money purchase pension and profit sharing
plans ("CGM Retirement Plans").
SHAREHOLDER REPORTS
Shareholders will receive the Fund's financial statements and a summary of
the Fund's investments at least semiannually. The Fund intends to consolidate
mailings of annual, semiannual, and quarterly reports to households having
multiple accounts with the same address of record and to furnish a single copy
of each report to that address. Mailing of prospectuses and proxy statements
will not be consolidated and if a report is included in such mailings, each
shareholder will receive a separate copy. You may request additional reports by
notifying the Fund in writing, or by calling the Trust.
Shareholders will receive statements confirming all purchases, redemptions,
and changes of address. You may call CGM Shareholder Services and request a
duplicate statement for the current year without charge. A fee will be charged
for any duplicate information requested for prior years.
HOW TO REDEEM SHARES
You can redeem all or part of your shares in the Fund in three different
ways: by sending a written request for a check or wire representing the
redemption proceeds, by making a telephone request for redemption by check
(provided that the amount to be redeemed is not more than $25,000 and the check
is being sent to you at your record address, which has not changed in the prior
three months) or by making a telephone request for redemption proceeds to be
wired to a bank that you have predesignated. The redemption price will always be
the net asset value per share next determined after the redemption request is
received by CGM Shareholder Services in good order (including any necessary
documentation). Necessary documentation may include, in certain circumstances,
documents verifying the authority or legal capacity of the person seeking to
redeem shares. Redemption requests cannot be revoked once they have been
received in good order.
If you elect to redeem shares in writing, send your written request to:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, Massachusetts 02266-8511
The written request must include the name of the Fund, your account number, the
exact name(s) in which your shares are registered, the number of shares or the
dollar amount to be redeemed and mailing or wire instructions. All owners of
shares must sign the request in the exact name(s) in which the shares are
registered (which appear(s) on your confirmation statement) and should indicate
any special capacity in which they are signing (such as trustee or custodian or
on behalf of a partnership, corporation or other entity). If you are signing in
a special capacity, you may wish to contact CGM Shareholder Services in advance
to determine whether additional documentation will be required before you send a
redemption request.
Redemptions from CGM Retirement Plans for which State Street Bank is the
custodian or trustee must contain additional information. Please contact CGM
Shareholder Services for instructions and forms. Complete information, including
tax withholding instructions, must be included in your redemption request.
If you are redeeming shares worth more than $25,000 or requesting that the
proceeds of the check be made payable to someone other than the registered
owner(s) or be sent to an address other than your record address (or sent to
your record address if such address has been changed within the previous three
months), you must have your signature guaranteed by an "eligible guarantor
institution" as defined in the rules under the Securities Exchange Act of 1934
(including a bank, broker, dealer, credit union, national securities exchange,
registered securities association, clearing agency or savings association, but
not a notary public).
If you hold certificates representing your investment, you must enclose the
certificates and a properly completed redemption form or stock power. You bear
the risk of loss of such certificates; consequently you may wish to send your
certificates by registered mail.
If you elect to redeem shares by telephone, call CGM Shareholder Services
directly at 800-343-5678. See "Telephone Transactions." Telephone redemptions
are not available for CGM Retirement Plans. When you make a redemption request
by telephone, you may choose to receive redemption proceeds either by having a
check mailed to the address of record on the account, provided the address has
not changed for three months and you are redeeming $25,000 or less, or by having
a wire sent to a bank account you have previously designated.
Telephone redemptions by check are available to all shareholders of the Fund
automatically unless this option is declined in the application or in writing.
You may select the telephone redemption wire service when you fill out your
initial application or you may select it later by completing the Account Update
Form (with a signature guarantee), available from the Trust or CGM Shareholder
Services.
A telephone redemption request must be received by CGM Shareholder Services
prior to the close of the New York Stock Exchange (the "Exchange"). If you
telephone your request to CGM Shareholder Services after the Exchange closes or
on a day when the Exchange is not open for business, the Trust cannot accept
your request and a new one will be necessary.
Wire redemptions by telephone may be made only if your bank is a member of
the Federal Reserve System or has a correspondent bank that is a member of such
System. If your account is with a savings bank, it must have only one
correspondent bank that is a member of the Federal Reserve System. A wire fee
(currently $5) will be deducted from the proceeds. If you decide to change the
bank account to which proceeds are to be wired, you must send in this change on
the Account Update Form with a signature guarantee.
Proceeds resulting from a written or regular telephone redemption request
will normally be mailed to you within seven days after receipt of your request
in good order. Telephone wire redemption proceeds will normally be wired to your
bank within seven days following receipt of a proper redemption request. If you
purchased your Fund shares by check (or through your AIP) and elect to redeem
shares within 15 days of such purchase, you may experience delays in receiving
redemption proceeds. The Trust will generally postpone sending your redemption
proceeds from such investment until the Trust can verify that your check (or AIP
investment) has been or will be collected. There will be no such delay for
redemptions following investments paid for by federal funds wire or by bank
cashier's check, certified check or treasurer's check. If checks representing
redemption proceeds are returned "undeliverable" or remain uncashed for six
months, such checks shall be cancelled and such proceeds shall be reinvested in
the Fund at the per share net asset value determined as of the date of
cancellation of such checks.
The Fund may not suspend the right of redemption, or postpone payment for
more than seven days, except when the Exchange is closed for other than weekends
or holidays, when trading on the Exchange is restricted, during an emergency (as
determined by the SEC) that makes it impracticable for the Fund to dispose of
its securities or to determine fairly the value of its net assets, or during any
other period permitted by the SEC for the protection of investors.
Because the expense of maintaining small accounts is disproportionately
high, the Fund may close accounts with 20 shares or less, and mail the proceeds
to the shareholder. Shareholders who are affected by this policy will be
notified of the Fund's intention to close the account and will have 60 days
immediately following the notice in which to acquire the requisite number of
shares. The minimum does not apply to CGM Retirement Plans and UGMA/UTMA
accounts.
TELEPHONE TRANSACTIONS
You may initiate three types of transactions by telephone:
[] Telephone Exchanges
[] Telephone Redemptions By Wire
[] Telephone Redemptions By Check
The terms and provisions for each of these services are explained fully in
the preceding sections. Once a telephone transaction request has been placed, it
cannot be cancelled.
The Telephone Exchange privilege and/or Telephone Redemptions By Wire
privilege must be elected by you when you fill out your initial application or
you may select either option later by completing the Account Update Form (with a
signature guarantee) available from the Trust or CGM Shareholder Services. The
Telephone Redemptions By Check privilege is available to shareholders of the
Fund automatically unless this option is declined in the application or in
writing.
The telephone redemption privileges are not available for IRAs, SEP-IRAs,
403(b)(7) custodial accounts or for money purchase pension and profit sharing
accounts under a CGM Retirement Plan (in which State Street Bank is the
custodian or trustee).
The Fund will employ reasonable procedures to confirm that instructions
received by telephone (including instructions with respect to changes in
addresses) are genuine, such as requesting personal identification information
that appears on your account application and recording the telephone
conversation. You will bear the risk of loss due to unauthorized or fraudulent
instructions regarding your account, although the Fund may be liable if it does
not employ reasonable procedures.
DIVIDENDS, CAPITAL GAINS AND TAXES
The Fund pays out substantially all of its net investment income to
shareholders as dividends and also distributes its net capital gains realized
from the sale of portfolio securities. Income dividends and any capital gain
distributions (after applying any applicable capital loss carryovers) are
normally made annually in December, but may be made more frequently as deemed
advisable by the Board of Trustees. The Fund's dividend and capital gains
distributions may be reinvested in additional shares or received in cash.
Certain restrictions may apply to participants in CGM Retirement Plans.
You may elect to receive income dividends or capital gains distributions, or
both, in cash. However, if you elect to receive capital gains in cash, your
income dividends must also be received in cash. You can elect to receive
payments of cash dividends and capital gains distributions either by check or by
direct deposit to a bank account that you have predesignated. These elections
may be made at the time your account is opened and may be changed at any time by
submitting a written request to CGM Shareholder Services or by calling
800-343-5678. However, changes in bank account information for direct deposits
of cash dividends and capital gains distributions must be made through an
Account Update Form. In order for a change to be effective for any dividend or
distribution, it must be received by CGM Shareholder Services on or before the
record date for such dividend or distribution.
If you elect to receive distributions in cash and checks are returned
"undeliverable" or remain uncashed for six months, your cash election will be
changed automatically and your future dividend and capital gains distributions
will be reinvested in the Fund at the per share net asset value determined as of
the date of payment of the distribution. In addition, following such six month
period, any undeliverable or uncashed checks shall be cancelled and such amounts
reinvested in the Fund at the per share net asset value determined as of the
date of cancellation of such checks.
The Fund intends to qualify annually as a "regulated investment company"
under the Internal Revenue Code. To qualify, the Fund must meet certain income,
distribution and diversification requirements. In any year in which the Fund so
qualifies it generally will not be subject to federal income or excise tax to
the extent that its taxable income is distributed to shareholders.
The distributions received by the Fund from its investments may, for federal
income tax purposes, consist of ordinary income, long-term capital gains, or a
return of capital. The characterization of these distributions to the Fund may,
in turn, affect the tax treatment of the Fund's distributions to its
shareholders. Dividends and distributions are taxable to shareholders in the
same manner whether received in cash or reinvested in additional shares of the
Fund.
Dividends paid by the Fund from net investment income, including dividends,
interest and net short-term capital gains, will be taxable to shareholders as
ordinary income. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) which are designated by the
Fund as capital gains distributions are taxable as long-term capital gains,
regardless of the length of time shareholders have owned shares in the Fund. To
the extent that the Fund makes a distribution in excess of its current and
accumulated earnings and profits, the distribution will be treated first as a
tax-free return of capital, reducing the tax basis in a shareholder's shares,
and then, to the extent the distribution exceeds such basis, as a taxable gain
to be realized upon sale of such shares.
If the Fund invests in foreign securities, it may be subject to foreign
withholding taxes on income earned on such securities and may be unable to pass
through to shareholders foreign tax credits and deductions with respect to such
taxes.
A distribution will be treated as paid by the Fund and received by its
shareholders on December 31 of the current calendar year if it is declared by
the Fund in October, November, or December of that year with a record date in
such a month and paid by the Fund in January of the subsequent year.
Any dividends or distributions paid shortly after a purchase of shares will
have the effect of reducing the per share net asset value of the shares by the
amount of the dividends or distributions. Although in effect a return of
capital, these distributions are subject to taxes, even if their effect is to
reduce the per share net asset value below a shareholder's cost. The Fund will
notify you annually as to the tax status of dividend and capital gains
distributions paid by the Fund.
The sale or other disposition of shares of the Fund, including a redemption
of shares or an exchange of shares into another fund, is a taxable event and may
result in a capital gain or loss which will be long-term or short-term,
depending upon the shareholder's holding period for the shares.
Dividend distributions, capital gains distributions, and capital gains or
losses from redemptions and exchanges may be subject to state and local taxes.
In certain states, a portion of the Fund's income derived from certain direct
U.S. Government obligations may be exempt from state and local taxes. The Fund
will indicate each year the portion of the Fund's income, if any, that is
derived from such obligations.
The Fund is required to withhold a portion of taxable dividends, capital
gains distributions, and redemptions paid to individuals and certain other
classes of shareholders if they fail to furnish the Fund with their correct
taxpayer identification number and certain certifications regarding their tax
status, or if they are otherwise subject to backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against a shareholder's normal federal income tax liability. For additional
information about withholding, please see the Statement.
BFDS, the shareholder servicing agent, will send you and the Internal
Revenue Service an annual statement detailing federal tax information, including
information about dividends and distributions paid to you during the preceding
year. If you redeem or exchange shares in any year, following the end of the
year, you will receive a statement providing the cost basis and gain or loss of
each share lot that you sold during such year. Your CGM account cost basis will
be calculated using the "single category average cost method," which is one of
the four calculation methods allowed by the IRS. Be sure to keep these
statements as permanent records. A fee may be charged for any duplicate
information that you request.
The tax discussion set forth above is included for general information only.
Shareholders and prospective investors should consult their own tax advisers
concerning the tax consequences of an investment in the Fund.
PRICING OF SHARES
The share price or "net asset value" per share of the Fund is computed daily
by dividing the total value of the investments and other assets of the Fund,
less any liabilities, by the total outstanding shares of the Fund. The net asset
value per share of the Fund is determined as of the close of the regular trading
session of the Exchange on each day the Exchange is open for trading. Portfolio
securities are generally valued at their market value. In certain cases, market
value may be determined on the basis of information provided by a pricing
service approved by the Board of Trustees. Instruments with maturities of sixty
days or less are valued at amortized cost, which approximates market value.
Other assets and securities which are not readily marketable will be valued in
good faith at fair value using methods determined by the Board of Trustees.
PERFORMANCE INFORMATION
The Fund may include total return information in advertisements or other
written sales material. The Fund will show its average annual total return for
the most recent one-year period and the life of the Fund through the end of the
most recent calendar quarter. Total return is measured by comparing the value of
an investment in the Fund at the beginning of the relevant period to the value
of the investment at the end of the period (assuming automatic reinvestment of
all dividends and capital gains distributions). The Fund may also show total
return over other periods on an aggregate basis for the period presented.
The Fund may compare its performance to that of recognized financial indices
or groups of mutual funds. It may also include its ranking among other mutual
funds or its rating as published by mutual fund ranking services or major
financial publications. All performance information is based on past results and
is not an indication of likely future performance.
ADDITIONAL FACTS ABOUT THE FUND
[] The Trust was organized in 1986 as a Massachusetts business trust and is
authorized to issue an unlimited number of full and fractional shares in
multiple series. The Trust currently has five series: CGM Mutual Fund (a
successor to Loomis-Sayles Mutual Fund), CGM Fixed Income Fund, CGM American
Tax Free Fund, CGM Realty Fund, and CGM Focus Fund.
[] When a shareholder invests in the Fund, the shareholder acquires freely
transferable shares of beneficial interest that entitle the shareholder to
receive dividends and to cast one vote at shareholder meetings for each share
owned. On matters affecting the Fund, shares of the Fund vote separately from
shares of other series of the Trust, except as otherwise required by law.
[] The investment objective, investment practices and other non-fundamental
policies of the Fund can be changed without shareholder approval. If there is
a change in the Fund's investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their current
financial position and needs.
<PAGE>
APPENDIX A
CERTAIN INVESTMENT TECHNIQUES
SHORT SALES
The Fund may make short sales of securities. A short sale is a transaction
in which the Fund sells a security it does not own in anticipation that the
market price of that security will decline. When the Fund makes a short sale, it
must borrow the security sold short to make delivery to the buyer. The Fund then
is obligated to replace the security borrowed by purchasing the security at the
market price at the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the Fund. The Fund may
have to pay a premium to borrow the security and is obligated to pay the lender
amounts equal to any dividends or interest that accrue during the period of the
loan. If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund will
incur a loss. Conversely, if the price declines, the Fund will realize a gain.
Any gain will be decreased, and any loss increased, by the premium and
transaction costs described above. Although the Fund's gain is limited to the
price at which it sold the security short, the potential loss is theoretically
unlimited.
The proceeds of the short sale will be retained by the broker, to the extent
necessary to meet its margin requirements, until the short position is closed
out. In general, the Fund will also be required to pledge additional cash or
liquid securities to the broker as collateral for its obligations, such that the
cash held by the broker and the additional pledged cash and securities equals at
least 150% of the current market value of the securities sold short. Until the
Fund closes its short position, the Fund will be required to (a) maintain with
its custodian a segregated account, which will be marked to market daily,
containing cash or liquid securities (which may include equity securities) such
that (i) the amount deposited in the segregated account plus the amount
deposited with the broker as collateral will equal the current market value of
the security sold short or (b) otherwise cover the Fund's short position. The
Fund may also cover its short position by owning the security sold short or by
holding a call option on the security with a strike price no higher than the
price at which the security was sold.
OPTIONS ON SECURITIES AND STOCK INDEXES
The Fund may purchase put and call options on equity securities. A put
option gives the purchaser of the option, in exchange for the payment of a
premium, the right to sell and the writer, if the purchaser exercises his right,
the obligation to buy the underlying security at the exercise price during the
option period. A call option gives the purchaser of the option, in exchange for
the payment of a premium, the right to buy and the writer, if the purchaser
exercises his right, the obligation to sell the underlying security at the
exercise price during the option period. If the option is not sold while it has
remaining value, or if during the life of an option the underlying security does
not depreciate (in the case of a put option) or appreciate (in the case of a
call option), the purchaser of the option may lose his entire investment.
Further, except where the value of the remaining life of the option may be
realized in the secondary market, for the option purchase to be profitable, the
market price of the underlying security must be below (in the case of a put
option) or above (in the case of a call option) the exercise price by more than
the premium and transaction costs paid in connection with the purchase of the
option and its sale or exercise. Because option premiums paid by the Fund are
small in relation to the market value of the investments underlying the options,
purchasing options can be more speculative than investing directly in equity
securities.
The Fund may purchase put and call options on stock indexes. The amount of
cash received upon exercise of a stock index option, if any, will be the
difference between the closing price of the index and the exercise price of the
option, multiplied by a specified dollar multiple. All settlements of stock
index option transactions are in cash. Some stock index options are based on a
broad market index such as the S&P 500 Index, the New York Stock Exchange
Composite Index, or the American Stock Exchange Major Market Index, or on a
narrower index such as the Philadelphia Stock Exchange Over-the- Counter Index.
Because the value of a stock index option depends upon movements in the level of
the index rather that the price of a particular stock, whether the Fund will
realize a gain or loss from the purchase of options on an index depends upon
movements in the level of stock prices in the stock market generally or, in the
case of certain indexes, in an industry or market segment, rather that upon
movements in the price of a particular stock.
The Fund may liquidate its position as the holder of an option by effecting
a "closing sale transaction." The Fund accomplishes this by selling an option of
the same series as the option previously purchased by the Fund. There is no
guarantee that a closing sale transaction can be effected. If any option is not
exercised or sold, the option will become worthless on its expiration date. The
Fund will realize a gain (or a loss) on a closing sale transaction with respect
to an option previously purchased by the Fund if the premium, less commission
costs, received by the Fund on the sale of the option to close the transaction
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the option. If an option which the Fund has purchased expires
out-of-the-money, the option will become worthless on the expiration date, and
the Fund will realize a loss in the amount of the premium paid, plus commission
costs.
The options purchased or sold by the Fund may be OCC Options or OTC options.
The Fund's ability to close out its position as a writer or purchaser of an OCC
Option is dependent upon the existence of a liquid secondary market on option
exchanges. Among the possible reasons for the absence of a liquid secondary
market on an exchange are: (i) insufficient trading interest in certain options;
(ii) restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an exchange; (v) inadequacy of the facilities of an exchange or
the OCC to handle current trading volume; or (vi) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or series
of options) in which event the secondary market on that exchange (or in that
class or series of options) would cease to exist, although outstanding options
on that exchange that had been listed by the OCC as a result of trades on that
exchange would generally continue to be exercisable in accordance with their
terms. Each of the exchanges on which stock index options are traded has
established limitations governing the maximum number of call or put options on
the same index which may be bought by a single investor, whether acting alone or
in concert with others (regardless of whether such options are written on the
same or different exchanges or are held or written on one or more accounts or
through one or more brokers). Under these limitations, option positions of all
investment companies advised by the same investment adviser are combined for
purposes of these limits. Pursuant to these limitations, an exchange may order
the liquidation of positions and may impose other sanctions or restrictions.
These positions limits may restrict the number of stock index options which the
Fund may buy or sell. Although certain option exchanges attempt to provide
continuously liquid markets in which holders of options can close out their
positions at any time prior to the expiration of the option, no assurance can be
given that a market will exist at all times for all outstanding options
purchased by the Fund. If an options market were to become unavailable, the Fund
would be unable to realize its profits or limit its losses until the Fund could
exercise options it holds.
With OTC Options, such variables as expiration date, exercise price and
premium will be agreed upon between the Fund and the transacting dealer, without
the intermediation of a third party such as the OCC. If the transacting dealer
fails to take delivery of the securities underlying an option it has written, in
accordance with the terms of that option as written, the Fund would lose the
premium paid for the option as well as any anticipated benefit of the
transaction. The Fund will engage in OTC Option transactions only with primary
United States Government securities dealers recognized by the Federal Reserve
Bank of New York. To the extent that the option markets close before the markets
for the underlying securities, significant price and rate movements can take
place in the underlying markets that cannot be reflected in the option markets.
FUTURES CONTRACTS AND RELATED OPTIONS
The Fund may purchase and sell stock index futures contracts. The Fund may
also purchase put and call options on stock index futures contracts. When the
Fund purchases a put or call option on a futures contract, the Fund pays a
premium for the right to sell or purchase, respectively, the underlying futures
contract for a specified price upon exercise at any time during the option
period. The Fund may engage in related closing transactions with respect to
options on futures contracts. The Fund will only engage in transactions in
futures contracts and options thereupon that are traded on a United States
exchange or board of trade. Whether the Fund realizes a gain or loss from
futures activities depends generally upon movements in the underlying commodity.
The extent of the Fund's loss from an uncovered short position on futures
contracts is potentially unlimited.
When the Fund purchases or sells a stock index futures contract, the Fund
will be required to (a) maintain with its custodian a segregated account, which
will be marked to market daily, containing cash or liquid securities (which may
include equity securities), that, when added to any amounts deposited with a
futures commission merchant as margin, are equal to the market value of the
futures contract or (b) otherwise "cover" its position. The Fund may cover its
short position in a futures contract by taking a long position in the
instruments underlying the futures contract, or by taking positions in
instruments the prices of which are expected to move relatively consistently
with the futures contract. The Fund may cover its long position in a futures
contract by purchasing a put option on the same futures contract with a strike
price (i.e., an exercise price) as high or higher than the price of the futures
contract, or, if the strike price of the put is less than the price of the
futures contract, the Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike price of the put
and the price of the future. The Fund may also cover its long position in a
futures contract by taking a short position in the instruments underlying the
futures contract, or by taking positions in instruments the prices of which are
expected to move relatively consistently with the futures contract.
Typically, an investment in a futures contract requires the Fund to deposit
with the applicable exchange or other specified financial intermediary as
security for its obligations an amount of cash or other specified debt
securities which initially is 1% to 5% of the face amount of the contract and
which thereafter fluctuates on a periodic basis as the value of the contract
fluctuates. If the price of an open futures contract changes (by increase in the
case of a sale or decrease in the case of a purchase) so that the loss on the
futures contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
futures contract so that the margin deposit exceeds the required margin, the
broker will pay the excess to the Fund. These subsequent payments, called
"variation margin," to and from the futures broker, are made on a daily basis as
the price of the underlying assets fluctuate making the long and short positions
in the futures contract more or less valuable, a process known as "marking to
the market."
Although the Fund intends to sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid market
will exist for any particular contract at any particular time. Many futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified periods during the
day. Futures contract prices could move to the limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
futures positions and potentially subjecting the Fund to substantial losses. If
trading is not possible, or the Fund determines not to close a futures position
in anticipation of adverse price movements, the Fund will be required to make
daily cash payments of variation margin. The risk that the Fund will be unable
to close out a futures position will be minimized by entering into such
transactions on a national exchange with an active and liquid secondary market.
The Fund's use of futures and options on futures will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission ("CFTC") with which
the Fund must comply in order not to be deemed a commodity pool operator within
the meaning and intent of the Commodity Exchange Act and the regulations
promulgated thereunder. Regulations of the CFTC applicable to the Fund currently
require that all of the Fund's futures and options on futures transactions be
either for bona fide hedging purposes or for non-hedging purposes provided that
the sum of the amounts of initial margin deposits and premiums paid for options
on futures required to establish such non-hedging positions does not exceed 5%
of the liquidation value of the Fund's total assets (after taking into account
unrealized profits and unrealized losses on such futures and options
transactions). In the case of an option on a futures contract that is
"in-the-money" at the time of purchase (i.e. the amount by which the exercise
price of the put option exceeds the current market value of the underlying
security or the amount by which the current market value of the underlying
security exceeds the exercise price of the call option), the in-the-money amount
may be excluded in calculating this 5% limitation.
<PAGE>
INVESTMENT ADVISER
Capital Growth Management
Limited Partnership
One International Place
Boston, MA 02110
TRANSFER AND DIVIDEND PAYING AGENT
AND CUSTODIAN OF ASSETS
State Street Bank and Trust Company
Boston, MA 02102
SHAREHOLDER SERVICING AGENT FOR
STATE STREET BANK AND TRUST COMPANY
Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, MA 02266
FFP97
CGM
FOCUS FUND
Prospectus & Application
September 3, 1997
A No-Load Fund
[Fencer Logo]
<PAGE>
PART B
Statement of Additional Information for CGM Focus Fund
Not included in this Registration Statement
is the Statement of Additional Information
for each of CGM Mutual Fund, CGM Realty Fund,
CGM Fixed Income Fund and CGM American Tax Free Fund.
<PAGE>
CGM FOCUS FUND
STATEMENT OF ADDITIONAL INFORMATION
September 3, 1997, as amended
This Statement of Additional Information (the "Statement") is not a
prospectus. This Statement relates to the CGM Focus Fund Prospectus dated
September 3, 1997 (the "Prospectus"), and should be read in conjunction
therewith. A copy of the Prospectus may be obtained from CGM Trust, c/o The CGM
Funds Investor Services Division, P.O. Box 449, Boston, Massachusetts 02117
(Telephone: 800-345-4048).
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION.............................................................. 1
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS........................... 1
PORTFOLIO TURNOVER........................................................ 3
MANAGEMENT OF THE FUND.................................................... 4
INVESTMENT ADVISORY AND OTHER SERVICES.................................... 6
Advisory Agreement............................................... 6
Custodial Arrangements........................................... 7
Independent Accountants.......................................... 7
Other Arrangements............................................... 7
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 8
DESCRIPTION OF THE TRUST.................................................. 9
Shareholder Rights............................................... 9
Shareholder and Trustee Liability................................ 10
HOW TO BUY SHARES......................................................... 11
ADVERTISING AND PERFORMANCE INFORMATION................................... 11
Calculation of Total Return...................................... 11
Performance Comparisons.......................................... 12
NET ASSET VALUE AND PUBLIC OFFERING PRICE................................. 13
SHAREHOLDER SERVICES...................................................... 14
Open Accounts.................................................... 14
Systematic Withdrawal Plans ("SWP").............................. 14
Exchange Privilege............................................... 15
Automatic Investment Plans ("AIP")............................... 16
Retirement Plans................................................. 16
Address Changes.................................................. 17
REDEMPTIONS............................................................... 17
Redeeming by Telephone........................................... 18
Check Sent to the Record Address................................. 18
Proceeds Wired to a Predesignated Bank........................... 18
All Redemptions.................................................. 19
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS.............. 19
<PAGE>
- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------
CGM Focus Fund (the "Fund") is organized as a separate series of shares
of CGM Trust (the "Trust"). The Trust is a Massachusetts business trust
established under the laws of Massachusetts in 1986. The Trust is governed by an
Amended and Restated Agreement and Declaration of Trust (the "Declaration of
Trust") dated January 23, 1997. The Trust is a successor in interest to
Loomis-Sayles Mutual Fund. On March 1, 1990, the Trust's name was changed from
"Loomis-Sayles Mutual Fund" to "CGM Mutual Fund" to reflect the assumption by
Capital Growth Management Limited Partnership ("CGM" or the "Investment
Manager") of investment advisory responsibilities with respect to the Trust.
On December 20, 1991, the Trust's name was changed to CGM Trust.
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INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's investment objective is long-term growth of capital. The
Fund intends to pursue its objective by investing in a core position of equity
securities. In addition, should the investment outlook of the Investment Manager
so warrant, the Fund may engage in a variety of investment techniques designed
to capitalize on declines in the price of specific equity securities of one or
more companies. Such investment techniques include short sales, the sale of
stock index futures contracts and the purchase of put options on securities,
stock indexes and futures contracts. The Fund may also establish long positions
in specific securities or stock indexes by the purchase of stock index futures
contracts and call options on securities, stock indexes and stock index futures
contracts.
The Fund may not:
(1) Borrow money, except that it may borrow from banks in an amount not
to exceed 1/3 of the value of its total assets and may borrow for temporary
purposes from entities other than banks in an amount not to exceed 5% of the
value of its total assets;
(2) Issue any senior securities, except as permitted by the terms of
any exemptive order or similar rule issued by the Securities and Exchange
Commission (the "SEC") relating to multiple classes of shares of beneficial
interest of the Trust, and provided further that collateral arrangements with
respect to forward contracts, futures contracts, short sales or options,
including deposits of initial and variation margin, shall not be considered to
be the issuance of a senior security for purposes of this restriction;
(3) Act as an underwriter of securities issued by other persons, except
insofar as the Fund may be deemed an underwriter in connection with the
disposition of securities;
(4) Purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase to be invested in
the securities of one or more issuers having their principal business activities
in the same industry, provided that there is no limit with respect to
investments in the securities issued by the U.S. Government, its agencies and
instrumentalities;
(5) Purchase or sell real estate, except that the Fund may invest in
securities of companies that deal in real estate or are engaged in the real
estate business, including real estate investment trusts, and securities secured
by real estate or interests therein and the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of such securities;
(6) Purchase or sell commodities or commodity futures contracts, except
that the Fund may invest in financial futures contracts, options thereon and
similar instruments;
(7) Make loans to other persons except (a) through the lending of
securities held by it, (b) through the use of repurchase agreements, and (c) by
the purchase of debt securities in accordance with its investment policies;
If a percentage restriction is adhered to at the time of an investment,
a later increase or decrease in such percentage resulting from a change in the
values of assets will not constitute a violation of such restriction.
The investment restrictions above have been adopted by the Trust as
fundamental policies of the Fund. Under the Investment Company Act of 1940, as
amended (the "1940 Act"), a fundamental policy may not be changed without the
vote of a majority of the outstanding voting securities of the Fund, as defined
under the 1940 Act. "Majority" means the lesser of (1) 67% or more of the shares
present at a meeting of shareholders of the Fund, if the holders of more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (2) more than 50% of the outstanding shares of the Fund. Non-fundamental
investment restrictions may be changed at any time by vote of a majority of the
Trust's Board of Trustees.
Restricted securities eligible for resale to "qualified institutional
buyers" pursuant to Rule 144A under the Securities Act of 1933, as amended, may
be determined to be liquid by the Investment Manager under guidelines approved
by the Board of Trustees. In its determination of liquidity with respect to such
securities, the Investment Manager will consider the following factors, among
others: (1) the frequency of trades and quotes for the security, (2) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers, (3) dealer undertakings to make a market in the security,
and (4) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer). The foregoing investment practice could
have the effect of increasing the level of illiquidity in the Fund to the extent
that qualified institutional buyers become uninterested in purchasing the
securities.
The Fund may invest in repurchase agreements. A repurchase agreement is
an instrument under which the purchaser acquires ownership of a security and
obtains a simultaneous commitment from the seller (a bank or, to the extent
permitted by the 1940 Act, a recognized securities dealer) to repurchase the
security at an agreed-upon price and date (usually seven days or less from the
date of original purchase). The resale price is in excess of the purchase price
and reflects an agreed-upon market rate unrelated to the coupon rate on the
purchased security. Such transactions afford the Fund the opportunity to earn a
return on temporarily available cash at minimal market risk. While the
underlying security may be a bill, certificate of indebtedness, note or bond
issued by an agency, authority or instrumentality of the U.S. Government, the
obligation of the seller is not guaranteed by the U.S. Government and there is a
risk that the seller may fail to repurchase the underlying security. In such
event, the Fund would attempt to exercise rights with respect to the underlying
security, including possible disposition in the market. However, the Fund may be
subject to various delays and risks of loss, including (1) possible declines in
the value of the underlying security during the period while the Fund seeks to
enforce its rights thereto, (2) possible reduced levels of income and lack of
access to income during this period, and (3) inability to enforce rights and the
expenses involved in attempted enforcement.
The Fund may enter into reverse repurchase agreements with banks or
broker-dealers. Reverse repurchase agreements involve the sale of a security
held by the Fund and its agreement to repurchase the instrument at a stated
price, date and interest payment. Reverse repurchase agreements may be
considered to be borrowings by the Fund and entail additional risks such as the
occurrence of interest expenses and fluctuations in the Fund's net asset value.
In connection with entering into reverse repurchase agreements, a segregated
account of the Fund consisting of cash, cash equivalents, U.S. Government
securities or other liquid securities (which may include equity securities) with
an aggregate value at all times sufficient to repurchase the securities, or
equal to the proceeds received upon the sale plus accrued interest, will be
established with the Fund's custodian bank.
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PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
Although the Fund's objective is long-term growth of capital and the
Fund does not purchase securities with the intention of engaging in short term
trading, the Fund will sell any particular security and reinvest proceeds when
it is deemed prudent by the Investment Manager, regardless of the length of the
holding period. This policy may result in higher securities transaction costs.
To the extent that this policy results in gains on investments, the Fund will
make distributions to its shareholders, which may accelerate the shareholders'
tax liabilities for realized gains and may result in the distribution of
short-term capital gains taxable as ordinary income. See "Income Dividends,
Capital Gains Distributions and Tax Status."
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
PETER O. BROWN (Age 57) -- Trustee;
30 Douglas Road, Rochester, NY; Partner, Harter, Secrest & Emery;
formerly Executive Vice President and Chief Operating Officer, The
Glenmede Trust Company; formerly Senior Vice President, Chase Lincoln
First Bank, N.A.
NICHOLAS J. GRANT (Age 81) -- Trustee;
77 Massachusetts Avenue, Cambridge, MA; Professor of
Metallurgy and Materials
Science, Massachusetts Institute of Technology.
G. KENNETH HEEBNER (Age 56)* -- Trustee and Vice President;
Employee, CGM; formerly Vice President and Director,
Loomis Sayles and Company,
Incorporated ("Loomis Sayles").
ROBERT L. KEMP (Age 65)* -- Trustee and President;
Employee, CGM; formerly President and Director, Loomis
Sayles.
ROBERT B. KITTREDGE (Age 76) -- Trustee;
21 Sturdivant Street, Cumberland Foreside, ME; Retired;
formerly Vice President,
General Counsel and Director, Loomis Sayles.
LAURENS MACLURE (Age 72) -- Trustee;
183 Sohier Street, Cohasset, MA; Retired; formerly
President and Chief Executive
Officer, New England Deaconess Hospital.
JAMES VAN DYKE QUEREAU, JR. (Age 48) -- Trustee;
59 Annewood Lane, Wayne, PA; Managing Partner, Stratton
Management Company;
formerly Institutional Managing Partner, Loomis Sayles.
J. BAUR WHITTLESEY (Age 51) -- Trustee;
1521 Locust Street, Philadelphia, PA; Attorney.
KATHLEEN S. HAUGHTON (Age 37) -- Vice President;
222 Berkeley Street, Boston, MA 02116;
Employee -- Investor Services Division, CGM;
formerly Vice President, Boston Financial Data Services,
Inc.
LESLIE A. LAKE (Age 52) -- Vice President and Secretary;
Employee -- Office Administrator, CGM; formerly Office
Administrator, Capital Growth
Management Division of Loomis Sayles.
MARTHA I. MAGUIRE (Age 41) -- Vice President;
Employee -- Funds Marketing, CGM; formerly marketing
communications consultant
(self-employed); formerly Sales Promotion Consultant, The
New England.
MARY L. STONE (Age 52) -- Assistant Vice President;
Employee -- Coordinator, Mutual Fund Recordkeeping, CGM;
formerly Coordinator,
Mutual Fund Recordkeeping, Loomis Sayles.
FRANK N. STRAUSS (Age 36) -- Treasurer;
222 Berkeley Street, Boston, MA 02116; Employee -- Chief Financial
Officer, CGM; formerly Vice President of Fund Accounting, Freedom
Capital Management Corporation and Assistant Vice President, The Boston
Company, Inc.
W. DUGAL THOMAS (Age 60) -- Vice President;
Employee -- Director of Marketing, CGM; formerly Director
of Marketing, Loomis Sayles.
- --------
* Trustees deemed "interested persons" of the Fund, as defined under the
1940 Act.
Each of the Fund's trustees is also a trustee of one or more other
investment companies for which CGM acts as investment manager. Except as
indicated above, the address of each trustee and officer of the Fund affiliated
with CGM is One International Place, Boston, Massachusetts 02110.
As of the date of this Statement, CGM, which serves as the Fund's
Investment Manager, was the sole shareholder of the Fund, and therefore, CGM was
deemed in "control" of the Fund within the meaning of the 1940 Act.
The Fund pays no compensation to its officers or to the trustees listed
above who are interested persons of the Fund. Officers and trustees receive no
pension or retirement benefits paid from Fund expenses. The following table sets
forth the compensation paid by the Trust to its trustees for the year ended
December 31, 1996:
<TABLE>
<CAPTION>
Pension Total
or Retirement Estimated Compensation From
Aggregate Benefits Accrued Annual Registrant and
Name of Compensation as Part of Fund Benefit Upon Fund Complex
Trustee From Trust Expenses Retirement Paid to Trustees(a)
- ------- ---------- -------- ---------- -------------------
<S> <C> <C> <C> <C>
Peter O. Brown $26,430.25 None None $35,750.00
Nicholas J. Grant 30,930.25 None None 41,750.00
G. Kenneth Heebner None None None None
Robert L. Kemp None None None None
Robert B. Kittredge 26,430.25 None None 35,750.00
Laurens Maclure 26,430.25 None None 35,750.00
James Van Dyke Quereau, Jr. 26,430.25 None None 35,750.00
J. Baur Whittlesey 26,430.25 None None 35,750.00
- -------------
(a) The Fund Complex is comprised of two Trusts with a total of six funds.
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER SERVICES
- --------------------------------------------------------------------------------
Advisory Agreement CGM serves as investment manager of the Fund under
an advisory agreement dated September 2, 1997. Under the advisory agreement, CGM
manages the investment and reinvestment of assets of the Fund and generally
administers its affairs, subject to supervision by the Board of Trustees of the
Trust. CGM furnishes, at its own expense, all necessary office supplies,
facilities and equipment, services of executive and other personnel of the Fund
and certain administrative services. For these services, CGM is compensated at
the annual percentage rate of 1.00% of the first $500 million of the Fund's
average daily net asset value, 0.95% of the next $500 million of such value, and
0.90% of such value in excess of $1 billion. CGM has voluntarily agreed, until
December 31, 1998, and thereafter until further notice to the Fund, to limit its
management fees and, if necessary, to bear certain expenses associated with
operating the Fund, in order to limit the Fund's total operating expenses to an
annual rate of 1.20% of the Fund's average net assets.
The Fund pays the compensation of its trustees who are not partners,
directors, officers or employees of CGM or its affiliates (other than registered
investment companies); registration, filing, and other fees in connection with
requirements of regulatory authorities; all charges and expenses of its
custodian and transfer agent; the charges and expenses of its independent
accountants; all brokerage commissions and transfer taxes in connection with
portfolio transactions; all taxes and fees payable to governmental agencies; the
cost of any certificates representing shares of the Fund; the expenses of
meetings of the shareholders and trustees of the Fund; the charges and expenses
of the Fund's legal counsel; interest, including on any borrowings by the Fund;
the cost of services, including services of counsel, required in connection with
the preparation of, and the costs of printing registration statements and
prospectuses relating to the Fund, including amendments and revisions thereto,
annual, semiannual, and other periodic reports of the Fund, and notices and
proxy solicitation material furnished to shareholders of the Fund or regulatory
authorities, to the extent that any such materials relate to the Fund or its
shareholders; and the Fund's expenses of bookkeeping, accounting, auditing and
financial reporting, including related clerical expenses.
CGM also acts as investment adviser to CGM Capital Development Fund,
CGM Mutual Fund, CGM Fixed Income Fund, CGM American Tax Free Fund, CGM Realty
Fund and three other mutual fund portfolios. CGM also provides investment
advice to other institutional clients.
Certain officers and trustees of the Fund also serve as officers,
directors or trustees of other investment companies advised by CGM. The other
investment companies and clients served by CGM sometimes invest in securities in
which the Fund also invests. If the Fund and such other investment companies or
clients advised by CGM desire to buy or sell the same portfolio securities at
the same time, purchases and sales will be allocated to the extent practicable
on a pro rata basis in proportion to the amounts desired to be purchased or sold
for each. It is recognized that in some cases the practices described in this
paragraph could have a detrimental effect on the price or amount of the
securities which the Fund purchases or sells. In other cases, however, it is
believed that these practices may benefit the Fund. It is the opinion of the
trustees that the desirability of retaining CGM as adviser for the Fund
outweighs the disadvantages, if any, which might result from these practices.
Custodial Arrangements State Street Bank and Trust Company ("State
Street Bank"), Boston, Massachusetts 02102, is the Fund's custodian. As such,
State Street Bank holds in safekeeping certificated securities and cash
belonging to the Fund and, in such capacity, is the registered owner of
securities held in book entry form belonging to the Fund. Upon instruction,
State Street Bank receives and delivers cash and securities of the Fund in
connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. State Street Bank
also maintains certain accounts and records of the Fund and calculates the total
net asset value, total net income, and net asset value per share of the Fund on
each business day.
Independent Accountants The Fund's independent accountants are Price
Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110. Price
Waterhouse LLP conducts an annual audit of the Fund's financial statements,
assists in the preparation of the Fund's federal and state income tax returns
and consults with the Fund as to matters of accounting and federal and state
income taxation.
Other Arrangements Certain office space, facilities, equipment and
administrative services for the Fund and other mutual funds under the investment
management of the CGM organization are furnished by CGM. In addition, CGM
provides bookkeeping, accounting, auditing, financial recordkeeping and related
clerical services for which it is entitled to be reimbursed by the Fund based on
the cost of providing these services.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
In placing orders for the purchase and sale of portfolio securities for
the Fund, CGM always seeks the best price and execution. Transactions in
unlisted securities will be carried out through broker-dealers who make the
primary market for such securities unless, in the judgment of CGM, a more
favorable price can be obtained by carrying out such transactions through other
brokers.
CGM selects only brokers it believes are financially responsible, will
provide efficient and effective services in executing, clearing and settling an
order and will charge commission rates which, when combined with the quality of
the foregoing services, will produce the best price and execution for the
transaction. This does not necessarily mean that the lowest available brokerage
commission will be paid. However, the commissions are believed to be competitive
with generally prevailing rates. CGM will use its best efforts to obtain
information as to the general level of commission rates being charged by the
brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by the
broker in connection with the order, are taken into account. The Fund will not
pay a broker a commission at a higher rate than is otherwise available for the
same transaction in recognition of the value of research services provided by
the broker or in recognition of the value of any other services provided by the
broker which do not contribute to the best price and execution of the
transaction.
Receipt of research services from brokers may sometimes be a factor in
selecting a broker which CGM believes will provide the best price and execution
for a transaction. These research services include not only a wide variety of
reports on such matters as economic and political developments, industries,
companies, securities, portfolio strategy, account performance, daily prices of
securities, stock and bond market conditions and projections, asset allocation
and portfolio structure, but also meetings with management representatives of
issuers and with other analysts and specialists. Although it is not possible to
assign an exact dollar value to these services, they may, to the extent used,
tend to reduce CGM's expenses. Such services may be used by CGM in servicing
other client accounts and in some cases may not be used with respect to the
Fund. Receipt of services or products other than research from brokers is not a
factor in the selection of brokers.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE TRUST
- --------------------------------------------------------------------------------
The Declaration of Trust of the Trust currently permits the trustees to
issue an unlimited number of shares of beneficial interest of separate series of
the Trust. Interests in the portfolio described in the Prospectus and in this
Statement are represented by shares of the Fund. Each share of the Fund
represents an interest in such series which is equal to and proportionate with
the interest represented by each other share. The shares of the Fund do not have
any preemptive rights. Upon liquidation of the portfolio, shareholders of the
Fund are entitled to share pro rata in the net assets of such portfolio
available for distribution to shareholders. The Declaration of Trust also
permits the trustees to charge shareholders directly for custodial, transfer
agency and servicing expenses. The trustees have no present intention of making
such direct charges.
The Declaration of Trust also permits the trustees, without shareholder
approval, to create one or more additional series or classes of shares or to
reclassify any or all outstanding shares as shares of particular series or
classes, with such preferences and rights and eligibility requirements as the
trustees may designate. While the trustees have no current intention to exercise
the power to establish separate classes of the existing series of the Fund, it
is intended to allow them to provide for an equitable allocation of the impact
of any future regulatory requirements, which might affect various classes of
shareholders differently. The trustees may also, without shareholder approval,
merge two or more existing series.
Shareholder Rights
Shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held) and may vote (to the extent
provided herein) in the election of trustees of the Trust and the termination of
the Fund and on other matters submitted to the vote of shareholders. There will
normally be no meetings of shareholders for the purpose of electing trustees,
except that in accordance with the 1940 Act, (i) the Trust will hold a
shareholders' meeting for the election of trustees at such time as less than a
majority of the trustees holding office have been elected by shareholders, and
(ii) if the appointment of a trustee to fill a vacancy in the Board of Trustees
would result in less than two-thirds of the trustees having been elected by the
shareholders, that vacancy may only be filled by a vote of the shareholders. In
addition, trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for the purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by ten or more shareholders of record who have been such
for at least six months and who hold in the aggregate shares equal to at least
the lesser of (i) $25,000 in net asset value or (ii) 1% of the outstanding
shares, stating that shareholders wish to communicate with the other
shareholders for the purpose of obtaining the signatures necessary to demand a
meeting to consider removal of a trustee, the Trust will either provide access
to a list of shareholders or disseminate appropriate materials (at the expense
of the requesting shareholders). Except as set forth above, the trustees shall
continue to hold office and may appoint successor trustees. Voting rights are
not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the holders of the outstanding shares of the
Trust except (i) to change the Trust's name or to cure technical problems in the
Declaration of Trust and (ii) to establish, designate or modify new and existing
series or subseries of Trust shares or other provisions relating to Trust shares
in response to applicable laws or regulations. The shareholders of the Fund
shall not be entitled to vote on matters exclusively affecting any other series,
such matters including, without limitation, the adoption of or change in the
investment objectives, policies or restrictions of the series and the approval
of the investment advisory contracts of the series. Similarly, no shareholders
of any other series shall be entitled to vote on any such matters exclusively
affecting the Fund. In particular, the phrase "majority of the outstanding
voting securities of the Fund" as used in this Statement shall refer only to the
shares of the Fund.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust;
however, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or trustees. The Declaration of Trust provides for indemnification out of Fund
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote since it
is limited to circumstances in which the disclaimer is inoperative and the Fund
itself would be unable to meet its obligations.
The Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The By-Laws of the Trust provide for indemnification by the Trust of
the trustees and officers of the Trust except with respect to any matter as to
which any such person did not act in good faith in the reasonable belief that
such action was in or not opposed to the best interests of the Trust. No officer
or trustee may be indemnified against any liability to the Trust or the Trust's
shareholders to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
All persons dealing with the Fund must look only to the assets of the
Fund for the enforcement of any claims against the Fund and no other series of
the Trust assumes any liability for obligations entered into on behalf of the
Fund.
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HOW TO BUY SHARES
- --------------------------------------------------------------------------------
During the period September 3, 1997, through November 30, 1997, the
minimum initial investment is $1,000 for existing shareholders of CGM Mutual
Fund, CGM Fixed Income Fund, CGM American Tax Free Fund, CGM Realty Fund and CGM
Capital Development Fund as of the date of purchase of shares of the Fund.
The procedures for purchasing shares of the Fund are summarized in the
Prospectus under "How to Purchase Shares."
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ADVERTISING AND PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Calculation of Total Return
The Fund may include total return information in advertisements or
written sales material. Total return is a measure of the change in value of an
investment in the Fund over the period covered, which assumes that any dividends
or capital gains distributions are automatically reinvested in the Fund rather
than paid to the investor in cash. The formula for total return used by the Fund
includes three steps:
(1) adding to the total number of shares purchased by a
hypothetical $1,000 investment in the Fund all additional shares that
would have been purchased if all dividends and distributions paid or
distributed during the period had been automatically reinvested;
(2) calculating the value of the hypothetical initial
investment as of the end of the period by multiplying the total number
of shares owned at the end of the period by the net asset value per
share on the last trading day of the period; and
(3) dividing this account value for the hypothetical investor
by the amount of the initial investment, and annualizing the result for
periods of less than one year.
In computing performance information for the Fund, no adjustment will
be made for a shareholder's tax liability on taxable dividends and capital gains
distributions.
Performance Comparisons
Total return may be used to compare the performance of the Fund against
certain widely acknowledged standards or indices for stock and bond market
performance or against the U.S. Bureau of Labor Statistics' Consumer Price
Index.
The Standard & Poor's 500 Composite Index (the "S&P 500") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 stocks relative to the base period 1941-43. The S&P 500 is composed
almost entirely of common stocks of companies listed on the New York Stock
Exchange, although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included. The 500 companies
represented include 400 industrial, 60 transportation and 40 financial services
concerns.
The Dow Jones Industrial Average is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York Stock
Exchange.
No brokerage commissions or other fees are factored into the values of
the S&P 500 and the Dow Jones Industrial Average.
The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of change, over time, in the prices of
goods and services in major expenditure groups.
Lipper Analytical Services, Inc., an independent service that monitors
the performance of over 9,505 mutual funds, calculates total return for those
funds grouped by investment objective. From time to time, the Fund may include
its ranking among mutual funds tracked by Lipper in advertisements or sales
literature.
Morningstar, Inc. ("Morningstar") is an independent mutual fund ranking
service. Morningstar proprietary ratings reflect historical risk-adjusted
performance and are subject to change every month. Funds with at least three
years of performance history are assigned ratings from one star (lowest) to five
stars (highest). Morningstar ratings are calculated from the funds' three-,
five-, and ten-year average annual returns (when available) and a risk factor
that reflects the fund performance relative to three-month Treasury bill monthly
returns. Funds' returns are adjusted for fees and sales loads. Ten percent of
the funds in an investment category receive five stars, 22.5% receive four
stars, 35% receive three stars, 22.5% receive two stars, and the bottom 10%
receive one star. From time to time, the Fund may include its ranking among
mutual funds tracked by Morningstar in advertisements or sales literature.
Value Line, Inc. ("Value Line"), an independent mutual fund ranking
service reviews the performance of 6,101 mutual funds. In ranking mutual funds,
Value Line uses two indicators: a Risk Rank to show the total level of risk a
fund has assumed and an Overall Rank measuring various performance criteria
taking risk into account. Funds are ranked from 1 to 5, with 1 the highest
Overall Rank (the best risk-adjusted performance) and the best Risk Rank (the
least risky). From time to time, the Fund may include ranking information
provided by Value Line in advertisements and sales literature.
From time to time, articles about the Fund regarding performance,
rankings and other characteristics of the Fund and information about persons
responsible for its portfolio management may appear in national publications and
major metropolitan newspapers including, but not limited to, The Wall Street
Journal, The Boston Globe, The New York Times and Barron's, Forbes, Fortune,
Money, Worth, Kiplinger's Personal Finance, Mutual Funds, Individual Investor,
Bloomberg Personal and Business Week magazines. In particular, some or all of
these publications may publish their own rankings or performance reviews of
mutual funds, including the Fund. References to or reprints of, or quotations
from, such articles may be used in the Fund's promotional literature. The Fund
may also include in its advertising and sales literature information concerning
the experience of Mr. Heebner, the Fund's portfolio manager in managing other
mutual funds and private accounts, including ranking and rating information
about such funds.
Mr. Heebner has continuously managed the Fund since its inception on
September 3, 1997.
- --------------------------------------------------------------------------------
NET ASSET VALUE AND PUBLIC OFFERING PRICE
- --------------------------------------------------------------------------------
The method for determining the public offering price and net asset
value per share is summarized in the Prospectus under "Pricing of Shares."
The net asset value of a share of the Fund is determined by dividing
the Fund's total net assets (the excess of its assets over its liabilities) by
the total number of shares outstanding and rounding to the nearest cent. Such
determination is made as of the close of normal trading on the New York Stock
Exchange on each day on which the Exchange is open for unrestricted trading, and
no less frequently than once daily on each day during which there is sufficient
trading in the Fund's portfolio securities that the value of the Fund's shares
might be materially affected. During the 12 months following the date of this
Statement, the New York Stock Exchange is expected to be closed on the following
holidays: Martin Luther King, Jr. Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, Christmas Day, New Year's Day, Presidents' Day, and Good
Friday.
Securities which are traded over-the-counter or on a stock exchange
will be valued according to the broadest and most representative market based on
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. U.S. Government securities are valued at the most recent quoted price
on the date of valuation.
For equity securities, it is expected that the broadest and most
representative market will ordinarily be either (i) a national securities
exchange, such as the New York Stock Exchange or American Stock Exchange, or
(ii) the NASDAQ National Market System. Other assets and securities which are
not readily marketable will be valued in good faith at fair value using methods
determined by the Board of Trustees.
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Open Accounts
A shareholder's investment in the Fund is credited to an open account
maintained for the shareholder by the CGM Shareholder Services Department ("CGM
Shareholder Services") of Boston Financial Data Services, Inc. ("BFDS"), the
shareholder servicing agent for State Street Bank. The address is: CGM
Shareholder Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
Certificates representing shares are issued only upon written request
to CGM Shareholder Services but are not issued for fractional shares. Following
each transaction in the account, a shareholder will receive an account statement
disclosing the current balance of shares owned and the details of recent
transactions that have taken place during the year. After the close of each
fiscal year, CGM Shareholder Services will send each shareholder a statement
providing federal tax information on dividends and distributions paid to the
shareholder during the year. The year-end statement should be retained as a
permanent record. Shareholders will be charged a fee for duplicate information.
The open account system permits the purchase of full and fractional
shares and, by making the issuance and delivery of certificates representing
shares unnecessary, eliminates problems of handling and safekeeping, and the
cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are borne by the Fund,
and no direct charges are made to shareholders. Although the Fund has no present
intention of making such direct charges to shareholders, it reserves the right
to do so. Shareholders will receive prior notice before any such charges are
made.
Systematic Withdrawal Plans ("SWP")
A Systematic Withdrawal Plan, referred to in the Prospectus under
"Shareholder Services--Systematic Withdrawal Plan," provides for monthly,
quarterly, semiannual or annual withdrawal payments of $50 or more from the
account of a shareholder provided that the account has a value of at least
$10,000 at the time the plan is established. A shareholder may establish a SWP
by completing the Account Update Form.
Payments will be made either to the shareholder or to any other person
or entity designated by the shareholder. If payments are issued to an individual
other than the registered owner(s) and/or mailed to an address other than the
address of record, a signature guarantee will be required on the Account Update
Form. Shares to be included in a Systematic Withdrawal Plan must be held in an
Open Account rather than certificated form. Income dividends and capital gain
distributions will be reinvested at the net asset value determined as of the
close of the New York Stock Exchange on the record date for the dividend or
distribution. If withdrawal checks are returned to the Fund as "undeliverable"
or remain uncashed for more than six months the shareholder's Systematic
Withdrawal Plan will be cancelled, such undeliverable or uncashed checks will be
cancelled and such amounts reinvested in the Fund at the per share net asset
value determined as of the date of cancellation of the checks.
Since withdrawal payments represent in whole or in part proceeds from
the liquidation of shares, the shareholder should recognize that withdrawals may
reduce and possibly exhaust the value of the account, particularly in the event
of a decline in net asset value. Accordingly, the shareholder should consider
whether a Systematic Withdrawal Plan and the specified amounts to be withdrawn
are appropriate in the circumstances. The Trust makes no recommendations or
representations in this regard. It may be appropriate for the shareholder to
consult a tax adviser before establishing such a plan. See "Redemptions" and
"Income Dividends, Capital Gain Distributions and Tax Status" below for certain
information as to federal income taxes.
Exchange Privilege
A shareholder may exchange shares of the Fund for shares of CGM Mutual
Fund, CGM Fixed Income Fund, CGM American Tax Free Fund, CGM Realty Fund, New
England Cash Management Trust, New England Tax Exempt Money Market Trust or CGM
Capital Development Fund; however, shares of CGM Capital Development Fund may be
exchanged only if you were a shareholder on September 24, 1993, and have
continuously remained a shareholder in the CGM Capital Development Fund since
that date. CGM Capital Development Fund shares are not generally available to
other persons except in special circumstances that have been approved by, or
under the authority of, the Board of Trustees of CGM Capital Development Fund.
The special circumstances currently approved by the Board of Trustees of CGM
Capital Development Fund are limited to the offer and sale of shares of such
fund to the following additional persons: trustees of CGM Capital Development
Fund, employees of the Investment Manager and counsel to such fund and the
Investment Manager. The value of shares exchanged must be at least $1,000 and
all exchanges are subject to the minimum investment requirements of the fund
into which the exchange is being made. This option is summarized in the
Prospectus under "Shareholder Services--Exchange Privilege." Exchange requests
cannot be revoked once they have been received in good order. The Trust reserves
the right to terminate or limit the privilege of a shareholder who makes more
than four exchanges (or two round trips) per year and to prohibit exchanges
during the first 15 days following an investment in the Fund.
Exchanges may be effected by (i) a telephone request to CGM Shareholder
Services at 800-343-5678, provided a special authorization form is on file with
the Trust, or (ii) a written exchange request to BFDS accompanied by an account
application for the appropriate fund. The Trust reserves the right to modify
this exchange privilege without prior notice, except as otherwise required by
law or regulation.
For federal income tax purposes, an exchange constitutes a sale of
shares, which may result in a capital gain or loss.
Automatic Investment Plans ("AIP")
Once initial investment minimums have been satisfied (see "How to
Purchase Shares" in the Prospectus), a shareholder may participate in an
Automatic Investment Plan, pursuant to which the Fund debits $50.00 or more on
or about the same date each month from a shareholder's checking account and
transfers the proceeds into the shareholder's Fund account. To participate, a
shareholder must authorize the Fund and its agents to initiate Automated
Clearing House ("ACH") debits against the shareholder's designated checking
account at a bank or other financial institution. Please contact CGM Shareholder
Services at 800-343-5678 to determine the requirements associated with debits
from savings banks and credit unions. Debits from money market accounts are not
acceptable. Shareholders receive a confirmation of each purchase of Fund shares
under the AIP. If a shareholder elects to redeem shares of the Fund purchased
under the AIP within 15 days of such purchase, the shareholder may experience
delays in receiving redemption proceeds. See "All Redemptions."
Once a shareholder enrolls in the AIP, the Fund and its agents are
authorized to initiate ACH debits against the shareholder's account payable to
the order of The CGM Funds. Such authority remains in effect until revoked by
the shareholder, and, until the Fund actually receives such notice of
revocation, the Fund is fully protected in initiating such debits. Participation
in the AIP may be terminated by sending written notice to CGM Shareholder
Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511, or by calling
800-343-5678 more than 14 days prior to the next scheduled debit date. The Fund
may terminate a shareholder's participation in the AIP immediately in the event
that any item is unpaid by the shareholder's financial institution. The Fund may
terminate or modify the AIP at any time.
Retirement Plans
Under "Shareholder Services--Retirement Plans" the Prospectus refers to
several retirement plans. These include tax deferred money purchase pension or
profit sharing plans, as well as SEP-IRAs, IRAs and 403(b)(7) custodial accounts
established under retirement plans sponsored by CGM. These plans may be funded
with shares of the Fund.
For participants under age 59 1/2, all income dividends and capital
gain distributions of plan participants must be reinvested. Plan documents and
further information can be obtained from the Trust by writing or calling the
Trust as indicated on the cover of this Statement.
Check with your financial or tax adviser as to the suitability of Fund
shares for your retirement plan.
Address Changes
Shareholders can request to change their record address either by
telephone or in writing (by mail or delivery service, but not by facsimile) in
accordance with the policies and procedures of the Trust. After an address
change is made, no telephone or written redemption requests will be honored for
three months unless the registered owner's signature is guaranteed on the
request. Written requests for a change of address may be mailed to: CGM
Shareholder Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
- --------------------------------------------------------------------------------
REDEMPTIONS
- --------------------------------------------------------------------------------
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
Except as noted below, signatures on redemption requests must be
guaranteed by an eligible guarantor institution in accordance with procedures
established by the Trust. Signature guarantees by notaries public are not
acceptable.
The procedures provide that an "eligible guarantor institution" means
any of the following: banks (as defined in ss. 3(a) of the Federal Deposit
Insurance Act (the "FDIA") [12 U.S.C. ss. 1813(a)]); brokers, dealers, municipal
securities brokers, government securities dealers and government securities
brokers, as those terms are defined under the Securities Exchange Act of 1934
(the "Act"); credit unions (as defined in ss. 19(b)(1)(A) of the Federal Reserve
Act [12 U.S.C. ss. 461(b)]); national securities exchanges, registered
securities associations and clearing agencies, as those terms are defined under
the Act; and savings associations (as defined in ss. 3(b) of the FDIA [12 U.S.C.
ss. 1813(b)]). However, as noted in the Prospectus, a signature guarantee will
not be required if the proceeds of the redemption do not exceed $25,000, and the
proceeds check is made payable to the registered owner(s) and mailed to the
record address, which has not changed in the prior three months. If the record
address has changed within the prior three months, a signature guarantee will be
required. This policy applies to both written and telephone redemption requests.
Redeeming by Telephone
There are two ways to redeem by telephone. In either case, a
shareholder should call 800-343-5678 prior to 4:00 p.m. (Eastern time). Requests
made after that time or on a day when the New York Stock Exchange is not open
for business cannot be accepted. Telephone redemptions are not available for
IRAs, SEP-IRAs, 403(b)(7) custodial accounts or money purchase pension and
profit sharing plans under a CGM retirement plan where State Street Bank is the
custodian or trustee.
Check Sent to the Record Address
A shareholder may request that a check be sent to the record address on
the account, provided that the address has not changed for the last three months
and the shareholder is redeeming $25,000 or less. Except in the case of a CGM
retirement plan, the service option of telephone redemption by check is
available to shareholders automatically unless this option is declined in the
application or in writing. The check will be made payable to the registered
owner(s) of the account.
If checks representing redemption proceeds are returned "undeliverable"
or remain uncashed for six months, such checks shall be cancelled and such
proceeds shall be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation of such checks.
Proceeds Wired to a Predesignated Bank
A shareholder may request that the redemption proceeds be wired to the
bank selected on the Fund application or subsequently on the Account Update Form
available from the Trust or BFDS. A nominal wire fee, currently $5.00, is
deducted from the proceeds. When selecting the service, a shareholder must
designate a bank account to which the redemption proceeds should be wired. Any
change in the bank account so designated may be made by furnishing BFDS a
completed Account Update Form with a signature guarantee. Whenever the Account
Update Form is used, the shareholder's signature must be guaranteed as described
above. Telephone redemptions may be made only if an investor's bank is a member
of the Federal Reserve System or has a correspondent bank that is a member of
the System. If the account is with a savings bank, it must have only one
correspondent bank that is a member of the System.
All Redemptions
The redemption price will be the net asset value per share next
determined after the redemption request is received by CGM Shareholder Services
in good order (including any necessary documentation). Redemption requests
cannot be revoked once they have been received in good order. Proceeds resulting
from a written redemption request will normally be mailed to you within seven
days after receipt of your request in good order. Telephone redemption proceeds
will normally be mailed or wired within seven days following receipt of a proper
redemption request. If you purchased your Fund shares by check (or through your
AIP) and elect to redeem shares within 15 days of such purchase, you may
experience delays in receiving redemption proceeds. The Trust will process your
redemption request upon receipt of a request in good order. However, the Trust
will generally postpone sending your redemption proceeds from such investment
until it can verify that your check (or AIP investment) has been or will be
collected. Under ordinary circumstances, the Trust cannot verify collection of
individual checks (or AIP investments) and may therefore automatically hold
proceeds from redemptions requested during the 15 day period following such
investment for a total of up to seven days. There will be no such automatic
delay following investments paid for by federal funds wire or by bank cashier's
check, certified check or treasurer's check although the Trust may in any case
postpone payment of redemption proceeds for up to seven days.
The Trust will normally redeem shares for cash; however, the Trust
reserves the right to pay the redemption price wholly in kind or partly in kind
and partly in cash if the board of trustees of the Trust determines it to be
advisable in the interest of the remaining shareholders. If portfolio securities
are distributed in lieu of cash, the shareholder will normally incur brokerage
commissions upon subsequent disposition of any such securities.
A redemption constitutes a sale of the shares for federal income tax
purposes on which the investor may realize a long- or short-term capital gain or
loss. See "Income Dividends, Capital Gains Distributions and Tax Status."
Because the expense of maintaining small accounts is disproportionately
high, the Trust may close accounts with 20 shares or less and mail the proceeds
to the shareholder. Shareholders who are affected by this policy will be
notified of the Trust's intention to close the account, and will have 60 days
immediately following the notice in which to acquire the requisite number of
shares. The minimum does not apply to retirement and Uniform Gifts to Minors Act
or Uniform Transfers to Minors Act accounts.
- --------------------------------------------------------------------------------
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
- --------------------------------------------------------------------------------
As described in the Prospectus under "Dividends, Capital Gains
Distributions and Taxes" it is the policy of the Fund to pay annually, as
dividends, substantially all net investment income and to distribute annually
all net realized capital gains, if any, after offsetting any capital loss
carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the Fund based upon the net asset value determined as of
the close of the New York Stock Exchange on the record date for such dividend or
distribution. Shareholders, however, may elect to receive their income dividends
or capital gain distributions, or both, in cash. However, if a shareholder
elects to receive capital gains in cash, his or her income dividends must also
be received in cash. Shareholders can elect to receive payments of cash
dividends and capital gains distributions either by check or by direct deposit
to a bank account that they have predesignated. These elections can be made at
the time the account is opened and may be changed by the shareholder at any time
by submitting a written request directly to CGM Shareholder Services or by
calling 800-343-5678. However, changes in bank account information for direct
deposits of cash dividends and capital gains distributions must be made through
an Account Update Form. In order for a change to be effective for any dividend
or distribution, it must be received by CGM Shareholder Services on or before
the record date for such dividend or distribution. If a shareholder elects to
receive distributions in cash and checks are returned "undeliverable" or remain
uncashed for six months, such shareholder's cash election will be changed
automatically and the shareholder's future dividend and capital gains
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, following
such six month period, any undeliverable or uncashed checks will be cancelled
and such amounts reinvested in the Fund at the per share net asset value
determined as of the date of cancellation of such checks.
The Fund intends to meet the requirements of the Internal Revenue Code
with respect to regulated investment companies.
The distributions received by the Fund from its investments may, for
federal income tax purposes, consist of ordinary income, long-term capital gains
or a return of capital. The characterization of these distributions to the Fund
may, in turn, affect the tax treatment of the Fund's distributions to its
shareholders. Dividends and distributions are taxable to shareholders in the
same manner whether received in cash or reinvested in additional shares of the
Fund.
Dividends paid by the Fund from net investment income, including
dividends, interest and net short-term capital gains, will be taxable to
shareholders as ordinary income. Distributions of net capital gains (the excess
of net long-term capital gains over net short-term capital losses) which are
designated by the Fund as capital gains distributions are taxable as long-term
capital gains, regardless of the length of time shareholders have owned shares
in the Fund. To the extent that the Fund makes a distribution in excess of its
current and accumulated earnings and profits, the distribution will be treated
first as a tax-free return of capital, reducing the tax basis in a shareholder's
shares, and then, to the extent the distribution exceeds such basis, as a
taxable gain to be realized upon sale of such shares.
If the Fund invests in foreign securities, it may be subject to foreign
withholding taxes on income earned on such securities and may be unable to pass
through to shareholders foreign tax credits and deductions with respect to such
taxes.
Dividends and distributions on Fund shares received shortly after their
purchase, although in effect a return of capital, are subject to federal income
taxes.
The Fund is required to withhold and remit to the U.S. Treasury 31% of
all dividends from net investment income and capital gains distributions,
whether distributed in cash or reinvested in shares of the Fund, paid or
credited to any shareholder account for which an incorrect or no taxpayer
identification number has been provided or where the Fund is notified that the
shareholder has underreported income in the past (or the shareholder fails to
certify that he is not subject to withholding). In addition, the Fund will be
required to withhold and remit to the U.S. Treasury 31% of the amount of the
proceeds of any redemption of Fund shares from a shareholder account for which
an incorrect or no taxpayer identification number has been provided or where the
Fund is notified that the shareholder has underreported income in the past (or
the shareholder fails to certify that he is not subject to such withholding).
As required by federal law, detailed federal tax information is
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
<PAGE>
CGM TRUST
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements with respect to CGM Focus Fund:
None.
(b) Exhibits:
(1) (A) Amended and Restated Agreement and Declaration of
Trust of the Registrant is contained in
Post-Effective Amendment No. 82 on Form N- 1A
(File No. 2-10653) filed on February 27, 1997.
(B) Amendment No. 1 to the Amended and Restated
Agreement and Declaration of Trust of the
Registrant is contained in Post-Effective
Amendment No. 83 on Form N-1A (File No. 2-10653)
filed on June 17, 1997.
(2) By-Laws of the Registrant are contained in
Post-Effective Amendment No. 82 on Form N-1A (File
No. 2-10653) filed on February 27, 1997.
(3) None.
(4) (A) Form of share certificate of the Registrant's CGM
Mutual Fund is contained in Post-Effective
Amendment No. 82 on Form N-1A (File No. 2-10653)
filed on February 27, 1997.
(B) Form of share certificate of the Registrants' CGM
Fixed Income Fund is contained in Post-Effective
Amendment No. 82 on Form N-1A (File No. 2-10653)
filed on February 27, 1997.
(C) Form of share certificate of the Registrant's CGM
American Tax Free Fund is contained in
Post-Effective Amendment No. 82 on Form N-1A (File
No. 2-10653) filed on February 27, 1997.
(D) Form of share certificate of the Registrant's CGM
Realty Fund is contained in Post-Effective
Amendment No. 82 on Form N-1A (File No. 2-10653)
filed on February 27, 1997.
(E) Form of share certificate of the Registrant's CGM
Focus Fund is to be filed by amendment.
(5) (A) Advisory Agreement of the Registrant dated
December 13, 1996 with respect to CGM Mutual Fund
is contained in Post-Effective Amendment No. 82 on
Form N-1A (File No. 2-10653) filed on February 27,
1997.
(B) Advisory Agreement of the Registrant dated
December 13, 1996 with respect to CGM Fixed Income
Fund is contained in Post-Effective Amendment No.
82 on Form N-1A (File No. 2-10653) filed on
February 27, 1997.
(C) Advisory Agreement of the Registrant dated August
30, 1996 with respect to CGM American Tax Free
Fund is contained in Post-Effective Amendment No.
82 on Form N-1A (File No. 2-10653) filed on
February 27, 1997.
(D) Advisory Agreement of the Registrant dated August
30, 1996 with respect to CGM Realty Fund is
contained in Post-Effective Amendment No. 82 on
Form N-1A (File No. 2-10653) filed on February 27,
1997.
(E) Form of Advisory Agreement of the Registrant with
respect to CGM Focus Fund is contained in
Post-Effective Amendment No. 83 on Form N-1A
(File No. 2-10653) filed on June 17, 1997.
(6) None.
(7) None.
(8) (A) Custodian Agreement with respect to CGM Mutual
Fund is contained in Post-Effective Amendment No.
82 on Form N-1A (File No. 2-10653) filed on
February 27, 1997.
(B) Supplement dated March 6, 1992 to Custodian
Contract with respect to CGM Mutual Fund is
contained in Post-Effective Amendment No. 82 on
Form N-1A (File No. 2-10653) filed on February 27,
1997.
(C) Custodian Contract dated March 6, 1992 with
respect to CGM Fixed Income Fund is contained in
Post-Effective Amendment No. 82 on Form N-1A (File
No. 2-10653) filed on February 27, 1997.
(D) Amendment dated April 16, 1992 to the Custodian
Contract with respect to CGM Fixed Income Fund is
contained in Post-Effective Amendment No. 82 on
Form N-1A (File No. 2-10653) filed on February 27,
1997.
(E) Custodian Contract with respect to CGM American
Tax Free Fund is contained in Post-Effective
Amendment No. 82 on Form N-1A (File No. 2-10653)
filed on February 27, 1997.
(F) Custodian Contract with respect to CGM Realty Fund
is contained in Post-Effective Amendment No. 82 on
Form N-1A (File No. 2-10653) filed on February 27,
1997.
(G) Custodian Contract with respect to CGM Focus Fund
is to be filed by amendment.
(9) (A) Transfer Agency and Service Agreement with respect
to CGM Mutual Fund dated June 1, 1987 is contained
in Post-Effective Amendment No. 82 on Form N-1A
(File No. 2-10653) filed on February 27, 1997.
(B) Supplement dated March 6, 1992 to Transfer Agency
and Service Agreement with respect to CGM Mutual
Fund is contained in Post- Effective Amendment No.
82 on Form N-1A (File No. 2-10653) filed on
February 27, 1997.
(C) Transfer Agency and Service Agreement dated March
6, 1992 with respect to CGM Fixed Income Fund is
contained in Post-Effective Amendment No. 82 on
Form N-1A (File No. 2-10653) filed on February 27,
1997.
(D) Transfer Agency Agreement with respect to CGM
American Tax Free Fund is contained in
Post-Effective Amendment No. 82 on Form N-1A (File
No. 2-10653) filed on February 27, 1997.
(E) Powers of Attorney are contained in Post-Effective
Amendment No. 82 on Form N-1A (File No. 2-10653)
filed on February 27, 1997.
(F) Transfer Agency Agreement with respect to CGM
Realty Fund is contained in Post-Effective
Amendment No. 82 on Form N-1A (File No. 2-10653)
filed on February 27, 1997.
(G) Transfer Agency Agreement with respect to CGM
Focus Fund is to be filed by amendment.
(10) Opinion and consent of counsel with respect to shares
of CGM Focus Fund is contained in Post-Effective
Amendment No. 83 on Form N-1A (File No. 2-10653)
filed on June 17, 1997.
(11) None.
(12) None.
(13) None.
(14) Forms of The CGM Funds Retirement Plans are contained
in Post-Effective Amendment No. 82 on Form N-1A (File
No. 2-10653) filed on February 27, 1997.
(15) None.
(16) None.
(17) Financial data schedule is contained in Post-Effective
Amendment No. 82 on Form N-1A (File No. 2-10653) filed
on February 27, 1997.
(18) None.
Item 25. Persons Controlled by or Under Common Control with Registrant
Information pertaining to persons controlled by or under common
control with the Registrant is hereby incorporated by reference to
the section captioned "The Fund's Investment Manager" in each
Prospectus and the section captioned "Investment Advisory and Other
Services -- Advisory Agreement" in each Statement of Additional
Information.
Item 26. Number of Holders of Securities
The following table sets forth the number of record holders of each
class of securities of the Registrant as of June 30, 1997:
Number of Record
Title of Class Holders
Shares of Beneficial Interest,
CGM Mutual Fund 65,934
Shares of Beneficial Interest,
CGM Fixed Income Fund 2,708
Shares of Beneficial Interest,
CGM American Tax Free Fund 889
Shares of Beneficial Interest,
CGM Realty Fund 20,432
Shares of Beneficial Interest,
CGM Focus Fund 0
Item 27. Indemnification
See Article 4 of the Trust's By-Laws which is incorporated by
reference herein to Post-Effective Amendment No. 82 on Form N-1A
(File No. 2-10653) filed on February 27, 1997. In addition, the Trust
maintains a trustees and officers liability insurance policy with
maximum coverage of $5 million under which the Trust and its trustees
and officers will be named insureds.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the Trust's By-Laws, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a trustee, officer or controlling person
of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against the public policy as expressed in the Securities Act of
1933 and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Capital Growth Management Limited Partnership ("CGM"), the investment
manager of CGM Mutual Fund, CGM Fixed Income Fund, CGM American Tax
Free Fund, CGM Realty Fund and CGM Focus Fund, provides investment
advice to a number of other registered investment companies and to
other organizations and individuals.
Item 29. Principal Underwriters
Not applicable.
Item 30. Location of Accounts and Records
The following companies maintain possession of the documents required
by the specified rules:
(a) Registrant
Rule 31a-1(a)(4); Rule 31a-1(d); Rule 31a-2(a); Rule 31a-2(c)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Rule 31a-1(a); Rule 31a-1(b)(1), (2), (3), (5), (6), (7), (8);
Rule 31a-2(a)
(c) Capital Growth Management Limited Partnership
One International Place
Boston, Massachusetts 02110
Rule 31a-1(a); Rule 31a-1(b)(9), (10), (11);
Rule 31a-1(f); Rule 31a-2(a); Rule 31a-2(e)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) The Registrant undertakes to comply with Section 16(c) of the
Investment Company Act of 1940 as though such provision of the
Act were applicable to the Registrant, except that the request
referred to therein may only be made by shareholders who hold
in the aggregate at least one percent of the outstanding shares
of the Registrant or shares with an aggregate net asset value
of $25,000.
(b) The Registrant undertakes, with respect to CGM Mutual Fund, CGM
Fixed Income Fund, CGM American Tax Free Fund and CGM Realty
Fund, to furnish, upon request and without charge, to each
person to whom a fund's prospectus is delivered, a copy of such
fund's latest annual report to shareholders.
(c) The Registrant undertakes, with respect to CGM Focus Fund, to
file a post-effective amendment, using financial statements
which need not be certified, within four to six months of the
effective date of the amendment to the Registrant's 1933 Act
Registration Statement with respect to shares representing
interests in CGM Focus Fund.
<PAGE>
CGM TRUST
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this
post-effective amendment to its Registration Statement meets all of the
requirements for effectiveness pursuant to Rule 485(b) under the Securities Act
of 1933 and the Registrant further certifies that it has duly caused this
amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Boston, and the
Commonwealth of Massachusetts, on the 12th day of September, 1997.
CGM Trust
By: /s/ Robert L. Kemp
----------------------
Robert L. Kemp
President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment to this Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
President (Principal
Executive Officer)
/s/ Robert L. Kemp and Trustee September 12, 1997
- ----------------------------
Robert L. Kemp
Treasurer (Principal
Financial and Accounting
/s/ Frank N. Strauss Officer) September 12, 1997
- ----------------------------
Frank N. Strauss
* Trustee September 12, 1997
- ----------------------------
Peter O. Brown
* Trustee September 12, 1997
- ----------------------------
Nicholas J. Grant
* Trustee September 12, 1997
- ----------------------------
G. Kenneth Heebner
* Trustee September 12, 1997
- ----------------------------
Robert B. Kittredge
* Trustee September 12, 1997
- ----------------------------
Laurens MacLure
* Trustee September 12, 1997
- ----------------------------
James Van Dyke Quereau, Jr.
* Trustee September 12, 1997
- ----------------------------
J. Baur Whittlesey
*By: /s/ Robert L. Kemp
--------------------
Attorney-In-Fact
