CGM
Focus Fund
3rd Quarterly Report
June 30, 1998
A No-Load Fund
[Logo] Investment Adviser
Capital Growth Management
Limited Partnership
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To Our Shareholders:
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CGM Focus Fund decreased -0.3% during the second quarter of 1998 compared to the
unmanaged Standard and Poor's 500 Index which grew +3.3%. For the first six
months of the year, CGM Focus Fund returned +14.9% and the unmanaged S&P 500
Index, 17.7%.
The U.S. economy is still strong: First quarter Gross Domestic Product grew at a
very high 5.4% annual rate and, although second quarter numbers are expected to
come in much lower, the pace continues to be brisk and appears sustainable.
Inflation, as measured by the Consumer Price Index, remains low, thanks largely
to commodity prices which have been falling for most of this year and also, to
economic problems in Asia. Corporate profit margins are slightly narrower than
at the end of the first quarter and in a few cases, companies have reported poor
results with most of the blame going to the Asian crisis.
At this point, Asia poses the greatest threat to ongoing economic peace of mind
in the U.S. The Asian recession is far worse than estimated last fall and it
appears that recovery will be slower in coming than originally anticipated.
Additionally, the Japanese economy is in trouble and the weak Yen puts
additional pressure on prices in neighboring countries. Commerce with
Asia--minus Japan--represents but a small portion of the total U.S. economy so
the principal effect of the recession has been to force prices down, but only on
some of our goods. On one hand, lower prices have a favorable influence on our
rate of inflation; on the other, the situation is very disruptive to the
companies affected. As for the good news, the economic outlook of our far more
significant trading partners in Europe is improving.
In the U.S. equity markets, one of the dominant drivers of higher prices has
been the decline in long-term interest rates. One year ago, the long government
bond traded at a 6.6% yield; today it trades at 5.6%. The S&P 500 Index is now
at 1,140, or 25 times the estimated 1998 per share earnings of companies in the
index. Historically, this ratio is on the high side of equity pricing. Even
higher prices are harder to imagine unless long term rates continue to decline.
CGM Focus Fund holds important positions in the retail industry as well as in
housing and building materials companies and in electronic and communications
equipment concerns. The Fund's three largest holdings are Finish Line, Inc.,
Nokia Corporation and NCI Building Systems Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
July 1, 1998
1
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CGM FOCUS FUND
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INVESTMENT PERFORMANCE
(unaudited)
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Total Return for Period Ended June 30, 1998
CGM Focus
Fund
---------
6 Months..................................... 14.9%
3 Months..................................... -0.3%
The Fund's total return since inception (September 3, 1997) through June 30,
1998 is +7.8%. The adviser has agreed to limit the Fund's total operating
expenses to 1.20% of its average net assets through December 31, 1998.
Otherwise, the Fund's total return since inception, and for the six-month and
three-month periods ended June 30, 1998, would have been lower.
The performance data contained in the report represent past performance, which
is no guarantee of future results. The investment return and the principal value
of an investment in the Fund will fluctuate so that investors' shares, when
redeemed, may be worth more or less than their original cost.
2
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CGM FOCUS FUND
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BOARD OF TRUSTEES
PETER O. BROWN
NICHOLAS J. GRANT
G. KENNETH HEEBNER
ROBERT L. KEMP
ROBERT B. KITTREDGE
LAURENS MACLURE
JAMES VAN DYKE QUEREAU, JR.
J. BAUR WHITTLESEY
OFFICERS
ROBERT L. KEMP, President
G. KENNETH HEEBNER, Vice President
LESLIE A. LAKE, Vice President and Secretary
KATHLEEN S. HAUGHTON, Vice President
MARTHA I. MAGUIRE, Vice President
W. DUGAL THOMAS, Vice President
MARY L. STONE, Assistant Vice President
FRANK N. STRAUSS, Treasurer
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
Boston, Massachusetts 02110
TRANSFER AND DIVIDEND PAYING
AGENT AND CUSTODIAN OF ASSETS
STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts 02102
SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY
BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 8511
Boston, Massachusetts 02266-8511
3
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CGM FOCUS FUND
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INVESTMENTS as of June 30, 1998
(unaudited)
COMMON STOCKS -- 100.1% OF TOTAL NET ASSETS
Shares Value(a)
Airlines -- 10.8%
Alaska Air Group, Inc. (b) .................... 145,000 $ 7,911,562
Eagle USA Airfreight, Inc. (b) ................ 250,000 8,671,875
-----------
16,583,437
-----------
Automotive & Related -- 3.3%
Strattec Security Corp. (b) ................... 170,000 5,121,250
-----------
Banks -- Regional -- 5.2%
Genlyte Group, Inc. (b) ....................... 304,000 8,056,000
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Electronic and Communication Equipment -- 11.2%
Nokia Corporation ADR (c) ..................... 136,000 9,868,500
Superior TeleCom Inc. ......................... 179,000 7,450,875
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17,319,375
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Freight Transportation -- 5.4%
Airborne Freight Corporation .................. 240,000 8,385,000
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Hotels and Restaurants -- 1.6%
CKE Restaurants, Inc. ......................... 58,000 2,392,500
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Heavy Capital Goods -- 5.3%
Navistar International Corporation (b) ........ 283,000 8,171,625
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Housing and Building Materials -- 11.0%
Beazer Homes USA, Inc. (b) .................... 40,000 1,037,500
Kaufman & Broad Home Corp. .................... 240,000 7,620,000
NVR, Inc. (b) ................................. 203,000 8,335,687
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16,993,187
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Insurance -- 2.3%
Annuity and Life RE Holdings (b) .............. 163,050 3,607,481
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Leisure -- 4.1%
Coachman Industries, Inc. ..................... 242,000 6,322,250
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Miscellaneous -- 16.8%
National R V Holdings, Inc. (b) ............... 200,000 9,025,000
NCI Building Systems, Inc. (b) ................ 167,000 9,644,250
Russ Berrie & Company, Inc. ................... 287,000 7,175,000
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25,844,250
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See accompanying notes to financial statements
4
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CGM FOCUS FUND
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INVESTMENTS as of June 30, 1998 (continued)
(unaudited)
COMMON STOCKS -- (continued)
<TABLE>
<CAPTION>
Shares Value(a)
<S> <C> <C>
Retail -- 18.6%
American Eagle Outfitters (b) ........................................................ 231,000 $ 8,907,938
Ames Department Stores, Inc. (b) ..................................................... 350,000 9,209,375
Finish Line, Inc. (b) ................................................................ 375,000 10,546,875
..................................................................................... ------------
28,664,188
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Textile and Apparel -- 4.5%
Timberland Company (b) ............................................................... 97,000 6,977,938
------------
TOTAL COMMON STOCKS (Identified Cost $141,466,807) ........................................ 154,438,481
------------
Face
Amount
SHORT-TERM INVESTMENT -- 0.2%
American Express Credit Corporation, 5.95% 7/01/98 (Cost $340,000) ................... $340,000 340,000
------------
TOTAL INVESTMENTS -- 100.3% (Identified Cost $141,806,807) (c) ............................ 154,778,481
------------
Cash, receivables and other assets ................................................... 1,810,371
Liabilities .......................................................................... (2,248,293)
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TOTAL NET ASSETS -- 100.0% ................................................................ $154,340,559
============
(a) See Note 1A.
(b) Non-income producing security.
(c) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank representing the right
to receive securities of the foreign issuer described. The values of ADRs are significantly influenced
by trading on exchanges not located in the United States or Canada.
(d) Federal Tax Information: At June 30, 1998 the net unrealized appreciation on investments based on cost
of $141,806,807 for Federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess of value over
tax cost ............................................................................................ $15,699,820
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost
over value .......................................................................................... (2,728,146)
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Net unrealized appreciation ........................................................................... $12,971,674
============
</TABLE>
See accompanying notes to financial statements
5
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CGM FOCUS FUND
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STATEMENT OF
ASSETS AND LIABILITIES
June 30, 1998
(unaudited)
Assets
Investments at value
(Identified cost -- $141,806,807)......................... $154,778,481
Cash....................................................... 1,911
Receivable for:
Securities sold.............................. $1,533,699
Shares of the Fund sold...................... 198,856
Dividends and interest....................... 56 1,732,611
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Unamortized organizational expenses........................ 75,849
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156,588,852
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Liabilities
Payable for:
Securities purchased......................... $1,914,853
Shares of the Fund
redeemed.................................... 174,917 2,089,770
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Accrued expenses:
Management fees.............................. 106,252
Trustees' fees............................... 6,124
Accounting and
Administrative fees......................... 833
Other expenses............................... 45,314 158,523
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2,248,293
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Net Assets.................................................. $154,340,559
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Net Assets consist of:
Capital paid-in........................................... $151,031,228
Undistributed net investment loss......................... (280,093)
Accumulated net realized loss............................. (9,382,250)
Unrealized appreciation on
investments -- net....................................... 12,971,674
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Net Assets.................................................. $154,340,559
============
Shares of beneficial interest
outstanding, no par value................................. 14,314,240
============
Net asset value per share*................................. $10.78
======
*Shares of the Fund are sold and redeemed at net asset value
($154,340,559 / 14,314,240).
STATEMENT OF
OPERATIONS
Six Months Ended June 30, 1998
(unaudited)
Investment Income
Income
Dividends (net of withholding tax
and dividends on securities sold
short of $27,198) ..................................... $ 387,188
Interest ............................................... 145,503
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532,691
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Expenses
Management fees ......................................... 677,320
Trustees' fees .......................................... 12,150
Accounting and Administration ........................... 5,000
Custodian ............................................... 34,800
Transfer agent .......................................... 113,100
Audit and tax services .................................. 12,000
Legal ................................................... 14,700
Printing ................................................ 17,790
Registration ............................................ 31,230
Amortization of organization expense .................... 9,003
Line of Credit commitment fee ........................... 12,534
Miscellaneous ........................................... 298
-----------
939,925
Less expenses assumed by the
investment adviser ...................................... (127,141)
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Net investment loss ...................................... (280,093)
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Realized and Unrealized Gain (Loss)
on Investments
Realized gain on investments -- net ..................... 5,612,845
Unrealized appreciation -- net .......................... 11,256,907
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Net gain on investments ................................. 16,869,752
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Net Decrease in Assets from
Operations .............................................. $16,589,659
===========
See accompanying notes to financial statements
6
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CGM FOCUS FUND
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STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months For the Period
Ended September 3, 1997*
June 30, 1998 through
(unaudited) December 31, 1997
-------------- -------------------
<S> <C> <C>
From Operations
Net investment loss ............................................................ $ (280,093) $ (185,649)
Net realized gain (loss) from investments ...................................... 5,612,845 (14,995,095)
Unrealized appreciation ........................................................ 11,256,907 1,714,768
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Decrease in net assets from operations ....................................... 16,589,659 (13,465,976)
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From Capital Share Transactions
Proceeds from sale of shares ................................................... 61,660,479 124,907,984
Cost of shares redeemed ........................................................ (22,695,576) (12,656,011)
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Increase in net assets derived from capital share transactions................ 38,964,903 112,251,973
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Total increase in net assets ................................................... 55,554,562 98,785,997
Net Assets
Beginning of period ............................................................ 98,785,997 --
------------ -----------
End of period (including undistributed net investment loss of
($280,093) and $0, respectively) ............................................. $154,340,559 $98,785,997
============ ===========
Number of shares of the Fund:
Issued from sale of shares ..................................................... 5,922,803 11,858,670
Redeemed ....................................................................... (2,143,333) (1,323,900)
------------ -----------
Net Change ..................................................................... 3,779,470 10,534,770
============ ===========
</TABLE>
*Commencement of operations.
See accompanying notes to financial statements
7
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CGM FOCUS FUND
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FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months For the Period
Ended September 3, 1997(c)
June 30, 1998 through
(unaudited) December 31, 1997
------------- --------------------
<S> <C> <C>
For a share of the Fund outstanding throughout the period:
Net asset value at the beginning of period ......................................... $ 9.38 $10.00
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Net investment loss(a) ............................................................. (0.02) (0.02)(f)
Net realized and unrealized gain (loss) on investments ............................. 1.42 (0.60)
------ ------
Net increase (decrease) in net asset value ......................................... 1.40 (0.62)
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Net asset value at end of period ................................................... $10.78 $ 9.38
====== ======
Total Return (%)(b) ................................................................ 14.9(d) -6.20(d)
Ratios:
Operating expenses to average net assets (%) ....................................... 1.20(e) 1.20(e)
Operating expenses to average net assets before expense limitation (%) ............. 1.39(e) 1.63(e)
Net loss to average net assets (%) ................................................. -0.41(e) -0.83(e)
Portfolio turnover (%) ............................................................. 401(e) 330(e)
Net assets at end of period (in thousands) ......................................... $154,341 $98,786
(a) Net of reimbursement which amounted to ......................................... $0.01 $0.01
</TABLE>
(b) The total return would have been lower had certain expenses not been reduced
during the period
(c) Commencement of operations.
(d) Not computed on an annualized basis.
(e) Computed on an annualized basis.
(f) Per share net investment loss does not reflect the period's reclassification
of permanent differences between book and tax basis net investment loss. See
note 1D.
See accompanying notes to financial statements
8
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CGM FOCUS FUND
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NOTES TO FINANCIAL STATEMENTS -- June 30, 1998
(unaudited)
1. The Fund is a non-diversified series of CGM Trust which is organized as a
Massachusetts business trust under the laws of Massachusetts pursuant to an
Agreement and Declaration of Trust. The Trust is registered under the Investment
Company Act of 1940 as an open-end management investment company. The Trust has
four other funds whose financial statements are not presented herein. The Fund
commenced operations on September 3, 1997. 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 following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
A. Security valuation -- Equity securities are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees, which provides the last reported sale price for securities
listed on a national securities exchange or on the NASDAQ national market
system or, if no sale was reported and in the case of over-the-counter
securities not so listed, the last reported bid price. Short-term
investments having a maturity of sixty days or less are stated at
amortized cost, which approximates value.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed) and dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. Net gain or loss on
securities sold is determined on the identified cost basis.
C. Federal income taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies, and to distribute to its shareholders all of its
taxable income and net realized capital gains, within the prescribed time
period. Accordingly, no provision for federal income tax has been made. At
December 31, 1997 there were capital loss carryovers available to offset
future realized gains of approximately $13,022,000 expiring in the year
2005.
D. Dividends and distributions to shareholders -- Dividends and distributions
are recorded by the Fund on the ex-dividend date. The classification of
income and capital gains distributions is determined in accordance with
income tax regulations. Undistributed net investment income, accumulated
net investment loss, or distributions in excess of net investment income
may include temporary book and tax differences, which will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year end
is distributed in the following year.
E. Organization expense -- Costs incurred in 1997 in connection with the
Fund's organization and registration amounting to $90,771 have been paid
by the Fund. These costs are being amortized over 60 months beginning
September 3, 1997.
9
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CGM FOCUS FUND
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NOTES TO FINANCIAL STATEMENTS -- (continued)
(unaudited)
F. 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. At June 30, 1998
there were no outstanding short sales.
2. Purchases and Sales of Securities -- For the period ended June 30, 1998,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $303,070,192 and $260,077,613,
respectively. There were no purchases or sales of United States government
obligations.
3. A. Management Fees -- During the period ended June 30, 1998, the Fund
incurred management fees of $677,320, paid or payable to the Fund's
investment adviser, Capital Growth Management Limited Partnership
(CGM), certain officers and directors of which are also officers and
trustees of the Fund. The management agreement provides for a fee at
the annual rate of 1.00% on the first $500 million of the Fund's
average daily net assets, 0.95% of the next $500 million and 0.90%
on amounts in excess of $1 billion. CGM waived a portion of its fee.
See Note 4.
B. Trustees Fees and Expenses -- The Fund does not pay any compensation
directly to its officers or to any trustees who are directors,
officers or employees of CGM, or any affiliate of CGM, (other than
registered investment companies). Each other trustee is compensated
by the CGM Funds with an annual fee of $37,000 plus travel expenses
for each meeting attended. Of this amount, the Fund was responsible
for $527. In addition, the Chairman of the Independent Trustees
Committee receives an annual retainer of $1,000.
4. Expense Limitation -- Until December 31, 1998 and, thereafter, until further
notice to the Fund, CGM has voluntarily agreed to reduce its management fee and,
if necessary, to assume expenses of the Fund in order to limit the Fund's
expenses to an annual rate of 1.20% of average daily net assets. As a result of
the Fund's expenses exceeding the voluntary expense limitation, CGM waived
$127,141 of its management fee. The Fund incurred operating expenses of
$812,784, representing 1.20% of the average daily net assets.
5. Line of Credit -- The Fund has a $20,000,000 committed, secured line of
credit with its custodian bank. Borrowings under the line will be charged
interest at 0.75% over the current Overnight Federal Funds Rate. The Fund will
incur a commitment fee of 0.125% per annum on the unused portion of the line of
credit, payable quarterly. There were no borrowings under the line of credit
during the period ended June 30, 1998.
10
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INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
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TELEPHONE NUMBERS
For information about:
o Account Procedures and Status
o Redemptions
o Exchanges
Call 800-343-5678
o New Account Procedures
o Prospectuses
o Performance
Call 800-345-4048
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MAILING ADDRESSES
FOR EXISTING ACCOUNTS
Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511
FOR NEW ACCOUNT APPLICATIONS ONLY
The CGM Funds
P.O. Box 449
Boston, MA 02117-0449
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This report has been prepared for the shareholders of the Fund and is not
authorized for distribution to current or prospective investors in the Fund
unless it is accompanied or preceded by a prospectus.
FFQR298 Printed in U.S.A.
