CGM TRUST, N-30D, 1998-02-24

CGM TRUST
N-30D, 1998-02-24

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<PAGE>
TO OUR SHAREHOLDERS:

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

CGM Fixed Income Fund decreased -5.1 % during the fourth quarter of 1997
compared to the Merrill Lynch Master Bond 500 Index which increased 2.9% over
the same period. For the year just ended, the Fund posted a total return of 3.7%
while the Merrill Lynch Master Bond Index returned 9.7%.

THE YEAR IN REVIEW AND ECONOMIC OUTLOOK

One year ago, we commented on the then-near-perfect economic conditions with one
reservation: we thought there was a real possibility of the economy overheating
as a result of tight labor conditions. In 1997, the Federal Reserve Board did
raise interest rates briefly and labor conditions did intensify, but inflation
never materialized.

Today, prospects for further growth in the U.S. economy remain bright. Though
the pace may slow periodically, productivity, employment and corporate profits
all point to higher levels. However, events in recent months have affected our
view looking forward: This fall, many currencies in Southeast Asia have
collapsed. World powers are cooperating to assist those nations with suffering
economies and are extending financial aid. These conditions will give rise to
some economic slowing, a decline in interest rates and possibly, lower levels of
inflation for the foreseeable future. As a result, inflation as a near-term
problem has been deferred to a later date. Additionally, declines in the prices
of many commodities, including crude oil, reinforce the low inflation outlook.

Looking ahead, Asian countries will be able to export products to the U.S. at
lower prices which, inevitably, will exert downward pressure on domestic prices.
At the same time, American companies will be hard pressed to sell goods to many
Asian trading partners. Fortunately, the impact overall should be slight since
exports amount to only about 10% of our total economy and exports to Southeast
Asia are but a portion of that amount. Still, there already has been some
business slowing and in some instances, earlier corporate profit forecasts have
proven to be high. Individual company stock prices are falling precipitously
with earnings shortfalls since stock prices are dependent on good news getting
better, not worse.

The bond market has reacted positively to signs of slowdown, the Southeast Asia
debacle and recent comments of the Federal Reserve Board Chairman. The long-term
government bond is 5.75%, down from 7.15% last April. Current interest rate
levels and recent trends generally are favorable to stock prices should
corporate margins be maintained.

PORTFOLIO STRATEGY

In 1997, the taxable bond market benefited from falling interest rates which
allowed corporations to refinance debt and improve their balance sheets. The
best returns came to those who owned long Treasuries, high-yield securities and
convertible securities. Sector selection also played a major role.

CGM Fixed Income Fund underperformed in 1997 on account of its maturity
structure which was more conservative than its peer funds and the market as a
whole. In addition, The Fund suffered from exposure to the technology and metals
industries which came under pressure during the year. The Fund's convertible
securities on average did well, though returns were clearly company-specific.
Toward the end of the year, we lengthened the maturity of the Fund to more
closely track anticipated near-term interest rates.

The year ahead should prove positive for taxable securities given low
inflationary pressures and a continuing demand for well-managed corporate debt.
Refinancings will likely command center stage early in the year as will the
impact of events in Asia.

CGM Fixed Income Fund's three largest sector positions are in Real Estate
Investment Trusts, media companies and transportation. In addition, the Fund is
12.5% invested in U.S. Government Securities. The Fund's three largest holdings
are Vornado Realty Trust, Liberty Property Limited Partnership Trust and Moran
Transportation Co.

/s/ Robert L. Kemp

Robert L. Kemp
President

/s/ Janice H. Saul

Janice H. Saul
Portfolio Manager

/s/ G. Kenneth Heebner

G. Kenneth Heebner
Portfolio Manager

January 9, 1998
<PAGE>

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

----------------------------------------
Average Annual Total Return
----------------------------------------
1 year 5 year Life of Fund*
3.7% 10.7% 10.9%
(March 17, 1992 - December 31, 1997)
----------------------------------------
Past performance is no indication
of future results
----------------------------------------

CGM Fixed Merrill Lynch
Income Fund Master Bond Index
-------------------------------------------------
3/17/92 $10,000 $10,000
1992 $10,920 $10,970
1993 $12,984 $12,067
1994 $11,945 $11,729
1995 $15,206 $13,898
1996 $17,548 $14,399
1997 $18,197 $15,796

CGM FIXED INCOME FUND
PORTFOLIO MANAGERS
- -------------------------------------------------------------------------------

G. Kenneth Heebner has managed CGM Fixed Income Fund with Janice Saul since June
1993. In 1990, Mr. Heebner founded Capital Growth Management Limited Partnership
with Robert L. Kemp. Prior to establishing the new company, Mr. Heebner managed
mutual fund portfolios at Loomis, Sayles and Company. He currently is
responsible for managing CGM Fixed Income Fund's investments convertible into
equity securities. In addition to co-managing CGM Fixed Income Fund, Mr. Heebner
manages CGM Capital Development Fund, CGM Mutual Fund, CGM Realty Fund, CGM
Focus Fund and two other mutual funds.

Janice H. Saul brings to her role as co-manager of CGM Fixed Income Fund more
than a decade of investment experience. She joined Capital Growth Management in
June 1993. Prior to that, she was at Loomis, Sayles and Company where she ran
private accounts for nine years and managed a long-term municipal bond fund from
May 1991 until May 1993. Ms. Saul was associate portfolio manager of CGM Fixed
Income Fund from June through November 1993 and was named co-manager of the
portfolio in December 1993. Ms. Saul is responsible for managing CGM Fixed
Income Fund's debt securities and also manages CGM American Tax Free Fund.
<PAGE>

- -------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Total Return for Periods Ended December 31, 1997

CGM FIXED LIPPER GENERAL
INCOME FUND BOND FUND AVERAGE
--------------- -----------------------
5 Years ........................ +66.5% +50.6%
1 Year ......................... + 3.7 + 9.9%
3 Months ....................... - 5.1 + 1.4%

The Fund's average annual total returns for the five year period ended December
31, 1997 and for the period from inception (March 17, 1992) through December 31,
1997 are 10.7% and 10.9%, respectively. The adviser has agreed to limit the
Fund's total operating expenses to 0.85% of its average net assets annually
through December 31, 1998. Otherwise the total return for each period would be
lower.

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

The performance data contained in the report represent past performance. The
investment return and the principal value of an investment in the Fund will
fluctuate so that investors' shares, when redeemed, may be worth more or less
than their original cost.

BOARD OF TRUSTEES

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

OFFICERS

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

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT LIMITED
PARTNERSHIP
Boston, Massachusetts 02110

TRANSFER AND DIVIDEND PAYING
AGENT AND CUSTODIAN OF ASSETS

STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts 02102

SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY

BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 8511
Boston, Massachusetts 02266-8511
<PAGE>
CGM FIXED INCOME FUND
- --------------------------------------------------------------------------------

INVESTMENTS AS OF DECEMBER 31, 1997

BONDS, NOTES AND BILLS -- 68.1% OF TOTAL NET ASSETS

<TABLE>
<CAPTION>
FACE
AMOUNT VALUE(a)
---------- -----------
<S> <C> <C>
ENERGY -- 3.2%
Mariner Energy, Inc., 10.50%, 8/01/06 ...................... $1,000,000 $ 1,045,000
Mitchell Energy & Development Corp., 8.00%, 7/15/99 ......... 300,000 307,065
Mitchell Energy & Development Corp., 9.25%, 1/15/02 ......... 55,000 59,761
-----------
1,411,826
-----------
FOREST PRODUCTS -- 2.4%
Pope and Talbot, Inc., 8.375%, 6/01/13 ...................... 1,000,000 1,057,740
-----------
HOUSING AND BUILDING MATERIALS -- 3.6%
Pulte Home Corp., 10.125%, 7/15/99 .......................... 1,500,000 1,580,235
-----------
INSURANCE -- 4.7%
Leucadia National Corp., 7.75%, 8/15/13 ..................... 2,000,000 2,068,420
-----------
LEISURE -- 4.7%
Circus Circus Enterprises, Inc., 7.625%, 7/15/13 ............ 2,000,000 2,051,100
-----------
MEDIA -- 6.5%
Innova Sa De, 12.875%, 4/01/07 .............................. 1,750,000 1,750,000
TKR Cable, Inc., 10.50%, 10/30/07 ........................... 1,000,000 1,127,300
-----------
2,877,300
-----------
METALS & MINING -- 2.1%
Freeport McMoran Copper, 7.50%, 11/15/06 .................... 1,065,000 905,527
-----------
OFFICE EQUIPMENT AND SUPPLY -- 4.4%
Dictaphone Corp., 11.75%, 8/01/05 ........................... 2,000,000 1,920,000
-----------
REAL ESTATE INVESTMENT TRUSTS -- 10.3%
Liberty Property Limited Partnership, 8.20%, 7/01/01
(Convertible) .............................................. 1,700,000 2,333,250
Pacific Gulf Properties, Inc., 8.375%, 2/15/01 (Convertible) 1,850,000 2,210,750
-----------
4,544,000
-----------
TELEPHONE -- 5.0%
Econophone, Inc., 13.50%, 7/15/07 ........................... 1,000,000 1,130,000
Worldcom, Inc., 7.75%, 4/01/07 .............................. 1,000,000 1,073,890
-----------
2,203,890
-----------
TRANSPORTATION -- 6.2%
Moran Transportation Co., 11.75%, 7/15/04 ................... 2,000,000 2,220,000
TFM Sa De C V, 10.25%, 6/15/07 .............................. 500,000 508,750
-----------
2,728,750
-----------
U.S. GOVERNMENT -- 12.5%
United States Treasury Bills, 5.063%, 3/19/98 ............... 3,650,000 3,610,397
United States Treasury Notes, 5.875%, 9/30/02 ............... 1,350,000 1,357,385
United States Treasury Notes, 5.875%, 11/15/05 .............. 500,000 502,655
-----------
5,470,437
-----------
UTILITIES -- 2.5%
Great Lakes Power, Inc., 9.00%, 8/01/04 ..................... $1,000,000 $ 1,111,940
-----------
TOTAL BONDS, NOTES AND BILLS (Identified Cost $28,838,258) ..... 29,931,165
-----------
PREFERRED STOCKS -- 29.7%
SHARES
----------
Avalon Properties, Inc., $2.25 .............................. 61,000 1,589,813
Conseco Financing Trust, $2.29 .............................. 82,100 2,124,337
DLJ Capital Trust, $2.105 ................................... 40,000 1,040,000
Duquesne Capital LP, $2.094 ................................. 10,000 260,000
Felcor Suite Hotels, Inc., $1.95 (Convertible) .............. 65,000 1,860,625
Placer Dome, Inc., $2.156 ................................... 50,000 1,253,125
Rouse Capital, $2.313 ....................................... 59,225 1,550,955
UDS Capital, $2.08 .......................................... 30,000 772,500
Vornado Realty Trust, $3.25 (Convertible) ................... 39,000 2,574,000
-----------
TOTAL PREFERRED STOCKS (Identified Cost $12,495,125) ........... 13,025,355
-----------
COMMON STOCK WARRANTS -- 0%
Econophone, Inc. Exp. 7/15/07 (Identified Cost $0) .......... 1,000 10,000
-----------
FACE
AMOUNT
----------
SHORT-TERM INVESTMENT -- 0.3%
Chevron Oil Finance Co., 6.75%, 1/02/98 (Cost $150,000) ..... $ 150,000 150,000
-----------
TOTAL INVESTMENTS -- 98.1% (Identified Cost $41,483,383)(b) .................... 43,116,520
Cash and Receivables ............................................... 937,620
Liabilities ........................................................ (122,277)
-----------
TOTAL NET ASSETS -- 100.0% ..................................................... $43,931,863
===========
(a)See Note 1A.
(b)Federal Tax Information: At December 31, 1997 the net unrealized appreciation of investments
based on cost of $41,483,383 for Federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in which there is
an excess of value over tax cost .......................................... $ 2,024,226
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over value .............................................. (391,089)
-----------
Net unrealized appreciation .................................................... $ 1,633,137
===========
</TABLE>

See accompanying notes to financial statements
<PAGE>

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

December 31, 1997

ASSETS

Investments at value (Identified cost
-- $41,483,383) ......................................... $43,116,520
Cash ....................................................... 4,512
Receivable for:
Shares of the Fund sold ........................ $ 37,090
Dividends and interest ......................... 896,018 933,108
--------- -----------
44,054,140
-----------
LIABILITIES
Payable for:
Shares of the Fund
redeemed ...................................... $ 25,669
Distributions declared ......................... 52,351 78,020
---------
Accrued expenses:
Management fees ................................ 11,278
Trustees' fees ................................. 6,173
Accounting and
Administration ............................... 875
Other expenses ................................. 25,931 44,257
--------- -----------
122,277
-----------
NET ASSETS ................................................. $43,931,863
===========
Net Assets consist of:
Capital paid-in .......................................... $44,156,831
Undistributed net investment income ...................... 43,648
Accumulated net realized loss ............................ (1,901,753)
Unrealized appreciation on
investments -- net ...................................... 1,633,137
-----------
NET ASSETS ................................................. $43,931,863
===========
Shares of beneficial interest outstanding, no par value.... 3,908,518
===========
Net asset value per share* ................................ $11.24
===========
*Shares of the Fund are sold and redeemed at net asset value
($43,931,863 / 3,908,518).

See accompanying notes to financial statements
<PAGE>

CGM FIXED INCOME FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS

Year Ended December 31, 1997

INVESTMENT INCOME
Income
Dividends ................................................. $ 949,300
Interest .................................................. 2,379,903
-----------
3,329,203
-----------
Expenses
Management fees ........................................... 282,615
Trustees' fees ............................................ 24,350
Accounting and Administration ............................. 10,500
Custodian ................................................. 53,000
Transfer agent ............................................ 67,100
Audit and tax services .................................... 28,500
Legal ..................................................... 32,200
Printing .................................................. 21,000
Registration .............................................. 26,462
Amortization of organization expense ...................... 3,139
Miscellaneous ............................................. 788
-----------
549,654
Less expenses assumed by the investment adviser ............. (180,081)
-----------
Net investment income ....................................... 2,959,630
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized loss on investments -- net ........................ (1,898,931)
Unrealized appreciation -- net ............................. 443,618
-----------
Net loss on investments .................................... (1,455,313)
-----------
NET INCREASE IN ASSETS FROM OPERATIONS ...................... $ 1,504,317
===========

See accompanying notes to financial statements
<PAGE>

CGM FIXED INCOME FUND
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income .................................... $ 2,959,630 $ 2,360,314
Net realized gain (loss) from investments ................ (1,898,931) 4,650,369
Unrealized appreciation (depreciation) ................... 443,618 (1,857,988)
------------ ------------
Increase in net assets from operations ................. 1,504,317 5,152,695
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................................... (2,948,479) (2,338,686)
Net realized gain on investments ......................... -- (2,496,647)
------------ ------------
(2,948,479) (4,835,333)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................. 13,309,381 11,932,341
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ................... 2,366,900 1,891,848
Distributions from net realized gain ................... -- 2,175,884
------------ ------------
15,676,281 16,000,073
Cost of shares redeemed .................................. (10,946,077) (7,464,588)
------------ ------------
Net increase in assets from capital share transactions . 4,730,204 8,535,485
------------ ------------
Total increase in net assets ............................. 3,286,042 8,852,847
NET ASSETS
Beginning of period ...................................... 40,645,821 31,792,974
------------ ------------
End of period (including undistributed net investment
income of $43,648 and $31,840, respectively) ........... $ 43,931,863 $ 40,645,821
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................... 1,146,799 992,699
Issued in connection with reinvestment of:
Dividends from net investment income ................... 205,039 157,948
Distributions from net realized gain ................... -- 187,576
------------ ------------
1,351,838 1,338,223
Redeemed ............................................... (945,927) (622,495)
------------ ------------
Net change ............................................. 405,911 715,728
============ ============
</TABLE>

See accompanying notes to financial statements
<PAGE>

CGM FIXED INCOME FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
For a share of the Fund outstanding throughout each period:
Net asset value at the beginning of
period ................................ $11.60 $11.41 $ 9.57 $11.17 $10.26
------ ------ ------ ------ ------
Net investment income (a) ............... 0.78 0.77 0.70 0.73 0.67
Dividends from net investment income .... (0.78) (0.77) (0.70) (0.73) (0.67)
Net realized and unrealized gain (loss)
on investments ........................ (0.36) 0.95 1.84 (1.60) 1.23
Distribution from net realized gain ..... -- (0.76) -- -- (0.32)
------ ------ ------ ------ ------
Net increase (decrease) in net asset value (0.36) 0.19 1.84 (1.60) 0.91
------ ------ ------ ------ ------
Net asset value at the end of period .... $11.24 $11.60 $11.41 $ 9.57 $11.17
====== ====== ====== ====== ======
Total Return (%) (b) .................... 3.7 15.4 27.3 -8.0 18.9
Ratios:
Operating expenses to average net assets(%) 0.85 0.85 0.85 0.85 0.85
Operating expenses to average net assets
before expense limitation (%) ......... 1.26 1.26 1.53 1.46 2.02
Net investment income to average net
assets (%) ............................ 6.81 6.53 6.46 7.00 6.30
Portfolio turnover (%) .................. 147 149 148 129 149
Average commission rate(c) .............. $0.0680 $0.0700 -- -- --
Net assets at end of period (in thousands) $43,932 $40,646 $31,793 $28,672 $32,883
(a) Net of reimbursement which amounted to $ 0.05 $ 0.05 $ 0.07 $ 0.06 $ 0.12
(b) The total return would have been lower had certain expenses not been reimbursed during the period.
(c) SEC regulations require portfolios to disclose the average commission rate paid on trades for which commissions
were charged for fiscal years beginning on or after September 1, 1995.
</TABLE>
See accompanying notes to financial statements
<PAGE>

CGM FIXED INCOME FUND
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997

1. The Fund is a 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 March 17, 1992. The investment objective of the Fund is
to maximize total return by investing in debt securities and preferred stock
that provide current income, capital appreciation or a combination of both
income and appreciation.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
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 -- Corporate debt securities are generally valued on the
basis of valuations furnished by a pricing service authorized by the Board
of Trustees, which determines valuations for normal, institutional- size
trading units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. United States government debt
securities are valued at the current closing bid, as last reported by a
pricing service approved by the Board of Trustees. Equity securities are
valued on the basis of valuations furnished by a pricing service, authorized
by the Board of Trustees, which provides the last reported sale price for
securities listed on a national securities exchange or on the NASDAQ
national market system or, if no sale was reported and in the case of
over-the-counter securities not so listed, the last reported bid price.
Short-term investments having a maturity of sixty days or less are stated at
amortized cost, which approximates 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.

B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed) and dividend income is recorded on the ex-dividend date. Interest
income is recorded on the accrual basis. Interest income is increased by the
accretion of discount. Premium is amortized against interest income with a
corresponding decrease in the cost basis. Net gain or loss on securities
sold is determined on the identified cost basis. Dividend income received by
the Fund from its investment in REITs may consist of ordinary income,
capital gains and return of capital. The portion derived from capital gains
and return of capital will result in a reduction of the Fund's dividend
income and an increase in realized and unrealized gain on investments.

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 $1,902,000 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. Permanent book and tax differences relating to
shareholder distributions may result in reclassifications to paid-in
capital. Undistributed net investment income, accumulated net investment
loss, or distributions in excess of net investment income may include
temporary book and tax differences which will reverse in a subsequent
period. Any taxable income or gain remaining at fiscal year end is
distributed in the following year.

E. ORGANIZATION EXPENSE -- Costs incurred in 1992 in connection with the Fund's
organization and registration amounting to $76,426 have been paid by the
Fund. These costs were amortized over 60 months from March 17, 1992 to March
16, 1997.

2. PURCHASES AND SALES OF SECURITIES -- For the year ended December 31, 1997,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $59,462,531 and $52,885,386,
respectively. Purchases and sales of United States government obligations
aggregated $30,436,792 and $12,879,702, respectively.

3. A. MANAGEMENT FEES -- During the year ended December 31, 1997, the Fund
incurred management fees of $282,615 paid or payable to the Fund's
investment adviser, Capital Growth Management Limited Partnership
(CGM), certain officers and directors of which are also officers and
trustees of the Fund. The management agreement provides for a fee at
the annual rate of 0.65% on the first $200 million of the Fund's
average daily net assets, 0.55% of the next $300 million and 0.40% of
such assets in excess of $500 million. For the year ended December 31,
1997, CGM waived a portion of its fee. See Note 4.

B. OTHER EXPENSES -- CGM performs certain administrative, accounting and
other services for the Fund. The expenses of those services, which are
paid to CGM by the Fund, include the following: (i) expenses for
personnel performing bookkeeping, accounting and financial reporting
functions and clerical functions relating to the Fund; (ii) expenses for
services required in connection with the preparation of registration
statements and prospectuses, shareholder reports and notices, proxy
solicitation material furnished to shareholders of the Fund or
regulatory authorities and reports and questionnaires for SEC
compliance; and (iii) registration, filing and other fees in connection
with requirements of regulatory authorities. For the year ended December
31, 1997 these expenses amounted to $10,500 and are shown separately in
the financial statements as Accounting and Administration.

C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to its officers or to any trustees who are directors, officers
or employees of CGM, or any affiliate of CGM, other than registered
investment companies. Each other trustee is compensated by the CGM Funds
with an annual fee of $37,000 plus expenses for each meeting attended.
Of this amount, the Fund is responsible for $3,000 plus an annual
variable fee calculated based on the proportion of the Fund's average
net assets to the aggregate average net assets of the CGM Funds, which
for 1997 is $401. 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 0.85% of average daily net assets. As a result of
the Fund's expenses exceeding the voluntary expense limitation, CGM waived
$180,081 of its management fee. The Fund incurred operating expenses of
$369,573, representing 0.85% of the average daily net assets.
<PAGE>

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

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

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CGM Fixed Income Fund at December
31, 1997, and the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and the financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at December 31, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.

PRICE WATERHOUSE LLP

Boston, Massachusetts
February 9, 1998
<PAGE>

CGM
FIXED INCOME
FUND

6th Annual Report
December 31, 1997

A No-Load Fund

[graphic omitted]

Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110

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

For information about:

[] Account Procedures and Status
[] Redemptions
[] Exchanges
Call 800-343-5678

[] New Account Procedures
[] Prospectuses
[] Performance
Call 800-345-4048

- ------------------------------------------------------------------------------
MAILING ADDRESSES

FOR EXISTING ACCOUNTS

Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511

FOR NEW ACCOUNT APPLICATIONS ONLY

The CGM Funds
P.O. Box 449
Boston, MA 02117-0449

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

This report has been prepared for the shareholders of the Fund and is not
authorized for distribution to current or prospective investors in the Fund
unless it is accompanied or preceded by a prospectus.

FAR97 Printed in U.S.A.
<PAGE>
TO OUR SHAREHOLDERS:
- --------------------------------------------------------------------------------

CGM Mutual Fund declined -10.1% during the fourth quarter of 1997 while the
unmanaged Standard and Poor's 500 Index and the Merrill Lynch Master Bond
Index each returned 2.9% over the same period. For the year just ended, CGM
Mutual Fund returned 8.2% while the S&P 500 and Merrill Lynch Master Bond
indices returned 33.4% and 9.7% respectively.

THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
One year ago, we commented on the then-near-perfect economic conditions with
one reservation: we thought there was a real possibility of the economy
overheating as a result of tight labor conditions. In 1997, the Federal
Reserve Board did raise interest rates briefly and labor conditions did
intensify, but inflation never materialized.

Today, prospects for further growth in the U.S. economy remain bright. Though
the pace may slow periodically, productivity, employment and corporate profits
all point to higher levels. However, events in recent months have affected our
view looking forward: This fall, many currencies in Southeast Asia have
collapsed. World powers are cooperating to assist those nations with suffering
economies and are extending financial aid. These conditions will give rise to
some economic slowing, a decline in interest rates and possibly, lower levels
of inflation for the foreseeable future. As a result, inflation as a near-term
problem has been deferred to a later date. Additionally, declines in the
prices of many commodities, including crude oil, reinforce the low inflation
outlook.

Looking ahead, Asian countries will be able to export products to the U.S. at
lower prices which, inevitably, will exert downward pressure on domestic
prices. At the same time, American companies will be hard pressed to sell
goods to many Asian trading partners. Fortunately, the impact overall should
be slight since exports amount to only about 10% of our total economy and
exports to Southeast Asia are but a portion of that amount. Still, there
already has been some business slowing and in some instances, earlier
corporate profit forecasts have proven to be high. Individual company stock
prices are falling precipitously with earnings shortfalls since stock prices
are dependent on good news getting better, not worse.

The bond market has reacted positively to signs of slowdown, the Southeast
Asia debacle and recent comments of the Federal Reserve Board Chairman. The
long-term government bond is 5.75%, down from 7.15% last April. Current
interest rate levels and recent trends generally are favorable to stock prices
should corporate margins be maintained.

PORTFOLIO STRATEGY
CGM Mutual Fund maintained approximately 25% of its assets in Treasury bills
and between 10% and 13% in real estate investment trusts throughout 1997.
These conservative investments produced lesser returns than did bonds and
stocks in the robust environment of 1997.

Late in the year, the Asian economic problem caused sharp losses in the major
technology and steel positions the Fund had established and from which it had
profited early in 1997. These losses played a significant role in CGM Mutual
Fund's disappointing 1997 results. In the fourth quarter, most of the
technology and steel stocks were sold and proceeds were used to establish a
major position in the airline industry. At year end, the Fund continued to
hold 15% of its assets in real estate investment trusts in anticipation of
strong returns from this sector.

CGM Mutual Fund holds approximately 26% in government and corporate bonds and
the balance in stocks of companies selling at reasonable price to earnings
ratios. The three largest industry positions are airlines, Real Estate
Investment Trusts and money center banks. The three largest company holdings
are Philip Morris Companies, Delta Air Lines, Inc. and UAL Corporation.

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

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

January 9, 1998
<PAGE>
COMPARISONS OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CGM MUTUAL FUND,
THE UNMANAGED S&P 500, AND THE MERRILL LYNCH MASTER BOND INDEX
assuming reinvestment of dividends and capital gains

----------------------------------
Average Annual Total Return
----------------------------------
1 Year 5 Year 10 Year
8.2% 12.8% 13.2%
----------------------------------
Past performance is no indication
of future results
----------------------------------

Merrill Lynch
Date CGM Mutual Fund Unmanaged S&P 500 Master Bond Index

10000.0 10000.0 10000.0
1988 10370.0 11660.0 10800.0
1989 12559.0 15345.0 12334.0
1990 12698.0 14869.0 13456.0
1991 17891.0 19389.0 15596.0
1992 18981.0 29863.0 16781.0
1993 23120.0 22970.0 18459.0
1994 20877.0 23268.0 17942.0
1995 25951.0 31994.0 21261.0
1996 32101.0 39353.0 22027.0
1997 34733.0 52496.0 24162.0
<PAGE>

CGM MUTUAL FUND
PORTFOLIO MANAGER
- --------------------------------------------------------------------------------

G. Kenneth Heebner has managed CGM Mutual Fund since 1981. In 1990, Mr.
Heebner founded Capital Growth Management Limited Partnership with Robert L.
Kemp. Prior to establishing the new company, Mr. Heebner was at Loomis,
Sayles and Company where he managed the Fund, then known as Loomis-Sayles
Mutual Fund. In addition to CGM Mutual Fund, Mr. Heebner currently manages CGM
Capital Development Fund, CGM Realty Fund and CGM Focus Fund as well as two
other mutual funds. He also co-manages CGM Fixed Income Fund with Janice Saul.

INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------

Total Return for Periods Ended December 31, 1997

CGM
MUTUAL FUND
---------------
10 Years ................................................... +246.8%
5 Years ................................................... + 82.9
1 Year .................................................... + 8.2
3 Months .................................................. - 10.1

----------------------------------------------------------------------------------------------------------------------------------
25 YEAR INVESTMENT RECORD
DECEMBER 31, 1972 -- DECEMBER 31, 1997 (UNAUDITED)
----------------------------------------------------------------------------------------------------------------------------------
IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1972
----------------------------------------------------------------------------------------------------------------------------------
-- AND HAD TAKEN ALL DIVIDENDS OR -- HAD REINVESTED ALL DIVIDENDS AND CAPITAL
AND DISTRIBUTIONS IN CASH GAINS DISTRIBUTIONS IN ADDITIONAL SHARES
------------------------------------------------- --------------------------------------------------------
During the Year
You Would Have Received Which Would Represent
--------------------------------- ---------------------------------------
The Value of A Cumulative
The Net Your Origina l Change
Asset Value Per Share Per Share Investment An Expressed
On of Your Capital Gains Income At Each Annual As An Index With
December Share Would Distributions Dividends Year End Total Return December 31,
31 Have Been of of Would Have Been of 1972 = 100.0
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1972 $16.20 100.0
1973 14.20 $ 0.42 $ 0.42 $14.99 - 7.5 92.5
1974 10.27 -- 0.46 11.27 - 24.8 69.6
1975 12.44 -- 0.43 14.14 + 25.5 87.3
1976 13.96 -- 0.43 16.39 + 15.9 101.2
1977 12.88 -- 0.52 15.72 - 4.1 97.1
1978 12.83 -- 0.65 16.49 + 4.9 101.9
1979 13.81 -- 0.72 18.75 + 13.7 115.9
1980 14.85 -- 0.88 21.53 + 14.8 133.1
1981 13.90 -- 0.97 21.55 + 0.1 133.2
1982 18.16 -- 1.09 30.39 + 41.0 187.8
1983 18.81 -- 1.09 33.40 + 9.9 206.4
1984 17.01 1.86 0.95 35.50 + 6.3 219.4
1985 21.53 -- 1.08 47.75 + 34.5 295.1
1986 22.86 2.75 0.94 59.74 + 25.1 369.2
1987 20.40 4.52 1.06 67.92 + 13.7 419.8
1988 19.94 -- 1.10 70.09 + 3.2 433.2
1989 22.34 0.95 0.93 85.30 + 21.7 527.2
1990 21.64 -- 0.93* 86.24 + 1.1 533.0
1991 26.80 2.64 0.97 121.51 + 40.9 751.0
1992 26.02 1.42 0.93 128.92 + 6.1 796.8
1993 28.88 1.93 0.86 157.02 + 21.8 970.5
1994 25.05 -- 1.04 141.79 - 9.7 876.4
1995 29.43 0.89 0.77 176.24 + 24.3 1089.4
1996 31.42 4.15 0.74 218.01 + 23.7 1347.6
1997 25.52 7.81 0.67 235.89 + 8.2 1458.1
------ ------ -------
Totals $29.34 $20.63 +1358.1
----------------------------------------------------------------------------------------------------------------------------------
*Includes $0.05 per share distributed from paid-in capital.
Shares were first offered on November 5, 1929; the net asset value per share, adjusted for stock splits and dividends, was $8.33.
----------------------------------------------------------------------------------------------------------------------------------

The performance data contained in this report represent past performance, which is no guarantee of future results. The investment
return on, and the principal value of, an investment in the Fund will fluctuate so that investors' shares, when redeemed, may be
worth more or less than their original cost.
</TABLE>
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1997
COMMON STOCKS -- 74.6% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
AIRLINES -- 22.6%
AMR Corporation(b) ........................ 512,000 $ 65,792,000
Continental Airlines, Inc.(b) ............. 160,000 7,700,000
Delta Air Lines, Inc. ..................... 577,000 68,663,000
UAL Corporation(b) ........................ 715,000 66,137,500
US Airways Group, Inc.(b) ................. 975,000 60,937,500
--------------
269,230,000
--------------

BANKS -- MONEY CENTER -- 10.4%
Chase Manhattan Corporation ............... 561,000 61,429,500
Citicorp .................................. 493,000 62,333,688
--------------
123,763,188
--------------

BASIC MATERIALS -- 6.3%
British Steel PLC ADR(c) .................. 1,080,000 23,152,500
USG Corporation(b) ........................ 1,050,000 51,450,000
--------------
74,602,500
--------------

BEVERAGES AND TOBACCO -- 6.3%
Philip Morris Companies, Inc. ............. 1,660,000 75,218,750
--------------

COMPUTER SOFTWARE AND SERVICES -- 4.8%
Compaq Computer Corporation ............... 1,025,000 57,848,438
--------------

DRUGS -- 5.1%
Warner Lambert Company .................... 495,000 61,380,000
--------------

REAL ESTATE INVESTMENT TRUSTS -- 15.1%
Boston Properties, Inc. ................... 1,506,500 49,808,656
Equity Residential Properties Trust ....... 1,240,000 62,697,500
Spieker Properties, Inc. .................. 725,000 31,084,375
Vornado Realty Trust ...................... 765,000 35,907,187
--------------
179,497,718
--------------

STEEL -- 4.0%
Pohang Iron & Steel Limited ADR (c)........ 2,721,800 47,461,387
--------------
TOTAL COMMON STOCKS (Identified Cost
$878,537,969) ............................. 889,001,981
--------------

FACE
AMOUNT VALUE(a)
------ --------
INDUSTRIAL BONDS -- 2.1%
Stone Container Corporation,
9.875%, 2/01/01 ......................... $ 25,000,000 $ 25,062,500
--------------

UNITED STATES TREASURY -- 23.9%
United States Treasury Bills, 5.09%, 2/12/98 144,000,000 143,129,760
United States Treasury Bills, 5.045%, 3/05/98 131,000,000 129,835,410
United States Treasury Bills, 5.166%, 4/02/98 12,000,000 11,843,640
--------------
284,808,810
--------------
TOTAL BONDS AND BILLS (Identified
Cost $310,035,843) ........................ 309,871,310
--------------

SHORT-TERM INVESTMENT -- 0.8%
Chevron Oil Finance Company, 6.75%, 1/02/98
(Cost $9,380,000) ..................... 9,380,000 9,380,000
--------------

TOTAL INVESTMENTS -- 101.4% (Identified
Cost $1,197,953,812)(d) ................................. 1,208,253,291
Cash and Receivables .................................. 39,392,569
Liabilities ........................................... (55,491,421)
--------------
TOTAL NET ASSETS -- 100% .................................. $1,192,154,439
==============

(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 December 31, 1997, the net unrealized
appreciation on investments based on cost of $1,199,845,813 for Federal
income tax purposes was as follows:

Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ...... $ 52,088,319
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ..... (43,680,841)
--------------
Net unrealized appreciation ............................... $ 8,407,478
==============
See accompanying notes to financial statements
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------

STATEMENT OF
ASSETS AND LIABILITIES

December 31, 1997

ASSETS
Investments at value (Identified cost -- $1,197,953,812) .. $1,208,253,291
Cash ...................................................... 243
Receivable for:
Securities sold ........................ $34,463,331
Shares of the Fund sold ................ 443,584
Dividends and interest ................. 4,485,411 39,392,326
----------- --------------
1,247,645,860
--------------
LIABILITIES
Payable for:
Securities purchased $29,133,643
Shares of the Fund redeemed ............ 4,682,422
Distributions declared 20,564,817 54,380,882
-----------
Accrued expenses:
Management fees ........................ 866,413
Trustees' fees ......................... 27,907
Accounting and Administration .......... 7,087
Other expenses ......................... 209,132 1,110,539
----------- --------------
55,491,421
--------------
NET ASSETS .................................................. $1,192,154,439
==============
Net Assets consist of:
Capital paid-in ......................................... $1,181,544,878
Accumulated net realized gain ........................... 310,082
Unrealized appreciation on investments -- net ........... 10,299,479
--------------
NET ASSETS .................................................. $1,192,154,439
==============
Shares of beneficial interest outstanding, no par value .. 46,716,327
==============
Net asset value per share* ................................ $25.52
==============

* Shares of the Fund are sold and redeemed at net asset value ($1,192,154,439 /
46,716,327).

See accompanying notes to financial statements
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------

STATEMENT OF
OPERATIONS

Year Ended December 31, 1997

INVESTMENT INCOME
Income
Dividends (net of foreign taxes withheld $608,151) ..... $ 18,541,648
Interest ............................................... 18,542,143
------------
37,083,791
------------
Expenses
Management fees ........................................ 10,642,444
Trustees' fees ......................................... 100,100
Accounting and Administration .......................... 85,000
Custodian .............................................. 179,800
Transfer agent ......................................... 1,401,600
Audit and tax services ................................. 30,600
Legal .................................................. 14,400
Printing ............................................... 85,500
Registration ........................................... 30,475
Miscellaneous .......................................... 11,034
------------
12,580,953
------------
Net investment income .................................... 24,502,838
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain on investments -- net 283,265,656
Unrealized depreciation -- net ......................... (206,585,566)
------------
Net gain on investments ................................ 76,680,090
------------
NET INCREASE IN ASSETS FROM OPERATIONS ..................... $101,182,928
============

See accompanying notes to financial statements
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996
-------------- --------------
OPERATIONS
<S> <C> <C>
Net investment income .............................. $ 24,502,838 $ 27,219,061
Net realized gain from investments ................. 283,265,656 145,714,784
Unrealized appreciation (depreciation) ............. (206,585,566) 77,414,751
-------------- --------------
Increase in net assets from operations ........... 101,182,928 250,348,596
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ......................... (25,043,123) (26,678,776)
From net realized gain on investments .............. (283,113,674) (142,888,891)
-------------- --------------
(308,156,797) (169,567,667)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ....................... 88,236,330 85,970,440
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ............. 22,656,786 24,156,561
Distributions from net realized gain ............. 263,206,166 131,950,732
-------------- --------------
374,099,282 242,077,733
Cost of shares redeemed ............................ (191,493,864) (260,774,531)
-------------- --------------
Net increase (decrease) in assets from capital
share transactions ............................. 182,605,418 (18,696,798)
-------------- --------------
Total increase (decrease) in net assets ............ (24,368,451) 62,084,131

NET ASSETS
Beginning of period ................................ 1,216,522,890 1,154,438,759
-------------- --------------
End of the period (including undistributed net
investment income of
$0 and $540,285, respectively) ................... $1,192,154,439 $1,216,522,890
============== ==============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ......................... 2,627,268 2,757,585
Issued in connection with reinvestment of:
Dividends from net investment income ............. 709,138 776,634
Distributions from net realized gain ............. 10,313,957 4,199,578
-------------- --------------
13,650,363 7,733,797
Redeemed ......................................... (5,656,108) (8,241,929)
-------------- --------------
Net change ....................................... 7,994,255 (508,132)
============== ==============
</TABLE>

See accompanying notes to financial statements
<PAGE>

CGM MUTUAL FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
For a share of the Fund outstanding
throughout each period:
Net asset value at the beginning
of period ..................... $31.42 $29.43 $25.05 $28.88 $26.02
------ ------ ------ ------ ------
Net investment income ........... 0.66 0.75 0.73 1.09 0.92
Dividends from net investment
income ........................ (0.67) (0.74) (0.77) (1.04) (0.86)
Net realized and unrealized gain
(loss) on investments ......... 1.92 6.13 5.31 (3.88) 4.73
Distribution from net realized
gain .......................... (7.81) (4.15) (0.89) -- (1.81)
Distribution in excess of net
realized gain ................. -- -- -- -- (0.12)
------ ------ ------ ------ ------
Net increase (decrease) in net
asset value ................... (5.90) 1.99 4.38 (3.83) 2.86
------ ------ ------ ------ ------
Net asset value at end of period $25.52 $31.42 $29.43 $25.05 $28.88
====== ====== ====== ====== ======
Total Return (%) ................ 8.2 23.7 24.3 -9.7 21.8
Ratios:
Operating expenses to average net
assets (%) .................... 0.98 0.87 0.91 0.92 0.93
Net investment income to average
net assets (%) ................ 1.91 2.33 2.55 4.39 3.45
Portfolio turnover (%) .......... 386 192 291 173 97
Average commission rate** ....... $0.0695 $0.0695 -- -- --
Net assets at end of period (in
thousands) ($)................. 1,192,154 1,216,523 1,154,439 1,063,375 947,115

**SEC regulations require portfolios to disclose the average commission rate paid on trades for which commissions
were charged for fiscal years beginning on or after September 1, 1995.
</TABLE>

See accompanying notes to financial statements.
<PAGE>
CGM MUTUAL FUND
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997

1. The Fund is a 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's
objective is reasonable long-term capital appreciation with a prudent approach
to protection of capital from undue risks. Current income is a consideration in
the selection of the Fund's portfolio securities, but it is not a controlling
factor.

A. SECURITY VALUATION -- Equity securities are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees, which provides the last reported sale price for securities listed
on a national securities exchange or on the NASDAQ national market system
or, if no sale was reported and in the case of over-the-counter securities
not so listed, the last reported bid price. Corporate debt securities are
valued on the basis of valuations furnished by a pricing service, authorized
by the Board of Trustees, which determines valuations for normal,
institutional-size trading units of such securities using market
information, transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders. United States government debt securities are valued
at the current closing bid, as last reported by a pricing service approved
by the Board of Trustees. Short- term investments having a maturity of sixty
days or less are stated at amortized cost, which approximates value.

B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed) and dividend income is recorded on the ex-dividend date. Interest
income is recorded on the accrual basis. Net gain or loss on securities sold
is determined on the identified cost basis. Dividend income received by the
Fund from its investment in REITs may be comprised of ordinary income,
capital gains, and return of capital. The portion derived from capital gains
and return of capital will result in a reduction of the Fund's dividend
income and an increase in realized and unrealized gain on investments.

2. PURCHASES AND SALES OF SECURITIES -- For the year ended December 31, 1997,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $3,785,797,737 and
$3,903,251,992, respectively. Purchases and sales of United States government
obligations aggregated $1,205,597,225 and $182,035,272, respectively.

3. A. MANAGEMENT FEES -- During the year ended December 31, 1997, the Fund
incurred management fees of $10,642,444, paid or payable to the Fund's
investment adviser, Capital Growth Management Limited Partnership
(CGM), certain officers and directors of which are also officers and
trustees of the Fund. The management agreement provides for a fee at
the annual rate of 0.90% on the first $500 million of the Fund's
average daily net assets, 0.80% of the next $500 million and 0.75% of
such assets in excess of $1 billion.

B. OTHER EXPENSES -- CGM performs certain administrative, accounting and
other services for the Fund. The expenses of those services, which were
paid to CGM by the Fund, include the following: (i) expenses for
personnel performing bookkeeping, accounting and financial reporting
functions and clerical functions relating to the Fund; (ii) expenses for
services required in connection with the preparation of registration
statements and prospectuses, shareholder reports and notices, proxy
solicitation material furnished to shareholders of the Fund or
regulatory authorities and reports and questionnaires for SEC
compliance; and (iii) registration, filing and other fees in connection
with requirements of regulatory authorities. The Accounting and
Administration expense of $85,000 is shown separately in the financial
statements.

C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to its officers or to any trustees who are directors, officers
or employees of CGM, or any affiliate of CGM, (other than registered
investment companies). Each other trustee is compensated by the CGM
Funds with an annual fee of $37,000 plus expenses for each meeting
attended. Of this amount, the Fund is responsible for $3,000 plus an
annual variable fee calculated based on the proportion of the Fund's
average net assets to the aggregate average net assets of the CGM Funds,
which for 1997 is $12,994. In addition, the Chairman of the Independent
Trustees Committee receives an annual retainer of $1,500.
<PAGE>

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

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

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CGM Mutual Fund at December 31,
1997, and the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and the financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at December 31, 1997 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
Boston, Massachusetts
February 9, 1998
<PAGE>
CGM MUTUAL FUND
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
BOARD OF TRUSTEES INVESTMENT ADVISER

PETER O. BROWN CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
NICHOLAS J. GRANT Boston, Massachusetts 02110
G. KENNETH HEEBNER
ROBERT L. KEMP TRANSFER AND DIVIDEND PAYING
ROBERT B. KITTREDGE AGENT AND CUSTODIAN OF ASSETS
LAURENS MACLURE
JAMES VAN DYKE QUEREAU, JR. STATE STREET BANK AND TRUST COMPANY
J. BAUR WHITTLESEY Boston, Massachusetts 02102

OFFICERS SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
ROBERT L. KEMP, President TRUST COMPANY
G. KENNETH HEEBNER, Vice President
LESLIE A. LAKE, Vice President and Secretary BOSTON FINANCIAL DATA SERVICES, INC.
KATHLEEN S. HAUGHTON, Vice President P.O. Box 8511
MARTHA I. MAGUIRE, Vice President Boston, Massachusetts 02266-8511
W. DUGAL THOMAS, Vice President
MARY L. STONE, Assistant Vice President
FRANK N. STRAUSS, Treasurer
</TABLE>
<PAGE>
CGM
MUTUAL FUND

68th Annual Report
December 31, 1997

A No-Load Fund

[graphic omitted]

Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110

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

For information about:
[] Account Procedures and Status
[] Redemptions
[] Exchanges
Call 800-343-5678

[] New Account Procedures
[] Prospectuses
[] Performance
Call 800-345-4048
- ---------------------------------------
MAILING ADDRESSES

FOR EXISTING ACCOUNTS

Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511

FOR NEW ACCOUNT APPLICATIONS ONLY

The CGM Funds
P.O. Box 449
Boston, MA 02117-0449
- ---------------------------------------

MAR97 Printed in U.S.A.
<PAGE>

TO OUR SHAREHOLDERS:

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

CGM American Tax Free Fund increased 2.6 % during the fourth quarter of 1997
compared to the Lehman Municipal Bond Index which rose 2.7% over the same
period. For the year just ended, the CGM American Tax Free Fund returned 9.0%
compared to the Lehman Municipal Bond Index which increased 9.2%.

THE YEAR IN REVIEW AND ECONOMIC OUTLOOK

PORTFOLIO STRATEGY

The municipal bond market performed well during 1997 though the stock market
continued to hold a greater draw for investors. The biggest hurdles for the
tax-exempt market were historically low rates, although, on a tax-adjusted
basis, municipal rates were very attractive.

While CGM American Tax Free Fund's year-over-year performance was in line with
the market and comparable funds, its performance was inhibited by an overly
conservative maturity structure. Fearing rising inflationary pressures and
higher rates, we reined the portfolio into shorter maturities but maintained a
high yield on the Fund. As a result, we were unable to fully capture the capital
appreciation of long bonds in a falling interest rate environment though we did
capitalize on trading opportunities between sectors. During the last quarter of
the year, we did selectively extend the maturity of the portfolio to better
position ourselves in the at least near-term environment of stable to falling
interest rates.

The year ahead will challenge the tax-exempt market given the current low yield
levels and the potential for a flatter yield curve. Nonetheless, long municipal
yields continue to look good relative to taxable alternatives.

CGM American Tax Free Fund's largest sectors are transportation, industrial/
pollution control, and general obligation bonds. The three largest holdings are
Hodge Louisiana (Stone Container), Mobile Alabama General Obligation Bonds and
Howard County Maryland Multi-family Housing (Avalon Properties).

/s/ Robert L. Kemp

Robert L. Kemp
President

/s/ Janice H. Saul

Janice H. Saul
Portfolio Manager

January 9, 1998
<PAGE>

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CGM AMERICAN TAX FREE FUND AND THE LEHMAN MUNICIPAL
BOND FUND INDEX
assuming reinvestment of dividends and capital gains

- ----------------------------------------
Average Annual Total Return
- ----------------------------------------
1 year Life of Fund*
9.0% 5.5%
*(November 10, 1993 - December 31, 1997)
- ----------------------------------------
Past performance is no indication
of future results
- ----------------------------------------

CGM American Lehman Municipal
Tax Free Fund Bond Index
- ---------------------------------------------------
11/10/93 $10,000 $10,000
1993 $10,290 $10,210
1994 $ 9,446 $ 9,679
1995 $11,147 $11,373
1996 $11,470 $11,873
1997 $12,503 $12,966

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

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

INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------

Total Return for Periods Ended December 31, 1997

CGM AMERICAN LIPPER GENERAL MUNICIPAL
TAX FREE FUND DEBT FUND AVERAGE
------------- ------------------------
3 Years ................. +32.3% +31.8%
1 Year .................. + 9.0 + 9.1
3 Months ................ + 2.6 + 2.8

The Fund's average annual total returns for the three year period ended December
31, 1997 and from inception (November 10, 1993) through December 31, 1997 are
+9.8% and +5.5%, respectively. The adviser has agreed to absorb the Fund's total
operating expenses through December 31, 1998. Otherwise, the Fund's total return
for each period would have been lower.

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

CGM AMERICAN TAX FREE FUND
- -------------------------------------------------------------------------------
BOARD OF TRUSTEES

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

OFFICERS

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
Boston, Massachusetts 02110

TRANSFER AND DIVIDEND PAYING
AGENT AND CUSTODIAN OF ASSETS

STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts 02102

SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY

BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 8511
Boston, Massachusetts 02266-8511
<PAGE>

CGM AMERICAN TAX FREE FUND
- -------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1997
MUNICIPAL BONDS -- 96.2% OF TOTAL NET ASSETS

<TABLE>
<CAPTION>
FACE
AMOUNT VALUE(a)
---------- -----------
<S> <C> <C>
ALABAMA -- 6.3%
Mobile Alabama, 10.875%, 11/01/07 ........................... $ 655,000 $ 909,520
-----------
CALIFORNIA -- 7.2%
Los Angeles Regional Airport, 6.875%, 11/15/12 .............. 500,000 553,765
Metropolitan Water District Southern California,
5.00%, 7/01/37 ............................................ 500,000 483,295
-----------
1,037,060
-----------
COLORADO -- 8.5%
Denver City & County Airport, 5.25%, 11/15/23 ............... 500,000 499,260
E470 Public Highway Authority, 5.00%, 9/01/26 ............... 750,000 729,907
-----------
1,229,167
-----------
FLORIDA -- 1.9%
Polk County Industrial Development Authority Revenue Bonds
(IMC Fertilizer), 7.525%, 1/01/15 ........................ 250,000 274,093
-----------
HAWAII -- 0.8%
Honolulu City and County Mortgage Revenue, 7.80%, 7/01/24 ... 100,000 108,825
-----------
KENTUCKY -- 3.0%
Kenton County Airport Revenue Bonds (Delta Airlines), 6.75%,
2/01/02 .................................................. 400,000 431,412
-----------
LOUISIANA -- 7.5%
Hodge Utility Revenue Bonds (Stone Container), 9.00%, 3/01/10 1,000,000 1,086,960
-----------
MARYLAND -- 5.8%
Howard County Multifamily, Chase Glen Apartments,
7.00%, 7/01/24 (b) ...................................... 750,000 834,930
-----------
MASSACHUSETTS -- 11.2%
Massachusetts Municipal Wholesale Electric, 8.75%, 7/01/18 .. 330,000 402,531
Massachusetts Port Authority, 5.00%, 7/01/27 ................ 500,000 488,680
Massachusetts Turnpike Authority, 5.00%, 1/01/37 ............ 750,000 726,255
-----------
1,617,466
-----------
MICHIGAN -- 2.8%
Michigan State Housing Development, 7.05%, 10/01/12 ......... 370,000 398,786
-----------
MONTANA -- 3.1%
Montana State Board, 6.875%, 6/01/20 ........................ 410,000 449,885
-----------
NEW YORK -- 19.7%
Metro Transportation Authority, 5.125%, 7/01/22 ............. 500,000 494,835
New York General Obligation Bonds Series B, 8.25%, 6/01/05 .. 100,000 121,414
New York General Obligation Bonds Series J, 5.50%, 2/15/26 .. 500,000 503,820
New York State Dormitory Authority Revenue Bonds,
4.75%, 7/01/14 ............................................ 750,000 732,397
New York State Dormitory Authority Revenue Bonds,
5.75%, 7/01/13 ............................................ 250,000 270,605
New York State Dormitory Authority Revenue Bonds,
5.875%, 5/15/11 ........................................... 250,000 275,220
Port Authority New York and New Jersey Special Obligation,
9.125%, 12/01/15 .......................................... 395,000 447,397
-----------
2,845,688
-----------
PENNSYLVANIA -- 3.4%
Philadelphia Water, 5.125%, 8/01/27 ......................... 500,000 492,860
-----------
TEXAS -- 8.9%
Alliance Airport Authority Special Facilities Revenue Bonds
(American Airlines Inc. Project), 7.00%, 12/01/11 ........ 250,000 294,677
Bexar County Health Facilities, 5.375%, 11/15/22 ............ 500,000 505,870
North Texas Thruway Authority, 5.00%, 1/01/20 ............... 500,000 492,130
-----------
1,292,677
-----------
VIRGINIA -- 6.1%
Hopewell Industrial Development Authority (Stone Container),
8.25%, 6/01/16 ............................................ 350,000 394,247
Fairfax County Water Authority, 5.00%, 4/01/29 .............. 500,000 489,130
-----------
883,377
-----------
TOTAL MUNICIPAL BONDS (Identified Cost $13,368,497) ............................ 13,892,706
-----------
SHORT-TERM INVESTMENTS -- 2.4%
Chevron Oil Finance Co., 6.75%, 1/02/98 (Cost $345,000) ..... 345,000 345,000
-----------
TOTAL INVESTMENTS -- 98.6% (Identified Cost $13,713,497)(c) .................... 14,237,706
Cash and Receivables ........................................................ 255,065
Liabilities ................................................................. (49,768)
-----------
TOTAL NET ASSETS -- 100.0% ..................................................... $14,443,003
===========

(a) See Note 1A.
(b) Variable or floating rate security. Rate disclosed is as of December 31,
1997.
(c) Federal Tax Information: At December 31, 1997 the net unrealized
appreciation on investments based on cost of $13,713,497 for Federal income
tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost ...................................... $ 524,209
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ...................................... --
-----------
Net unrealized appreciation ................................................ $ 524,209
===========
</TABLE>

See accompanying notes to financial statements
<PAGE>

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

December 31, 1997

ASSETS
Investments at value (Identified
cost -- $13,713,497) ................................... $14,237,706
Cash ..................................................... 3,590
Receivable for:
Shares of the Fund sold .................. $ 8,065
Interest ................................. 243,410 251,475
-------- -----------
14,492,771
-----------
LIABILITIES
Payable for:
Shares of the Fund
redeemed ............................... $ 4,499
Distributions declared ................... 19,450
Expense advance from
adviser ................................ 25,819 49,768
-------- -----------
NET ASSETS ................................................. $14,443,003
===========
Net Assets consist of:
Capital paid-in ........................................ $14,871,716
Undistributed net investment
income ............................................... 63
Accumulated net realized loss .......................... (952,985)
Unrealized appreciation on
investments -- net ................................... 524,209
-----------
NET ASSETS ................................................. $14,443,003
===========
Shares of beneficial interest
outstanding, no par value ............................. 1,489,220
===========
Net asset value per share* ............................... $9.70
===========

* Shares of the Fund are sold and redeemed at net asset value
($14,443,003 / 1,489,220).

See accompanying notes to financial statements
<PAGE>

CGM AMERICAN TAX FREE FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS

Year Ended December 31, 1997

INVESTMENT INCOME
Income
Interest ................................................. $ 806,023
----------
Expenses
Management fees .......................................... 79,103
Trustees' fees ........................................... 22,500
Accounting and Administration ............................ 4,000
Custodian ................................................ 52,400
Transfer agent ........................................... 23,900
Audit and tax services ................................... 19,500
Legal .................................................... 31,000
Printing ................................................. 15,300
Registration ............................................. 20,638
Miscellaneous ............................................ 418
----------
268,759
Less expenses assumed by the
investment adviser ..................................... (268,759)
----------
Net investment income .................................... 806,023
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments -- net ........................ 158,954
Unrealized appreciation -- net ............................. 172,076
----------
Net gain on investments .................................... 331,030
----------
NET INCREASE IN ASSETS FROM OPERATIONS ....................... $1,137,053
==========

See accompanying notes to financial statements
<PAGE>

CGM AMERICAN TAX FREE FUND
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
FROM OPERATIONS
Net investment income .................................... $ 806,023 $ 712,505
Net realized gain (loss) from investments ................ 158,954 (224,953)
Unrealized appreciation (depreciation) ................... 172,076 (149,674)
----------- -----------
Increase in net assets from operations ................. 1,137,053 337,878
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................................... (806,094) (713,442)
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................. 3,124,269 2,728,617
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ................... 588,720 544,091
----------- -----------
3,712,989 3,272,708
Cost of shares redeemed .................................. (2,030,606) (2,322,772)
----------- -----------
Net increase in assets from capital share transactions . 1,682,383 949,936
----------- -----------
Total increase in net assets ............................. 2,013,342 574,372
NET ASSETS
Beginning of period ...................................... 12,429,661 11,855,289
----------- -----------
End of period (including undistributed net investment
income of $63 and $134, respectively) .................. $14,443,003 $12,429,661
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................... 327,534 289,359
Issued in connection with reinvestment of:
Dividends from net investment income ................... 61,837 57,875
----------- -----------
389,371 347,234
Redeemed ............................................... (213,563) (247,063)
----------- -----------
Net change ............................................. 175,808 100,171
=========== ===========
</TABLE>

See accompanying notes to financial statements
<PAGE>

CGM AMERICAN TAX FREE FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 10,
YEAR ENDED DECEMBER 31, 1993(c) THROUGH
----------------------------------------------------- DECEMBER 31,
1997 1996 1995 1994 1993
------ ------ ------ ------ ---------------
<S> <C> <C> <C> <C> <C>
For a share of the Fund outstanding throughout
each period:
Net asset value at the beginning of period ... $ 9.46 $ 9.77 $ 8.83 $10.25 $10.00
------ ------ ------ ------ ------
Net investment income (a) .................... 0.58 0.58 0.61 0.58 0.04
Dividends from net investment income ......... (0.58) (0.58) (0.61) (0.58) (0.04)
Net realized and unrealized gain (loss) on
investments ................................ 0.24 (0.31) 0.94 (1.42) 0.25
------ ------ ------ ------ ------
Net increase (decrease) in net asset value ... 0.24 (0.31) 0.94 (1.42) 0.25
------ ------ ------ ------ ------
Net asset value at end of period ............. $ 9.70 $ 9.46 $ 9.77 $ 8.83 $10.25
====== ====== ====== ====== ======
Total Return (%) (b) ......................... 9.0 2.9 18.0 -8.2 2.9(d)
Ratios:
Operating expenses to average net assets (%).. 0 0 0 0 0
Operating expenses to average net assets before
waiver (%) ................................. 2.04 2.14 2.59 2.42 3.59(e)
Net investment income to average net assets (%) 6.11 6.10 6.50 6.39 4.95(e)
Portfolio turnover(%) ........................ 140 107 125 169 0
Net assets at end of period (in thousands) ... $14,443 $12,430 $11,855 $10,150 $ 4,786
(a) Net of fees waived and reimbursed
amounted to .............................. $ 0.19 $ 0.20 $ 0.24 $ 0.22 $ 0.03
(b) The total return would have been lower had the total fees and expenses not been waived or reimbursed during the period.
(c) Commencement of operations.
(d) Not computed on an annualized basis.
(e) Computed on an annualized basis.

</TABLE>

See accompanying notes to financial statements
<PAGE>

CGM AMERICAN TAX FREE FUND
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997

1. The Fund is a 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 November 10, 1993. The primary investment objective of
the Fund is to provide high current income exempt from federal income tax. The
Fund's secondary investment objective is capital appreciation.

A. SECURITY VALUATION -- Debt securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
determines valuations for normal, institutional-size trading units of such
securities using market information, transactions for comparable securities
and various relationships between securities which are generally recognized
by institutional traders. Short-term investments having a maturity of sixty
days or less are stated at amortized cost, which approximates value.

B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed) and dividend income is recorded on the ex-dividend date. The Fund
may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices. Interest
income is recorded on the accrual basis. Interest income is increased by the
accretion of discount. Premium is amortized against interest income with a
corresponding decrease in the cost basis. Net gain or loss on securities
sold is determined on the identified cost basis.

C. FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies, and to distribute to its shareholders all of its taxable and tax
exempt income and net realized capital gains, within the prescribed time
period. Accordingly, no provision for federal income tax has been made. At
December 31, 1997, there were capital loss carryovers available to offset
future realized gains of $728,032 expiring in the year 2002 and $224,953
expiring in 2004.

E. OTHER -- The Fund has greater than 10% of its net assets at December 31,
1997 invested in Massachusetts and New York. There are certain risks arising
from geographical concentration in any state. Certain revenue or tax related
events in a state may impair the ability of certain issuers of municipal
securities to pay principal and interest on their obligations.

2. PURCHASES AND SALES OF SECURITIES -- For the year ended December 31, 1997,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $19,015,845 and $17,792,870,
respectively. There were no purchases or sales of United States government
obligations.

3. A. MANAGEMENT FEES -- During the year ended December 31, 1997, the Fund
incurred management fees of $79,103 payable to the Fund's investment
adviser, Capital Growth Management Limited Partnership (CGM), certain
officers and directors of which are also officers and trustees of the
Fund. The management agreement provides for a fee at the annual rate
of 0.60% on the first $500 million of the Fund's average daily net
assets, 0.55% of the next $500 million and 0.45% of such assets in
excess of $1 billion. CGM waived its entire fee. See Note 4.

B. OTHER EXPENSES -- CGM performs certain administrative, accounting and
other services for the Fund. The expenses of those services, which are
paid to CGM by the Fund, include the following: (i) expenses for
personnel performing bookkeeping, accounting and financial reporting
functions and clerical functions relating to the Fund; (ii) expenses for
services required in connection with the preparation of registration
statements and prospectuses, shareholder reports and notices, proxy
solicitation material furnished to shareholders of the Fund or
regulatory authorities and reports and questionnaires for SEC
compliance; and (iii) registration, filing and other fees in connection
with requirements of regulatory authorities. For the year ended December
31, 1997, these expenses amounted to $4,000 and are shown separately in
the financial statements as Accounting and Administration. The entire
expense was waived by CGM. See Note 4.

C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to its officers or to any trustees who are directors, officers
or employees of CGM, or any affiliate of CGM, other than registered
investment companies. Each other trustee is compensated by the CGM Funds
with an annual fee of $37,000 plus expenses for each meeting attended.
Of this amount, the Fund is responsible for $3,000 plus an annual
variable fee calculated based on the proportion of the Fund's average
net assets to the aggregate average net assets of the CGM Funds, which
for 1997 is $134. 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 waive its management fee and
to assume all expenses of the Fund. For the period ended December 31, 1997, CGM
waived its entire management fee of $79,103, the entire Accounting and
Administration expense of $4,000 and assumed Fund expenses of $185,656.

<PAGE>

CGM AMERICAN TAX FREE FUND
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Trustees and Shareholders of CGM American Tax Free Fund:

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CGM American Tax Free Fund at
December 31, 1997, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
the financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at December 31, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.

PRICE WATERHOUSE LLP
Boston, Massachusetts
February 9, 1998
<PAGE>

CGM
AMERICAN
TAX FREE FUND

5th Annual Report
December 31, 1997

A No-Load Fund

[graphic omitted]

Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110

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

For information about:
[] Account Procedures and Status
[] Redemptions
[] Exchanges
Call 800-343-5678

[] New Account Procedures
[] Prospectuses
[] Performance
Call 800-345-4048
- ---------------------------------
MAILING ADDRESSES

FOR EXISTING ACCOUNTS

Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511

FOR NEW ACCOUNT APPLICATIONS ONLY

The CGM Funds
P.O. Box 449
Boston, MA 02117-0449

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

AAR97 Printed in U.S.A.
<PAGE>

TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------

CGM Realty Fund increased 0.4% during the fourth quarter of 1997 compared to the
National Association of Real Estate Investment Trust's (NAREIT) Equity REIT
Index which increased 1.8% over the same period. For the year just ended, the
Fund returned 26.7% while the NAREIT Equity REIT index increased 20.3%.

THE YEAR IN REVIEW AND ECONOMIC OUTLOOK

PORTFOLIO STRATEGY

CGM Realty Fund remained fully invested in Real Estate Investment Trusts in
1997, reflecting our confidence in the positive outlook for these securities.
The Fund benefited from the strong performance of hotel, office and industrial
REITs, which comprised most of the portfolio during the year. Hotel REITs, which
constituted almost half the portfolio at the beginning of the year, were
gradually cut back to make room for additional office and industrial holdings.
At year-end, office and industrial holdings represented just under 72% of the
portfolio.

In addition to the 71.9% position in office and industrial REITs, CGM Realty is
17.8% invested in hotel REITs and 9.4% invested in apartment REITs. The Fund's
three largest holdings are Tower Realty Trust, Inc., SL Green Realty Corporation
and Kilroy Realty Corporation.

/s/ Robert L. Kemp

Robert L. Kemp
President

/s/ G. Kenneth Heebner

G. Kenneth Heebner
Portfolio Manager

January 9, 1998
<PAGE>

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

- ----------------------------------------
Average Annual Total Return
- ----------------------------------------
1 year Life of Fund*
26.7% 24.1%
*(5/13/94 - 12/31/97)
- ----------------------------------------
Past performance is no indication
of future results
- ----------------------------------------

CGM Unmanaged
Realty Fund S&P 500
- ---------------------------------------------------
5/13/94 $10,000 $10,000
12/31/94 $10,020 $10,130
12/31/95 $12,004 $13,929
12/31/96 $17,298 $17,132
12/31/97 $21,916 $22,855

CGM REALTY FUND
PORTFOLIO MANAGER

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

G. Kenneth Heebner has managed CGM Realty Fund since its inception on May 13,
1994. In 1990, Mr. Heebner founded Capital Growth Management Limited Partnership
with Robert L. Kemp. Prior to establishing the new company, Mr. Heebner managed
mutual funds at Loomis, Sayles and Company. In addition to CGM Realty Fund, he
currently manages CGM Capital Development Fund, CGM Mutual Fund and CGM Focus
Fund, and two other mutual funds. He also co-manages CGM Fixed Income Fund with
Janice Saul.

INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------

Total Return for Periods Ended December 31, 1997

THE FUND'S
CGM AVERAGE ANNUAL NAREIT EQUITY
REALTY FUND TOTAL RETURN REIT INDEX
----------- -------------- -------------
3 Years ............. +118.7% +29.8% +23.3%*
1 Year .............. + 26.7 +26.7 +20.3
3 Months ............ + 0.4 -- + 1.8

The Fund's average annual total return since inception (May 13, 1994) through
December 31, 1997 is +24.1%. The adviser limited the Fund's total operating
expenses to 1.00% of its average net assets through December 31, 1997.
Otherwise, the Fund's total return for each period 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.

*Annualized
<PAGE>

CGM REALTY FUND
- -------------------------------------------------------------------------------
BOARD OF TRUSTEES

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

OFFICERS

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

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
Boston, Massachusetts 02110

TRANSFER AND DIVIDEND PAYING
AGENT AND CUSTODIAN OF ASSETS

STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts 02102

SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY

BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 8511
Boston, Massachusetts 02266-8511
<PAGE>

CGM REALTY FUND
- -------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1997

<TABLE>
<CAPTION>
REAL ESTATE INVESTMENT TRUSTS -- 99.1% OF TOTAL NET ASSETS
SHARES VALUE(a)
-------- ------------
<S> <C> <C>
APARTMENTS -- 9.4%
Apartment Investment & Management Company .................. 685,500 $ 25,192,125
Home Properties New York, Inc. ............................. 772,000 20,988,750
------------
46,180,875
------------
HOTELS -- 17.8%
American General Hospitality ............................... 920,000 24,610,000
Boykin Lodging Company ..................................... 943,000 24,930,563
Patriot American Hospitality ............................... 413,000 11,899,562
Starwood Lodging Trust ..................................... 446,000 25,812,250
------------
87,252,375
------------
OFFICE & INDUSTRIAL -- 71.9%
Bedford Property Investments, Inc. ......................... 1,153,000 25,221,875
Boston Properties, Inc. .................................... 745,000 24,631,563
Brandywine Realty Trust .................................... 989,700 24,866,213
Equity Office Properties Trust ............................. 116,000 3,661,250
Kilroy Realty Corporation .................................. 908,500 26,119,375
Liberty Property Trust ..................................... 897,000 25,620,562
MGI Properties ............................................. 260,000 6,240,000
Pacific Gulf Properties, Inc. .............................. 651,400 15,470,750
Parkway Properties, Inc. ................................... 702,000 24,087,375
Prentiss Properties Trust .................................. 688,000 19,221,000
Prime Group Realty Trust ................................... 1,217,500 24,654,375
Reckson Associates Realty Corporation ...................... 162,300 4,118,362
SL Green Realty Corporation ................................ 1,320,000 34,237,500
Spieker Properties, Inc. ................................... 590,000 25,296,250
Tower Realty Trust, Inc. ................................... 1,741,000 42,872,125
Vornado Realty Trust ....................................... 544,300 25,548,081
------------
351,866,656
------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Identified Cost $441,231,710) ............ 485,299,906
------------
FACE
AMOUNT VALUE(a)
SHORT-TERM INVESTMENT -- 1.3% ---------- ------------
Chevron Oil Finance Company, 6.75%, 1/02/98 (Cost $6,275,000) . $6,275,000 $ 6,275,000
------------
TOTAL INVESTMENTS -- 100.4% (Identified Cost $447,506,710)(b) ................. 491,574,906
Cash, receivables and other assets ......................................... 9,605,457
Liabilities ................................................................ (11,731,392)
------------
TOTAL NET ASSETS -- 100% ...................................................... $489,448,971
============

(a) See Note 1A.
(b) Federal Tax Information: At December 31, 1997 the net unrealized appreciation
on investments based on cost of $447,515,279 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 .................................... $ 48,511,956
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over value .......................................... (4,452,329)
------------
Net unrealized appreciation ................................................... $ 44,059,627
============
</TABLE>
See accompanying notes to financial statements
<PAGE>
CGM REALTY FUND
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES

December 31, 1997

ASSETS
Investments at value (Identified
cost -- $447,506,710) .................................. $491,574,906
Cash .................................................... 858
Receivable for:
Securities sold ..............................$ 734,732
Shares of the Fund sold ...................... 3,933,435
Dividends and interest ....................... 4,917,359 9,585,526
----------
Unamortized organizational expenses ..................... 19,073
------------
501,180,363
------------
LIABILITIES
Payable for:
Securities purchased .........................$2,264,133
Shares of the Fund
redeemed .................................... 1,151,111
Distributions declared ....................... 7,906,978 11,322,222
----------
Accrued expenses:
Management fees .............................. 324,603
Trustees' fees ............................... 4,646
Accounting and
Administration .............................. 2,000
Other expenses ............................... 77,921 409,170
---------- ------------
11,731,392
------------
NET ASSETS ............................................... $489,448,971
============
Net Assets consist of:
Capital paid-in ........................................ $445,389,344
Accumulated net realized loss .......................... (8,569)
Unrealized appreciation on
investments -- net .................................... 44,068,196
------------
NET ASSETS ............................................... $489,448,971
============
Shares of beneficial interest
outstanding, no par value ............................. 31,380,704
============
Net asset value per share* .............................. $15.60
============
* Shares of the Fund are sold and redeemed at net asset value
($489,448,971 / 31,380,704).

See accompanying notes to financial statements
<PAGE>
CGM REALTY FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS

Year Ended December 31, 1997

INVESTMENT INCOME
Income
Dividends .................................................... $ 18,604,743
Interest ..................................................... 152,654
-------------
18,757,397
-------------
Expenses
Management fees .............................................. 2,906,862
Trustees' fees ............................................... 27,265
Accounting and Administration ................................ 24,000
Custodian .................................................... 94,900
Transfer agent ............................................... 391,000
Audit and tax services ....................................... 22,250
Legal ........................................................ 44,000
Printing ..................................................... 44,800
Registration ................................................. 80,307
Amortization of organizational expense ....................... 14,038
Line of credit commitment fee ................................ 10,082
Miscellaneous ................................................ 2,454
-------------
3,661,958
Less expenses assumed by the investment adviser ............... (242,121)
-------------
Net investment income ......................................... 15,337,560
-------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized gain on investments -- net .......................... 56,525,787
Unrealized appreciation -- net ............................... 9,136,478
-------------
Net gain on investments ...................................... 65,662,265
-------------
NET INCREASE IN ASSETS FROM OPERATIONS ......................... $ 80,999,825
=============

See accompanying notes to financial statements
<PAGE>
CGM REALTY FUNDS
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------
1997 1996
------------- ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income .................................. $ 15,337,560 $ 4,199,394
Net realized gain from investments ..................... 56,525,787 5,829,586
Unrealized appreciation ................................ 9,136,478 28,466,645
------------- ------------
Increase in net assets from operations ............... 80,999,825 38,495,625
------------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................................. (15,347,351) (4,209,203)
Net realized gain on investments ....................... (56,478,540) (4,289,171)
Tax return of capital .................................. (959,745) --
In excess of net investment income ..................... -- (978,678)
------------- ------------
(72,785,636) (9,477,052)
------------- ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ........................... 386,218,359 109,581,079
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ................. 12,925,041 3,469,327
Distributions from net realized gain ................. 49,450,035 3,608,689
Distributions from tax return of capital ............. 758,662 --
Distributions in excess of net investment income ..... -- 802,054
------------- ------------
449,352,097 117,461,149
Cost of shares redeemed ................................ (129,844,349) (32,447,080)
------------- ------------
Net increase in assets from capital share transactions 319,507,748 85,014,069
------------- ------------
Total increase in net assets ........................... 327,721,937 114,032,642
NET ASSETS
Beginning of period .................................... 161,727,034 47,694,392
------------- ------------
End of period .......................................... $ 489,448,971 $161,727,034
============= ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................. 24,655,430 8,792,108
Issued in connection with reinvestment of:
Dividends from net investment income ................. 814,265 272,920
Distributions from net realized gain ................. 3,169,874 248,876
Distributions from tax return of capital ............. 50,920 --
Distributions in excess of net investment income ..... -- 65,285
------------- ------------
28,690,489 9,379,189
Redeemed ............................................. (8,465,532) (2,602,008)
------------- ------------
Net change ........................................... 20,224,957 6,777,181
============= ============

See accompanying notes to financial statements
<PAGE>

CGM REALTY FUNDS
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS

</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 13, 1994(c)
YEAR ENDED YEAR ENDED THROUGH
1997 DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
For a share of the Fund outstanding throughout
each period:
Net asset value at the beginning of period ... $14.50 $10.89 $ 9.71 $10.00
------ ------ ------ ------
Net investment income(a) ..................... 0.64 0.52 0.54 0.31
Dividends from net investment income ......... (0.64) (0.52) (0.54) (0.23)
Distributions from net realized gain ......... (2.03) (0.41) -- --
Distributions from tax return of capital .... (0.04) -- (0.14) (0.08)
Distributions in excess of net investment
income ..................................... -- (0.12) -- --
Net realized and unrealized gain (loss) on
investments ................................ 3.17 4.14 1.32 (0.29)
------ ------ ------ ------
Net increase (decrease) in net asset value ... 1.10 3.61 1.18 (0.29)
------ ------ ------ ------
Net asset value at end of period ............. $15.60 $14.50 $10.89 $ 9.71
====== ====== ====== ======
Total Return (%) (b) ......................... 26.7 44.1 19.8 0.2(d)
Ratios:
Operating expenses to average net assets (%) . 1.00 1.00 1.00 1.00(e)
Operating expenses to average net assets
before expense limitation (%) .............. 1.07 1.25 1.68 2.00(e)
Net income to average net assets (%) ......... 4.48 4.97 5.51 7.40(e)
Portfolio turnover (%) ....................... 128 57 85 47(e)
Average commission rate (f) .................. $ 0.0684 $ 0.0660 -- --
Net assets at end of period (in thousands) ... $489,449 $161,727 $47,694 $34,277
(a) Net of reimbursement which amounted to ... $ 0.01 $ 0.02 $ 0.07 $ 0.04
(b) The total return would have been lower had certain expenses not been reduced during the period.
(c) Commencement of operations.
(d) Not computed on an annualized basis.
(e) Computed on an annualized basis.
(f) SEC regulations require portfolios to disclose the average commission rate paid on trades for which commissions
were charged for fiscal years beginning on or after September 1, 1995.

See accompanying notes to financial statements
</TABLE>
<PAGE>

CGM REALTY FUNDS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997

1. The Fund is a 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 May 13, 1994. The Fund's investment objective is to earn
above-average income and long-term growth of capital. The Fund intends to pursue
its objective by investing primarily in equity securities of companies in the
real estate industry.

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. Dividend income received by the
Fund from its investment in REITs may consist of ordinary income, capital
gains and return of capital. The portion derived from capital gains and
return of capital will result in a reduction of the Fund's dividend income
and an increase in realized and unrealized gain on investments.

D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions
are recorded by the Fund on the ex-dividend date. The classification of
income and capital gains distributions is determined in accordance with
income tax regulations. Permanent book and tax differences relating to
shareholder distributions may result in reclassifications to paid-in
capital. Undistributed net investment income, accumulated net investment
loss, or distributions in excess of net investment income may include
temporary book and tax differences, which will reverse in a subsequent
period. Any taxable income or gain remaining at fiscal year end is
distributed in the following year.

E. ORGANIZATION EXPENSE -- Costs incurred in 1994 in connection with the Fund's
organization and registration amounting to $70,186 have been paid by the
Fund. These costs are being amortized over 60 months beginning May 13, 1994.

2. PURCHASES AND SALE OF SECURITIES -- For the year ended December 31, 1997,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $696,091,626 and $435,053,666,
respectively. There were no purchases or sales of United States government
obligations.

3. A. MANAGEMENT FEES -- During the year ended December 31, 1997, the Fund
incurred management fees of $2,906,862, paid or payable to the Fund's
investment adviser, Capital Growth Management Limited Partnership
(CGM), certain officers and directors of which are also officers and
trustees of the Fund. The management agreement provides for a fee at
the annual rate of 0.85% on the first $500 million of the Fund's
average daily net assets and 0.75% on amounts in excess of $500
million. CGM waived a portion of its fee. See Note 4.

B. OTHER EXPENSES -- CGM performs certain administrative, accounting and
other services for the Fund. The expenses of those services, which are
paid to CGM by the Fund, include the following: (i) expenses for
personnel performing bookkeeping, accounting and financial reporting
functions and clerical functions relating to the Fund; (ii) expenses for
services required in connection with the preparation of registration
statements and prospectuses, shareholder reports and notices, proxy
solicitation material furnished to shareholders of the Fund or
regulatory authorities and reports and questionnaires for SEC
compliance; and (iii) registration, filing and other fees in connection
with requirements of regulatory authorities. For the year ended December
31, 1997 these expenses amounted to $24,000 and are shown separately in
the financial statements as Accounting and Administration.

C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to its officers or to any trustees who are directors, officers
or employees of CGM, or any affiliate of CGM, (other than registered
investment companies). Each other trustee is compensated by the CGM
Funds with an annual fee of $37,000 plus expenses for each meeting
attended. Of this amount, the Fund is responsible for $3,000 plus an
annual variable fee calculated based on the proportion of the Fund's
average net assets to the aggregate average net assets of the CGM Funds,
which for 1997 is $935. In addition, the Chairman of the Independent
Trustees Committee receives an annual retainer of $1,000.

4. EXPENSE LIMITATION -- Until December 31, 1997 CGM voluntarily agreed to
reduce its management fee in order to limit the Fund's expenses to an annual
rate of 1.00% of average daily net assets. As a result of the Fund's expenses
exceeding the voluntary expense limitation, CGM waived $242,121 of its
management fee. The Fund incurred operating expenses of $3,419,837, representing
1.00% of the average daily net assets.

5. LINE OF CREDIT -- Effective June 30, 1997, the Fund has a $20,000,000
committed unsecured 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 0.10% 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 December 31, 1997.
<PAGE>

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

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

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CGM Realty Fund at December 31,
1997, and the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and the financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at December 31, 1997 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Boston, Massachusetts
February 9, 1998
<PAGE>
CGM
REALTY FUND

4th Annual Report
December 31, 1997

A No-Load Fund

[graphic omitted]

Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110

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

For information about:
[] Account Procedures and Status
[] Redemptions
[] Exchanges
Call 800-343-5678

[] New Account Procedures
[] Prospectuses
[] Performance
Call 800-345-4048

- ---------------------------------
MAILING ADDRESSES

FOR EXISTING ACCOUNTS

Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511

FOR NEW ACCOUNT APPLICATIONS ONLY

The CGM Funds
P.O. Box 449
Boston, MA 02117-0449
- ---------------------------------

RAR97 Printed in U.S.A.
<PAGE>

TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------

CGM Focus Fund declined -14.7% during the fourth quarter of 1997 while the
unmanaged Standard and Poor's Index returned 2.9% over the same period. Since
the Fund's inception September 3, 1997, CGM Focus Fund has returned -6.2%.

THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
Though we basked in near-perfect economic conditions one year ago, we thought
there was a real possibility of the economy overheating as a result of tight
labor conditions. In 1997, the Federal Reserve Board did raise interest rates
briefly and labor conditions did intensify, but inflation never materialized.

Today, prospects for further growth in the U.S. economy remain bright. Though
the pace may slow periodically, productivity, employment and corporate profits
all point to higher levels. However, events in recent months have affected our
view looking forward: This fall, many currencies in Southeast Asia have
collapsed. World powers are cooperating to assist those nations with suffering
economies and are extending financial aid. These conditions will give rise to
some economic slowing, a decline in interest rates and possibly, lower levels
of inflation for the foreseeable future. As a result, inflation as a near-term
problem has been deferred to a later date. Additionally, declines in the
prices of many commodities, including crude oil, reinforce the low inflation
outlook.

Looking ahead, Asian countries will be able to export products to the U.S. at
lower prices which, inevitably, will exert downward pressure on domestic
prices. At the same time, American companies will be hard pressed to sell
goods to many Asian trading partners. Fortunately, the impact overall should
be slight since exports amount to only about 10% of our total economy and
exports to Southeast Asia are but a portion of that amount. Still, there
already has been some business slowing and in some instances, earlier
corporate profit forecasts have proven to be high. Individual company stock
prices are falling precipitously with earnings shortfalls since stock prices
are dependent on good news getting better, not worse.

The bond market has reacted positively to signs of slowdown, the Southeast
Asia debacle and recent comments of the Federal Reserve Board Chairman.

The long-term government bond is 5.75%, down from 7.15% last April. Current
interest rate levels and recent trends generally are favorable to stock prices
should corporate margins be maintained.

PORTFOLIO STRATEGY
CGM Focus Fund was fully invested from inception through year-end in
anticipation of continued moderate growth and low inflation. Major positions
were established in oil service and technology stocks. Economic problems in
Asia and the sharp drop in oil and gas prices caused both of these groups to
decline sharply in price and stocks were sold at substantial losses during the
fourth quarter accounting for much of the Fund's disappointing performance. A
major investment was established in the airline industry in anticipation of
very strong earnings for this industry.

CGM Focus Fund's three largest industry positions are in airlines, basic
materials and computer software and services. The Fund's three largest
holdings are USG Corporation, Amerin Corporation and Delta Air Lines, Inc.

/s/ Robert L. Kemp

Robert L. Kemp
President

/s/ G. Kenneth Heebner

G. Kenneth Heebner
Portfolio Manager

January 9, 1998
<PAGE>

CGM FOCUS FUND
- -------------------------------------------------------------------------------
CGM FOCUS FUND PORTFOLIO MANAGER
- -------------------------------------------------------------------------------

G. Kenneth Heebner has managed CGM Focus Fund since its inception on September
3, 1997. In 1990, Mr. Heebner founded Capital Growth Management Limited
Partnership with Robert L. Kemp. Prior to establishing the new company, Mr.
Heebner managed mutual funds at Loomis, Sayles and Company. In addition to CGM
Focus Fund, he currently manages CGM Capital Development Fund, CGM Mutual
Fund, CGM Realty Fund and two other mutual funds. He also co-manages CGM Fixed
Income Fund with Janice Saul.

INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------

Total Return for Period Ended December 31, 1997
CGM FOCUS
FUND
----------
3 Months ................................................ -14.7%

The Fund's total return since inception (September 3, 1997) through December
31, 1997 is -6.2%. 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 three-month period
ended December 31, 1997 would have been lower.

The performance data contained in the report represent past performance, which
is no guarantee of future results. The investment return and the principal
value of an investment in the Fund will fluctuate so that investors' shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>

CGM FOCUS FUND
- -------------------------------------------------------------------------------
BOARD OF TRUSTEES

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

OFFICERS

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

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
Boston, Massachusetts 02110

TRANSFER AND DIVIDEND PAYING
AGENT AND CUSTODIAN OF ASSETS

STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts 02102

SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY

BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 8511
Boston, Massachusetts 02266-8511
<PAGE>

CGM FOCUS FUND
- -------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1997

COMMON STOCKS -- 99.1% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE(a)
---------- ------------
<S> <C> <C>
AIRLINES -- 26.1%
AMR Corporation(b) .......................................... 42,000 $ 5,397,000
Alaska Air Group, Inc.(b) ................................... 117,000 4,533,750
Continental Airlines, Inc.(b) ............................... 107,000 5,149,375
Delta Air Lines, Inc. ....................................... 47,000 5,593,000
UAL Corporation(b) .......................................... 54,800 5,069,000
------------
25,742,125
------------
BANKS -- MONEY CENTER -- 9.7%
Chase Manhattan Corporation ................................. 47,500 5,201,250
Citicorp .................................................... 35,000 4,425,312
------------
9,626,562
------------
BASIC MATERIALS -- 21.9%
USG Corporation(b)(c) ....................................... 441,000 21,609,000
------------
BUSINESS SERVICES -- 5.0%
D.R. Horton, Inc. ........................................... 285,000 4,951,875
------------
COMPUTER SOFTWARE AND SERVICES -- 10.3%
Compaq Computer Corporation ................................. 94,000 5,305,125
Dell Computer Corporation(b) ................................ 58,000 4,872,000
------------
10,177,125
------------
FINANCIAL SERVICES -- 1.5%
Firstplus Financial Group, Inc.(b) .......................... 40,000 1,535,000
------------
FREIGHT TRANSPORTATION -- 5.1%
Airborne Freight Corporation ................................ 82,000 5,094,250
------------
HOUSING AND BUILDING MATERIALS -- 5.4%
Centex Construction Products, Inc. .......................... 61,000 3,839,188
Lennar Corporation .......................................... 70,000 1,509,375
------------
5,348,563
------------
INSURANCE -- 5.7%
Amerin Corporation(b) ....................................... 200,000 5,600,000
------------
MACHINERY -- 3.2%
Navistar International Corporation, Inc.(b) ................. 126,000 3,126,375
-----------
RETAIL -- 5.2%
Brylane, Inc.(b) ............................................ 103,800 5,112,150
------------
TOTAL COMMON STOCKS (Identified Cost $96,260,649) .............................. 97,923,025
------------
FACE
SHORT-TERM INVESTMENT -- 1.0% AMOUNT

Chevron Oil Finance Company, 6.75% 1/02/98 (Cost $1,000,000) $1,000,000 1,000,000
-----------

TOTAL INVESTMENTS -- 100.1% (Identified Cost $97,260,649)(d) ................... 98,923,025
Cash, receivables and other assets .......................................... 5,870,931
Liabilities ................................................................. (6,007,959)
------------
TOTAL NET ASSETS -- 100.0% ..................................................... $98,785,997
------------

SECURITY SOLD SHORT SHARES

Oracle Systems Corporation (Proceeds $3,399,267) ......... 150,000 $ 3,346,875
============

(a) See Note 1A.
(b) Non-income producing security.
(c) A portion of this security has been segregated as collateral in connection with short sale
investments (See Note 1F).
(d) Federal Tax Information: At December 31, 1997 the net unrealized appreciation on investments
based on cost of $99,233,482 for Federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in which there is
an excess of value over tax cost ........................................ $ 3,629,133
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ...................................... (3,939,590)
------------
Net unrealized depreciation ................................................ $ (310,457)
============

See accompanying notes to financial statements

</TABLE>
<PAGE>

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

December 31, 1997

<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at value (Identified
cost -- $97,260,649) ....................................................... $ 98,923,025
Cash ........................................................................ 3,911
Restricted cash ............................................................. 3,399,267
Receivable for:
Securities sold ............................................ $1,102,451
Shares of the Fund sold 1,272,872
Dividends and interest...................................... 7,628 2,382,951
----------
Unamortized organizational expenses ......................................... 84,802
------------
104,793,956
------------
LIABILITIES
Securities sold short at current market value (Proceeds $3,399,267) ......... 3,346,875
Payable for:
Securities purchased ....................................... $1,497,500
Shares of the Fund redeemed ................................ 1,063,361 2,560,861
----------
Accrued expenses:
Management fee ............................................. $ 50,861
Trustees' fees ............................................. 6,500
Other expenses ............................................. 42,862 100,223
---------- ------------
6,007,959
------------
NET ASSETS ................................................................... $ 98,785,997
============
Net Assets consist of:
Capital paid-in ............................................................ $112,066,324
Accumulated net realized loss .............................................. (14,995,095)
Unrealized appreciation on investments -- net .............................. 1,714,768
------------
NET ASSETS ................................................................... $ 98,785,997
============
Shares of beneficial interest outstanding, no par value ..................... 10,534,770
============
Net asset value per share* .................................................. $9.38
=====

*Shares of the Fund are sold and redeemed at net asset value ($98,785,997 / 10,534,770).
</TABLE>

See accompanying notes to financial statements
<PAGE>
CGM FOCUS FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS

Period Ended December 31, 1997*

INVESTMENT INCOME
Income
Dividends .............................................. $ 37,386
Interest ............................................... 45,380
------------
82,766
------------
Expenses
Management fees ........................................ 223,679
Trustees' fees ......................................... 6,950
Custodian .............................................. 20,800
Transfer agent ......................................... 61,000
Audit and tax services ................................. 14,750
Legal .................................................. 12,300
Printing ............................................... 4,300
Registration ........................................... 11,560
Amortization of organization expense ................... 5,969
Line of credit commitment fee .......................... 2,089
Miscellaneous .......................................... 426
------------
363,823
Less expenses assumed by the investment adviser ......... (95,408)
------------
Net investment loss ..................................... (185,649)
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized loss on investments -- net ..................... (14,995,095)
Unrealized appreciation -- net .......................... 1,714,768
------------
Net loss on investments ................................. (13,280,327)
------------
NET DECREASE IN ASSETS FROM
OPERATIONS .............................................. $(13,465,976)
============

*Commencement of operations September 3, 1997.

See accompanying notes to financial statements
<PAGE>
CGM FOCUS FUND
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS

FOR THE PERIOD
SEPTEMBER 3, 1997*
THROUGH
DECEMBER 31, 1997
-----------------
FROM OPERATIONS
Net investment loss ..................................... $ (185,649)
Net realized loss from investments ...................... (14,995,095)
Unrealized appreciation ................................. 1,714,768
-------------
Decrease in net assets from operations ................ (13,465,976)
-------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................ 124,907,984
Cost of shares redeemed ................................. (12,656,011)
-------------
Increase in net assets derived from capital share
transactions ........................................ 112,251,973
-------------
Total increase in net assets ............................ 98,785,997

NET ASSETS
Beginning of period ..................................... --
------------
End of period ........................................... $ 98,785,997
=============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares .............................. 11,858,670
Redeemed ................................................ (1,323,900)
-------------
Net change .............................................. 10,534,770
=============

*Commencement of operations.

See accompanying notes to financial statements
<PAGE>
CGM FOCUS FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR THE PERIOD
SEPTEMBER 3, 1997(c)
THROUGH
DECEMBER 31, 1997
------------------
For a share of the Fund outstanding throughout the period:
Net asset value at the beginning of period ............... $10.00
------
Net investment loss (a)(f) ............................... (0.02)
Net realized and unrealized loss on investments .......... (0.60)
------
Net decrease in net asset value .......................... (0.62)
------
Net asset value at end of period ......................... $ 9.38
======
Total Return (%) (b) ..................................... -6.20(d)
Ratios:
Operating expenses to average net assets (%) ............. 1.20(e)
Operating expenses to average net assets before expense
limitation (%) ......................................... 1.63(e)
Net loss to average net assets (%) ....................... -0.83(e)
Portfolio turnover (%) ................................... 330(e)
Average commission rate .................................. $0.0677
Net assets at end of period (in thousands) ............... $98,786
(a) Net of reimbursement which amounted to ............... $ 0.01
(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
<PAGE>
CGM FOCUS FUND
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997

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.

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.

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 December 31,
1997 the market value of securities and cash segregated to cover short
positions was $4,410,000 and $3,399,267, respectively. Securities sold
short at December 31, 1997 and their related market values are set forth
in the schedule of investments.

2. PURCHASES AND SALES OF SECURITIES -- For the year ended December 31, 1997,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $196,326,261 and
$85,070,517, respectively. There were no purchases or sales of United States
government obligations.

3. A. MANAGEMENT FEES -- During the year ended December 31, 1997, the Fund
incurred management fees of $223,679, 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
$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 $95,408 of its management fee. The Fund incurred
operating expenses of $268,415, representing 1.20% of the average daily net
assets.

5. LINE OF CREDIT -- Effective December 1, 1997, 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 December 31, 1997.
<PAGE>
CGM FOCUS FUND
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of CGM Focus Fund at
December 31, 1997, and the results of its operations, the changes in its net
assets and the financial highlights for the period September 3, 1997
(commencement of operations) to December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit, which included confirmation of securities owned at December 31,
1997 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
Boston, Massachusetts
February 9, 1998
<PAGE>

CGM
FOCUS FUND

1st Annual Report
December 31, 1997

A No-Load Fund

[graphic omitted]

Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110

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

For information about:
[] Account Procedures and Status
[] Redemptions
[] Exchanges
Call 800-343-5678

[] New Account Procedures
[] Prospectuses
[] Performance
Call 800-345-4048

- ---------------------------------
MAILING ADDRESSES

FOR EXISTING ACCOUNTS

Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511

FOR NEW ACCOUNT APPLICATIONS ONLY

The CGM Funds
P.O. Box 449
Boston, MA 02117-0449
- ---------------------------------

FFAR97 Printed in U.S.A.