<PAGE>
Registration Nos. 2-10653
811-82
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ----- |_|
Post-Effective Amendment No. 86 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 41 |X|
(Check appropriate box or boxes)
CGM TRUST
(Exact Name of Registrant as Specified in Charter)
One International Place, Boston, Massachusetts 02110
(Address of Principal Executive Offices)
(617) 737-3225
(Registrant's Telephone Number, including Area Code)
Edward T. O'Dell, Jr. P.C. and Regina M. Pisa, P.C.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box)
| | immediately upon filing pursuant to |x| on May 1, 1998 pursuant to
paragraph (b) paragraph (b)
|_| 60 days after filing pursuant |_| on May 1, 1997 pursuant to
to paragraph (a)(1) paragraph (a)(1)
| | 75 days after filing pursuant |_| on ------------ pursuant to
to paragraph (a)(2) paragraph (a)(2) of rule 485
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
CGM TRUST
CROSS REFERENCE SHEET
Items required by Form N-1A
Item No.
of Form N-1A Location/Caption in Prospectus
- ------------ ------------------------------
1 ......................................... Cover Page
2 ......................................... Schedule of Fees
3 ......................................... Financial Highlights
4 ......................................... Investment Objective and
Policies, Risk Factors
Additional Facts About the
Fund, Cover Page
5 ......................................... The Fund's Investment Manager;
How to Purchase Shares; Back
Cover Page; Additional Facts
About the Fund
5A ......................................... Not Applicable
6 ......................................... How to Purchase Shares; Cover
Page; Dividends, Capital Gains
and Taxes
7 ......................................... Back Cover Page; How to
Purchase Shares; Shareholder
Services, Pricing the Shares
8 ......................................... How to Redeem Shares
9 ......................................... None
<PAGE>
Item No. Location/Caption in Statement
of Form N-1A of Additional Information
- ------------ -------------------------
10 ......................................... Cover Page
11 ......................................... Table of Contents
12 ......................................... Not Applicable
13 ......................................... Investment Objective, Policies
and Restrictions; Portfolio
Turnover
14 ......................................... Management of the Fund
15 ......................................... Description of the Trust
16 ......................................... Management of the Fund--
Investment Advisory and Other
Services
17 ......................................... Portfolio Transactions and
Brokerage
18 ......................................... Description of the Trust
19 ......................................... How to Buy Shares; Net Asset
Value and Public Offering
Price; Shareholder Services
20 ......................................... Income Dividends, Capital Gain
Distributions and Tax Status
21 ......................................... Not Applicable
22 ......................................... Advertising and Performance
Information
23 ......................................... Financial Statements
<PAGE>
PART A.
Prospectuses for CGM Mutual Fund, CGM Realty Fund,
CGM Fixed Income Fund, CGM American Tax Free Fund,
and CGM Focus Fund follow
<PAGE>
CGM MUTUAL FUND
CGM Mutual Fund (the "Fund") is a diversified and flexibly managed mutual
fund and a series of CGM Trust (the "Trust"), a registered, open-end, no-load
management investment company. The Fund's 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. The Fund's
investment manager is Capital Growth Management Limited Partnership ("CGM" or
the "Investment Manager").
PROSPECTUS
May 1, 1998
This prospectus sets forth information you should know before investing in
the Fund. It should be retained for future reference. A Statement of
Additional Information about the Fund dated May 1, 1998, (the "Statement") has
been filed with the Securities and Exchange Commission (the "SEC") and is
available free of charge. Write to the Trust, c/o CGM Investor Services, 222
Berkeley Street, Boston, MA 02116 or call the telephone number listed below to
obtain a Statement. The SEC maintains a web site (http://www.sec.gov) that
contains the Statement, material incorporated by reference and other
information regarding the Fund. The Statement contains more detailed
information about the Fund and, as amended or supplemented from time to time,
is incorporated into this prospectus by reference.
- -------------------------------------------------------------------------------
For additional information about:
[ ] Account procedures and status [ ] New account procedures
[ ] Redemptions [ ] Prospectuses
[ ] Exchanges [ ] Performance
Call 800-343-5678 Call 800-345-4048
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Schedule of Fees ............................................ 2
Financial Highlights ........................................ 3
Investment Objective and Policies ........................... 4
The Fund's Investment Manager ............................... 5
The Portfolio Manager ....................................... 5
How to Purchase Shares ...................................... 5
Shareholder Services ........................................ 6
How to Redeem Shares ........................................ 8
Telephone Transactions ...................................... 9
Dividends, Capital Gains and Taxes .......................... 10
Pricing of Shares ........................................... 12
Performance Information ..................................... 12
Additional Facts About the Fund ............................. 12
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
CGM MUTUAL FUND
SCHEDULE OF FEES
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) ............................. None
Redemption Fees* ................................................ None
Exchange Fees ................................................... None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees ................................................. 0.83%
12b-1 Fees ...................................................... None
Other Expenses .................................................. 0.15%
---
Total Fund Operating Expenses ................................... 0.98%
- ----------
*A wire fee (currently $5.00) will be deducted from proceeds if a shareholder
elects to transfer redemption proceeds by wire.
The purpose of this fee schedule is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly if you
invest in the Fund. For additional information about the Fund's fees and
expenses, please see "The Fund's Investment Manager" and the Statement.
The following example illustrates the approximate expenses that you would
incur on a $1,000 investment over a ten-year period, assuming a 5% annual rate
of return and redemption at the end of each period.
CUMULATIVE
------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$10 $31 $54 $120
Please keep in mind that the example shown above is hypothetical. The
information above should not be considered a representation of past or future
return and expenses; the actual return and expenses may be more or less.
<PAGE>
<TABLE>
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CGM MUTUAL FUND
FINANCIAL HIGHLIGHTS
(For a share of the Fund outstanding throughout the indicated years)
These financial highlights have been examined by Price Waterhouse LLP, independent accountants. The table below should be read
in conjunction with the financial statements and the notes thereto, which, together with the Report of Independent Accountants
thereon, are included in the Fund's Annual Report and incorporated by reference into the Statement. In addition to the highlights
set forth below, further information about the performance of the Fund is contained in the Annual Report and the Statement, which
may be obtained from the Trust free of charge.
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990* 1989 1988
---- ---- ---- ---- ---- ---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year $31.42 $29.43 $25.05 $28.88 $26.02 $26.80 $21.64 $22.34 $19.94 $20.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment
income ........... 0.66 0.75 0.73 1.09 0.92 0.93 0.97 0.87 0.97 1.08
Dividends from net
investment income (0.67) (0.74) (0.77) (1.04) (0.86) (0.93) (0.97) (0.88) (1.02) (1.10)
Net realized and
unrealized
gain (loss) on
investments ...... 1.92 6.13 5.31 (3.88) 4.73 0.64 7.80 (0.64) 3.31 (0.44)
Distributions from
net realized gain (7.81) (4.15) (0.89) -- (1.81) (1.42) (2.64) -- (0.86) --
Distributions in
excess of net
realized gain .... -- -- -- -- (0.12) -- -- -- -- --
Distributions from
paid-in capital .. -- -- -- -- -- -- -- (0.05) -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net increase
(decrease) in net
asset value ...... (5.90) 1.99 4.38 (3.83) 2.86 (0.78) 5.16 (0.70) 2.40 (0.46)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value at
end of year ...... $25.52 $31.42 $29.43 $25.05 $28.88 $26.02 $26.80 $21.64 $22.34 $19.94
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return (%) ... 8.2 23.7 24.3 -9.7 21.8 6.1 40.9 1.1 21.7 3.2
Ratios:
Operating expenses to
average net assets (%) 0.98 0.87 0.91 0.92 0.93 0.93 0.93 0.97 0.97 1.01
Net income to average
net assets (%) ... 1.91 2.33 2.55 4.39 3.45 3.74 3.80 4.00 4.26 5.25
Portfolio turnover (%) 386 192 291 173 97 121 201 159 218 218
Average commission
rate** ........... $0.0695 $0.0695 -- -- -- -- -- -- -- --
Net assets at end
of year
(in thousands) ($) 1,192,154 1,216,523 1,154,439 1,063,375 947,115 548,630 401,887 295,868 312,080 292,735
* On March 1, 1990, the Capital Growth Management Division of Loomis, Sayles & Company, Incorporated was reorganized into CGM,
which assumed management of the Fund.
** SEC regulations require portfolios to disclose average commission rate paid on trades for which commissions were charged for
fiscal years beginning on or after September 1, 1995.
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</TABLE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund has as its investment objective reasonable long-term capital
appreciation with a prudent approach to protection of capital from undue
risks. While consideration is given to current income in the selection of the
Fund's portfolio securities, it is not a controlling factor. There can be no
assurance that the Fund will achieve its objective.
The Fund seeks to attain its objective by investing substantially all of
the Fund's assets in equity securities and in debt or fixed-income securities.
The Fund is "flexibly managed"; it sometimes will be more heavily invested in
equity securities and at other times will be more heavily invested in debt or
fixed-income securities, depending on management's view of the economic and
investment outlook. The Fund's investments are subject to the market risks
inherent in all securities.
Equity securities are common stocks and securities convertible into common
stock. Equity securities are volatile investments, subject to price declines
as well as advances, and involve greater risks than some other investment
media. The Fund may invest up to 25% of its total assets in securities issued
by companies in any single industry, including the real estate industry.
Securities issued by companies in the real estate industry, including those
issued by real estate investment trusts, may be subject to certain risks
associated with the direct ownership of real estate as well as credit and
market risks generally associated with fixed-income securities.
Debt or fixed-income securities include notes, bonds, preferred stock and
money market instruments including repurchase agreements. Such securities are
subject to credit risk (the risk that the obligor will default in the payment
of principal and/or interest) and to market risk (the risk that the market
value of the securities will change as a result of changes in market rates of
interest).
The Fund may invest up to 35% of its total assets in debt or fixed-income
securities of a quality below investment grade at the time of investment (i.e.
securities rated lower than Baa or baa by Moody's Investors Service, Inc.
("Moody's") or lower than BBB by Standard and Poor's Corporation ("S&P"), or
their equivalent as determined by the investment manager), including up to 10%
of its total assets in fixed income securities rated at the time of investment
Caa or lower by Moody's or CCC or lower by S&P, or their equivalent as
determined by the investment manager.
Securities rated non-investment grade (lower than Baa or baa by Moody's or
lower than BBB by S&P) are sometimes referred to as "high yield" or "junk"
bonds. See Appendix A for further information about securities ratings.
Investors should consider the following risks associated with high yield
securities before investing in the Fund.
High yield securities may be regarded as predominantly speculative with
respect to the issuer's continuing ability to make principal and interest
payments. Analysis of the creditworthiness of issuers of high yield securities
may be more complex than for issuers of higher quality debt securities, and
the ability of the Fund to achieve its investment objectives may, to the
extent of its investments in high yield securities, be more dependent upon
such creditworthiness analysis than would be the case if the Fund were
investing in higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to
interest-rate changes than more highly rated investments, but more sensitive
to adverse economic downturns or individual corporate developments. Yields on
a high yield security will fluctuate. If the issuer of high yield securities
defaults, the Fund may incur additional expenses to seek recovery.
The secondary markets on which high yield securities are traded may be
less liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect the price at which the Fund
could sell a particular high yield security when necessary to meet liquidity
needs or in response to a specific economic event, such as a deterioration in
the creditworthiness of the issuer, and could adversely affect and cause large
fluctuations in the daily net asset value of the Fund's shares. Adverse
publicity and investor perceptions may decrease the value and liquidity of
high yield securities.
It is reasonable to expect any recession to severely disrupt the market
for high yield securities, have an adverse impact on the value of such
securities, and adversely affect the ability of the issuers of such securities
to repay principal and pay interest thereon. New laws and proposed new laws
may adversely impact the market for high yield securities.
Although the Fund's objective is long-term capital appreciation, it
frequently sells securities to respond to changes in market, industry, or
individual company conditions or outlook, although it may only have held those
securities for a short period. This policy may result in higher securities
transactions costs.
THE FUND'S INVESTMENT MANAGER
The Fund's investment manager is Capital Growth Management Limited
Partnership, One International Place, Boston, Massachusetts 02110. CGM, an
investment advisory firm founded in 1990, manages nine mutual fund portfolios
and advisory accounts for other clients. The general partner of CGM is a
corporation controlled equally by Robert L. Kemp and G. Kenneth Heebner, who are
trustees and officers of the Fund.
In addition to selecting and reviewing the Fund's investments, CGM
provides executive and other personnel for the management of the Fund. The
Trust's Board of Trustees supervises CGM's conduct of the affairs of the Fund.
In 1997, the Fund paid 0.83% of its average annual net assets in management
fees to CGM.
The advisory agreement between CGM Mutual Fund and CGM provides for a
management fee at an annual percentage rate of 0.90% of the first $500 million
of CGM Mutual Fund's average daily net asset value, 0.80% of the next $500
million of such value, and 0.75% of such value in excess of $1 billion.
THE PORTFOLIO MANAGER
G. Kenneth Heebner manages the Fund. In 1990, Mr. Heebner founded CGM with
Robert L. Kemp. Prior to establishing the new company, Mr. Heebner managed
mutual fund portfolios at Loomis, Sayles & Company, Incorporated. He currently
manages CGM Capital Development Fund, CGM Realty Fund, CGM Focus Fund and,
with Janice H. Saul, co-manages CGM Fixed Income Fund.
HOW TO PURCHASE SHARES
The Trust sells shares of the Fund directly to investors without any sales
load. You may make an initial purchase of Fund shares by submitting a
completed application form and payment to:
The CGM Funds
P.O. Box 449
Boston, Massachusetts 02117-0449
The minimum initial investment is $2,500 for regular accounts and $1,000
for retirement plans (see "Shareholder Services -- Retirement Plans") and
accounts set up under the Uniform Gifts to Minors Act ("UGMA") or the Uniform
Transfers to Minors Act ("UTMA"). Subsequent investments must be at least $50.
See "Shareholder Services" below for further information about minimum
investments in certain other circumstances.
All investments made by check should be in U.S. dollars and made payable
to CGM Mutual Fund. Third party checks (i.e. checks not payable to CGM Mutual
Fund) are generally not accepted and checks drawn on credit card accounts will
not be accepted.
After accepting an order, the Trust forwards the application and payment
to the CGM Shareholder Services Department ("CGM Shareholder Services") of
Boston Financial Data Services, Inc. ("BFDS"), which is the shareholder
servicing agent for State Street Bank and Trust Company ("State Street Bank").
CGM Shareholder Services then opens an account, applies the payment to the
purchase of full and fractional shares, and mails a statement of the account
confirming the transaction.
After your account has been established, you may send subsequent
investments at any time directly to the shareholder servicing agent at the
following address:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, Massachusetts 02266-8511
The remittance for any subsequent investment must be accompanied by either the
Additional Investment Stub detached from a statement of account, or a note
containing sufficient information to identify the account, i.e., the Fund
name, your account number, your name and social security number.
Subsequent investments may also be made by federal funds wire. Instruct
your bank to wire federal funds to State Street Bank and Trust Company, ABA
#011000028. The text of the wire should read as follows: "DDA99046336,
$ Amount, STATE ST BOS ATTN Mutual Funds. Credit CGM Mutual Fund, Shareholder
Name, Shareholder Account Number." Your bank may charge you a fee for
transmitting funds by wire.
The Trust reserves the right to reject any purchase order, including
orders in connection with exchanges, for any reason the Trust, in its sole
discretion, deems appropriate. Although the Trust does not anticipate that it
will do so, the Trust reserves the right to suspend, change or withdraw the
offering of shares of the Fund.
The price you pay will be the per share net asset value next calculated
after a proper investment order is received by the Trust or by CGM Shareholder
Services.
If you wish transactions in your account to be effected by another person
under a power of attorney from you, special rules apply. Please contact the
Trust or CGM Shareholder Services for details.
An investor will not receive any certificates for shares unless the
investor requests them in writing from CGM Shareholder Services. The Trust's
system for recording investments eliminates the problems of handling and
safekeeping certificates.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services as more fully described
in the Statement. Explanations and forms are available from the Trust.
EXCHANGE PRIVILEGE
Shares may be exchanged for shares of money market funds currently
distributed by New England Funds, L.P. ("Money Market Funds"). You may also
exchange shares for shares of CGM Fixed Income Fund, CGM American Tax Free Fund,
CGM Realty Fund and CGM Focus Fund. Additionally, you may exchange shares for
shares of CGM Capital Development Fund, but only if you were a shareholder on
September 24, 1993, and have remained a shareholder in CGM Capital Development
Fund continuously since that date. CGM Capital Development Fund shares are not
generally available to other persons except in special circumstances that have
been approved by, or under the authority of, the Board of Trustees of CGM
Capital Development Fund as described in the Statement.
All exchanges may be made without charge. You may make an exchange by
written instruction or, if a written authorization for telephone exchanges is
on file with CGM Shareholder Services, you may call 800-343-5678. See
"Telephone Transactions." Under certain circumstances, before an exchange can
be made, additional documents may be required to verify the authority or legal
capacity of the person seeking the exchange.
Exchanges must be for amounts of at least $1,000. If you wish to make an
exchange into a new account, the exchange must satisfy the applicable minimum
initial investment requirement. Exchange requests cannot be revoked once they
have been received in good order.
Investors should not view the exchange privilege as a means for taking
advantage of short-term swings in the market, and the Fund limits the number
of exchanges each shareholder may make to four exchanges per account (or two
round trips) per calendar year. Monthly automatic exchanges from the Money
Market Funds to the Fund are exempt from this restriction. The Trust also
reserves the right to prohibit exchanges during the first 15 days following an
investment in the Fund. The Trust may terminate or change the terms of the
exchange privilege. In general, shareholders will receive notice of any
material change to the exchange privilege at least 60 days prior to the
change. For federal income tax purposes, an exchange constitutes a sale of
shares, which may result in a capital gain or loss.
SYSTEMATIC WITHDRAWAL PLAN
If the value of your account is at least $10,000, you may have periodic
cash withdrawals automatically paid to you or any person you designate. If
checks are returned to the Fund as "undeliverable" or remain uncashed for more
than six months, the plan will be cancelled. Undeliverable or uncashed checks
shall be cancelled and such amounts shall be reinvested in the Fund at the per
share net asset value determined as of the date of cancellation of such
checks. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
AUTOMATIC INVESTMENT PLAN ("AIP")
Once your account has been established, voluntary monthly investments of
at least $50 may be made automatically by pre-authorized withdrawals from your
checking account. Please contact CGM Shareholder Services at 800-343-5678 to
determine the requirements associated with debits from savings banks and
credit unions. Debits from money market accounts are not acceptable. You may
terminate your participation in the AIP by sending written notice to CGM
Shareholder Services, c/o Boston Financial Data Services, Inc., P.O. Box 8511,
Boston, Massachusetts 02266-8511 or by calling 800-343-5678 more than 14 days
prior to the next scheduled debit date. The Fund may terminate your
participation in the AIP immediately in the event that any item is unpaid by
your financial institution. The Fund may terminate or modify the AIP at any
time. Additional information about this Plan is set forth in the Statement.
RETIREMENT PLANS
The Fund's shares may be purchased by tax-deferred retirement plans. CGM
makes available retirement plan forms and plan documents for Traditional and
Roth IRAs, SEP-IRAs, 403(b)(7) custodial accounts, and money purchase pension
and profit sharing plans ("CGM Retirement Plans").
SHAREHOLDER REPORTS
Shareholders will receive the Fund's financial statements and a summary of
the Fund's investments at least semiannually. The Fund intends to consolidate
mailings of annual, semiannual and quarterly reports to households having
multiple accounts with the same address of record and to furnish a single copy
of each report to that address. Mailings of prospectuses and proxy statements
will not be consolidated and if a report is included in such mailings, each
shareholder will receive a separate copy. You may request additional reports
by notifying the Fund in writing, or by calling the Trust.
Shareholders will receive statements confirming all purchases, redemptions
and changes of address. You may call CGM Shareholder Services and request a
duplicate statement for the current year without charge. A fee will be charged
for any duplicate information requested for prior years.
SYSTEMS -- YEAR 2000
Like other mutual funds and other organizations around the world, the Fund
could be adversely affected if the computer systems used by the Fund or its
service providers do not properly process and calculate date-related
information from and after January 1, 2000. This is commonly known as the
"Year 2000 Problem." CGM has taken steps that it believes are reasonably
designed to address any potential Year 2000 Problem for computer programs used
by the Fund or CGM. Each of the Fund's and CGM's service providers are taking
steps that they believe are reasonably designed to address the Year 2000
Problem with respect to computer systems that they use. At this time, however,
there can be no assurance that these steps being taken by third party service
providers will be sufficient to avoid any adverse impact to the Fund.
HOW TO REDEEM SHARES
You can redeem all or part of your shares in the Fund in three different
ways: by sending a written request for a check or wire representing the
redemption proceeds, by making a telephone request for redemption by check
(provided that the amount to be redeemed is not more than $25,000 and the
check is being sent to you at your record address, which has not changed in
the prior three months) or by making a telephone request for redemption
proceeds to be wired to a bank that you have predesignated. The redemption
price will always be the net asset value per share next determined after the
redemption request is received by CGM Shareholder Services in good order
(including any necessary documentation). Necessary documentation may include,
in certain circumstances, documents verifying the authority or legal capacity
of the person seeking to redeem shares. Redemption requests cannot be revoked
once they have been received in good order.
If you elect to redeem shares in writing, send your written request to:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, Massachusetts 02266-8511
The written request must include the name of the Fund, your account number,
the exact name(s) in which your shares are registered, the number of shares or
the dollar amount to be redeemed and mailing or wire instructions. All owners
of shares must sign the request in the exact name(s) in which the shares are
registered (which appear(s) on your confirmation statement) and should
indicate any special capacity in which they are signing (such as trustee or
custodian or on behalf of a partnership, corporation or other entity). If you
are signing in a special capacity, you may wish to contact CGM Shareholder
Services in advance to determine whether additional documentation will be
required before you send a redemption request.
Redemptions from CGM Retirement Plans for which State Street Bank is the
custodian or trustee must contain additional information. Please contact CGM
Shareholder Services for instructions and forms. Complete information,
including tax withholding instructions, must be included in your redemption
request.
If you are redeeming shares worth more than $25,000 or requesting that the
proceeds check be made payable to someone other than the registered owner(s)
or be sent to an address other than your record address (or sent to your
record address if such address has been changed within the previous three
months), you must have your signature guaranteed by an "eligible guarantor
institution" as defined in the rules under the Securities Exchange Act of 1934
(including a bank, broker, dealer, credit union, national securities exchange,
registered securities association, clearing agency or savings association, but
not a notary public).
If you hold certificates representing your investment, you must enclose
the certificates and a properly completed redemption form or stock power. You
bear the risk of loss of such certificates; consequently, you may wish to send
your certificates by registered mail.
If you elect to redeem shares by telephone, call CGM Shareholder Services
directly at 800-343-5678. See "Telephone Transactions." Telephone redemptions
are not available for CGM Retirement Plans. When you make a redemption request
by telephone, you may choose to receive redemption proceeds either by having a
check mailed to the address of record on the account, provided the address has
not changed for three months and you are redeeming $25,000 or less, or by
having a wire sent to a bank account you have previously designated.
Telephone redemptions by check are available to all shareholders of the
Fund automatically unless this option is declined in the application or in
writing. You may select the telephone redemption wire service when you fill
out your initial application or you may select it later by completing the
Service Options Form (with a signature guarantee), available from the Trust or
CGM Shareholder Services.
A telephone redemption request must be received by CGM Shareholder
Services prior to the close of the New York Stock Exchange (the "Exchange").
If you telephone your request to CGM Shareholder Services after the Exchange
closes or on a day when the Exchange is not open for business, the Trust
cannot accept your request and a new one will be necessary.
Wire redemptions by telephone may be made only if your bank is a member of
the Federal Reserve System or has a correspondent bank that is a member of
such System. If your account is with a savings bank, it must have only one
correspondent bank that is a member of the Federal Reserve System. A wire fee
(currently $5) will be deducted from the proceeds. If you decide to change the
bank account to which proceeds are to be wired, you must send in this change
on the Service Options Form with a signature guarantee.
Proceeds resulting from a written or regular telephone redemption request
will normally be mailed to you within seven days after receipt of your request
in good order. Telephone wire redemption proceeds will normally be wired to
your bank within seven days (and generally on the first business day)
following receipt of a proper redemption request. If you purchased your Fund
shares by check (or through your AIP) and elect to redeem shares within 15
days of such purchase, you may experience delays in receiving redemption
proceeds. The Trust will generally postpone sending your redemption proceeds
from such investment until the Trust can verify that your check (or AIP
investment) has been or will be collected. There will be no such delay for
redemptions following investments paid for by federal funds wire or by bank
cashier's check, certified check or treasurer's check. If checks representing
redemption proceeds are returned "undeliverable" or remain uncashed for six
months, such checks shall be cancelled and such proceeds shall be reinvested
in the Fund at the per share net asset value determined as of the date of
cancellation of such checks. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
The Fund may not suspend the right of redemption or postpone payment for
more than seven days except when the Exchange is closed for other than
weekends or holidays, when trading on the Exchange is restricted, during an
emergency (as determined by the SEC) which makes it impracticable for the Fund
to dispose of its securities or to determine fairly the value of its net
assets, or during any other period permitted by the SEC for the protection of
investors.
Because the expense of maintaining small accounts is disproportionately
high, the Fund may close accounts with 20 shares or less, and mail the
proceeds to the shareholder. Shareholders who are affected by this policy will
be notified of the Fund's intention to close the account and will have 60 days
immediately following the notice in which to acquire the requisite number of
shares. The minimum does not apply to CGM Retirement Plans and UGMA/UTMA
accounts.
TELEPHONE TRANSACTIONS
You may initiate three types of transactions by telephone:
[ ] Telephone Exchanges
[ ] Telephone Redemptions By Wire
[ ] Telephone Redemptions By Check
The terms and provisions for each of these services are explained fully in the
preceding sections. Once a telephone transaction request has been placed, it
cannot be revoked.
The Telephone Exchange privilege and/or Telephone Redemptions By Wire
privilege must be elected by you when you fill out your initial application or
you may select either option later by completing the Service Options Form
(with a signature guarantee) available from the Trust or CGM Shareholder
Services. The Telephone Redemptions By Check privilege is available to
shareholders of the Fund automatically unless this option is declined in the
application or in writing.
The telephone redemption privileges are not available for Traditional or
Roth IRAs, SEP-IRAs, 403(b)(7) custodial accounts or for money purchase
pension and profit sharing accounts under a CGM Retirement Plan (in which
State Street Bank is the custodian or trustee).
The Fund will employ reasonable procedures to confirm that instructions
received by telephone (including instructions with respect to changes in
addresses) are genuine, such as requesting personal identification information
that appears on your account application and recording the telephone
conversation. You will bear the risk of loss due to unauthorized or fraudulent
instructions regarding your account, although the Fund may be liable if
reasonable procedures are not employed.
DIVIDENDS, CAPITAL GAINS AND TAXES
The Fund intends to declare and pay quarterly dividends consisting of
substantially all of its net investment income. Any capital gains distributions
are normally made annually in December (after applying any available capital
loss carryovers) but may be made more frequently as deemed advisable by the
Board of Trustees. The Fund's dividend and capital gains distributions may be
reinvested in additional shares or received in cash. Certain restrictions may
apply to participants in CGM Retirement Plans.
You may elect to receive income dividends or capital gains distributions,
or both, in cash. However, if you elect to receive capital gains in cash, your
income dividends must also be received in cash. You can elect to receive
payments of cash dividends and capital gains distributions either by check or
by direct deposit to a bank account that you have predesignated. These
elections may be made at the time your account is opened and may be changed at
any time by submitting a written request to CGM Shareholder Services or by
calling 800-343-5678. However, changes in bank account information for direct
deposits of cash dividends and capital gains distributions must be made
through a Service Options Form. In order for a change to be effective for any
dividend or distribution, it must be received by CGM Shareholder Services on
or before the record date for such dividend or distribution.
If you elect to receive distributions in cash and checks are returned
"undeliverable" or remain uncashed for six months, your cash election will be
changed automatically and your future dividend and capital gains distributions
will be reinvested in the Fund at the per share net asset value determined as of
the date of payment of the distribution. In addition, following such six-month
period, any undeliverable or uncashed checks shall be cancelled and such amounts
shall be reinvested in the Fund at the per share net asset value determined as
of the date of cancellation of such checks. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
The Fund intends to qualify annually as a "regulated investment company"
under the Internal Revenue Code. To qualify, the Fund must meet certain
income, distribution and diversification requirements. In any year in which
the Fund so qualifies it generally will not be subject to federal income or
excise tax to the extent that its taxable income is distributed to
shareholders.
The distributions received by the Fund from its investments may, for federal
income tax purposes, consist of ordinary income, long-term capital gains or a
return of capital. The characterization of these distributions to the Fund may,
in turn, affect the tax treatment of the Fund's distributions to its
shareholders. Dividends and distributions are taxable to shareholders in the
same manner whether received in cash or reinvested in additional shares of the
Fund.
Dividends paid by the Fund from net investment income, including dividends,
interest and net short-term capital gains, will be taxable to shareholders as
ordinary income. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) which are designated by the
Fund as capital gains distributions are taxable as long-term capital gains,
regardless of the length of time shareholders have owned shares in the Fund. To
the extent that the Fund makes a distribution in excess of its current and
accumulated earnings and profits, the distribution will be treated first as a
tax-free return of capital, reducing the tax basis in a shareholder's shares,
and then, to the extent the distribution exceeds such basis, as a taxable gain
to be realized upon sale of such shares.
Distributions that the Fund receives from a real estate investment trust,
and dividends of the Fund attributable to such distributions, will not
constitute "dividends" for purposes of the dividends-received deduction
applicable to corporate shareholders.
A distribution will be treated as paid by the Fund and received by its
shareholders on December 31 of the current calendar year if it is declared by
the Fund in October, November or December of that year with a record date in
such a month and paid by the Fund in January of the subsequent year.
Any dividends or distributions paid shortly after a purchase of shares
will have the effect of reducing the per share net asset value of the shares
by the amount of the dividends or distributions. Although in effect a return
of capital, these distributions are subject to taxes, even if their effect is
to reduce the per share net asset value below a shareholder's cost. The Fund
will notify you annually as to the tax status of dividend and capital gains
distributions paid by the Fund.
The sale or other disposition of shares of the Fund, including a
redemption of shares or an exchange of shares into another fund, is a taxable
event and may result in a capital gain or loss which will be long-term or
short-term, depending upon the shareholder's holding period for the shares.
Dividend distributions, capital gains distributions and capital gains or
losses from redemptions and exchanges may be subject to state and local taxes.
In certain states, a portion of the Fund's income derived from certain direct
U.S. Government obligations may be exempt from state and local taxes. The Fund
will indicate each year the portion of the Fund's income, if any, which is
derived from such obligations.
The Fund is required to withhold a portion of taxable dividends, capital
gains distributions, and redemptions paid to individuals and certain other
classes of shareholders if they fail to furnish the Fund with their correct
taxpayer identification number and certain certifications regarding their tax
status, or if they are otherwise subject to backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against a shareholder's normal federal income tax liability. For additional
information about withholding, please see the Statement.
BFDS, the shareholder servicing agent, will send you and the Internal
Revenue Service an annual statement detailing federal tax information,
including information about dividends and distributions paid to you during the
preceding year. If you redeem or exchange shares in any year, following the
end of the year, you will receive a statement providing the cost basis and
gain or loss of each share lot that you sold during such year. Your CGM
account cost basis will be calculated using the "single category average cost
method," which is one of the four calculation methods allowed by the IRS.
Shareholders of the Fund generally will receive these cost basis statements
but only for accounts opened after January 1, 1991. Be sure to keep these
statements as permanent records. A fee may be charged for any duplicate
information that you request.
The tax discussion set forth above is included for general information
only. Shareholders and prospective investors should consult their own tax
advisers concerning the tax consequences of an investment in the Fund.
PRICING OF SHARES
The share price or "net asset value" per share of the Fund is computed
daily by dividing the total value of the investments and other assets of the
Fund, less any liabilities, by the total outstanding shares of the Fund. The
net asset value per share of the Fund is determined as of the close of the
regular trading session of the Exchange on each day the Exchange is open for
trading. Portfolio securities are generally valued at their market value. In
certain cases, market value may be determined on the basis of information
provided by a pricing service approved by the Board of Trustees. Instruments
with maturities of sixty days or less are valued at amortized cost, which
approximates market value. Other assets and securities which are not readily
marketable will be valued in good faith at fair value using methods determined
by the Board of Trustees. The valuation of portfolio securities is more fully
described in the Statement.
PERFORMANCE INFORMATION
The Fund may include yield and total return information in advertisements
or other written sales material. The Fund will show its average annual total
return for the one-, five- and ten-year periods through the end of the most
recent calendar quarter. Total return is measured by comparing the value of an
investment in the Fund at the beginning of the relevant period to the value of
the investment at the end of the period (assuming automatic reinvestment of
all dividends and capital gains distributions). The Fund may also show total
return over other periods or on an aggregate basis for the period presented.
Yield is computed in accordance with the SEC's standardized formula by
dividing the adjusted net investment income per share earned during a recent
thirty-day period by the maximum offering price of a Fund share on the last
day of the period. The Fund may also present one or more distribution rates in
its sales literature. These rates will be determined by annualizing the Fund's
distributions from net investment income and net short-term capital gains over
a recent twelve-month, three-month or thirty-day period and dividing that
amount by the net asset value on the last day of such period.
The Fund may compare its performance to that of recognized financial
indices or groups of mutual funds. It may also include its ranking among other
mutual funds or its rating as published by mutual fund ranking services or
major financial publications. All performance information is based on past
results and is not an indication of likely future performance.
ADDITIONAL FACTS ABOUT THE FUND
[ ] The Trust was organized in 1986 as a Massachusetts business trust and is
authorized to issue an unlimited number of full and fractional shares in
multiple series. The Trust currently has five series -- CGM Mutual Fund (a
successor to Loomis-Sayles Mutual Fund), CGM Fixed Income Fund, CGM American
Tax Free Fund, CGM Realty Fund and CGM Focus Fund.
[ ] When a shareholder invests in the Fund, the shareholder acquires freely
transferable shares of beneficial interest that entitle the shareholder to
receive dividends and to cast one vote at shareholder meetings for each
share owned. On matters affecting the Fund, shares of the Fund vote
separately from shares of other series of the Trust, except as otherwise
required by law.
[ ] The investment objective of the Fund is fundamental and cannot be changed
without shareholder approval. Non-fundamental policies may be changed at any
time without such approval.
<PAGE>
APPENDIX A
RATINGS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. DEBT RATINGS -- TAXABLE DEBT &
DEPOSITS GLOBALLY:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds that are rated Ca represent obligations that are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds that are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.
PREFERRED STOCK RATINGS:
aaa -- An issue which is rated 'aaa' is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated 'aa' is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance the earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a -- An issue which is rated 'a' is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
'aaa' and 'aa' classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa -- An issue which is rated 'baa' is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
ba -- An issue which is rated 'ba' is considered to have speculative
elements, and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated 'b' generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated 'caa' is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payments.
ca -- An issue which is rated 'ca' is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor prospects of
ever attaining any real investment standing.
DESCRIPTION OF STANDARD & POOR'S CORPORATION LONG-TERM ISSUE CREDIT RATINGS:
AAA -- An obligation rated 'AAA' has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
AA -- An obligation rated 'AA' differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
A -- An obligation rated 'A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
in higher rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB -- An obligation rated 'BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
BB, B, CCC, CC and C -- Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C'
are regarded as having significant speculative characteristics. 'BB' indicates
the least degree of speculation and 'C' the highest. While such obligations
will likely have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse conditions.
BB -- An obligation rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B -- An obligation rated 'B' is more vulnerable to nonpayment than
obligations rated 'BB', but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness
to meet its financial commitment on the obligation.
CCC -- An obligation rated 'CCC' is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic conditions, the obligor is
not likely to have the capacity to meet its financial commitment on the
obligation.
CC -- An obligation rated 'CC' is currently highly vulnerable to
nonpayment.
C -- The 'C' rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.
Plus (+) or Minus (-): The ratings from A to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r -- This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or
commodities; obligations exposed to severe prepayment risk -- such as
interest-only or principal-only mortgage securities; and obligations with
unusually risky interest terms, such as inverse floaters.
DESCRIPTION OF STANDARD & POOR'S CORPORATION PREFERRED STOCK RATING
DEFINITIONS:
AAA -- This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity
to pay the preferred stock obligations.
AA -- A preferred stock issue rated 'AA' also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated 'AAA'.
A -- An issue rated 'A' is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB -- An issue rated 'BBB' is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the 'A' category.
BB, B, CCC -- Preferred stock rated 'BB,' 'B,' and 'CCC' are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. 'BB' indicates the lowest degree of
speculation and 'CCC' the highest. While such issues will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC -- The rating 'CC' is reserved for a preferred stock issue in arrears
on dividends or sinking fund payments but that is currently paying.
C -- A preferred stock rated 'C' is a nonpaying issue.
PORTFOLIO COMPOSITION
For the fiscal year ending on December 31, 1997, the amount of the Fund's
investments represented by securities below investment grade comprised less
than 5% of the Fund's total investments, based on dollar-weighted averages of
month-end portfolio holdings.
<PAGE>
INVESTMENT ADVISER CGM
Capital Growth Management MUTUAL FUND
Limited Partnership
One International Place Prospectus & Application
Boston, MA 02110 May 1, 1998
TRANSFER AND DIVIDEND PAYING AGENT A No-Load Fund
AND CUSTODIAN OF ASSETS
State Street Bank and Trust Company
Boston, MA 02102
SHAREHOLDER SERVICING AGENT FOR
STATE STREET BANK AND TRUST COMPANY
Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, MA 02266
--------------------
[Fencer Logo]
--------------------
MFP98
<PAGE>
CGM REALTY FUND
CGM Realty Fund (the "Fund") is a diversified mutual fund and a series of
CGM Trust (the "Trust"), a registered, open-end, no-load management investment
company. The Fund's investment objective is above-average income and long-
term growth of capital. The Fund intends to pursue its objective by investing
primarily in equity securities of companies in the real estate industry. The
Fund seeks to provide a yield in excess of the yield of the Standard and
Poor's 500 Composite Index (the "S&P 500"). The Fund's investment manager is
Capital Growth Management Limited Partnership ("CGM" or the "Investment
Manager").
PROSPECTUS
May 1, 1998
This prospectus sets forth the information you should know before
investing in the Fund. It should be retained for future reference. A Statement
of Additional Information about the Fund dated May 1, 1998 (the "Statement")
has been filed with the Securities and Exchange Commission (the "SEC") and is
available free of charge. Write to the Trust, c/o CGM Investor Services, 222
Berkeley Street, Boston, MA 02116 or call the telephone number listed below to
obtain a Statement. The SEC maintains a Web site (http://www.sec.gov) that
contains the statement, material incorporated by reference, and other
information regarding the Fund. The Statement contains more detailed
information about the Fund and, as amended or supplemented from time to time,
is incorporated into this prospectus by reference.
- -------------------------------------------------------------------------------
For additional information about:
[ ] Account procedures and status [ ] New account procedures
[ ] Redemptions [ ] Prospectuses
[ ] Exchanges [ ] Performance
Call 800-343-5678 Call 800-345-4048
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Schedule of Fees ............................................ 2
Financial Highlights ........................................ 3
Investment Objective and Policies ........................... 4
Risk Factors ................................................ 5
Investment Restrictions ..................................... 7
The Fund's Investment Manager ............................... 7
The Portfolio Manager ....................................... 7
How to Purchase Shares ...................................... 7
Shareholder Services ........................................ 8
How to Redeem Shares ........................................ 10
Telephone Transactions ...................................... 12
Dividends, Capital Gains and Taxes .......................... 12
Pricing of Shares ........................................... 14
Performance Information ..................................... 14
Additional Facts About the Fund ............................. 15
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
CGM REALTY FUND
SCHEDULE OF FEES
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ......................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) ......................... None
Redemption Fees* ................................................ None
Exchange Fees ................................................... None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees ................................................. 0.85%
12b-1 Fees ...................................................... None
Other Expenses .................................................. 0.19%
-----
Total Fund Operating Expenses ................................... 1.04%
- ----------
* A wire fee (currently $5.00) will be deducted from proceeds if a shareholder
elects to transfer redemption proceeds by wire.
The purpose of this fee schedule is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly if you
invest in the Fund. For additional information about the Fund's fees and
expenses, please see "The Fund's Investment Manager" and the Statement.
The following example illustrates the approximate expenses that you would
incur on a $1,000 investment over the following periods, assuming a 5% annual
rate of return and redemption at the end of each period.
CUMULATIVE
------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$11 $33 $57 $127
Please keep in mind that the example shown above is hypothetical. The
information above should not be considered a representation of past or future
return or expenses; the actual return and expenses may be more or less.
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------
CGM REALTY FUND
FINANCIAL HIGHLIGHTS
(For a share of the Fund outstanding throughout the indicated period)
These financial highlights have been examined by Price Waterhouse LLP, independent accountants. The
table below should be read in conjunction with the financial statements and the notes thereto, which,
together with the Report of Independent Accountants thereon, are included in the Fund's Annual Report
and incorporated by reference into the Statement. In addition to the highlights set forth below, further
information about the performance of the Fund is contained in the Annual Report and the Statement, which
may be obtained from the Trust free of charge.
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED DECEMBER 31, MAY 13, 1994(c)
----------------------------------- THROUGH
1997 1996 1995 DECEMBER 31, 1994
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net asset value at 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 fees waived and expenses
reimbursed amounted to ................................. $ 0.01 $ 0.02 $ 0.07 $ 0.04
(b) The total return would have been lower had management fees and certain 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.
(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.
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is above-average income and long-term
growth of capital. The Fund intends to pursue its objective by investing
primarily in equity securities of companies in the real estate industry. The
Fund seeks to provide a yield in excess of the yield of the S&P 500. There are
no assurances the Fund will achieve its objective and the Fund may change its
objective without shareholder approval.
At least 65% of the Fund's total assets will be invested, under normal
conditions, in equity securities of companies in the real estate industry. A
company is considered in the real estate industry if construction, ownership,
management, financing and sales of residential, commercial or industrial real
estate account for not less than 50% of its gross revenues or net profits.
Companies in the real estate industry include the following: real estate
investment trusts that own properties or make or invest in construction,
development or long-term mortgage loans; brokers or real estate developers;
and companies with significant real estate holdings including but not limited
to hotel chains, supermarkets and mining, lumber and paper companies. Equity
securities in which the Fund may invest include common and preferred stocks,
convertible bonds and warrants.
Up to 35% of the Fund's total assets may be invested in securities of
companies outside the real estate industry. The Fund may invest this portion
of its assets in equity securities or fixed-income securities, including
investment grade securities and, with respect to up to 25% of the Fund's total
assets, lower quality securities which have speculative characteristics and
are subject to special risks. See "Risk Factors -- Non-Investment Grade Risk"
and Appendix for a description of securities ratings. Fixed-income securities
include notes, bonds, preferred stocks, certain asset-backed securities and
money market instruments, including repurchase agreements. Fixed-income
securities are subject to credit risk (the risk that the obligor will default
in the payment of principal and/or interest) and interest rate risk (the risk
that the market value of the securities will change as a result of changes in
market rates of interest). The Fund's investments are also subject to the
market risks inherent in all securities.
REAL ESTATE INVESTMENT TRUSTS
A real estate investment trust ("REIT") is a corporation, or a business
trust that would otherwise be taxed as a corporation, which meets the
definitional requirements of the Internal Revenue Code of 1986, as amended
(the "Code"). The Code permits a qualifying REIT to deduct dividends paid,
thereby effectively eliminating corporate level federal income tax and making
the REIT a pass-through vehicle for federal income tax purposes. To meet the
definitional requirements of the Code, a REIT must, among other things, invest
substantially all of its assets in interests in real estate (including
mortgages and other REITs) or cash and government securities, derive most of
its income from rents from real property or interest on loans secured by
mortgages on real property, and distribute to shareholders annually 95% or
more of its otherwise taxable income.
REITs are sometimes informally characterized as equity REITs, mortgage
REITs and hybrid REITs. An equity REIT invests primarily in the fee ownership
or leasehold ownership of land and buildings and derives its income primarily
from rental income. An equity REIT may also realize capital gains (or losses)
by selling real estate properties in its portfolio that have appreciated (or
depreciated) in value. A mortgage REIT invests primarily in mortgages on real
estate, which may secure construction, development or long-term loans. A
mortgage REIT generally derives its income primarily from interest payments on
the credit it has extended. A hybrid REIT combines the characteristics of
equity REITs and mortgage REITs, generally by holding both ownership interests
and mortgage interests in real estate. It is anticipated, although not
required, that under normal circumstances a majority of the Fund's investments
in REITs will consist of equity REITs.
Equity REITs may be further characterized as operating companies or
financing companies. To the extent that an equity REIT provides operational
and management expertise to the properties held in its portfolio, the REIT
generally exercises some degree of control over the number and identity of
tenants, the terms of their tenancies, the acquisition, construction, repair
and maintenance of properties and other operational issues. A mortgage REIT or
an equity REIT that provides financing rather than operational and management
expertise to the properties in its portfolio will generally not have control
over the operations that are conducted on the real estate in which the REIT
has an interest. It is anticipated, although not required, that under normal
circumstances a majority of the Fund's equity REIT investments will consist of
securities issued by operating companies.
TEMPORARY DEFENSIVE POLICY
For temporary defensive purposes, the Fund may invest, without limitation,
in securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"); certificates of deposit,
demand and time deposits and bankers' acceptances of banks whose deposits are
insured by the Federal Deposit Insurance Corporation and have assets of at
least $1 billion, including U.S. branches of foreign banks and foreign
branches of U.S. banks; prime commercial paper, including master demand notes;
and repurchase agreements secured by U.S. Government Securities.
REPURCHASE AGREEMENTS
Up to 25% of the Fund's total assets may be invested in repurchase
agreements entered into with banks and primary dealers in U.S. Government
Securities pursuant to which the Fund buys a security at one price and
simultaneously agrees to sell it back at a specified date and higher price.
Should the counterparty in the repurchase agreement declare bankruptcy or
otherwise default on its obligation, the Fund could experience difficulties and
delays in recovering cash and a possible loss if the value of the security
decreases in the interim or as a result of such difficulties and delays.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities.
Securities that may be resold without registration pursuant to Rule 144A may
be treated as liquid for these purposes, subject to the supervision and
oversight of the Board of Trustees, in accordance with guidelines established
by the Board of Trustees to determine whether there is a readily available
market for such securities. These securities may include securities issued by
certain REITs that are not publicly traded.
PORTFOLIO TURNOVER
The Fund's objective is above-average income and long-term growth of
capital and the Fund does not purchase securities with the intention of
engaging in short-term trading. The Fund, however, will sell any particular
security and reinvest proceeds when it is deemed prudent by the Investment
Manager, regardless of the length of the holding period. This policy may
result in higher securities transaction costs. To the extent that this policy
results in gains on investments, the Fund will make distributions to its
shareholders, which may accelerate the shareholders' tax liabilities. See
"Dividends, Capital Gains and Taxes."
RISK FACTORS
REAL ESTATE AND REIT RISK
CGM Realty Fund is not intended to constitute a complete investment
program. The Fund invests primarily in companies in the real estate industry
and, therefore, may be subject to risks associated with the direct ownership
of real estate, such as decreases in real estate values, overbuilding,
increased competition and other risks related to local or general economic
conditions, increases in operating costs and property taxes, changes in zoning
laws, casualty or condemnation losses, possible environmental liabilities,
regulatory limitations on rent and fluctuations in rental income. Equity REITs
generally experience these risks directly through fee or leasehold interests,
whereas mortgage REITs generally experience these risks indirectly through
mortgage interests, unless the mortgage REIT forecloses on the underlying real
estate.
REITs in which CGM Realty Fund invests may be affected by changes in
underlying real estate values, which may have an exaggerated effect to the
extent that REITs in which the Fund invests may concentrate investments in
particular geographic regions or property types. Additionally, rising interest
rates may cause investors in REITs to demand a higher annual yield from future
distributions, which may in turn decrease market prices for equity securities
issued by REITs. Rising interest rates also generally increase the costs of
obtaining financing, which could cause the value of the Fund's investments to
decline. During periods of declining interest rates, certain mortgage REITs
may hold mortgages that the mortgagors elect to prepay, which prepayment may
diminish the yield on securities issued by such mortgage REITs. In addition,
mortgage REITs may be affected by the ability of borrowers to repay when due
the debt extended by the REIT and equity REITs may be affected by the ability
of tenants to pay rent.
Certain REITs have relatively small market capitalization, which may tend
to increase the volatility of the market price of securities issued by such
REITs. Furthermore, REITs are dependent upon specialized management skills,
have limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. By investing in REITs
indirectly through CGM Realty Fund, a shareholder will bear not only his
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs. REITs depend generally on their ability to generate
cash flow to make distributions to shareholders.
NON-INVESTMENT GRADE RISK
The Fund may invest up to 25% of its total assets in securities rated non-
investment grade (lower than Baa by Moody's Investor Services Inc. ("Moody's")
or lower than BBB by Standard and Poors Corporation ("S&P")). The Fund may not
invest in securities rated lower than Caa or caa by Moody's or CCC by S&P.
Non-investment grade securities are sometimes referred to as "high yield" or
"junk" bonds. Such securities may include both debt securities (including
asset-backed securities) and preferred stock. See Appendix A for further
information about securities ratings. Investors should consider the following
risks associated with high yield, high risk securities before investing in the
Fund.
High yield securities may be regarded as predominantly speculative with
respect to the issuer's continuing ability to make principal and interest
payments. Analysis of the creditworthiness of issuers of high yield securities
may be more complex than for issuers of higher quality debt securities, and
the ability of a Fund to achieve its investment objective may, to the extent
of its investment in high yield securities, be more dependent upon such
creditworthiness analysis than would be the case if the Fund were investing in
higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to
interest-rate changes than more highly rated investments, but more sensitive
to adverse economic downturns or individual corporate developments. Yields on
high yield securities will fluctuate. If the issuer of high yield securities
defaults, the Fund may incur additional expenses to seek recovery.
The secondary markets on which high yield securities are traded may be
less liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect the price at which the Fund
could sell a particular high yield security when necessary to meet liquidity
needs or in response to a specific economic event, such as a deterioration in
the creditworthiness of the issuer, and could adversely affect and cause large
fluctuations in the daily net asset value of the Fund's shares. Adverse
publicity and investor perceptions may decrease the values and liquidity of
high yield securities.
It is reasonable to expect any recession to severely disrupt the market
for high yield securities, have an adverse impact on the value of such
securities, and adversely affect the ability of the issuers of such securities
to repay principal and pay interest thereon. New laws and proposed new laws
may adversely impact the market for high yield securities.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental restrictions, which may not
be changed without the approval of shareholders. Certain other fundamental and
non-fundamental restrictions are set forth in the Statement. The Fund may not:
[ ] With respect to 75% of its total assets, purchase more than 10% of the
outstanding voting securities of any one issuer or invest more than 5% of
the value of its total assets in the securities of any one issuer, except
the U.S. Government, its agencies and instrumentalities; or
[ ] Borrow money, except that it may borrow from banks in an amount not to
exceed one-third of the value of its total assets and may borrow for
temporary purposes from entities other than banks in an amount not to exceed
5% of the value of its total assets.
THE FUND'S INVESTMENT MANAGER
The Fund's investment manager is Capital Growth Management Limited
Partnership, One International Place, Boston, Massachusetts 02110. CGM, an
investment advisory firm founded in 1990, manages nine mutual fund portfolios
and advisory accounts for other clients. The general partner of CGM is a
corporation controlled equally by Robert L. Kemp and G. Kenneth Heebner, who are
trustees and officers of the Fund.
In addition to selecting and reviewing the Fund's investments, CGM
provides executive and other personnel for the management of the Fund. The
Trust's Board of Trustees supervises CGM's conduct of the affairs of the Fund.
The advisory agreement between CGM and the Fund provides for a management
fee at an annual percentage rate of 0.85% on the first $500,000,000 and 0.75%
on amounts in excess of $500,000,000. In 1997, the Fund paid 0.78% of its
average annual net assets in management fees, after reimbursement, to CGM.
THE PORTFOLIO MANAGER
G. Kenneth Heebner is the manager of CGM Realty Fund. In 1990, Mr. Heebner
founded CGM with Robert L. Kemp. Prior to establishing the new company, Mr.
Heebner managed mutual fund portfolios at Loomis, Sayles & Company,
Incorporated. He currently manages CGM Capital Development Fund, CGM Mutual
Fund, CGM Focus Fund, and with Janice H. Saul, co-manages CGM Fixed Income Fund.
HOW TO PURCHASE SHARES
The Trust sells shares of the Fund directly to investors without any sales
load. You may make an initial purchase of Fund shares by submitting a
completed application form and payment to:
The CGM Funds
P.O. Box 449
Boston, Massachusetts 02117-0449
The minimum initial investment is $2,500 for regular accounts and $1,000
for retirement plans (see "Shareholder Services -- Retirement Plans") and
accounts set up under the Uniform Gifts to Minors Act ("UGMA") or the Uniform
Transfers to Minors Act ("UTMA"). Subsequent investments must be at least $50.
See "Shareholder Services" below for further information about minimum
investments in certain other circumstances.
All investments made by check should be in U.S. dollars and made payable
to CGM Realty Fund. Third party checks (i.e. checks not payable to CGM Realty
Fund) are generally not accepted and checks drawn on credit card accounts will
not be accepted.
After accepting an order, the Trust forwards the application and payment
to the CGM Shareholder Services Department ("CGM Shareholder Services") of
Boston Financial Data Services, Inc. ("BFDS"), which is the shareholder
servicing agent for State Street Bank and Trust Company ("State Street Bank").
CGM Shareholder Services then opens an account, applies the payment to the
purchase of full and fractional shares, and mails a statement of the account
confirming the transaction.
After your account has been established, you may send subsequent
investments at any time directly to the shareholder servicing agent at the
following address:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, Massachusetts 02266-8511
The remittance for any subsequent investment must be accompanied by either
the Additional Investment Stub detached from a statement of account, or a note
containing sufficient information to identify the account, i.e., the Fund
name, your account number, your name and social security number.
Subsequent investments may also be made by federal funds wire. Instruct
your bank to wire federal funds to State Street Bank and Trust Company, ABA
#011000028. The text of the wire should read as follows: "DDA 99046336,
$ Amount, STATE ST BOS ATTN Mutual Funds. Credit CGM Realty Fund, Shareholder
Name, Shareholder Account Number." Your bank may charge you a fee for
transmitting funds by wire.
The Trust reserves the right to reject any purchase order, including
orders in connection with exchanges, for any reason the Trust, in its sole
discretion, deems appropriate. Although the Trust does not anticipate that it
will do so, the Trust reserves the right to suspend, change or withdraw the
offering of shares of the Fund.
The price you pay will be the per share net asset value next calculated
after a proper investment order is received by the Trust (in the case of an
initial investment) or by CGM Shareholder Services (in the case of subsequent
investments).
If you wish transactions in your account to be effected by another person
under a power of attorney from you, special rules apply. Please contact the
Trust or CGM Shareholder Services for details.
An investor will not receive any certificates for shares unless the
investor requests them in writing from CGM Shareholder Services. The Trust's
system for recording investments eliminates the problems of handling and
safekeeping certificates.
The Fund may accept telephone orders from certain broker-dealers or
service organizations which have been previously approved by the Fund. It is
the responsibility of such broker-dealers or service organizations to promptly
forward purchase orders and payments for shares to the Fund. Shares of the
Fund may be purchased through certain broker-dealers or service organizations
who may charge the investor a transaction fee or other fee for their services
at the time of purchase and/or redemption. Such fees would not otherwise be
charged if the shares were purchased or redeemed directly from the Fund.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services as more fully described
in the Statement. Explanations and forms are available from the Trust.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of money market funds
currently distributed by New England Funds, L.P. ("Money Market Funds"). You
may also exchange shares for shares of CGM Mutual Fund, CGM Fixed Income Fund,
CGM American Tax Free Fund and CGM Focus Fund. Additionally, you may exchange
shares for shares of CGM Capital Development Fund, but only if you were a
shareholder on September 24, 1993, and have remained a shareholder in the CGM
Capital Development Fund continuously since that date. CGM Capital Development
Fund shares are not generally available to other persons except in special
circumstances that have been approved by, or under the authority of, the Board
of Trustees of that Fund.
All exchanges may be made without charge. You may make an exchange by
written instruction or, if a written authorization for telephone exchanges is
on file with CGM Shareholder Services, you may call 800-343-5678. See
"Telephone Transactions." Exchanges must be for amounts of at least $1,000.
Under certain circumstances, before an exchange can be made, additional
documents may be required to verify the authority or legal capacity of the
person seeking the exchange. If you wish to make an exchange into a new
account, the exchange must satisfy the applicable minimum initial investment
requirements. Exchange requests cannot be revoked once they have been received
in good order.
Investors should not view the exchange privilege as a means for taking
advantage of short-term swings in the market, and the Fund limits the number
of exchanges each shareholder may make to four exchanges per account (or two
round trips) per calendar year. Monthly automatic exchanges from the Money
Market Funds to the Fund are exempt from this restriction. The Trust also
reserves the right to prohibit exchanges during the first 15 days following an
investment in the Fund. The Trust may terminate or change the terms of the
exchange privilege. In general, shareholders will receive notice of any
material change to the exchange privilege at least 60 days prior to the
change. For federal income tax purposes, an exchange constitutes a sale of
shares, which may result in a capital gain or loss.
SYSTEMATIC WITHDRAWAL PLAN
If the value of your account is at least $10,000, you may have periodic
cash withdrawals automatically paid to you or any person you designate. If
checks are returned to the Fund as "undeliverable" or remain uncashed for more
than six months, the plan will be cancelled. Undeliverable or uncashed checks
shall be cancelled and such amounts shall be reinvested in the Fund at the per
share net asset value determined as of the date of cancellation of such
checks. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
AUTOMATIC INVESTMENT PLAN ("AIP")
Once your account has been established, voluntary monthly investments of
at least $50 may be made automatically by pre-authorized withdrawals from your
checking account. Please contact CGM Shareholder Services at 800-343-5678 to
determine the requirements associated with debits from savings banks and
credit unions. Debits from money market accounts are not acceptable. You may
terminate your participation in the AIP by sending written notice to CGM
Shareholder Services, c/o Boston Financial Data Services, Inc., P.O. Box 8511,
Boston, Massachusetts 02266-8511 or by calling 800-343-5678 more than 14 days
prior to the next scheduled debit date. The Fund may terminate your
participation in the AIP immediately in the event that any item is unpaid by
your financial institution. The Fund may terminate or modify the AIP at any
time. Additional information about this Plan is set forth in the Statement and
also in Sections 7 and 9 of the Account Application.
RETIREMENT PLANS
The Fund's shares may be purchased by tax-deferred retirement plans. CGM
makes available retirement plan forms and plan documents for Traditional and
Roth IRAs, SEP-IRAs, 403(b)(7) custodial accounts, and money purchase pension
and profit sharing plans ("CGM Retirement Plans").
SHAREHOLDER REPORTS
Shareholders will receive the Fund's financial statements and a summary of
the Fund's investments at least semiannually. The Fund intends to consolidate
mailings of annual, semiannual, and quarterly reports to households having
multiple accounts with the same address of record and to furnish a single copy
of each report to that address. Mailing of prospectuses and proxy statements
will not be consolidated and if a report is included in such mailings, each
shareholder will receive a separate copy. You may request additional reports
by notifying the Fund in writing, or by calling the Trust.
Shareholders will receive statements confirming all purchases,
redemptions, and changes of address. You may call CGM Shareholder Services and
request a duplicate statement for the current year without charge. A fee will
be charged for any duplicate information requested for prior years.
SYSTEMS - YEAR 2000
Like other mutual funds and other organizations around the world, the Fund
could be adversely affected if the computer systems used by the Fund or its
service providers do not properly process and calculate date-related
information from and after January 1, 2000. This is commonly known as the
"Year 2000 Problem." CGM has taken steps that it believes are reasonably
designed to address any potential Year 2000 Problem for computer programs used
by the Fund or CGM. Each of the Fund's and CGM's service providers are taking
steps that they believe are reasonably designed to address the Year 2000
Problem with respect to computer systems that they use. At this time, however,
there can be no assurance that these steps being taken by third party service
providers will be sufficient to avoid any adverse impact to the Fund.
HOW TO REDEEM SHARES
You can redeem all or part of your shares in the Fund in three different
ways: by sending a written request for a check or wire representing the
redemption proceeds, by making a telephone request for redemption by check
(provided that the amount to be redeemed is not more than $25,000 and the
check is being sent to you at your record address, which has not changed in
the prior three months) or by making a telephone request for redemption
proceeds to be wired to a bank that you have predesignated. The redemption
price will always be the net asset value per share next determined after the
redemption request is received by CGM Shareholder Services in good order
(including any necessary documentation). Necessary documentation may include,
in certain circumstances, documents verifying the authority or legal capacity
of the person seeking to redeem shares. Redemption requests cannot be revoked
once they have been received in good order.
If you elect to redeem shares in writing, send your written request to:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, Massachusetts 02266-8511
The written request must include the name of the Fund, your account number,
the exact name(s) in which your shares are registered, the number of shares or
the dollar amount to be redeemed and mailing or wire instructions. All owners
of shares must sign the request in the exact name(s) in which the shares are
registered (which appear(s) on your confirmation statement) and should
indicate any special capacity in which they are signing (such as trustee or
custodian or on behalf of a partnership, corporation or other entity). If you
are signing in a special capacity, you may wish to contact CGM Shareholder
Services in advance to determine whether additional documentation will be
required before you send a redemption request.
Redemptions from CGM Retirement Plans for which State Street Bank is the
custodian or trustee must contain additional information. Please contact CGM
Shareholder Services for instructions and forms. Complete information,
including tax withholding instructions, must be included in your redemption
request.
If you are redeeming shares worth more than $25,000 or requesting that the
proceeds check be made payable to someone other than the registered owner(s)
or be sent to an address other than your record address (or sent to your
record address if such address has been changed within the previous three
months), you must have your signature guaranteed by an "eligible guarantor
institution" as defined in the rules under the Securities Exchange Act of 1934
(including a bank, broker, dealer, credit union, national securities exchange,
registered securities association, clearing agency or savings association, but
not a notary public).
If you hold certificates representing your investment, you must enclose
the certificates and a properly completed redemption form or stock power. You
bear the risk of loss of such certificates; consequently you may wish to send
your certificates by registered mail.
If you elect to redeem shares by telephone, call CGM Shareholder Services
directly at 800-343-5678. See "Telephone Transactions." Telephone redemptions
are not available for CGM Retirement Plans. When you make a redemption request
by telephone, you may choose to receive redemption proceeds either by having a
check mailed to the address of record on the account, provided the address has
not changed for three months and you are redeeming $25,000 or less, or by having
a wire sent to a bank account you have previously designated.
Telephone redemptions by check are available to all shareholders of the
Fund automatically unless this option is declined in the application or in
writing. You may select the telephone redemption wire service when you fill
out your initial application or you may select it later by completing the
Service Options Form (with a signature guarantee), available from the Trust or
CGM Shareholder Services.
A telephone redemption request must be received by CGM Shareholder
Services prior to the close of the New York Stock Exchange (the "Exchange").
If you telephone your request to CGM Shareholder Services after the Exchange
closes or on a day when the Exchange is not open for business, the Trust
cannot accept your request and a new one will be necessary.
Wire redemptions by telephone may be made only if your bank is a member of
the Federal Reserve System or has a correspondent bank that is a member of
such System. If your account is with a savings bank, it must have only one
correspondent bank that is a member of the Federal Reserve System. A wire fee
(currently $5) will be deducted from the proceeds. If you decide to change the
bank account to which proceeds are to be wired, you must send in this change
on the Service Options Form with a signature guarantee.
Proceeds resulting from a written or regular telephone redemption request
will normally be mailed to you within seven days after receipt of your request
in good order. Telephone wire redemption proceeds will normally be wired to
your bank within seven days following receipt of a proper redemption request.
If you purchased your Fund shares by check (or through your AIP) and elect to
redeem shares within 15 days of such purchase, you may experience delays in
receiving redemption proceeds. The Trust will generally postpone sending your
redemption proceeds from such investment until the Trust can verify that your
check (or AIP investment) has been or will be collected. There will be no such
delay for redemptions following investments paid for by federal funds wire or
by bank cashier's check, certified check or treasurer's check. If checks
representing redemption proceeds are returned "undeliverable" or remain
uncashed for six months, such checks shall be cancelled and such proceeds
shall be reinvested in the Fund at the per share net asset value determined as
of the date of cancellation of such checks. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
The Fund may not suspend the right of redemption, or postpone payment for
more than seven days, except when the Exchange is closed for other than
weekends or holidays, when trading on the Exchange is restricted, during an
emergency (as determined by the SEC) that makes it impracticable for the Fund
to dispose of its securities or to determine fairly the value of its net
assets, or during any other period permitted by the SEC for the protection of
investors.
Because the expense of maintaining small accounts is disproportionately
high, the Fund may close accounts with 20 shares or less, and mail the
proceeds to the shareholder. Shareholders who are affected by this policy will
be notified of the Fund's intention to close the account and will have 60 days
immediately following the notice in which to acquire the requisite number of
shares. The minimum does not apply to CGM Retirement Plans and UGMA/UTMA
accounts.
TELEPHONE TRANSACTIONS
You may initiate three types of transactions by telephone:
[ ] Telephone Exchanges
[ ] Telephone Redemptions By Wire
[ ] Telephone Redemptions By Check
The terms and provisions for each of these services are explained fully in the
preceding sections. Once a telephone transaction request has been placed, it
cannot be cancelled.
The Telephone Exchange privilege and/or Telephone Redemptions By Wire
privilege must be elected by you when you fill out your initial application or
you may select either option later by completing the Service Options Form
(with a signature guarantee) available from the Trust or CGM Shareholder
Services. The Telephone Redemptions By Check privilege is available to
shareholders of the Fund automatically unless this option is declined in the
application or in writing.
The telephone redemption privileges are not available for Traditional or
Roth IRAs, SEP-IRAs, 403(b)(7) custodial accounts or for money purchase
pension and profit sharing accounts under a CGM Retirement Plan (in which
State Street Bank is the custodian or trustee).
The Fund will employ reasonable procedures to confirm that instructions
received by telephone (including instructions with respect to changes in
addresses) are genuine, such as requesting personal identification information
that appears on your account application and recording the telephone
conversation. You will bear the risk of loss due to unauthorized or fraudulent
instructions regarding your account, although the Fund may be liable if it
does not employ reasonable procedures.
DIVIDENDS, CAPITAL GAINS AND TAXES
The Fund intends to declare and pay quarterly dividends consisting of
substantially all net investment income. Any capital gains distributions will
normally be made in December (after applying any available capital loss
carryovers) but may be made more frequently as deemed advisable by the Board
of Trustees. The Fund's dividend and capital gains distributions may be
reinvested in additional shares or received in cash. Certain restrictions may
apply to participants in CGM Retirement Plans.
You may elect to receive income dividends or capital gains distributions,
or both, in cash. However, if you elect to receive capital gains in cash, your
income dividends must also be received in cash. You can elect to receive
payments of cash dividends and capital gains distributions either by check or
by direct deposit to a bank account that you have predesignated. These
elections may be made at the time your account is opened and may be changed at
any time by submitting a written request to CGM Shareholder Services or by
calling 800-343-5678. However, changes in bank account information for direct
deposits of cash dividends and capital gains distributions must be made
through a Service Options Form. In order for a change to be effective for any
dividend or distribution, it must be received by CGM Shareholder Services on
or before the record date for such dividend or distribution.
If you elect to receive distributions in cash and checks are returned
"undeliverable" or remain uncashed for six months, your cash election will be
changed automatically and your future dividend and capital gains distributions
will be reinvested in the Fund at the per share net asset value determined as of
the date of payment of the distribution. In addition, following such six month
period, any undeliverable or uncashed checks shall be cancelled and such amounts
reinvested in the Fund at the per share net asset value determined as of the
date of cancellation of such checks. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
The Fund intends to qualify annually as a "regulated investment company"
under the Internal Revenue Code. To qualify, the Fund must meet certain
income, distribution and diversification requirements. In any year in which
the Fund so qualifies it generally will not be subject to federal income or
excise tax to the extent that its taxable income is distributed to
shareholders.
The distributions received by the Fund from its investments may, for
federal income tax purposes, consist of ordinary income, long-term capital
gains, or a return of capital. The characterization of these distributions to
the Fund may, in turn, affect the tax treatment of the Fund's distributions to
its shareholders. Dividends and distributions are taxable to shareholders in
the same manner whether received in cash or reinvested in additional shares of
the Fund.
Dividends paid by the Fund from net investment income, including
dividends, interest and net short-term capital gains, will be taxable to
shareholders as ordinary income. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital losses)
which are designated by the Fund as capital gains distributions are taxable as
long-term capital gains, regardless of the length of time shareholders have
owned shares in the Fund. To the extent that the Fund makes a distribution in
excess of its current and accumulated earnings and profits, the distribution
will be treated first as a tax-free return of capital, reducing the tax basis
in a shareholder's shares, and then, to the extent the distribution exceeds
such basis, as a taxable gain to be realized upon sale of such shares.
Distributions that the Fund receives from a REIT, and dividends of the
Fund attributable to such distributions, will not constitute "dividends" for
purposes of the dividends-received deduction applicable to corporate
shareholders.
A distribution will be treated as paid by the Fund and received by its
shareholders on December 31 of the current calendar year if it is declared by
the Fund in October, November, or December of that year with a record date in
such a month and paid by the Fund in January of the subsequent year.
Any dividends or distributions paid shortly after a purchase of shares
will have the effect of reducing the per share net asset value of the shares
by the amount of the dividends or distributions. Although in effect a return
of capital, these distributions are subject to taxes, even if their effect is
to reduce the per share net asset value below a shareholder's cost. The Fund
will notify you annually as to the tax status of dividend and capital gains
distributions paid by the Fund.
The sale or other disposition of shares of the Fund, including a
redemption of shares or an exchange of shares into another fund, is a taxable
event and may result in a capital gain or loss which will be long-term or
short-term, depending upon the shareholder's holding period for the shares.
Dividend distributions, capital gains distributions, and capital gains or
losses from redemptions and exchanges may be subject to state and local taxes.
In certain states, a portion of the Fund's income derived from certain direct
U.S. Government obligations may be exempt from state and local taxes. The Fund
will indicate each year the portion of the Fund's income, if any, that is
derived from such obligations.
The Fund is required to withhold a portion of taxable dividends, capital
gains distributions, and redemptions paid to individuals and certain other
classes of shareholders if they fail to furnish the Fund with their correct
taxpayer identification number and certain certifications regarding their tax
status, or if they are otherwise subject to backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against a shareholder's normal federal income tax liability. For additional
information about withholding, please see the Statement.
BFDS, the shareholder servicing agent, will send you and the Internal
Revenue Service an annual statement detailing federal tax information,
including information about dividends and distributions paid to you during the
preceding year. If you redeem or exchange shares in any year, following the
end of the year, you will receive a statement providing the cost basis and
gain or loss of each share lot that you sold during such year. Your CGM
account cost basis will be calculated using the "single category average cost
method," which is one of the four calculation methods allowed by the IRS. Be
sure to keep these statements as permanent records. A fee may be charged for
any duplicate information that you request.
The tax discussion set forth above is included for general information
only. Shareholders and prospective investors should consult their own tax
advisers concerning the tax consequences of an investment in the Fund.
PRICING OF SHARES
The share price or "net asset value" per share of the Fund is computed
daily by dividing the total value of the investments and other assets of the
Fund, less any liabilities, by the total outstanding shares of the Fund. The
net asset value per share of the Fund is determined as of the close of the
regular trading session of the Exchange on each day the Exchange is open for
trading. Portfolio securities are generally valued at their market value. In
certain cases, market value may be determined on the basis of information
provided by a pricing service approved by the Board of Trustees. Instruments
with maturities of sixty days or less are valued at amortized cost, which
approximates market value. Other assets and securities which are not readily
marketable will be valued in good faith at fair value using methods determined
by the Board of Trustees. The valuation of portfolio securities is more fully
described in the Statement.
PERFORMANCE INFORMATION
The Fund may include yield and total return information in advertisements
or other written sales material. The Fund will show its average annual total
return for the most recent one-year period and the life of the Fund through
the end of the most recent calendar quarter. Total return is measured by
comparing the value of an investment in the Fund at the beginning of the
relevant period to the value of the investment at the end of the period
(assuming automatic reinvestment of all dividends and capital gains
distributions). The Fund may also show total return over other periods on an
aggregate basis for the period presented.
Yield is computed in accordance with the SEC's standardized formula by
dividing the adjusted net investment income per share earned during a recent
thirty-day period by the maximum offering price of a Fund share on the last
day of the period. The Fund may also present one or more distribution rates in
its sales literature. These rates will be determined by annualizing the Fund's
distributions from net investment income and net short-term capital gains over
a recent twelve-month, three-month, or thirty-day period and dividing that
amount by the net asset value on the last day of such period.
The Fund may compare its performance to that of recognized financial
indices or groups of mutual funds. It may also include its ranking among other
mutual funds or its rating as published by mutual fund ranking services or
major financial publications. All performance information is based on past
results and is not an indication of likely future performance.
ADDITIONAL FACTS ABOUT THE FUND
[ ] The Trust was organized in 1986 as a Massachusetts business trust and is
authorized to issue an unlimited number of full and fractional shares in
multiple series. The Trust currently has five series: CGM Mutual Fund (a
successor to Loomis-Sayles Mutual Fund), CGM Fixed Income Fund, CGM American
Tax Free Fund, CGM Realty Fund and CGM Focus Fund.
[ ] When a shareholder invests in the Fund, the shareholder acquires freely
transferable shares of beneficial interest that entitle the shareholder to
receive dividends and to cast one vote at shareholder meetings for each
share owned. On matters affecting the Fund, shares of the Fund vote
separately from shares of other series of the Trust, except as otherwise
required by law.
[ ] The investment objective, investment practices and other non-fundamental
policies of the Fund can be changed without shareholder approval. If there
is a change in the Fund's investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their current
financial position and needs.
<PAGE>
APPENDIX
RATINGS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. DEBT RATINGS -- TAXABLE DEBT &
DEPOSITS GLOBALLY:
Aaa -- Bonds which are rated 'Aaa' are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated 'Aa' are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated 'A' possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated 'Baa' are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated 'Ba' are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated 'B' generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated 'Caa' are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from 'Aa' through 'Caa.' The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. PREFERRED STOCK RATINGS:
aaa -- An issue which is rated 'aaa' is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated 'aa' is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a -- An issue which is rated 'a' is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
'aaa' and 'aa' classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa -- An issue which is rated 'baa' is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
ba -- An issue which is rated 'ba' is considered to have speculative
elements, and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated 'b' generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated 'caa' is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payments.
DESCRIPTION OF STANDARD & POOR'S CORPORATION LONG-TERM ISSUE CREDIT RATINGS:
AAA -- An obligation rated 'AAA' has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
AA -- An obligation rated 'AA' differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
A -- An obligation rated 'A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
in higher rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB -- An obligation rated 'BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
BB, B and CCC -- Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are
regarded as having significant speculative characteristics. 'BB' indicates the
least degree of speculation and 'C' the highest. While such obligations will
likely have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse conditions.
BB -- An obligation rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B -- An obligation rated 'B' is more vulnerable to nonpayment than
obliglations rated 'BB', but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness
to meet its financial commitment on the obligation.
CCC -- An obligation rated 'CCC' is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic conditions, the obligor is
not likely to have the capacity to meet its financial commitment on the
obligation.
r -- This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or
commodities; obligations exposed to severe prepayment risk -- such as
interest-only or principal-only mortgage securities; and obligations with
unusually risky interest terms, such as inverse floaters.
DESCRIPTION OF STANDARD & POOR'S CORPORATION PREFERRED STOCK RATING DEFINITIONS:
AAA -- This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity
to pay the preferred stock obligations.
AA -- A preferred stock issue rated 'AA' also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated 'AAA'.
A -- An issue rated 'A' is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB -- An issue rated 'BBB' is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the 'A' category.
BB, B, CCC -- Preferred stock rated 'BB,' 'B,' and 'CCC' are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. 'BB' indicates the lowest degree of
speculation and 'CCC' the highest. While such issues will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or Minus (-): The ratings from A to CCC may be modified by the
addition of a plus or minus sign to show relative standing within major rating
categories.
PORTFOLIO COMPOSITION
For the fiscal year ending on December 31, 1997, the Fund's investments
did not include any securities below investment grade.
<PAGE>
INVESTMENT ADVISER CGM
Capital Growth Management REALTY FUND
Limited Partnership
One International Place Prospectus & Application
Boston, MA 02110 May 1, 1998
TRANSFER AND DIVIDEND PAYING AGENT A No-Load Fund
AND CUSTODIAN OF ASSETS
State Street Bank and Trust Company
Boston, MA 02102
SHAREHOLDER SERVICING AGENT FOR
STATE STREET BANK AND TRUST COMPANY
Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, MA 02266
--------------------
[Fencer Logo]
--------------------
RFP98
<PAGE>
CGM AMERICAN TAX FREE FUND
CGM FIXED INCOME FUND
CGM American Tax Free Fund and CGM Fixed Income Fund (each the "Fund" and
together, the "Funds") are diversified mutual funds and series of CGM Trust
(the "Trust"), a registered, open-end, no-load management investment company.
Each Fund's investment manager is Capital Growth Management Limited
Partnership ("CGM" or the "Investment Manager").
The primary investment objective of CGM AMERICAN TAX FREE FUND is to
provide high current income exempt from federal income tax. The Fund's
secondary investment objective is capital appreciation. CGM American Tax Free
Fund may not be an appropriate investment for retirement plans and similar
accounts.
The investment objective of CGM FIXED INCOME 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.
PROSPECTUS
May 1, 1998
This prospectus sets forth the information you should know before
investing in either Fund. It should be retained for future reference. A
Statement of Additional Information about the Funds dated May 1, 1998, (the
"Statement") has been filed with the Securities and Exchange Commission (the
"SEC") and is available free of charge. Write to the Trust, c/o CGM Investor
Services, 222 Berkeley Street, Boston, MA 02116 or call the telephone number
listed below to obtain a Statement. The SEC maintains a web site (http://
www.sec.gov) that contains the Statement, material incorporated by reference,
and other information regarding the Funds. The Statement contains more
detailed information about the Fund and, as amended or supplemented from time
to time, is incorporated into this prospectus by reference.
- -------------------------------------------------------------------------------
For additional information about:
[ ] Account procedures and status [ ] New account procedures
[ ] Redemptions [ ] Prospectuses
[ ] Exchanges [ ] Performance
Call 800-343-5678 Call 800-345-4048
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Page
Schedule of Fees ................................................. 3
Financial Highlights: CGM American Tax Free Fund ................. 4
Financial Highlights: CGM Fixed Income Fund ..................... 5
Investment Objectives and Policies of CGM American Tax Free Fund . 6
Investment Objective and Policies of CGM Fixed Income Fund ....... 8
Risk Factors ..................................................... 10
Investment Restrictions .......................................... 14
The Funds' Investment Manager .................................... 14
The Portfolio Managers ........................................... 14
How to Purchase Shares ........................................... 15
Shareholder Services ............................................. 16
How to Redeem Shares ............................................. 17
Telephone Transactions ........................................... 19
Dividends, Capital Gains and Taxes ............................... 20
Pricing of Shares ................................................ 22
Performance Information .......................................... 22
Additional Facts About the Funds ................................. 23
<PAGE>
SCHEDULE OF FEES
<TABLE>
<CAPTION>
CGM AMERICAN CGM FIXED
TAX FREE FUND INCOME FUND
-------------- -----------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ...................... None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) ...................... None None
Redemption Fees* ......................................... None None
Exchange Fees ............................................ None None
Annual Fund Operating Expenses, After Waiver and Reimbursements
(as a percentage of average net assets)
Management Fees, After Waiver ............................ 0% 0.24%
12b-1 Fees ............................................... None None
Other Expenses, After Reimbursements ..................... 0% 0.61%
---- -----
Total Fund Operating Expenses, After Waiver and
Reimbursements ........................................ 0% 0.85%
</TABLE>
- ------------
* A wire fee (currently $5.00) will be deducted from proceeds if a shareholder
elects to transfer redemption proceeds by wire.
The purpose of this fee schedule is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly if you
invest in the Funds. For additional information about the Funds' fees and
expenses, please see "The Funds" Investment Manager" and the Statement.
CGM has voluntarily agreed, until December 31, 1998, and thereafter until
further notice to CGM AMERICAN TAX FREE FUND, to waive its management fees and
bear all of the expenses of the Fund. The percentages shown for Management
Fees and Other Expenses reflect current fees after such voluntary waiver and
reimbursements. For the fiscal year ended December 31, 1997, without the
voluntary waiver and reimbursements, the Management Fees, Other Expenses and
Total Fund Operating Expenses as a percentage of average net assets would have
been 0.60%, 1.44% and 2.04%, respectively.
CGM has voluntarily agreed, until December 31, 1998, to waive management
fees and, if necessary, bear expenses associated with operating CGM FIXED
INCOME FUND, to the extent necessary to limit CGM Fixed Income Fund's
operating expenses to an annual rate of 0.85% of its average net assets. The
percentages shown for Management Fees and Other Expenses reflect current fees
after such waiver and reimbursements. For the fiscal year ended December 31,
1997, without the waiver and reimbursements, the Management Fees, Other
Expenses and Total Fund Operating Expenses as a percentage of average net
assets would have been 0.65%, 0.61% and 1.26%, respectively.
The following examples illustrate the approximate expenses that you would
incur on a $1,000 investment over the following periods, assuming a 5% annual
rate of return and redemption at the end of each period.
<TABLE>
<CAPTION>
CGM AMERICAN TAX FREE FUND CGM FIXED INCOME FUND
CUMULATIVE CUMULATIVE
- ------------------------------------------------------------------- --------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
$0 $0 $0 $0 $9 $27 $47 $105
</TABLE>
Please keep in mind that the examples shown above are hypothetical and
assume that current waivers and expense reimbursements will remain in effect.
The information above should not be considered a representation of past or
future return or expenses; the actual return and expenses may be more or less.
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
CGM AMERICAN TAX FREE FUND
FINANCIAL HIGHLIGHTS
(For a share of the Fund outstanding throughout the indicated periods)
These financial highlights have been examined by Price Waterhouse LLP, independent accountants. The table
below should be read in conjunction with the financial statements and the notes thereto, which, together with the
Report of Independent Accountants thereon, are included in the Fund's Annual Report and incorporated by
reference into the Statement. In addition to the highlights set forth below, further information about the
performance of the Fund is contained in the Annual Report and the Statement, which may be obtained from the
Trust free of charge.
<CAPTION>
FOR THE PERIOD
NOVEMBER 10, 1993(c)
FOR THE YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, 1993
------------------------------------------------ ------------------------
1997 1996 1995 1994
---- ---- ---- ----
<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 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 expenses
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>
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
CGM FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
(For a share of the Fund outstanding throughout the indicated periods)
These financial highlights have been examined by Price Waterhouse LLP, independent accountants. The table
below should be read in conjunction with the financial statements and the notes thereto, which, together with
the Report of Independent Accountants thereon, are included in the Fund's Annual Report and incorporated by
reference into the Statement. In addition to the highlights set forth below, further information about the
performance of the Fund is contained in the Annual Report and the Statement, which may be obtained from the Trust
free of charge.
<CAPTION>
FOR THE PERIOD
MARCH 17, 1992(c)
FOR THE YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, 1992
---------------------------------------------------------------- ---------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <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 $10.00
------ ------ ------ ------ ------ ------
Net investment income (a) ............ 0.78 0.77 0.70 0.73 0.67 0.50
Dividends from net investment income (0.78) (0.77) (0.70) (0.73) (0.67) (0.49)
Net realized and unrealized gain (loss)
on investments ..................... (0.36) 0.95 1.84 (1.60) 1.23 0.40
Distributions from net realized gain -- (0.76) -- -- (0.32) (0.13)
Distributions from paid-in capital ... -- -- -- -- -- (0.02)
------ ------ ------ ------ ------ ------
Net increase (decrease) in net
asset value ........................ (0.36) 0.19 1.84 (1.60) 0.91 0.26
------ ------ ------ ------ ------ ------
Net asset value at the end of period $11.24 $11.60 $11.41 $ 9.57 $11.17 $10.26
====== ====== ====== ====== ====== ======
Total Return (%) (b) ................. 3.7 15.4 27.3 (8.0) 18.9 9.2(f)
Ratios:
Operating expenses to average net
assets (%) ......................... 0.85 0.85 0.85 0.85 0.85 0.85(d)
Operating expenses to average net
assets before expense limitation (%) 1.26 1.26 1.53 1.46 2.02 3.21(d)
Net income to average net assets (%) 6.81 6.53 6.46 7.00 6.30 7.29(d)
Portfolio turnover (%) ............... 147 149 148 129 149 212(d)
Average commission rate (e) .......... $0.0680 $0.0700 -- -- -- --
Net assets at end of period
(in thousands)($) .................. 43,932 40,646 31,793 28,672 32,883 9,467
(a) Net of fees waived and expenses
reimbursed amounted to ........... $ 0.05 $ 0.05 $ 0.07 $ 0.06 $ 0.12 $ 0.16
(b) The total return would have been lower had management fees and certain expen ses not been waived or reimbursed during the
period.
(c) Commencement of operations.
(d) Computed on an annualized basis.
(e) SEC regulations require portfolios to disclose the average commission rate p aid on trades for which commissions were charged
for fiscal years beginning on or after September 1, 1995.
(f) Not computed on an annualized basis.
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF
CGM AMERICAN TAX FREE FUND
CGM American Tax Free Fund's primary objective is to provide high current
income exempt from federal income tax. The Fund's secondary objective is
capital appreciation. There are no assurances that the Fund will achieve its
objectives and the Fund may change its objectives without shareholder approval
or prior
notice.
CGM American Tax Free Fund will seek to achieve its objectives by investing
primarily in investment grade securities that are exempt from federal income
tax. At least 75% of the Fund's assets will be invested in securities rated at
the time of purchase Baa, MIG-2, Prime-2 or higher by Moody's Investors Service,
Inc. ("Moody's"), or BBB, SP-2, A-2 or better by Standard & Poor's Corporation
("S&P"), or, if not rated by Moody's or S&P at the time of purchase, determined
to be of comparable quality by the Investment Manager. Securities rated BBB by
S&P or Baa by Moody's are regarded as having an adequate capacity to pay
interest and repay principal, but such securities also have speculative
characteristics and changes in economic conditions and other circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal.
Up to 25% of the Fund's assets may be invested in lower quality securities,
which have speculative characteristics and are subject to special risks. See
"Risk Factors -- Non-Investment Grade Risk." See Appendix A to this Prospectus
for a full description of credit ratings.
In an effort to enhance return, CGM American Tax Free Fund intends to take
advantage of pricing inefficiencies between individual issues and groups of
securities that may occur. As a fundamental policy, under normal market
conditions, the Fund will invest at least 80% of its net assets in securities,
the interest from which is, in the opinion of counsel to the issuer, exempt
from federal income tax and excluded from the calculation of the federal
alternative minimum tax for individuals.
CGM American Tax Free Fund will not invest more than 25% of its total
assets in any one industry. Governmental issuers of tax-exempt securities are
not considered part of any industry. However, tax-exempt securities backed
only by the assets and revenues of nongovernmental users may, for this
purpose, be deemed to be issued by such nongovernmental users, and the 25%
limitation would apply to such obligations. The Fund may invest more than 25%
of its total assets in a broader segment of the tax-exempt market, such as
revenue obligations of hospitals and other healthcare facilities, housing
agency revenue obligations or airport revenue obligations. The Fund may also
invest more than 25% of its total assets in securities relating to any one or
more states (including the District of Columbia), territories or United States
possessions or any of their political subdivisions.
TAX-EXEMPT SECURITIES
Tax-exempt securities are debt obligations issued by states (including the
District of Columbia), territories and possessions of the United States and
their political subdivisions, agencies and instrumentalities, or by multistate
agencies or authorities to obtain funds for various public purposes, including
projects to construct or rebuild schools, hospitals, roads, utilities and
transportation systems throughout the United States. These securities are
commonly classified as general obligation bonds, revenue bonds and notes.
General obligation bonds are secured by the issuer's pledge of its faith,
credit and taxing power for the payment of principal and interest. Revenue
bonds are payable from the revenue derived from a particular facility or class
of facilities or, in some cases, from the proceeds of a special excise tax or
other specific revenue source, but not from the general taxing power. Some
revenue bonds are structured as municipal lease obligations or equipment
purchase contracts. Industrial development bonds are revenue bonds that
generally do not carry a pledge of the credit of the issuing municipality, but
generally are guaranteed by the corporate entity on whose behalf they are
issued. Notes are short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. Tax-exempt securities may
bear fixed, floating or variable rates of interest, which are determined in
some instances by formulas under which the security's interest rate will
change directly or inversely relative to changes in interest rates or an
index, or multiples thereof, in many cases subject to a maximum and a minimum.
Certain tax-exempt securities are subject to redemption at a date earlier than
their stated maturity pursuant to call options, which may be separated from
the related security and purchased and sold independently.
PUT BONDS
CGM American Tax Free Fund may invest in tax-exempt securities (including
securities with variable interest rates) which may be redeemed or sold back
(put) to the issuer of the security or a third party at face value prior to
stated maturity. Such securities will normally trade as if maturity is the
earlier put date, even though stated maturity is longer.
FLOATING AND VARIABLE RATE SECURITIES
CGM American Tax Free Fund may purchase floating and variable rate notes
and bonds, which are tax-exempt obligations ordinarily having stated
maturities in excess of one year, but which permit the holder to demand
payment of principal at any time or at specified intervals. Variable rate
demand notes include master demand notes, which are obligations that permit
the Fund to invest fluctuating amounts that may change daily without penalty
pursuant to direct arrangements between the Fund, as lender, and the borrower.
The interest rates on these obligations fluctuate from time to time.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. Use of letters of credit or other
support arrangements will not adversely affect the tax-exempt status of these
obligations. Because these obligations are direct lending arrangements between
the lender and borrower, it is not contemplated that such instruments
generally will be traded, and there generally is no established secondary
market for these obligations, although they are redeemable at face value.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. The
Investment Manager, on behalf of the Fund, will consider on an ongoing basis
the creditworthiness of the issuers of the floating and variable rate demand
obligations in the Fund's portfolio.
MUNICIPAL LEASE OBLIGATIONS
CGM American Tax Free Fund may invest in lease obligations or installment
purchase contract obligations, which are instruments supported by lease
payments made by a municipality ("municipal lease obligations"). Although
municipal lease obligations do not normally constitute general obligations of
the municipality, a lease obligation is ordinarily backed by the
municipality's agreement to make the payments due under the lease obligation.
However, certain lease obligations contain "non-appropriation" clauses, which
provide that the municipality has no obligation to make lease or installment
purchase payments in later years unless money is appropriated in the future.
Municipal lease obligations are a relatively new form of financing and the
market for such obligations is still developing and is less liquid than other
markets for tax-exempt securities. Municipal lease obligations may be
determined to be liquid (for purposes of complying with the Fund's investment
restrictions) in accordance with procedures adopted by the Board of Trustees.
PORTFOLIO TURNOVER
There is no limitation on the dollar-weighted average maturity of CGM
American Tax Free Fund's portfolio and the maturity may be shortened or
lengthened depending upon the Investment Manager's outlook for interest rates.
Although CGM American Tax Free Fund does not purchase securities with the
intention of engaging in short-term trading, the Fund will sell any particular
security and reinvest proceeds when it is deemed prudent by management,
regardless of the length of the holding period. This policy may result in
higher securities transactions costs. To the extent that this policy results
in gains on investments, the Fund will make distributions to its shareholders,
which may accelerate the shareholders' tax liabilities. See "Dividends,
Capital Gains and Taxes."
TEMPORARY DEFENSIVE POLICY
For temporary defensive purposes, CGM American Tax Free Fund may invest,
without limitation, in securities issued or guaranteed by the U.S. Government,
or any agency or instrumentality thereof ("U.S. Government Securities");
certificates of deposit, demand and time deposits and bankers' acceptances of
banks whose deposits are insured by the Federal Deposit Insurance Corporation
and have assets of at least $1 billion, including U.S. branches of foreign
banks and foreign branches of U.S. banks; prime commercial paper, including
master demand notes; and repurchase agreements secured by U.S. Government
Securities.
INVESTMENT OBJECTIVE AND POLICIES OF
CGM FIXED INCOME FUND
CGM Fixed Income Fund's objective is to maximize total return by investing
in debt securities and preferred stocks that provide current income, capital
appreciation or a combination of both income and appreciation. There are no
assurances that the Fund will achieve its objective and the Fund may change its
objective without shareholder approval.
CGM Fixed Income Fund generally seeks to attain its objective by investing
in securities that are believed by the Investment Manager to be undervalued.
The Fund's flexible investment policy allows it to invest in fixed-income
securities and variable-rate securities, including preferred stocks, with
varying maturities and varying qualities ranging from the highest quality to
non-investment grade.
CGM Fixed Income Fund will invest primarily in investment grade debt
securities rated at the time of purchase a minimum of Baa by Moody's or BBB by
S&P, in preferred stocks rated at the time of purchase a minimum of baa by
Moody's or BBB by S&P, and in debt securities not rated by Moody's or S&P at
the time of purchase, but which the Investment Manager believes to be of
comparable quality.
CGM Fixed Income Fund may also invest less than 35% of its assets in
securities that are not rated at least Baa (baa, in the case of preferred
stocks) by Moody's or BBB by S&P or, if not rated by Moody's or S&P, are
believed by the Investment Manager to be of comparable quality. Lower quality
securities purchased by the Fund will generally be limited to securities rated
B (b, in the case of preferred stocks) or better by Moody's or S&P, at the
time of purchase. In addition, the Fund may invest not more than 10% of its
total assets in securities rated at the time of purchase Caa (caa, in the case
of preferred stocks) by Moody's or CCC by S&P if, in the opinion of the
Investment Manager, the financial condition of the issuer or the protection
afforded to a particular security is stronger than would otherwise be
indicated by the rating. See "Risk Factors -- Non-Investment Grade Risk." See
Appendix A to this Prospectus for a full description of credit ratings.
FIXED INCOME AND VARIABLE RATE SECURITIES
CGM Fixed Income Fund may invest in a variety of fixed-income and
variable-rate securities issued by corporations, municipalities, the U.S.
Government and its instrumentalities, and foreign and multinational
institutions, corporations and governments. These securities include bonds,
debentures, notes, equipment trust certificates, asset-backed securities,
mortgage-related securities, preferred stocks and money market instruments
such as commercial paper, Treasury bills, time deposits, bankers' acceptances
and repurchase agreements. Interest payments on such securities may be paid
out as additional securities (commonly referred to as "payment-in-kind
securities") or as cash, or deferred to a future date not to exceed maturity
(commonly referred to as "zero coupon"). Such securities may also have
conversion features. Under normal circumstances, the Fund will invest at least
65% of its total assets in fixed-income securities.
CONVERTIBLE SECURITIES
CGM Fixed Income Fund may also invest in convertible securities, bonds and
common stocks (or attached warrants) sold as a unit, and preferred stocks.
Convertible securities are securities, such as bonds, notes, debentures or
preferred stocks, which may be converted at a stated price within a specified
period of time into a specified number of shares of common stock of the same
or a different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-
convertible debt securities. While providing an income stream (generally
higher in yield than the income from a common stock but lower than that of a
non-convertible debt security), a convertible security may also afford an
investor the opportunity, through its conversion feature, to participate in
the capital appreciation of the common stock. However, investors ordinarily
pay a premium to obtain such conversion feature.
In general, the market value of a convertible security is the higher of
its "investment value" (i.e., its value as a fixed-income or variable-rate
security) or its "conversion value" (i.e., the value of the underlying
security if the security is converted). To the extent that a convertible
security is a fixed-income security, its market value generally increases when
interest rates decline and generally decreases when interest rates rise.
However, the price of a convertible security also is influenced by the market
value of the security's underlying security, often common stock. Thus, the
price of a convertible security generally increases as the market value of the
underlying security increases, and generally decreases as the market value of
the underlying security declines.
CGM Fixed Income Fund may, from time to time, own stock as a result of the
conversion of a convertible security or the exercise of a warrant.
UNDERVALUED SECURITIES
CGM Fixed Income Fund may invest in undervalued securities, which are
securities that have market prices that are lower than the prices that the
Investment Manager judges to be their true value. Undervaluation may result
from temporary dislocations in the market, market misperceptions of risk,
yield curve movements and cyclical and secular changes in the economy.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities. In
general, securities that may be resold without registration pursuant to Rule
144A will be treated as liquid for these purposes, in accordance with
guidelines established by the Board of Trustees to determine whether there is
a readily available market for such securities.
BORROWING
Although CGM Fixed Income Fund is permitted to borrow amounts (including
obligations under reverse repurchase agreements) aggregating up to 33.3% of
the value of its total assets, the Fund does not intend to borrow for purposes
of leveraging its portfolio. Under ordinary circumstances, the Fund will
borrow only for temporary purposes in amounts not to exceed 5% of the value of
its total assets. At any time that the Fund's borrowings (including
obligations under reverse repurchase agreements) exceed 5% of the value of its
total assets, the Fund will not purchase or acquire any additional investment
securities.
PORTFOLIO TURNOVER
Although CGM Fixed Income Fund's objective is total return and the Fund
does not purchase securities with the intention of engaging in short-term
trading, the Fund will sell any particular security and reinvest the proceeds
when it is deemed prudent by management, regardless of the length of the
holding period. This policy may result in higher securities transactions
costs. To the extent that this policy results in gains on investments, the
Fund will make distributions to its shareholders, which may accelerate the
shareholders' tax liabilities. See "Dividends, Capital Gains and Taxes."
TEMPORARY DEFENSIVE POLICY
For temporary defensive purposes, CGM Fixed Income Fund may invest,
without limitation, in U.S. Government Securities; certificates of deposit,
demand and time deposits and bankers' acceptances of banks whose deposits are
insured by the Federal Deposit Insurance Corporation and have assets of at
least $1 billion, including U.S. branches of foreign banks and foreign
branches of U.S. banks; prime commercial paper, including master demand notes;
and repurchase agreements secured by U.S. Government Securities.
RISK FACTORS
INTEREST RATE RISK
Securities purchased by CGM American Tax Free Fund and CGM Fixed Income
Fund will be subject to interest rate risk. Interest rate risk is the
potential for a decline in prices of fixed-income securities due to rising
interest rates. In general, prices of fixed-income securities move inversely
with interest rates. If interest rates rise, prices of fixed-income securities
generally fall; if interest rates fall, prices of fixed-income securities
generally rise. In addition, for a given change in interest rates, longer-
maturity securities normally fluctuate more in price (gaining or losing more
in value) than shorter-maturity securities. To compensate investors for this
risk, longer-maturity securities generally offer higher yields than shorter-
maturity securities, all other factors (including credit quality) being equal.
The Funds' flexible investment policies allow them to invest in securities
with varying maturities.
EVENT RISK
Event risk is the possibility that corporate securities will suffer a
decline in credit quality and market value when the issuer undergoes a
corporate restructuring. Corporate restructurings, such as mergers,
acquisitions, leveraged buyouts or similar events, often can be financed by a
significant expansion of a company's outstanding debt. As a result of the
added debt burden, the credit quality and market value of a firm's existing
bonds may decline sharply.
CREDIT RISK
Credit risk is the possibility that an issuer will fail to make timely
payments of interest or principal. In general, the lower the credit quality of
a security, the higher the yield and the higher the risk, all other factors
(such as maturity) being equal. In determining the credit quality of a tax-
exempt security, it is necessary to consider the possibility that legislative
changes affecting the taxing and spending authority of a municipality will
affect the ability of the municipality to make payments of principal and
interest on its obligations. Investment policies of the Funds allow them to
invest in securities with credit quality ranging from the highest (Aaa or aaa
by Moody's or AAA by S&P) to as low as Caa or caa by Moody's or CCC by S&P if,
in the opinion of the Investment Manager, the financial condition of the
issuer or the protection afforded to a particular security is stronger than
would otherwise be indicated by the rating. The Funds will generally not
purchase securities rated below B or b by Moody's or B by S&P. In addition,
the Funds may not invest more than 10% of their total assets at the time of
purchase in securities rated Caa or caa by Moody's or CCC by S&P. See Appendix
A to this Prospectus for a full description of credit ratings for the
investments held by CGM American Tax Free Fund and CGM Fixed Income Fund
during the previous fiscal year.
NON-INVESTMENT GRADE RISK
Securities rated non-investment grade (lower than Baa or baa by Moody's or
lower than BBB by S&P) are sometimes referred to as "high yield" or "junk"
bonds. See Appendix A for further information about securities ratings.
Investors should consider the following risks associated with high yield
securities before investing in either of the Funds.
High yield securities may be regarded as predominantly speculative with
respect to the issuer's continuing ability to make principal and interest
payments. Analysis of the creditworthiness of issuers of high yield securities
may be more complex than for issuers of higher quality debt securities, and
the ability of the Funds to achieve their investment objectives may, to the
extent of their investments in high yield securities, be more dependent upon
such creditworthiness analysis than would be the case if the Funds were
investing in higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to
interest-rate changes than more highly rated investments, but more sensitive
to adverse economic downturns or individual corporate developments. Yields on
a high yield security will fluctuate. If the issuer of high yield securities
defaults, the Funds may incur additional expenses to seek recovery.
The secondary markets on which high yield securities are traded may be
less liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect the price at which the Funds
could sell a particular high yield security when necessary to meet liquidity
needs or in response to a specific economic event, such as a deterioration in
the credit worthiness of the issuer, and could adversely affect and cause
large fluctuations in the daily net asset value of the Funds' shares. Adverse
publicity and investor perceptions may decrease the value and liquidity of
high yield securities.
It is reasonable to expect any recession to severely disrupt the market
for high yield securities, have an adverse impact on the value of such
securities, and adversely affect the ability of the issuers of such securities
to repay principal and pay interest thereon. New laws and proposed new laws
may adversely impact the market for high yield securities.
WHEN-ISSUED SECURITIES RISK
CGM American Tax Free Fund and CGM Fixed Income Fund each may purchase
some debt securities on a "when-issued" basis, which means that it may be as
long as 60 days after purchase before the securities are delivered to the
Fund. Payment and interest terms, however, are fixed at the time the purchaser
enters into the commitment. The Funds do not pay for when-issued securities or
start earning interest on them until the contractual settlement date. At the
time of settlement, the market value of the security may be more or less than
the purchase price. A segregated account of each Fund consisting of cash, cash
equivalents, U.S. Government Securities or other high quality liquid debt
securities at least equal at all times to the amount of when-issued securities
held by the particular Fund will be established and maintained at the Funds'
custodian bank.
FOREIGN SECURITIES RISK
CGM Fixed Income Fund may invest up to 20% of its net assets at the time
of purchase in debt securities and preferred stocks issued by institutions,
corporations and governments established by or in one or more foreign
countries, which may be developed or undeveloped countries. Such foreign
securities will otherwise satisfy the limitations and restrictions applicable
to the Fund, including the Fund's policies regarding credit quality. In making
foreign investments, the Fund will also give appropriate consideration to the
following factors, among others.
Because some foreign securities CGM Fixed Income Fund may acquire are
purchased with and payable in currencies of foreign countries, the value of
these assets as measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency rates and exchange control regulations.
Certain currency exchange expenses may be incurred when the Fund changes
investments from one country to another.
Foreign securities markets generally are not as developed or efficient as
those in the United States. Securities of some foreign issuers are less liquid
and more volatile than securities of comparable U.S. issuers. Similarly,
volume and liquidity in most foreign securities markets are less than in U.S.
markets and, at times, volatility of prices can be greater than in the United
States. There may be less government supervision and regulation of securities
exchanges, brokers and listed companies. The issuers of some of these
securities, such as foreign bank obligations, may be subject to less stringent
or different regulations than those governing U.S. issuers. In addition, there
may be less publicly available information about a foreign issuer, and foreign
issuers are not subject to uniform accounting and financial reporting
standards, practices and requirements comparable to those applicable to U.S.
issuers. Further, it may be more difficult to obtain current information about
corporate actions by foreign issuers of portfolio securities that affect the
prices of such securities.
Foreign securities are also subject to additional risks of possible
adverse political and economic developments, possible seizure or
nationalization of foreign deposits and possible adoption of governmental
restrictions, which might adversely affect the payment of principal and
interest on the foreign securities or might restrict the payment of principal
and interest to investors located outside the country of the issuer, whether
from currency blockage or otherwise. CGM Fixed Income Fund's ability and
decisions to purchase and sell portfolio securities may be affected by laws or
regulations relating to the convertibility and repatriation of assets.
Some foreign securities may be subject to transfer taxes levied by foreign
governments, and the income received by CGM Fixed Income Fund from sources
within foreign countries may be reduced by withholding and other taxes imposed
by such countries. The Fund will also incur higher custody costs in connection
with foreign securities.
MORTGAGE-RELATED SECURITIES AND ASSET-BACKED SECURITIES RISK
CGM Fixed Income Fund may invest in mortgage-related securities and asset-
backed securities. Mortgage-related securities are represented by pools of
mortgage loans or loans assembled for sale to investors by various governmental
agencies, such as the Government National Mortgage Association, and
government-related organizations, such as the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation, as well as by
private issuers, such as commercial banks, savings and loan institutions,
financial corporations, mortgage bankers and private mortgage insurance
companies. Asset-backed securities are pass-through securities backed by
non-mortgage assets, including automobile loans, credit card receivables and
consumer receivables. Although certain mortgage-related and asset-backed
securities are guaranteed by a third party or otherwise similarly secured, the
market value of the security, which may fluctuate, and the yield are not so
secured. If CGM Fixed Income Fund purchases a mortgage-related or an
asset-backed security at a premium, all or part of the premium may be lost if
there is a decline in the market value of the security, whether resulting from
changes in interest rates or prepayments in the underlying mortgage collateral.
As with other interest-bearing securities, the prices of such securities
are inversely affected by changes in interest rates. However, although the
value of a mortgage-related or asset-backed security may decline when interest
rates rise, the converse is not necessarily true, because in periods of
declining interest rates the mortgages or assets underlying the security may
be more likely to be prepaid. For this and other reasons, a mortgage-related
or asset-backed security's stated maturity may be shortened by unscheduled
prepayments on the underlying mortgages or assets and, therefore, it is not
possible to predict accurately the security's return. Such prepayments may
expose CGM Fixed Income Fund to a lower rate of return on reinvestment. To the
extent that such mortgage-related securities are held by the Fund, the
prepayment right of the mortgagors may limit the increase in net asset value
of the Fund because the value of the mortgage-related securities held by the
Fund may not appreciate as rapidly as the price of other debt securities.
CGM Fixed Income Fund may also invest in stripped mortgage-related
securities often referred to as IO (interest-only) and PO (principal-only)
securities. IO and PO securities are formed by separating the principal and
interest payments of a mortgage-related security to create two or more classes
of securities with different characteristics than the underlying security. IOs
receive all of the coupon interest from mortgage-related securities and can be
high yielding securities, while POs receive all of the principal payments from
mortgage-related securities and are seldom high yielding securities. IOs and
POs are extremely sensitive to changes in both interest rates and prepayment
rates.
Because an IO receives only the interest payments of an underlying
mortgage-related security, an increase in prepayments (due to lower interest
rates) will result in less interest being paid to the IO investor. The
decrease in interest payments will cause the value of the IO to decline as
most other bonds increase in value. A decline in prepayments (due to higher
interest rates), however, will result in increased interest being paid to the
IO investor. The increase in interest payments will generally result in a
higher value for the IO security. PO securities, on the other hand, are zero
coupon securities, as they receive no interest, but do receive all principal
payments of an underlying mortgage-related security. The value of these
securities will increase as prepayments increase, particularly if interest
rates are declining. Like zero coupon securities, PO securities are extremely
volatile securities, which increase in value as interest rates decline and/or
prepayments increase and decline when rates increase and/or prepayments
decline.
IO and PO securities that are issued by the U.S. Government or its
agencies and instrumentalities and are backed by fixed-rate mortgages may be
treated as liquid for purposes of investment restrictions applicable to
investments in illiquid securities, in accordance with guidelines established
by the Board of Trustees, to determine whether there is a readily available
market for such securities. All other IO and PO securities will be treated as
illiquid for purposes of applicable investment restrictions.
ZERO COUPON, DEFERRED INTEREST AND PAYMENT-IN-KIND SECURITIES RISK
There may be special tax considerations associated with investing in
securities structured as deferred interest, zero coupon or payment-in-kind
securities. CGM Fixed Income Fund records the interest on these securities as
income even though it receives no cash interest until each security's maturity
date. The Fund will be required to distribute all or substantially all such
amounts annually and may have to obtain the cash to do so by selling
securities. Thus, to meet cash distribution obligations, the Fund may be
required to liquidate a portion of its assets, which it would otherwise
continue to hold, at a disadvantageous time. These distributions will be
taxable to shareholders as ordinary income.
In the case of securities structured as deferred interest, zero coupon or
payment-in-kind securities, the market prices of such securities are affected
to a greater extent by interest rate changes, and therefore tend to be more
volatile than securities which pay interest periodically and in cash.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following fundamental restrictions, which may
not be changed without the approval of shareholders. Certain other fundamental
and non-fundamental restrictions are set forth in the Statement. Each Fund may
not:
[ ] purchase any securities which would cause more than 25% of the market
value of its total assets at the time of such purchase to be invested in
the securities of one or more issuers having their principal business
activities in the same industry, provided that there is no limit with
respect to investments in U.S. Government Securities;
[ ] borrow money, except that it may borrow from banks in an amount not to
exceed one-third of the value of its total assets and may borrow for
temporary purposes from entities other than banks in an amount not to
exceed 5% of the value of its total assets; or
[ ] with respect to 75% of its total assets, purchase more than 10% of the
outstanding voting securities of any one issuer or invest more than 5%
of the value of its total assets in the securities of any one issuer,
except the U.S. Government, its agencies and instrumentalities.
THE FUNDS' INVESTMENT MANAGER
Each Fund's investment manager is Capital Growth Management Limited
Partnership, One International Place, Boston, Massachusetts 02110. CGM, an
investment advisory firm founded in 1990, manages nine mutual fund portfolios
and advisory accounts for other clients. The general partner of CGM is a
corporation controlled equally by Robert L. Kemp and G. Kenneth Heebner, who are
trustees and officers of the Funds.
In addition to selecting and reviewing each Fund's investments, CGM
provides executive and other personnel for the management of the Funds. The
Trust's Board of Trustees supervises CGM's management of the affairs of the
Funds.
Until December 31, 1998, and thereafter until further notice to CGM
American Tax Free Fund, CGM has voluntarily agreed to waive its management
fees and bear all of the expenses of CGM American Tax Free Fund. Without this
waiver and these reimbursements, the investment management fee would be 0.60%
on the first $500,000,000, 0.55% on the next $500,000,000, and 0.45% on
amounts in excess of $1 billion.
Until December 31, 1998, CGM has voluntarily agreed to waive fees and to
reimburse CGM Fixed Income Fund for expenses to the extent the Fund's expenses
exceed 0.85% of the Fund's average annual net assets. CGM has also agreed not
to modify its commitment thereafter without approval of the Board of Trustees.
Without this waiver and these reimbursements, the investment management fee
would be 0.65% on the first $200,000,000, 0.55% on the next $300,000,000, and
0.40% on amounts in excess of $500,000,000. In 1997, the Fund paid 0.24% of
its average net assets in management fees to CGM.
THE PORTFOLIO MANAGERS
The portfolio manager for CGM American Tax Free Fund is Janice H. Saul, who
is an officer of the Fund. Prior to joining CGM, Ms. Saul was employed as a
portfolio manager by Loomis, Sayles & Company, Incorporated ("Loomis Sayles")
and by Scudder, Stevens and Clark.
CGM Fixed Income Fund's investment portfolio is co-managed by G. Kenneth
Heebner and Janice H. Saul, officers of the Fund's Investment Manager. Mr.
Heebner is responsible for the Fund's investments that are convertible into
equity securities and Ms. Saul has primary responsibility for managing the
Fund's debt securities.
Mr. Heebner, who is a vice president and trustee of CGM Trust, also
manages the investment portfolios of CGM Mutual Fund, CGM Capital Development
Fund, CGM Realty Fund and CGM Focus Fund. Prior to March 1, 1990, Mr. Heebner
managed the CGM Capital Development Fund and CGM Mutual Fund in his capacity
as vice president and director of Loomis Sayles.
HOW TO PURCHASE SHARES
The Trust sells shares of the Funds directly to investors without any
sales load. You may make an initial purchase of shares of each Fund by
submitting a completed application form and payment to:
The CGM Funds
P. O. Box 449
Boston, Massachusetts 02117-0449
The minimum initial investment in each Fund is $2,500 for regular accounts
and $1,000 for retirement accounts (see "Shareholder Services -- Retirement
Plans") and accounts set up under the Uniform Gifts to Minors Act ("UGMA") or
the Uniform Transfers to Minors Act ("UTMA"). Subsequent investments in each
Fund must be at least $50. See "Shareholder Services" below for further
information about minimum investments in certain other circumstances.
All investments made by check should be in U.S. dollars and made payable
to CGM American Tax Free Fund or CGM Fixed Income Fund (as applicable). Third
party checks (i.e. checks payable to anyone other than CGM American Tax Free
Fund or CGM Fixed Income Fund) are generally not accepted and checks drawn on
credit card accounts will not be accepted.
After accepting an order, the Trust forwards the application and payment
to the CGM Shareholder Services Department ("CGM Shareholder Services") of
Boston Financial Data Services, Inc. ("BFDS"), which is the shareholder
servicing agent for State Street Bank and Trust Company ("State Street Bank").
CGM Shareholder Services then opens an account, applies the payment to the
purchase of full and fractional shares, and mails a statement of the account
confirming the transaction.
After your account has been established for each Fund, you may send
subsequent investments in such Fund at any time directly to the shareholder
servicing agent at the following address:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P. O. Box 8511
Boston, Massachusetts 02266-8511
The remittance for any subsequent investment must be accompanied by either
the Additional Investment Stub detached from a statement of account, or a note
containing sufficient information to identify the account, i.e., the Fund
name, your account number, your name and social security number.
Subsequent investments may also be made by federal funds wire. Instruct
your bank to wire federal funds to State Street Bank and Trust Company, ABA
#011000028. The text of the wire should read as follows: "DDA 99046336
$ Amount, STATE ST BOS ATTN Mutual Funds. Credit CGM American Tax Free Fund or
CGM Fixed Income Fund (as applicable), Shareholder Name, Shareholder Account
Number." Your bank may charge you a fee for transmitting funds
by wire.
The Trust reserves the right to reject any purchase order, including
orders in connection with exchanges, for any reason the Trust, in its sole
discretion, deems appropriate. Although the Trust does not anticipate that it
will do so, the Trust reserves the right to suspend, change or withdraw the
offering of shares of any Fund.
The price you pay will be the per share net asset value next calculated
after a proper investment order is received by the Trust (in the case of an
initial investment) or by CGM Shareholder Services (in the case of subsequent
investments).
If you wish transactions in your account to be effected by another person
under a power of attorney from you, special rules apply. Please contact the
Trust or CGM Shareholder Services for details.
An investor will not receive any certificates for shares unless the
investor requests them in writing from CGM Shareholder Services. The Trust's
system for recording investments eliminates the problems of handling and
safekeeping certificates.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services as more fully described
in the Statement. Explanations and forms are available from the Trust.
EXCHANGE PRIVILEGE
Shares of either Fund may be exchanged for shares of money market funds
currently distributed by New England Funds, L.P. ("Money Market Funds"). You
may also exchange shares for shares of CGM American Tax Free Fund or CGM Fixed
Income Fund (as applicable), CGM Mutual Fund, CGM Realty Fund and CGM Focus
Fund. Additionally, you may exchange shares for shares of CGM Capital
Development Fund, but only if you were a shareholder on September 24, 1993 and
have remained a shareholder in the CGM Capital Development Fund continuously
since that date. CGM Capital Development Fund shares are not generally
available to other persons except in special circumstances that have been
approved by, or under the authority of, the Board of Trustees of that Fund as
described in the Statement.
All exchanges may be made without charge. You may make an exchange by
written instruction or, if a written authorization for telephone exchanges is on
file with CGM Shareholder Services, you may call 800-343-5678. See "Telephone
Transactions." Exchanges must be for amounts of at least $1,000. Under certain
circumstances, before an exchange can be made, additional documents may be
required to verify the authority or legal capacity of the person seeking the
exchange. If you wish to make an exchange into a new account, the exchange must
satisfy the applicable minimum initial investment requirements. Exchange
requests cannot be revoked once they have been received in good order.
Investors should not view the exchange privilege as a means for taking
advantage of short-term swings in the market, and each Fund limits the number
of exchanges each shareholder may make to four exchanges per account (or two
round trips) per calendar year. Monthly automatic exchanges from the Money
Market Funds to the Funds are exempt from this restriction. The Trust also
reserves the right to prohibit exchanges during the first 15 days following an
investment in a particular Fund. The Trust may terminate or change the terms
of the exchange privilege. In general, shareholders will receive notice of any
material change to the exchange privilege at least 60 days prior to the
change. For federal income tax purposes, an exchange constitutes a sale of
shares, which may result in a capital gain or loss.
SYSTEMATIC WITHDRAWAL PLAN
If the value of your account is at least $10,000, you may have periodic
cash withdrawals automatically paid to you or any person you designate. If
checks are returned to any Fund as "undeliverable" or remain uncashed for more
than six months, the plan will be cancelled. Undeliverable or uncashed checks
shall be cancelled and such amounts shall be reinvested in the applicable Fund
at the per share net asset value determined as of the date of cancellation of
such checks. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
AUTOMATIC INVESTMENT PLAN ("AIP")
Once your account has been established for a particular Fund, voluntary
monthly investments of at least $50 may be made automatically by pre-
authorized withdrawals from your checking account. Please contact CGM
Shareholder Services at 800-343-5678 to determine the requirements associated
with debits from savings banks and credit unions. Debits from money market
accounts are not acceptable. You may terminate your participation in the AIP
by sending written notice to CGM Shareholder Services, c/o Boston Financial
Data Services, Inc., P.O. Box 8511, Boston, Massachusetts 02266-8511 or by
calling 800-343-5678 more than 14 days prior to the next scheduled debit date.
The Fund may terminate your participation in the AIP immediately in the event
that any item is unpaid by your financial institution. The Fund may terminate
or modify the AIP at any time. Additional information about this Plan is set
forth in the Statement.
RETIREMENT PLANS
CGM American Tax Free Fund may not be an appropriate investment for:
Traditional and Roth IRA accounts, SEP-IRA accounts, 403(b)(7) custodial
accounts, qualified profit sharing plans, or qualified money purchase pension
plans.
CGM Fixed Income Fund's shares may be purchased by tax-deferred retirement
plans. CGM makes available retirement plan forms and plan documents for
Traditional and Roth IRAs, SEP-IRAs, 403(b)(7) custodial accounts, and money
purchase pension and profit sharing plans ("CGM Retirement Plans").
SHAREHOLDER REPORTS
Shareholders of each Fund will receive that Fund's financial statements
and a summary of the Fund's investments at least semiannually. The Funds
intend to consolidate mailings of annual, semiannual and quarterly reports to
households having multiple accounts with the same address of record and to
furnish a single copy of each report to that address. Mailing of prospectuses
and proxy statements will not be consolidated, and, if a report is included in
such mailings, each shareholder will receive a separate copy. You may request
additional reports by notifying either Fund in writing, or by calling the
Trust. Shareholders will receive statements confirming all purchases,
redemptions and changes of address. You may call CGM Shareholder Services and
request a duplicate statement for the current year without charge. A fee will
be charged for any duplicate information requested for prior years.
SYSTEMS - YEAR 2000
Like other mutual funds and other organizations around the world, a Fund
could be adversely affected if the computer systems used by the Fund or its
service providers do not properly process and calculate date-related
information from and after January 1, 2000. This is commonly known as the
"Year 2000 Problem." CGM has taken steps that it believes are reasonably
designed to address any potential Year 2000 Problem for computer programs used
by the Funds or CGM. Each of the Funds' and CGM's service providers are taking
steps that they believe are reasonably designed to address the Year 2000
Problem with respect to computer systems that they use. At this time, however,
there can be no assurance that these steps being taken by third party service
providers will be sufficient to avoid any adverse impact to the Funds.
HOW TO REDEEM SHARES
You can redeem all or part of your shares in either Fund in three
different ways: by sending a written request for a check or wire representing
the redemption proceeds, by making a telephone request for redemption by check
(provided that the amount to be redeemed is not more than $25,000 and the
check is being sent to you at your record address, which has not changed in
the prior three months) or by making a telephone request for redemption
proceeds to be wired to a bank that you have predesignated. The redemption
price will always be the net asset value per share next determined after the
redemption request is received by CGM Shareholder Services in good order
(including any necessary documentation). Necessary documentation may include,
in certain circumstances, documents verifying the authority or legal capacity
of the person seeking to redeem shares. Redemption requests cannot be revoked
once they have been received in good order.
If you elect to redeem shares in writing, send your written request to:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, Massachusetts 02266-8511
The written request must include the name of the particular Fund, your account
number, the exact name(s) in which your shares are registered, the number of
shares or the dollar amount to be redeemed and mailing or wire instructions.
All owners of shares must sign the request in the exact name(s) in which the
shares are registered (which appear(s) on your confirmation statement) and
should indicate any special capacity in which they are signing (such as
trustee or custodian or on behalf of a partnership, corporation or other
entity). If you are signing in a special capacity, you may wish to contact CGM
Shareholder Services in advance to determine whether additional documentation
will be required before you send a redemption request.
Redemptions from CGM Retirement Plans for which State Street Bank is the
custodian or trustee must contain additional information. Please contact CGM
Shareholder Services for instructions and forms. Complete information,
including tax withholding instructions, must be included in your redemption
request.
If you are redeeming shares worth more than $25,000 or requesting that the
proceeds check be made payable to someone other than the registered owner(s)
or be sent to an address other than your record address (or sent to your
record address if such address has been changed within the previous three
months), you must have your signature guaranteed by an "eligible guarantor
institution" as defined in the rules under the Securities Exchange Act of 1934
(including a bank, broker, dealer, credit union, national securities exchange,
registered securities association, clearing agency or savings association, but
not a notary public).
If you hold certificates representing your investment, you must enclose
the certificates and a properly completed redemption form or stock power. You
bear the risk of loss of such certificates; consequently you may wish to send
your certificates by registered mail.
If you elect to redeem shares by telephone, call CGM Shareholder Services
directly at 800-343-5678. See "Telephone Transactions." Telephone redemptions
are not available for CGM Retirement Plans. When you make a redemption request
by telephone, you may choose to receive redemption proceeds either by having a
check mailed to the address of record on the account, provided the address has
not changed for three months and you are redeeming $25,000 or less, or by
having a wire sent to a bank account you have previously designated.
Telephone redemptions by check are available to all shareholders of the
Funds automatically unless this option is declined in the application or in
writing. You may select the telephone redemption wire when you fill out your
initial application or you may select it later by completing the Service
Options Form (with a signature guarantee), available from the Trust or CGM
Shareholder Services.
A telephone redemption request must be received by CGM Shareholder
Services prior to the close of the New York Stock Exchange (the "Exchange").
If you telephone your request to CGM Shareholder Services after the Exchange
closes or on a day when the Exchange is not open for business, the Trust
cannot accept your request and a new one will be necessary.
Wire redemptions by telephone may be made only if your bank is a member of
the Federal Reserve System or has a correspondent bank that is a member of
such System. If your account is with a savings bank, it must have only one
correspondent bank that is a member of the Federal Reserve System. A wire fee
(currently $5) will be deducted from the proceeds. If you decide to change the
bank account to which proceeds are to be wired, you must send in this change
on the Service Options Form with a signature guarantee.
Proceeds resulting from a written or regular telephone redemption request
will normally be mailed to you within seven days after receipt of your request
in good order. Telephone wire redemption proceeds will normally be wired to
your bank within seven days following receipt of a proper redemption request.
If you purchased your shares of a Fund by check (or through your AIP) and
elect to redeem shares within 15 days of such purchase, you may experience
delays in receiving redemption proceeds. The Trust will generally postpone
sending your redemption proceeds from such investment until the Trust can
verify that your check (or AIP investment) has been or will be collected.
There will be no such delay for redemptions following investments paid for by
federal funds wire or by bank cashier's check, certified check or treasurer's
check. If checks representing redemption proceeds are returned "undeliverable"
or remain uncashed for six months, such checks shall be cancelled and such
proceeds shall be reinvested in the applicable Fund at the per share net asset
value determined as of the date of cancellation of such checks. No interest
will accrue on amounts represented by uncashed distribution or redemption
checks.
No Fund may suspend the right of redemption, or postpone payment for more
than seven days, except when the Exchange is closed for other than weekends or
holidays, when trading on the Exchange is restricted, during an emergency (as
determined by the SEC) that makes it impracticable for that Fund to dispose of
its securities or to determine fairly the value of its net assets, or during
any other period permitted by the SEC for the protection of investors.
Because the expense of maintaining small accounts is disproportionately
high, each Fund may close accounts with 20 shares or less and mail the
proceeds to the shareholder. Shareholders who are affected by this policy will
be notified of a Fund's intention to close the account and will have 60 days
immediately following the notice in which to acquire the requisite number of
shares. The minimum does not apply to CGM Retirement Plans and UGMA/UTMA
accounts.
TELEPHONE TRANSACTIONS
You may initiate three types of transactions by telephone:
[ ] Telephone Exchanges
[ ] Telephone Redemptions By Wire
[ ] Telephone Redemptions By Check
The terms and provisions for each of these services are explained fully in the
preceding sections. Once a telephone transaction request has been placed, it
cannot be cancelled.
The Telephone Exchange privilege and/or Telephone Redemptions By Wire
privilege must be elected by you when you fill out your initial application
for each Fund or you may select them later by completing the Service Options
Form (with a signature guarantee) available from the Trust or CGM Shareholder
Services. The Telephone Redemptions By Check privilege is available to
shareholders of each Fund automatically unless this option is declined in the
application or in writing.
The telephone redemption privileges are not available for Traditional or
Roth IRAs, SEP-IRAs, 403(b)(7) custodial accounts or for money purchase
pension and profit sharing accounts under a CGM Retirement Plan (in which
State Street Bank is the custodian or trustee).
Each Fund will employ reasonable procedures to confirm that instructions
received by telephone (including instructions with respect to changes in
addresses) are genuine, such as requesting personal identification information
that appears on your account application and recording the telephone
conversation. You will bear the risk of loss due to unauthorized or fraudulent
instructions regarding your account, although each Fund may be liable if
reasonable procedures are not employed.
DIVIDENDS, CAPITAL GAINS AND TAXES
CGM American Tax Free Fund and CGM Fixed Income Fund each intends to
qualify annually as a "regulated investment company" under the Internal
Revenue Code. To qualify, each Fund must meet certain income, distribution and
diversification requirements. In any year in which a Fund so qualifies, it
generally will not be subject to federal income or excise tax to the extent
that its taxable income is distributed to shareholders.
Each Fund intends to declare and pay monthly dividends consisting of
substantially all of its net investment income. A Fund's dividend and capital
gains distributions may be reinvested in additional shares or received in
cash, although certain restrictions may apply to participants in CGM
Retirement Plans. You may elect to receive income dividends or capital gains
distributions, or both, in cash. However, if you elect to receive capital
gains in cash, your income dividends must also be received in cash. You can
elect to receive payments of cash dividends and capital gains distributions
either by check or by direct deposit to a bank account that you have pre-
designated. These elections may be made at the time your account is opened and
may be changed at any time by submitting a written request to CGM Shareholder
Services or by calling 800-343-5678. However, changes in bank account
information for direct deposits of cash dividends and capital gains
distributions must be made through a Service Options Form. In order for a
change to be effective for any dividend or distribution, it must be received
by CGM Shareholder Services on or before the record date for such dividend or
distribution. If you elect to receive distributions in cash and checks are
returned "undeliverable" or remain uncashed for six months, your cash election
will be changed automatically and your future dividend and capital gains
distributions will be reinvested in the same Fund at the per share net asset
value determined as of the date of payment of the distribution. In addition,
following such six-month period, any undeliverable or uncashed checks will be
cancelled and such amounts shall be reinvested in the same Fund at the per
share net asset value determined as of the date of cancellation of such
checks. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
Dividends paid by a Fund from net taxable investment income, including
dividends, interest and net short-term gains, will be taxable to shareholders
as ordinary income. For corporate investors, no portion of dividends paid by
either Fund is expected to qualify for the corporate dividends-received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) are taxable as long-term
capital gains, regardless of the length of time shareholders have owned shares
in the Fund. To the extent that a Fund makes a distribution in excess of its
current and accumulated earnings and profits, the distribution will be treated
first as a tax-free return of capital, reducing the tax basis in a
shareholder's shares, and then, to the extent the distribution exceeds such
basis, as a taxable gain to be realized upon sale of such shares. Taxable
dividends and distributions are taxable to shareholders of a Fund in the same
manner whether received in cash or reinvested in additional Fund shares.
CGM American Tax Free Fund anticipates that a substantial portion of its
investment income will be tax-exempt interest income. Dividends paid by the
Fund from net tax-exempt interest income will be excluded from a shareholder's
gross income for federal income tax purposes. Shareholders who are recipients
of Social Security benefits should be aware that exempt interest dividends
received from the Fund are includable in their "modified adjusted gross
income" for purposes of determining the amount of such Social Security
benefit, if any, that is required to be included in their gross income. The
exemption of certain dividends from federal income tax does not necessarily
result in exemption under the income tax laws of any state or local taxing
authority. Shareholders should consult their own tax advisers about the status
of dividends and distributions of CGM American Tax Free Fund in their own
states and
localities.
If a shareholder of CGM American Tax Free Fund receives an exempt-interest
dividend with respect to any share and redeems or exchanges such share before
holding it for more than six months, any loss on the redemption or exchange
will be disallowed to the extent of such exempt-interest dividend. Similarly,
if a shareholder of a Fund receives a distribution taxable as a long-term
capital gain with respect to any share and redeems or exchanges such share
before holding it for more than six months, any loss on the redemption or
exchange (not otherwise disallowed as attributable to an exempt-interest
dividend) will be treated as a long-term capital loss to the extent of the
long-term capital gain recognized on such distribution.
CGM American Tax Free Fund may invest in private activity bonds. Interest
on private activity bonds issued after August 7, 1986, although generally
excludable from gross income for federal income tax purposes, may be subject
to the federal alternative minimum tax ("AMT"). AMT is imposed on taxpayers
who utilize to a significant degree certain tax deductions and exclusions
(known as "items of tax preference"). Interest from private activity bonds is
an item of tax preference that is included with items of income from certain
other sources in calculating if a taxpayer is subject to AMT in the amount
thereof. Shareholders should consult their own tax advisers regarding the
potential applicability of AMT to them.
If CGM Fixed Income Fund invests in foreign securities, it may be subject
to foreign withholding taxes on income earned on such securities and may be
unable to pass through to shareholders foreign tax credits and deductions with
respect to such taxes.
A distribution will be treated as paid by a Fund and received by its
respective shareholders on December 31 of the current calendar year if it is
declared in October, November, or December of that year with a record date in
such a month and paid in January of the subsequent year.
Any dividends or distributions paid shortly after a purchase of shares
will have the effect of reducing the per share net asset value of the shares
by the amount of the dividends or distributions. Although in effect a return
of capital, these distributions (if derived from taxable investment income or
net capital gains) are subject to tax, even if their effect is to reduce the
per share net asset value below a shareholder's cost. Each Fund will notify
you annually as to the tax status of dividend and capital gains distributions
paid by the Fund.
The sale or other disposition of shares of a Fund, including a redemption
of shares or an exchange of shares into another fund, is a taxable event and
may result in a capital gain or loss which will be long-term or short-term,
generally depending upon the shareholder's holding period for the shares.
Each Fund is required to withhold a portion of taxable dividends, capital
gains distributions, and redemptions paid to individuals and certain other
classes of shareholders if they fail to furnish the Fund with their correct
taxpayer identification numbers and certain certifications regarding their tax
status, or if they are otherwise subject to backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against a shareholder's normal federal income tax liability. For additional
information about withholding, please see the Statement.
BFDS, the shareholder servicing agent, will send you and the Internal
Revenue Service an annual statement detailing federal tax information,
including information about dividends and distributions paid to you during the
preceding year. If you redeem or exchange shares in any year, following the
end of a year, you will receive a statement providing the cost basis and gain
or loss of each share lot that you sold in each year. Your CGM account cost
basis will be calculated using the "single category average cost method,"
which is one of the four calculation methods allowed by the IRS. Be sure to
keep these statements as permanent records. A fee may be charged for any
duplicate information that you request.
Dividend distributions, capital gains distributions, and capital gains or
losses from redemptions and exchanges may also be subject to state and local
taxes. In certain states, a portion of each Fund's income derived from certain
direct U.S. Government obligations may be exempt from state and local taxes.
Each year, each Fund will indicate the portion of its income, if any, that is
derived from such obligations.
The tax discussion set forth above is included for general information
only. Shareholders and prospective investors should consult their own tax
advisers concerning the tax consequences of an investment in each Fund.
PRICING OF SHARES
The share price or "net asset value" per share of each Fund is computed
daily by dividing the total value of the investments and other assets of the
Fund, less any liabilities, by the total outstanding shares of the Fund. The
net asset value per share of each Fund is determined as of the close of the
regular trading session of the Exchange on each day the Exchange is open for
trading. Portfolio securities are generally valued at their market value. In
certain cases, market value may be determined on the basis of information
provided by a pricing service approved by the Board of Trustees. Instruments
with maturities of 60 days or less are valued at amortized cost, which
approximates market value. Other assets and securities which are not readily
marketable will be valued in good faith at fair value using methods determined
by the Board of Trustees. The valuation of portfolio securities is more fully
described in the Statement.
PERFORMANCE INFORMATION
The Funds may include yield and total return information in advertisements
or other written sales material. Each Fund will show its average annual total
return for the most recent one-year period and the life of the Fund through
the end of the most recent calendar quarter. CGM Fixed Income Fund will also
show it's average annual total return for the most recent five-year period
through the end of the most recent calendar quarter. Total return is measured
by comparing the value of an investment in the Fund at the beginning of the
relevant period to the value of the investment at the end of the period
(assuming automatic reinvestment of all dividends and capital gains
distributions). Each Fund may also show total return over other periods on an
aggregate basis for the period presented.
Yield is computed in accordance with the SEC's standardized formula by
dividing the adjusted net investment income per share earned during a recent
thirty-day period by the maximum offering price of a Fund share on the last
day of the period. Each Fund may also present one or more distribution rates
in its sales literature. These rates will be determined by analyzing the
Fund's distributions from net investment income and net short-term capital
gains over a recent twelve-month, three-month or thirty-day period and
dividing that amount by the net asset value on the last day of such period.
CGM American Tax Free Fund may also utilize tax equivalent yields with
adjustments for assumed income tax rates. Tax equivalent yield is calculated
by determining the pre-tax yield which, after being taxed at a stated rate,
would be equivalent to a stated yield calculated as described above. See
Appendix B for illustrations of this yield.
Each Fund may compare its performance to that of recognized financial
indices or groups of mutual funds. It may also include its ranking among other
mutual funds or its rating as published by mutual fund ranking services or
major financial publications. Each Fund may also compare its performance to
that of money market funds and other investments, such as certificates of
deposit, and may refer to standard measures of performance for such
investments, including the Bank Rate Monitor and data published by the Federal
Reserve System. Investors should note that, although each Fund may experience
better returns and higher yields than money market funds and other
investments, the Funds do not seek to maintain stable net asset values. Thus,
particularly during periods of rising interest rates, the per share net asset
value of each Fund may decrease while the principal value of such other
investments will not change. In addition, unlike certificates of deposit,
shares of the Fund are not insured by the FDIC or any other entity. All
performance information is based on past results and is not an indication of
likely future performance.
ADDITIONAL FACTS ABOUT THE FUNDS
[ ] The Trust was organized in 1986 as a Massachusetts business trust and is
authorized to issue an unlimited number of full and fractional shares in
multiple series. The Trust currently has five series: CGM Mutual Fund (a
successor to Loomis-Sayles Mutual Fund), CGM Fixed Income Fund, CGM American
Tax Free Fund, CGM Realty Fund and CGM Focus Fund.
[ ] When a shareholder invests in either Fund, the shareholder acquires freely
transferable shares of beneficial interest that entitle the shareholder to
receive dividends and to cast one vote at shareholder meetings for each
share owned. On matters affecting any particular Fund, shares of the Fund
vote separately from shares of other series of the Trust, except as
otherwise required by law.
[ ] The investment objective, investment practices and other non-fundamental
policies of either Fund can be changed without shareholder approval. If
there is a change in either Fund's investment objective, shareholders should
consider whether the particular Fund remains an appropriate investment in
light of their current financial position and needs.
<PAGE>
APPENDIX A
RATINGS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. DEBT RATINGS -- TAXABLE DEBT &
DEPOSITS GLOBALLY:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MIG/VMIG RATINGS --
U.S. TAX-EXEMPT MUNICIPALS:
MIG 1/VMIG 1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
MIG 3/VMIG 3 -- This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well-established.
MIG 4/VMIG 4 -- This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is specific risk.
S.G. -- This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. PREFERRED STOCK RATINGS:
aaa -- An issue which is rated 'aaa' is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated 'aa' is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance the earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a -- An issue which is rated 'a' is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
'aaa' and 'aa' classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa -- An issue which is rated 'baa' is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
ba -- An issue which is rated 'ba' is considered to have speculative
elements, and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated 'b' generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated 'caa' is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payments.
MOODY'S SHORT-TERM PRIME RATING SYSTEM -- TAXABLE DEBT & DEPOSITS GLOBALLY:
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
[ ] Leading market positions in well- established industries.
[ ] High rates of return on funds employed.
[ ] Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
[ ] Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
[ ] Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME Issuers rated Not Prime do not fall within any of the Prime
rating categories.
DESCRIPTION OF STANDARD & POOR'S CORPORATION LONG-TERM ISSUE CREDIT RATINGS:
AAA -- An obligation rated 'AAA' has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
AA -- An obligation rated 'AA' differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
A -- An obligation rated 'A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
in higher rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB -- An obligation rated 'BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
BB, B and CCC -- Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are
regarded as having significant speculative characteristics. 'BB' indicates the
least degree of speculation and 'C' the highest. While such obligations will
likely have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse conditions.
BB -- An obligation rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B -- An obligation rated 'B' is more vulnerable to nonpayment than
obliglations rated 'BB', but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness
to meet its financial commitment on the obligation.
CCC -- An obligation rated 'CCC' is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic conditions, the obligor is
not likely to have the capacity to meet its financial commitment on the
obligation.
Plus (+) or Minus (-): The ratings from A to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r -- This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or
commodities; obligations exposed to severe prepayment risk -- such as
interest-only or principal-only mortgage securities; and obligations with
unusually risky interest terms, such as inverse floaters.
DESCRIPTION OF STANDARD & POOR'S CORPORATION PREFERRED STOCK RATING
DEFINITIONS:
AAA -- This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity
to pay the preferred stock obligations.
AA -- A preferred stock issue rated 'AA' also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated 'AAA'.
A -- An issue rated 'A' is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB -- An issue rated 'BBB' is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the 'A' category.
BB, B, CCC -- Preferred stock rated 'BB,' 'B,' and 'CCC' are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. 'BB' indicates the lowest degree of
speculation and 'CCC' the highest. While such issues will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
DESCRIPTION OF STANDARD & POOR'S CORPORATION MUNICIPAL NOTES RATINGS:
An S&P note rating reflects the liquidity factors and market access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
-- Source of payment (the more the issue depends on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols and definitions are as follows:
SP-1 -- Strong capacity to pay principal and interest. Issues determined
to possess very strong characteristics will be given a plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 -- Speculative capacity to pay principal and interest.
SHORT-TERM ISSUE CREDIT RATINGS:
A-1 -- A short-term obligation rated 'A-1' is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the
obligor's capacity to meet its financial commitment on these obligations is
extremely strong.
A-2 -- A short-term obligation rated 'A-2' is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to
meet its financial commitment on the obligation is satisfactory.
A-3 -- A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
B -- A short-term obligation rated 'B' is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet
its financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet
its financial commitment on the obligation.
C -- A short-term obligation rated 'C' is currently vulnerable to
nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
PORTFOLIO COMPOSITION
The table below provides a summary of ratings assigned to securities in
the portfolios of CGM American Tax Free Fund and CGM Fixed Income Fund.
Consistent with each Fund's policy, if a security is rated by both Moody's and
S&P, the higher rating is used for purposes of classifying the security. These
figures are dollar-weighted averages of month-end portfolio holdings during
the fiscal year ended December 31, 1997, presented as a percentage of total
investments (excluding short-term investments and, in the case of CGM Fixed
Income Fund, warrants). These percentages are historical and are not
necessarily indicative of the quality of current or future portfolio holdings,
which may vary.
DOLLAR-WEIGHTED AVERAGE
-----------------------
CGM CGM
AMERICAN FIXED
MOODY'S S&P TAX FREE INCOME
RATING OR RATING FUND FUND
- --------------------------------------------------------------------------------
Aaa/Aa/A or AAA/AA/A 54.9% 17.9%
- --------------------------------------------------------------------------------
Baa or BBB 30.3% 47.7%
- --------------------------------------------------------------------------------
Ba or BB 0.0% 7.5%
- --------------------------------------------------------------------------------
B or B 14.8% 23.9%
- --------------------------------------------------------------------------------
Caa or CCC 0.0% 3.0%
- --------------------------------------------------------------------------------
The table above includes securities not rated by Moody's or S&P that CGM has
determined to be of comparable quality to the indicated rating by Moody's or
S&P. The dollar-weighted average of such securities not rated by either
Moody's or S&P amounted to 11.4% for CGM American Tax Free Fund and 4.9% for
CGM Fixed Income Fund. Such securities may include securities rated by other
nationally recognized rating organizations, as well as unrated securities.
<PAGE>
APPENDIX B
CGM AMERICAN TAX FREE FUND
TAXABLE EQUIVALENT YIELD TABLE
A FULLY TAXABLE INVESTMENT
TO WOULD HAVE TO PAY YOU:
MATCH A ----------------------------------------------------------------
TAX-FREE ASSUMING A ASSUMING A ASSUMING A ASSUMING A
YIELD MARGINAL TAX MARGINAL TAX MARGINAL TAX MARGINAL TAX
OF: RATE OF 28% RATE OF 31% RATE OF 36% RATE OF 39.6%
------ -------- -------- -------- ----------
2.00% 2.78% 2.90% 3.13% 3.31%
3.00% 4.17% 4.35% 4.69% 4.97%
4.00% 5.56% 5.80% 6.25% 6.62%
5.00% 6.94% 7.25% 7.81% 8.28%
6.00% 8.33% 8.70% 9.38% 9.93%
----------------------------------------
This table is a hypothetical illustration and should not be considered an
indication of CGM American Tax Free Fund's performance.
The assumed marginal tax rates are not necessarily the highest possible
marginal tax rates, nor are they the lowest rates. These rates were picked as
exemplary rates that may apply to many taxpayers.
<PAGE>
INVESTMENT ADVISER CGM
Capital Growth Management AMERICAN
Limited Partnership TAX FREE FUND
One International Place
Boston, MA 02110 CGM
FIXED INCOME
TRANSFER AND DIVIDEND PAYING AGENT FUND
AND CUSTODIAN OF ASSETS
State Street Bank and Trust Company Prospectus & Application
Boston, MA 02102 May 1, 1998
SHAREHOLDER SERVICING AGENT FOR
STATE STREET BANK AND TRUST COMPANY A No-Load Fund
Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, MA 02266
--------------------
[Fencer Logo]
--------------------
AFP98
<PAGE>
CGM FOCUS FUND
CGM Focus Fund (the "Fund") is a non-diversified and flexibly managed
mutual fund and a series of CGM Trust (the "Trust"), a registered, open-end,
no-load management investment company. The Fund's investment objective is
long-term growth of capital. The Fund intends to pursue its objective by
investing in a core position of equity securities. In addition, should the
investment outlook of the Fund's investment manager so warrant, the Fund may
engage in a variety of investment techniques designed to capitalize on
declines in the price of specific equity securities of one or more companies.
The Fund's investment manager is Capital Growth Management Limited Partnership
("CGM" or the "Investment Manager").
PROSPECTUS
May 1, 1998
This prospectus sets forth the information you should know before
investing in the Fund. It should be retained for future reference. A Statement
of Additional Information about the Fund dated May 1, 1998 (the "Statement")
has been filed with the Securities and Exchange Commission (the "SEC") and is
available free of charge. Write to the Trust, c/o CGM Investor Services, 222
Berkeley Street, Boston, MA 02116 or call the telephone number listed below to
obtain a Statement. The SEC maintains a Web site (http://www.sec.gov) that
contains the Statement, material incorporated by reference, and other
information regarding the Fund. The Statement contains more detailed
information about the Fund and, as amended or supplemented from time to time,
is incorporated into this prospectus by reference.
- -------------------------------------------------------------------------------
For additional information about:
[ ] Account procedures and status [ ] New account procedures
[ ] Redemptions [ ] Prospectuses
[ ] Exchanges [ ] Performance
Call 800-343-5678 Call 800-345-4048
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Schedule of Fees ............................................ 2
Financial Highlights ........................................ 3
Investment Objective and Policies ........................... 4
Risk Factors ................................................ 6
The Fund's Investment Manager ............................... 7
The Portfolio Manager ....................................... 7
How to Purchase Shares ...................................... 8
Shareholder Services ........................................ 9
How to Redeem Shares ........................................ 10
Telephone Transactions ...................................... 12
Dividends, Capital Gains and Taxes .......................... 12
Pricing of Shares ........................................... 14
Performance Information ..................................... 14
Additional Facts About the Fund ............................. 15
Appendix A -- Certain Investment Techniques ................. 16
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
CGM FOCUS FUND
SCHEDULE OF FEES
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) ............................... None
Redemption Fees* .................................................. None
Exchange Fees ..................................................... None
Annual Fund Operating Expenses, After Expense Limitation
(as a percentage of estimated average net assets)
Management Fees, After Waiver ..................................... 0.75%
12b-1 Fees ........................................................ None
Other Expenses .................................................... 0.45%
-----
Total Fund Operating Expenses, After Expense Limitation ........... 1.20%
- ----------
* A wire fee (currently $5.00) will be deducted from proceeds if a shareholder
elects to transfer redemption proceeds by wire.
The purpose of this fee schedule is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly if you
invest in the Fund. The percentage shown for Other Expenses is based on
estimated amounts for the current fiscal year. CGM has voluntarily agreed,
until December 31, 1998, and thereafter until further notice to the Fund, to
waive its management fees and, if necessary, to bear certain expenses
associated with operating the Fund, to the extent necessary to limit the
Fund's total operating expenses to an annual rate of 1.20% of the Fund's
average net assets. The percentages shown for Management Fees and Other
Expenses reflect current fees after such voluntary waivers and reimbursements.
Without the voluntary waivers and reimbursements, the Management Fees, Other
Expenses and Total Fund Operating Expenses as a percentage of average net
assets would be 1.00%, 0.45% and 1.45%, respectively.
The following example illustrates the approximate expenses that you would
incur on a $1,000 investment over the following periods, assuming a 5% annual
rate of return and redemption at the end of each period.
CUMULATIVE
---------------------------
1 YEAR 3 YEARS
------ -------
$12 $38
Please keep in mind that the example shown above is hypothetical and
assumes that the current fee waiver and expense reimbursement will remain in
effect. The information above should not be considered a representation of
past or future return or expenses; the actual return and expenses may be more
or less.
<PAGE>
- --------------------------------------------------------------------------------
CGM FOCUS FUND
FINANCIAL HIGHLIGHTS
(For a share of the Fund outstanding throughout the indicated period)
These financial highlights have been examined by Price Waterhouse LLP, indep
endent
accountants. The table below should be read in conjunction with the financial st
atements
and the notes thereto, which, together with the Report of Independent Accountant
s thereon,
are included in the Fund's Annual Report and incorporated by reference into the
Statement.
In addition to the highlights set forth below, further information about the per
formance of
the Fund is contained in the Annual Report and the Statement, which may be obtai
ned from
the Trust free of charge.
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 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.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
OVERVIEW
The Fund's investment objective is long-term growth of capital. The Fund
intends to pursue its objective by investing in a core position of equity
securities. In addition, should the investment outlook of the Investment
Manager so warrant, the Fund may engage in a variety of investment techniques
designed to capitalize on declines in the price of specific equity securities
of one or more companies. For example, the Fund may establish "short"
positions in specific securities or stock indexes through short sales or
investments in a variety of derivative instruments, including options, futures
contracts and options on futures. The Fund may also establish "long" positions
in specific securities or stock indexes through options, futures contracts and
options on futures. These investment techniques involve special risks. The
Fund is flexibly managed, with the ability to maintain exposure, either
through long or short positions, to the equity securities of domestic and
foreign issuers of varied market capitalizations and industry focus. There are
no assurances that the Fund will achieve its objective and the Fund may change
its objective without shareholder approval.
The Investment Manager believes that the Fund's investment strategy of
maintaining exposure to a relatively small number of companies offers the
potential for higher long-term returns than would otherwise be available
through exposure to a larger number of companies. Of course, this strategy may
increase the risk of loss and the volatility of the Fund. For these reasons,
the Fund is appropriate for investors seeking long-term exposure to the equity
markets and who are willing to accept the risks associated with a non-
diversified portfolio.
CERTAIN INVESTMENT TECHNIQUES
The Fund may engage in certain investment techniques described below,
including short sales, the sale of stock index futures contracts and the
purchase of put options on securities, stock indexes and futures contracts.
The Fund may also establish long positions in specific securities or stock
indexes by the purchase of stock index futures contracts and call options on
securities, stock indexes and stock index futures contracts. Appendix A
contains a more complete description of these techniques and the Section
entitled "Risk Factors" describes certain risks associated with these
techniques.
Short Sales. The Fund may sell securities short. A short sale is a
transaction in which the Fund sells a security it does not own in anticipation
that the market price of that security will decline. When the Fund makes a
short sale, it must borrow the security sold short to make delivery to the
buyer. The Fund then is obligated to replace the security borrowed by
purchasing the security at the market price at the time of replacement. While
the short sale is outstanding, the Fund is required to collateralize its
obligations, which has the practical effect of limiting the extent to which
the Fund may engage in short sales.
Options on Securities and Stock Indexes. The Fund may purchase put and
call options on equity securities and stock indexes. A put option on an equity
security gives the purchaser of the option, in exchange for the payment of a
premium, the right to sell and the writer, if the purchaser exercises his
right, the obligation to buy the underlying security at the exercise price
during the option period. The Fund may also purchase call options on
securities and stock indexes. A call option on an equity security gives the
purchaser of the option the right to buy and the writer, if the purchaser
exercises his right, the obligation to sell the underlying security at the
exercise price during the option period. Options on stock indexes give the
holder the right to receive an amount of cash upon exercise of the option.
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than (in the case of a
call) or less than (in the case of a put) the exercise price of the option.
The options purchased by the Fund may be exchange-listed options ("OCC
Options") or over-the-counter options ("OTC Options"). OCC Options are issued
by the Options Clearing Corporation ("OCC").The OCC is a clearing organization
for financial derivative instruments and guarantees the performance of the
obligations of the parties to such options.
Futures Contracts and Related Options. The Fund may sell stock index
futures contracts. A stock index futures contract obligates the seller to
deliver (and the purchaser to take delivery of) an amount of cash equal to a
specific dollar amount multiplied by the difference between the value of a
specific stock index at the close of the last trading day of the contract and
the price at which the agreement is made. No physical delivery of the
underlying stocks in the index is made. The Fund may also purchase stock index
futures contracts as a substitute for a comparable market position in the
underlying securities. The Fund may also purchase put and call options on
stock index futures contracts. Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right, in exchange for the premium paid, to assume a position in
a futures contract. Whether the Fund realizes a gain or loss from futures
activities depends generally upon movements in the price of the underlying
commodity.
TEMPORARY DEFENSIVE POLICY
For temporary defensive purposes, the Fund may invest, without limitation,
in securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"); certificates of deposit,
demand and time deposits and bankers' acceptances of banks whose deposits are
insured by the Federal Deposit Insurance Corporation and have assets of at
least $1 billion, including U.S. branches of foreign banks and foreign
branches of U.S. banks; prime commercial paper, including master demand notes;
and repurchase agreements secured by U.S. Government Securities.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with banks and primary dealers
in U.S. Government Securities pursuant to which the Fund buys a security at one
price and simultaneously agrees to sell it back at a specified date and higher
price. Should the counterparty to the repurchase agreement declare bankruptcy or
otherwise default on its obligation, the Fund could experience difficulties and
delays in selling the underlying security and recovering its cash and a possible
loss if the value of the security decreases in the interim.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities.
Securities that may be resold without registration pursuant to Rule 144A may
be treated as liquid for these purposes, subject to the supervision and
oversight of the Board of Trustees, in accordance with guidelines established
by the Board of Trustees to determine whether there is a readily available
market for such securities.
PORTFOLIO TURNOVER
The Fund's objective is long-term growth of capital and the Fund does not
purchase securities with the intention of engaging in short-term trading. The
Fund, however, will sell any particular security and reinvest proceeds when it
is deemed prudent by the Investment Manager, regardless of the length of the
holding period. This policy may result in higher securities transaction costs.
To the extent that this policy results in gains on investments, the Fund will
make distributions to its shareholders, which may accelerate the shareholders'
tax liabilities. The Fund's portfolio turnover rate is not expected to exceed
300%, although the actual rate could be higher. The Fund's investments in
short sales and options and futures contracts that mature in less than one
year are excluded for purposes of computing the Fund's portfolio turnover.
BORROWING
The Fund may borrow to increase its holdings of portfolio securities and
other instruments or for liquidity purposes. At all times when borrowings are
outstanding the Fund must maintain at least 300% "asset coverage," meaning
that the total assets of the Fund must have a value of at least 300% of all
amounts borrowed. The Fund's borrowing policies are fundamental and,
therefore, may not be changed without shareholder approval.
RISK FACTORS
MARKET RISKS
As with any mutual fund that invests in equity securities, the Fund is
subject to the risk that the price of the equity securities in its portfolio
will decline over short or extended periods. In addition, if the Fund
maintains a "long position" in equity securities or in stock indexes through
options, futures contracts or options on futures, the Fund is also subject to
the risk of loss if the price of the underlying security or index decreases
between the date of employment of the technique and the date on which the Fund
terminates the position. Moreover, as a mutual fund with short positions in
equity securities or stock indexes resulting from short sales, the sale of
stock index futures contracts or the purchase of put options on securities,
stock indexes and futures contracts, the Fund is subject to the risk of loss
if the price of the underlying security or index increases between the date of
the employment of the technique and the date on which the Fund terminates the
position.
RISKS ASSOCIATED WITH CERTAIN INVESTMENT TECHNIQUES
The Fund's use of short sales or other derivative instruments such as
transactions in stock index futures contracts and options on securities, stock
indexes and future contracts involves distinct investment risks and
transaction costs. While the use of these investment techniques can be used to
further the Fund's investment objective, under certain market conditions, they
can increase the volatility of the Fund and decrease the liquidity of the
Fund. If the Fund uses these techniques at inappropriate times or judges
market conditions incorrectly, such investments may lower the Fund's return or
result in a loss. The Fund's potential loss from an uncovered short position
in an equity security or stock index resulting from a short sale or the sale
of a futures contract is unlimited. The Fund also could experience losses if
these investment techniques were poorly correlated with its other investments,
or if the Fund were unable to liquidate its position because of an illiquid
secondary market. The market for many derivative instruments is, or suddenly
can become, illiquid. Changes in liquidity may result in significant, rapid
and unpredictable changes in the prices for these instruments. Other risks
inherent in the use of these investment techniques include adverse changes in
the value of the derivative instruments, imperfect correlation between the
price of the instrument and movements in the price of the underlying
securities, and the fact that the skills needed to use these investment
techniques are different from those needed to select portfolio securities. The
use of these investment techniques will allow the Fund to increase its
exposure and effectively leverage its portfolio to a greater extent than would
be the case in the absence of the use of such investment techniques. Certain
additional risks associated with these investment techniques are described in
Appendix A.
RISKS OF LACK OF DIVERSIFICATION
As a non-diversified mutual fund, the Fund is able to take larger
positions in a smaller number of companies than a comparable diversified fund.
Therefore, the value of the Fund will likely be subject to greater fluctuation
than a diversified fund as a result of any change in the value of one or more
equity securities or other instruments in its portfolio.
RISKS ASSOCIATED WITH SMALL AND MEDIUM MARKET CAPITALIZATION COMPANIES
Equity securities of small and medium market capitalization companies entail
greater risk than the equity securities of larger, well established companies.
These companies tend to have smaller revenues, narrower product lines, less
management depth and experience, and smaller shares of their product or service
markets than larger market capitalization companies. In many instances, the
frequency and volume of trading of small and medium market capitalization
companies is substantially less than is typical of larger companies. Therefore,
the securities of such companies may be subject to wider price fluctuations.
Investors should be aware that, based on the foregoing factors, an investment in
the Fund may be subject to greater price fluctuations than an investment in a
fund that invests exclusively in large market capitalization companies.
FOREIGN SECURITIES RISK
The Fund may invest indirectly through American Depository Receipts in
foreign issuers. The value of these investments, as measured in U.S. dollars,
may be affected favorably or unfavorably by changes in currency rates and
exchange control regulations. There may be less publicly available information
about a foreign issuer. In addition, foreign issuers are not subject to uniform
accounting and financial reporting standards, practices and requirements
comparable to those applicable to U.S. issuers.
RISKS OF BORROWING
The Fund may borrow for leveraging purposes (i.e., for the purpose of
purchasing portfolio securities and other instruments). Leveraging by means of
borrowing will exaggerate the effect of any increase or decrease in the value
of securities or other investments in the Fund's portfolio on the Fund's net
asset value and, therefore, may increase the volatility of the Fund. Money
borrowed will be subject to interest and other costs (which may include
commitment fees and/or the cost of maintaining minimum average balances),
which costs may exceed the income received from the securities or other
instruments purchased with borrowed funds. It is anticipated that such
borrowings would be pursuant to a negotiated loan agreement with a bank or by
means of reverse repurchase agreements with other institutional lenders, such
as broker-dealers.
THE FUND'S INVESTMENT MANAGER
The Fund's investment manager is Capital Growth Management Limited
Partnership, One International Place, Boston, Massachusetts 02110. CGM, an
investment advisory firm founded in 1990, manages nine mutual fund portfolios
and advisory accounts for other clients. The general partner of CGM is a
corporation controlled equally by Robert L. Kemp and G. Kenneth Heebner, who
are trustees and officers of the Fund.
In addition to selecting and reviewing the Fund's investments, CGM
provides executive and other personnel for the management of the Fund. The
Trust's Board of Trustees supervises CGM's conduct of the affairs of the Fund.
Until December 31, 1998, and thereafter until further notice to the Fund,
CGM has voluntarily agreed to limit its management fees and, if necessary, to
bear certain expenses associated with operating the Fund, in order to limit
the Fund's total operating expenses to an annual rate of 1.20% of the Fund's
average net assets. Without these waivers and reimbursements, the investment
management fee would be 1.00% of the first $500 million of the Fund's daily
net asset value, 0.95% of the next $500 million of such value, and 0.90% of
such value in excess of $1 billion. In 1997 the Fund paid 0.57% of its average
annual net assets in management fees to CGM.
THE PORTFOLIO MANAGER
G. Kenneth Heebner is the manager of CGM Focus Fund. In 1990, Mr. Heebner
founded CGM with Robert L. Kemp. Prior to establishing the new company, Mr.
Heebner managed mutual fund portfolios at Loomis Sayles & Company,
Incorporated. He currently manages CGM Capital Development Fund, CGM Mutual
Fund and CGM Realty Fund, and with Janice H. Saul, co-manages CGM Fixed Income
Fund.
HOW TO PURCHASE SHARES
The Trust sells shares of the Fund directly to investors without any sales
load. You may make an initial purchase of Fund shares by submitting a
completed application form and payment to:
The CGM Funds
P.O. Box 449
Boston, Massachusetts 02117-0449
The minimum initial investment is $2,500 for regular accounts and $1,000
for retirement plans (see "Shareholder Services; -- Retirement Plans") and
accounts set up under the Uniform Gifts to Minors Act ("UGMA") or the Uniform
Transfers to Minors Act ("UTMA"). Subsequent investments must be at least $50.
See "Shareholder Services" below for further information about minimum
investments in certain other circumstances.
All investments made by check should be in U.S. dollars and made payable
to CGM Focus Fund. Third party checks (i.e. checks not payable to CGM Focus
Fund) are generally not accepted and checks drawn on credit card accounts will
not be accepted.
After accepting an order, the Trust forwards the application and payment
to the CGM Shareholder Services Department ("CGM Shareholder Services") of
Boston Financial Data Services, Inc. ("BFDS"), which is the shareholder
servicing agent for State Street Bank and Trust Company ("State Street Bank").
CGM Shareholder Services then opens an account, applies the payment to the
purchase of full and fractional shares, and mails a statement of the account
confirming the transaction.
After your account has been established, you may send subsequent
investments at any time directly to the shareholder servicing agent at the
following address:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, Massachusetts 02266-8511
The remittance for any subsequent investment must be accompanied by either
the Additional Investment Stub detached from a statement of account, or a note
containing sufficient information to identify the account, i.e., the Fund
name, your account number, your name and social security number.
Subsequent investments may also be made by federal funds wire. Instruct
your bank to wire federal funds to State Street Bank and Trust Company, ABA#
011000028. The text of the wire should read as follows: "DDA 99046336,
$ Amount, STATE ST BOS ATTN Mutual Funds. Credit CGM Focus Fund, Shareholder
Name, Shareholder Account Number." Your bank may charge you a fee for
transmitting funds by wire.
The Trust reserves the right to reject any purchase order, including
orders in connection with exchanges, for any reason the Trust, in its sole
discretion, deems appropriate. Although the Trust does not anticipate that it
will do so, the Trust reserves the right to suspend, change or withdraw the
offering of shares of the Fund.
The price you pay will be the per share net asset value next calculated
after a proper investment order is received by the Trust or by CGM Shareholder
Services.
If you wish transactions in your account to be effected by another person
under a power of attorney from you, special rules apply. Please contact the
Trust or CGM Shareholder Services for details.
An investor will not receive any certificates for shares unless the
investor requests them in writing from CGM Shareholder Services. The Trust's
system for recording investments eliminates the problems of handling and
safekeeping certificates.
The Fund may accept telephone orders from certain broker-dealers or
service organizations which have been previously approved by the Fund. It is
the responsibility of such broker-dealers or service organizations to promptly
forward purchase orders and payments for shares to the Fund. Shares of the
Fund may be purchased through certain broker-dealers or service organizations
who may charge the investor a transaction fee or other fee for their services
at the time of purchase and/or redemption. Such fees would not otherwise be
charged if the shares were purchased or redeemed directly from the Fund.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services as more fully described
in the Statement. Explanations and forms are available from the Trust.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of money market funds
currently distributed by New England Funds, L.P. ("Money Market Funds"). You
may also exchange shares for shares of CGM Mutual Fund, CGM Fixed Income Fund,
CGM American Tax Free Fund or CGM Realty Fund. Additionally, you may exchange
shares for shares of CGM Capital Development Fund, but only if you were a
shareholder of CGM Capital Development Fund on September 24, 1993, and have
remained a shareholder continuously since that date. CGM Capital Development
Fund shares are not generally available to other persons except in special
circumstances that have been approved by, or under the authority of, the Board
of Trustees of that Fund.
All exchanges may be made without charge. You may make an exchange by
written instruction or, if a written authorization for telephone exchanges is
on file with CGM Shareholder Services, you may call 800-343-5678. See
"Telephone Transactions." Exchanges must be for amounts of at least $1,000.
Under certain circumstances, before an exchange can be made, additional
documents may be required to verify the authority or legal capacity of the
person seeking the exchange. If you wish to make an exchange into a new
account, the exchange must satisfy the applicable minimum initial investment
requirements. Exchange requests cannot be revoked once they have been received
in good order.
Investors should not view the exchange privilege as a means for taking
advantage of short-term swings in the market, and the Fund limits the number
of exchanges each shareholder may make to four exchanges per account (or two
round trips) per calendar year. Monthly automatic exchanges from the Money
Market Funds to the Fund are exempt from this restriction. The Trust also
reserves the right to prohibit exchanges during the first 15 days following an
investment in the Fund. The Trust may terminate or change the terms of the
exchange privilege. In general, shareholders will receive notice of any
material change to the exchange privilege at least 60 days prior to the
change. For federal income tax purposes, an exchange constitutes a sale of
shares, which may result in a capital gain or loss.
SYSTEMATIC WITHDRAWAL PLAN
If the value of your account is at least $10,000, you may have periodic cash
withdrawals automatically paid to you or any person you designate. If checks are
returned to the Fund as "undeliverable" or remain uncashed for more than six
months, the plan will be cancelled. Undeliverable or uncashed checks shall be
cancelled and such amounts shall be reinvested in the Fund at the per share net
asset value determined as of the date of cancellation of such checks. No
interest will accrue on amounts represented by uncashed distribution or
redemption checks.
AUTOMATIC INVESTMENT PLAN ("AIP")
Once your account has been established, voluntary monthly investments of
at least $50 may be made automatically by pre-authorized withdrawals from your
checking account. Please contact CGM Shareholder Services at 800-343-5678 to
determine the requirements associated with debits from savings banks and
credit unions. Debits from money market accounts are not acceptable. You may
terminate your participation in the AIP by sending written notice to CGM
Shareholder Services, c/o Boston Financial Data Services, Inc., P.O. Box 8511,
Boston, Massachusetts 02266-8511 or by calling 800-343-5678 more than 14 days
prior to the next scheduled debit date. The Fund may terminate your
participation in the AIP immediately in the event that any item is unpaid by
your financial institution. The Fund may terminate or modify the AIP at
anytime. Additional information about this Plan is set forth in the Statement.
RETIREMENT PLANS
The Fund's shares may be purchased by tax-deferred retirement plans. CGM
makes available retirement plan forms and plan documents for Traditional and
Roth IRAs, SEP-IRAs, 403(b)(7) custodial accounts, and money purchase pension
and profit sharing plans ("CGM Retirement Plans").
SHAREHOLDER REPORTS
Shareholders will receive the Fund's financial statements and a summary of
the Fund's investments at least semiannually. The Fund intends to consolidate
mailings of annual, semiannual, and quarterly reports to households having
multiple accounts with the same address of record and to furnish a single copy
of each report to that address. Mailing of prospectuses and proxy statements
will not be consolidated and if a report is included in such mailings, each
shareholder will receive a separate copy. You may request additional reports
by notifying the Fund in writing, or by calling the Trust.
Shareholders will receive statements confirming all purchases,
redemptions, and changes of address. You may call CGM Shareholder Services and
request a duplicate statement for the current year without charge. A fee will
be charged for any duplicate information requested for prior years.
SYSTEMS - YEAR 2000
Like other mutual funds and other organizations around the world, the Fund
could be adversely affected if the computer systems used by the Fund or its
service providers do not properly process and calculate date-related
information from and after January 1, 2000. This is commonly known as the
"Year 2000 Problem." CGM has taken steps that it believes are reason-
ably designed to address any potential Year 2000 Problem for computer programs
used by the Fund or CGM. Each of the Fund's and CGM's service providers are
taking steps that they believe are reasonably designed to address the Year
2000 Problem with respect to computer systems that they use. At this time,
however, there can be no assurance that these steps being taken by third party
service providers will be sufficient to avoid any adverse impact to the Fund.
HOW TO REDEEM SHARES
You can redeem all or part of your shares in the Fund in three different
ways: by sending a written request for a check or wire representing the
redemption proceeds, by making a telephone request for redemption by check
(provided that the amount to be redeemed is not more than $25,000 and the
check is being sent to you at your record address, which has not changed in
the prior three months) or by making a telephone request for redemption
proceeds to be wired to a bank that you have predesignated. The redemption
price will always be the net asset value per share next determined after the
redemption request is received by CGM Shareholder Services in good order
(including any necessary documentation). Necessary documentation may include,
in certain circumstances, documents verifying the authority or legal capacity
of the person seeking to redeem shares. Redemption requests cannot be revoked
once they have been received in good order.
If you elect to redeem shares in writing, send your written request to:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, Massachusetts 02266-8511
The written request must include the name of the Fund, your account number,
the exact name(s) in which your shares are registered, the number of shares or
the dollar amount to be redeemed and mailing or wire instructions. All owners
of shares must sign the request in the exact name(s) in which the shares are
registered (which appear(s) on your confirmation statement) and should
indicate any special capacity in which they are signing (such as trustee or
custodian or on behalf of a partnership, corporation or other entity). If you
are signing in a special capacity, you may wish to contact CGM Shareholder
Services in advance to determine whether additional documentation will be
required before you send a redemption request.
Redemptions from CGM Retirement Plans for which State Street Bank is the
custodian or trustee must contain additional information. Please contact CGM
Shareholder Services for instructions and forms. Complete information,
including tax withholding instructions, must be included in your redemption
request.
If you are redeeming shares worth more than $25,000 or requesting that the
proceeds of the check be made payable to someone other than the registered
owner(s) or be sent to an address other than your record address (or sent to
your record address if such address has been changed within the previous three
months), you must have your signature guaranteed by an "eligible guarantor
institution" as defined in the rules under the Securities Exchange Act of 1934
(including a bank, broker, dealer, credit union, national securities exchange,
registered securities association, clearing agency or savings association, but
not a notary public).
If you hold certificates representing your investment, you must enclose
the certificates and a properly completed redemption form or stock power. You
bear the risk of loss of such certificates; consequently you may wish to send
your certificates by registered mail.
If you elect to redeem shares by telephone, call CGM Shareholder Services
directly at 800-343-5678. See "Telephone Transactions." Telephone redemptions
are not available for CGM Retirement Plans. When you make a redemption request
by telephone, you may choose to receive redemption proceeds either by having a
check mailed to the address of record on the account, provided the address has
not changed for three months and you are redeeming $25,000 or less, or by
having a wire sent to a bank account you have previously designated.
Telephone redemptions by check are available to all shareholders of the Fund
automatically unless this option is declined in the application or in writing.
You may select the telephone redemption wire service when you fill out your
initial application or you may select it later by completing the Service Options
Form (with a signature guarantee), available from the Trust or CGM Shareholder
Services.
A telephone redemption request must be received by CGM Shareholder
Services prior to the close of the New York Stock Exchange (the "Exchange").
If you telephone your request to CGM Shareholder Services after the Exchange
closes or on a day when the Exchange is not open for business, the Trust
cannot accept your request and a new one will be necessary.
Wire redemptions by telephone may be made only if your bank is a member of
the Federal Reserve System or has a correspondent bank that is a member of
such System. If your account is with a savings bank, it must have only one
correspondent bank that is a member of the Federal Reserve System. A wire fee
(currently $5) will be deducted from the proceeds. If you decide to change the
bank account to which proceeds are to be wired, you must send in this change
on the Service Options Form with a signature guarantee.
Proceeds resulting from a written or regular telephone redemption request
will normally be mailed to you within seven days after receipt of your request
in good order. Telephone wire redemption proceeds will normally be wired to
your bank within seven days following receipt of a proper redemption request.
If you purchased your Fund shares by check (or through your AIP) and elect to
redeem shares within 15 days of such purchase, you may experience delays in
receiving redemption proceeds. The Trust will generally postpone sending your
redemption proceeds from such investment until the Trust can verify that your
check (or AIP investment) has been or will be collected. There will be no such
delay for redemptions following investments paid for by federal funds wire or
by bank cashier's check, certified check or treasurer's check. If checks
representing redemption proceeds are returned "undeliverable" or remain
uncashed for six months, such checks shall be cancelled and such proceeds
shall be reinvested in the Fund at the per share net asset value determined as
of the date of cancellation of such checks. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
The Fund may not suspend the right of redemption, or postpone payment for
more than seven days, except when the Exchange is closed for other than
weekends or holidays, when trading on the Exchange is restricted, during an
emergency (as determined by the SEC) that makes it impracticable for the Fund
to dispose of its securities or to determine fairly the value of its net
assets, or during any other period permitted by the SEC for the protection of
investors.
Because the expense of maintaining small accounts is disproportionately
high, the Fund may close accounts with 20 shares or less, and mail the
proceeds to the shareholder. Shareholders who are affected by this policy will
be notified of the Fund's intention to close the account and will have 60 days
immediately following the notice in which to acquire the requisite number of
shares. The minimum does not apply to CGM Retirement Plans and UGMA/UTMA
accounts.
TELEPHONE TRANSACTIONS
You may initiate three types of transactions by telephone:
[ ] Telephone Exchanges
[ ] Telephone Redemptions By Wire
[ ] Telephone Redemptions By Check
The terms and provisions for each of these services are explained fully in
the preceding sections. Once a telephone transaction request has been placed,
it cannot be cancelled.
The Telephone Exchange privilege and/or Telephone Redemptions By Wire
privilege must be elected by you when you fill out your initial application or
you may select either option later by completing the Service Options Form
(with a signature guarantee) available from the Trust or CGM Shareholder
Services. The Telephone Redemptions By Check privilege is available to
shareholders of the Fund automatically unless this option is declined in the
application or in writing.
The telephone redemption privileges are not available for Traditional or
Roth IRAs, SEP-IRAs, 403(b)(7) custodial accounts or for money purchase
pension and profit sharing accounts under a CGM Retirement Plan (in which
State Street Bank is the custodian or trustee).
The Fund will employ reasonable procedures to confirm that instructions
received by telephone (including instructions with respect to changes in
addresses) are genuine, such as requesting personal identification information
that appears on your account application and recording the telephone
conversation. You will bear the risk of loss due to unauthorized or fraudulent
instructions regarding your account, although the Fund may be liable if it
does not employ reasonable procedures.
DIVIDENDS, CAPITAL GAINS AND TAXES
The Fund pays out substantially all of its net investment income to
shareholders as dividends and also distributes its net capital gains realized
from the sale of portfolio securities. Income dividends and any capital gain
distributions (after applying any applicable capital loss carryovers) are
normally made annually in December, but may be made more frequently as deemed
advisable by the Board of Trustees. The Fund's dividend and capital gains
distributions may be reinvested in additional shares or received in cash.
Certain restrictions may apply to participants in CGM Retirement Plans.
You may elect to receive income dividends or capital gains distributions,
or both, in cash. However, if you elect to receive capital gains in cash, your
income dividends must also be received in cash. You can elect to receive
payments of cash dividends and capital gains distributions either by check or
by direct deposit to a bank account that you have predesignated. These
elections may be made at the time your account is opened and may be changed at
any time by submitting a written request to CGM Shareholder Services or by
calling 800-343-5678. However, changes in bank account information for direct
deposits of cash dividends and capital gains distributions must be made
through a Service Options Form. In order for a change to be effective for any
dividend or distribution, it must be received by CGM Shareholder Services on
or before the record date for such dividend or distribution.
If you elect to receive distributions in cash and checks are returned
"undeliverable" or remain uncashed for six months, your cash election will be
changed automatically and your future dividend and capital gains distributions
will be reinvested in the Fund at the per share net asset value determined as
of the date of payment of the distribution. In addition, following such six
month period, any undeliverable or uncashed checks shall be cancelled and such
amounts reinvested in the Fund at the per share net asset value determined as
of the date of cancellation of such checks. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
The Fund intends to qualify annually as a "regulated investment company"
under the Internal Revenue Code. To qualify, the Fund must meet certain
income, distribution and diversification requirements. In any year in which
the Fund so qualifies it generally will not be subject to federal income or
excise tax to the extent that its taxable income is distributed to
shareholders.
The distributions received by the Fund from its investments may, for
federal income tax purposes, consist of ordinary income, long-term
capital gains, or a return of capital. The character-
ization of these distributions to the Fund may, in turn, affect the tax
treatment of the Fund's distributions to its shareholders. Dividends and
distributions are taxable to shareholders in the same manner whether received
in cash or reinvested in additional shares of the Fund.
Dividends paid by the Fund from net investment income, including
dividends, interest and net short-term capital gains, will be taxable to
shareholders as ordinary income. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital losses)
which are designated by the Fund as capital gains distributions are taxable as
long-term capital gains, regardless of the length of time shareholders have
owned shares in the Fund. To the extent that the Fund makes a distribution in
excess of its current and accumulated earnings and profits, the distribution
will be treated first as a tax-free return of capital, reducing the tax basis
in a shareholder's shares, and then, to the extent the distribution exceeds
such basis, as a taxable gain to be realized upon sale of such shares.
If the Fund invests in foreign securities, it may be subject to foreign
withholding taxes on income earned on such securities and may be unable to
pass through to shareholders foreign tax credits and deductions with respect
to such taxes.
A distribution will be treated as paid by the Fund and received by its
shareholders on December 31 of the current calendar year if it is declared by
the Fund in October, November, or December of that year with a record date in
such a month and paid by the Fund in January of the subsequent year.
Any dividends or distributions paid shortly after a purchase of shares
will have the effect of reducing the per share net asset value of the shares
by the amount of the dividends or distributions. Although in effect a return
of capital, these distributions are subject to taxes, even if their effect is
to reduce the per share net asset value below a shareholder's cost. The Fund
will notify you annually as to the tax status of dividend and capital gains
distributions paid by the Fund.
The sale or other disposition of shares of the Fund, including a
redemption of shares or an exchange of shares into another fund, is a taxable
event and may result in a capital gain or loss which will be long-term or
short-term, depending upon the shareholder's holding period for the shares.
Dividend distributions, capital gains distributions, and capital gains or
losses from redemptions and exchanges may be subject to state and local taxes.
In certain states, a portion of the Fund's income derived from certain direct
U.S. Government obligations may be exempt from state and local taxes. The Fund
will indicate each year the portion of the Fund's income, if any, that is
derived from such obligations.
The Fund is required to withhold a portion of taxable dividends, capital
gains distributions, and redemptions paid to individuals and certain other
classes of shareholders if they fail to furnish the Fund with their correct
taxpayer identification number and certain certifications regarding their tax
status, or if they are otherwise subject to backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against a shareholder's normal federal income tax liability. For additional
information about withholding, please see the Statement.
BFDS, the shareholder servicing agent, will send you and the Internal
Revenue Service an annual statement detailing federal tax information,
including information about dividends and distributions paid to you during the
preceding year. If you redeem or exchange shares in any year, following the
end of the year, you will receive a statement providing the cost basis and
gain or loss of each share lot that you sold during such year. Your CGM
account cost basis will be calculated using the "single category average cost
method," which is one of the four calculation methods allowed by the IRS. Be
sure to keep these statements as permanent records. A fee may be charged for
any duplicate information that you request.
The tax discussion set forth above is included for general information
only. Shareholders and prospective investors should consult their own tax
advisers concerning the tax consequences of an investment in the Fund.
PRICING OF SHARES
The share price or "net asset value" per share of the Fund is computed
daily by dividing the total value of the investments and other assets of the
Fund, less any liabilities, by the total outstanding shares of the Fund. The
net asset value per share of the Fund is determined as of the close of the
regular trading session of the Exchange on each day the Exchange is open for
trading. Portfolio securities are generally valued at their market value. In
certain cases, market value may be determined on the basis of information
provided by a pricing service approved by the Board of Trustees. Instruments
with maturities of sixty days or less are valued at amortized cost, which
approximates market value. Other assets and securities which are not readily
marketable will be valued in good faith at fair value using methods determined
by the Board of Trustees.
PERFORMANCE INFORMATION
The Fund may include total return information in advertisements or other
written sales material. The Fund will show its average annual total return for
the most recent one-year period and the life of the Fund through the end of
the most recent calendar quarter. Total return is measured by comparing the
value of an investment in the Fund at the beginning of the relevant period to
the value of the investment at the end of the period (assuming automatic
reinvestment of all dividends and capital gains distributions). The Fund may
also show total return over other periods on an aggregate basis for the period
presented.
The Fund may compare its performance to that of recognized financial
indices or groups of mutual funds. It may also include its ranking among other
mutual funds or its rating as published by mutual fund ranking services or
major financial publications. All performance information is based on past
results and is not an indication of likely future performance.
ADDITIONAL FACTS ABOUT THE FUND
[ ] The Trust was organized in 1986 as a Massachusetts business trust and is
authorized to issue an unlimited number of full and fractional shares in
multiple series. The Trust currently has five series: CGM Mutual Fund (a
successor to Loomis-Sayles Mutual Fund), CGM Fixed Income Fund, CGM American
Tax Free Fund, CGM Realty Fund, and CGM Focus Fund.
[ ] When a shareholder invests in the Fund, the shareholder acquires freely
transferable shares of beneficial interest that entitle the shareholder to
receive dividends and to cast one vote at shareholder meetings for each
share owned. On matters affecting the Fund, shares of the Fund vote
separately from shares of other series of the Trust, except as otherwise
required by law.
[ ] The investment objective, investment practices and other non-fundamental
policies of the Fund can be changed without shareholder approval. If there
is a change in the Fund's investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their current
financial position and needs.
<PAGE>
APPENDIX A
CERTAIN INVESTMENT TECHNIQUES
SHORT SALES
The Fund may make short sales of securities. A short sale is a transaction
in which the Fund sells a security it does not own in anticipation that the
market price of that security will decline. When the Fund makes a short sale,
it must borrow the security sold short to make delivery to the buyer. The Fund
then is obligated to replace the security borrowed by purchasing the security
at the market price at the time of replacement. The price at such time may be
more or less than the price at which the security was sold by the Fund. The
Fund may have to pay a premium to borrow the security and is obligated to pay
the lender amounts equal to any dividends or interest that accrue during the
period of the loan. If the price of the security sold short increases between
the time of the short sale and the time the Fund replaces the borrowed
security, the Fund will incur a loss. Conversely, if the price declines, the
Fund will realize a gain. Any gain will be decreased, and any loss increased,
by the premium and transaction costs described above. Although the Fund's gain
is limited to the price at which it sold the security short, the potential
loss is theoretically unlimited.
The proceeds of the short sale will be retained by the broker, to the
extent necessary to meet its margin requirements, until the short position is
closed out. In general, the Fund will also be required to pledge additional
cash or liquid securities to the broker as collateral for its obligations,
such that the cash held by the broker and the additional pledged cash and
securities equals at least 150% of the current market value of the securities
sold short. Until the Fund closes its short position, the Fund will be
required to (a) maintain with its custodian a segregated account, which will
be marked to market daily, containing cash or liquid securities (which may
include equity securities) such that (i) the amount deposited in the
segregated account plus the amount deposited with the broker as collateral
will equal the current market value of the security sold short or (b)
otherwise cover the Fund's short position. The Fund may also cover its short
position by owning the security sold short or by holding a call option on the
security with a strike price no higher than the price at which the security
was sold.
OPTIONS ON SECURITIES AND STOCK INDEXES
The Fund may purchase put and call options on equity securities. A put
option gives the purchaser of the option, in exchange for the payment of a
premium, the right to sell and the writer, if the purchaser exercises his
right, the obligation to buy the underlying security at the exercise price
during the option period. A call option gives the purchaser of the option, in
exchange for the payment of a premium, the right to buy and the writer, if the
purchaser exercises his right, the obligation to sell the underlying security
at the exercise price during the option period. If the option is not sold
while it has remaining value, or if during the life of an option the
underlying security does not depreciate (in the case of a put option) or
appreciate (in the case of a call option), the purchaser of the option may
lose his entire investment. Further, except where the value of the remaining
life of the option may be realized in the secondary market, for the option
purchase to be profitable, the market price of the underlying security must be
below (in the case of a put option) or above (in the case of a call option)
the exercise price by more than the premium and transaction costs paid in
connection with the purchase of the option and its sale or exercise. Because
option premiums paid by the Fund are small in relation to the market value of
the investments underlying the options, purchasing options can be more
speculative than investing directly in equity securities.
The Fund may purchase put and call options on stock indexes. The amount of
cash received upon exercise of a stock index option, if any, will be the
difference between the closing price of the index and the exercise price of
the option, multiplied by a specified dollar multiple. All settlements of
stock index option transactions are in cash. Some stock index options are
based on a broad market index such as the S&P 500 Index, the New York Stock
Exchange Composite Index, or the American Stock Exchange Major Market Index,
or on a narrower index such as the Philadelphia Stock Exchange Over-the-
Counter Index. Because the value of a stock index option depends upon
movements in the level of the index rather that the price of a particular
stock, whether the Fund will realize a gain or loss from the purchase of
options on an index depends upon movements in the level of stock prices in the
stock market generally or, in the case of certain indexes, in an industry or
market segment, rather that upon movements in the price of a particular stock.
The Fund may liquidate its position as the holder of an option by
effecting a "closing sale transaction." The Fund accomplishes this by selling
an option of the same series as the option previously purchased by the Fund.
There is no guarantee that a closing sale transaction can be effected. If any
option is not exercised or sold, the option will become worthless on its
expiration date. The Fund will realize a gain (or a loss) on a closing sale
transaction with respect to an option previously purchased by the Fund if the
premium, less commission costs, received by the Fund on the sale of the option
to close the transaction is greater (or less) than the premium, plus
commission costs, paid by the Fund to purchase the option. If an option which
the Fund has purchased expires out-of-the-money, the option will become
worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs.
The options purchased or sold by the Fund may be OCC Options or OTC
options. The Fund's ability to close out its position as a writer or purchaser
of an OCC Option is dependent upon the existence of a liquid secondary market
on option exchanges. Among the possible reasons for the absence of a liquid
secondary market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange;
(iii) trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities; (iv)
interruption of the normal operations on an exchange; (v) inadequacy of the
facilities of an exchange or the OCC to handle current trading volume; or (vi)
a decision by one or more exchanges to discontinue the trading of options (or
a particular class or series of options) in which event the secondary market
on that exchange (or in that class or series of options) would cease to exist,
although outstanding options on that exchange that had been listed by the OCC
as a result of trades on that exchange would generally continue to be
exercisable in accordance with their terms. Each of the exchanges on which
stock index options are traded has established limitations governing the
maximum number of call or put options on the same index which may be bought by
a single investor, whether acting alone or in concert with others (regardless
of whether such options are written on the same or different exchanges or are
held or written on one or more accounts or through one or more brokers). Under
these limitations, option positions of all investment companies advised by the
same investment adviser are combined for purposes of these limits. Pursuant to
these limitations, an exchange may order the liquidation of positions and may
impose other sanctions or restrictions. These positions limits may restrict
the number of stock index options which the Fund may buy or sell. Although
certain option exchanges attempt to provide continuously liquid markets in
which holders of options can close out their positions at any time prior to
the expiration of the option, no assurance can be given that a market will
exist at all times for all outstanding options purchased by the Fund. If an
options market were to become unavailable, the Fund would be unable to realize
its profits or limit its losses until the Fund could exercise options it
holds.
With OTC Options, such variables as expiration date, exercise price and
premium will be agreed upon between the Fund and the transacting dealer,
without the intermediation of a third party such as the OCC. If the
transacting dealer fails to take delivery of the securities underlying an
option it has written, in accordance with the terms of that option as written,
the Fund would lose the premium paid for the option as well as any anticipated
benefit of the transaction. The Fund will engage in OTC Option transactions
only with primary United States Government securities dealers recognized by
the Federal Reserve Bank of New York. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
FUTURES CONTRACTS AND RELATED OPTIONS
The Fund may purchase and sell stock index futures contracts. The Fund may
also purchase put and call options on stock index futures contracts. When the
Fund purchases a put or call option on a futures contract, the Fund pays a
premium for the right to sell or purchase, respectively, the underlying
futures contract for a specified price upon exercise at any time during the
option period. The Fund may engage in related closing transactions with
respect to options on futures contracts. The Fund will only engage in
transactions in futures contracts and options thereupon that are traded on a
United States exchange or board of trade. Whether the Fund realizes a gain or
loss from futures activities depends generally upon movements in the
underlying commodity. The extent of the Fund's loss from an uncovered short
position on futures contracts is potentially unlimited.
When the Fund purchases or sells a stock index futures contract, the Fund
will be required to (a) maintain with its custodian a segregated account,
which will be marked to market daily, containing cash or liquid securities
(which may include equity securities), that, when added to any amounts
deposited with a futures commission merchant as margin, are equal to the
market value of the futures contract or (b) otherwise "cover" its position.
The Fund may cover its short position in a futures contract by taking a long
position in the instruments underlying the futures contract, or by taking
positions in instruments the prices of which are expected to move relatively
consistently with the futures contract. The Fund may cover its long position
in a futures contract by purchasing a put option on the same futures contract
with a strike price (i.e., an exercise price) as high or higher than the price
of the futures contract, or, if the strike price of the put is less than the
price of the futures contract, the Fund will maintain in a segregated account
cash or liquid securities equal in value to the difference between the strike
price of the put and the price of the future. The Fund may also cover its long
position in a futures contract by taking a short position in the instruments
underlying the futures contract, or by taking positions in instruments the
prices of which are expected to move relatively consistently with the futures
contract.
Typically, an investment in a futures contract requires the Fund to
deposit with the applicable exchange or other specified financial intermediary
as security for its obligations an amount of cash or other specified debt
securities which initially is 1% to 5% of the face amount of the contract and
which thereafter fluctuates on a periodic basis as the value of the contract
fluctuates. If the price of an open futures contract changes (by increase in
the case of a sale or decrease in the case of a purchase) so that the loss on
the futures contract reaches a point at which the margin on deposit does not
satisfy margin requirements, the broker will require an increase in the
margin. However, if the value of a position increases because of favorable
price changes in the futures contract so that the margin deposit exceeds the
required margin, the broker will pay the excess to the Fund. These subsequent
payments, called "variation margin," to and from the futures broker, are made
on a daily basis as the price of the underlying assets fluctuate making the
long and short positions in the futures contract more or less valuable, a
process known as "marking to the market."
Although the Fund intends to sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid
market will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be made
that day at a price beyond that limit or trading may be suspended for
specified periods during the day. Futures contract prices could move to the
limit for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and potentially subjecting
the Fund to substantial losses. If trading is not possible, or the Fund
determines not to close a futures position in anticipation of adverse price
movements, the Fund will be required to make daily cash payments of variation
margin. The risk that the Fund will be unable to close out a futures position
will be minimized by entering into such transactions on a national exchange
with an active and liquid secondary market.
The Fund's use of futures and options on futures will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission ("CFTC") with
which the Fund must comply in order not to be deemed a commodity pool operator
within the meaning and intent of the Commodity Exchange Act and the
regulations promulgated thereunder. Regulations of the CFTC applicable to the
Fund currently require that all of the Fund's futures and options on futures
transactions be either for bona fide hedging purposes or for non-hedging
purposes provided that the sum of the amounts of initial margin deposits and
premiums paid for options on futures required to establish such non-hedging
positions does not exceed 5% of the liquidation value of the Fund's total
assets (after taking into account unrealized profits and unrealized losses on
such futures and options transactions). In the case of an option on a futures
contract that is "in-the-money" at the time of purchase (i.e. the amount by
which the exercise price of the put option exceeds the current market value of
the underlying security or the amount by which the current market value of the
underlying security exceeds the exercise price of the call option), the in-
the-money amount may be excluded in calculating this 5% limitation.
<PAGE>
INVESTMENT ADVISER CGM
Capital Growth Management FOCUS FUND
Limited Partnership
One International Place Prospectus & Application
Boston, MA 02110 May 1, 1998
TRANSFER AND DIVIDEND PAYING AGENT A No-Load Fund
AND CUSTODIAN OF ASSETS
State Street Bank and Trust Company
Boston, MA 02102
SHAREHOLDER SERVICING AGENT FOR
STATE STREET BANK AND TRUST COMPANY
Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, MA 02266
--------------------
[Fencer Logo]
--------------------
FFP98
<PAGE>
PART B.
Statements of Additional Information for CGM Mutual Fund, CGM Realty Fund,
CGM Fixed Income Fund, CGM American Tax Free Fund,
and CGM Focus Fund follow
<PAGE>
CGM MUTUAL FUND
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
This Statement of Additional Information (the "Statement") is not a
prospectus. This Statement relates to the CGM Mutual Fund Prospectus dated May
1, 1998 (the "Prospectus"), and should be read in conjunction therewith. A copy
of the Prospectus may be obtained from CGM Trust, c/o The CGM Funds Investor
Services Division, P.O. Box 449, Boston, Massachusetts 02117 (Telephone:
800-345-4048).
MSAI98
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION..................................................................1
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS...............................1
PORTFOLIO TURNOVER............................................................3
MANAGEMENT OF THE FUND........................................................4
INVESTMENT ADVISORY AND OTHER SERVICES........................................6
Advisory Agreement....................................................6
Custodial Arrangements................................................7
Independent Accountants...............................................8
Other Arrangements....................................................8
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................8
DESCRIPTION OF THE TRUST......................................................9
Shareholder Rights...................................................10
Shareholder and Trustee Liability....................................11
HOW TO BUY SHARES............................................................11
ADVERTISING AND PERFORMANCE INFORMATION......................................11
Calculation of Total Return..........................................12
Calculation of Yield.................................................12
Performance Comparisons..............................................13
NET ASSET VALUE AND PUBLIC OFFERING PRICE....................................15
SHAREHOLDER SERVICES.........................................................16
Open Accounts........................................................16
Systematic Withdrawal Plans ("SWP")..................................16
Exchange Privilege...................................................17
Automatic Investment Plans ("AIP")...................................18
Retirement Plans.....................................................18
Address Changes......................................................19
REDEMPTIONS..................................................................19
Redeeming by Telephone...............................................19
Check Sent to the Record Address.....................................20
Proceeds Wired to a Predesignated Bank...............................20
All Redemptions......................................................20
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS.................21
FINANCIAL STATEMENTS.........................................................23
<PAGE>
INTRODUCTION
CGM Mutual Fund (the "Fund"), registered with the Securities and
Exchange Commission ("SEC") as a diversified open-end management investment
company, is organized as a separate series of shares of CGM Trust (the "Trust").
The Trust is a Massachusetts business trust established under the laws of
Massachusetts in 1986. The Trust is governed by an Amended and Restated
Agreement and Declaration of Trust (the "Declaration of Trust") dated January
23, 1997. The Trust is a successor in interest to Loomis-Sayles Mutual Fund. On
March 1, 1990, the Trust's name was changed from "Loomis-Sayles Mutual Fund" to
"CGM Mutual Fund" to reflect the assumption by Capital Growth Management Limited
Partnership ("CGM" or the "Investment Manager") of investment advisory
responsibilities with respect to the Trust. On December 20, 1991, the Trust's
name was changed to CGM Trust and the Fund's name was changed to CGM Mutual Fund
in connection with the organization of CGM Fixed Income Fund as a second series
of the Trust.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund's investment 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. There are no
assurances that the Fund will achieve its objective.
The Fund seeks to attain its objective by investing substantially all of
its assets in equity securities and fixed-income securities. The Fund is
"flexibly managed"; it sometimes will be more heavily invested in equity or
fixed-income securities, depending on management's view of the economic and
investment outlook. The Fund will ordinarily invest its assets so that
approximately 25% (or more) of the Fund's total assets will be invested in debt
or fixed-income securities.
The Fund may invest up to 35% of its total assets in debt or
fixed-income securities of a quality below investment grade at the time of
investment (i.e. securities rated lower than Baa or baa by Moody's Investors
Service, Inc. ("Moody's) or lower than BBB by Standard and Poor's Corporation
("S&P"), or their equivalent as determined by the Investment Manager), including
up to 10% of its total assets in fixed income securities rated at the time of
investment Caa or lower by Moody's or CCC or lower by S&P, or their equivalent
as determined by the Investment Manager. Risks associated with such investments
are described in the Prospectus.
The Fund may not:
(1) Issue any senior securities, except as it may be permitted by the
terms of any exemptive order or similar rule issued by the
Securities and Exchange Commission (the "SEC") relating to
multiple classes of shares of beneficial interest of the Trust,
and provided further that collateral arrangements with respect to
forward contracts, future contracts, short sales or options,
including deposits of initial and variation margin, shall not be
considered to be the issuance of a senior security for the
purposes of this restriction;
(2) Act as underwriter of securities issued by others;
(3) Invest in oil, gas or other mineral leases, rights or royalty
contracts or in real estate, commodities or commodity contracts;
(4) Make loans (for purposes of this investment restriction, neither
(i) entering into repurchase agreements nor (ii) the purchase of
bonds, debentures, commercial paper, corporate notes and similar
evidences of indebtedness, which are a part of an issue to the
public, is considered the making of a loan);
(5) With respect to 75% of its total assets, purchase more than 10%
of the outstanding voting securities of any one issuer or invest
more than 5% of the value of its total assets in the securities
of one issuer, except the U.S. Government, its agencies or
instrumentalities;
(6) Purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase to
be invested in the securities of one or more issuers having their
principal business activities in the same industry, provided that
there is no limit with respect to investments in the U.S.
Government, its agencies or instrumentalities;
(7) Borrow money in excess of 10% of its total assets (taken at cost)
or 5% of its total assets (taken at current value), whichever is
lower, nor borrow any money except as a temporary measure for
extraordinary or emergency purposes.
If a percentage restriction is adhered to at the time of an investment,
a later increase or decrease resulting from a change in the values of assets
will not constitute a violation of such
restriction.
The investment restrictions above have been adopted by the Trust as
fundamental policies of the Fund. Under the 1940 Act, a fundamental policy may
not be changed without the vote of a majority of the outstanding voting
securities of the Fund, as defined under the 1940 Act. "Majority" means the
lesser of (1) 67% or more of the shares present at a meeting of shareholders of
the Fund, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (2) more than 50% of the outstanding
shares of the Fund.
Non-fundamental investment restrictions may be changed at any time by
vote of a majority of the Fund's Board of Trustees. Although it is a fundamental
policy of the Fund not to invest in real estate, the Fund may purchase publicly
traded securities issued by real estate investment trusts. Real estate
investment trusts may be affected by changes in underlying property values and
mortgage real estate investment trusts may also be affected by the quality of
credit extended. Other risks associated with real estate investment trusts
include the possibility of a decline in real estate values, overbuilding,
increased competition, and other risks related to local or general economic
conditions; rising operating costs and property taxes; and fluctuations in
rental income. Additionally, rising interest rates generally decrease the value
of high-yielding securities and increase the costs of obtaining financing, which
could cause the value of the Fund's investments in such securities to decline.
The Fund may invest in repurchase agreements which are agreements by
which the Fund purchases a security and obtains a simultaneous commitment from
the seller (a bank or, to the extent permitted by the 1940 Act, a recognized
securities dealer) to repurchase the security at an agreed-upon price and date
(usually seven days or less from the date of original purchase). The resale
price is in excess of the purchase price and reflects an agreed upon market rate
unrelated to the coupon rate on the purchased security. Such transactions afford
the Fund the opportunity to earn a return on temporarily available cash at
minimal market risk. While the underlying security may be a bill, certificate of
indebtedness, note or bond issued by an agency, authority or instrumentality of
the U.S. Government, the obligation of the seller is not guaranteed by the U.S.
Government and there is a risk that the seller may fail to repurchase the
underlying security. In such event, the Fund would attempt to exercise rights
with respect to the underlying security, including possible disposition in the
market. However, the Fund may be subject to various delays and risks of loss,
including (1) possible declines in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (2) possible
reduced levels of income and lack of access to income during this period and (3)
inability to enforce rights and the expenses involved in attempted enforcement.
PORTFOLIO TURNOVER
Although the Fund's objective is long-term capital appreciation, it
frequently sells portfolio securities in response to changes in market, industry
or individual company conditions or outlook, even though those securities may
only have been held for short periods of time. This policy may result in higher
securities transaction costs. To the extent that this policy results in gains on
investments, the Fund will make distributions to shareholders, which may
accelerate the shareholders' tax liabilities for realized gains and may result
in the distribution of short-term capital gains taxable as ordinary income. See
"Income Dividends, Capital Gains Distributions and Tax Status."
The Fund's portfolio turnover rate for each of the last ten years is set
forth in the Prospectus in the table entitled "Financial Highlights." The Fund's
portfolio turnover rate has varied significantly from year to year in the recent
past due to the volatility of economic and market conditions, and the Fund
anticipates similar variations in the future.
MANAGEMENT OF THE FUND
PETER O. BROWN (Age 57) -- Trustee;
30 Douglas Road, Rochester, NY; Partner, Harter, Secrest & Emery;
formerly Executive Vice President and Chief Operating Officer,
The Glenmede Trust Company; formerly Senior Vice President, Chase
Lincoln First Bank, N.A.
NICHOLAS J. GRANT (Age 82) -- Trustee;
77 Massachusetts Avenue, Cambridge, MA; Professor of Metallurgy
and Materials Science, Massachusetts Institute of Technology.
G. KENNETH HEEBNER (Age 57)* -- Trustee and Vice President;
Employee, CGM; formerly Vice President and Director, Loomis
Sayles and Company, Incorporated ("Loomis Sayles").
ROBERT L. KEMP (Age 65)* -- Trustee and President;
Employee, CGM; formerly President and Director, Loomis Sayles.
ROBERT B. KITTREDGE (Age 77) -- Trustee;
21 Sturdivant Street, Cumberland Foreside, ME; Retired; formerly
Vice President, General Counsel and Director, Loomis Sayles.
LAURENS MACLURE (Age 72) -- Trustee;
183 Sohier Street, Cohasset, MA; Retired; formerly President and
Chief Executive Officer, New England Deaconess Hospital.
JAMES VAN DYKE QUEREAU, JR. (Age 49) -- Trustee;
59 Annewood Lane, Wayne, PA; Managing Partner, Stratton
Management Company; formerly Institutional Managing Partner,
Loomis Sayles.
J. BAUR WHITTLESEY (Age 51) -- Trustee; 1521 Locust Street,
Philadelphia, PA; Attorney.
KATHLEEN S. HAUGHTON (Age 37) -- Vice President;
222 Berkeley Street, Boston, MA 02116; Employee -- Investor
Services Division, CGM; formerly Vice President, Boston Financial
Data Services, Inc.
LESLIE A. LAKE (Age 53) -- Vice President and Secretary;
Employee -- Office Administrator, CGM; formerly Office
Administrator, Capital Growth Management Division of Loomis
Sayles.
MARTHA I. MAGUIRE (Age 42) -- Vice President
Employee -- Funds Marketing, CGM; formerly marketing
communications consultant (self-employed); formerly Sales
Promotion Consultant, The New England.
MARY L. STONE (Age 53) -- Assistant Vice President;
Employee -- Coordinator, Mutual Fund Recordkeeping, CGM; formerly
Coordinator, Mutual Fund Recordkeeping, Loomis Sayles.
FRANK N. STRAUSS (Age 36) -- Treasurer;
222 Berkeley Street, Boston, MA 02116; Employee -- Chief
Financial Officer, CGM; formerly Vice President of Fund
Accounting, Freedom Capital Management Corporation and Assistant
Vice President, The Boston Company, Inc.
W. DUGAL THOMAS (Age 60) -- Vice President;
Employee -- Director of Marketing, CGM; formerly Director of
Marketing, Loomis Sayles.
- ----------
* Trustee deemed to be an "interested person" of the Fund, as defined by the
1940 Act.
Each of the Fund's trustees is also a trustee of one or more other
investment companies for which CGM acts as investment adviser. Except as
indicated above, the address of each trustee and officer of the Fund affiliated
with CGM is One International Place, Boston, Massachusetts
02110.
As of March 31, 1998, the officers and trustees of the Fund owned
beneficially less than 1% of the outstanding shares of the Fund.
The Fund pays no compensation to its officers or to the trustees listed
above who are interested persons of the Fund. Officers and trustees receive no
pension or retirement benefits paid from Fund expenses. The following table sets
forth the compensation paid by the Trust to its trustees for the year ended
December 31, 1997:
<TABLE>
<CAPTION>
Pension Total
or Retirement Estimated Compensation From
Aggregate Benefits Accrued Annual Registrant and
Name of Compensation as Part of Fund Benefit Upon Fund Complex
Trustee From Trust Expenses Retirement Paid to Trustees(a)
- ------- ------------ ---------------- ------------ -------------------
<S> <C> <C> <C> <C>
Peter O. Brown $27,153 None None $37,000
Nicholas J. Grant 31,653 None None 43,000
G. Kenneth Heebner None None None None
Robert L. Kemp None None None None
Robert B. Kittredge 27,153 None None 37,000
Laurens MacLure 27,153 None None 37,000
James Van Dyke Quereau, Jr. 27,153 None None 37,000
J. Baur Whittlesey 27,153 None None 37,000
</TABLE>
- ----------
(a) The Fund Complex is comprised of two Trusts with a total of six funds.
INVESTMENT ADVISORY AND OTHER SERVICES
Advisory Agreement. CGM serves as investment manager of the Fund under
an advisory agreement approved by the shareholders of the Fund at a special
meeting held on December 12, 1996 and effective as of December 13, 1996. CGM has
served as investment manager of the Fund since March 1, 1990. Prior to March 1,
1990, the Fund was managed by Loomis Sayles, whose Capital Growth Management
Division was reorganized into CGM on that date.
Under the advisory agreement, CGM manages the investment and
reinvestment of assets of the Fund and generally administers its affairs,
subject to supervision by the Board of Trustees of the Trust. CGM furnishes, at
its own expense, all necessary office supplies, facilities and equipment,
services of executive and other personnel of the Fund and certain administrative
services. For these services, CGM is compensated at the annual percentage rate
of 0.90% of the first $500 million of the Fund's average daily net asset value,
0.80% of the next $500 million of such value and 0.75% of such value in excess
of $1 billion. While this rate is higher than that paid by most other investment
companies, it is comparable to the fees paid by many investment companies having
investment objectives and policies similar to those of the Fund. For the fiscal
years ended December 31, 1995, 1996 and 1997, the advisory fee paid to CGM in
respect of services rendered to the Fund amounted to $7,637,552, $8,033,863 and
$10,642,444, respectively.
The Fund pays the compensation of its trustees who are not partners,
directors, officers or employees of CGM or its affiliates (other than registered
investment companies); registration, filing, and other fees in connection with
requirements of regulatory authorities; all charges and expenses of its
custodian and transfer agent; the charges and expenses of its independent
accountants; all brokerage commissions and transfer taxes in connection with
portfolio transactions; all taxes and fees payable to governmental agencies; the
cost of any certificates representing shares of the Fund; the expenses of
meetings of the shareholders and trustees of the Fund; the charges and expenses
of the Fund's legal counsel; interest, including on any borrowings by the Fund;
the cost of services, including services of counsel, required in connection with
the preparation of, and the costs of printing, registration statements and
prospectuses relating to the Fund, including amendments and revisions thereto,
annual, semiannual, and other periodic reports of the Fund, and notices and
proxy solicitation material furnished to shareholders of the Fund or regulatory
authorities, to the extent that any such materials relate to the Fund or its
shareholders; and the Fund's expenses of bookkeeping, accounting, auditing and
financial reporting, including related clerical expenses.
CGM also acts as investment adviser to CGM Capital Development Fund, CGM
Fixed Income Fund, CGM American Tax Free Fund, CGM Realty Fund and CGM Focus
Fund and three other mutual fund portfolios. CGM also provides investment advice
to other institutional
clients.
Certain officers and trustees of the Fund also serve as officers,
directors or trustees of other investment companies advised by CGM. The other
investment companies and clients served by CGM sometimes invest in securities in
which the Fund also invests. If the Fund and such other investment companies or
clients advised by CGM desire to buy or sell the same portfolio securities at
the same time, purchases and sales will be allocated to the extent practicable
on a pro rata basis in proportion to the amounts desired to be purchased or sold
for each. It is recognized that in some cases the practices described in this
paragraph could have a detrimental effect on the price or amount of the
securities which the Fund purchases or sells. In other cases, however, it is
believed that these practices may benefit the Fund. It is the opinion of the
trustees that the desirability of retaining CGM as adviser for the Fund
outweighs the disadvantages, if any, which might result from these practices.
Custodial Arrangements. State Street Bank and Trust Company ("State
Street Bank"), Boston, Massachusetts 02102, is the Fund's custodian. As such,
State Street Bank holds in safekeeping certificated securities and cash
belonging to the Fund and, in such capacity, is the registered owner of
securities held in book entry form belonging to the Fund. Upon instruction,
State Street Bank receives and delivers cash and securities of the Fund in
connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. State Street Bank
also maintains certain accounts and records of the Fund and calculates the total
net asset value, total net income, and net asset value per share of the Fund on
each business day.
Independent Accountants. The Fund's independent accountants are Price
Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110. Price
Waterhouse LLP conducts an annual audit of the Fund's financial statements,
assists in the preparation of the Fund's federal and state income tax returns
and consults with the Fund as to matters of accounting and federal and state
income taxation. The information concerning financial highlights in the
Prospectus, and the financial statements incorporated by reference into this
Statement, have been so included in reliance on the reports of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
Other Arrangements. Certain office space, facilities, equipment and
administrative services for the Fund and other mutual funds under the investment
management of the CGM organization are furnished by CGM. In addition, CGM
provides bookkeeping, accounting, auditing, financial and related clerical
services for which it is reimbursed by the Fund based on the cost of providing
these services. For the services rendered to the Fund for the 1995, 1996 and
1997 fiscal years, CGM was reimbursed in the amounts of $80,000, $83,000 and
$85,000, respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In placing orders for the purchase and sale of portfolio securities for
the Fund, CGM always seeks the best price and execution. Transactions in
unlisted securities will be carried out through broker-dealers who make the
primary market for such securities unless, in the judgment of CGM, a more
favorable price can be obtained by carrying out such transactions through other
brokers.
CGM selects only brokers it believes are financially responsible, will
provide efficient and effective services in executing, clearing and settling an
order and will charge commission rates which, when combined with the quality of
the foregoing services, will produce the best price and execution for the
transaction. This does not necessarily mean that the lowest available brokerage
commission will be paid. However, the commissions are believed to be competitive
with generally prevailing rates. CGM will use its best efforts to obtain
information as to the general level of commission rates being charged by the
brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by the
broker in connection with the order, are taken into account. The Fund will not
pay a broker a commission at a higher rate than is otherwise available for the
same transaction in recognition of the value of research services provided by
the broker or in recognition of the value of any other services provided by the
broker which do not contribute to the best price and execution of the
transaction.
Receipt of research services from brokers may sometimes be a factor in
selecting a broker which CGM believes will provide the best price and execution
for a transaction. These research services include not only a wide variety of
reports on such matters as economic and political developments, industries,
companies, securities, portfolio strategy, account performance, daily prices of
securities, stock and bond market conditions and projections, asset allocation
and portfolio structure, but also meetings with management representatives of
issuers and with other analysts and specialists. Although it is not possible to
assign an exact dollar value to these services, they may, to the extent used,
tend to reduce CGM's expenses. Such services may be used by CGM in servicing
other client accounts and in some cases may not be used with respect to the
Fund. Receipt of services or products other than research from brokers is not a
factor in the selection of brokers.
In 1997, brokerage transactions of the Fund aggregating $6,160,016,975
were allocated to brokers providing research services and $7,227,402 in
commissions were paid on these transactions. During 1995, 1996 and 1997 the Fund
paid total brokerage fees of approximately $5,702,810, $4,313,317 and
$7,291,272, respectively. The variation in the Fund's brokerage commissions is
substantially attributable to fluctuating portfolio activity.
DESCRIPTION OF THE TRUST
The Declaration of Trust of the Trust currently permits the trustees to
issue an unlimited number of shares of beneficial interest of separate series of
the Trust. Interests in the portfolio described in the Prospectus and in this
Statement are represented by shares of the Fund. Each share of the Fund
represents an interest in such series which is equal to and proportionate with
the interest represented by each other share. The shares of the Fund do not have
any preemptive rights. Upon liquidation of the portfolio, shareholders of the
Fund are entitled to share pro rata in the net assets of such portfolio
available for distribution to shareholders. The Declaration of Trust also
permits the trustees to charge shareholders directly for custodial, transfer
agency and servicing expenses. The trustees have no present intention of making
such direct charges.
The Declaration of Trust also permits the trustees, without shareholder
approval, to create one or more additional series or classes of shares or to
reclassify any or all outstanding shares as shares of particular series or
classes, with such preferences and rights and eligibility requirements as the
trustees may designate. While the trustees have no current intention to exercise
the power to establish separate classes of the existing series of the Fund, it
is intended to allow them to provide for an equitable allocation of the impact
of any future regulatory requirements, which might affect various classes of
shareholders differently. The trustees may also, without shareholder approval,
merge two or more existing series.
Shareholder Rights
On March 31, 1998, there were 42,935,918 shares of the Fund outstanding.
On that date State Street Bank, acting as trustee for various retirement plans
and individual retirement accounts, owned 10,960,508 -- about 26% of the total.
In almost all cases, State Street Bank does not have the power to vote or to
dispose of the shares except at the direction of the beneficial owner.
Shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held) and may vote (to the extent
provided herein) in the election of trustees and the termination of the Fund and
on other matters submitted to the vote of shareholders. There will normally be
no meetings of shareholders for the purpose of electing trustees, except that in
accordance with the 1940 Act (i) the Trust will hold a shareholders' meeting for
the election of trustees at such time as less than a majority of the trustees
holding office have been elected by shareholders, and (ii) if the appointment of
a trustee to fill a vacancy in the Board of Trustees would result in less than
two-thirds of the trustees having been elected by shareholders, that vacancy may
only be filled by a vote of the shareholders. In addition, trustees may be
removed from office by a written consent signed by the holders of two-thirds of
the outstanding shares and filed with the Trust's custodian or by a vote of the
holders of two-thirds of the outstanding shares at a meeting duly called for the
purpose, which meeting shall be held upon the written request of the holders of
not less than 10% of the outstanding shares. Upon written request by ten or more
shareholders of record who have been such for at least six months and who hold
in the aggregate shares equal to at least the lesser of (i) $25,000 in net asset
value or (ii) 1% of the outstanding shares, stating that such shareholders wish
to communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, the
Trust will either provide access to a list of shareholders or disseminate
appropriate materials (at the expense of the requesting shareholders). Except as
set forth above, the trustees shall continue to hold office and may appoint
successor trustees. Voting rights are not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the holders of the outstanding shares of the
Trust except (i) to change the Trust's name or to cure technical problems in the
Declaration of Trust and (ii) to establish, designate or modify new and existing
series or subseries of Trust shares or other provisions relating to Trust shares
in response to applicable laws of regulations. The shareholders of the Fund
shall not be entitled to vote on matters exclusively affecting any other series,
such matters including, without limitation, the adoption of or change in the
investment objectives, policies or restrictions of the series and the approval
of the investment advisory contracts of the series. Similarly, no shareholders
of any other series shall be entitled to vote on any such matters exclusively
affecting the Fund. In particular, the phrase "majority of the outstanding
voting securities of the Fund" as used in this Statement shall refer only to the
shares of the Fund.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust;
however, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or trustees. The Declaration of Trust provides for indemnification out of Fund
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote since it
is limited to circumstances in which the disclaimer is inoperative and the Fund
itself would be unable to meet its obligations.
The Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The By-Laws of the Trust provide for indemnification by the Trust of
the trustees and officers of the Trust except with respect to any matter as to
which any such person did not act in good faith in the reasonable belief that
such action was in or not opposed to the best interests of the Trust. No officer
or trustee may be indemnified against any liability to the Trust or the Trust's
shareholders to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
All persons dealing with the Fund must look only to the assets of the
Fund for the enforcement of any claims against the Fund and no other series of
the Trust assumes any liability
for obligations entered into on behalf of the Fund.
HOW TO BUY SHARES
The procedures for purchasing shares of the Fund are summarized in the
Prospectus under "How to Purchase Shares."
ADVERTISING AND PERFORMANCE INFORMATION
Calculation of Total Return
The Fund may include total return information in advertisements or
written sales material. Total return is a measure of the change in value of an
investment in the Fund over the period covered, which assumes that any dividends
or capital gains distributions are automatically reinvested in the Fund rather
than paid to the investor in cash. The formula for total return used by the Fund
includes three steps:
(1) adding to the total number of shares purchased by a
hypothetical $1,000 investment in the Fund all additional shares that would have
been purchased if all dividends and distributions paid or distributed during the
period had been automatically reinvested;
(2) calculating the value of the hypothetical initial investment
as of the end of the period by multiplying the total number of shares owned at
the end of the period by the net asset value per share on the last trading day
of the period; and
(3) dividing this account value for the hypothetical investor by
the amount of the initial investment, and annualizing the result for periods of
less than one year.
For the one, five and ten year periods ended December 31, 1997, the
Fund's average annual total return was 8.2%, 12.8% and 13.2%, respectively. For
the one, five, ten, fifteen and twenty-five year periods ended December 31,
1997, the total return on a hypothetical $1,000 investment in the Fund on an
aggregate basis was 8.2%, 82.9%, 246.8%, 675.8% and 1,358.1%, respectively. In
computing performance information for the Fund, no adjustment has been made for
a shareholder's tax liability on taxable dividends and capital gains
distributions.
Calculation of Yield.
The Fund may use yield information in advertisements or written sales
material. The Fund's yield is based on a recent 30 day period, and is determined
in accordance with the SEC's
standardized formula by:
(1) calculating the aggregate dividends and adjusted interest earned
during that period, net of recurring expenses accrued for the period; and
(2) dividing that amount by the product of (A) the average daily number
of shares outstanding during the period and (B) the maximum offering price per
share on the last day of the period (less any earned income expected to be
declared as a dividend shortly thereafter).
The result is annualized, assuming a quarterly compounding, to determine
the Fund's yield. Interest earned during the period will be adjusted to reflect
amortization of any premium or discount from par on the Fund's fixed income
securities (other than obligations backed by mortgages or other assets), using
the market value for these securities on the last day of the period, or, for
securities purchased during the period, using actual cost. The Fund's yield will
vary from time to time depending upon market conditions, the composition of the
Fund's portfolio and operating expenses of the Fund.
Performance Comparisons
Total return may be used to compare the performance of the Fund against
certain widely acknowledged standards or indices for stock and bond market
performance or against the U.S.
Bureau of Labor Statistics' Consumer Price Index.
The Standard & Poor's 500 Composite Index (the "S&P 500") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 stocks relative to the base period 1941-43. The S&P 500 is composed
almost entirely of common stocks of companies listed on the New York Stock
Exchange, although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included. The 500 companies
represented include 400 industrial, 60 transportation and 40 financial services
concerns.
The Dow Jones Industrial Average is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York Stock
Exchange.
No brokerage commissions or other fees are factored into the values of
the S&P 500 and the Dow Jones Industrial Average.
The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of change, over time, in the prices of
goods and services in major expenditure groups.
Lipper Analytical Services, Inc., an independent service that monitors
the performance of over 11,332 mutual funds, calculates total return for those
funds grouped by investment objective. From time to time, the Fund may include
its ranking among mutual funds tracked by Lipper in advertisements or sales
literature.
Morningstar, Inc. ("Morningstar") is an independent mutual fund ranking
service. Morningstar proprietary ratings reflect historical risk-adjusted
performance and are subject to change every month. Funds with at least three
years of performance history are assigned ratings from one star (lowest) to five
stars (highest). Morningstar ratings are calculated from the funds' three-,
five-, and ten-year average annual returns (when available) and a risk factor
that reflects the fund performance relative to three-month Treasury bill monthly
returns. Funds' returns are adjusted for fees and sales loads. Ten percent of
the funds in an investment category receive five stars, 22.5% receive four
stars, 35% receive three stars, 22.5% receive two stars, and the bottom 10%
receive one star. From time to time, the Fund may include its ranking among
mutual funds tracked by Morningstar in advertisements or sales literature.
Value Line, Inc. ("Value Line"), an independent mutual fund ranking
service reviews the performance of 7,976 mutual funds. In ranking mutual funds,
Value Line uses two indicators: a Risk Rank to show the total level of risk a
fund has assumed and an Overall Rank measuring various performance criteria
taking risk into account. Funds are ranked from 1 to 5, with 1 the highest
Overall Rank (the best risk-adjusted performance) and the best Risk Rank (the
least risky). From time to time, the Fund may include ranking information
provided by Value Line in advertisements and sales literature.
From time to time, articles about the Fund regarding performance,
rankings and other characteristics of the Fund and information about persons
responsible for its portfolio management may appear in national publications and
major metropolitan newspapers including, but not limited to, The Wall Street
Journal, The Boston Globe, The New York Times and Barron's, Forbes, Fortune,
Money, Worth, Kiplinger's Personal Finance, Mutual Funds, Individual Investor,
Bloomberg Personal and Business Week magazines. In particular, some or all of
these publications may publish their own rankings or performance reviews of
mutual funds, including the Fund. References to or reprints of, or quotations
from, such articles may be used in the Fund's promotional literature.
Price-to-Earnings Ratio Comparisons
From time to time the Fund may include information about the weighted
average price-to- earnings ratio ("P/E ratio") of the equity portion of its
portfolio and the P/E ratio of the equity portion of the portfolios of other
mutual funds tracked by Morningstar in advertisements or written sales material.
Morningstar calculates the P/E ratio monthly based on the Fund's portfolio
statistics provided by One Source, a financial information firm. The P/E ratio
as calculated by Morningstar is the weighted average of the P/E ratios of the
stocks in a fund's portfolio. The P/E ratio of a stock is calculated by dividing
the current price of the stock by its trailing 12 months earnings per share. In
computing the average, Morningstar weighs each portfolio holding by the
percentage of equity assets it represents, so that larger positions have
proportionately greater influence on a fund's final P/E ratio. The statistics
used by Morningstar are based on the most recent information available to
Morningstar concerning a fund's portfolio composition and the price and earnings
of the stocks in its portfolio.
CGM Mutual Fund's P/E ratio at February 28, 1998 was 28.1 as calculated
by Morningstar. Morningstar calculates the P/E ratios of 5,123 U.S. diversified
equity funds.
The Fund has been continuously managed since 1981 by G. Kenneth Heebner.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price and net asset value
per share is summarized in the Prospectus under "Pricing of Shares."
The net asset value of a share of the Fund is determined by dividing the
Fund's total net assets (the excess of its assets over its liabilities) by the
total number of shares outstanding and rounding to the nearest cent. Such
determination is made as of the close of normal trading on the New York Stock
Exchange on each day on which the Exchange is open for unrestricted trading, and
no less frequently than once daily on each day during which there is sufficient
trading in the Fund's portfolio securities that the value of the Fund's shares
might be materially affected. During the 12 months following the date of this
Statement, the New York Stock Exchange is currently expected to be closed on the
following holidays: Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
Christmas Day, New Year's Day, Martin Luther King, Jr. Day, Presidents' Day and
Good Friday.
Securities which are traded over-the-counter or on a stock exchange will
be valued according to the broadest and most representative market based on the
last reported sale price for securities listed on a national securities exchange
(or on the NASDAQ National Market System) or, if no sale was reported and in the
case of over-the-counter securities not so listed, the last reported bid price.
U.S. government securities are valued at the most recent quoted price on the
date of valuation.
For equity securities, it is expected that the broadest and most
representative market will ordinarily be either (i) a national securities
exchange, such as the New York Stock Exchange or American Stock Exchange, or
(ii) the NASDAQ National Market System. For corporate bonds, notes, debentures
and other fixed-income securities, it is expected that the broadest and most
representative market will ordinarily be the over-the-counter market.
Fixed-income securities may, however, be valued on the basis of prices provided
by a pricing service approved by the Board of Trustees when such prices are
believed to reflect the fair market value of such securities. The prices
provided by the pricing service may be determined based on 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.
Instruments with maturities of sixty days or less are valued at amortized cost,
which approximates market value. Other assets and securities which are not
readily marketable will be valued in good faith at fair value using methods
determined by the Board of Trustees.
SHAREHOLDER SERVICES
Open Accounts
A shareholder's investment in the Fund is credited to an open account
maintained for the shareholder by the CGM Shareholder Services Department ("CGM
Shareholder Services") of Boston Financial Data Services, Inc. ("BFDS"), the
shareholder servicing agent for State Street Bank. The address is: CGM
Shareholder Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
Certificates representing shares are issued only upon written request to
CGM Shareholder Services but are not issued for fractional shares. Following
each transaction in the account, a shareholder will receive an account statement
disclosing the current balance of shares owned and the details of recent
transactions that have taken place during the year. After the close of each
fiscal year, CGM Shareholder Services will send each shareholder a statement
providing federal tax information on dividends and distributions paid to the
shareholder during the year. The year-end statement should be retained as a
permanent record. Shareholders will be charged a fee for duplicate information.
The open account system permits the purchase of full and fractional
shares and, by making the issuance and delivery of certificates representing
shares unnecessary, eliminates problems of handling and safekeeping, and the
cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are borne by the Fund,
and no direct charges are made to shareholders. Although the Fund has no present
intention of making such direct charges to shareholders, it reserves the right
to do so. Shareholders will receive prior notice before any such charges are
made.
Systematic Withdrawal Plans ("SWP")
A Systematic Withdrawal Plan, referred to in the Prospectus under
"Shareholder Services--Systematic Withdrawal Plan," provides for monthly,
quarterly, semiannual or annual withdrawal payments of $50 or more from the
account of a shareholder provided that the account has a value of at least
$10,000 at the time the plan is established. A shareholder may establish a SWP
by completing the Service Options Form.
Payments will be made either to the shareholder or to any other person
or entity designated by the shareholder. If payments are issued to an individual
other than the registered owner(s) and/or mailed to an address other than the
address of record, a signature guarantee will be required on the Service Options
Form. Shares to be included in a Systematic Withdrawal Plan must be held in an
Open Account rather than certificated form. Income dividends and capital gain
distributions will be reinvested at the net asset value determined as of the
close of the New York Stock Exchange on the record date for the dividend or
distribution. If withdrawal checks are returned to the Fund as "undeliverable"
or remain uncashed for more than six months, the shareholder's Systematic
Withdrawal Plan will be canceled, such undeliverable or uncashed checks will be
canceled and such amounts reinvested in the Fund at the per share net asset
value determined as of the date of cancellation of the checks.
Since withdrawal payments represent in whole or in part proceeds from
the liquidation of shares, the shareholder should recognize that withdrawals may
reduce and possibly exhaust the value of the account, particularly in the event
of a decline in net asset value. Accordingly, the shareholder should consider
whether a Systematic Withdrawal Plan and the specified amounts to be withdrawn
are appropriate in the circumstances. The Trust makes no recommendations or
representations in this regard. It may be appropriate for the shareholder to
consult a tax adviser before establishing such a plan. See "Redemptions" and
"Income Dividends, Capital Gain Distributions and Tax Status" below for certain
information as to federal income taxes.
Exchange Privilege
A shareholder may exchange shares of the Fund for shares of CGM Fixed
Income Fund, CGM American Tax Free Fund, CGM Realty Fund, CGM Focus Fund, New
England Cash Management Trust, New England Tax Exempt Money Market Trust or CGM
Capital Development Fund; however, shares of CGM Capital Development Fund may
only be exchanged for if you were a shareholder on September 24, 1993, and have
remained a shareholder in the CGM Capital Development Fund. CGM Capital
Development Fund shares are not generally available to other persons except in
special circumstances that have been approved by, or under the authority of, the
Board of Trustees of CGM Capital Development Fund. The special circumstances
currently approved by the Board of Trustees of CGM Capital Development Fund are
limited to the offer and sale of shares of such fund to the following additional
persons: trustees of CGM Capital Development Fund, employees of the Investment
Manager and counsel to such fund and the Investment Manager. The value of shares
exchanged must be at least $1,000 and all exchanges are subject to the minimum
investment requirements of the fund into which the exchange is being made. This
option is summarized in the Prospectus under "Shareholder Services--Exchange
Privilege." The Trust reserves the right to terminate or limit the privilege of
a shareholder who makes more than four exchanges (or two round trips) per year
and to prohibit exchanges during the first 15 days following an investment in
the Fund. A shareholder may exercise the exchange privilege only when the fund
into which shares will be exchanged is registered or qualified in the state in
which such shareholder resides.
Exchanges may be effected by (i) a telephone request to CGM Shareholder
Services at 800-343-5678, provided that a special authorization form is on file
with the Trust, or (ii) a written exchange request to CGM Shareholder Services
accompanied by an account application for the appropriate fund. Exchange
requests cannot be revoked once they have been received in good order. The Trust
reserves the right to modify this exchange privilege without prior notice,
except as otherwise required by law or regulation.
For federal income tax purposes, an exchange constitutes a sale of
shares, which may result in a capital gain or loss.
Automatic Investment Plans ("AIP")
Once initial investment minimums have been satisfied (see "How to
Purchase Shares" in the Prospectus), a shareholder may participate in an
Automatic Investment Plan, pursuant to which the Fund debits $50.00 or more on
or about the same date each month from a shareholder's checking account and
transfers the proceeds into the shareholder's Fund account. To participate, a
shareholder must authorize the Fund and its agents to initiate Automated
Clearing House ("ACH") debits against the shareholder's designated checking
account at a bank or other financial institution. Please contact CGM Shareholder
Services at 800-343-5678 to determine the requirements associated with debits
from savings banks and credit unions. Debits from money market accounts are not
acceptable. Shareholders receive a confirmation of each purchase of Fund shares
under the AIP. If a shareholder elects to redeem shares of the Fund purchased
under the AIP within 15 days of such purchase, the shareholder may experience
delays in receiving redemption proceeds. See "All Redemptions."
Once a shareholder enrolls in the AIP, the Fund and its agents are
authorized to initiate ACH debits against the shareholder's account payable to
the order of The CGM Funds. Such authority remains in effect until revoked by
the shareholder, and, until the Fund actually receives such notice of
revocation, the Fund is fully protected in initiating such debits. Participation
in the AIP may be terminated by sending written notice to CGM Shareholder
Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511, or by calling
800-343-5678 more than 14 days prior to the next scheduled debit date. The Fund
may terminate a shareholder's participation in the AIP immediately in the event
that any item is unpaid by the shareholder's financial institution. The Fund may
terminate or modify the AIP at any time.
Retirement Plans
Under "Shareholder Services--Retirement Plans" the Prospectus refers to
several retirement plans. These include tax deferred money purchase pension or
profit sharing plans, as well as SEP-IRAs, Traditional and Roth IRAs and
403(b)(7) custodial accounts established under retirement plans sponsored by
CGM. These plans may be funded with shares of the Fund.
For participants under age 59 1/2, generally, all income dividends and
capital gain distributions of plan participants must be reinvested. Plan
documents and further information can be obtained from the Trust by writing or
calling the Trust as indicated on the cover of this Statement.
Check with your financial or tax adviser as to the suitability of Fund
shares for your retirement plan.
Address Changes
Shareholders can request to change their record address either by
telephone or in writing (by mail or delivery service, but not by facsimile) in
accordance with policies and procedures of the Trust. After an address change is
made, no telephone or written redemption requests will be honored for three
months unless the registered owner's signature is guaranteed on the request.
Written requests for a change in address may be mailed to: CGM Shareholder
Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
REDEMPTIONS
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
Except as noted below, signatures on redemption requests must be
guaranteed by an eligible guarantor institution in accordance with procedures
established by the Trust. Signature guarantees by notaries public are not
acceptable.
The procedures established by the Trust provide that an "eligible
guarantor institution" means any of the following: banks (as defined in ss. 3(a)
of the Federal Deposit Insurance Act (the "FDIA") [12 U.S.C. ss. 1813(a)]);
brokers, dealers, municipal securities brokers, government securities dealers
and government securities brokers, as those terms are defined under the
Securities Exchange Act of 1934 (the "Act"); credit unions (as defined in ss.
19(b)(1)(A) of the Federal Reserve Act [12 U.S.C. ss. 461(b)]); national
securities exchanges, registered securities associations and clearing agencies,
as those terms are defined under the Act; and savings associations (as defined
in ss. 3(b) of the FDIA [12 U.S.C. ss. 1813(b)]). However, as noted in the
Prospectus, a signature guarantee will not be required if the proceeds of the
redemption do not exceed $25,000, and the proceeds check is made payable to the
registered owner(s) and mailed to the record address, which has not changed in
the prior three months. If the record address has changed within the prior three
months, a signature guarantee will be required. This policy applies to both
written and telephone redemption requests.
Redeeming by Telephone
There are two ways to redeem by telephone. In either case, a shareholder
should call 800-343-5678 prior to 4:00 p.m. (Eastern time). Requests made after
that time or on a day when the New York Stock Exchange is not open for business
cannot be accepted. Telephone redemptions are not available for Traditional or
Roth IRAs, SEP-IRAs, 403(b)(7) custodial accounts or money purchase pension and
profit sharing plans under a CGM retirement plan where State Street Bank is the
custodian or trustee.
Check Sent to the Record Address
A shareholder may request that a check be sent to the record address on
the account, provided that the address has not changed for the last three months
and the shareholder is redeeming $25,000 or less. Except in the case of a CGM
retirement plan, the service option of telephone redemption by check is
available to shareholders automatically unless this option is declined in the
application or in writing. The check will be made payable to the registered
owner(s) of the account.
If checks representing redemption proceeds are returned "undeliverable"
or remain uncashed for six months, such checks shall be canceled and such
proceeds shall be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation of such
checks.
Proceeds Wired to a Predesignated Bank
A shareholder may request that the redemption proceeds be wired to the
bank selected on the Fund application or subsequently on the Service Options
Form available from the Trust. A nominal wire fee, currently $5.00, is deducted
from the proceeds. When selecting the service, a shareholder must designate a
bank account to which the redemption proceeds should be wired. Any change in the
bank account so designated may be made by furnishing CGM Shareholder Services a
completed Service Options Form with a signature guarantee. Whenever the Service
Options Form is used, the shareholder's signature must be guaranteed as
described above. Telephone redemptions may be made only if an investor's bank is
a member of the Federal Reserve System or has a correspondent bank that is a
member of the System. If the account is with a savings bank, it must have only
one correspondent bank that is a member of the System.
All Redemptions
The redemption price will be the net asset value per share next
determined after the redemption request is received by CGM Shareholder Services
in good order (including any necessary documentation). Redemption requests
cannot be revoked once they have been received in good order. Proceeds resulting
from a written redemption request will normally be mailed to you within seven
days after receipt of your request in good order. Telephone redemption proceeds
will normally be mailed or wired within seven days following receipt of a proper
redemption request. If you purchased your Fund shares by check (or through your
AIP) and elect to redeem shares within 15 days of such purchase, you may
experience delays in receiving redemption proceeds. The Trust will process your
redemption request upon receipt of a request in good order. However, the Trust
will generally postpone sending your redemption proceeds from such investment
until it can verify that your check (or AIP investment) has been or will be
collected. Under ordinary circumstances, the Trust can not verify collection of
individual checks (or AIP investments) and may therefore automatically holds
proceeds from redemptions requested during the 15 day period following such
investment for a total of up to seven days. There will be no such automatic
delay following investments paid for by federal funds wire or by bank cashier's
check, certified check or treasurer's check although the Trust may in any case
postpone payment of redemption proceeds for up to seven days.
The Trust will normally redeem shares for cash; however, the Trust
reserves the right to pay the redemption price wholly in kind or partly in kind
and partly in cash if the Board of Trustees of the Trust determines it to be
advisable in the interest of the remaining shareholders. If portfolio securities
are distributed in lieu of cash, the shareholder will normally incur brokerage
commissions upon subsequent disposition of any such securities. However, the
Trust has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which the Trust is obligated to redeem shares solely in cash for any shareholder
during any 90-day period up to the lesser of $250,000 or 1% of the total net
asset value of the Fund at the beginning of such period.
A redemption constitutes a sale of the shares for federal income tax
purposes on which the investor may realize a long- or short-term capital gain or
loss. See "Income Dividends, Capital Gains Distributions and Tax Status."
Because the expense of maintaining small accounts is disproportionately
high, the Trust may close accounts with 20 shares or less and mail the proceeds
to the shareholder. Shareholders who are affected by this policy will be
notified of the Trust's intention to close the account, and will have 60 days
immediately following the notice in which to acquire the requisite number of
shares. The minimum does not apply to retirement and Uniform Gifts to Minors Act
or Uniform Transfers to Minors Act accounts.
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
As described in the Prospectus under "Dividends, Capital Gains
Distributions and Taxes" it is the policy of the Fund to pay quarterly, as
dividends, substantially all net investment income and to distribute annually
all net realized capital gains, if any, after offsetting any capital loss
carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the Fund based upon the net asset value determined as of
the close of the New York Stock Exchange on the record date for such dividend or
distribution. Shareholders, however, may elect to receive their income dividends
or capital gain distributions, or both, in cash. However, if a shareholder
elects to receive capital gains in cash, his or her income dividends must also
be received in cash. Shareholders can elect to receive payments of cash
dividends and capital gains distributions either by check or by direct deposit
to a bank account that they have predesignated. These elections can be made at
the time the account is opened and may be changed by the shareholder at any time
by submitting a written request directly to CGM Shareholder Services or by
calling 800-343-5678. However, changes in bank account information for direct
deposits of cash dividends and capital gains distributions must be made through
a Service Options Form. In order for a change to be effective for any dividend
or distribution, it must be received by CGM Shareholder Services on or before
the record date for such dividend or distribution. If a shareholder elects to
receive distributions in cash and checks are returned "undeliverable" or remain
uncashed for six months, such shareholder's cash election will be changed
automatically and the shareholder's future dividend and capital gains
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, following
such six month period, any undeliverable or uncashed checks will be cancelled
and such amounts reinvested in the Fund at the per share net asset value
determined as of the date of cancellation of such checks.
The Fund has met, and intends to continue to meet, the requirements of
the Internal Revenue Code with respect to regulated investment companies.
The distributions received by the Fund from its investments may, for
federal income tax purposes, consist of ordinary income, long-term capital gains
or a return of capital. The characterization of these distributions to the Fund
may, in turn, affect the tax treatment of the Fund's distributions to its
shareholders. Dividends and distributions are taxable to shareholders in the
same manner whether received in cash or reinvested in additional shares of the
Fund.
Dividends paid by the Fund from net investment income, including
dividends, interest and net short-term capital gains, will be taxable to
shareholders as ordinary income. Distributions of net capital gains (the excess
of net long-term capital gains over net short-term capital losses) which are
designated by the Fund as capital gains distributions are taxable as long-term
capital gains, regardless of the length of time shareholders have owned shares
in the Fund. Because of recent changes in the tax law, capital gains
distributions to shareholders that are individuals, trusts and estates may be
subject to varying tax rates. To the extent that the Fund makes a distribution
in excess of its current and accumulated earnings and profits, the distribution
will be treated first as a tax-free return of capital, reducing the tax basis in
a shareholder's shares, and then, to the extent the distribution exceeds such
basis, as a taxable gain to be realized upon sale of such shares.
Distributions that the Fund receives from a REIT, and dividends of the
Fund attributable to such distributions, will not constitute "dividends" for
purposes of the dividends-received deduction applicable to corporate
shareholders. Dividends and distributions on Fund shares received shortly after
their purchase, although in effect a return of capital, are subject to federal
income taxes.
The Fund will report to its U.S. shareholders and the IRS the amount of
dividends paid during each calendar year and the amount of tax withheld, if any.
Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid and redemptions
unless such shareholder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies that the shareholder is not subject to
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A shareholder who does not provide the Fund with his
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability.
As required by federal law, detailed federal tax information is
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
Investors should consult their tax advisors regarding the application of
the above-described general federal taxation rules to their own circumstances
and the state, local, or foreign tax consequences to them of any investment in
the Fund.
FINANCIAL STATEMENTS
The financial statements and Report of Independent Accountants for the
year ended December 31, 1997, included in the Fund's Annual Report to
Shareholders for the year ended December 31, 1997, are incorporated herein by
reference.
DOCSC\338987.7
<PAGE>
CGM REALTY FUND
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
This Statement of Additional Information (the "Statement") is not a
prospectus. This Statement relates to the CGM Realty Fund Prospectus dated May
1, 1998 (the "Prospectus"), and should be read in conjunction therewith. A copy
of the Prospectus may be obtained from CGM Trust, c/o The CGM Funds Investor
Services Division, P.O. Box 449, Boston, Massachusetts 02117 (Telephone:
800-345-4048).
RSAI98
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION..................................................................1
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS...............................1
PORTFOLIO TURNOVER............................................................5
MANAGEMENT OF THE FUND........................................................5
INVESTMENT ADVISORY AND OTHER SERVICES........................................7
Advisory Agreement....................................................7
Custodial Arrangements................................................8
Independent Accountants...............................................9
Other Arrangements....................................................9
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................9
DESCRIPTION OF THE TRUST.....................................................10
Shareholder Rights...................................................11
Shareholder and Trustee Liability....................................12
HOW TO BUY SHARES............................................................12
ADVERTISING AND PERFORMANCE INFORMATION......................................13
Calculation of Total Return..........................................13
Calculation of Yield.................................................13
Performance Comparisons..............................................14
NET ASSET VALUE AND PUBLIC OFFERING PRICE....................................15
SHAREHOLDER SERVICES.........................................................16
Open Accounts........................................................16
Systematic Withdrawal Plans ("SWP")..................................17
Exchange Privilege...................................................18
Automatic Investment Plans ("AIP")...................................19
Retirement Plans.....................................................19
Address Changes......................................................20
REDEMPTIONS..................................................................20
Redeeming by Telephone...............................................20
Check Sent to the Record Address.....................................21
Proceeds Wired to a Predesignated Bank...............................21
All Redemptions......................................................21
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS.................22
FINANCIAL STATEMENTS.........................................................24
<PAGE>
INTRODUCTION
CGM Realty Fund (the "Fund") is organized as a separate series of shares
of CGM Trust (the "Trust"). The Trust is a Massachusetts business trust
established under the laws of Massachusetts in 1986. The Trust is governed by an
Amended and Restated Agreement and Declaration of Trust (the "Declaration of
Trust") dated January 23, 1997. The Trust is a successor in interest to
Loomis-Sayles Mutual Fund. On March 1, 1990, the Trust's name was changed from
"Loomis-Sayles Mutual Fund" to "CGM Mutual Fund" to reflect the assumption by
Capital Growth Management Limited Partnership ("CGM" or the "Investment
Manager") of investment advisory responsibilities with respect to the Trust. On
December 20, 1991, the Trust's name was changed to CGM Trust.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund's investment objective is above-average income and long-term
growth of capital. The Fund intends to pursue its objective by investing
primarily in equity securities of companies
in the real estate industry.
At least 65% of the Fund's total assets will be invested under normal
conditions in equity securities of companies in the real estate industry. A
company is considered in the real estate industry if construction, ownership,
management, financing and sales of residential, commercial or industrial real
estate accounts for not less than 50% of its gross revenues or net profits.
Investments that the Fund makes in companies with significant real estate
holdings (but not otherwise in the real estate industry) will be considered to
be investments in the real estate industry for purposes of evaluating compliance
with the Fund's investment restrictions. The Fund's total investment in
companies possessing such significant real estate holdings within any particular
industry will not exceed 25% of the market value of the Fund's total assets.
Up to 35% of the Fund's total assets may be invested in securities of
companies outside the real estate industry. The Fund may invest this portion of
its assets in equity securities or fixed income securities, including investment
grade securities and, with respect to up to 25% of the Fund's total assets,
lower quality securities (securities rated lower than Baa by Moody's Investors
Service, Inc. or lower than BBB by Standard and Poor's Corporation). Certain
risks associated with investments in lower quality securities are described in
the Prospectus.
The Fund may not:
(1) Borrow money, except that it may borrow from banks in an amount not
to exceed 1/3 of the value of its total assets and may borrow for temporary
purposes from entities other than banks in an amount not to exceed 5% of the
value of its total assets;
(2) Issue any senior securities, except as permitted by the terms of any
exemptive order or similar rule issued by the Securities and Exchange Commission
(the "SEC") relating to multiple classes of shares of beneficial interest of the
Trust, and provided further that collateral arrangements with respect to forward
contracts, futures contracts, short sales or options, including deposits of
initial and variation margin, shall not be considered to be the issuance of a
senior security for purposes of this restriction;
(3) Act as an underwriter of securities issued by other persons, except
insofar as the Fund may be deemed an underwriter in connection with the
disposition of securities;
(4) Purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase to be invested in
the securities of one or more issuers having their principal business activities
in the same industry, provided that there is no limit with respect to
investments in the real estate industry and in securities issued by the U.S.
Government, its agencies and instrumentalities;
(5) Purchase or sell real estate, except that the Fund may invest in
securities of companies that deal in real estate or are engaged in the real
estate business, including real estate investment trusts, and securities secured
by real estate or interests therein and the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of such securities;
(6) Purchase or sell commodities or commodity futures contracts, except
that the Fund may invest in financial futures contracts, options thereon and
similar instruments;
(7) Make loans to other persons except (a) through the lending of
securities held by it, (b) through the use of repurchase agreements, and (c) by
the purchase of debt securities in accordance with its investment policies;
(8) With respect to 75% of its total assets, purchase more than 10% of
the outstanding voting securities of any one issuer or invest more than 5% of
the value of its total assets in securities of any one issuer, except the U.S.
Government, its agencies or instrumentalities.
If a percentage restriction is adhered to at the time of an investment,
a later increase or decrease in such percentage resulting from a change in the
values of assets will not constitute a violation of such restriction.
The investment restrictions above have been adopted by the Trust as
fundamental policies of the Fund. Under the Investment Company Act of 1940, as
amended (the "1940 Act"), a fundamental policy may not be changed without the
vote of a majority of the outstanding voting securities of the Fund, as defined
under the 1940 Act. "Majority" means the lesser of (1) 67% or more of the shares
present at a meeting of shareholders of the Fund, if the holders of more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (2) more than 50% of the outstanding shares of the Fund. Non-fundamental
investment restrictions may be changed at any time by vote of a majority of the
Trust's Board of Trustees.
Although the Fund has the ability to invest in REITs without regard to
the expected duration of the REIT, the Fund does not presently intend to invest
in REITs with finite lives without amending the Trust's registration statement
or supplying further information in the Prospectus or Statement of Additional
Information concerning investments in finite-life REITs. Finite-life REITs may
entail special risks, such as the risk that shareholders will elect to continue
the REIT indefinitely or the risk that the REIT will liquidate and make
distributions of capital returns at any time.
Although the Fund has the ability to invest in financial futures
contracts and options thereon, to invest in puts, calls and warrants, to acquire
securities of closed-end investment companies, to sell securities short against
the box and to loan portfolio securities, the Fund has no current intention of
doing so without amending the Trust's registration statement or supplying
further information in the Prospectus or Statement of Additional Information
concerning such activities.
Restricted securities eligible for resale to "qualified institutional
buyers" pursuant to Rule 144A under the Securities Act of 1933, as amended, may
be determined to be liquid by the Investment Manager under guidelines approved
by the Board of Trustees. In its determination of liquidity with respect to such
securities, the Investment Manager will consider the following factors, among
others: (1) the frequency of trades and quotes for the security, (2) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers, (3) dealer undertakings to make a market in the security,
and (4) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer). The foregoing investment practice could
have the effect of increasing the level of illiquidity in the Fund to the extent
that qualified institutional buyers become uninterested in purchasing the
securities.
The Fund may invest up to 25% of its total assets in repurchase
agreements. A repurchase agreement is an instrument under which the purchaser
acquires ownership of a security and obtains a simultaneous commitment from the
seller (a bank or, to the extent permitted by the 1940 Act, a recognized
securities dealer) to repurchase the security at an agreed-upon price and date
(usually seven days or less from the date of original purchase). The resale
price is in excess of the purchase price and reflects an agreed-upon market rate
unrelated to the coupon rate on the purchased security. Such transactions afford
the Fund the opportunity to earn a return on temporarily available cash at
minimal market risk. While the underlying security may be a bill, certificate of
indebtedness, note or bond issued by an agency, authority or instrumentality of
the U.S. Government, the obligation of the seller is not guaranteed by the U.S.
Government and there is a risk that the seller may fail to repurchase the
underlying security. In such event, the Fund would attempt to exercise rights
with respect to the underlying security, including possible disposition in the
market. However, the Fund may be subject to various delays and risks of loss,
including (1) possible declines in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (2) possible
reduced levels of income and lack of access to income during this period, and
(3) inability to enforce rights and the expenses involved in attempted
enforcement.
The Fund may enter into reverse repurchase agreements with banks or
broker-dealers. Reverse repurchase agreements involve the sale of a security
held by the Fund and its agreement to repurchase the instrument at a stated
price, date and interest payment. Reverse repurchase agreements may be
considered to be borrowings by the Fund and entail additional risks such as the
occurrence of interest expenses and fluctuations in the Fund's net asset value.
In connection with entering into reverse repurchase agreements, a segregated
account of the Fund consisting of cash, cash equivalents, U.S. Government
securities or other high quality liquid debt securities with an aggregate value
at all times sufficient to repurchase the securities, or equal to the proceeds
received upon the sale plus accrued interest, will be established with the
Fund's custodian bank.
The Fund may invest in mortgage-related securities and asset-backed
securities. Mortgage- related securities are represented by pools of mortgage
loans or loans assembled for sale to investors by various governmental agencies,
such as the Government National Mortgage Association, and government-related
organizations, such as the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation, as well as by private issuers, such as
commercial banks, savings and loan institutions, financial corporations,
mortgage bankers and private mortgage insurance companies. Asset-backed
securities are pass-through securities backed by non-mortgage assets, including
automobile loans, credit card receivables and consumer receivables. Although
certain mortgage-related and asset-backed securities are guaranteed by a third
party or otherwise similarly secured, the market value of the security, which
may fluctuate, and the yield are not so secured. If the Fund purchases a
mortgage-related or an asset-backed security at a premium, all or part of the
premium may be lost if there is a decline in the market value of the security,
whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral.
As with other interest-bearing securities, the prices of such securities
are inversely affected by changes in interest rates. However, although the value
of a mortgage-related or asset-backed security may decline when interest rates
rise, the converse is not necessarily true, because in periods of declining
interest rates the mortgages or assets underlying the security may be more
likely to be prepaid. For this and other reasons, a mortgage-related or
asset-backed security's stated maturity may be shortened by unscheduled
prepayments on the underlying mortgages or assets and, therefore, it is not
possible to predict accurately the security's return. Such prepayments may
expose the Fund to a lower rate of return on reinvestment. To the extent that
such mortgage-related securities are held by the Fund, the prepayment right of
the mortgagors may limit the increase in net asset value of the Fund because the
value of the mortgage-related securities held by the Fund may not appreciate as
rapidly as the price of other debt securities.
PORTFOLIO TURNOVER
Although the Fund's objective is long-term growth and above-average
income and the Fund does not purchase securities with the intention of engaging
in short term trading, the Fund will sell any particular security and reinvest
proceeds when it is deemed prudent by the Investment Manager, regardless of the
length of the holding period. This policy may result in higher securities
transaction costs. To the extent that this policy results in gains on
investments, the Fund will make distributions to its shareholders, which may
accelerate the shareholders' tax liabilities for realized gains and may result
in the distribution of short-term capital gains taxable as ordinary income. See
"Income Dividends, Capital Gains Distributions and Tax Status." The Fund's
portfolio turnover rate for each full or partial year of its operation is set
forth in the Prospectus in the table entitled "Financial Highlights."
MANAGEMENT OF THE FUND
PETER O. BROWN (Age 57) -- Trustee;
30 Douglas Road, Rochester, NY; Partner, Harter, Secrest & Emery;
formerly Executive Vice President and Chief Operating Officer, The
Glenmede Trust Company; formerly Senior Vice President, Chase Lincoln
First Bank, N.A.
NICHOLAS J. GRANT (Age 82) -- Trustee;
77 Massachusetts Avenue, Cambridge, MA; Professor of Metallurgy and
Materials Science, Massachusetts Institute of Technology.
G. KENNETH HEEBNER (Age 57)* -- Trustee and Vice President;
Employee, CGM; formerly Vice President and Director, Loomis Sayles and
Company, Incorporated ("Loomis Sayles").
ROBERT L. KEMP (Age 65)* -- Trustee and President;
Employee, CGM; formerly President and Director, Loomis Sayles.
ROBERT B. KITTREDGE (Age 77) -- Trustee;
21 Sturdivant Street, Cumberland Foreside, ME; Retired; formerly Vice
President, General Counsel and Director, Loomis Sayles.
LAURENS MACLURE (Age 72) -- Trustee;
183 Sohier Street, Cohasset, MA; Retired; formerly President and Chief
Executive Officer, New England Deaconess Hospital.
JAMES VAN DYKE QUEREAU, JR. (Age 49) -- Trustee;
59 Annewood Lane, Wayne, PA; Managing Partner, Stratton Management
Company; formerly Institutional Managing Partner, Loomis Sayles.
J. BAUR WHITTLESEY (Age 51) -- Trustee; 1521 Locust Street, Philadelphia,
PA; Attorney.
KATHLEEN S. HAUGHTON (Age 37) -- Vice President;
222 Berkeley Street, Boston, MA 02116; Employee -- Investor Services
Division, CGM; formerly Vice President, Boston Financial Data Services,
Inc.
LESLIE A. LAKE (Age 53) -- Vice President and Secretary;
Employee -- Office Administrator, CGM; formerly Office Administrator,
Capital Growth Management Division of Loomis Sayles.
MARTHA I. MAGUIRE (Age 42) -- Vice President;
Employee -- Funds Marketing, CGM; formerly marketing communications
consultant (self-employed); formerly Sales Promotion Consultant, The New
England.
MARY L. STONE (Age 53) -- Assistant Vice President;
Employee -- Coordinator, Mutual Fund Recordkeeping, CGM; formerly
Coordinator, Mutual Fund Recordkeeping, Loomis Sayles.
FRANK N. STRAUSS (Age 36) -- Treasurer;
222 Berkeley Street, Boston, MA 02116; Employee -- Chief Financial
Officer, CGM; formerly Vice President of Fund Accounting, Freedom
Capital Management Corporation and Assistant Vice President, The Boston
Company, Inc.
W. DUGAL THOMAS (Age 60) -- Vice President;
Employee -- Director of Marketing, CGM; formerly Director of Marketing,
Loomis Sayles.
- ----------
* Trustees deemed "interested persons" of the Fund, as defined under the
1940 Act.
Each of the Fund's trustees is also a trustee of one or more other
investment companies for which CGM acts as investment manager. Except as
indicated above, the address of each trustee and officer of the Fund affiliated
with CGM is One International Place, Boston, Massachusetts 02110.
As of March 31, 1998, the officers and trustees of the Fund owned
beneficially less than 1.0% of the outstanding shares of the Fund.
The Fund pays no compensation to its officers or to the trustees listed
above who are interested persons of the Fund. Officers and trustees receive no
pension or retirement benefits paid from Fund expenses. The following table sets
forth the compensation paid by the Trust to its trustees for the year ended
December 31, 1997:
<TABLE>
<CAPTION>
Pension Total
or Retirement Estimated Compensation From
Aggregate Benefits Accrued Annual Registrant and
Name of Compensation as Part of Fund Benefit Upon Fund Complex
Trustee From Trust Expenses Retirement Paid to Trustees(a)
- ------- ------------ ---------------- ------------ -------------------
<S> <C> <C> <C> <C>
Peter O. Brown $27,153 None None $37,000
Nicholas J. Grant 31,653 None None 43,000
G. Kenneth Heebner None None None None
Robert L. Kemp None None None None
Robert B. Kittredge 27,153 None None 37,000
Laurens MacLure 27,153 None None 37,000
James Van Dyke Quereau, Jr. 27,153 None None 37,000
J. Baur Whittlesey 27,153 None None 37,000
</TABLE>
- ----------
(a) The Fund Complex is comprised of two Trusts with a total of six funds.
INVESTMENT ADVISORY AND OTHER SERVICES
Advisory Agreement CGM serves as investment manager of the Fund under an
advisory agreement which became effective on August 30, 1996 upon the merger of
New England Mutual Life Insurance Company into Metropolitan Life Insurance
Company. Under the advisory agreement, CGM manages the investment and
reinvestment of assets of the Fund and generally administers its affairs,
subject to supervision by the Board of Trustees of the Trust. CGM furnishes, at
its own expense, all necessary office supplies, facilities and equipment,
services of executive and other personnel of the Fund and certain administrative
services. For these services, CGM is compensated at the annual percentage rate
of 0.85% of the first $500 million of the Fund's average daily net asset value,
and 0.75% of such value in excess of $500 million. For the period May 13, 1994
(commencement of operations) through December 31, 1997, CGM voluntarily agreed
to limit its management fees and, if necessary, to bear certain expenses
associated with operating the Fund, in order to limit the Fund's total operating
expenses to an annual rate of 1.0% of the Fund's average net assets. For the
fiscal years ended December 31, 1995, 1996 and 1997, the investment advisory
fees that would have been payable to CGM in respect of services rendered to the
Fund amounted to $333,264, $717,641 and $2,906,862, respectively. As a result of
such limitation, the Fund paid advisory fees of $65,432, $508,519 and $2,664,741
for the fiscal years ended December 31, 1995, 1996 and 1997, respectively.
The Fund pays the compensation of its trustees who are not partners,
directors, officers or employees of CGM or its affiliates (other than registered
investment companies); registration, filing, and other fees in connection with
requirements of regulatory authorities; all charges and expenses of its
custodian and transfer agent; the charges and expenses of its independent
accountants; all brokerage commissions and transfer taxes in connection with
portfolio transactions; all taxes and fees payable to governmental agencies; the
cost of any certificates representing shares of the Fund; the expenses of
meetings of the shareholders and trustees of the Fund; the charges and expenses
of the Fund's legal counsel; interest, including on any borrowings by the Fund;
the cost of services, including services of counsel, required in connection with
the preparation of, and the costs of printing registration statements and
prospectuses relating to the Fund, including amendments and revisions thereto,
annual, semiannual, and other periodic reports of the Fund, and notices and
proxy solicitation material furnished to shareholders of the Fund or regulatory
authorities, to the extent that any such materials relate to the Fund or its
shareholders; and the Fund's expenses of bookkeeping, accounting, auditing and
financial reporting, including related clerical expenses.
CGM also acts as investment adviser to CGM Capital Development Fund, CGM
Mutual Fund, CGM Fixed Income Fund and CGM American Tax Free Fund and three
other mutual fund portfolios. CGM also provides investment advice to other
institutional clients.
Certain officers and trustees of the Fund also serve as officers,
directors or trustees of other investment companies advised by CGM. The other
investment companies and clients served by CGM sometimes invest in securities in
which the Fund also invests. If the Fund and such other investment companies or
clients advised by CGM desire to buy or sell the same portfolio securities at
the same time, purchases and sales will be allocated to the extent practicable
on a pro rata basis in proportion to the amounts desired to be purchased or sold
for each. It is recognized that in some cases the practices described in this
paragraph could have a detrimental effect on the price or amount of the
securities which the Fund purchases or sells. In other cases, however, it is
believed that these practices may benefit the Fund. It is the opinion of the
trustees that the desirability of retaining CGM as adviser for the Fund
outweighs the disadvantages, if any, which might result from these practices.
Custodial Arrangements State Street Bank and Trust Company ("State
Street Bank"), Boston, Massachusetts 02102, is the Fund's custodian. As such,
State Street Bank holds in safekeeping certificated securities and cash
belonging to the Fund and, in such capacity, is the registered owner of
securities held in book entry form belonging to the Fund. Upon instruction,
State Street Bank receives and delivers cash and securities of the Fund in
connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. State Street Bank
also maintains certain accounts and records of the Fund and calculates the total
net asset value, total net income, and net asset value per share of the Fund on
each business day.
Independent Accountants The Fund's independent accountants are Price
Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110. Price
Waterhouse LLP conducts an annual audit of the Fund's financial statements,
assists in the preparation of the Fund's federal and state income tax returns
and consults with the Fund as to matters of accounting and federal and state
income taxation. The information concerning financial highlights in the
Prospectus, and the financial statements incorporated by reference into this
Statement, have been so included in reliance on the reports of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
Other Arrangements Certain office space, facilities, equipment and
administrative services for the Fund and other mutual funds under the investment
management of the CGM organization are furnished by CGM. In addition, CGM
provides bookkeeping, accounting, auditing, financial recordkeeping and related
clerical services for which it is entitled to be reimbursed by the Fund based on
the cost of providing these services. For services rendered to the Fund for
fiscal years 1995, 1996 and 1997, CGM was reimbursed $12,300, $18,000 and
$24,000, respectively, by the Fund for such expenses.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In placing orders for the purchase and sale of portfolio securities for
the Fund, CGM always seeks the best price and execution. Transactions in
unlisted securities will be carried out through broker-dealers who make the
primary market for such securities unless, in the judgment of CGM, a more
favorable price can be obtained by carrying out such transactions through other
brokers.
CGM selects only brokers it believes are financially responsible, will
provide efficient and effective services in executing, clearing and settling an
order and will charge commission rates which, when combined with the quality of
the foregoing services, will produce the best price and execution for the
transaction. This does not necessarily mean that the lowest available brokerage
commission will be paid. However, the commissions are believed to be competitive
with generally prevailing rates. CGM will use its best efforts to obtain
information as to the general level of commission rates being charged by the
brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by the
broker in connection with the order, are taken into account. The Fund will not
pay a broker a commission at a higher rate than is otherwise available for the
same transaction in recognition of the value of research services provided by
the broker or in recognition of the value of any other services provided by the
broker which do not contribute to the best price and execution of the
transaction.
Receipt of research services from brokers may sometimes be a factor in
selecting a broker which CGM believes will provide the best price and execution
for a transaction. These research services include not only a wide variety of
reports on such matters as economic and political developments, industries,
companies, securities, portfolio strategy, account performance, daily prices of
securities, stock and bond market conditions and projections, asset allocation
and portfolio structure, but also meetings with management representatives of
issuers and with other analysts and specialists. Although it is not possible to
assign an exact dollar value to these services, they may, to the extent used,
tend to reduce CGM's expenses. Such services may be used by CGM in servicing
other client accounts and in some cases may not be used with respect to the
Fund. Receipt of services or products other than research from brokers is not a
factor in the selection of brokers. In 1997, brokerage transactions of the Fund
aggregating $1,066,700,788 were allocated to brokers providing research services
and $2,611,452 in commissions were paid on these transactions. During 1995, 1996
and 1997, the Fund paid total brokerage fees of $269,950, $787,194 and
$4,420,942, respectively.
DESCRIPTION OF THE TRUST
The Declaration of Trust of the Trust currently permits the trustees to
issue an unlimited number of shares of beneficial interest of separate series of
the Trust. Interests in the portfolio described in the Prospectus and in this
Statement are represented by shares of the Fund. Each share of the Fund
represents an interest in such series which is equal to and proportionate with
the interest represented by each other share. The shares of the Fund do not have
any preemptive rights. Upon liquidation of the portfolio, shareholders of the
Fund are entitled to share pro rata in the net assets of such portfolio
available for distribution to shareholders. The Declaration of Trust also
permits the trustees to charge shareholders directly for custodial, transfer
agency and servicing expenses. The trustees have no present intention of making
such direct charges.
The Declaration of Trust also permits the trustees, without shareholder
approval, to create one or more additional series or classes of shares or to
reclassify any or all outstanding shares as shares of particular series or
classes, with such preferences and rights and eligibility requirements as the
trustees may designate. While the trustees have no current intention to exercise
the power to establish separate classes of the existing series of the Fund, it
is intended to allow them to provide for an equitable allocation of the impact
of any future regulatory requirements, which might affect various classes of
shareholders differently. The trustees may also, without shareholder approval,
merge two or more existing series.
Shareholder Rights
On March 31, 1998, there were 37,151,064 shares of the Fund outstanding.
On that date, State Street Bank, acting as trustee for various retirement plans
and individual retirement accounts, owned 4,982,836 shares--about 13% of the
total. In almost all cases, State Street Bank does not have the power to vote or
to dispose of the shares except at the direction of the beneficial owner.
Shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held) and may vote (to the extent
provided herein) in the election of trustees of the Trust and the termination of
the Fund and on other matters submitted to the vote of shareholders. There will
normally be no meetings of shareholders for the purpose of electing trustees,
except that in accordance with the 1940 Act (i) the Trust will hold a
shareholders' meeting for the election of trustees at such time as less than a
majority of the trustees holding office have been elected by shareholders, and
(ii) if the appointment of a trustee to fill a vacancy in the Board of Trustees
would result in less than two-thirds of the trustees having been elected by the
shareholders, that vacancy may only be filled by a vote of the shareholders. In
addition, trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for the purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by ten or more shareholders of record who have been such
for at least six months and who hold in the aggregate shares equal to at least
the lesser of (i) $25,000 in net asset value or (ii) 1% of the outstanding
shares, stating that shareholders wish to communicate with the other
shareholders for the purpose of obtaining the signatures necessary to demand a
meeting to consider removal of a trustee, the Trust will either provide access
to a list of shareholders or disseminate appropriate materials (at the expense
of the requesting shareholders). Except as set forth above, the trustees shall
continue to hold office and may appoint successor trustees. Voting rights are
not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the holders of the outstanding shares of the
Trust except (i) to change the Trust's name or to cure technical problems in the
Declaration of Trust and (ii) to establish, designate or modify new and existing
series or subseries of Trust shares or other provisions relating to Trust shares
in response to applicable laws or regulations. The shareholders of the Fund
shall not be entitled to vote on matters exclusively affecting any other series,
such matters including, without limitation, the adoption of or change in the
investment objectives, policies or restrictions of the series and the approval
of the investment advisory contracts of the series. Similarly, no shareholders
of any other series shall be entitled to vote on any such matters exclusively
affecting the Fund. In particular, the phrase "majority of the outstanding
voting securities of the Fund" as used in this Statement shall refer only to the
shares of the Fund.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust;
however, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or trustees. The Declaration of Trust provides for indemnification out of Fund
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote since it
is limited to circumstances in which the disclaimer is inoperative and the Fund
itself would be unable to meet its obligations.
The Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The By-Laws of the Trust provide for indemnification by the Trust of
the trustees and officers of the Trust except with respect to any matter as to
which any such person did not act in good faith in the reasonable belief that
such action was in or not opposed to the best interests of the Trust. No officer
or trustee may be indemnified against any liability to the Trust or the Trust's
shareholders to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
All persons dealing with the Fund must look only to the assets of the
Fund for the enforcement of any claims against the Fund and no other series of
the Trust assumes any liability for obligations entered into on behalf of the
Fund.
HOW TO BUY SHARES
The procedures for purchasing shares of the Fund are summarized in the
Prospectus under "How to Purchase Shares."
ADVERTISING AND PERFORMANCE INFORMATION
Calculation of Total Return
The Fund may include total return information in advertisements or
written sales material. Total return is a measure of the change in value of an
investment in the Fund over the period covered, which assumes that any dividends
or capital gains distributions are automatically reinvested in the Fund rather
than paid to the investor in cash. The formula for total return used by the Fund
includes three steps:
(1) adding to the total number of shares purchased by a
hypothetical $1,000 investment in the Fund all additional shares that
would have been purchased if all dividends and distributions paid or
distributed during the period had been automatically reinvested;
(2) calculating the value of the hypothetical initial investment
as of the end of the period by multiplying the total number of shares
owned at the end of the period by the net asset value per share on the
last trading day of the period; and
(3) dividing this account value for the hypothetical investor by
the amount of the initial investment, and annualizing the result for
periods of less than one year.
For the one-year and three-year periods ended December 31, 1997, and for
the period from inception (May 13, 1994) through December 31, 1997, the average
annual total return of the Fund was 26.7%, 29.8% and 24.1%, respectively. If CGM
had not agreed to fee limitations and expense provisions described above, the
Fund's total return for such periods would have been lower.
In computing performance information for the Fund, no adjustment will be
made for a shareholder's tax liability on taxable dividends and capital gains
distributions.
Calculation of Yield
The Fund may use yield information in advertisements or written sales
material. The Fund's yield is based on a recent 30 day period, and is determined
in accordance with the SEC's standardized formula by:
(1) calculating the aggregate dividends and adjusted interest
earned during that period, net of recurring expenses accrued for the
period; and
(2) dividing that amount by the product of (A) the average daily
number of shares outstanding during the period and (B) the maximum
offering price per share on the last day of the period (less any earned
income expected to be declared as a dividend shortly
thereafter).
The result is annualized, assuming a quarterly compounding, to determine
the Fund's yield. Interest earned during the period will be adjusted to reflect
amortization of any premium or discount from par on the Fund's fixed income
securities (other than obligations backed by mortgages or other assets), using
the market value for these securities on the last day of the period, or, for
securities purchased during the period, using actual cost. The Fund's yield will
vary from time to time depending upon market conditions, the composition of the
Fund's portfolio and operating expenses of the Fund. The 30-day yield of the
Fund for the period ended December 31, 1997, was 5.27%.
Performance Comparisons
Total return may be used to compare the performance of the Fund against
certain widely acknowledged standards or indices for stock and bond market
performance or against the U.S.
Bureau of Labor Statistics' Consumer Price Index.
The Standard & Poor's 500 Composite Index (the "S&P 500") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 stocks relative to the base period 1941-43. The S&P 500 is composed
almost entirely of common stocks of companies listed on the New York Stock
Exchange, although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included. The 500 companies
represented include 400 industrial, 60 transportation and 40 financial services
concerns.
The Dow Jones Industrial Average is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York Stock
Exchange.
No brokerage commissions or other fees are factored into the values of
the S&P 500 and the Dow Jones Industrial Average.
The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of change, over time, in the prices of
goods and services in major expenditure groups.
Lipper Analytical Services, Inc., an independent service that monitors
the performance of over 11,332 mutual funds, calculates total return for those
funds grouped by investment objective. From time to time, the Fund may include
its ranking among mutual funds tracked by Lipper in advertisements or sales
literature.
Morningstar, Inc. ("Morningstar") is an independent mutual fund ranking
service. Morningstar proprietary ratings reflect historical risk-adjusted
performance and are subject to change every month. Funds with at least three
years of performance history are assigned ratings from one star (lowest) to five
stars (highest). Morningstar ratings are calculated from the funds' three-,
five-, and ten-year average annual returns (when available) and a risk factor
that reflects the fund performance relative to three-month Treasury bill monthly
returns. Funds' returns are adjusted for fees and sales loads. Ten percent of
the funds in an investment category receive five stars, 22.5% receive four
stars, 35% receive three stars, 22.5% receive two stars, and the bottom 10%
receive one star. From time to time, the Fund may include its ranking among
mutual funds tracked by Morningstar in advertisements or sales literature.
Value Line, Inc. ("Value Line"), an independent mutual fund ranking
service reviews the performance of 7,976 mutual funds. In ranking mutual funds,
Value Line uses two indicators: a Risk Rank to show the total level of risk a
fund has assumed and an Overall Rank measuring various performance criteria
taking risk into account. Funds are ranked from 1 to 5, with 1 the highest
Overall Rank (the best risk-adjusted performance) and the best Risk Rank (the
least risky). From time to time, the Fund may include ranking information
provided by Value Line in advertisements and sales literature.
The Fund may compare its total return or yield or both to that of the
National Association of Real Estate Investment Trusts' (NAREIT) Equity REIT
Index.
From time to time, articles about the Fund regarding performance,
rankings and other characteristics of the Fund, information about persons
responsible for its portfolio management, and information about the
characteristics and performance of the real estate industry, REITs and mutual
funds that invest in real estate securities may appear in national publications
and major metropolitan newspapers including, but not limited to, The Wall Street
Journal, The Boston Globe, The New York Times and Barron's, Forbes, Fortune,
Money, Worth, Kiplinger's Personal Finance, Mutual Funds, Individual Investor,
Bloomberg Personal and Business Week magazines. In particular, some or all of
these publications may publish their own rankings or performance reviews of
mutual funds, including the Fund. References to or reprints of, or quotations
from, such articles may be used in the Fund's promotional literature.
Mr. Heebner has continuously managed the Fund since its inception on May
13, 1994.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price and net asset value
per share is summarized in the Prospectus under "Pricing of Shares."
The net asset value of a share of the Fund is determined by dividing the
Fund's total net assets (the excess of its assets over its liabilities) by the
total number of shares outstanding and rounding to the nearest cent. Such
determination is made as of the close of normal trading on the New York Stock
Exchange on each day on which the Exchange is open for unrestricted trading, and
no less frequently than once daily on each day during which there is sufficient
trading in the Fund's portfolio securities that the value of the Fund's shares
might be materially affected. During the 12 months following the date of this
Statement, the New York Stock Exchange is currently expected to be closed on the
following holidays: Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
Christmas Day, New Year's Day, Martin Luther King, Jr. Day, Presidents' Day and
Good Friday.
Securities which are traded over-the-counter or on a stock exchange will
be valued according to the broadest and most representative market based on the
last reported sale price for securities listed on a national securities exchange
(or on the NASDAQ National Market System) or, if no sale was reported and in the
case of over-the-counter securities not so listed, the last reported bid price.
U.S. Government securities are valued at the most recent quoted price on the
date of valuation.
For equity securities, it is expected that the broadest and most
representative market will ordinarily be either (i) a national securities
exchange, such as the New York Stock Exchange or American Stock Exchange, or
(ii) the NASDAQ National Market System. For corporate bonds, notes, debentures
and other fixed-income securities, it is expected that the broadest and most
representative market will ordinarily be the over-the-counter market.
Fixed-income securities may, however, be valued on the basis of prices provided
by a pricing service approved by the Board of Trustees when such prices are
believed to reflect the fair market value of such securities. The prices
provided by the pricing service may be determined based on 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.
Instruments with maturities of sixty days or less are valued at amortized cost,
which approximates market value. Other assets and securities which are not
readily marketable will be valued in good faith at fair value using methods
determined by the Board of Trustees.
SHAREHOLDER SERVICES
Open Accounts
A shareholder's investment in the Fund is credited to an open account
maintained for the shareholder by the CGM Shareholder Services Department ("CGM
Shareholder Services") of Boston Financial Data Services, Inc. ("BFDS"), the
shareholder servicing agent for State Street Bank. The address is: CGM
Shareholder Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
Certificates representing shares are issued only upon written request to
CGM Shareholder Services but are not issued for fractional shares. Following
each transaction in the account, a shareholder will receive an account statement
disclosing the current balance of shares owned and the details of recent
transactions that have taken place during the year. After the close of each
fiscal year, CGM Shareholder Services will send each shareholder a statement
providing federal tax information on dividends and distributions paid to the
shareholder during the year. The year-end statement should be retained as a
permanent record. Shareholders will be charged a fee for duplicate information.
The open account system permits the purchase of full and fractional
shares and, by making the issuance and delivery of certificates representing
shares unnecessary, eliminates problems of handling and safekeeping, and the
cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are borne by the Fund,
and no direct charges are made to shareholders. Although the Fund has no present
intention of making such direct charges to shareholders, it reserves the right
to do so. Shareholders will receive prior notice before any such charges are
made.
Systematic Withdrawal Plans ("SWP")
A Systematic Withdrawal Plan, referred to in the Prospectus under
"Shareholder Services--Systematic Withdrawal Plan," provides for monthly,
quarterly, semiannual or annual withdrawal payments of $50 or more from the
account of a shareholder provided that the account has a value of at least
$10,000 at the time the plan is established. A shareholder may establish a SWP
by completing the Service Options Form.
Payments will be made either to the shareholder or to any other person
or entity designated by the shareholder. If payments are issued to an individual
other than the registered owner(s) and/or mailed to an address other than the
address of record, a signature guarantee will be required on the Service Options
Form. Shares to be included in a Systematic Withdrawal Plan must be held in an
Open Account rather than certificated form. Income dividends and capital gain
distributions will be reinvested at the net asset value determined as of the
close of the New York Stock Exchange on the record date for the dividend or
distribution. If withdrawal checks are returned to the Fund as "undeliverable"
or remain uncashed for more than six months the shareholder's Systematic
Withdrawal Plan will be cancelled, such undeliverable or uncashed checks will be
cancelled and such amounts reinvested in the Fund at the per share net asset
value determined as of the date of cancellation of the checks.
Since withdrawal payments represent in whole or in part proceeds from
the liquidation of shares, the shareholder should recognize that withdrawals may
reduce and possibly exhaust the value of the account, particularly in the event
of a decline in net asset value. Accordingly, the shareholder should consider
whether a Systematic Withdrawal Plan and the specified amounts to be withdrawn
are appropriate in the circumstances. The Trust makes no recommendations or
representations in this regard. It may be appropriate for the shareholder to
consult a tax adviser before establishing such a plan. See "Redemptions" and
"Income Dividends, Capital Gain Distributions and Tax Status" below for certain
information as to federal income taxes.
Exchange Privilege
A shareholder may exchange shares of the Fund for shares of CGM Mutual
Fund, CGM Fixed Income Fund, CGM American Tax Free Fund, CGM Focus Fund, New
England Cash Management Trust, New England Tax Exempt Money Market Trust or CGM
Capital Development Fund; however, shares of CGM Capital Development Fund may be
exchanged for only if you were a shareholder on September 24, 1993, and have
continuously remained a shareholder in the CGM Capital Development Fund since
that date. CGM Capital Development Fund shares are not generally available to
other persons except in special circumstances that have been approved by, or
under the authority of, the Board of Trustees of CGM Capital Development Fund.
The special circumstances currently approved by the Board of Trustees of CGM
Capital Development Fund are limited to the offer and sale of shares of such
fund to the following additional persons: trustees of CGM Capital Development
Fund, employees of the Investment Manager and counsel to such fund and the
Investment Manager. The value of shares exchanged must be at least $1,000 and
all exchanges are subject to the minimum investment requirements of the fund
into which the exchange is being made. This option is summarized in the
Prospectus under "Shareholder Services--Exchange Privilege." Exchange requests
cannot be revoked once they have been received in good order. The Trust reserves
the right to terminate or limit the privilege of a shareholder who makes more
than four exchanges (or two round trips) per year and to prohibit exchanges
during the first 15 days following an investment in the Fund. A shareholder may
exercise the exchange privilege only when the fund into which shares will be
exchanged is registered or qualified in the state in which such shareholder
resides.
Exchanges may be effected by (i) a telephone request to CGM Shareholder
Services at 800-343-5678, provided a special authorization form is on file with
the Trust, or (ii) a written exchange request to BFDS accompanied by an account
application for the appropriate fund. The Trust reserves the right to modify
this exchange privilege without prior notice, except as otherwise required by
law or regulation.
For federal income tax purposes, an exchange constitutes a sale of
shares, which may result in a capital gain or loss.
Automatic Investment Plans ("AIP")
Once initial investment minimums have been satisfied (see "How to
Purchase Shares" in the Prospectus), a shareholder may participate in an
Automatic Investment Plan, pursuant to which the Fund debits $50.00 or more on
or about the same date each month from a shareholder's checking account and
transfers the proceeds into the shareholder's Fund account. To participate, a
shareholder must authorize the Fund and its agents to initiate Automated
Clearing House ("ACH") debits against the shareholder's designated checking
account at a bank or other financial institution. Please contact CGM Shareholder
Services at 800-343-5678 to determine the requirements associated with debits
from savings banks and credit unions. Debits from money market accounts are not
acceptable. Shareholders receive a confirmation of each purchase of Fund shares
under the AIP. If a shareholder elects to redeem shares of the Fund purchased
under the AIP within 15 days of such purchase, the shareholder may experience
delays in receiving redemption proceeds. See "All Redemptions."
Once a shareholder enrolls in the AIP, the Fund and its agents are
authorized to initiate ACH debits against the shareholder's account payable to
the order of The CGM Funds. Such authority remains in effect until revoked by
the shareholder, and, until the Fund actually receives such notice of
revocation, the Fund is fully protected in initiating such debits. Participation
in the AIP may be terminated by sending written notice to CGM Shareholder
Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511, or by calling
800-343-5678 more than 14 days prior to the next scheduled debit date. The Fund
may terminate a shareholder's participation in the AIP immediately in the event
that any item is unpaid by the shareholder's financial institution. The Fund may
terminate or modify the AIP at any time.
Retirement Plans
Under "Shareholder Services--Retirement Plans" the Prospectus refers to
several retirement plans. These include tax deferred money purchase pension or
profit sharing plans, as well as SEP-IRAs, Traditional and Roth IRAs and
403(b)(7) custodial accounts established under retirement plans sponsored by
CGM. These plans may be funded with shares of the Fund.
For participants under age 59 1/2, generally, all income dividends and
capital gain distributions of plan participants must be reinvested. Plan
documents and further information can be obtained from the Trust by writing or
calling the Trust as indicated on the cover of this Statement.
Check with your financial or tax adviser as to the suitability of Fund
shares for your retirement plan.
Address Changes
Shareholders can request to change their record address either by
telephone or in writing (by mail or delivery service, but not by facsimile) in
accordance with the policies and procedures of the Trust. After an address
change is made, no telephone or written redemption requests will be honored for
three months unless the registered owner's signature is guaranteed on the
request. Written requests for a change of address may be mailed to: CGM
Shareholder Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
REDEMPTIONS
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
Except as noted below, signatures on redemption requests must be
guaranteed by an eligible guarantor institution in accordance with procedures
established by the Trust. Signature guarantees by notaries public are not
acceptable.
The procedures provide that an "eligible guarantor institution" means
any of the following: banks (as defined in ss. 3(a) of the Federal Deposit
Insurance Act (the "FDIA") [12 U.S.C. ss. 1813(a)]); brokers, dealers, municipal
securities brokers, government securities dealers and government securities
brokers, as those terms are defined under the Securities Exchange Act of 1934
(the "Act"); credit unions (as defined in ss. 19(b)(1)(A) of the Federal Reserve
Act [12 U.S.C. ss. 461(b)]); national securities exchanges, registered
securities associations and clearing agencies, as those terms are defined under
the Act; and savings associations (as defined in ss. 3(b) of the FDIA [12 U.S.C.
ss. 1813(b)]). However, as noted in the Prospectus, a signature guarantee will
not be required if the proceeds of the redemption do not exceed $25,000, and the
proceeds check is made payable to the registered owner(s) and mailed to the
record address, which has not changed in the prior three months. If the record
address has changed within the prior three months, a signature guarantee will be
required. This policy applies to both written and telephone redemption requests.
Redeeming by Telephone
There are two ways to redeem by telephone. In either case, a shareholder
should call 800-343-5678 prior to 4:00 p.m. (Eastern time). Requests made after
that time or on a day when the New York Stock Exchange is not open for business
cannot be accepted. Telephone redemptions are not available for Traditional or
Roth IRAs, SEP-IRAs, 403(b)(7) custodial accounts or money purchase pension and
profit sharing plans under a CGM retirement plan where State Street Bank is the
custodian or trustee.
Check Sent to the Record Address
A shareholder may request that a check be sent to the record address on
the account, provided that the address has not changed for the last three months
and the shareholder is redeeming $25,000 or less. Except in the case of a CGM
retirement plan, the service option of telephone redemption by check is
available to shareholders automatically unless this option is declined in the
application or in writing. The check will be made payable to the registered
owner(s) of the account.
If checks representing redemption proceeds are returned "undeliverable"
or remain uncashed for six months, such checks shall be cancelled and such
proceeds shall be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation of such
checks.
Proceeds Wired to a Predesignated Bank
A shareholder may request that the redemption proceeds be wired to the
bank selected on the Fund application or subsequently on the Service Options
Form available from the Trust or BFDS. A nominal wire fee, currently $5.00, is
deducted from the proceeds. When selecting the service, a shareholder must
designate a bank account to which the redemption proceeds should be wired. Any
change in the bank account so designated may be made by furnishing BFDS a
completed Service Options Form with a signature guarantee. Whenever the Service
Options Form is used, the shareholder's signature must be guaranteed as
described above. Telephone redemptions may be made only if an investor's bank is
a member of the Federal Reserve System or has a correspondent bank that is a
member of the System. If the account is with a savings bank, it must have only
one correspondent bank that is a member of the System.
All Redemptions
The redemption price will be the net asset value per share next
determined after the redemption request is received by CGM Shareholder Services
in good order (including any necessary documentation). Redemption requests
cannot be revoked once they have been received in good order. Proceeds resulting
from a written redemption request will normally be mailed to you within seven
days after receipt of your request in good order. Telephone redemption proceeds
will normally be mailed or wired within seven days following receipt of a proper
redemption request. If you purchased your Fund shares by check (or through your
AIP) and elect to redeem shares within 15 days of such purchase, you may
experience delays in receiving redemption proceeds. The Trust will process your
redemption request upon receipt of a request in good order. However, the Trust
will generally postpone sending your redemption proceeds from such investment
until it can verify that your check (or AIP investment) has been or will be
collected. Under ordinary circumstances, the Trust cannot verify collection of
individual checks (or AIP investments) and may therefore automatically hold
proceeds from redemptions requested during the 15 day period following such
investment for a total of up to seven days. There will be no such automatic
delay following investments paid for by federal funds wire or by bank cashier's
check, certified check or treasurer's check although the Trust may in any case
postpone payment of redemption proceeds for up to seven days.
The Trust will normally redeem shares for cash; however, the Trust
reserves the right to pay the redemption price wholly in kind or partly in kind
and partly in cash if the board of trustees of the Trust determines it to be
advisable in the interest of the remaining shareholders. If portfolio securities
are distributed in lieu of cash, the shareholder will normally incur brokerage
commissions upon subsequent disposition of any such securities. However, the
Trust has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which the Trust is obligated to redeem shares solely in cash for any shareholder
during any 90-day period up to the lesser of $250,000 or 1% of the total net
asset value of the Fund at the beginning of such period.
A redemption constitutes a sale of the shares for federal income tax
purposes on which the investor may realize a long- or short-term capital gain or
loss. See "Income Dividends, Capital Gains Distributions and Tax Status."
Because the expense of maintaining small accounts is disproportionately
high, the Trust may close accounts with 20 shares or less and mail the proceeds
to the shareholder. Shareholders who are affected by this policy will be
notified of the Trust's intention to close the account, and will have 60 days
immediately following the notice in which to acquire the requisite number of
shares. The minimum does not apply to retirement and Uniform Gifts to Minors Act
or Uniform Transfers to Minors Act accounts.
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
As described in the Prospectus under "Dividends, Capital Gains
Distributions and Taxes" it is the policy of the Fund to pay quarterly, as
dividends, substantially all net investment income and to distribute annually
all net realized capital gains, if any, after offsetting any capital loss
carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the Fund based upon the net asset value determined as of
the close of the New York Stock Exchange on the record date for such dividend or
distribution. Shareholders, however, may elect to receive their income dividends
or capital gain distributions, or both, in cash. However, if a shareholder
elects to receive capital gains in cash, his or her income dividends must also
be received in cash. Shareholders can elect to receive payments of cash
dividends and capital gains distributions either by check or by direct deposit
to a bank account that they have predesignated. These elections can be made at
the time the account is opened and may be changed by the shareholder at any time
by submitting a written request directly to CGM Shareholder Services or by
calling 800-343-5678. However, changes in bank account information for direct
deposits of cash dividends and capital gains distributions must be made through
a Service Options Form. In order for a change to be effective for any dividend
or distribution, it must be received by CGM Shareholder Services on or before
the record date for such dividend or distribution. If a shareholder elects to
receive distributions in cash and checks are returned "undeliverable" or remain
uncashed for six months, such shareholder's cash election will be changed
automatically and the shareholder's future dividend and capital gains
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, following
such six month period, any undeliverable or uncashed checks will be cancelled
and such amounts reinvested in the Fund at the per share net asset value
determined as of the date of cancellation of such checks.
The Fund has met and intends to meet the requirements of the Internal
Revenue Code with respect to regulated investment companies.
The distributions received by the Fund from its investments may, for
federal income tax purposes, consist of ordinary income, long-term capital gains
or a return of capital. The characterization of these distributions to the Fund
may, in turn, affect the tax treatment of the Fund's distributions to its
shareholders. Dividends and distributions are taxable to shareholders in the
same manner whether received in cash or reinvested in additional shares of the
Fund.
Dividends paid by the Fund from net investment income, including
dividends, interest and net short-term capital gains, will be taxable to
shareholders as ordinary income. Distributions of net capital gains (the excess
of net long-term capital gains over net short-term capital losses) which are
designated by the Fund as capital gains distributions are taxable as long-term
capital gains, regardless of the length of time shareholders have owned shares
in the Fund. Because of recent changes in the tax law, capital gains
distributions to shareholders that are individuals, trusts and estates may be
subject to varying tax rates. To the extent that the Fund makes a distribution
in excess of its current and accumulated earnings and profits, the distribution
will be treated first as a tax-free return of capital, reducing the tax basis in
a shareholder's shares, and then, to the extent the distribution exceeds such
basis, as a taxable gain to be realized upon sale of such shares.
Distributions that the Fund receives from a REIT, and dividends of the
Fund attributable to such distributions, will not constitute "dividends" for
purposes of the dividends-received deduction applicable to corporate
shareholders.
Dividends and distributions on Fund shares received shortly after their
purchase, although in effect a return of capital, are subject to federal income
taxes.
The Fund will report to its U.S. shareholders and the IRS the amount of
dividends paid during each calendar year and the amount of tax withheld, if any.
Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid and redemptions
unless such shareholder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies that the shareholder is not subject to
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A shareholder who does not provide the Fund with his
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability.
As required by federal law, detailed federal tax information is
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
Investors should consult their tax advisors regarding the application of
the above-described general federal taxation rules to their own circumstances
and the state, local, or foreign tax consequences to them of any investment in
the Fund.
FINANCIAL STATEMENTS
The financial statements for the year ended December 31, 1997, included
in the Fund's Annual Report to shareholders for the year ended December 31,
1997, are incorporated herein by reference.
DOCSC\339465.6
<PAGE>
CGM AMERICAN TAX FREE FUND
CGM FIXED INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
This Statement of Additional Information (the "Statement") is not a
prospectus. This Statement relates to the CGM American Tax Free Fund and CGM
Fixed Income Fund Prospectus dated May 1, 1998 (the "Prospectus"), and should be
read in conjunction therewith. A copy of the Prospectus may be obtained from CGM
Trust, c/o The CGM Funds Investor Services Division, P.O. Box 449, Boston,
Massachusetts 02117 (Telephone:
800-345-4048).
CGM AMERICAN TAX FREE FUND MAY NOT BE AN APPROPRIATE INVESTMENT FOR
RETIREMENT PLAN AND SIMILAR ACCOUNTS.
AFSAI 98
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INTRODUCTION..................................................................1
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
OF CGM AMERICAN TAX FREE FUND ........................................1
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
OF CGM FIXED INCOME FUND..............................................4
PORTFOLIO TURNOVER............................................................7
MANAGEMENT OF THE FUND........................................................8
INVESTMENT ADVISORY AND OTHER SERVICES.......................................10
Advisory Agreement...................................................10
Custodial Arrangements...............................................12
Independent Accountants..............................................12
Other Arrangements...................................................12
PORTFOLIO TRANSACTIONS AND BROKERAGE.........................................13
DESCRIPTION OF THE TRUST.....................................................14
Shareholder Rights...................................................14
Shareholder and Trustee Liability....................................15
HOW TO BUY SHARES............................................................16
ADVERTISING AND PERFORMANCE INFORMATION......................................16
Calculation of Total Return..........................................16
Calculation of Yield.................................................17
Performance Comparisons..............................................18
NET ASSET VALUE AND PUBLIC OFFERING PRICE....................................20
SHAREHOLDER SERVICES.........................................................21
Open Accounts........................................................21
Systematic Withdrawal Plans ("SWP")..................................21
Exchange Privilege...................................................22
Automatic Investment Plans ("AIP")...................................23
Retirement Plans.....................................................23
Address Changes......................................................24
REDEMPTIONS..................................................................24
Redeeming by Telephone...............................................24
Check Sent to the Record Address.....................................25
Proceeds Wired to a Predesignated Bank...............................25
All Redemptions......................................................25
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS.................26
FINANCIAL STATEMENTS ........................................................29
<PAGE>
- ------------------------------------------------------------------------------
INTRODUCTION
- ------------------------------------------------------------------------------
CGM American Tax Free Fund and CGM Fixed Income Fund (each the "Fund"
and, collectively, the "Funds") are each organized as separate series of shares
of CGM Trust (the "Trust"). The Trust is a Massachusetts business trust
established under the laws of Massachusetts in 1986. The Trust is governed by an
Amended and Restated Agreement and Declaration of Trust (the "Declaration of
Trust") dated January 23, 1997. The Trust is a successor in interest to
Loomis-Sayles Mutual Fund. On March 1, 1990 the Trust's name was changed from
"Loomis-Sayles Mutual Fund" to "CGM Mutual Fund" to reflect the assumption by
Capital Growth Management Limited Partnership ("CGM" or the "Investment
Manager") of investment advisory responsibilities with respect to the Trust. On
December 20, 1991, the Trust's name was changed to CGM Trust.
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
OF CGM AMERICAN TAX FREE FUND
- ------------------------------------------------------------------------------
CGM American Tax Free Fund's primary investment objective is to provide
high current income exempt from federal income tax. The Fund's secondary
objective is capital appreciation. There are no assurances that CGM American Tax
Free Fund will achieve its objectives.
At least 75% of CGM American Tax Free Fund's assets will be invested in
securities rated at the time of purchase Baa, MIG-2, Prime-2 or higher by
Moody's Investors Service, Inc. ("Moody's"); or BBB, SP-2, A-2 or better by
Standard and Poor's Corporation ("Standard and Poor's"); or, if not rated by
Moody's or Standard and Poor's, determined to be of comparable quality by the
Investment Manager. Up to 25% of the Fund's assets may be invested in lower
quality securities, which have speculative characteristics and are subject to
special risks described in the Prospectus.
As a fundamental policy, under normal market conditions, CGM American
Tax Free Fund will invest at least 80% of its net assets in securities, the
interest from which is, in the opinion of counsel to the issuer, exempt from
federal income tax and excluded from the calculation of the federal alternative
minimum tax for individuals.
CGM American Tax Free Fund may not:
(1) Borrow money, except that it may borrow from banks in an amount not
to exceed 1/3 of the value of its total assets and may borrow for temporary
purposes from entities other than banks in an amount not to exceed 5% of the
value of its total assets;
(2) Issue any senior securities, except as permitted by the terms of any
exemptive order or similar rule issued by the Securities and Exchange Commission
(the "SEC") relating to multiple classes of shares of beneficial interest of the
Trust, and provided further that collateral arrangements with respect to forward
contracts, futures contracts, short sales or options, including deposits of
initial and variation margin, shall not be considered to be the issuance of a
senior security for purposes of this restriction;
(3) Act as an underwriter of securities issued by other persons, except
insofar as the Fund may be deemed an underwriter in connection with the
disposition of securities;
(4) Purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase to be invested in
the securities of one or more issuers having their principal business activities
in the same industry, provided that there is no limit with respect to
investments in securities issued by the U.S. Government, its agencies and
instrumentalities;
(5) Purchase or sell real estate, except that the Fund may invest in
securities of companies that deal in real estate and securities secured by real
estate or interests therein and the Fund may hold and sell real estate acquired
as a result of the Fund's ownership of such securities;
(6) Purchase or sell commodities or commodity futures contracts, except
that the Fund may invest in financial futures contracts, options thereon and
similar instruments;
(7) Make loans to other persons except (a) through the lending of
securities held by it, (b) through the use of repurchase agreements, and (c) by
the purchase of debt securities in accordance with its investment policies; or
(8) With respect to 75% of its total assets, purchase more than 10% of
the outstanding voting securities of one issuer or invest more than 5% of the
value of its total assets in securities of any one issuer, except the U.S.
Government, its agencies or instrumentalities.
If a percentage restriction is adhered to at the time of an investment,
a later increase or decrease in such percentage resulting from a change in the
values of assets will not constitute a violation of such restriction.
The investment restrictions above have been adopted by the Trust as
fundamental policies of CGM American Tax Free Fund. Under the Investment Company
Act of 1940 as amended (the "1940 Act"), a fundamental policy may not be changed
without the vote of a majority of the outstanding voting securities of CGM
American Tax Free Fund, as defined under the 1940 Act. "Majority" means the
lesser of (1) 67% or more of the shares present at a meeting of shareholders of
the Fund, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (2) more than 50% of the outstanding
shares of the Fund. Non- fundamental investment restrictions may be changed at
any time by vote of a majority of the Trust's Board of Trustees.
Although CGM American Tax Free Fund has the ability to invest in
financial futures contracts and options thereon, to invest in puts, calls and
warrants, to acquire securities of closed-end investment companies, to sell
securities short against the box, to purchase publicly traded securities issued
by real estate investment trusts and to loan portfolio securities, the Fund has
no current intention of doing so without amending the Trust's registration
statement or supplying further information in the Prospectus or Statement of
Additional Information concerning such activities.
Restricted securities eligible for resale to "qualified institutional
buyers" pursuant to Rule 144A under the Securities Act of 1933, as amended, may
be determined to be liquid by the Investment Manager under guidelines approved
by the Board of Trustees. In its determination of liquidity with respect to such
securities, the Investment Manager will consider the following factors, among
others: (1) the frequency of trades and quotes for the security, (2) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers, (3) dealer undertakings to make a market in the security,
and (4) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer). The foregoing investment practice could
have the effect of increasing the level of illiquidity in CGM American Tax Free
Fund to the extent that qualified institutional buyers become uninterested in
purchasing the securities.
CGM American Tax Free Fund may invest up to 5% of its total assets in
repurchase agreements. A repurchase agreement is an instrument under which the
purchaser acquires ownership of a security and obtains a simultaneous commitment
from the seller (a bank or, to the extent permitted by the 1940 Act, a
recognized securities dealer) to repurchase the security at an agreed-upon price
and date (usually seven days or less from the date of original purchase). The
resale price is in excess of the purchase price and reflects an agreed upon
market rate unrelated to the coupon rate on the purchased security. Such
transactions afford CGM American Tax Free Fund the opportunity to earn a return
on temporarily available cash at minimal market risk. While the underlying
security may be a bill, certificate of indebtedness, note or bond issued by an
agency, authority or instrumentality of the U.S. Government, the obligation of
the seller is not guaranteed by the U.S. Government and there is a risk that the
seller may fail to repurchase the underlying security. In such event, CGM
American Tax Free Fund would attempt to exercise rights with respect to the
underlying security, including possible disposition in the market. However, the
Fund may be subject to various delays and risks of loss, including (1) possible
declines in the value of the underlying security during the period while the
Fund seeks to enforce its rights thereto, (2) possible reduced levels of income
and lack of access to income during this period, and (3) inability to enforce
rights and the expenses involved in attempted enforcement.
CGM American Tax Free Fund may enter into reverse repurchase agreements
with banks or broker-dealers. Reverse repurchase agreements involve the sale of
a security held by the Fund and its agreement to repurchase the instrument at a
stated price, date and interest payment. Reverse repurchase agreements may be
considered to be borrowings by the Fund and entail additional risks such as the
occurrence of interest expenses and fluctuations in the Fund's net asset value.
In connection with entering into reverse repurchase agreements, a segregated
account of the Fund consisting of cash, cash equivalents, U.S. Government
securities or other high quality liquid debt securities with an aggregate value
at all times sufficient to repurchase the securities, or equal to the proceeds
received upon the sale plus accrued interest, will be established with the
Fund's custodian bank.
CGM American Tax Free Fund may purchase municipal lease obligations. In
determining the liquidity of municipal lease obligations, the Board of Trustees
will consider the following factors: (1) the frequency of trades and quotes; (2)
the number of dealers willing to purchase or sell the security; (3) the
willingness of dealers to undertake to make a market; (4) the nature of the
marketplace trades; and (5) the likelihood that the obligation will continue to
be marketable based on the credit quality of the municipality or relevant
obligor.
While CGM American Tax Free Fund may not invest more than 25% of its
total assets in any one industry, the Fund may invest more than 25% of its total
assets in a broader segment of the tax-exempt market, such as revenue
obligations of hospitals and other healthcare facilities, housing agency revenue
obligations or airport revenue obligations. The Fund may also invest more than
25% of its total assets in securities relating to any one or more states
(including the District of Columbia), territories or United States possessions
or any of their political subdivisions.
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
OF CGM FIXED INCOME FUND
- ------------------------------------------------------------------------------
CGM Fixed Income Fund's investment objective is to maximize total return
by investing in debt securities and preferred stocks that provide current
income, capital appreciation or a combination of both income and appreciation.
Under normal circumstances, CGM Fixed Income Fund will invest at least 65% of
its total assets in fixed-income securities. There are no assurances that the
Fund will achieve its objective and the Fund may change its objective without
shareholder approval.
CGM Fixed Income Fund may invest up to 35% of its assets in securities
with ratings lower than Baa (baa in the case of preferred stocks) by Moody's or
BBB by Standard and Poor's. The Fund may invest up to 10% of its total assets in
securities rated at the time of purchase Caa by Moody's (caa in the case of
preferred stocks) or CCC by Standard and Poor's if, in the opinion of the
Investment Manager, the financial condition of the issuer or the protection
afforded to the particular security is stronger than would otherwise be
indicated by the rating. Risks associated with such investments are described in
the Prospectus.
CGM Fixed Income Fund may invest up to 20% of its net assets at the time
of purchase in debt securities and preferred stocks of foreign issuers. Risks
associated with such investments
are described in the Prospectus.
At any time that CGM Fixed Income Fund's borrowings (including
obligations under reverse repurchase agreements) exceed 5% of the value of its
total assets, the Fund will not purchase or acquire any additional investment
securities.
CGM Fixed Income Fund may not:
(1) Borrow money, except that it may borrow from banks in an amount not
to exceed 1/3 of the value of its total assets and may borrow for temporary
purposes from entities other than banks in an amount not to exceed 5% of the
value of its total assets;
(2) Issue any senior securities, except as it may be permitted by the
terms of any exemptive order or similar rule issued by the SEC relating to
multiple classes of shares of beneficial interest of the Trust, and provided
further that collateral arrangements with respect to forward contracts, futures
contracts, short sales or options, including deposits of initial and variation
margin, shall not be considered to be the issuance of a senior security for the
purposes of this restriction;
(3) Act as an underwriter of securities issued by other persons, except
insofar as the Fund may be deemed an underwriter in connection with the
disposition of securities;
(4) Purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase to be invested in
the securities of one or more issuers having their principal business activities
in the same industry, provided that there is no limit with respect to
investments in the U.S. Government, its agencies and instrumentalities;
(5) Purchase or sell real estate, except that the Fund may invest in
securities of companies that deal in real estate and securities secured by real
estate or interests therein and the Fund may hold and sell real estate acquired
as a result of the Fund's ownership of such securities;
(6) Purchase or sell commodities or commodity futures contracts, except
that the Fund may invest in financial futures contracts, options thereon and
similar instruments;
(7) Make loans to other persons except (a) through the lending of
securities held by it, (b) through the use of repurchase agreements, and (c) by
the purchase of debt securities in accordance with its investment policies; or
(8) With respect to 75% of its total assets, purchase more than 10% of
the outstanding voting securities of any one issuer or invest more than 5% of
the value of its total assets in the securities of any one issuer, except the
U.S. Government, its agencies or instrumentalities.
If a percentage restriction is adhered to at the time of an investment,
a later increase or decrease in such percentage resulting from a change in the
values of assets will not constitute a violation of such restriction.
The investment restrictions above have been adopted by the Trust as
fundamental policies of CGM Fixed Income Fund. Under the 1940 Act, a fundamental
policy may not be changed without the vote of a majority of the outstanding
voting securities of the Fund, as defined under the 1940 Act. "Majority" means
the lesser of (1) 67% or more of the shares present at a meeting of shareholders
of the Fund, if the holders of more than 50% of the outstanding shares of the
Fund are present or represented by proxy, or (2) more than 50% of the
outstanding shares of the Fund. Non-fundamental investment restrictions may be
changed at any time by vote of a majority of the Trust's Board of Trustees.
Although CGM Fixed Income Fund has the ability to invest in financial
futures contracts and options thereon, to acquire securities of closed-end
investment companies, to sell securities short against the box, to purchase
publicly traded securities issued by real estate investment trusts and to loan
portfolio securities, the Fund has no current intention of doing so without
amending the Trust's registration statement or supplying further information in
the Prospectus or Statement of Additional Information concerning such
activities.
Restricted securities eligible for resale to "qualified institutional
buyers" pursuant to Rule 144A under the Securities Act of 1933, as amended, and
IO and PO securities issued by the U.S. Government and its agencies and
instrumentalities and backed by fixed-rate mortgages may be determined to be
liquid by the Investment Manager under guidelines approved by the Board of
Trustees. In its determination of liquidity with respect to such securities, the
Investment Manager will consider the following factors, among others: (1) the
frequency of trades and quotes for the security, (2) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers, (3) dealer undertakings to make a market in the security, and (4)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer). The foregoing investment practice could have the effect
of increasing the level of illiquidity in CGM Fixed Income Fund to the extent
that qualified institutional buyers become uninterested in purchasing the
securities.
CGM Fixed Income Fund may invest up to 5% of its total assets in
repurchase agreements. A repurchase agreement is an instrument under which the
purchaser acquires ownership of a security and obtains a simultaneous commitment
from the seller (a bank or, to the extent permitted by the 1940 Act, a
recognized securities dealer) to repurchase the security at an agreed-upon price
and date (usually seven days or less from the date of original purchase). The
resale price is in excess of the purchase price and reflects an agreed-upon
market rate unrelated to the coupon rate on the purchased security. Such
transactions afford CGM Fixed Income Fund the opportunity to earn a return on
temporarily available cash at minimal market risk. While the underlying security
may be a bill, certificate of indebtedness, note or bond issued by an agency,
authority or instrumentality of the U.S. Government, the obligation of the
seller is not guaranteed by the U.S. Government and there is a risk that the
seller may fail to repurchase the underlying security. In such event, CGM Fixed
Income Fund would attempt to exercise rights with respect to the underlying
security, including possible disposition in the market. However, the Fund may be
subject to various delays and risks of loss, including (1) possible declines in
the value of the underlying security during the period while the Fund seeks to
enforce its rights thereto, (2) possible reduced levels of income and lack of
access to income during this period, and (3) inability to enforce rights and the
expenses involved in attempted enforcement.
CGM Fixed Income Fund may enter into reverse repurchase agreements with
banks or broker-dealers. Reverse repurchase agreements involve the sale of a
security held by the Fund and its agreement to repurchase the instrument at a
stated price, date and interest payment. Reverse repurchase agreements may be
considered to be borrowings by the Fund and entail additional risks such as the
occurrence of interest expenses and fluctuations in the Fund's net asset value.
In connection with entering into reverse repurchase agreements, a segregated
account of the Fund consisting of cash, cash equivalents, U.S. Government
securities or other high quality liquid debt securities with an aggregate value
at all times sufficient to repurchase the securities, or equal to the proceeds
received upon the sale plus accrued interest, will be established with the
Fund's custodian bank.
- ------------------------------------------------------------------------------
PORTFOLIO TURNOVER
- ------------------------------------------------------------------------------
Although CGM American Tax Free Fund's objective is to provide high
current income exempt from federal income tax and the Fund does not purchase
securities with the intention of engaging in short term trading, the Fund will
sell any particular security and reinvest proceeds when it is deemed prudent by
the Investment Manager, regardless of the length of the holding period. CGM
American Tax Free Fund's portfolio turnover rate for each full or partial year
of its operation is set forth in the Prospectus in the table entitled "Financial
Highlights."
Although CGM Fixed Income Fund's objective is total return and the Fund
does not purchase securities with the intention of engaging in short term
trading, the Fund will sell any particular security and reinvest proceeds when
it is deemed prudent by the Investment Manager, regardless of the length of the
holding period. CGM Fixed Income Fund's portfolio turnover rate for each full or
partial year of its operation is set forth in the Prospectus in the table
entitled "Financial Highlights."
The policies described above may result in higher securities transaction
costs. To the extent that such policies result in gains on investments, the
Funds will make distributions to their shareholders, which may accelerate the
shareholders' tax liabilities for realized gains and may result in the
distribution of short-term capital gains taxable as ordinary income. See "Income
Dividends, Capital Gains Distributions and Tax Status."
- ------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
- ------------------------------------------------------------------------------
PETER O. BROWN (Age 57) -- Trustee;
30 Douglas Road, Rochester, NY; Partner, Harter, Secrest & Emery;
formerly Executive Vice President and Chief Operating Officer,
The Glenmede Trust Company; formerly Senior Vice President, Chase
Lincoln First Bank, N.A.
NICHOLAS J. GRANT (Age 82) -- Trustee;
77 Massachusetts Avenue, Cambridge, MA; Professor of Metallurgy
and Materials Science, Massachusetts Institute of Technology.
G. KENNETH HEEBNER (Age 57)* -- Trustee and Vice President;
Employee, CGM; formerly Vice President and Director, Loomis
Sayles and Company, Incorporated ("Loomis Sayles").
ROBERT L. KEMP (Age 65)* -- Trustee and President;
Employee, CGM; formerly President and Director, Loomis Sayles.
ROBERT B. KITTREDGE (Age 77) -- Trustee;
21 Sturdivant Street, Cumberland Foreside, ME; Retired; formerly
Vice President, General Counsel and Director, Loomis Sayles.
LAURENS MACLURE (Age 72) -- Trustee;
183 Sohier Street, Cohasset, MA; Retired; formerly President and
Chief Executive Officer, New England Deaconess Hospital.
JAMES VAN DYKE QUEREAU, JR. (Age 49) -- Trustee;
59 Annewood Lane, Wayne, PA; Managing Partner, Stratton
Management Company; formerly Institutional Managing Partner,
Loomis Sayles.
J. BAUR WHITTLESEY (Age 51) -- Trustee; 1521 Locust Street,
Philadelphia, PA; Attorney.
KATHLEEN S. HAUGHTON (Age 37) -- Vice President;
222 Berkeley Street, Boston, MA 02116; Employee - Investor
Services Division, CGM; formerly Vice President, Boston Financial
Data Services, Inc.
LESLIE A. LAKE (Age 53) -- Vice President and Secretary;
Employee -- Office Administrator, CGM; formerly Office
Administrator, Capital Growth Management Division of Loomis
Sayles.
MARTHA I. MAGUIRE (Age 42) -- Vice President;
Employee -- Funds Marketing, CGM; formerly marketing
communications consultant (self-employed); formerly Sales
Promotion Consultant, The New England.
JANICE H. SAUL (Age 42) -- Vice President;
Employee -- Senior Portfolio Manager, CGM; formerly Senior
Portfolio Manager, Loomis Sayles.
MARY L. STONE (Age 53) -- Assistant Vice President;
Employee -- Coordinator, Mutual Fund Recordkeeping, CGM; formerly
Coordinator, Mutual Fund Recordkeeping, Loomis Sayles.
FRANK N. STRAUSS (Age 36) -- Treasurer;
222 Berkeley Street, Boston, MA 02116; Employee -- Chief
Financial Officer, CGM; formerly Vice President of Fund
Accounting, Freedom Capital Management Corporation and Assistant
Vice President, The Boston Company, Inc.
W. DUGAL THOMAS (Age 60) -- Vice President;
Employee -- Director of Marketing, CGM; formerly Director of
Marketing, Loomis Sayles.
- ----------
* Trustees deemed "interested persons" of the Funds, as defined under the
1940 Act.
Each of the Fund's trustees is also a trustee of one or more other
investment companies for which CGM acts as investment manager. Except as
indicated above, the address of each trustee and officer of the Fund affiliated
with CGM is One International Place, Boston, Massachusetts 02110.
As of March 31, 1998, the officers and trustees of CGM American Tax Free
Fund owned beneficially approximately 6.2% of the outstanding shares of the
Fund, and the officers and trustees of CGM Fixed Income Fund owned beneficially
less than 1.0% of the outstanding shares of the Fund.
The Funds pay no compensation to their officers or to the trustees
listed above who are interested persons of the Funds. Officers and trustees of
the Funds receive no pension or retirement benefits paid from expenses of the
respective Funds. The following table sets forth the compensation paid by the
Trust to its trustees for the year ended December 31, 1997:
<TABLE>
<CAPTION>
Pension Total
or Retirement Estimated Compensation From
Aggregate Benefits Accrued Annual Registrant and
Name of Compensation as Part of Fund Benefit Upon Fund Complex
Trustee From Trust Expenses Retirement Paid to Trustees(a)
- -------- ------------ ---------------- ------------ -------------------
<S> <C> <C> <C> <C>
Peter O. Brown $27,153 None None $37,000
Nicholas J. Grant 31,653 None None 43,000
G. Kenneth Heebner None None None None
Robert L. Kemp None None None None
Robert B. Kittredge 27,153 None None 37,000
Laurens MacLure 27,153 None None 37,000
James Van Dyke Quereau, Jr. 27,153 None None 37,000
J. Baur Whittlesey 27,153 None None 37,000
</TABLE>
- ----------
(a) The Fund Complex is comprised of two Trusts with a total of six funds.
- ------------------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER SERVICES
- ------------------------------------------------------------------------------
Advisory Agreement. CGM serves as investment manager of CGM American Tax
Free Fund under an advisory agreement which became effective on August 30, 1996
upon the merger of New England Mutual Life Insurance Company into Metropolitan
Life Insurance Company. CGM serves as investment manager of CGM Fixed Income
Fund under an advisory agreement approved by the shareholders of CGM Fixed
Income Fund at a special meeting held on December 12, 1996 and effective as of
December 13, 1996. Under each advisory agreement, CGM manages the investment and
reinvestment of assets of the Funds and generally administers their affairs,
subject to supervision by the Board of Trustees of the Trust. CGM furnishes, at
its own expense, all necessary office supplies, facilities and equipment,
services of executive and other personnel of the Funds and certain
administrative services. For these services, CGM American Tax Free Fund
compensates CGM at the annual percentage rate of 0.60% of the first $500 million
of the Fund's average daily net asset value, 0.55% of the next $500 million of
such value and 0.45% of such value in excess of $1 billion, and CGM Fixed Income
Fund compensates CGM at the annual percentage rate of 0.65% of the first $200
million of the Fund's average daily net asset value, 0.55% of the next $300
million of such value and 0.40% of such value in excess of $500 million.
CGM has voluntarily agreed, until December 31, 1998, and thereafter
until further notice to CGM American Tax Free Fund, to waive its management fees
and bear all of the expenses of the Fund. For the fiscal years ended December
31, 1995, 1996 and 1997, the investment advisory fees that would have been
payable to CGM in respect of services rendered to CGM American Tax Free Fund
amounted to $66,010, $70,051 and $79,103, respectively. As a result of such
waiver, the fund paid no investment advisory fees to CGM during these periods.
With respect to CGM Fixed Income Fund, CGM has voluntarily agreed, until
December 31, 1998, to waive its management fee and, if necessary, bear certain
expenses associated with operating CGM Fixed Income Fund, in order to limit CGM
Fixed Income Fund's operating expenses to an annual rate of 0.85% of its average
net assets. CGM has also agreed to obtain approval of the Board of Trustees of
CGM Fixed Income Fund prior to any modification of this commitment thereafter.
For the fiscal years ended December 31, 1995, 1996 and 1997, the investment
advisory fees that would have been payable to CGM in respect of services
rendered to CGM Fixed Income Fund amounted to $167,688, $200,912 and 282,615,
respectively. As a result of such waiver, the Fund paid no investment advisory
fees to CGM for the fiscal year ended December 31, 1995, $51,667 for the fiscal
year ended December 31, 1996 and $102,534 for the fiscal year ended December 31,
1997.
Each Fund pays the compensation of its trustees who are not partners,
directors, officers or employees of CGM or its affiliates (other than registered
investment companies); registration, filing, and other fees in connection with
requirements of regulatory authorities; all charges and expenses of its
custodian and transfer agent; the charges and expenses of its independent
accountants; all brokerage commissions and transfer taxes in connection with
portfolio transactions; all taxes and fees payable to governmental agencies; the
cost of any certificates representing shares of the Fund; the expenses of
meetings of the shareholders and trustees of the Fund; the charges and expenses
of the Fund's legal counsel; interest, including on any borrowings by the Fund;
the cost of services, including services of counsel, required in connection with
the preparation of, and the costs of printing registration statements and
prospectuses relating to the Fund, including amendments and revisions thereto,
annual, semiannual, and other periodic reports of the Fund, and notices and
proxy solicitation material furnished to shareholders of the Fund or regulatory
authorities, to the extent that any such materials relate to the Fund or its
shareholders; and the Fund's expenses of bookkeeping, accounting, auditing and
financial reporting, including related clerical expenses.
CGM also acts as investment adviser to CGM Capital Development Fund, CGM
Mutual Fund, CGM Realty Fund, CGM Focus Fund and three other mutual fund
portfolios. CGM also provides investment advice to other institutional clients.
Certain officers and trustees of the Funds also serve as officers,
directors or trustees of other investment companies advised by CGM. The other
investment companies and clients served by CGM sometimes invest in securities in
which the Funds also invest. If a Fund and such other investment companies or
clients advised by CGM desire to buy or sell the same portfolio securities at
the same time, purchases and sales will be allocated to the extent practicable
on a pro rata basis in proportion to the amounts desired to be purchased or sold
for each. It is recognized that in some cases the practices described in this
paragraph could have a detrimental effect on the price or amount of the
securities that each Fund purchases or sells. In other cases, however, it is
believed that these practices may benefit the Funds. It is the opinion of the
trustees that the desirability of retaining CGM as adviser for the Funds
outweighs the disadvantages, if any, that might result from these practices.
Custodial Arrangements. State Street Bank and Trust Company ("State
Street Bank"), Boston, Massachusetts 02102, is the Funds' custodian. As such,
State Street Bank holds in safekeeping certificated securities and cash
belonging to each Fund and, in such capacity, is the registered owner of
securities held in book entry form belonging to each Fund. Upon instruction,
State Street Bank receives and delivers cash and securities of each Fund in
connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. State Street Bank
also maintains certain accounts and records of each Fund and calculates the
total net asset value, total net income, and net asset value per share of each
Fund on each business day.
Independent Accountants. Each Fund's independent accountants are Price
Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110. Price
Waterhouse LLP conducts an annual audit of each Fund's financial statements,
assists in the preparation of each Fund's federal and state income tax returns
and consults with each Fund as to matters of accounting and federal and state
income taxation. The information concerning financial highlights in the
Prospectus, and the financial statements incorporated by reference into this
Statement, have been so included in reliance on the reports of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
Other Arrangements. Certain office space, facilities, equipment and
administrative services for each Fund and other mutual funds under the
investment management of the CGM organization are furnished by CGM. In addition,
CGM provides bookkeeping, accounting, auditing, financial recordkeeping, and
related clerical services for which it is entitled to be reimbursed by each Fund
based on the cost of providing these services. As a result of the expense
provisions described above, CGM received no reimbursement from CGM American Tax
Free Fund for any of such costs in 1995, 1996 and 1997. For services rendered to
CGM Fixed Income Fund for fiscal years 1995, 1996 and 1997, CGM was reimbursed
0, $10,000 and $10,500, respectively.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
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In placing orders for the purchase and sale of portfolio securities for
each Fund, CGM always seeks the best price and execution. Transactions in
unlisted securities will be carried out through broker-dealers who make the
primary market for such securities unless, in the judgment of CGM, a more
favorable price can be obtained by carrying out such transactions through other
brokers.
CGM selects only brokers it believes are financially responsible, will
provide efficient and effective services in executing, clearing and settling an
order and will charge commission rates which, when combined with the quality of
the foregoing services, will produce the best price and execution for the
transaction. This does not necessarily mean that the lowest available brokerage
commission will be paid. However, the commissions are believed to be competitive
with generally prevailing rates. CGM will use its best efforts to obtain
information as to the general level of commission rates being charged by the
brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by the
broker in connection with the order, are taken into account. The Funds will not
pay a broker a commission at a higher rate than is otherwise available for the
same transaction in recognition of the value of research services provided by
the broker or in recognition of the value of any other services provided by the
broker that do not contribute to the best price and execution of the
transaction.
Receipt of research services from brokers may sometimes be a factor in
selecting a broker that CGM believes will provide the best price and execution
for a transaction. These research services include not only a wide variety of
reports on such matters as economic and political developments, industries,
companies, securities, portfolio strategy, account performance, daily prices of
securities, stock and bond market conditions and projections, asset allocation
and portfolio structure, but also meetings with management representatives of
issuers and with other analysts and specialists. Although it is not possible to
assign an exact dollar value to these services, they may, to the extent used,
tend to reduce CGM's expenses. Such services may be used by CGM in servicing
other client accounts and in some cases may not be used with respect to the
Funds. Receipt of services or products other than research from brokers is not a
factor in the selection of brokers.
CGM American Tax Free Fund pays no brokerage commissions, as such. The
tax-exempt security market is typically a "dealer" market in which investment
dealers buy and sell bonds for their own accounts, rather than for customers,
and although the price of a tax-exempt security may reflect a dealer's mark-up
or mark-down, such mark-up or mark-down is not considered to be a commission. In
addition, some securities may be purchased directly from issuers.
In fiscal 1997, brokerage transactions of CGM Fixed Income Fund
aggregating $20,512,333 were allocated to brokers providing research services
and $36,015 in commissions were paid on these transactions. During 1995, 1996
and 1997, CGM Fixed Income Fund paid total brokerage fees of approximately
$21,273, $32,412 and $36,015, respectively.
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DESCRIPTION OF THE TRUST
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The Declaration of Trust of the Trust currently permits the trustees to
issue an unlimited number of shares of beneficial interest of separate series of
the Trust. Interests in the portfolio described in the Prospectus and in this
Statement are represented by shares of each Fund. Each share of a Fund
represents an interest in such series which is equal to and proportionate with
the interest represented by each other share. The shares of the Funds do not
have any preemptive rights. Upon liquidation of the portfolio, shareholders of
each Fund are entitled to share pro rata in the net assets of such portfolio
available for distribution to shareholders. The Declaration of Trust also
permits the trustees to charge shareholders directly for custodial, transfer
agency and servicing expenses. The trustees have no present intention of making
such direct charges.
The Declaration of Trust also permits the trustees, without shareholder
approval, to create one or more additional series or classes of shares or to
reclassify any or all outstanding shares as shares of particular series or
classes, with such preferences and rights and eligibility requirements as the
trustees may designate. While the trustees have no current intention to exercise
the power to establish separate classes of the existing series of the Fund, it
is intended to allow them to provide for an equitable allocation of the impact
of any future regulatory requirements, which might affect various classes of
shareholders differently. The trustees may also, without shareholder approval,
merge two or more existing series.
Shareholder Rights
On March 31, 1998, there were 1,539,047 shares of CGM American Tax Free
Fund outstanding.
On March 31, 1998, there were 3,765,611 shares of CGM Fixed Income Fund
outstanding. On that date, State Street Bank, acting as trustee for various
retirement plans and individual retirement accounts owned 1,241,901 shares -
about 33% of the total. In almost all cases, State Street Bank does not have the
power to vote or dispose of the shares except at the direction of the beneficial
owner.
Shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held) and may vote (to the extent
provided herein) in the election of trustees of the Trust and the termination of
the applicable Fund and on other matters submitted to the vote of shareholders.
There will normally be no meetings of shareholders for the purpose of electing
trustees, except that in accordance with the 1940 Act (i) the Trust will hold a
shareholders' meeting for the election of trustees at such time as less than a
majority of the trustees holding office have been elected by shareholders, and
(ii) if the appointment of a trustee to fill a vacancy in the Board of Trustees
would result in less than two-thirds of the trustees having been elected by the
shareholders, that vacancy may only be filled by a vote of the shareholders. In
addition, trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for the purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by ten or more shareholders of record who have been such
for at least six months and who hold in the aggregate shares equal to at least
the lesser of (i) $25,000 in net asset value or (ii) 1% of the outstanding
shares, stating that shareholders wish to communicate with the other
shareholders for the purpose of obtaining the signatures necessary to demand a
meeting to consider removal of a trustee, the Trust will either provide access
to a list of shareholders or disseminate appropriate materials (at the expense
of the requesting shareholders). Except as set forth above, the trustees shall
continue to hold office and may appoint successor trustees. Voting rights are
not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the holders of the outstanding shares of the
Trust except (i) to change the Trust's name or to cure technical problems in the
Declaration of Trust and (ii) to establish, designate or modify new and existing
series or subseries of Trust shares or other provisions relating to Trust shares
in response to applicable laws or regulations. The shareholders of one Fund
shall not be entitled to vote on matters exclusively affecting any other series,
such matters including, without limitation, the adoption or change in the
investment objectives, policies or restrictions of the series and the approval
of the investment advisory contracts of the series. Similarly, no shareholders
of any other series shall be entitled to vote on any such matters exclusively
affecting a particular Fund. In particular, the phrase "majority of the
outstanding voting securities of the Fund" as used in this Statement shall refer
only to the shares of the applicable Fund.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust;
however, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or trustees. The Declaration of Trust provides for indemnification out of each
Fund property for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered
remote since it is limited to circumstances in which the disclaimer is
inoperative and the particular Fund itself would be unable to meet its
obligations.
The Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The By-Laws of the Trust provide for indemnification by the Trust of
the trustees and officers of the Trust except with respect to any matter as to
which any such person did not act in good faith in the reasonable belief that
such action was in or not opposed to the best interests of the Trust. No officer
or trustee may be indemnified against any liability to the Trust or the Trust's
shareholders to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
All persons dealing with a particular Fund must look only to the assets
of that Fund for the enforcement of any claims against that Fund and no other
series of the Trust assumes any liability
for obligations entered into on behalf of that Fund.
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HOW TO BUY SHARES
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The procedures for purchasing shares of the Fund are summarized in the
Prospectus under "How to Purchase Shares."
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ADVERTISING AND PERFORMANCE INFORMATION
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Calculation of Total Return
Each Fund may include total return information in advertisements or
written sales material. Total return is a measure of the change in value of an
investment in the Fund over the period covered, which assumes that any dividends
or capital gains distributions are automatically reinvested in the Fund rather
than paid to the investor in cash. The formula for total return used by the Fund
includes three steps:
(1) adding to the total number of shares purchased by a
hypothetical $1,000 investment in the Fund all additional shares that would have
been purchased if all dividends and distributions paid or distributed during the
period had been automatically reinvested;
(2) calculating the value of the hypothetical initial investment
as of the end of the period by multiplying the total number of shares owned at
the end of the period by the net asset value per share on the last trading day
of the period; and
(3) dividing this account value for the hypothetical investor by
the amount of the initial investment, and annualizing the result for periods of
less than one year.
For the one and three year periods ended December 31, 1997, and for the
period from inception (November 10, 1993) through December 31, 1997, CGM
American Tax Free Fund's average annual total return was 9.0%, 9.8% and 5.5%,
respectively. If CGM were not waiving its fee and was receiving reimbursement
from CGM American Tax Free Fund for its expenses, that Fund's total return for
those periods would have been lower.
For the one, three and five year periods ended December 31, 1997, and
for the period from inception (March 17, 1992) through December 31, 1997, the
average annual total return of CGM Fixed Income Fund was 3.7%, 15.0%, 10.7% and
10.9%, respectively. For the one, three and five year periods ended December 31,
1997, and for the period from inception (March 17, 1992) through December 31,
1997, the total return on a hypothetical $1,000 investment in CGM Fixed Income
Fund was 3.7%, 52.2%, 66.5% and 82.0%, respectively. If CGM were not limiting
CGM Fixed Income Fund's expenses to 0.85% of its average net assets, the annual
total return and total return on a hypothetical $1,000 investment for those
periods would have been lower. In computing performance information for CGM
Fixed Income Fund, no adjustment has been made for a shareholder's tax liability
on taxable dividends and capital gains distributions.
In computing performance information for the Funds, no adjustment has
been made for a shareholder's tax liability on taxable dividends and capital
gains distributions.
Calculation of Yield
Each Fund may include yield information in advertisements or written
sales material. Each Fund's yield is based on a recent 30 day period, and is
determined in accordance with the SEC's
standardized formula by:
(1) calculating the aggregate dividends and adjusted interest
earned during that period, net of recurring expenses accrued for the period; and
(2) dividing that amount by the product of (A) the average daily
number of shares outstanding during the period and (B) the maximum offering
price per share on the last day of the period (less any earned income expected
to be declared as a dividend shortly thereafter).
The result is annualized, assuming a quarterly compounding, to determine
the Fund's yield. Interest earned during the period will be adjusted to reflect
amortization of any premium or discount from par on the Fund's fixed income
securities (other than obligations backed by mortgages or other assets), using
the market value for these securities on the last day of the period, or, for
securities purchased during the period, using actual cost. Each Fund's yield
will vary from time to time depending upon market conditions, the composition of
the Fund's portfolio and operating expenses of the Fund. CGM American Tax Free
Fund may also utilize tax equivalent yields with adjustments for assumed income
tax rates. The 30-day yields of CGM American Tax Free Fund and CGM Fixed Income
Fund for the period ended December 31, 1997, were 5.85% and 7.26%, respectively.
Performance Comparisons
Total return may be used to compare the performance of the Fund against
certain widely acknowledged standards or indices for stock and bond market
performance or against the U.S. Bureau of Labor Statistics' Consumer Price
Index.
The Standard & Poor's 500 Composite Index (the "S&P 500") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 stocks relative to the base period 1941-43. The S&P 500 is composed
almost entirely of common stocks of companies listed on the New York Stock
Exchange, although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included. The 500 companies
represented include 400 industrial, 60 transportation and 40 financial services
concerns.
The Dow Jones Industrial Average is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York Stock
Exchange.
No brokerage commissions or other fees are factored into the values of
the S&P 500 and the Dow Jones Industrial Average.
The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of change, over time, in the prices of
goods and services in major expenditure groups.
Lipper Analytical Services, Inc., an independent service that monitors
the performance of over 11,332 mutual funds, calculates total return for those
funds grouped by investment objective. From time to time, the Fund may include
its ranking among mutual funds tracked by Lipper in advertisements or sales
literature.
Morningstar, Inc. ("Morningstar") is an independent mutual fund ranking
service. Morningstar proprietary ratings reflect historical risk-adjusted
performance and are subject to change every month. Funds with at least three
years of performance history are assigned ratings from one star (lowest) to five
stars (highest). Morningstar ratings are calculated from the funds' three-,
five-, and ten-year average annual returns (when available) and a risk factor
that reflects the fund performance relative to three-month Treasury bill monthly
returns. Funds' returns are adjusted for fees and sales loads. Ten percent of
the funds in an investment category receive five
stars, 22.5% receive four stars, 35% receive three stars, 22.5% receive two
stars, and the bottom 10% receive one star. From time to time, the Funds may
include their respective rankings among mutual funds tracked by Morningstar in
advertisements or sales literature.
Value Line, Inc. ("Value Line"), an independent mutual fund ranking
service reviews the performance of 7,976 mutual funds. In ranking mutual funds,
Value Line uses two indicators: a Risk Rank to show the total level of risk a
fund has assumed and an Overall Rank measuring various performance criteria
taking risk into account. Funds are ranked from 1 to 5, with 1 the highest
Overall Rank (the best risk-adjusted performance) and the best Risk Rank (the
least risky). From time to time, the Funds may include ranking information
provided by Value Line in advertisements and sales literature.
The Funds may also compare their respective total return or yield or
both to that of money market funds and other investments, such as certificates
of deposit and may refer to standard measures of performance for such
investments, including information published by the Bank Rate Monitor and the
Federal Reserve System. Investors should note that, although the Fund may
experience better returns and higher yields than money market funds and other
investments, they do not seek to maintain stable net asset values. Thus,
particularly during periods of rising interest rates, the per share net asset
value of each Fund may decrease while the principal value of such other
investments will not change. Each Fund may invest in securities of varying
qualities, although 75% of CGM American Tax Free Fund's portfolio and 65% of CGM
Fixed Income Fund's portfolio will consist of investment grade securities. In
addition, unlike certificates of deposit, shares of the Funds are not insured by
the FDIC or any other entity.
Bank Rate Monitor is an independent financial service that generates
indexes of bank products, including an index of stated rates for certificates of
deposit and bank money market accounts in the ten largest metropolitan areas in
the U.S. The Federal Reserve System publishes data about the U.S. banking
system. Average rates for certificates of deposit traded in the secondary market
are published by the Board of Governors of the Federal Reserve System in
Selected Interest Rates.
From time to time, articles about a particular Fund's performance,
rankings and other characteristics, and information about persons responsible
for the Fund's portfolio management may appear in national publications and
major metropolitan newspapers including, but not limited to, The Wall Street
Journal, The Boston Globe, The New York Times and Barron's, Forbes, Fortune,
Money, Worth, Kiplinger's Personal Finance, Mutual Funds, Individual Investor,
Bloomberg Personal and Business Week magazines. In particular, some or all of
these publications may publish their own rankings or performance reviews of
mutual funds, including the Funds. References to, or reprints of, or quotations
from, such articles may be used in the Funds' promotional literature.
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NET ASSET VALUE AND PUBLIC OFFERING PRICE
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The method for determining the public offering price and net asset value
per share is summarized in the Prospectus under "Pricing of Shares."
The net asset value of a share of each Fund is determined by dividing
the particular Fund's total net assets (the excess of its assets over its
liabilities) by the total number of shares outstanding and rounding to the
nearest cent. Such determination is made as of the close of normal trading on
the New York Stock Exchange on each day on which the Exchange is open for
unrestricted trading, and no less frequently than once daily on each day during
which there is sufficient trading in the Fund's portfolio securities that the
value of the Fund's shares might be materially affected. During the 12 months
following the date of this Statement the New York Stock Exchange is currently
expected to be closed on the following holidays: Memorial Day, Independence Day
(observed), Labor Day, Thanksgiving Day, Christmas Day, New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day and Good Friday.
Securities which are traded over-the-counter or on a stock exchange will
be valued according to the broadest and most representative market based on the
last reported sale price for securities listed on a national securities exchange
(or on the NASDAQ National Market System) or, if no sale was reported and in the
case of over-the-counter securities not so listed, the last reported bid price.
U.S. government securities are valued at the most recent quoted price on the
date of valuation.
For equity securities, it is expected that the broadest and most
representative market will ordinarily be either (i) a national securities
exchange, such as the New York Stock Exchange or American Stock Exchange, or
(ii) the NASDAQ National Market System. For corporate bonds, notes, debentures
and other fixed-income securities, it is expected that the broadest and most
representative market will ordinarily be the over-the-counter market.
Fixed-income securities may, however, be valued on the basis of prices provided
by a pricing service approved by the Board of Trustees when such prices are
believed to reflect the fair market value of such securities. The prices
provided by the pricing service may be determined based on 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.
Instruments with maturities of sixty days or less are valued at amortized cost,
which approximates market value. Other assets and securities which are not
readily marketable will be valued in good faith at fair value using methods
determined by the Board of Trustees.
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SHAREHOLDER SERVICES
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Open Accounts
A shareholder's investment is credited to an open account maintained for
the shareholder by the CGM Shareholder Services Department ("CGM Shareholder
Services") of Boston Financial Data Services, Inc. ("BFDS"), the shareholder
servicing agent for State Street Bank. The address is: CGM Shareholder Services,
c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
Certificates representing shares are issued only upon written request to
CGM Shareholder Services but are not issued for fractional shares. Following
each transaction in the account, a shareholder will receive an account statement
disclosing the current balance of shares owned and the details of recent
transactions that have taken place during the year. After the close of each
fiscal year, CGM Shareholder Services will send each shareholder a statement
providing federal tax information on dividends and distributions paid to the
shareholder during the year. The year-end statement should be retained as a
permanent record. Shareholders will be charged a fee for duplicate information.
The open account system permits the purchase of full and fractional
shares and, by making the issuance and delivery of certificates representing
shares unnecessary, eliminates problems of handling and safekeeping, and the
cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are borne by the Funds,
and no direct charges are made to shareholders. Although the Funds have no
present intention of making such direct charges to shareholders, they reserve
the right to do so. Shareholders will receive prior
notice before any such charges are made.
Systematic Withdrawal Plans ("SWP")
A Systematic Withdrawal Plan, referred to in the Prospectus under
"Shareholder Services--Systematic Withdrawal Plan," provides for monthly,
quarterly, semiannual or annual withdrawal payments of $50 or more from the
account of a shareholder provided that the account has a value of at least
$10,000 at the time the plan is established. A shareholder may establish a SWP
by completing the Service Options Form.
Payments will be made either to the shareholder or to any other person
or entity designated by the shareholder. If payments are issued to an individual
other than the registered owner(s) and/or mailed to an address other than the
address of record, a signature guarantee will be required on the Service Options
Form. Shares to be included in a Systematic Withdrawal Plan must be held in an
Open Account rather than certificated form. Income dividends and capital gain
distributions will be reinvested at the net asset value determined as of the
close of the New York Stock Exchange. If withdrawal checks are returned to the
Funds as "undeliverable" or remain uncashed for more than six months the
shareholder's Systematic Withdrawal Plan will be cancelled, such undeliverable
or uncashed checks will be cancelled and such amounts reinvested in the Funds at
the per share net asset value determined as of the date of cancellation of the
checks.
Since withdrawal payments represent in whole or in part proceeds from
the liquidation of shares, the shareholder should recognize that withdrawals may
reduce and possibly exhaust the value of the account, particularly in the event
of a decline in net asset value. Accordingly, the shareholder should consider
whether a Systematic Withdrawal Plan and the specified amounts to be withdrawn
are appropriate in the circumstances. The Trust makes no recommendations or
representations in this regard. It may be appropriate for the shareholder to
consult a tax adviser before establishing such a plan. See "Redemptions" and
"Income Dividends, Capital Gain Distributions and Tax Status" below for certain
information as to federal income taxes.
Exchange Privilege
A shareholder may exchange shares of CGM American Tax Free Fund or CGM
Fixed Income Fund for shares of CGM Mutual Fund, CGM Realty Fund, CGM Focus
Fund, CGM Fixed Income Fund or CGM American Tax Free Fund (as applicable), New
England Cash Management Trust, New England Tax Exempt Money Market Trust or CGM
Capital Development Fund; however, shares of CGM Capital Development Fund may be
exchanged only if you were a shareholder on September 24, 1993, and have
continuously remained a shareholder in the CGM Capital Development Fund since
that date. CGM Capital Development Fund shares are not generally available to
other persons except in special circumstances that have been approved by, or
under the authority of, the Board of Trustees of CGM Capital Development Fund.
The special circumstances currently approved by the Board of Trustees of CGM
Capital Development Fund are limited to the offer and sale of shares of such
fund to the following additional persons: trustees of CGM Capital Development
Fund, employees of the Investment Manager and counsel to such fund and the
Investment Manager. The value of shares exchanged must be at least $1,000 and
all exchanges are subject to the minimum investment requirements of the fund
into which the exchange is being made. This option is summarized in the
Prospectus under "Shareholder Services--Exchange Privilege." Exchange requests
cannot be revoked once they have been received in good order. The Trust reserves
the right to terminate or limit the privilege of a shareholder who makes more
than four exchanges (or two round trips) per year and to prohibit exchanges
during the first 15 days following an investment in a particular Fund. A
shareholder may exercise the exchange privilege only when the fund into which
shares will be exchanged is registered or qualified in the state in which such
shareholder resides.
Exchanges may be effected by (i) a telephone request to CGM Shareholder
Services at 800-343-5678, provided a special authorization form is on file with
the Trust, or (ii) a written exchange request to CGM Shareholder Services
accompanied by an account application for the appropriate fund. The Trust
reserves the right to modify this exchange privilege without prior notice,
except as otherwise required by law or regulation.
Automatic Investment Plans ("AIP")
Once initial investment minimums have been satisfied with respect to a
particular Fund (see "How to Purchase Shares" in the Prospectus), a shareholder
may participate in an Automatic Investment Plan, pursuant to which the Fund
debits $50.00 or more on or about the same date each month from a shareholder's
checking account and transfers the proceeds into the shareholder's Fund account.
To participate, a shareholder must authorize the Fund and its agents to initiate
Automated Clearing House ("ACH") debits against the shareholder's designated
checking account at a bank or other financial institution. Please contact CGM
Shareholder Services at 800-343-5678 to determine the requirements associated
with debits from savings banks and credit unions. Debits from money market
accounts are not acceptable. Shareholders receive a confirmation of each
purchase of Fund shares under the AIP. If a shareholder elects to redeem shares
of the Fund purchased under the AIP within 15 days of such purchase, the
shareholder may experience delays in receiving redemption proceeds. See "All
Redemptions."
Once a shareholder enrolls in the AIP, the Fund and its agents are
authorized to initiate ACH debits against the shareholder's account payable to
the order of The CGM Funds. Such authority remains in effect until revoked by
the shareholder, and, until the Fund actually receives such notice of
revocation, the Fund is fully protected in initiating such debits. Participation
in the AIP may be terminated by sending written notice to CGM Shareholder
Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511, or by calling
800-343-5678 more than 14 days prior to the next scheduled debit date. The Fund
may terminate a shareholder's participation in the AIP immediately in the event
that any item is unpaid by the shareholder's financial institution. The Fund may
terminate or modify the AIP at any time.
Retirement Plans
Under "Shareholder Services--Retirement Plans" the Prospectus refers to
several retirement plans. These include tax deferred money purchase pension or
profit sharing plans, as well as SEP-IRAs, Traditional and Roth IRAs and
403(b)(7) custodial accounts established under retirement plans sponsored by
CGM. These plans may be funded with shares of CGM Fixed Income Fund. CGM
American Tax Free Fund may not be an appropriate investment for: Traditional or
Roth IRA accounts, SEP-IRA accounts, 403(b)(7) custodial accounts, qualified
profit sharing plans, or qualified money purchase plans.
For participants under age 59 1/2, generally, all income dividends and
capital gain distributions of plan participants must be reinvested. Plan
documents and further information can be obtained from the Trust by writing or
calling the Trust as indicated on the cover of this Statement.
Check with your financial or tax adviser as to the suitability of Fund
shares for your retirement plan.
Address Changes
Shareholders can request to change their record address either by
telephone or in writing (by mail or delivery service, but not by facsimile) in
accordance with policies and procedures of the Trust. After an address change is
made, no telephone or written redemption requests will be honored for three
months unless the registered owner's signature is guaranteed on the request.
Written requests for a change in address may be mailed to: CGM Shareholder
Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
- ------------------------------------------------------------------------------
REDEMPTIONS
- ------------------------------------------------------------------------------
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
Except as noted below, signatures on redemption requests must be
guaranteed by an eligible guarantor institution, in accordance with procedures
established by the Trust. Signature guarantees by notaries public are not
acceptable.
The procedures established by the Trust provide that an "eligible
guarantor institution" means any of the following: banks (as defined in ss. 3(a)
of the Federal Deposit Insurance Act (the "FDIA") [12 U.S.C. ss. 1813(a)]);
brokers, dealers, municipal securities brokers, government securities dealers
and government securities brokers, as those terms are defined under the
Securities Exchange Act of 1934 (the "Act"); credit unions (as defined in ss.
19(b)(1)(A) of the Federal Reserve Act [12 U.S.C. ss. 461(b)]); national
securities exchanges, registered securities associations and clearing agencies,
as those terms are defined under the Act; and savings associations (as defined
in ss. 3(b) of the FDIA [12 U.S.C. ss. 1813(b)]). However, as noted in the
Prospectus, a signature guarantee will not be required if the proceeds of the
redemption do not exceed $25,000, and the proceeds check is made payable to the
registered owner(s) and mailed to the record address, which has not changed in
the prior three months. If the record address has changed within the prior three
months, a signature guarantee will be required. This policy applies to both
written and telephone redemption requests.
Redeeming by Telephone
There are two ways to redeem by telephone. In either case, a shareholder
should call 800-343-5678 prior to 4:00 p.m. (Eastern time). Requests made after
that time or on a day when the New York Stock Exchange is not open for business
cannot be accepted. Telephone redemptions are not available for Traditional or
Roth IRAs, SEP-IRAs, 403(b)(7) custodial accounts or money purchase pension and
profit sharing plans under a CGM retirement plan where State Street Bank is the
custodian or trustee.
Check Sent to the Record Address
A shareholder may request that a check be sent to the record address on
the account, provided that the address has not changed for the last three months
and the shareholder is redeeming $25,000 or less. Except in the case of a CGM
retirement plan, the service option of telephone redemption by check is
available to shareholders automatically unless this option is declined in the
application or in writing. The check will be made payable to the registered
owner(s) of the account.
If checks representing redemption proceeds are returned "undeliverable"
or remain uncashed for six months, such checks shall be cancelled and such
proceeds shall be reinvested in the applicable Fund at the per share net asset
value determined as of the date of cancellation of
such checks.
Proceeds Wired to a Predesignated Bank
A shareholder may request that the redemption proceeds be wired to the
bank selected on the Fund application or subsequently on the Service Options
Form available from the Trust. A nominal wire fee, currently $5.00, is deducted
from the proceeds. When selecting the service, a shareholder must designate a
bank account to which the redemption proceeds should be wired. Any change in the
bank account so designated may be made by furnishing CGM Shareholder Services a
completed Service Options Form with a signature guarantee. Whenever the Service
Options Form is used, the shareholder's signature must be guaranteed as
described above. Telephone redemptions may only be made if an investor's bank is
a member of the Federal Reserve System or has a correspondent bank that is a
member of the System. If the account is with a savings bank, it must have only
one correspondent bank that is a member of the System.
All Redemptions
The redemption price will be the net asset value per share next
determined after the redemption request is received by CGM Shareholder Services
in good order (including any necessary documentation). Redemption requests
cannot be revoked once they have been received in good order. Proceeds resulting
from a written redemption request will normally be mailed to you within seven
days after receipt of your request in good order. Telephone redemption proceeds
will normally be mailed or wired within seven days following receipt of a proper
redemption request. If you purchased your Fund shares by check (or through your
AIP) and elect to redeem shares within 15 days of such purchase, you may
experience delays in receiving redemption proceeds. The Trust will process your
redemption request upon receipt of a request in good order. However, the Trust
will generally postpone sending your redemption proceeds from such investment
until it can verify that your check (or AIP investment) has been or will be
collected. Under ordinary circumstances, the Trust cannot verify collection of
individual checks (or AIP investments) and may therefore automatically hold
proceeds from redemptions requested during the 15 day period following such
investment for a total of up to seven days. There will be no such automatic
delay following investments paid for by federal funds wire or by bank cashier's
check, certified check or treasurer's check although the Trust may in any case
postpone payment of redemption proceeds for up to seven days.
The Trust will normally redeem shares for cash; however, the Trust
reserves the right to pay the redemption price wholly in kind or partly in kind
and partly in cash if the Board of Trustees of the Trust determines it to be
advisable in the interest of the remaining shareholders. If portfolio securities
are distributed in lieu of cash, the shareholder will normally incur brokerage
commissions upon subsequent disposition of any such securities. However, the
Trust has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which the Trust is obligated to redeem shares solely in cash for any shareholder
during any 90-day period up to the lesser of $250,000 or 1% of the total net
asset value of the particular Fund at the beginning of such period.
A redemption constitutes a sale of the shares for federal income tax
purposes on which the investor may realize a long- or short-term capital gain or
loss. See "Income Dividends, Capital Gains Distributions and Tax Status."
Because the expense of maintaining small accounts is disproportionately
high, the Trust may close accounts with 20 shares or less and mail the proceeds
to the shareholder. Shareholders who are affected by this policy will be
notified of the Trust's intention to close the account, and will have 60 days
immediately following the notice in which to acquire the requisite number of
shares. The minimum does not apply to retirement and Uniform Gifts to Minors Act
or Uniform Transfers to Minors Act accounts.
- ------------------------------------------------------------------------------
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
- ------------------------------------------------------------------------------
As described in the Prospectus under "Dividends, Capital Gains and
Taxes" it is the policy of each Fund to qualify annually as a "regulated
investment company" under the Internal Revenue Code and to declare and pay
monthly substantially all net investment income in the form of dividends and to
distribute annually all net realized capital gains, if any, after offsetting any
capital loss carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of each Fund based upon the net asset value determined as of
the close of the New York Stock Exchange on the record date for such dividend or
distribution. Shareholders, however, may elect to receive their income dividends
or capital gain distributions, or both, in cash. However, if a shareholder
elects to receive capital gains in cash, his or her income dividends must also
be received in cash. Shareholders can elect to receive payments of cash
dividends and capital gains distributions either by check or by direct deposit
to a bank account that they have predesignated. These elections can be made at
the time the account is opened and may be changed by the shareholder at any time
by submitting a written request directly to CGM Shareholder Services or by
calling 800-343-5678. However, changes in bank account information for direct
deposits of cash dividends and capital gains distributions must be made through
a Service Options Form. In order for a change to be effective for any dividend
or distribution, it must be received by CGM Shareholder Services on or before
the record date for such dividend or distribution. If a shareholder elects to
receive distributions in cash and checks are returned "undeliverable" or remain
uncashed for six months, such shareholder's cash election will be changed
automatically and the shareholder's future dividend and capital gains
distributions will be reinvested in the same Fund at the per share net asset
value determined as of the date of payment of the distribution. In addition,
following such six month period, any undeliverable or uncashed checks will be
cancelled and such amounts reinvested in the same Fund at the per share net
asset value determined as of the date of cancellation of such checks.
Dividends paid by a Fund from net taxable investment income, including
dividends, interest and net short-term gains, will be taxable to shareholders as
ordinary income. For corporate investors, no portion of dividends paid by either
Fund is expected to qualify for the corporate dividends-received deduction.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) which are designated by a Fund as capital
gains distributions are taxable as long-term capital gains, regardless of the
length of time shareholders have owned shares in a Fund. Because of recent
changes in the tax law, capital gains distributions to shareholder that are
individuals, trust and estates may be subject to varying tax rates. To the
extent that a Fund makes a distribution in excess of its current and accumulated
earnings and profits, the distribution will be treated first as a tax-free
return of capital, reducing the tax basis in a shareholder's shares, and then,
to the extent the distribution exceeds such basis, as a taxable gain to be
realized upon sale of such shares. Taxable dividends and capital gains are
taxable to shareholders of a Fund in the same manner whether received in cash or
reinvested in additional Fund shares.
CGM American Tax Free Fund anticipates that a substantial portion of its
investment income will be tax-exempt interest income. Dividends paid by the Fund
from net tax-exempt interest income will be excluded from a shareholder's gross
income for federal income tax purposes. Shareholders who are recipients of
Social Security benefits should be aware that exempt-interest dividends received
from the Fund are includable in their "modified adjusted gross income" for
purposes of determining the amount of such Social Security benefits, if any,
that is required to be included in their gross income. The exemption of certain
dividends from federal income tax does not necessarily result in exemption under
the income tax laws of any state or local taxing authority. Shareholders should
consult their own tax advisers about the status of dividends and distributions
of CGM American Tax Free Fund in their own states and localities.
If a shareholder of CGM American Tax Free Fund receives an
exempt-interest dividend with respect to any share and redeems or exchanges such
share before holding it for more than six months, any loss on the redemption or
exchange will be disallowed to the extent of such exempt-interest dividend.
Similarly, if a shareholder a Fund receives a distribution taxable as long-term
capital gain with respect to any share and redeems or exchanges such share
before holding it for more than six months, any loss on the redemption or
exchange (not otherwise disallowed as attributable to an exempt-interest
dividend) will be treated as long-term capital loss to the extent of the
long-term capital gain recognized on such distribution.
CGM American Tax Free Fund may invest in private activity bonds.
Interest on private activity bonds issued after August 7, 1986, although
generally excludable from gross income for federal income tax purposes, may be
subject to the federal alternative minimum tax ("AMT"). AMT is imposed on
taxpayers who utilized to a significant degree certain tax deductions and
exclusions (known as "items of tax preference"). Interest from private activity
bonds is an item of tax preference that is included with items of income from
certain other sources in calculating if a taxpayer is subject to AMT and the
amount thereof. Shareholders should consult their own tax advisers regarding the
potential applicability of the AMT to them.
If CGM Fixed Income Fund invests in foreign securities, it may be
subject to foreign withholding taxes on income earned on such securities and may
be unable to pass through to shareholders foreign tax credits and deductions
with respect to such taxes.
A distribution will be treated as paid by a Fund and received by its
respective shareholders on December 31 of the current calender year if it is
declared in October, November, or December of that year with a record date in
such a month and paid in January of the subsequent year.
Any dividends or distributions paid shortly after a purchase of shares
will have the effect of reducing the per share net asset value of the shares by
the amount of the dividends or distributions. Although in effect a return of
capital, these distributions (if derived from taxable investment income or net
capital gains) are subject to tax, even if their effect is to reduce the per
share net asset value below a shareholder's cost. To the extent that a Fund
makes a distribution in excess of its current and accumulated earnings and
profits, the distribution will be treated first as a tax-free return of capital,
reducing the tax basis in a shareholder's shares, and then, to the extent the
distribution exceeds such basis, as a taxable gain to be realized upon the sale
of such shares. Each Fund will notify you annually as to the tax status of
dividend and capital gains distributions paid by the Fund.
The sale or other disposition of shares of a Fund, including a
redemption of shares or an exchange of shares into another fund, is a taxable
event and may result in a capital gain or loss which will be long-term or
short-term, generally depending upon the shareholder's holding period for the
shares.
Each Fund will report to its U.S. shareholders and the IRS the amount of
dividends paid during each calendar year and the amount of tax withheld, if any.
Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid and redemptions
unless such shareholder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies that the shareholder is not subject to
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A shareholder who does not provide a Fund with his
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability.
As required by federal law, detailed federal tax information is
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year. BFDS, the shareholder servicing agent, will send you and
the Internal Revenue Service an annual statement detailing federal tax
information, including information about dividends and distributions paid to you
during the preceding year. If you redeem or exchange shares in any year,
following the end of a year, you will receive a statement providing the cost
basis and gain or loss of each share lot that you sold in each year. Your CGM
account cost basis will be calculated using the "single category average cost
method," which is one of the four calculation methods allowed by the IRS. Be
sure to keep these statements as permanent records. A fee may be charged for any
duplicate information that you request.
Dividend distributions, capital gains distributions, and capital gains
or losses from redemptions and exchanges may also be subject to state and local
taxes. In certain states, a portion of each Fund's income derived from certain
direct U.S. Government obligations may be exempt from state and local taxes.
Each year, each Fund will indicate the portion of its income, if any, that is
derived from such obligations.
Investors should consult their tax advisors regarding the application of
the above-described general federal taxation rules to their own circumstances
and the state, local, or foreign tax consequences to them of any investment in
either Fund.
- ------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
The financial statements and Report of Independent Accountants for the
year ended December 31, 1997 for each Fund, which are included in the respective
Fund's Annual Report to Shareholders for the year ended December 31, 1997, are
incorporated herein by reference.
DOCSC\338982.6
<PAGE>
CGM FOCUS FUND
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
This Statement of Additional Information (the "Statement") is not a
prospectus. This Statement relates to the CGM Focus Fund Prospectus dated May 1,
1998 (the "Prospectus"), and should be read in conjunction therewith. A copy of
the Prospectus may be obtained from CGM Trust, c/o The CGM Funds Investor
Services Division, P.O. Box 449, Boston, Massachusetts 02117 (Telephone:
800-345-4048).
FFSAI98
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INTRODUCTION...................................................................1
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS................................1
PORTFOLIO TURNOVER.............................................................3
MANAGEMENT OF THE FUND.........................................................4
INVESTMENT ADVISORY AND OTHER SERVICES.........................................6
Advisory Agreement.....................................................6
Custodial Arrangements.................................................7
Independent Accountants................................................7
Other Arrangements.....................................................8
PORTFOLIO TRANSACTIONS AND BROKERAGE...........................................8
DESCRIPTION OF THE TRUST.......................................................9
Shareholder Rights.....................................................9
Shareholder and Trustee Liability.....................................10
HOW TO BUY SHARES.............................................................11
ADVERTISING AND PERFORMANCE INFORMATION.......................................11
Calculation of Total Return...........................................11
Performance Comparisons...............................................12
NET ASSET VALUE AND PUBLIC OFFERING PRICE.....................................13
SHAREHOLDER SERVICES..........................................................14
Open Accounts.........................................................14
Systematic Withdrawal Plans ("SWP")...................................15
Exchange Privilege....................................................15
Automatic Investment Plans ("AIP")....................................16
Retirement Plans......................................................17
Address Changes.......................................................17
REDEMPTIONS...................................................................17
Redeeming by Telephone................................................18
Check Sent to the Record Address......................................18
Proceeds Wired to a Predesignated Bank................................18
All Redemptions.......................................................19
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS..................20
FINANCIAL STATEMENTS..........................................................21
<PAGE>
- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------
CGM Focus Fund (the "Fund") is organized as a separate series of shares
of CGM Trust (the "Trust"). The Trust is a Massachusetts business trust
established under the laws of Massachusetts in 1986. The Trust is governed by an
Amended and Restated Agreement and Declaration of Trust (the "Declaration of
Trust") dated January 23, 1997. The Trust is a successor in interest to
Loomis-Sayles Mutual Fund. On March 1, 1990, the Trust's name was changed from
"Loomis-Sayles Mutual Fund" to "CGM Mutual Fund" to reflect the assumption by
Capital Growth Management Limited Partnership ("CGM" or the "Investment
Manager") of investment advisory responsibilities with respect to the Trust. On
December 20, 1991, the Trust's name was changed to CGM Trust.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's investment objective is long-term growth of capital. The Fund
intends to pursue its objective by investing in a core position of equity
securities. In addition, should the investment outlook of the Investment Manager
so warrant, the Fund may engage in a variety of investment techniques designed
to capitalize on declines in the price of specific equity securities of one or
more companies. Such investment techniques include short sales, the sale of
stock index futures contracts and the purchase of put options on securities,
stock indexes and futures contracts. The Fund may also establish long positions
in specific securities or stock indexes by the purchase of stock index futures
contracts and call options on securities, stock indexes and stock index futures
contracts.
The Fund may not:
(1) Borrow money, except that it may borrow from banks in an amount not
to exceed 1/3 of the value of its total assets and may borrow for temporary
purposes from entities other than banks in an amount not to exceed 5% of the
value of its total assets;
(2) Issue any senior securities, except as permitted by the terms of any
exemptive order or similar rule issued by the Securities and Exchange Commission
(the "SEC") relating to multiple classes of shares of beneficial interest of the
Trust, and provided further that collateral arrangements with respect to forward
contracts, futures contracts, short sales or options, including deposits of
initial and variation margin, shall not be considered to be the issuance of a
senior security for purposes of this restriction;
(3) Act as an underwriter of securities issued by other persons, except
insofar as the Fund may be deemed an underwriter in connection with the
disposition of securities;
(4) Purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase to be invested in
the securities of one or more issuers having their principal business activities
in the same industry, provided that there is no limit with respect to
investments in the securities issued by the U.S. Government, its agencies and
instrumentalities;
(5) Purchase or sell real estate, except that the Fund may invest in
securities of companies that deal in real estate or are engaged in the real
estate business, including real estate investment trusts, and securities secured
by real estate or interests therein and the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of such securities;
(6) Purchase or sell commodities or commodity futures contracts, except
that the Fund may invest in financial futures contracts, options thereon and
similar instruments;
(7) Make loans to other persons except (a) through the lending of
securities held by it, (b) through the use of repurchase agreements, and (c) by
the purchase of debt securities in accordance with its investment policies;
If a percentage restriction is adhered to at the time of an investment,
a later increase or decrease in such percentage resulting from a change in the
values of assets will not constitute a violation of such restriction.
The investment restrictions above have been adopted by the Trust as
fundamental policies of the Fund. Under the Investment Company Act of 1940, as
amended (the "1940 Act"), a fundamental policy may not be changed without the
vote of a majority of the outstanding voting securities of the Fund, as defined
under the 1940 Act. "Majority" means the lesser of (1) 67% or more of the shares
present at a meeting of shareholders of the Fund, if the holders of more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (2) more than 50% of the outstanding shares of the Fund. Non-fundamental
investment restrictions may be changed at any time by vote of a majority of the
Trust's Board of Trustees.
Restricted securities eligible for resale to "qualified institutional
buyers" pursuant to Rule 144A under the Securities Act of 1933, as amended, may
be determined to be liquid by the Investment Manager under guidelines approved
by the Board of Trustees. In its determination of liquidity with respect to such
securities, the Investment Manager will consider the following factors, among
others: (1) the frequency of trades and quotes for the security, (2) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers, (3) dealer undertakings to make a market in the security,
and (4) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer). The foregoing investment practice could
have the effect of increasing the level of illiquidity in the Fund to the extent
that qualified institutional buyers become uninterested in purchasing the
securities.
The Fund may invest in repurchase agreements. A repurchase agreement is
an instrument under which the purchaser acquires ownership of a security and
obtains a simultaneous commitment from the seller (a bank or, to the extent
permitted by the 1940 Act, a recognized securities dealer) to repurchase the
security at an agreed-upon price and date (usually seven days or less from the
date of original purchase). The resale price is in excess of the purchase price
and reflects an agreed-upon market rate unrelated to the coupon rate on the
purchased security. Such transactions afford the Fund the opportunity to earn a
return on temporarily available cash at minimal market risk. While the
underlying security may be a bill, certificate of indebtedness, note or bond
issued by an agency, authority or instrumentality of the U.S. Government, the
obligation of the seller is not guaranteed by the U.S. Government and there is a
risk that the seller may fail to repurchase the underlying security. In such
event, the Fund would attempt to exercise rights with respect to the underlying
security, including possible disposition in the market. However, the Fund may be
subject to various delays and risks of loss, including (1) possible declines in
the value of the underlying security during the period while the Fund seeks to
enforce its rights thereto, (2) possible reduced levels of income and lack of
access to income during this period, and (3) inability to enforce rights and the
expenses involved in attempted enforcement.
The Fund may enter into reverse repurchase agreements with banks or
broker-dealers. Reverse repurchase agreements involve the sale of a security
held by the Fund and its agreement to repurchase the instrument at a stated
price, date and interest payment. Reverse repurchase agreements may be
considered to be borrowings by the Fund and entail additional risks such as the
occurrence of interest expenses and fluctuations in the Fund's net asset value.
In connection with entering into reverse repurchase agreements, a segregated
account of the Fund consisting of cash, cash equivalents, U.S. Government
securities or other liquid securities (which may include equity securities) with
an aggregate value at all times sufficient to repurchase the securities, or
equal to the proceeds received upon the sale plus accrued interest, will be
established with the Fund's custodian bank.
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
Although the Fund's objective is long-term growth of capital and the
Fund does not purchase securities with the intention of engaging in short term
trading, the Fund will sell any particular security and reinvest proceeds when
it is deemed prudent by the Investment Manager, regardless of the length of the
holding period. It is estimated that the Fund's portfolio turnover will exceed
300% on an annual basis. The Fund's annualized portfolio turnover rate for the
period September 3, 1997 (commencement of operations) through December 31, 1997
was 330%. This policy may result in higher securities transaction costs. To the
extent that this policy results in gains on investments, the Fund will make
distributions to its shareholders, which may accelerate the shareholders' tax
liabilities for realized gains and may result in the distribution of short-term
capital gains taxable as ordinary income. See "Income Dividends, Capital Gains
Distributions and Tax Status."
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
PETER O. BROWN (Age 57) -- Trustee;
30 Douglas Road, Rochester, NY; Partner, Harter, Secrest & Emery;
formerly Executive Vice President and Chief Operating Officer, The
Glenmede Trust Company; formerly Senior Vice President, Chase Lincoln
First Bank, N.A.
NICHOLAS J. GRANT (Age 82) -- Trustee;
77 Massachusetts Avenue, Cambridge, MA; Professor of Metallurgy and
Materials Science, Massachusetts Institute of Technology.
G. KENNETH HEEBNER (Age 57)* -- Trustee and Vice President;
Employee, CGM; formerly Vice President and Director, Loomis Sayles and
Company, Incorporated ("Loomis Sayles").
ROBERT L. KEMP (Age 65)* -- Trustee and President;
Employee, CGM; formerly President and Director, Loomis Sayles.
ROBERT B. KITTREDGE (Age 77) -- Trustee;
21 Sturdivant Street, Cumberland Foreside, ME; Retired; formerly Vice
President, General Counsel and Director, Loomis Sayles.
LAURENS MACLURE (Age 72) -- Trustee;
183 Sohier Street, Cohasset, MA; Retired; formerly President and Chief
Executive Officer, New England Deaconess Hospital.
JAMES VAN DYKE QUEREAU, JR. (Age 49) -- Trustee;
59 Annewood Lane, Wayne, PA; Managing Partner, Stratton Management
Company; formerly Institutional Managing Partner, Loomis Sayles.
J. BAUR WHITTLESEY (Age 51) -- Trustee; 1521 Locust Street, Philadelphia,
PA; Attorney.
KATHLEEN S. HAUGHTON (Age 37) -- Vice President;
222 Berkeley Street, Boston, MA 02116; Employee -- Investor Services
Division, CGM; formerly Vice President, Boston Financial Data Services,
Inc.
LESLIE A. LAKE (Age 53) -- Vice President and Secretary;
Employee -- Office Administrator, CGM; formerly Office Administrator,
Capital Growth Management Division of Loomis Sayles.
MARTHA I. MAGUIRE (Age 42) -- Vice President;
Employee -- Funds Marketing, CGM; formerly marketing communications
consultant (self-employed); formerly Sales Promotion Consultant, The New
England.
MARY L. STONE (Age 53) -- Assistant Vice President;
Employee -- Coordinator, Mutual Fund Recordkeeping, CGM; formerly
Coordinator, Mutual Fund Recordkeeping, Loomis Sayles.
FRANK N. STRAUSS (Age 36) -- Treasurer;
222 Berkeley Street, Boston, MA 02116; Employee -- Chief Financial
Officer, CGM; formerly Vice President of Fund Accounting, Freedom
Capital Management Corporation and Assistant Vice President, The Boston
Company, Inc.
W. DUGAL THOMAS (Age 60) -- Vice President;
Employee -- Director of Marketing, CGM; formerly Director of Marketing,
Loomis Sayles.
- ----------
* Trustees deemed "interested persons" of the Fund, as defined under the
1940 Act.
Each of the Fund's trustees is also a trustee of one or more other
investment companies for which CGM acts as investment manager. Except as
indicated above, the address of each trustee and officer of the Fund affiliated
with CGM is One International Place, Boston, Massachusetts 02110.
As of March 31, 1998, the officers and trustees of the Fund owned
beneficially less than 1% of the outstanding shares of the Fund.
The Fund pays no compensation to its officers or to the trustees listed
above who are interested persons of the Fund. Officers and trustees receive no
pension or retirement benefits paid from Fund expenses. The following table sets
forth the compensation paid by the Trust to its trustees for the year ended
December 31, 1997:
<TABLE>
<CAPTION>
Pension Total
or Retirement Estimated Compensation From
Aggregate Benefits Accrued Annual Registrant and
Name of Compensation as Part of Fund Benefit Upon Fund Complex
Trustee From Trust Expenses Retirement Paid to Trustees(a)
- ------- ------------ ---------------- ------------ -------------------
<S> <C> <C> <C> <C>
Peter O. Brown $27,153 None None $37,000
Nicholas J. Grant 31,653 None None 43,000
G. Kenneth Heebner None None None None
Robert L. Kemp None None None None
Robert B. Kittredge 27,153 None None 37,000
Laurens MacLure 27,153 None None 37,000
James Van Dyke Quereau, Jr. 27,153 None None 37,000
J. Baur Whittlesey 27,153 None None 37,000
</TABLE>
- ----------
(a) The Fund Complex is comprised of two Trusts with a total of six funds.
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER SERVICES
- --------------------------------------------------------------------------------
Advisory Agreement CGM serves as investment manager of the Fund under an
advisory agreement dated September 2, 1997. Under the advisory agreement, CGM
manages the investment and reinvestment of assets of the Fund and generally
administers its affairs, subject to supervision by the Board of Trustees of the
Trust. CGM furnishes, at its own expense, all necessary office supplies,
facilities and equipment, services of executive and other personnel of the Fund
and certain administrative services. For these services, CGM is compensated at
the annual percentage rate of 1.00% of the first $500 million of the Fund's
average daily net asset value, 0.95% of the next $500 million of such value, and
0.90% of such value in excess of $1 billion. CGM has voluntarily agreed, until
December 31, 1998, and thereafter until further notice to the Fund, to limit its
management fees and, if necessary, to bear certain expenses associated with
operating the Fund, in order to limit the Fund's total operating expenses to an
annual rate of 1.20% of the Fund's average net assets. For the period September
3, 1997 (commencement of operations) through December 31, 1997, the advisory fee
that would have been payable to CGM for services rendered to Fund amounted to
$223,679. As a result of such waiver, the advisory fee paid was $128,271.
The Fund pays the compensation of its trustees who are not partners,
directors, officers or employees of CGM or its affiliates (other than registered
investment companies); registration, filing, and other fees in connection with
requirements of regulatory authorities; all charges and expenses of its
custodian and transfer agent; the charges and expenses of its independent
accountants; all brokerage commissions and transfer taxes in connection with
portfolio transactions; all taxes and fees payable to governmental agencies; the
cost of any certificates representing shares of the Fund; the expenses of
meetings of the shareholders and trustees of the Fund; the charges and expenses
of the Fund's legal counsel; interest, including on any borrowings by the Fund;
the cost of services, including services of counsel, required in connection with
the preparation of, and the costs of printing registration statements and
prospectuses relating to the Fund, including amendments and revisions thereto,
annual, semiannual, and other periodic reports of the Fund, and notices and
proxy solicitation material furnished to shareholders of the Fund or regulatory
authorities, to the extent that any such materials relate to the Fund or its
shareholders; and the Fund's expenses of bookkeeping, accounting, auditing and
financial reporting, including related clerical expenses.
CGM also acts as investment adviser to CGM Capital Development Fund, CGM
Mutual Fund, CGM Fixed Income Fund, CGM American Tax Free Fund, CGM Realty Fund
and three other mutual fund portfolios. CGM also provides investment advice to
other institutional clients.
Certain officers and trustees of the Fund also serve as officers,
directors or trustees of other investment companies advised by CGM. The other
investment companies and clients served by CGM sometimes invest in securities in
which the Fund also invests. If the Fund and such other investment companies or
clients advised by CGM desire to buy or sell the same portfolio securities at
the same time, purchases and sales will be allocated to the extent practicable
on a pro rata basis in proportion to the amounts desired to be purchased or sold
for each. It is recognized that in some cases the practices described in this
paragraph could have a detrimental effect on the price or amount of the
securities which the Fund purchases or sells. In other cases, however, it is
believed that these practices may benefit the Fund. It is the opinion of the
trustees that the desirability of retaining CGM as adviser for the Fund
outweighs the disadvantages, if any, which might result from these practices.
Custodial Arrangements State Street Bank and Trust Company ("State
Street Bank"), Boston, Massachusetts 02102, is the Fund's custodian. As such,
State Street Bank holds in safekeeping certificated securities and cash
belonging to the Fund and, in such capacity, is the registered owner of
securities held in book entry form belonging to the Fund. Upon instruction,
State Street Bank receives and delivers cash and securities of the Fund in
connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. State Street Bank
also maintains certain accounts and records of the Fund and calculates the total
net asset value, total net income, and net asset value per share of the Fund on
each business day.
Independent Accountants The Fund's independent accountants are Price
Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110. Price
Waterhouse LLP conducts an annual audit of the Fund's financial statements,
assists in the preparation of the Fund's federal and state income tax returns
and consults with the Fund as to matters of accounting and federal and state
income taxation.
Other Arrangements Certain office space, facilities, equipment and
administrative services for the Fund and other mutual funds under the investment
management of the CGM organization are furnished by CGM. In addition, CGM
provides bookkeeping, accounting, auditing, financial recordkeeping and related
clerical services for which it is entitled to be reimbursed by the Fund based on
the cost of providing these services. CGM received no reimbursements for such
services from the Fund during the period September 3, 1997 (commencement of
operations) through December 31, 1997.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
In placing orders for the purchase and sale of portfolio securities for
the Fund, CGM always seeks the best price and execution. Transactions in
unlisted securities will be carried out through broker-dealers who make the
primary market for such securities unless, in the judgment of CGM, a more
favorable price can be obtained by carrying out such transactions through other
brokers.
CGM selects only brokers it believes are financially responsible, will
provide efficient and effective services in executing, clearing and settling an
order and will charge commission rates which, when combined with the quality of
the foregoing services, will produce the best price and execution for the
transaction. This does not necessarily mean that the lowest available brokerage
commission will be paid. However, the commissions are believed to be competitive
with generally prevailing rates. CGM will use its best efforts to obtain
information as to the general level of commission rates being charged by the
brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by the
broker in connection with the order, are taken into account. The Fund will not
pay a broker a commission at a higher rate than is otherwise available for the
same transaction in recognition of the value of research services provided by
the broker or in recognition of the value of any other services provided by the
broker which do not contribute to the best price and execution of the
transaction.
Receipt of research services from brokers may sometimes be a factor in
selecting a broker which CGM believes will provide the best price and execution
for a transaction. These research services include not only a wide variety of
reports on such matters as economic and political developments, industries,
companies, securities, portfolio strategy, account performance, daily prices of
securities, stock and bond market conditions and projections, asset allocation
and portfolio structure, but also meetings with management representatives of
issuers and with other analysts and specialists. Although it is not possible to
assign an exact dollar value to these services, they may, to the extent used,
tend to reduce CGM's expenses. Such services may be used by CGM in servicing
other client accounts and in some cases may not be used with respect to the
Fund. Receipt of services or products other than research from brokers is not a
factor in the selection of brokers.
For the period September 3, 1997 (commencement of operations) through
December 31, 1997, Fund brokerage transactions aggregating $204,250,135 were
allocated to brokers providing research services and $312,588 in commissions
were paid on these transactions. During the same period, the Fund paid total
brokerage fees of approximately $398,885.00.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE TRUST
- --------------------------------------------------------------------------------
The Declaration of Trust of the Trust currently permits the trustees to
issue an unlimited number of shares of beneficial interest of separate series of
the Trust. Interests in the portfolio described in the Prospectus and in this
Statement are represented by shares of the Fund. Each share of the Fund
represents an interest in such series which is equal to and proportionate with
the interest represented by each other share. The shares of the Fund do not have
any preemptive rights. Upon liquidation of the portfolio, shareholders of the
Fund are entitled to share pro rata in the net assets of such portfolio
available for distribution to shareholders. The Declaration of Trust also
permits the trustees to charge shareholders directly for custodial, transfer
agency and servicing expenses. The trustees have no present intention of making
such direct charges.
The Declaration of Trust also permits the trustees, without shareholder
approval, to create one or more additional series or classes of shares or to
reclassify any or all outstanding shares as shares of particular series or
classes, with such preferences and rights and eligibility requirements as the
trustees may designate. While the trustees have no current intention to exercise
the power to establish separate classes of the existing series of the Fund, it
is intended to allow them to provide for an equitable allocation of the impact
of any future regulatory requirements, which might affect various classes of
shareholders differently. The trustees may also, without shareholder approval,
merge two or more existing series.
Shareholder Rights
On March 31, 1998, there were 13,355,293 shares of the Fund outstanding.
On that date, State Street Bank, acting as trustee for various retirement plans
and individual retirement accounts, owned 2,917,602 shares - about 22% of the
total. In almost all cases, State Street Bank does not have the power to vote or
to dispose of the shares except at the direction of the beneficial owner.
Shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held) and may vote (to the extent
provided herein) in the election of trustees of the Trust and the termination of
the Fund and on other matters submitted to the vote of shareholders. There will
normally be no meetings of shareholders for the purpose of electing trustees,
except that in accordance with the 1940 Act, (i) the Trust will hold a
shareholders' meeting for the election of trustees at such time as less than a
majority of the trustees holding office have been elected by shareholders, and
(ii) if the appointment of a trustee to fill a vacancy in the Board of Trustees
would result in less than two-thirds of the trustees having been elected by the
shareholders, that vacancy may only be filled by a vote of the shareholders. In
addition, trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for the purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by ten or more shareholders of record who have been such
for at least six months and who hold in the aggregate shares equal to at least
the lesser of (i) $25,000 in net asset value or (ii) 1% of the outstanding
shares, stating that shareholders wish to communicate with the other
shareholders for the purpose of obtaining the signatures necessary to demand a
meeting to consider removal of a trustee, the Trust will either provide access
to a list of shareholders or disseminate appropriate materials (at the expense
of the requesting shareholders). Except as set forth above, the trustees shall
continue to hold office and may appoint successor trustees. Voting rights are
not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the holders of the outstanding shares of the
Trust except (i) to change the Trust's name or to cure technical problems in the
Declaration of Trust and (ii) to establish, designate or modify new and existing
series or subseries of Trust shares or other provisions relating to Trust shares
in response to applicable laws or regulations. The shareholders of the Fund
shall not be entitled to vote on matters exclusively affecting any other series,
such matters including, without limitation, the adoption of or change in the
investment objectives, policies or restrictions of the series and the approval
of the investment advisory contracts of the series. Similarly, no shareholders
of any other series shall be entitled to vote on any such matters exclusively
affecting the Fund. In particular, the phrase "majority of the outstanding
voting securities of the Fund" as used in this Statement shall refer only to the
shares of the Fund.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust;
however, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or trustees. The Declaration of Trust provides for indemnification out of Fund
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote since it
is limited to circumstances in which the disclaimer is inoperative and the Fund
itself would be unable to meet its obligations.
The Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The By-Laws of the Trust provide for indemnification by the Trust of
the trustees and officers of the Trust except with respect to any matter as to
which any such person did not act in good faith in the reasonable belief that
such action was in or not opposed to the best interests of the Trust. No officer
or trustee may be indemnified against any liability to the Trust or the Trust's
shareholders to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
All persons dealing with the Fund must look only to the assets of the
Fund for the enforcement of any claims against the Fund and no other series of
the Trust assumes any liability
for obligations entered into on behalf of the Fund.
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
The procedures for purchasing shares of the Fund are summarized in the
Prospectus under "How to Purchase Shares."
- --------------------------------------------------------------------------------
ADVERTISING AND PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Calculation of Total Return
The Fund may include total return information in advertisements or
written sales material. Total return is a measure of the change in value of an
investment in the Fund over the period covered, which assumes that any dividends
or capital gains distributions are automatically reinvested in the Fund rather
than paid to the investor in cash. The formula for total return used by the Fund
includes three steps:
(1) adding to the total number of shares purchased by a
hypothetical $1,000 investment in the Fund all additional shares that
would have been purchased if all dividends and distributions paid or
distributed during the period had been automatically reinvested;
(2) calculating the value of the hypothetical initial investment
as of the end of the period by multiplying the total number of shares
owned at the end of the period by the net asset value per share on the
last trading day of the period; and
(3) dividing this account value for the hypothetical investor by
the amount of the initial investment, and annualizing the result for
periods of less than one year.
For the period September 3, 1997 (commencement of operations) through
December 31, 1997, the Fund's total return was -6.2% (not annualized). If CGM
had not limited expenses to 1.20% of average annual net assets during the
period, the Fund's total return would have been lower. In computing performance
information for the Fund, no adjustment will be made for a shareholder's tax
liability on taxable dividends and capital gains distributions.
Performance Comparisons
Total return may be used to compare the performance of the Fund against
certain widely acknowledged standards or indices for stock and bond market
performance or against the U.S. Bureau of Labor Statistics' Consumer Price
Index.
The Standard & Poor's 500 Composite Index (the "S&P 500") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 stocks relative to the base period 1941-43. The S&P 500 is composed
almost entirely of common stocks of companies listed on the New York Stock
Exchange, although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included. The 500 companies
represented include 400 industrial, 60 transportation and 40 financial services
concerns.
The Dow Jones Industrial Average is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York Stock
Exchange.
No brokerage commissions or other fees are factored into the values of
the S&P 500 and the Dow Jones Industrial Average.
The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of change, over time, in the prices of
goods and services in major expenditure groups.
Lipper Analytical Services, Inc., an independent service that monitors
the performance of over 11,332 mutual funds, calculates total return for those
funds grouped by investment objective. From time to time, the Fund may include
its ranking among mutual funds tracked by Lipper in advertisements or sales
literature.
Morningstar, Inc. ("Morningstar") is an independent mutual fund ranking
service. Morningstar proprietary ratings reflect historical risk-adjusted
performance and are subject to change every month. Funds with at least three
years of performance history are assigned ratings from one star (lowest) to five
stars (highest). Morningstar ratings are calculated from the funds' three-,
five-, and ten-year average annual returns (when available) and a risk factor
that reflects the fund performance relative to three-month Treasury bill monthly
returns. Funds' returns are adjusted for fees and sales loads. Ten percent of
the funds in an investment category receive five stars, 22.5% receive four
stars, 35% receive three stars, 22.5% receive two stars, and the bottom 10%
receive one star. From time to time, the Fund may include its ranking among
mutual funds tracked by Morningstar in advertisements or sales literature.
Value Line, Inc. ("Value Line"), an independent mutual fund ranking
service reviews the performance of 7,976 mutual funds. In ranking mutual funds,
Value Line uses two indicators: a Risk Rank to show the total level of risk a
fund has assumed and an Overall Rank measuring various performance criteria
taking risk into account. Funds are ranked from 1 to 5, with 1 the highest
Overall Rank (the best risk-adjusted performance) and the best Risk Rank (the
least risky). From time to time, the Fund may include ranking information
provided by Value Line in advertisements and sales literature.
From time to time, articles about the Fund regarding performance,
rankings and other characteristics of the Fund and information about persons
responsible for its portfolio management may appear in national publications and
major metropolitan newspapers including, but not limited to, The Wall Street
Journal, The Boston Globe, The New York Times and Barron's, Forbes, Fortune,
Money, Worth, Kiplinger's Personal Finance, Mutual Funds, Individual Investor,
Bloomberg Personal and Business Week magazines. In particular, some or all of
these publications may publish their own rankings or performance reviews of
mutual funds, including the Fund. References to or reprints of, or quotations
from, such articles may be used in the Fund's promotional literature. The Fund
may also include in its advertising and sales literature information concerning
the experience of Mr. Heebner, the Fund's portfolio manager in managing other
mutual funds and private accounts, including ranking and rating information
about such funds.
Mr. Heebner has continuously managed the Fund since its inception on
September 3, 1997.
- --------------------------------------------------------------------------------
NET ASSET VALUE AND PUBLIC OFFERING PRICE
- --------------------------------------------------------------------------------
The method for determining the public offering price and net asset value
per share is summarized in the Prospectus under "Pricing of Shares."
The net asset value of a share of the Fund is determined by dividing the
Fund's total net assets (the excess of its assets over its liabilities) by the
total number of shares outstanding and rounding to the nearest cent. Such
determination is made as of the close of normal trading on the New York Stock
Exchange on each day on which the Exchange is open for unrestricted trading, and
no less frequently than once daily on each day during which there is sufficient
trading in the Fund's portfolio securities that the value of the Fund's shares
might be materially affected. During the 12 months following the date of this
Statement, the New York Stock Exchange is currently expected to be closed on the
following holidays: Memorial Day, Independence Day (observed), Labor Day,
Thanksgiving Day, Christmas Day, New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day and Good Friday.
Securities which are traded over-the-counter or on a stock exchange will
be valued according to the broadest and most representative market based on the
last reported sale price for securities listed on a national securities exchange
(or on the NASDAQ National Market System) or, if no sale was reported and in the
case of over-the-counter securities not so listed, the last reported bid price.
U.S. Government securities are valued at the most recent quoted price on the
date of valuation.
For equity securities, it is expected that the broadest and most
representative market will ordinarily be either (i) a national securities
exchange, such as the New York Stock Exchange or American Stock Exchange, or
(ii) the NASDAQ National Market System. Other assets and securities which are
not readily marketable will be valued in good faith at fair value using methods
determined by the Board of Trustees.
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Open Accounts
A shareholder's investment in the Fund is credited to an open account
maintained for the shareholder by the CGM Shareholder Services Department ("CGM
Shareholder Services") of Boston Financial Data Services, Inc. ("BFDS"), the
shareholder servicing agent for State Street Bank. The address is: CGM
Shareholder Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
Certificates representing shares are issued only upon written request to
CGM Shareholder Services but are not issued for fractional shares. Following
each transaction in the account, a shareholder will receive an account statement
disclosing the current balance of shares owned and the details of recent
transactions that have taken place during the year. After the close of each
fiscal year, CGM Shareholder Services will send each shareholder a statement
providing federal tax information on dividends and distributions paid to the
shareholder during the year. The year-end statement should be retained as a
permanent record. Shareholders will be charged a fee for duplicate information.
The open account system permits the purchase of full and fractional
shares and, by making the issuance and delivery of certificates representing
shares unnecessary, eliminates problems of handling and safekeeping, and the
cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are borne by the Fund,
and no direct charges are made to shareholders. Although the Fund has no present
intention of making such direct charges to shareholders, it reserves the right
to do so. Shareholders will receive prior notice before any such charges are
made.
Systematic Withdrawal Plans ("SWP")
A Systematic Withdrawal Plan, referred to in the Prospectus under
"Shareholder Services--Systematic Withdrawal Plan," provides for monthly,
quarterly, semiannual or annual withdrawal payments of $50 or more from the
account of a shareholder provided that the account has a value of at least
$10,000 at the time the plan is established. A shareholder may establish a SWP
by completing the Service Options Form.
Payments will be made either to the shareholder or to any other person
or entity designated by the shareholder. If payments are issued to an individual
other than the registered owner(s) and/or mailed to an address other than the
address of record, a signature guarantee will be required on the Service Options
Form. Shares to be included in a Systematic Withdrawal Plan must be held in an
Open Account rather than certificated form. Income dividends and capital gain
distributions will be reinvested at the net asset value determined as of the
close of the New York Stock Exchange on the record date for the dividend or
distribution. If withdrawal checks are returned to the Fund as "undeliverable"
or remain uncashed for more than six months the shareholder's Systematic
Withdrawal Plan will be cancelled, such undeliverable or uncashed checks will be
cancelled and such amounts reinvested in the Fund at the per share net asset
value determined as of the date of cancellation of the checks.
Since withdrawal payments represent in whole or in part proceeds from
the liquidation of shares, the shareholder should recognize that withdrawals may
reduce and possibly exhaust the value of the account, particularly in the event
of a decline in net asset value. Accordingly, the shareholder should consider
whether a Systematic Withdrawal Plan and the specified amounts to be withdrawn
are appropriate in the circumstances. The Trust makes no recommendations or
representations in this regard. It may be appropriate for the shareholder to
consult a tax adviser before establishing such a plan. See "Redemptions" and
"Income Dividends, Capital Gain Distributions and Tax Status" below for certain
information as to federal income taxes.
Exchange Privilege
A shareholder may exchange shares of the Fund for shares of CGM Mutual
Fund, CGM Fixed Income Fund, CGM American Tax Free Fund, CGM Realty Fund, New
England Cash Management Trust, New England Tax Exempt Money Market Trust or CGM
Capital Development Fund; however, shares of CGM Capital Development Fund may be
exchanged only if you were a shareholder on September 24, 1993, and have
continuously remained a shareholder in the CGM Capital Development Fund since
that date. CGM Capital Development Fund shares are not generally available to
other persons except in special circumstances that have been approved by, or
under the authority of, the Board of Trustees of CGM Capital Development Fund.
The special circumstances currently approved by the Board of Trustees of CGM
Capital Development Fund are limited to the offer and sale of shares of such
fund to the following additional persons: trustees of CGM Capital Development
Fund, employees of the Investment Manager and counsel to such fund and the
Investment Manager. The value of shares exchanged must be at least $1,000 and
all exchanges are subject to the minimum investment requirements of the fund
into which the exchange is being made. This option is summarized in the
Prospectus under "Shareholder Services--Exchange Privilege." Exchange requests
cannot be revoked once they have been received in good order. The Trust reserves
the right to terminate or limit the privilege of a shareholder who makes more
than four exchanges (or two round trips) per year and to prohibit exchanges
during the first 15 days following an investment in the Fund.
Exchanges may be effected by (i) a telephone request to CGM Shareholder
Services at 800-343-5678, provided a special authorization form is on file with
the Trust, or (ii) a written exchange request to BFDS accompanied by an account
application for the appropriate fund. The Trust reserves the right to modify
this exchange privilege without prior notice, except as otherwise required by
law or regulation.
For federal income tax purposes, an exchange constitutes a sale of
shares, which may result in a capital gain or loss.
Automatic Investment Plans ("AIP")
Once initial investment minimums have been satisfied (see "How to
Purchase Shares" in the Prospectus), a shareholder may participate in an
Automatic Investment Plan, pursuant to which the Fund debits $50.00 or more on
or about the same date each month from a shareholder's checking account and
transfers the proceeds into the shareholder's Fund account. To participate, a
shareholder must authorize the Fund and its agents to initiate Automated
Clearing House ("ACH") debits against the shareholder's designated checking
account at a bank or other financial institution. Please contact CGM Shareholder
Services at 800-343-5678 to determine the requirements associated with debits
from savings banks and credit unions. Debits from money market accounts are not
acceptable. Shareholders receive a confirmation of each purchase of Fund shares
under the AIP. If a shareholder elects to redeem shares of the Fund purchased
under the AIP within 15 days of such purchase, the shareholder may experience
delays in receiving redemption proceeds. See "All Redemptions."
Once a shareholder enrolls in the AIP, the Fund and its agents are
authorized to initiate ACH debits against the shareholder's account payable to
the order of The CGM Funds. Such authority remains in effect until revoked by
the shareholder, and, until the Fund actually receives such notice of
revocation, the Fund is fully protected in initiating such debits. Participation
in the AIP may be terminated by sending written notice to CGM Shareholder
Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511, or by calling
800-343-5678 more than 14 days prior to the next scheduled debit date. The Fund
may terminate a shareholder's participation in the AIP immediately in the event
that any item is unpaid by the shareholder's financial institution. The Fund may
terminate or modify the AIP at any time.
Retirement Plans
Under "Shareholder Services--Retirement Plans" the Prospectus refers to
several retirement plans. These include tax deferred money purchase pension or
profit sharing plans, as well as SEP-IRAs, Traditional and Roth IRAs and
403(b)(7) custodial accounts established under retirement plans sponsored by
CGM. These plans may be funded with shares of the Fund.
For participants under age 59 1/2, generally, all income dividends and
capital gain distributions of plan participants must be reinvested. Plan
documents and further information can be obtained from the Trust by writing or
calling the Trust as indicated on the cover of this Statement.
Check with your financial or tax adviser as to the suitability of Fund
shares for your retirement plan.
Address Changes
Shareholders can request to change their record address either by
telephone or in writing (by mail or delivery service, but not by facsimile) in
accordance with the policies and procedures of the Trust. After an address
change is made, no telephone or written redemption requests will be honored for
three months unless the registered owner's signature is guaranteed on the
request. Written requests for a change of address may be mailed to: CGM
Shareholder Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
- --------------------------------------------------------------------------------
REDEMPTIONS
- --------------------------------------------------------------------------------
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
Except as noted below, signatures on redemption requests must be
guaranteed by an eligible guarantor institution in accordance with procedures
established by the Trust. Signature guarantees by notaries public are not
acceptable.
The procedures provide that an "eligible guarantor institution" means
any of the following: banks (as defined in ss. 3(a) of the Federal Deposit
Insurance Act (the "FDIA") [12 U.S.C. ss. 1813(a)]); brokers, dealers, municipal
securities brokers, government securities dealers and government securities
brokers, as those terms are defined under the Securities Exchange Act of 1934
(the "Act"); credit unions (as defined in ss. 19(b)(1)(A) of the Federal Reserve
Act [12 U.S.C. ss. 461(b)]); national securities exchanges, registered
securities associations and clearing agencies, as those terms are defined under
the Act; and savings associations (as defined in ss. 3(b) of the FDIA [12 U.S.C.
ss. 1813(b)]). However, as noted in the Prospectus, a signature guarantee will
not be required if the proceeds of the redemption do not exceed $25,000, and the
proceeds check is made payable to the registered owner(s) and mailed to the
record address, which has not changed in the prior three months. If the record
address has changed within the prior three months, a signature guarantee will be
required. This policy applies to both written and telephone redemption requests.
Redeeming by Telephone
There are two ways to redeem by telephone. In either case, a shareholder
should call 800-343-5678 prior to 4:00 p.m. (Eastern time). Requests made after
that time or on a day when the New York Stock Exchange is not open for business
cannot be accepted. Telephone redemptions are not available for Traditional or
Roth IRAs, SEP-IRAs, 403(b)(7) custodial accounts or money purchase pension and
profit sharing plans under a CGM retirement plan where State Street Bank is the
custodian or trustee.
Check Sent to the Record Address
A shareholder may request that a check be sent to the record address on
the account, provided that the address has not changed for the last three months
and the shareholder is redeeming $25,000 or less. Except in the case of a CGM
retirement plan, the service option of telephone redemption by check is
available to shareholders automatically unless this option is declined in the
application or in writing. The check will be made payable to the registered
owner(s) of the account.
If checks representing redemption proceeds are returned "undeliverable"
or remain uncashed for six months, such checks shall be cancelled and such
proceeds shall be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation of such
checks.
Proceeds Wired to a Predesignated Bank
A shareholder may request that the redemption proceeds be wired to the
bank selected on the Fund application or subsequently on the Service Options
Form available from the Trust or BFDS. A nominal wire fee, currently $5.00, is
deducted from the proceeds. When selecting the service, a shareholder must
designate a bank account to which the redemption proceeds should be wired. Any
change in the bank account so designated may be made by furnishing BFDS a
completed Service Options Form with a signature guarantee. Whenever the Service
Options Form is used, the shareholder's signature must be guaranteed as
described above. Telephone redemptions may be made only if an investor's bank is
a member of the Federal Reserve System or has a correspondent bank that is a
member of the System. If the account is with a savings bank, it must have only
one correspondent bank that is a member of the System.
All Redemptions
The redemption price will be the net asset value per share next
determined after the redemption request is received by CGM Shareholder Services
in good order (including any necessary documentation). Redemption requests
cannot be revoked once they have been received in good order. Proceeds resulting
from a written redemption request will normally be mailed to you within seven
days after receipt of your request in good order. Telephone redemption proceeds
will normally be mailed or wired within seven days following receipt of a proper
redemption request. If you purchased your Fund shares by check (or through your
AIP) and elect to redeem shares within 15 days of such purchase, you may
experience delays in receiving redemption proceeds. The Trust will process your
redemption request upon receipt of a request in good order. However, the Trust
will generally postpone sending your redemption proceeds from such investment
until it can verify that your check (or AIP investment) has been or will be
collected. Under ordinary circumstances, the Trust cannot verify collection of
individual checks (or AIP investments) and may therefore automatically hold
proceeds from redemptions requested during the 15 day period following such
investment for a total of up to seven days. There will be no such automatic
delay following investments paid for by federal funds wire or by bank cashier's
check, certified check or treasurer's check although the Trust may in any case
postpone payment of redemption proceeds for up to seven days.
The Trust will normally redeem shares for cash; however, the Trust
reserves the right to pay the redemption price wholly in kind or partly in kind
and partly in cash if the board of trustees of the Trust determines it to be
advisable in the interest of the remaining shareholders. If portfolio securities
are distributed in lieu of cash, the shareholder will normally incur brokerage
commissions upon subsequent disposition of any such securities.
A redemption constitutes a sale of the shares for federal income tax
purposes on which the investor may realize a long- or short-term capital gain or
loss. See "Income Dividends, Capital Gains Distributions and Tax Status."
Because the expense of maintaining small accounts is disproportionately
high, the Trust may close accounts with 20 shares or less and mail the proceeds
to the shareholder. Shareholders who are affected by this policy will be
notified of the Trust's intention to close the account, and will have 60 days
immediately following the notice in which to acquire the requisite number of
shares. The minimum does not apply to retirement and Uniform Gifts to Minors Act
or Uniform Transfers to Minors Act accounts.
- --------------------------------------------------------------------------------
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
- --------------------------------------------------------------------------------
As described in the Prospectus under "Dividends, Capital Gains
Distributions and Taxes" it is the policy of the Fund to pay annually, as
dividends, substantially all net investment income and to distribute annually
all net realized capital gains, if any, after offsetting any capital loss
carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the Fund based upon the net asset value determined as of
the close of the New York Stock Exchange on the record date for such dividend or
distribution. Shareholders, however, may elect to receive their income dividends
or capital gain distributions, or both, in cash. However, if a shareholder
elects to receive capital gains in cash, his or her income dividends must also
be received in cash. Shareholders can elect to receive payments of cash
dividends and capital gains distributions either by check or by direct deposit
to a bank account that they have predesignated. These elections can be made at
the time the account is opened and may be changed by the shareholder at any time
by submitting a written request directly to CGM Shareholder Services or by
calling 800-343-5678. However, changes in bank account information for direct
deposits of cash dividends and capital gains distributions must be made through
a Service Options Form. In order for a change to be effective for any dividend
or distribution, it must be received by CGM Shareholder Services on or before
the record date for such dividend or distribution. If a shareholder elects to
receive distributions in cash and checks are returned "undeliverable" or remain
uncashed for six months, such shareholder's cash election will be changed
automatically and the shareholder's future dividend and capital gains
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, following
such six month period, any undeliverable or uncashed checks will be cancelled
and such amounts reinvested in the Fund at the per share net asset value
determined as of the date of cancellation of such checks.
The Fund intends to meet the requirements of the Internal Revenue Code
with respect to regulated investment companies.
The distributions received by the Fund from its investments may, for
federal income tax purposes, consist of ordinary income, long-term capital gains
or a return of capital. The characterization of these distributions to the Fund
may, in turn, affect the tax treatment of the Fund's distributions to its
shareholders. Dividends and distributions are taxable to shareholders in the
same manner whether received in cash or reinvested in additional shares of the
Fund.
Dividends paid by the Fund from net investment income, including
dividends, interest and net short-term capital gains, will be taxable to
shareholders as ordinary income. Distributions of net capital gains (the excess
of net long-term capital gains over net short-term capital losses) which are
designated by the Fund as capital gains distributions are taxable as long-term
capital gains, regardless of the length of time shareholders have owned shares
in the Fund. Because of recent changes in the tax law, capital gains
distributions to shareholders that are individuals, trusts and estates may be
subject to varying tax rates. To the extent that the Fund makes a distribution
in excess of its current and accumulated earnings and profits, the distribution
will be treated first as a tax-free return of capital, reducing the tax basis in
a shareholder's shares, and then, to the extent the distribution exceeds such
basis, as a taxable gain to be realized upon sale of such shares.
If the Fund invests in foreign securities, it may be subject to foreign
withholding taxes on income earned on such securities and may be unable to pass
through to shareholders foreign tax credits and deductions with respect to such
taxes.
Dividends and distributions on Fund shares received shortly after their
purchase, although in effect a return of capital, are subject to federal income
taxes.
The Fund will report to its U.S. shareholders and the IRS the amount of
dividends paid during each calendar year and the amount of tax withheld, if any.
Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid and redemptions
unless such shareholder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies that the shareholder is not subject to
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A shareholder who does not provide the Fund with his
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability.
Foreign shareholders, including shareholders who are nonresident aliens,
may be subject to U.S. withholding tax on certain distributions at a rate of 30%
or such lower rates as may be prescribed by any applicable treaty.
As required by federal law, detailed federal tax information is
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
Investors should consult their tax advisors regarding the application of
the above-described general federal taxation rules to their own circumstances
and the state, local, or foreign tax consequences to them of any investment in
the Fund.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements for the period September 3, 1997 (commencement
of operations) through December 31, 1997, included in the Fund's Annual Report
to shareholders for the period ended December 31, 1997, are incorporated herein
by reference.
<PAGE>
CGM TRUST
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements with respect to CGM Mutual Fund, CGM
Realty Fund, CGM Fixed Income Fund, CGM American Tax Free
Fund and CGM Focus Fund are incorporated herein by reference
to each Fund's Annual Report to Shareholders for the year
ended December 31, 1997 (File No. 2-10653) filed on February
24, 1998.
(b) Exhibits:
(1) (A) Amended and Restated Agreement and Declaration of
Trust of the Registrant is contained in
Post-Effective Amendment No. 82 on Form N- 1A
(File No. 2-10653) filed on February 27, 1997.
(B) Amendment No. 1 to the Amended and Restated
Agreement and Declaration of Trust of the
Registrant is contained in Post-Effective
Amendment No. 83 on Form N-1A (File No. 2-10653)
filed on June 17, 1997.
(2) By-Laws of the Registrant are contained in
Post-Effective Amendment No. 82 on Form N-1A (File
No. 2-10653) filed on February 27, 1997.
(3) None.
(4) (A) Form of share certificate of the Registrant's CGM
Mutual Fund is contained in Post-Effective
Amendment No. 82 on Form N-1A (File No. 2-10653)
filed on February 27, 1997.
(B) Form of share certificate of the Registrants' CGM
Fixed Income Fund is contained in Post-Effective
Amendment No. 82 on Form N-1A (File No. 2-10653)
filed on February 27, 1997.
(C) Form of share certificate of the Registrant's CGM
American Tax Free Fund is contained in
Post-Effective Amendment No. 82 on Form N-1A (File
No. 2-10653) filed on February 27, 1997.
(D) Form of share certificate of the Registrant's CGM
Realty Fund is contained in Post-Effective
Amendment No. 82 on Form N-1A (File No. 2-10653)
filed on February 27, 1997.
(E) Form of share certificate of the Registrant's CGM
Focus Fund is to be filed by amendment.
(5) (A) Advisory Agreement of the Registrant dated
December 13, 1996 with respect to CGM Mutual Fund
is contained in Post-Effective Amendment No. 82 on
Form N-1A (File No. 2-10653) filed on February 27,
1997.
(B) Advisory Agreement of the Registrant dated
December 13, 1996 with respect to CGM Fixed Income
Fund is contained in Post-Effective Amendment No.
82 on Form N-1A (File No. 2-10653) filed on
February 27, 1997.
(C) Advisory Agreement of the Registrant dated August
30, 1996 with respect to CGM American Tax Free
Fund is contained in Post-Effective Amendment No.
82 on Form N-1A (File No. 2-10653) filed on
February 27, 1997.
(D) Advisory Agreement of the Registrant dated August
30, 1996 with respect to CGM Realty Fund is
contained in Post-Effective Amendment No. 82 on
Form N-1A (File No. 2-10653) filed on February 27,
1997.
(E) Form of Advisory Agreement of the Registrant with
respect to CGM Focus Fund is contained in
Post-Effective Amendment No. 83 on Form N-1A
(File No. 2-10653) filed on June 17, 1997.
(6) None.
(7) None.
(8) (A) Custodian Agreement with respect to CGM Mutual
Fund is contained in Post-Effective Amendment No.
82 on Form N-1A (File No. 2-10653) filed on
February 27, 1997.
(B) Supplement dated March 6, 1992 to Custodian
Contract with respect to CGM Mutual Fund is
contained in Post-Effective Amendment No. 82 on
Form N-1A (File No. 2-10653) filed on February 27,
1997.
(C) Custodian Contract dated March 6, 1992 with
respect to CGM Fixed Income Fund is contained in
Post-Effective Amendment No. 82 on Form N-1A (File
No. 2-10653) filed on February 27, 1997.
(D) Amendment dated April 16, 1992 to the Custodian
Contract with respect to CGM Fixed Income Fund is
contained in Post-Effective Amendment No. 82 on
Form N-1A (File No. 2-10653) filed on February 27,
1997.
(E) Custodian Contract with respect to CGM American
Tax Free Fund is contained in Post-Effective
Amendment No. 82 on Form N-1A (File No. 2-10653)
filed on February 27, 1997.
(F) Custodian Contract with respect to CGM Realty Fund
is contained in Post-Effective Amendment No. 82 on
Form N-1A (File No. 2-10653) filed on February 27,
1997.
(G) Custodian Contract with respect to CGM Focus Fund
is to be filed by amendment.
(9) (A) Transfer Agency and Service Agreement with respect
to CGM Mutual Fund dated June 1, 1987 is contained
in Post-Effective Amendment No. 82 on Form N-1A
(File No. 2-10653) filed on February 27, 1997.
(B) Supplement dated March 6, 1992 to Transfer Agency
and Service Agreement with respect to CGM Mutual
Fund is contained in Post- Effective Amendment No.
82 on Form N-1A (File No. 2-10653) filed on
February 27, 1997.
(C) Transfer Agency and Service Agreement dated March
6, 1992 with respect to CGM Fixed Income Fund is
contained in Post-Effective Amendment No. 82 on
Form N-1A (File No. 2-10653) filed on February 27,
1997.
(D) Transfer Agency Agreement with respect to CGM
American Tax Free Fund is contained in
Post-Effective Amendment No. 82 on Form N-1A (File
No. 2-10653) filed on February 27, 1997.
(E) Powers of Attorney are contained in Post-Effective
Amendment No. 82 on Form N-1A (File No. 2-10653)
filed on February 27, 1997.
(F) Transfer Agency Agreement with respect to CGM
Realty Fund is contained in Post-Effective
Amendment No. 82 on Form N-1A (File No. 2-10653)
filed on February 27, 1997.
(G) Transfer Agency Agreement with respect to CGM
Focus Fund is to be filed by amendment.
(10) (A) Opinion and consent of counsel with respect to
shares of CGM Mutual Fund is incorporated herein
by reference to Post-Effective Amendment No. 59 on
Form N-1A (File No. 2-10653) filed on April 30,
1986
(B) Opinion and consent of counsel with respect to
shares of CGM Fixed Income Fund is incorporated
herein by reference to Post-Effective Amendment
No. 69 on Form N-1A (File No. 2-10653) filed on
December 23, 1991.
(C) Opinion and consent of counsel with respect to
shares of CGM American Tax Free Fund is
incorporated herein by reference to Post-Effective
Amendment No. 74 on Form N-1A (File No. 2-10653)
filed on September 10, 1993
(D) Opinion and consent of counsel with respect to
shares of CGM Realty Fund is incorporated herein
by reference to Post-Effective Amendment No. 76 on
Form N-1A (No. 2-10653) filed on March 14, 1994.
(E) Opinion and consent of counsel with respect to
shares of CGM Focus Fund is incorporated herein by
reference to Post-Effective Amendment No. 83 on
Form N-1A (File No. 2-10653) filed on June 17,
1997.
(11) Consent of Price Waterhouse LLP filed herewith.
(12) None.
(13) None.
(14) Forms of The CGM Funds Retirement Plans are filed
herewith.
(15) None.
(16) None.
(17) Financial data schedules with respect to CGM Mutual
Fund, CGM Realty Fund, CGM Fixed Income Fund, CGM
American Tax Free Fund and CGM Focus Fund filed
herewith.
(18) None.
Item 25. Persons Controlled by or Under Common Control with Registrant
Information pertaining to persons controlled by or under common
control with the Registrant is hereby incorporated by reference to
the section captioned "The Fund's Investment Manager" in each
Prospectus and the section captioned "Investment Advisory and Other
Services -- Advisory Agreement" in each Statement of Additional
Information.
Item 26. Number of Holders of Securities
The following table sets forth the number of record holders of each
class of securities of the Registrant as of March 31, 1998:
Number of Record
Title of Class Holders
Shares of Beneficial Interest,
CGM Mutual Fund 59,129
Shares of Beneficial Interest,
CGM Fixed Income Fund 2,438
Shares of Beneficial Interest,
CGM American Tax Free Fund 849
Shares of Beneficial Interest,
CGM Realty Fund 27,461
Shares of Beneficial Interest,
CGM Focus Fund 11,853
Item 27. Indemnification
See Article 4 of the Trust's By-Laws which is incorporated by
reference herein to Post-Effective Amendment No. 82 on Form N-1A
(File No. 2-10653) filed on February 27, 1997. In addition, the Trust
maintains a trustees and officers liability insurance policy with
maximum coverage of $5 million under which the Trust and its trustees
and officers will be named insureds.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the Trust's By-Laws, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a trustee, officer or controlling person
of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against the public policy as expressed in the Securities Act of
1933 and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Capital Growth Management Limited Partnership ("CGM"), the investment
manager of CGM Mutual Fund, CGM Fixed Income Fund, CGM American Tax
Free Fund, CGM Realty Fund and CGM Focus Fund, provides investment
advice to a number of other registered investment companies and to
other organizations and individuals.
Item 29. Principal Underwriters
Not applicable.
Item 30. Location of Accounts and Records
The following companies maintain possession of the documents required
by the specified rules:
(a) Registrant
Rule 31a-1(a)(4); Rule 31a-1(d); Rule 31a-2(a); Rule 31a-2(c)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Rule 31a-1(a); Rule 31a-1(b)(1), (2), (3), (5), (6), (7), (8);
Rule 31a-2(a)
(c) Capital Growth Management Limited Partnership
One International Place
Boston, Massachusetts 02110
Rule 31a-1(a); Rule 31a-1(b)(9), (10), (11);
Rule 31a-1(f); Rule 31a-2(a); Rule 31a-2(e)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) The Registrant undertakes to comply with Section 16(c) of the
Investment Company Act of 1940 as though such provision of the
Act were applicable to the Registrant, except that the request
referred to therein may only be made by shareholders who hold
in the aggregate at least one percent of the outstanding shares
of the Registrant or shares with an aggregate net asset value
of $25,000.
(b) The Registrant undertakes, with respect to CGM Mutual Fund, CGM
Fixed Income Fund, CGM American Tax Free Fund and CGM Realty
Fund, to furnish, upon request and without charge, to each
person to whom a fund's prospectus is delivered, a copy of such
fund's latest annual report to shareholders.
<PAGE>
CGM TRUST
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this
post-effective amendment to its Registration Statement meets all of the
requirements for effectiveness pursuant to Rule 485(b) under the Securities Act
of 1933 and the Registrant further certifies that it has duly caused this
amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Boston, and the
Commonwealth of Massachusetts, on the 24th day of April, 1998.
CGM Trust
By: /s/ Robert L. Kemp
----------------------
Robert L. Kemp
President
Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment to this Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
President (Principal
Executive Officer)
/s/ Robert L. Kemp and Trustee April 24, 1998
- ----------------------------
Robert L. Kemp
Treasurer (Principal
Financial and Accounting
/s/ Frank N. Strauss Officer) April 24, 1998
- ----------------------------
Frank N. Strauss
* Trustee April 24, 1998
- ----------------------------
Peter O. Brown
* Trustee April 24, 1998
- ----------------------------
Nicholas J. Grant
* Trustee April 24, 1998
- ----------------------------
G. Kenneth Heebner
* Trustee April 24, 1998
- ----------------------------
Robert B. Kittredge
* Trustee April 24, 1998
- ----------------------------
Laurens MacLure
* Trustee April 24, 1998
- ----------------------------
James Van Dyke Quereau, Jr.
* Trustee April 24, 1998
- ----------------------------
J. Baur Whittlesey
*By: /s/ Robert L. Kemp
--------------------
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
------ ------- -------------
11 Consent of Independent Accountants
14 Forms of CGM Retirement Plans
27 Financial Data Schedules
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statements of Additional Information constituting parts of this
Post-Effective Amendment No. 86 to the registration statement on Form N-1A
(the "Registration Statement") of our reports dated February 9, 1998,
relating to the financial statements and financial highlights appearing in
the December 31, 1997 Annual Reports to Shareholders of CGM Trust,
which are also incorporated by reference into the Registration Statement. We
also consent to the references to us under the heading "Financial
Highlights" in the Prospectuses and under the heading "Independent
Accountants" and "Financial Statements" in the Statements of Additional
Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
April 24, 1998
<PAGE>
Exhibit 14
THE CGM FUNDS
- --------------------------------------------------------------------------------
IRA
PLAN DOCUMENT AND
DISCLOSURE STATEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INSIDE . . .
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 1 INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 2 Q&As ABOUT IRAs
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 4 DISCLOSURE STATEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 9 PLAN DOCUMENT
- --------------------------------------------------------------------------------
IRAF2/98
<PAGE>
INVESTMENT OPTIONS
NO-LOAD MUTUAL FUNDS
The no-load funds eligible for your IRA investments are listed below. You may
invest either in one, or in a combination of the funds best suited to your
circumstances. The funds have different investment objectives and offer a
range of investment income and appreciation potential. Be sure to read each
fund's prospectus before you invest or send money.
STOCKS AND BONDS
CGM MUTUAL FUND is a flexibly managed balanced fund that seeks reasonable
long-term capital appreciation with a prudent approach to protection of
capital from undue risks. Consideration is given to the production of current
income in the selection of stocks and bonds for the Fund's portfolio.
BONDS
CGM FIXED INCOME FUND is a "total return" bond fund. The Fund's objective is
to maximize total return by investing in debt securities and preferred stocks
that provide current income, capital appreciation or a combination of both
income and appreciation.
MONEY MARKET
NEW ENGLAND CASH MANAGEMENT TRUST -- MONEY MARKET SERIES is a money market
fund that seeks to provide maximum current income consistent with preservation
of capital by investing in a variety of high quality money market instruments.
The Trust is managed by Back Bay Advisors, L.P.
STOCKS
CGM FOCUS FUND is a non-diversified and flexibly managed mutual fund that
seeks long-term growth of capital. The Fund intends to pursue its objective by
investing in a core position of equity securities. 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.
CGM REALTY FUND is a mutual fund that seeks above-average income and long-term
growth of capital. The Fund pursues its objective by investing primarily in
equity securities of companies in the real estate industry.
CGM CAPITAL DEVELOPMENT FUND is an aggressively managed growth fund that seeks
long-term capital appreciation in a diverse group of companies and industries
believed to provide opportunities for capital development. Note: Shares are
available only to certain individuals. Eligibility categories are listed
below.
ELIGIBILITY FOR CGM CAPITAL DEVELOPMENT FUND
Only shareholders of the Fund as of September 24, 1993 who have remained
shareholders continuously since that date may purchase additional shares of the
Fund. The Fund reserves the right to reject any purchase order. This policy
supersedes all previous eligibility requirements.
Fund shares are not generally available to other persons except in special
circumstances that have been approved by, or under the authority of, the Board
of Trustees of the Fund. The special circumstances currently approved by the
Board of Trustees of the Fund are limited to the offer and sale of shares of
the Fund to the following additional persons: trustees of the Fund, employees
of the Investment Manager and counsel to the Fund and the Investment Manager.
<PAGE>
QUESTIONS AND ANSWERS ABOUT IRAS
ELIGIBILITY
WHO CAN OPEN AN IRA?
Anyone who earns income and is still under age 70 1/2 at the end of the
calendar year can set up an IRA.
CAN I SIMULTANEOUSLY HAVE TWO OR MORE IRA ACCOUNTS?
Yes. However, no more than a total of $2,000 may be contributed to your IRA
accounts in any one tax year.
CAN I CONTRIBUTE TO MY SPOUSE'S IRA?
Yes. A separate IRA (a "spousal IRA") can be set up for the benefit of your
spouse if
- --you have compensation or earned income,
- --your spouse has not attained age 70 1/2, and
- --you and your spouse file a joint income tax return.
CAN MY CHILD, WHO IS A MINOR, ESTABLISH AN IRA ACCOUNT?
Yes, provided he or she has earned income. The application must be signed by
both the parent and child.
CONTRIBUTIONS
WHAT IS THE MAXIMUM ANNUAL CONTRIBUTION I CAN MAKE TO MY IRA (DEDUCTIBLE PLUS
NON-DEDUCTIBLE)?
You may contribute $2,000 or 100% of your earned income, whichever is less.
Please refer to IRS Publication 590 for information about computing the amount
that may be deductible.
WHAT IS THE MAXIMUM ANNUAL CONTRIBUTION THAT CAN BE MADE TO MY IRA AND MY
SPOUSE'S IRA?
A total of $4,000 or 100% of your joint earned income, whichever is less, can
be contributed to your own IRA and your spouse's IRA. The contributions may be
divided between the two separate IRAs in any way you wish, provided neither
IRA receives more than $2,000, and the contribution to the higher earning
spouse's IRA does not exceed his or her earned income.
CAN I CONTRIBUTE LESS THAN THE MAXIMUM?
Yes, you can contribute any amount you wish up to the maximum amount for your
IRA (and your spouse's IRA) for each taxable year. CGM requires an initial
investment of $1,000 per account, and a $50 minimum for each subsequent
investment.
CAN BOTH A HUSBAND AND WIFE WHO WORK HAVE IRAS?
Yes. If you both have earned income, you can each have your own IRA.
WHEN DO I MAKE MY CONTRIBUTION?
You can make a contribution for a particular year any time from the beginning
of the tax year until April 15 of the following year.
TO WHOM SHOULD I MAKE MY CHECK PAYABLE?
Make your check payable to the fund in which you want to invest. If you are
investing in more than one fund, enclose a check for each fund. Be sure to add
$5 to your investment to establish your IRA.
WHEN WILL I RECEIVE A STATEMENT CONFIRMING MY INITIAL INVESTMENT?
Upon receipt of your application and check, we will establish your account and
send you a confirmation statement.
DO I HAVE TO CONTRIBUTE TO AN IRA EACH YEAR?
No. You need not contribute to an IRA each year. You can also vary the amount
of contributions to your IRA when you do contribute.
WHAT IF I CONTRIBUTE MORE THAN THE MAXIMUM AMOUNT ALLOWED?
If you withdraw the excess contribution and its earnings before you file your
tax return (including extensions) for the year, you won't be subject to the 6%
penalty on the excess contribution described below. You will be subject,
however, to income taxes (and a 10% penalty tax if you are under age 59 1/2)
on the earnings of the excess contribution.
Another method for correcting the excess contribution is to leave the money in
your IRA and apply the excess to your next year's contribution. If you do
that, however, you would be subject to a 6% penalty tax on the excess
contribution in the year in which it was made and each subsequent year it
remains an excess contribution.
MAY I MAKE ANNUAL CONTRIBUTIONS TO AN IRA AFTER I REACH AGE 70 1/2?
No. If you reach age 70 1/2 by the end of the year, you will not be able to
make a regular contribution to your IRA. (You may make a rollover
contribution, however.) In addition, no contributions may be made to your
spouse's IRA after he or she reaches age 70 1/2.
TRANSFERS AND ROLLOVERS
HOW DO I TRANSFER ASSETS OR DIRECTLY ROLLOVER ASSETS TO CGM?
Complete the CGM IRA Account Application, Direct Rollover Form or IRA Transfer
Form and send them to The CGM Funds at the address on the back of this
booklet, along with a check for $5.
IF I ALREADY HAVE RECEIVED A CHECK FOR MY ROLLOVER, WHAT FORMS DO I SUBMIT?
Send the CGM IRA Account Application and your investment check, plus $5 to
CGM.
WHEN WILL I RECEIVE A STATEMENT CONFIRMING MY TRANSFER OF ASSETS OR DIRECT
ROLLOVER?
Upon receipt of your application and transfer or rollover request we will then
establish your Account and send your current trustee and you a Letter of
Acceptance. Once we receive the proceeds of the transfer or rollover, we will
send you a confirmation statement. Asset transfers generally take 2-4 weeks.
Direct rollovers can take as long as three months, depending on how frequently
the current trustee makes distributions from the plan.
WHAT IS A TRANSFER OF ASSETS?
A transfer of assets is the direct transfer of monies from one IRA to another
IRA. The assets must be transferred directly from one trustee, custodian or
insurance company to another.
WHAT ARE THE THREE TYPES OF IRA ROLLOVERS?
You may make three types of IRA rollovers: regular rollovers, direct rollovers
and indirect rollovers.
A REGULAR IRA ROLLOVER occurs when you withdraw assets from your IRA and,
within 60 days, reinvest them into another IRA. Such rollovers may be made
only once every 365 days.
A DIRECT ROLLOVER takes place when you choose to have an eligible rollover
distribution from a qualified plan or 403(b) plan placed directly in an IRA
already established at a financial organization. In this case, there is no
mandatory tax withholding.
An INDIRECT ROLLOVER occurs when you receive an eligible rollover distribution
from a qualified plan or 403(b) plan and then, within 60 days, you roll the
distribution into an IRA plan. In this case, the payor is required by law to
withhold 20% of the amount of your distribution for taxes. You will receive
only 80% of the distribution amount. Such distribution proceeds should not be
commingled with your contributory IRA account if you ever plan to reinvest the
assets in a qualified plan or tax sheltered annuity.
PLEASE NOTE: The IRS has no provisions for extending the 60 day rollover
period. The 60 days begin on the day that you receive the check and end on the
day you mail the check to the successor custodian.
<PAGE>
DISCLOSURE STATEMENT
THE CGM FUNDS IRA
FEATURES OF THE PLAN
The following information is provided to you as required by the Internal
Revenue Code. Please read this information along with the Individual
Retirement Custodial Account Agreement for an explanation of the key features
of the applicable law and the Plan. Your right to your account, or, in the
event of death, the right of your beneficiary or estate, is at all times non-
forfeitable.
RIGHT TO REVOKE
You may revoke your enrollment in an IRA account by giving written notice
within seven days after the account is established. Notice of revocation must
be mailed to the Custodian, State Street Bank and Trust Company, at P.O. Box
8511, Boston, MA 02266 or hand delivered to the Custodian, c/o BFDS, 2
Heritage Drive, N. Quincy, MA 02171. Notice will be deemed to have been mailed
on the date of the postmark (or if sent by registered or certified mail, the
date of certification or registration) when deposited in the mail in the
United States, first class postage prepaid, properly addressed. If you revoke
your account, the entire amount you paid in will be returned to you promptly,
without deductions or adjustments of any kind. If you participate in an IRA
account plan established by your employer, your seven-day withdrawal period
will commence as of the date on which your first contribution is made.
ELIGIBILITY
In general, everyone under age 70 1/2 who earns a wage or salary or earns a
profit from his work is eligible to participate. Also married individuals who
are eligible may establish a separate IRA on behalf of their non-working
spouses (a "Spousal IRA"). Furthermore, divorced or legally separated
individuals may contribute to an IRA based on the alimony payments they
receive.
CONTRIBUTIONS
You are eligible to make a contribution each year to your IRA until the
calendar year in which you attain age 70 1/2. The maximum amount that you can
contribute in any year is an amount equal to the lesser of your total annual
compensation or $2,000. Compensation includes earned income from self-
employment. Alimony payments may be treated as compensation. If an IRA is also
established for the benefit of your spouse, the overall limit for
contributions to both IRAs is $2,250 for years before 1997 and $4,000 for 1997
and thereafter (but you still may not contribute more than 100% of your total
annual compensation, and the amount contributed to either IRA may not exceed
$2,000). Your contribution may be made at any time during the taxable year or
after the end of the taxable year up to the time for filing your individual
tax return for that year (without regard to any extension). For most
individuals, the deadline would be April 15. You do not have to contribute
each year, nor are you required to contribute the same amount each year. You
may make your contributions in convenient installments as set forth in the
Account Application. Your account will be in your name, your spouse's account,
if any, will be in his or her name, and you are entitled to the tax deduction.
To keep an IRA qualified, you will need to report your deduction on your
annual IRS tax return, Form 1040. You do not have to itemize deductions in
order to deduct an IRA contribution on your income tax return. Your regular
contributions must be made in cash or by check. Your employer may be willing
to help by deducting from your pay the amount you specify and sending it to
the Custodian for your account.
DEDUCTIBILITY OF IRA CONTRIBUTIONS
The amount of the contribution for which you may take a tax deduction will
depend upon whether you (or your spouse) are an active participant in an
employer-maintained retirement plan. If you (and your spouse) are not an
active participant, your IRA contribution will be totally deductible. If you
(or your spouse) are an active participant, the deductibility of your
contribution will depend on your adjusted gross income (AGI) for the tax year
for which the contribution was made. AGI is determined on your tax return
(disregarding any deductible IRA contribution).
Definition of Active Participant: Generally, you will be an active participant
if you are covered by one or more of the following employer-maintained
retirement plans:
1. a qualified pension, profit sharing, or stock bonus plan;
2. a qualified annuity plan of an employer;
3. a simplified employee pension (SEP) plan;
4. a retirement plan established by the Federal government, a State, or a
political subdivision (except certain unfunded deferred compensation plans
under IRC Section 457);
5. a tax sheltered annuity for employees of certain tax-exempt organizations
or public schools;
6. a qualified plan for self-employed individuals (H.R. 10 or Keogh Plan); and
7. a Savings Incentive Match Plan for Employees (SIMPLE) IRA or 401(k) plan.
If you do not know whether your employer maintains one of these plans or
whether you are an active participant in it, check with your employer and your
tax advisor. Also, the Form W-2 (Wage and Tax Statement) that you receive at
the end of the year from your employer will indicate whether you are an active
participant.
The deductible amount of your contribution is determined by taking your
threshold AGI level plus $10,000 and subtracting from it your AGI --
determined prior to taking your itemized deductions. [N.B. If you are single,
your threshold AGI level is $25,000. The threshold level if you are married
and file a joint tax return is $40,000, and if you are married but file a
separate tax return, the threshold level is $0.00. If your AGI is less than
$10,000 above the threshold level, you will still be able to make a deductible
contribution but it may be limited in amount -- but never less than $200.]
Multiply the resulting number by 0.2 (or 0.4 if you are making spousal
contributions) to give you your personal deduction limit. You must round up
the resulting number to the next highest $10.00 if the number is not a
multiple of 10.
ROLLOVER CONTRIBUTIONS
An IRA may be used to make a "rollover" contribution of assets received by you
from a qualified employee benefit plan in which you previously participated.
Anyone who receives a lump sum payment of accumulated benefits in a qualified
employee benefit plan can preserve tax sheltered treatment of these assets by
investing them in an IRA within 60 days. In order to avoid tax withholding,
the rollover should be made as a "direct rollover," and should be coordinated
through your employer. In this manner, assets transferred from another
retirement program are kept invested, tax consequences stemming from the
payment are deferred until distributions are made from your IRA account, and
you have the option to "rollover" the assets later to a tax-qualified program
of a subsequent employer, a retirement annuity or another IRA. You can
rollover the entire amount of your distribution from a qualified employee
benefit plan (less any non-deductible contributions you made to the plan) to
your IRA or you can rollover only a portion of the distribution. If you do not
rollover the entire distribution, however, the portion of the distribution not
included in the rollover will be taxed as ordinary income.
The rollover contribution should be segregated from an IRA account into which
current contributions are made if you wish to preserve the option to rollover
such amount at a later time to a tax-qualified program of a subsequent
employer. Anyone desiring to make such a segregation of a "rollover"
contribution should open two separate IRA accounts. Rollover contributions may
be made in the form of securities or other assets with the Trustee's approval.
An IRA rollover also occurs in the case where assets from one IRA to which you
have made current contributions are withdrawn by you and within 60 days are
reinvested into another IRA. A rollover can be made only once every 365 days.
Such rollover assets need not be segregated from an IRA account into which
current contributions are being made.
EXCESS CONTRIBUTIONS
If you contribute more to the Plan than the law allows (as explained under
"Contributions"), you may withdraw the excess without the 6% penalty
(described below) if you do so by the due date for filing your Federal income
tax return (with extensions). You must also withdraw the earnings on the
excess and pay taxes and a 10% penalty on the amount of earnings. Excess
contributions in a taxable year can be corrected by withdrawing the excess
contribution in any later year provided that a tax deduction has not been
allowed for the excess contribution. Additionally, an excess contribution in
one taxable year (for which no tax deduction was taken) will be deductible in
a subsequent taxable year if, and to the extent that, the taxpayer contributes
less than the maximum deductible amount in that later year. Excess
contributions that are not withdrawn or utilized as a current contribution
during the year will be subject to a non-deductible excise tax of 6% for each
taxable year in which they remain uncorrected.
SEP-IRA CONTRIBUTIONS
If you participate in your employer's Simplified Employee Pension Plan (SEP-
IRA), your employer can make a contribution of 15% of your salary (up to
$160,000, as indexed). For Federal income tax purposes, these contributions
are deductible by your employer and are excluded from your income.
TRANSFERS OF ASSETS
You can transfer all or any portion of your IRA to or from any other IRA at
any time provided the proceeds are made payable and sent directly to the
Successor Trustee or Successor Custodian.
INVESTMENTS AND EARNINGS
Your contributions will be used to purchase shares of Funds selected on your
Account Application. Any dividend or capital gains distributions on the Funds'
shares will be invested in additional Funds' shares automatically. After age
59 1/2, you have the option of receiving your dividends and capital gains in
cash. These additional shares will represent your earnings from the account.
The assets available for distribution when you reach age 59 1/2, die, or
become disabled will be the market value of the shares your contributions and
earnings have purchased over the years. Due to the fluctuating value of the
Funds' investments, it is not possible to make a projection of expected
growth, and growth cannot be guaranteed. Investment information can be found
in each Fund's prospectus.
The law requires that the shares in your account be held by a custodian that
is a bank or other organization approved by the IRS. The Custodian of the Plan
meets this requirement. You will be entitled to vote the shares in your
account.
DISTRIBUTIONS
You may withdraw assets from your account at any time after age 59 1/2, and
before 70 1/2, without any restrictions. Penalties may apply in certain other
circumstances. (See Account Restrictions and Penalties, below). You must begin
to withdraw assets from your account no later than April 1 following the year
in which you attain age 70 1/2, (or the year you create a rollover IRA, if
later).
Your assets may, at your option, be distributed to you in the following ways:
(1) a lump sum payment of your entire account, in cash or Fund shares; (2)
installment payments in cash over a period certain not extending beyond your
life expectancy; (3) installment payments in cash over a period certain not
extending beyond the joint life and last survivor expectancy of you and your
beneficiary; or (4) in the form of an annuity contract.
If you die before distribution of your IRA begins, then the entire balance
must be distributed in cash or Fund shares to your beneficiary by December 31
of the year which contains the fifth anniversary of your death, or in
installment payments over a period certain not exceeding your beneficiary's
life expectancy, or in the form of an annuity contract for a similar period.
Installment payments must begin either by December 31 of the year following
your death or, if your beneficiary is your surviving spouse, not later than
the date you would have attained age 70 1/2. A surviving spouse beneficiary
also may elect to treat the IRA as his or her own IRA. If you die after
distribution of your IRA begins but before it is completed, the remaining
balance must be distributed to your beneficiary under a method which provides
for payment at least as rapidly as under the method of distribution in use
before your death.
You must begin to withdraw assets from your account no later than April 1
following the year you reach age 70 1/2. If you do not, or if you withdraw
less than the minimum amount described earlier under "Distributions," you will
incur an excise tax equal to 50% of the amount you should have withdrawn but
did not. The Secretary of the Treasury has the power to waive this 50% tax
penalty if the excess accumulation is due to reasonable cause and reasonable
steps are being taken to correct the excess. A non-deductible 50% excise tax
will be imposed on the difference between the minimum amount which should have
been paid out in any year based on the form of payment selected and the amount
actually paid out in that year. The tax is to be paid by the individual to
whom the minimum payments should have been made.
You will pay income taxes when your account is distributed. If the amount of
distributions you receive in any one year from your IRA and other retirement
plan exceeds $160,000 (as indexed), you will be subject to a 15% penalty on
the amount distributed in excess of $160,000. (IRC Sec 4980A -- This 15%
penalty tax is suspended for distributions received in 1997, 1998 and 1999.)
Depending upon your particular circumstances, you may find it advantageous to
withdraw your account in installments over a number of years. If you die
before receiving all of the assets in your account, the remainder of the
account is included in the assets of your estate for Federal estate tax
purposes. In addition, if the benefits in your IRA and other retirement plans
exceed certain threshold amounts, your estate may be subject to a 15% excise
tax on amounts in excess of the threshold amounts.
The tax laws provide that payments received from your IRA plan are subject to
Federal income tax withholding unless you elect not to have withholding apply.
Such election must be made in writing to the Custodian at the time you submit
your authorization for distribution.
DESIGNATING A BENEFICIARY
You may designate a beneficiary and change beneficiaries from time to time. If
you do not designate a beneficiary, your estate will receive the balance in
your account. Designating a beneficiary and changing beneficiaries is not
considered the making of a taxable gift.
FEES
The Custodian charges $5.00 when you establish your plan, $10.00 per year per
account as a maintenance fee, and $5.00 when an account is closed (including
exchanges). The Custodian reserves the right to increase these charges at any
time upon 30 days' advance notice. Capital Growth Management may partake in a
portion of the annual maintenance fee. The Custodian will send you a statement
of account annually informing you of the exact amount of contributions,
earnings, distributions, and year-end value. The Custodian will also send a
statement to the Internal Revenue Service as required by law.
ACCOUNT RESTRICTIONS AND PENALTIES
If you withdraw assets from your account before age 59 1/2, the distributions
will not only be included in your gross income, but also you will pay a non-
deductible excise tax equal to 10% of the amount withdrawn. An exception to
the 10% excise tax rule is made in the following five instances: (1) if assets
are withdrawn from your account upon your becoming disabled; (2) if assets are
withdrawn from your account for purposes of a rollover transfer; (3) if assets
are withdrawn from your account as part of a series of substantially equal
periodic payments for your life or life expectancy; (4) if assets are
withdrawn from your account for medical expenses to the extent that the
distributions do not exceed the amount allowed as a deduction, currently
7.5%,or (5) if assets are withdrawn from your account because you are
unemployed and have received unemployment compensation for 12 consecutive
weeks and because you use the proceeds to pay for health insurance.
There are very severe consequences if you use your Plan assets as security for
a loan or borrow any money from or through your IRA account, or engage in
other transactions prohibited by Section 4975(c) of the Internal Revenue Code.
Not only would your account lose its tax-exempt status, but you would be
required to include the entire value of the account's assets in your gross
income for the year in which the prohibited transaction occurred and to pay a
10% penalty, as well.
If you receive a premature distribution, make an excess contribution which is
not corrected in the time allowed, fail to withdraw the minimum amount
required to be withdrawn upon attainment of age 70 1/2, or receive an excess
distribution, you must file Form 5329 (return of excise tax) with the IRS
along with your annual tax return, Form 1040. In addition, if you make a non-
deductible contribution to your IRA in any year, you must file Form 8606 to
report the amount of the non-deductible contribution.
HOW TO PARTICIPATE
You may establish your own account simply by completing the Account
Application and mailing it to The CGM Funds with your first contribution. If
you need any assistance in completing the Account Application, please
telephone CGM at (800) 345-4048.
PLEASE NOTE: The foregoing is not a complete or definitive explanation of the
Plan or of the provisions of applicable law. Please do not complete the
Account Application without reading the Plan and the Fund prospectus which
must always accompany the Plan. Consult your financial or tax advisor if you
are uncertain whether a CGM Funds IRA is an appropriate program for your
investment needs.
<PAGE>
PLAN DOCUMENT
THE CGM FUNDS INDIVIDUAL
RETIREMENT ACCOUNT (THE "PLAN")
Form 5305-A under Section 408(a) of the Internal Revenue Code.
The Depositor whose name appears on the Application is establishing an
Individual Retirement Account under Section 408(a) to provide for his or her
retirement and for the support of his or her beneficiaries after death.
The Custodian named on the Application has given the Depositor the disclosure
statement required under Regulations Section 1.408-6.
The Depositor has assigned the Custodial Account the sum indicated on the
Application.
The Depositor and the Custodian make the following agreement:
ARTICLE I
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in Section 402(c) (but only after December 31, 1992),
403(a)(4), 403(b)(8), 408(d)(3) or an employer contribution to a Simplified
Employee Pension Plan as described in Section 408(k). Rollover contributions
before January 1, 1993, include rollovers described in Section 402(a)(5),
402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8), 408(d)(3), or an employer
contribution to a Simplified Employee Pension Plan described in Section
408(k).
ARTICLE II
The Depositor's interest in the balance in the Custodial Account is
nonforfeitable.
ARTICLE III
1. No part of the Custodial funds may be invested in life insurance contracts,
nor may the assets of the Custodial Account be commingled with other
property except in a common trust fund or common investment fund (within the
meaning of Section 408(a)(5)).
2. No part of the Custodial funds may be invested in collectibles (within the
meaning of Section 408(m)) except as otherwise permitted by Section
408(m)(3) which provides an exception for certain gold and silver coins and
coins issued under the laws of any state.
ARTICLE IV
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Depositor's interest in the Custodial Account shall be
made in accordance with the following requirements and shall otherwise
comply with Section 408(a)(6) and Proposed Regulations Section 1.408-8,
including the incidental death benefit provisions of Proposed Regulations
Section 1.401(a)(9)-2, the provisions of which are herein incorporated by
reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Depositor under paragraph 3, or to the surviving spouse under paragraph
4, other than in the case of a life annuity, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the
Depositor and the surviving spouse and shall apply to all subsequent years.
The life expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the Custodial Account must be, or begin
to be, distributed by the Depositor's required beginning date (April 1
following the calendar year end in which the Depositor reaches age 70 1/ 2).
By that date, the Depositor may elect, in a manner acceptable to the
Custodian, to have the balance in the Custodial Account distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the life of the Depositor.
(c) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of
the Depositor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period
that may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period
that may not be longer than the joint life and last survivor expectancy
of the Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to
him or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her interest
has begun, distribution must continue to be made in accordance with
paragraph 3.
(b) If the Depositor dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election of
the beneficiary or beneficiaries, either
(i) Be distributed by December 31 of the year containing the fifth
anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over the
life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following the
year of the Depositor's death. If, however, the beneficiary is the
Depositor's surviving spouse, then this distribution is not
required to begin before December 31 of the year in which the
Depositor would have turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of Section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on the
Depositor's required beginning date, even though payments may actually
have been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving spouse,
no additional cash contributions or rollover contributions may be
accepted in the account.
5. In the case of a distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each
year, divide the Depositor's entire interest in the Custodial Account as of
the close of business on December 31 of the preceding year by the life
expectancy of the Depositor (or the joint life and last survivor expectancy
of the Depositor and the Depositor's designated beneficiary, or the life
expectancy of the designated beneficiary, whichever applies). In the case of
distributions under paragraph 3, determine the initial life expectancy (or
joint life and last survivor expectancy) using the attained ages of the
Depositor and designated beneficiary as of their birthdays in the year the
Depositor reaches age 70 1/2. In the case of a distribution in accordance
with paragraph 4(b)(ii), determine life expectancy using the attained age of
the designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy
the minimum distribution requirements described above. This method permits
an individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for
another.
ARTICLE V
1. The Depositor agrees to provide the Custodian with information necessary for
the Custodian to prepare any reports required under Section 408(i) and
Regulations Sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor as prescribed by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling.
Any additional articles that are not consistent with Section 408(a) and
related regulations will be invalid.
ARTICLE VII
This Agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear on the Application.
ARTICLE VIII
1. PLEASE REFER TO THE CGM IRA APPLICATION WHICH IS INCORPORATED INTO THIS
AGREEMENT AS THIS PARAGRAPH OF ARTICLE VIII.
2. DEFINITIONS The following definitions shall apply to terms used in this
Article VIII:
(a) "Account" or "Custodial Account" means the custodial account
established hereunder for the benefit of the Depositor.
(b) "Agreement" means the CGM IRA Custodial Agreement, including the
information and provisions set forth in any Account Application that
goes with this Agreement. This Agreement, including the Account
Application and any designation of Beneficiary filed with the
Custodian, may be proved either by an original copy or by a reproduced
copy thereof, including, without limitation, a copy reproduced by
photocopying, facsimile transmission, or electronic imaging.
(c) "Application" or "Account Application" shall mean CGM IRA Account
Application by which this Agreement, as may be amended from time to
time, is established between the Depositor and the Custodian. The
statements contained therein shall be incorporated into this Agreement.
(d) "Beneficiary" means the person or persons (including without limitation
an individual, a trust, an estate, an association or a corporation)
designated as such by the Depositor on a signed form acceptable to and
filed with the Custodian pursuant to Article VIII, Section 5.(a) of
this Agreement.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Company" shall mean Capital Growth Management Limited Partnership
("CGM"), or any successor or affiliate thereof to which CGM may, from
time to time, delegate or assign any or all of its rights or
responsibilities under this Agreement.
(g) "Custodian" shall mean State Street Bank and Trust Company of Boston,
Massachusetts, or its successors, as specified in the Account
Application.
(h) "Depositor" means the person named in the Account Application.
(i) "Fund" shall mean any corporation, partnership, trust or other entity
registered under the Investment Company Act of 1940 for which CGM, or
its successors or affiliates, serves as investment adviser, and which
CGM designates in writing to the Custodian as an eligible investment
under this Custodial Agreement.
(j) "Fund Shares" or "Shares" shall mean shares of stock, trust
certificates, or other evidences of interest (including fractional
shares) in any Fund.
(k) "Money Market Shares" shall mean any Shares that are issued by a Fund
that is a money market mutual fund.
3. INVESTMENT OF CONTRIBUTIONS
(a) Investment Options. The Depositor has exclusive responsibility for and
control over the investment of the assets of his or her IRA.
Contributions to the Account may be invested only in Fund Shares. The
Depositor may direct the Custodian to invest assets in Shares of one or
more Funds in such percentage as the Depositor shall specify on the
Account Application or thereafter in writing to the Custodian from time
to time, provided that minimum investment amounts are met.
(b) Investment Instructions. Contributions will be invested in accordance
with the Depositor's written instructions on the Application, and with
subsequent instructions given by the Depositor (or, following the death
of the Depositor, his or her Beneficiary) to the Custodian in a manner
acceptable to the Custodian. By giving such instructions to the
Custodian, such persons will be deemed to have acknowledged receipt of
the then-current prospectus for any Fund in which the Depositor directs
the Custodian to invest assets in his or her Custodial Account. All
charges incidental to carrying out such instructions shall be charged
and collected in accordance with Article VIII, Section 6(e). All Fund
Shares in the Custodial Account shall be held in the name of the
Custodian for the benefit of the Depositor.
(c) Investment Changes and Reinvestment. The Depositor may change any
portion of his or her investment in a Fund to another Fund by
requesting the change in the manner the Custodian requires, and subject
to the provisions of the then-current Fund prospectus.
Prior to the date the Depositor attains age 59 1/2, all income,
dividends and capital gains distributions from a Fund shall be
reinvested in additional shares of that Fund. On or after the date the
Depositor attains age 59 1/2, he or she may elect to receive all income
dividends and/or capital gains distributions from a Fund in cash. Such
cash payments will constitute a taxable distribution of assets.
(d) Investment Minimums. Each Fund may impose a minimum investment limit on
initial and subsequent investments. The Company reserves the right to
change those investment minimums at any time without prior notice. The
Custodian will invest all contributions promptly after their receipt,
as set forth in the prospectus of the Fund in which shares are being
purchased. The Custodian will mail a statement confirming each
investment to the Depositor at the address of record on the Custodial
Account.
(e) Unclear Investment Instructions. If the Custodian or the Company
receives instructions from the Depositor that are in their opinion not
clear, the Custodian or the Company may request additional instructions
from the Depositor (or the Depositor's Beneficiary, executor or
administrator). Pending receipt of such instructions, any cash assets
may be invested by the Custodian in Money Market Shares. Neither the
Custodian nor the Company shall be liable to anyone for any loss
resulting from the delay in investing such cash or in implementing such
instructions.
4. CONTRIBUTIONS
(a) Nature and Timing of Contributions. All contributions by the Depositor
to the Custodial Account must be in cash, except for initial
contributions of rollovers that may be made in the form of Fund shares
if permitted by the Company and the Custodian. The Custodian will
designate contributions (other than rollover contributions) as being
made for the current tax year unless the Depositor designates, in a
manner acceptable to the Custodian, that the contribution is being made
for the preceding taxable year. Contributions designated for the
preceding taxable year must be made by the deadline for filing the
Depositor's income tax return (not including extensions).
(b) Rollover Contributions. The Custodian will accept for the Custodial
Account all rollover contributions that consist of cash and may accept
Fund Shares if permitted by the Company. The Depositor shall designate
each rollover contribution as such to the Custodian, and by such
designation shall confirm to the Custodian that a proposed rollover
contribution qualifies as a rollover contribution within the meaning of
Sections 402(a)(5), 402(a)(6), 402(a)(7), 402(c), 403(a)(4), 403(b)(8),
and/or 408(d)(3) of the Code.
(c) Excess Contributions. If the Depositor exceeds the amount that may be
contributed to his or her Custodial Account for any year the Custodian
will, upon a proper written request from the Depositor, prior to his or
her tax filing deadline, return the excess and any attributable
earnings to the Depositor. If the request is received after the
Depositor's filing deadline, the Depositor may elect to have the
contribution treated as if it were made for a later year.
5. DISTRIBUTIONS
(a) Beneficiary Designation. A Depositor may designate a Beneficiary or
Beneficiaries at any time, and such designation may be changed or
revoked at any time, by written designation signed by the Depositor on
a form acceptable to, and filed with the Custodian; provided, however,
that such designation, or change, or revocation of a prior designation,
shall not be effective unless it is received and accepted by the
Custodian no later than thirty (30) days after the death of the
Depositor, and provided further that the latest such designation or
change or revocation shall control. If at the time of the Depositor's
death there is no properly designated Beneficiary of the Depositor in
existence, the Depositor's Beneficiary shall be his or her surviving
spouse or, if none, his or her estate. Unless otherwise specified in
the Depositor's designation of Beneficiary, if a Beneficiary dies
before receiving his or her interest in the Custodial Account, the
Beneficiary's remaining interest in the Custodial Account shall be paid
to the Beneficiary's estate.
A Depositor may designate as Beneficiary of his or her Account a trust
for the benefit of his or her surviving spouse that is intended to
satisfy the conditions of Sections 2056(b)(7) or 2056A of the Code (a
"Spousal Trust"). In that event, if the Depositor is survived by his or
her spouse, the following provisions shall apply to the account, from
and after the death of the Depositor's surviving spouse: (1) all of the
income of the Account shall be paid to the spousal trust annually or at
more frequent intervals, and (2) no person shall have the power to
appoint any part of the account to any person other than the spousal
trust. To the extent permitted by Section 401(a)(9) of the Code, as
determined by the trustee(s) of the spousal trust, the surviving spouse
of a Depositor who has designated a spousal trust as his or her
beneficiary may be treated as his or her "designated beneficiary" for
purposes of the distribution requirements of that Code section. The
Custodian shall have no responsibility to determine whether such
treatment is appropriate.
(b) Form of Distribution. All requests for distribution shall be in writing
on a form provided by or acceptable to the Custodian. The method of
distribution must be specified in writing. The tax identification
number must be provided to the Custodian and certified appropriately
before a distribution will be made. The Depositor is responsible for
making the distribution requests to the Custodian sufficiently in
advance of the date on which any requested or required distribution is
to be made to ensure that the distribution will be made on or before
that date.
The Depositor must provide to the Custodian any application,
certificates, tax waivers, signature guarantees, and other documents
(including proof of legal representative's authority) that the
Custodian requires. The Custodian will not be liable for complying with
a distribution request that appears on its face to be genuine, nor will
the Custodian be liable for refusing to comply with a distribution
request that the Custodian is not satisfied is genuine.
If a distribution request is not made in the correct form, the
Custodian is not responsible and will not be liable to the Depositor
for any losses while the Custodian awaits the distribution request to
be made in the proper form. The Depositor also agrees to fully
indemnify the Custodian for any losses that may result from the
Custodian's failing to act upon an improperly made distribution
request.
The Custodian is not obligated to make any distribution, including a
required minimum distribution as specified in Article IV above, absent
a specific written direction from the Depositor (or the Depositor's,
Beneficiary, executor, or administrator) to do so.
Any distributions shall be subject to all applicable tax and other laws
and regulations including possible early withdrawal penalties and
withholding requirements.
The Custodian is empowered to make distribution absent instructions
from the Depositor if directed to do so pursuant to a court order of
any kind and the Custodian shall in such event incur no liability to
anyone for acting in accordance with such court order.
(c) Distribution Upon Death. If the Depositor dies before receiving all of
the proceeds in his or her IRA, payments will be made to the designated
Beneficiary(ies). If a Beneficiary payment election described in
Article IV, Section 4(b) of this Agreement is not made by December 31
of the year after the year of death the following rules will apply. If
the Beneficiary is the spouse of the Depositor, the payment described
in Article IV, Section 4(b)(ii) will be deemed elected (that is,
payments over the life or life expectancy of the Depositor's spouse).
If the Beneficiaries are or include anyone other than the Depositor's
spouse, the payment method described in Article IV, Section 4(b)(i)
will be deemed elected (i.e. the 5-year rule).
(d) Required Minimum Distributions. The Depositor has the responsibility to
ensure that he or she will begin to receive distributions from the
Custodial Account on or before the required beginning date (i.e. April
1 following the year in which the Depositor reaches age 70 1/2) and
continue to receive distributions by December 31 each year. The
Depositor also has the sole responsibility to initiate distributions
from the Custodial Account and sole responsibility to ensure that all
distributions are made in accordance with the applicable provisions of
the Internal Revenue Code. If the Depositor fails to make an election
by the required beginning date, the Custodian shall have no obligation
to cause a distribution to be paid to the Depositor. The Custodian will
not be liable for any penalties or taxes related to the Depositor's
failure to take a distribution or to the Custodian's payment as a
result of such failure.
(e) Calculation of Life Expectancy. For distributions requested pursuant to
Article IV, life expectancy and joint life and last survivor expectancy
are calculated based on information provided by the Depositor, (or the
Depositor's, Beneficiary, executor, or administrator) using the
Expected Return Multiples in Section 1.72-9 of the Income Tax
Regulations. The Custodian shall not incur any liability for errors in
such calculations as a result of its reliance on information provided
by the Depositor (or the Depositor's Beneficiary, executor, or
administrator).
IF THE DEPOSITOR DOES NOT ELECT TO HAVE THE CUSTODIAN RECALCULATE LIFE
EXPECTANCY BY THE REQUIRED BEGINNING DATE, THE CUSTODIAN WILL NOT
RECALCULATE THE LIFE EXPECTANCY. THIS ELECTION OR DEEMED ELECTION TO
RECALCULATE OR NOT RECALCULATE IS IRREVOCABLE.
(f) Distributions to a Minor. If a distribution is payable to a person
known by the Custodian to be a minor or otherwise under a legal
disability, the Custodian may, in its absolute discretion, make all or
any part of the distribution to (a) a parent of such person, (b) the
guardian, committee, or other legal representative, whenever appointed,
of such person, (c) a custodial account established under a Uniform
Gifts to Minors Act, Uniform Transfers to Minors Act or similar act,
(d) any person having control or custody of such person, or (e) to such
person directly. The Depositor (or the Depositor's Beneficiary,
executor or administrator) may direct the Custodian to make any
distributions from the Custodial Account directly to any person,
corporation or other entity, including, but not limited to, the
fiduciary of a retirement plan account maintained on behalf of the
Depositor.
(g) Asset Transfers to Spouse Upon Divorce. All or any portion of the
Depositor's interest in the Custodial Account may be transferred to a
spouse or former spouse pursuant to a decree of divorce or separate
maintenance or a written instrument incident to such a decree as
provided in Section 408 of the Code, in which event the transferred
portion shall be held as a separate IRA for the benefit of such spouse
or former spouse.
(h) Transferring Assets to and from the Account. Assets held on behalf of
the Depositor in another IRA may be transferred by the trustee or
custodian thereof directly to the Custodian, in a form and manner
acceptable to the Custodian, to be held in the Custodial Account for
the Depositor under this Agreement. The Custodian will not be
responsible for any losses the Depositor may incur as a result of the
timing of any transfer from another trustee or custodian that are due
to circumstances reasonably beyond the control of the Custodian.
Assets held on behalf of the Depositor in the Account may be
transferred directly to the trustee or custodian of another IRA
established for the Depositor, if so directed by the Depositor in a
form and manner acceptable to the Custodian; provided, that it shall be
the Depositor's responsibility to ensure that any minimum distribution
required by Section 401(a)(9) of the Code is made prior to giving the
Custodian such transfer instructions. The Custodian will assume no
responsibility for the tax consequences of any transfer.
6. THE CUSTODIAN
(a) Instructions and Notices. All written notices or communication required
to be given by the Custodian to the Depositor shall be deemed to have
been given when sent by mail to the last known address of the Depositor
in the records of the Custodian. It is the responsibility of the
Depositor to notify the Custodian of any changes in address. All
written instructions, notices, or communications required to be given
by the Depositor to the Custodian shall be mailed or delivered to the
Custodian at the mailing address specified in the Prospectus, and no
such instruction, notice, or communication shall be effective until the
Custodian's actual receipt thereof.
The Custodian, may at its discretion, when so permitted by the Fund
prospectus, accept telephonic instructions, as if they were written
instructions. Any such telephonic instruction may be proved by audio
recorded tape.
(b) Reliance. The Custodian may conclusively rely upon and will be
protected from acting on any written order from or authorized by the
Depositor, or any other notice, request, consent, certificate or other
instrument, paper, or other communication that the Custodian believes
to be genuine and issued in proper form with proper authority, as long
as the Custodian acts in good faith in taking or omitting to take any
action in reliance upon the communication. Neither the Custodian nor
the Company shall not have any duty to question the directions of a
Depositor (or the Depositor's Beneficiary, executor or administrator)
in the investment, transfer or distribution of his or her Custodial
Account or to advise him or her regarding the purchase, retention, or
sale of assets credited to the Custodial Account or regarding
distributions from the Account. Neither the Custodian nor the Company
shall not be liable for any loss that results from the Depositor's (or
the Depositor's Beneficiary, executor, or administrator) exercise of
control (whether by his or her action or inaction) over the Custodial
Account.
(c) Reports; Tax Withholding. As soon as practicable after the close of
each taxable year, and whenever required by the Code, the Custodian
shall deliver to the Depositor a written record reflecting receipts,
distributions and other transactions effected in the Custodial Account
during such period and the fair market value of the assets and
liabilities of the Custodial Account as of the close of such period.
Unless the Depositor sends the Custodian written objection to a report
within sixty (60) days of receipt, the Depositor shall be deemed to
have approved such report, and the Custodian and the Company shall be
forever released and discharged from all liability and accountability
to anyone with respect to their acts, transactions, duties and
obligations or responsibilities as shown on, or reflected by, such
report.
The Custodian may reduce the amount of any distribution by the amount
of any required tax withholding unless specified otherwise.
(d) Exclusive Benefit. At no time shall it be possible for any part of the
assets of the Custodial Account to be used for, or diverted to,
purposes other than for the exclusive benefit of the Depositor or the
Depositor's beneficiaries except as specifically provided in this
Agreement.
(e) Account Fees and Expenses. The Custodian is entitled to receive the
fees for establishing and maintaining the Custodial Account set forth
in the Disclosure Statement. The Custodian may change its fee schedule
from time to time upon thirty (30) days' advance written notice to the
Depositor. The Custodian has the right to charge the Custodial Account,
including the right to liquidate Fund Shares or to charge the
Depositor, for the Custodian's fees, as well as for any income, gift,
estate, and inheritance taxes (including any transfer taxes incurred in
connection with the Custodial Account assets, and for all other
administrative expenses of the Custodian for performing its duties,
including any fees for legal services provided to the Custodian.
(f) Voting with Respect to Securities (Mailing of Prospectuses, Proxies,
etc.). The Custodian shall mail to the Depositor all prospectuses and
proxies that may come into the Custodian's possession by reason of its
holding Fund Shares in the Custodial Account. A Depositor may direct
the Custodian as to the manner in which any Fund Shares held in the
Custodial Account shall be voted with respect to any matters as to
which the Custodian as holder of record is entitled to vote, coming
before any meeting of shareholders of the Fund that issued such Fund
Shares. All such directions shall be in writing on a form approved by
the Custodian and signed by the Depositor, and delivered to the
Custodian within the time prescribed by it. The Custodian shall vote
only those Shares with respect to which it has received timely written
directions from the Depositor; provided, however, that the Custodian
may without such direction vote shares "present" to the extent that
such a vote is needed to establish a quorum.
(g) Limitations on Custodial Liability and Indemnification. The Depositor
and the Custodian intend that the Custodian shall have and exercise no
discretion, authority, or responsibility as to any investment in
connection with the Custodial Account and the Custodian shall not be
responsible in any way for the purpose, propriety, or tax treatment of
any contribution, or of any distribution, or any other action or
nonaction taken pursuant to the Depositor's direction or that of the
Depositor's Beneficiary, executor, or administrator. The Depositor who
directs the investment of his or her Account shall bear sole
responsibility for the suitability of any directed investment and for
any adverse consequences arising from such an investment, including,
without limitation, the inability of the Custodian to value or to sell
an illiquid investment, or the generation of unrelated business taxable
income with respect to an investment. To the fullest extent permitted
by law, the Depositor (or the Depositor's Beneficiary, executor, or
administrator, as appropriate) shall at all times fully indemnify and
save harmless the Custodian, the Company and their agents, affiliates,
successors, assigns and their officers, directors, and employees, from
any and all liability arising from the Depositor's investment direction
under this Custodial Account and from any other liability whatsoever
that may arise in connection with this Agreement except liability
arising under applicable law or liability arising from gross negligence
or willful misconduct on the part of the indemnified person. Although
the Custodian shall have no responsibility to give effect to a
direction from anyone other than the Depositor (or the Depositor's
Beneficiary, executor, or administrator), the Custodian may, in its
discretion, establish procedures pursuant to which the Depositor may
delegate to a third party any or all of the Depositor's powers and
duties hereunder; provided, however, that in no event may anyone other
than the Depositor's executor execute the application by which this
Agreement is adopted or the form by which the Beneficiary is appointed,
and provided, further, that any such third party to whom the Depositor
has so delegated powers and duties shall be treated as the Depositor
for purposes of applying the preceding sentences of this paragraph and
provisions of Article VIII, Section 3(a).
(h) Resignation or Removal of Custodian. The Company may remove the
Custodian at any time, and the Custodian may resign at any time, upon
thirty (30) days' written notice to the Depositor. Upon the removal or
resignation of the Custodian, the Company may, but shall not be
required to, appoint a successor custodian under this Custodial
Agreement; provided that any successor custodian shall satisfy the
requirements of Section 408(a)(2) of the Code. Upon any such
successor's acceptance of appointment, the Custodian shall transfer the
assets of the Custodial Account, together with the copies of relevant
books and records, to such successor custodian; provided, however, that
the Custodian is authorized to reserve such sum of money or property as
it may deem advisable for payment of any liabilities constituting a
charge on or against the assets of the Custodial Account, or on or
against the Custodian or the Company. The Custodian shall not be liable
for the acts or omissions of any successor to it. If no successor is
appointed by the Company, the Custodial Account shall be terminated and
the assets of the Account, reduced by the amount of any unpaid fees or
expenses, will be distributed to the Depositor.
7. AMENDMENT AND TERMINATION
(a) Amendment. The Depositor and Custodian authorize and direct the Company
to amend this Agreement in any respect at any time (including
retroactively), so that it may conform with applicable provisions of
the Internal Revenue Code, or with any other applicable law as in
effect from time to time. Any amendment made by the Company to comply
with the Code and related regulations does not require the consent of
the Depositor. Such other changes to this Agreement may be made as the
Company deems advisable. Any such amendment shall be effected by
delivery to the Custodian and mailing a copy of such amendment or a
restatement of the Custodial Agreement including any such amendment to
the Depositor at his or her last known address as shown in the records
of the Custodian. The Depositor shall be deemed to consent to any such
amendment(s) if he or she fails to object thereto by written notice
received by the Custodian within thirty (30) calendar days from the
date the Company mails a copy of such amendment(s) or restatement to
the Depositor.
(b) Termination. The Depositor may terminate the Custodial Account at any
time upon notice to the Custodian in a manner and form acceptable to
the Custodian. Upon such termination, the Custodian shall transfer the
assets of the Custodial Account, reduced by the amount of any unpaid
fees or expenses, to the custodian or trustee of another individual
retirement account (within the meaning of Section 408 of the Code) or
other retirement plan designated by the Depositor, as described in
Article VIII, Section 5(h). The Custodian shall not be liable for
losses arising from the acts, omissions, delays or other inaction of
any such transferee custodian or trustee. If notice of the Depositor's
intention to terminate the Custodial Account is received by the
Custodian and the Depositor had not designated a transferee custodian
or trustee for the assets in the Account, then the Account, reduced by
any unpaid fees or expenses, will be distributed to the Depositor.
8. MISCELLANEOUS
(a) Governing Law. This Agreement, and the duties and obligations of the
Company and the Custodian under the Agreement, shall be construed,
administered and enforced according to the laws of the Commonwealth of
Massachusetts, except as superseded by federal law or statute.
(b) When Effective. This Agreement shall not become effective until
acceptance of the Application by or on behalf of the Custodian as its
principal office, as evidenced by a written notice to the Depositor.
<PAGE>
The CGM Funds o P.O. Box 449 o Boston, MA 02117 o 800-345-4048
<PAGE>
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Traditional IRA Disclosure Statement Amendment
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AMENDMENT TO YOUR IRA
This IRA disclosure statement amendment updates your Individual Retirement
Account (IRA) documents we previously provided to you. The information provided
below amends your disclosure statement for recent law changes resulting from the
Taxpayer Relief Act of 1997.
Unless directed by us to do so, you do not need to sign or return anything to us
for this amendment to apply to your IRA. Your beneficiary designation we have on
file will remain in effect unless you change it by completing and signing the
form which we have for this purpose.
We recommend that you review this information carefully and keep it with your
other IRA information.
DISCLOSURE STATEMENT
MAXIMUM CONTRIBUTION MODIFIED -- The total amount you may contribute to an IRA
for any taxable year cannot exceed the lesser of $2,000 or 100 percent of your
compensation. If you also maintain a Roth IRA, the maximum contribution to your
Traditional IRAs (i.e., IRAs subject to Internal Revenue Code (IRC) Sections
408(a) and 408(b)) is reduced by any contributions you make to your Roth IRA.
Your total annual contribution to all Traditional IRAs and Roth IRAs cannot
exceed the lesser of $2,000 or 100 percent of your compensation.
PERMISSIBLE IRA INVESTMENTS EXPANDED -- You may not invest the assets of your
IRA in collectibles (within the meaning of Internal Revenue Code (IRC) Section
408(m)). A collectible is defined as any work of art, rug or antique, metal or
gem, stamp or coin, alcoholic beverage, or any other tangible personal property
specified by the Internal Revenue Service. However, specially minted United
States gold and silver bullion coins and certain state-issued coins are
permissible investments. Beginning January 1, 1998, platinum coins and certain
gold, silver, platinum or palladium bullion (as described in IRC Section
408(m)(3)) are also permitted as IRA investments.
IRA DEDUCTIBILITY CHANGES -- If you have not yet reached the year in which you
attain age 701/2 and have earned income from services rendered, you may make an
IRA contribution of the lesser of 100 percent of compensation or $2,000.
However, the amount of the contribution for which you may take a tax deduction
will depend upon whether you (or, in some cases, your spouse) are an active
participant in an employer-maintained retirement plan. If you are not an active
participant, your IRA contribution will be totally deductible. If you are an
active participant, the deductibility of your contribution will depend on your
modified adjusted gross income (MAGI) for the tax year for which the
contribution was made. MAGI is determined on your tax return using your adjusted
gross income but disregarding any deductible IRA contribution.
Definition of Active Participant -- Generally, you will be an active participant
if you are covered by one or more of the following employer-maintained
retirement plans:
1. a qualified pension, profit sharing, 401(k), or stock bonus plan;
2. a qualified annuity plan of an employer;
3. a simplified employee pension (SEP) plan;
4. a retirement plan established by the Federal government, a State, or a
political subdivision (except certain unfunded deferred compensation plans
under IRC Section 457);
5. a tax sheltered annuity for employees of certain tax-exempt organizations or
public schools;
6. a plan meeting the requirements of IRC Section 501(c)(18);
7. a qualified plan for self-employed individuals (H.R. 10 or Keogh Plan; and
8. a SIMPLE IRA plan or a SIMPLE 401(k) plan.
If you do not know whether your employer maintains one of these plans or whether
you are an active participant in it, check with your employer and your tax
advisor. Also, the Form W-2 (Wage and Tax Statement) that you receive at the end
of the year from your employer will indicate whether you are an active
participant.
If you are an active participant and are single, the deductible amount of your
contribution is determined as follows: (1) take the Phase-out Maximum for the
applicable year (specified below) and subtract your MAGI, (2) multiply the
difference by .2. For example, if your 1998 MAGI is $35,000, your maximum
deductible contribution is $1,000 (the 1998 Phase-out Maximum of $40,000 minus
your MAGI of $35,000, multiplied by .2). You must round the resulting number to
the next highest $10 if the number is not a multiple of 10.
If you are an active participant, are married and you file a joint tax return,
the deductible amount of your contributions is determined as follows: (1) take
the Phase-out Maximum for the applicable year (specified below) and subtract
your MAGI, (2) multiply the difference by .2. (Multiply the difference between
the Phase-out Maximum and your MAGI by .1 beginning in 2007). For example, if
your MAGI in 1998 is $55,000, your maximum deductible contribution is $1000:
[($60,000 minus $55,000) multiplied by .2]. You must round the resulting number
to the next highest $10 if the number is not a multiple of 10.
JOINT FILERS SINGLE TAXPAYERS
TAX YEAR PHASE-OUT MAXIMUM PHASE-OUT MAXIMUM
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1997 $50,000 $35,000
1998 $60,000 $40,000
1999 $61,000 $41,000
2000 $62,000 $42,000
2001 $63,000 $43,000
2002 $64,000 $44,000
2003 $70,000 $50,000
2004 $75,000 $55,000
2005 $80,000 $60,000
2006 $85,000 $60,000
2007 $100,000 $60,000
If you are married filing jointly and are not an active participant in an
employer-maintained retirement plan, but are married to someone who is an active
participant, your maximum deductible contribution is determined by taking
$160,000 minus your MAGI and multiplying the result by .2 (subject to the
maximum combined annual contribution limit for Traditional and Roth IRAs of the
lesser of $2,000 or 100 percent of earned income).
TRADITIONAL IRA TO ROTH IRA ROLLOVERS -- If your adjusted gross income is less
than $100,000, you are eligible to roll over (or convert) all or any portion of
your existing Traditional IRA(s) into your Roth IRA(s). The amount of the
rollover from your Traditional IRA to your Roth IRA shall be treated as a
distribution for income tax purposes and is includible in your gross income
(except for any nondeductible contributions). Although the rollover amount is
generally included in income, the 10 percent early distribution penalty shall
not apply to rollovers or conversions from a Traditional IRA to a Roth IRA,
regardless of whether you qualify for any exceptions to the 10 percent penalty.
If you roll over assets from your Traditional IRA to your Roth IRA prior to
January 1, 1999, you may spread the amount of the distributions which must be
included in your gross income ratably over a four year period beginning with the
year in which the payment or distribution is made.
NEW EXCEPTIONS TO 10 PERCENT EARLY DISTRIBUTION PENALTY -- If you are under age
591/2 and receive an IRA distribution, an additional tax of 10 percent will
apply, unless made on account of death, disability, a qualifying rollover, a
direct transfer, the timely withdrawal of an excess contribution; or if the
distribution is part of a series of substantially equal period payments (at
least annual payments) made over your life expectancy or the joint life
expectancy of you and your beneficiary. Payments made to pay medical expenses
which exceed 7.5 percent of your adjusted gross income and distributions to pay
for health insurance by an individual who has separated from employment and who
has received unemployment compensation under a federal or state program for at
least 12 weeks are also exempt from the 10 percent tax. Beginning January 1,
1998, payments to cover certain qualified education expenses and distributions
for first-home purchases (up to a life-time maximum of $10,000) are exempt from
the 10 percent tax. This additional tax will apply only to the portion of a
distribution which is includible in your income.
REPEAL OF EXCESS DISTRIBUTION PENALTY -- Prior to 1997, you would have been
taxed an additional 15 percent on any amount received and included in income
during a calendar year from qualified retirement plans, tax-sheltered annuities
and IRAs which exceeded $112,500 (indexed each year for the cost of living).
Certain exceptions applied. If you received an excess distribution as described
above, your tax advisor could determine if these exceptions applied to you. This
tax is referred to as an excess distribution penalty. However, this tax is
repealed effective for all payouts received after December 31, 1996, as a result
of the Taxpayer Relief Act of 1997.
REPEAL OF EXCESS RETIREMENT ACCUMULATION PENALTY -- In the past, your estate
would have paid additional Federal estate tax if you died with an excess
retirement accumulation. An excess retirement accumulation existed if, at the
time of your death, the value of all your interests in qualified plans,
tax-sheltered annuities and IRAs exceeded the present value of an annuity with
annual payments of $112,500 (indexed each year for the cost of living), payable
over your life expectancy immediately before your death. This tax was referred
to as an excess retirement accumulation tax penalty. However, this tax is
repealed for estates of decedents dying after December 31, 1996, as a result of
the Taxpayer Relief Act of 1997.
IRADISCAMEND 12/97
<PAGE>
- --------------------------------------------------------------------------------
CGM IRA ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
1. ACCOUNT INFORMATION
Name ----------------------------------------------------
Social Security # [ ] [ ] [ ] - [ ] [ ] - [ ] [ ] [ ] [ ]
Address -------------------------------------------------
- ---------------------------------------------------------
Date of Birth -------------------------------------------
Daytime Telephone Number (---) --------------------------
2. IRA ACCOUNT INFORMATION
Check IRA Type:
[ ] TRADITIONAL CONTRIBUTORY [ ] TRADITIONAL ROLLOVER
[ ] ROTH CONTRIBUTORY [ ] ROTH CONVERSION
A SEPARATE APPLICATION MUST BE COMPLETED FOR EACH BOX THAT YOU CHECKED ABOVE.
Also check the transactions that apply below and specify the investment amount
for each option. If you want to establish a SEP-IRA, please call 800-345-4048.
[ ] ANNUAL CONTRIBUTION for the tax year -----------.
(maximum contribution for all IRAs is $2,000)
[ ] TRANSFER IRA: If you are transferring assets from another IRA to CGM,
complete this form and the CGM Transfer Form.
[ ] ROTH IRA TO ROTH IRA ROLLOVER: Please review the CGM Roth IRA Rollover Rules
included in this packet. Year of initial contribution: ----------.
[ ] TRADITIONAL IRA TO TRADITIONAL IRA ROLLOVER: Please review the CGM
Traditional IRA Rollover Rules included in this packet.
[ ] DIRECT ROLLOVER TO A TRADITIONAL IRA from a qualified pension, profit
sharing, 401(k), or 403(b) plan sent to CGM by your employer. Complete the
Direct Rollover Form.
[ ] INDIRECT ROLLOVER TO A TRADITIONAL IRA from a qualified pension, profit
sharing, 401(k), or 403(b) plan from which you have received the proceeds.
[ ] CONVERSION FROM TRADITIONAL IRA TO ROTH IRA: Complete the CGM Roth IRA
Conversion Form.
3. INVESTMENT SELECTION ($1,000 MINIMUM PER FUND)
$ ---------- CGM Focus Fund
$ ---------- CGM Mutual Fund
$ ---------- CGM Realty Fund
$ ---------- CGM Fixed Income Fund
$ ---------- CGM Capital Development Fund - see Section 9.
Existing account number:________________________.
$ ---------- New England Cash Management Trust - Money Market Series
5.00
$ ---------- ESTABLISHMENT FEE
(Required for all new plans, one fee per application)
$ ---------- AMOUNT OF CHECK ENCLOSED
Make all checks payable to State Street Bank and Trust Company. No third party
checks (checks endorsed over to CGM from an individual or institution) will be
accepted.
4. TELEPHONE EXCHANGE PRIVILEGES
[ ] Yes [ ] No
This service enables you to exchange monies ($1,000 minimum) by telephone among
accounts with the same registration in the CGM Funds or New England Cash
Management Trust.
5. AUTOMATIC INVESTMENT PLAN - OPTIONAL
Once you have met the $1,000 minimum, you may have us debit $50 or more each
month from your bank account to apply to your IRA account. Please check this box
M and complete Section 10 on the reverse side.
6. BENEFICIARY DESIGNATION
This Beneficiary Designation is to be used to indicate the person or persons to
whom the IRA assets should be turned over to in the event of your death. If you
are not survived by a validly designated Beneficiary, your benefits will be paid
to your estate in the event of your death. Important: If you do not designate a
Beneficiary or if the Beneficiary designated is not a person, you cannot base
your calculations for distributions from a Traditional IRA on joint life
expectancy. The Beneficiaries named herein and the manner of distribution may be
changed or revoked at any time by filing a new designation in writing with the
Custodian. This designation, and any changes or revocation, will only be
effective upon receipt by the Custodian. PLEASE RETAIN A COPY FOR YOUR RECORDS.
Upon my death, distribute my CGM IRA in equal shares to the following Principal
Beneficiary(ies) who survive me or, if none survives me, in equal shares to the
following Secondary Beneficiaries who survive me. (Attach an additional page if
necessary.)
Principal Beneficiary(ies):
- --------------------------------------------------------------------------------
Name Birthdate Relationship
- --------------------------------------------------------------------------------
Address
Secondary Beneficiary(ies):
- --------------------------------------------------------------------------------
Name Birthdate Relationship
Address
CONSENT OF SPOUSE
(If you live in a community property state, complete if spouse is not sole
primary beneficiary.) I consent to the above Beneficiary Designation. By signing
this consent, I intend to change the portion (if any) of this IRA which is
community property into the separate property of my spouse. I specifically give
to my spouse any interest I have in the funds deposited in this account.
- --------------------------------------------------------------------------------
Signature of Spouse Date
7. SIGNATURE
By signing below, I certify that I agree to the provisions on the reverse side
listed in Section 8.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE:
X ----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Please note that there is an annual $10 maintenance fee per account which will
be billed to you each year. (OVER)
IRAAPP 2/98
<PAGE>
8. PROVISIONS
By signing this application establishing an IRA, I (i) appoint State Street Bank
and Trust Company, or its successors, as Custodian of the Account, (ii) state
that I have received, read, accept, and specifically incorporate the Custodial
Agreement and Disclosure Statement by reference to this application, (iii)
acknowledge receipt of the current prospectus of the mutual fund(s) selected,
(iv) consent to the Custodian's fee, (v) agree to promptly give instructions to
the Custodian necessary to enable the Custodian to carry out its duties under
the Plan, (vi) affirm that my participation is completely voluntary, and (vii)
certify under penalties of perjury that the social security number provided is
correct. I hereby adopt The CGM Individual Retirement Account (IRA) upon the
terms and conditions thereof.
|_| If I have elected the "TELEPHONE EXCHANGE" service, I authorize the Fund and
its agents to accept and act upon telephone instructions from me, and I
acknowledge receipt of the current prospectus of the Fund into which the
exchange is made. I understand that the Fund may terminate or modify this
privilege at any time. The Fund will employ reasonable procedures to confirm
that instructions received by telephone are genuine, such as requesting
personal identification information that appears on my account application
and recording the telephone conversation. I will bear the risk of loss due
to unauthorized or fraudulent instructions regarding my account, although
the Fund may be liable if reasonable procedures are not employed.
|_| If I have enrolled in the "AUTOMATIC INVESTMENT PLAN" in Section 10, I
authorize the Fund and its agents to initiate Automated Clearing House (ACH)
debits against the designated account at a bank or other financial
institution. I understand that:
- Fund shares purchased by Automatic Investment Plan must be owned for 15
days before they may be redeemed.
- I may terminate my Automatic Investment Plan by sending written notice to
CGM Funds c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511, or by calling
800-343-5678 no later than 10 days prior to my next scheduled debit date.
- The CGM Funds may immediately terminate my Plan in the event that any item
is unpaid by my financial institution.
- The Fund may terminate or modify this privilege at any time.
9. WHO CAN PURCHASE SHARES OF CGM CAPITAL DEVELOPMENT FUND
Only shareholders of the Fund as of September 24, 1993, who remain shareholders
thereafter may purchase additional shares of the Fund. The Fund reserves the
right to reject any purchase order. This policy supersedes all previous
eligibility requirements. Fund shares are not generally available to other
persons except in special circumstances that have been approved by, or under the
authority of, the board of trustees of the Fund. The special circumstances
currently approved by the board of trustees of the Fund are limited to the offer
and sale of shares of the Fund to the following additional persons: trustees of
the Fund, employees of the Investment Manager and counsel to the Fund and the
Investment Manager.
10. AUTOMATIC INVESTMENT PLAN (AIP)
You can have us debit $50 or more on the same day each month from your bank
account and have it applied to your IRA account. (Please allow 10 business days
for the AIP Plan to start.)
To elect this option, please: |_| ATTACH A CHECK MARKED "VOID" FROM THE
BANK ACCOUNT YOU WILL BE USING.
|_| FILL IN THE INFORMATION REQUESTED BELOW.
Please invest $ ---------- on or about M 5th day of each month or M 20th day of
each month (5th will be selected if no box is checked)
As a convenience to me, you are hereby requested and authorized to pay and
charge to my account Automated Clearing House (ACH) debits drawn on my account
by and payable to the order of The CGM Funds. This authority is to remain in
effect until revoked by me in writing and, until you actually receive such
notice, I agree you will be fully protected in honoring any such debits.
- --------------------------------------------------------------------------------
Name of Bank Bank Account Number
- --------------------------------------------------------------------------------
Name of Depositor(s) as Shown on Bank Records
X X
- --------------------------------------------------------------------------------
Signature of Participant Signature (if Joint Bank Account)
11. ACCEPTANCE BY CUSTODIAN
Accepted by State Street Bank and Trust Company, Custodian
/s/ Illegible
- --------------------------------------------------------------------------------
Authorized Signature, State Street Bank and Trust Company Date
A statement will be sent to you confirming the establishment of your account and
will serve as State Street Bank's acceptance. Please note that you will be
charged an annual maintenance fee of $10 for each fund account in your IRA.
QUESTIONS? CALL 800-345-4048
SEND APPLICATION TO: CGM FUNDS, P.O. BOX 449, BOSTON, MA 02117-0449
<PAGE>
- --------------------------------------------------------------------------------
CGM DIRECT ROLLOVER FORM FOR NEW ACCOUNTS
- --------------------------------------------------------------------------------
Please use this form when rolling assets from a
Qualified Retirement Plan or 403(b) Plan directly to a CGM Traditional IRA.
YOUR NAME AND ADDRESS
- --------------------------------------- [ ] [ ] [ ] - [ ] [ ] - [ ] [ ] [ ] [ ]
Name Social Security Number
- ---------------------------------------
Address
- --------------------------------------- (---) -----------------------
City State Zip Code Daytime Phone Number
INVESTMENT INSTRUCTIONS
|_| Enclose $5.00 plan establishment fee. Make check payable to State Street
Bank and Trust Company.
|_| Please type or print the name of the fund(s) you wish to invest in:
FUND NAME $ AMOUNT / % AMOUNT
- ------------------------------------ --------------------------------------
- ------------------------------------ --------------------------------------
PLEASE COMPLETE AND SIGN THESE INSTRUCTIONS
IMPORTANT: To ensure timely processing of your rollover, please call your
current Custodian's or Trustee's transfer department and verify the correct
address and any transfer requirements, such as a signature guarantee.
If you are 70 1/2 or older please check this box M and refer to the reverse side
of this form.
- ---------------------------------------------------------(---) ---------------
Name of Current Current IRA Account Custodian's Phone
Custodian Number Number
- --------------------------------------------------------------------------------
Address City State Zip Code
|_| Please accept this as your [ ] Transfer All OR [ ] Transfer $ or
authorization to: % ------ to my CGM IRA
|_| The transfer should be [ ] Immediately OR [ ] Upon Maturity of
processed: My Assets
- --------------------------------------------------------------------------------
I request that the above named Signature Guarantee (If Required
Custodian or Trustee liquidate and by Current Custodian)
rollover my plan assets as cash to
State Street Bank and Trust Name of Firm: ---------------------
Company, Custodian of my CGM IRA.
X
- ---------------------------------- BY: -------------------------------
YOUR SIGNATURE DATE Authorized Individual
- --------------------------------------------------------------------------------
CUSTODIAN: MAKE CHECK PAYABLE TO:
STATE STREET BANK AND TRUST COMPANY, C/O CGM FUNDS,
P.O. BOX 8511, BOSTON, MA 02266-8511
(Please include the Participant's name and Social Security
Number on your check.)
- --------------------------------------------------------------------------------
ACCEPTANCE BY CUSTODIAN
State Street Bank and Trust Company accepts the assets being rolled over and
agrees to serve as the Custodian of the IRA Account established on behalf of the
above named individual.
/s/ Illegible
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE, STATE STREET BANK AND TRUST COMPANY DATE
- --------------------------------------------------------------------------------
RETURN THIS FORM TO: THE CGM FUNDS, P.O. BOX 449, BOSTON, MA 02117-0449
IRADRNEW 2/98
<PAGE>
- --------------------------------------------------------------------------------
IMPORTANT INFORMATION IF YOU ARE 70 1/2 OR OLDER
If this direct rollover is being made during or after a year in which you turn
age 70 1/2, (or, if you are a "less than 5%" owner when you stop working,
whichever is later), you must take your annual Required Minimum Distribution
(RMD) based on your life expectancy or the life expectancy of you and your
beneficiary prior to rolling your assets to a Traditional IRA.
Additionally, RMDs are mandatory once your Traditional IRA is established.
Please call 1-800-345-4048 to request a "Traditional IRA Distribution Request"
form and our "Understanding Traditional IRA Distributions" brochure. It is your
responsibility to ensure that you are taking the appropriate RMD. Failure to do
so may result in a penalty tax of 50% of the amount not taken. Please call
1-800-345-4048 if you have any questions about RMDs.
- --------------------------------------------------------------------------------
HOW TO DIRECTLY ROLLOVER ASSETS FROM A QUALIFIED OR 403(B) PLAN TO CGM
1. Complete and sign the IRA Account Application.
2. Complete and sign the IRA Direct Rollover Form for New Accounts.
3. Enclose a check for $5.00 made payable to State Street Bank and Trust
Company.
4. Mail items 1-3 to CGM Funds, P.O. Box 449, Boston, MA 02117-0449 in the
return envelope provided.
5. Upon receipt of your IRA Account Application, Direct Rollover Form for New
Accounts and check, CGM will establish your IRA. We will send a letter of
acceptance and your authorization to rollover assets to your current plan
Custodian or Trustee and provide you with a copy of the letter.
6. After the rollover IRA proceeds have been received by CGM, a statement
confirming the transaction will be mailed to you.
PLEASE NOTE: If you elect to combine assets previously invested in a qualified
plan or 403(b) plan with IRA assets, you will be unable to roll over the
assets into a future employer's plan.
- --------------------------------------------------------------------------------
QUESTIONS? CALL 800-345-4048
<PAGE>
- --------------------------------------------------------------------------------
CGM DIRECT ROLLOVER FORM
- --------------------------------------------------------------------------------
Please use this form when rolling assets from a Qualified Retirement Plan or
403(b) Plan directly to a CGM Traditional IRA
YOUR NAME AND ADDRESS
- --------------------------------------- [ ] [ ] [ ] - [ ] [ ] - [ ] [ ] [ ] [ ]
Name Social Security Number
- ---------------------------------------
Address
- --------------------------------------- (---) -----------------------
City State Zip Code Daytime Phone Number
CGM ACCOUNT INFORMATION
Please print or type the name of your current CGM Fund and your account number.
Indicate the dollar amount or percentage you want to invest in each account. If
you want to establish a new account in another CGM Fund, specify the Fund name
and write "new" under Account Number.
FUND NAME ACCOUNT NUMBER $ AMOUNT / % AMOUNT
- ----------------------- ------------------------ -----------------------------
- ----------------------- ------------------------ -----------------------------
PLEASE COMPLETE AND SIGN THESE INSTRUCTIONS
IMPORTANT: To ensure timely processing of your rollover, please call your
current Custodian's or Trustee's transfer department and verify the correct
address and any transfer requirements, such as a signature guarantee.
If you are 70 1/2 or older please check this box M and refer to the reverse side
of this form.
- ---------------------------------------------------------(---) ---------------
Name of Current Current IRA Account Custodian's Phone
Custodian Number Number
- --------------------------------------------------------------------------------
Address City State Zip Code
|_| Please accept this as your [ ] Transfer All OR [ ] Transfer $ or
authorization to: % ------ to my CGM IRA
|_| The transfer should be [ ] Immediately OR [ ] Upon Maturity of
processed: My Assets
- --------------------------------------------------------------------------------
I request that the above named Signature Guarantee (If Required
Custodian or Trustee liquidate and by Current Custodian)
rollover my plan assets as cash to
State Street Bank and Trust Name of Firm: ---------------------
Company, Custodian of my CGM IRA.
X
- ---------------------------------- BY: -------------------------------
YOUR SIGNATURE DATE Authorized Individual
- --------------------------------------------------------------------------------
CUSTODIAN: MAKE CHECK PAYABLE TO:
STATE STREET BANK AND TRUST COMPANY, C/O CGM FUNDS,
P.O. BOX 8511, BOSTON, MA 02266-8511
(Please include the Participant's name and Social Security
Number on your check.)
- --------------------------------------------------------------------------------
ACCEPTANCE BY CUSTODIAN
State Street Bank and Trust Company accepts the assets being rolled over and
agrees to serve as the Custodian of the IRA Account established on behalf of the
above named individual.
/s/ Illegible
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE, STATE STREET BANK AND TRUST COMPANY DATE
- --------------------------------------------------------------------------------
RETURN THIS FORM TO: THE CGM FUNDS, P.O. BOX 449, BOSTON, MA 02117-0449
- -------------------------------------------------------------------------------
IRADR 2/98
<PAGE>
- --------------------------------------------------------------------------------
IMPORTANT INFORMATION IF YOU ARE 70 1/2 OR OLDER
If this direct rollover is being made during or after a year in which you turn
age 70 1/2, (or, if you are a "less than 5%" owner when you stop working,
whichever is later), you must take your annual Required Minimum Distribution
(RMD) based on your life expectancy or the life expectancy of you and your
beneficiary prior to rolling your assets to a Traditional IRA.
Additionally, RMDs are mandatory once your Traditional IRA is established.
Please call 1-800-345-4048 to request a "Traditional IRA Distribution Request"
form and our "Understanding Traditional IRA Distributions" brochure. It is your
responsibility to ensure that you are taking the appropriate RMD. Failure to do
so may result in a penalty tax of 50% of the amount not taken. Please call
1-800-345-4048 if you have any questions about RMDs.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HOW TO DIRECTLY ROLLOVER ASSETS FROM A QUALIFIED OR 403(B) PLAN TO YOUR
EXISTING CGM IRA
- --------------------------------------------------------------------------------
1. Complete and sign the IRA Direct Rollover Form.
2. Mail the Direct Rollover Form to CGM Funds, P.O. Box 8511, Boston, MA
02266-8511 in the return envelope provided.
3. Upon receipt of your Direct Rollover Form, CGM will send a letter of
acceptance and your authorization to rollover assets to your current Plan
Trustee or Custodian and provide you with a copy of the letter.
4. After the rollover IRA proceeds have been received by CGM, a statement
confirming the transaction will be mailed to you.
PLEASE NOTE: If you elect to combine assets previously invested in a qualified
plan or 403(b) plan with IRA assets, you will be unable to roll over the assets
into a future employer's plan.
- --------------------------------------------------------------------------------
QUESTIONS? CALL 800-345-4048
<PAGE>
THE CGM FUNDS
- --------------------------------------------------------------------------------
ROTH IRA
PLAN DOCUMENT AND
DISCLOSURE STATEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INSIDE . . .
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 1 INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 2 DISCLOSURE STATEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 7 PLAN DOCUMENT
- --------------------------------------------------------------------------------
IRAR2/98
<PAGE>
INVESTMENT OPTIONS
NO-LOAD MUTUAL FUNDS
The no-load funds eligible for your IRA investments are listed below. You may
invest either in one, or in a combination of the funds best suited to your
circumstances. The funds have different investment objectives and offer a
range of investment income and appreciation potential. Be sure to read each
fund's prospectus before you invest or send money.
STOCKS AND BONDS
CGM MUTUAL FUND is a flexibly managed balanced fund that seeks reasonable
long-term capital appreciation with a prudent approach to protection of
capital from undue risks. Consideration is given to the production of current
income in the selection of stocks and bonds for the Fund's portfolio.
BONDS
CGM FIXED INCOME FUND is a "total return" bond fund. The Fund's objective is
to maximize total return by investing in debt securities and preferred stocks
that provide current income, capital appreciation or a combination of both
income and appreciation.
MONEY MARKET
NEW ENGLAND CASH MANAGEMENT TRUST -- MONEY MARKET SERIES is a money market
fund that seeks to provide maximum current income consistent with preservation
of capital by investing in a variety of high quality money market instruments.
The Trust is managed by Back Bay Advisors, L.P.
STOCKS
CGM FOCUS FUND is a non-diversified and flexibly managed mutual fund that
seeks long-term growth of capital. The Fund intends to pursue its objective by
investing in a core position of equity securities. 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.
CGM REALTY FUND is a mutual fund that seeks above-average income and long-term
growth of capital. The Fund pursues its objective by investing primarily in
equity securities of companies in the real estate industry.
CGM CAPITAL DEVELOPMENT FUND is an aggressively managed growth fund that seeks
long-term capital appreciation in a diverse group of companies and industries
believed to provide opportunities for capital development. Note: Shares are
available only to certain individuals. Eligibility categories are listed
below.
ELIGIBILITY FOR CGM CAPITAL DEVELOPMENT FUND
Only shareholders of the Fund as of September 24, 1993 who have remained
shareholders continuously since that date may purchase additional shares of
the Fund. The Fund reserves the right to reject
any purchase order. This policy supersedes all previous eligibility
requirements.
Fund shares are not generally available to other persons except in special
circumstances that have been approved by, or under the authority of, the Board
of Trustees of the Fund. The special circumstances currently approved by the
Board of Trustees of the Fund are limited to the offer and sale of shares of
the Fund to the following additional persons: trustees of the Fund, employees
of the Investment Manager and counsel to the Fund and the Investment Manager.
<PAGE>
DISCLOSURE STATEMENT
RIGHT TO REVOKE YOUR ROTH IRA
If you receive this Disclosure Statement at the time you establish your Roth
IRA, you have the right to revoke your Roth IRA within seven (7) days of its
establishment. If revoked, you are entitled to a full return of the
contribution you made to your Roth IRA. The amount returned to you would not
include an adjustment for such items as sales commissions, administrative
expenses, or fluctuation in market value. You may make this revocation only by
mailing or delivering a written notice to the Custodian at the address listed
on the Application.
If you send your notice by first-class mail, your revocation will be deemed
mailed as of the date of the postmark.
If you have any questions about the procedure for revoking your Roth IRA,
please call the Custodian at the telephone number listed on the Application.
REQUIREMENTS OF A ROTH IRA
A. CASH CONTRIBUTIONS - Your contribution must be in cash, unless it is a
qualified rollover contribution.
B. MAXIMUM CONTRIBUTION - The total amount you may contribute to a Roth IRA for
any taxable year cannot exceed the lesser of $2,000 or 100 percent of your
compensation. If you also maintain a Traditional IRA (i.e., an IRA subject
to the limits of Internal Revenue Code (IRC) Sec. 408(a) or 408(b)) the
maximum contribution to your Roth IRA is reduced by any contributions you
make to your Traditional IRA. Your total annual contribution to all
Traditional IRAs and Roth IRAs cannot exceed the lesser of $2,000 or 100
percent of your compensation.
Your Roth IRA contribution is further limited if your adjusted gross income
(AGI) exceeds $150,000 and you are a married individual filing jointly
($95,000 for single taxpayers). Married individuals filing jointly with AGI
which exceeds $160,000 may not fund a Roth IRA. Married individuals filing
separately with AGI exceeding $10,000 may not fund a Roth IRA. Single
individuals with AGI exceeding $110,000 may not fund a Roth IRA.
If you are married filing jointly and your AGI is between $150,000 and
$160,000, your maximum Roth IRA contribution is determined as follows: (1)
Subtract your AGI from $160,000, (2) divide the difference by $10,000, and
(3) multiply the result in step (2) by $2,000. For example, if your AGI is
$155,000, your maximum Roth IRA contribution is $1,000. This amount is
determined as follows: [($160,000 minus $155,000) divided by $10,000]
multiplied by $2,000.
If you are single and your AGI is between $95,000 and $110,000, your maximum
Roth IRA contribution is determined as follows: (1) Subtract your AGI from
$110,000, (2) divide the difference by $15,000, and (3) multiply the result
in step (2) by $2,000. For example, if your AGI is $98,000, your maximum
Roth IRA contribution is $1,600. This amount is determined as follows: [
($110,000 minus $98,000) divided by $15,000] multiplied by $2,000.
Your Roth IRA contribution is not limited by your participation in a
retirement plan other than a Traditional IRA, as discussed above. In
addition, unlike Traditional IRAs, you may continue to fund a Roth IRA after
age 70 1/2 so long as you have earned income and your AGI is below the
maximum thresholds discussed above.
C. NONFORFEITABILITY - Your interest in your Roth IRA is nonforfeitable.
D. ELIGIBLE CUSTODIANS - The Custodian of your Roth IRA must be a bank, savings
and loan association, credit union, or a person approved by the Secretary of
the Treasury.
E. COMMINGLING ASSETS - The assets of your Roth IRA cannot be commingled with
other property except in a common trust fund or common investment fund.
F. INVESTMENTS AND EARNINGS - No portion of your Roth IRA may be invested in
life insurance contracts.
Your contributions will be used to purchase shares of Funds selected on your
Account Application. Any dividend or capital gains distributions on the
Funds' shares will be invested in additional Funds' shares automatically.
After you have participated in a Roth IRA for five years and you have
attained age 59 1/2, become disabled or die, you have the option of
receiving your dividends and capital gains in cash. These additional shares
will represent your earnings from the account. The assets available for
distribution will be the market value of the shares your contributions and
earnings have purchased over the years. Due to the fluctuating value of the
Funds' investments, it is not possible to make a projection of expected
growth, and growth cannot be guaranteed. Investment information can be found
in each Fund's prospectus.
The law requires that the shares in your account be held by a custodian that
is a bank or other organization approved by the IRS. The Custodian of the
Plan meets this requirement. You will be entitled to vote the shares in your
account.
G. BENEFICIARY PAYOUTS - If your surviving spouse is your sole beneficiary,
your spouse may treat your Roth IRA as his or her own Roth IRA and would not
be subject to the required minimum distribution rules. Your surviving spouse
will also be entitled to such additional beneficiary payment options as are
permitted under the law or related regulations. If the beneficiary or
beneficiaries include anyone other than your surviving spouse, the entire
amount remaining in your account will, at the election of your beneficiary
or beneficiaries, either
(a) be distributed by December 31 of the year containing the fifth
anniversary of your death, or
(b) be distributed in equal or substantially equal payments over the life
or life expectancy of your designated beneficiary or beneficiaries.
A nonspouse beneficiary or beneficiaries must elect either option (a) or (b)
by December 31 of the year following the year of your death. If no election
is made, distribution will be made in accordance with option (a).
INCOME TAX CONSEQUENCES OF ESTABLISHING A ROTH IRA
A. CONTRIBUTIONS NOT DEDUCTED - No deduction is allowed for Roth IRA
contributions, including transfers and rollover contributions.
B. TAX-DEFERRED EARNINGS - The investment earnings of your Roth IRA are not
subject to federal income tax as they accumulate in your Roth IRA. In
addition, distributions of your Roth IRA earnings will be free from federal
income tax if you take a qualified distribution, as discussed below.
C. TAXATION OF DISTRIBUTIONS - The taxation of a Roth IRA distribution depends
on whether the distribution is a qualified distribution or a nonqualified
distribution.
1. QUALIFIED DISTRIBUTIONS - Qualified distributions from your Roth IRA
(both the contributions and earnings) are not included in gross income.
A qualified distribution occurs when the assets have been in the Roth
IRA for five years and one of the following events occurs:
o attainment of age 59 1/2,
o disability,
o the purchase of a first home, or
o death.
For contributory IRAs, the five-year period begins with the first year
for which you make a Roth IRA contribution. For example, if you make a
contribution to your Roth IRA for 1998, the five-year period will be
completed at the end of 2002. However, a separate five-year requirement
applies to each rollover contribution from a Traditional IRA. The
five-year period for these rollovers begins with the year in which the
rollover contribution is made.
2. NONQUALIFIED DISTRIBUTIONS - If you do not meet the requirements for a
qualified distribution, any earnings you withdraw from your Roth IRA
will be included in your gross income and, if you are under age 59 1/2,
may be subject to an early distribution penalty. However, when you take
a nonqualified distribution, your basis (the amounts you contributed to
the account) will generally be removed first. Therefore, your
nonqualified distributions will not be taxable to you until your
withdrawals exceed the amount of your contributions. Special rules may
apply to the distribution of conversion amounts.
D. NO REQUIRED MINIMUM DISTRIBUTIONS - You are not required to take
distribution from your Roth IRA at age 70 1/2 (as required for Traditional
and SIMPLE IRAs).
E. ROLLOVERS AND CONVERSIONS - Your Roth IRA may be rolled over to another Roth
IRA of yours, or may receive rollover contributions, provided that all of
the applicable rollover rules are followed. Rollover is a term used to
describe a tax-free movement of cash or other property to your Roth IRA from
any of your Roth or Traditional IRAs. The rollover rules are generally
summarized below. These transactions are often complex. If you have any
questions regarding a rollover, please see a competent tax advisor.
1. ROTH IRA TO ROTH IRA ROLLOVERS - Funds distributed from your Roth IRA
may be rolled over to a Roth IRA of yours if the requirements of IRC
section 408(d)(3) are met. A proper Roth IRA to Roth IRA rollover is
completed if all or part of the distribution is rolled over not later
than 60 days after the distribution is received. You may not have
completed another Roth IRA to Roth IRA rollover from the distributing
Roth IRA during the 12 months preceding the date you receive the
distribution. Further, you may roll the same dollars or assets only once
every 12 months. Roth IRA assets may not be rolled over to other types
of IRAs (e.g., Traditional IRA, SIMPLE IRA).
2. TRADITIONAL IRA TO ROTH IRA CONVERSIONS - Unless your adjusted gross
income is more than $100,000, or you are married filing a separate tax
return, you are eligible to roll over, transfer or convert all or any
portion of your existing Traditional IRA(s) into your Roth IRA(s). A
separate Roth Conversion IRA should generally be established to hold
conversion amounts. If your Roth IRA is designated as a Roth Conversion
IRA, the only permissible contributions are amounts converted from a
Traditional IRA during the same tax year. The amount of the conversion
from your Traditional IRA to your Roth IRA will be treated as a
distribution for income tax purposes and is includible in your gross
income (except for any nondeductible contributions). Although the
conversion amount is generally included in income, the 10 percent early
distribution penalty will not apply to rollovers or conversions from a
Traditional IRA to a Roth IRA, regardless of whether you qualify for any
exceptions to the 10 percent penalty.
If you convert assets from your Traditional IRA to your Roth IRA prior
to January 1, 1999, you may include the taxable amount of the
distribution in your gross income ratably over a four year period
beginning with 1998.
3. WRITTEN ELECTION - At the time you make a proper rollover to a Roth IRA,
you must designate to the Custodian, in writing, your election to treat
that contribution as a rollover. Once made, the rollover election is
irrevocable.
4. NO ROLLOVERS FROM EMPLOYER PLANS - You may not roll over distributions
from your employer's qualified retirement plan or 403(b) arrangement
into your Roth IRA.
F. CARRYBACK CONTRIBUTIONS - A contribution is deemed to have been made on the
last day of the preceding taxable year if you make a contribution by the
deadline for filing your income tax return (not including extensions), and
you designate that contribution as a contribution for the preceding taxable
year. For example, if you are a calendar year taxpayer and you make your
Roth IRA contribution on or before April 15, your contribution is considered
to have been made for the previous tax year if you designate it as such.
LIMITATIONS AND RESTRICTIONS
A. SPOUSAL ROTH IRA - If you are married, you may make payments to a Roth IRA
established for the benefit of your spouse. You must file a joint tax return
for the year for which the contribution is made.
The amount you may contribute to your Roth IRA and your spouse's Roth IRA is
the lesser of $4,000 or 100 percent of your combined compensation. However,
you may not contribute more than $2,000 to any one Roth IRA. Your
contribution may be further limited if your AGI exceeds the levels discussed
in the section titled Maximum Contribution.
B. ESTATE TAX EXCLUSION - The $100,000 federal estate tax exclusion previously
available has been repealed for individuals dying after December 31, 1984.
No exclusion will be allowed for individuals dying after that date.
Transfers of your Roth IRA assets to a named beneficiary made during your
life and at your request or because of your failure to instruct otherwise,
may be subject to federal gift tax under IRC section 2501 if made after
October 22, 1986.
C. SPECIAL TAX TREATMENT - Capital gains treatment and the favorable five or
ten year forward averaging tax authorized by IRC section 402 do not apply to
Roth IRA distributions.
D. INCOME TAX TREATMENT - Any nonqualified withdrawal of earnings from your
Roth IRA, is subject to federal income tax withholding. You may, however,
elect not to have withholding apply to your Roth IRA withdrawal. If
withholding is applied to your withdrawal, not less than 10 percent of the
amount withdrawn must be withheld.
E. PROHIBITED TRANSACTIONS - If you or your beneficiary engage in a prohibited
transaction with your Roth IRA, as described in IRC section 4975, your Roth
IRA will lose its tax-exempt status and you must generally include the value
of the earnings in your account in your gross income for that taxable year.
F. PLEDGING - If you pledge any portion of your Roth IRA as collateral for a
loan, the amount so pledged will be treated as a distribution and may be
included in your gross income for that year to the extent it represents
earnings.
FEDERAL TAX PENALTIES
A. EARLY DISTRIBUTION PENALTY - If you are under age 59 1/2 and receive a
nonqualified Roth IRA distribution, an additional tax of 10 percent will
apply to the amount includible in income (i.e., the earnings), unless the
distribution is made on account of death, disability, a qualifying rollover,
a direct transfer, the timely withdrawal of an excess contribution; or if
the distribution is part of a series of substantially equal periodic
payments (at least annual payments) madeover your life expectancy or the
joint life expectancy of you and your beneficiary. Payments made to pay
medical expenses which exceed 7.5 percent of your adjusted gross income and
distributions to payfor health insurance by an individual who has separated
from employment and who has received unemployment compensation under a
federal or state program for at least 12 weeks are also exempt from the 10
percent tax. Payments to cover certain qualified education expenses and
distributions for first-home purchases (up to life-time maximum of $10,000)
are exempt from the 10 percent tax. This additional tax will apply only to
the portion of a distribution which is includible in your income.
B. EXCESS CONTRIBUTION PENALTY - An excise tax of 6 percent is imposed upon any
excess contribution you make to your Roth IRA. This tax will apply each year
in which an excess remains in your Roth IRA. An excess contribution is any
contribution amount which exceeds your contribution limit, excluding
rollover and direct transfer amounts. Your contribution limit is the lesser
of $2,000 or 100 percent of your compensation for the taxable year. Your
contribution may be further limited if your AGI exceeds the levels discussed
in the section titled Maximum Contribution.
C. EXCESS ACCUMULATION PENALTY - Unless your sole beneficiary is your surviving
spouse, your designated beneficiary(ies) is required to take certain minimum
distributions after your death. An additional tax of 50 percent is imposed
on the amount of the required minimum distribution which should have been
taken but was not. This tax is referred to as an excess accumulation penalty
tax.
D. PENALTY REPORTING - You must file Form 5329 with the Internal Revenue
Service to report and remit any penalties or excise taxes.
OTHER
A. IRS PLAN APPROVAL - The Agreement used to establish this Roth IRA has been
approved by the Internal Revenue Service. The Internal Revenue Service
approval is a determination only as to form. It is not an endorsement of the
plan in operation or of the investments offered.
B. FEES - The Custodian charges $5.00 when you establish your plan, $10.00 per
year for each account in your plan as a maintenance fee, and $5.00 when an
account is closed (including exchanges). The Custodian reserves the right to
increase these charges at any time upon 30 days' advance notice. Capital
Growth Management may partake in a portion of the annual maintenance fee.
The Custodian will send you a statement of account annually informing you of
the exact amount of the contributions, earnings, distributions, and year-end
value. The Custodian will also send a statement to the Internal Revenue
Service as required by law.
C. ADDITIONAL INFORMATION - You may obtain further information on Roth IRAs
from your District Office of the Internal Revenue Service. In particular,
you may wish to obtain IRS Publication 590, Individual Retirement
Arrangements (IRAs).
HOW TO PARTICIPATE
You may establish your own account simply by completing the Account
Application and mailing it to The CGM Funds with your first contribution. If
you need any assistance in completing the Account Application, please
telephone CGM at (800) 345-4048.
PLEASE NOTE: The foregoing is not a complete or definitive explanation of
the Plan or the provisions of applicable law. Please do not complete the
Account Application without reading the Plan and the Fund prospectus which
must always accompany the Plan. Consult your financial or tax advisor if you
are uncertain whether a CGM Funds IRA is an appropriate program for your
investment needs.
<PAGE>
PLAN DOCUMENT
THE CGM FUNDS ROTH INDIVIDUAL
RETIREMENT ACCOUNT (THE "PLAN")
The Depositor whose name appears on the Application is establishing a Roth
Individual Retirement Account under section 408A to provide for his or her
retirement and for the support of his or her beneficiaries after death.
The Custodian named on the Application has given the Depositor the disclosure
statement required under Regulations section 1.408-6.
The Depositor has assigned the Custodial account the sum indicated on the
Application.
The Depositor and the Custodian make the following agreement:
ARTICLE I
1. If this Roth IRA is not designated as a Roth Conversion IRA, then, except in
the case of a rollover contribution described in section 408A(e), the
Custodian will accept only cash contributions and only up to a maximum
amount of $2,000 for any tax year of the Depositor.
2. If this Roth IRA is designated as a Roth Conversion IRA, no contributions
other than IRA Conversion Contributions made during the same tax year will
be accepted.
ARTICLE II
The $2,000 limit described in Article I is gradually reduced to $0 between
certain levels of adjusted gross income (AGI). For a single depositor, the
$2,000 annual contribution is phased out between AGI of $95,000 and $110,000;
for a married depositor who files jointly, between AGI of $150,000 and
$160,000; and for a married depositor who files separately, between $0 and
$10,000. In the case of a conversion, the Custodian will not accept IRA
Conversion Contributions in a tax year if the Depositor's AGI for that tax
year exceeds $100,000 or if the Depositor is married and files a separate
return. Adjusted gross income is defined in section 408A(c)(3) and does not
include IRA Conversion Contributions.
ARTICLE III
The Depositor's interest in the balance in the Custodial account is
nonforfeitable.
ARTICLE IV
1. No part of the Custodial funds may be invested in life insurance contracts,
nor may the assets of the Custodial account be commingled with other
property except in a common trust fund or common investment fund (within the
meaning of section 408(a)(5)).
2. No part of the Custodial funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by section
408(m)(3), which provides an exception for certain gold, silver, and
platinum coins, coins issued under the laws of any state, and certain
bullion.
ARTICLE V
1. If the Depositor dies before his or her entire interest is distributed to
him or her and the Depositor's surviving spouse is not the sole beneficiary,
the entire remaining interest will, at the election of the Depositor or, if
the Depositor has not so elected, at the election of the beneficiary or
beneficiaries, either:
(a) Be distributed by December 31 of the year containing the fifth
anniversary of the Depositor's death, or
(b) Be distributed over the life expectancy of the designated beneficiary
starting no later than December 31 of the year following the year of the
Depositor's death.
If distributions do not begin by the date described in (b), distribution
method (a) will apply.
2. In the case of distribution method 1.(b) above, to determine the minimum
annual payment for each year, divide the Depositor's entire interest in the
Custodial account as of the close of business on December 31 of the
preceding year by the life expectancy of the designated beneficiary using
the attained age of the designated beneficiary as of the beneficiary's
birthday in the year distributions are required to commence and subtract 1
for each subsequent year.
3. If the Depositor's spouse is the sole beneficiary on the Depositor's date of
death, such spouse will then be treated as the Depositor.
ARTICLE VI
1. The Depositor agrees to provide the Custodian with information necessary for
the Custodian to prepare any reports required under sections 408(i) and
408A(d)(3)(E), Regulations sections 1.408-5 and 1.408-6, and under guidance
published by the Internal Revenue Service.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor as prescribed by the Internal Revenue Service.
ARTICLE VII
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through IV and this sentence will be controlling. Any
additional articles that are not consistent with section 408A, the related
regulations, and other published guidance will be invalid.
ARTICLE VIII
This agreement will be amended from time to time to comply with the provisions
of the Code, related regulations, and other published guidance. Other
amendments may be made with the consent of the persons whose signatures appear
below.
ARTICLE IX
1. PLEASE REFER TO THE CGM IRA APPLICATION WHICH IS INCORPORATED INTO THIS
AGREEMENT AS THIS PARAGRAPH OF ARTICLE VIII.
2. DEFINITIONS
The following definitions shall apply to terms used in this Article VIII:
(a) "Account" or "Custodial Account" means the custodial account established
hereunder for the benefit of the Depositor.
(b) "Agreement" means the CGM IRA Custodial Agreement, including the
information and provisions set forth in any Account Application that
goes with this Agreement. This Agreement, including the Account
Application and any designation of Beneficiary filed with the Custodian,
may be proved either by an original copy or by a reproduced copy
thereof, including, without limitation, a copy reproduced by
photocopying, facsimile transmission, or electronic imaging.
(c) "Application" or "Account Application" shall mean CGM IRA Account
Application by which this Agreement, as may be amended from time to
time, is established between the Depositor and the Custodian. The
statements contained therein shall be incorporated into this Agreement.
(d) "Beneficiary" means the person or persons (including without limitation
an individual, a trust, an estate, an association or a corporation)
designated as such by the Depositor on a signed form acceptable to and
filed with the Custodian pursuant to Article VIII, Section 5.(a) of this
Agreement.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Company" shall mean Capital Growth Management Limited Partnership
("CGM"), or any successor or affiliate thereof to which CGM may, from
time to time, delegate or assign any or all of its rights or
responsibilities under this Agreement.
(g) "Custodian" shall mean State Street Bank and Trust Company of Boston,
Massachusetts, or its successors, as specified in the Account
Application.
(h) "Depositor" means the person named in the Account Application.
(i) "Fund" shall mean any corporation, partnership, trust or other entity
registered under the Investment Company Act of 1940 for which CGM, or
its successors or affiliates, serves as investment adviser, and which
CGM designates in writing to the Custodian as an eligible investment
under this Custodial Agreement.
(j) "Fund Shares" or "Shares" shall mean shares of stock, trust
certificates, or other evidences of interest (including fractional
shares) in any Fund.
(k) "Money Market Shares" shall mean any Shares that are issued by a Fund
that is a money market mutual fund.
3. INVESTMENT OF CONTRIBUTIONS
(a) Investment Options. The Depositor has exclusive responsibility for and
control over the investment of the assets of his or her IRA.
Contributions to the Account may be invested only in Fund Shares. The
Depositor may direct the Custodian to invest assets in Shares of one or
more Funds in such percentage as the Depositor shall specify on the
Account Application or thereafter in writing to the Custodian from time
to time, provided that minimum investment amounts are met.
(b) Investment Instructions. Contributions will be invested in accordance
with the Depositor's written instructions on the Application, and with
subsequent instructions given by the Depositor (or, following the death
of the Depositor, his or her Beneficiary) to the Custodian in a manner
acceptable to the Custodian. By giving such instructions to the
Custodian, such persons will be deemed to have acknowledged receipt of
the then-current prospectus for any Fund in which the Depositor directs
the Custodian to invest assets in his or her Custodial Account. All
charges incidental to carrying out such instructions shall be charged
and collected in accordance with Article IX, Section 7. All Fund Shares
in the Custodial Account shall be held in the name of the Custodian for
the benefit of the Depositor.
(c) Investment Changes and Reinvestment. The Depositor may change any
portion of his or her investment in a Fund to another Fund by requesting
the change in the manner the Custodian requires, and subject to the
provisions of the then-current Fund prospectus.
Prior to the date the Depositor has participated in a Roth IRA for five
years and attains age 59 1/2, all income, dividends and capital gains
distributions from a Fund shall be reinvested in additional shares of
that Fund. On or after the date the Depositor has participated in a Roth
IRA for five years and attains age 59 1/2, becomes disabled or dies, he
or she may elect to receive all income dividends and/or capital gains
distributions from a Fund in cash.
(d) Investment Minimums. Each Fund may impose a minimum investment limit on
initial and subsequent investments. The Company reserves the right to
change those investment minimums at any time without prior notice. The
Custodian will invest all contributions promptly after their receipt, as
set forth in the prospectus of the Fund in which shares are being
purchased. The Custodian will mail a statement confirming each
investment to the Depositor at the address of record on the Custodial
Account.
(e) Unclear Investment Instructions. If the Custodian or the Company
receives instructions from the Depositor that are in their opinion not
clear, the Custodian or the Company may request additional instructions
from the Depositor (or the Depositor's Beneficiary, executor or
administrator). Pending receipt of such instructions, any cash assets
may be invested by the Custodian in Money Market Shares. Neither the
Custodian nor the Company shall be liable to anyone for any loss
resulting from the delay in investing such cash or in implementing such
instructions.
4. CONTRIBUTIONS
(a) Nature and Timing of Contributions. All contributions by the Depositor
to the Custodial Account must be in cash, except for initial
contributions of rollovers that may be made in the form of Fund shares
if permitted by the Company and the Custodian. The Custodian will
designate contributions (other than rollover contributions) as being
made for the current tax year unless the Depositor designates, in a
manner acceptable to the Custodian, that the contribution is being made
for the preceding taxable year. Contributions designated for the
preceding taxable year must be made by the deadline for filing the
Depositor's income tax return (not including extensions).
(b) Rollover Contributions. The Custodian will accept for the Custodial
Account all rollover contributions that consist of cash and may accept
Fund Shares if permitted by the Company. The Depositor shall designate
each rollover contribution as such to the Custodian, and by such
designation shall confirm to the Custodian that a proposed rollover
contribution qualifies as a rollover contribution within the meaning of
Section 408A(e) of the Code.
(c) Excess Contributions. If the Depositor exceeds the amount that may be
contributed to his or her Custodial Account for any year the Custodian
will, upon a proper written request from the Depositor, prior to his or
her tax filing deadline, return the excess and any attributable earnings
to the Depositor. If the request is received after the Depositor's
filing deadline, the Depositor may elect to have the contribution
treated as if it were made for a later year.
5. BENEFICIARY(IES)
A Depositor may designate a Beneficiary or Beneficiaries at any time,
and such designation may be changed or revoked at any time, by written
designation signed by the Depositor on a form acceptable to, and filed
with the Custodian; provided, however, that such designation, or change,
or revocation of a prior designation, shall not be effective unless it
is received and accepted by the Custodian no later than thirty (30) days
after the death of the Depositor, and provided further that the latest
such designation or change or revocation shall control. If at the time
of the Depositor's death there is no properly designated Beneficiary of
the Depositor in existence, the Depositor's Beneficiary shall be his or
her surviving spouse or, if none, his or her estate. Unless otherwise
specified in the Depositor's designation of Beneficiary, if a
Beneficiary dies before receiving his or her interest in the Custodial
Account, the Beneficiary's remaining interest in the Custodial Account
shall be paid to the Beneficiary's estate.
A Depositor may designate as Beneficiary of his or her Account a trust
for the benefit of his or her surviving spouse that is intended to
satisfy the conditions of Sections 2056(b)(7) or 2056A of the Code (a
"Spousal Trust"). In that event, if the Depositor is survived by his or
her spouse, the following provisions shall apply to the account: (1) all
of the income of the Account shall be paid to the spousal trust annually
or at more frequent intervals, and (2) no person shall have the power to
appoint any part of the account to any person other than the spousal
trust. To the extent permitted by Section 401(a)(9) of the Code, as
determined by the trustee(s) of the spousal trust, the surviving spouse
of a Depositor who has designated a spousal trust as his or her
beneficiary may be treated as his or her "designated beneficiary" for
purposes of the distribution requirements of that Code section. The
Custodian shall have no responsibility to determine whether such
treatment is appropriate.
6. DISTRIBUTIONS
(a) Form of Distribution. All requests for distribution shall be in writing
on a form provided by or acceptable to the Custodian. The method of
distribution must be specified in writing. The tax identification number
must be provided to the Custodian and certified appropriately before a
distribution will be made. The Depositor is responsible for making the
distribution requests to the Custodian sufficiently in advance of the
date on which any requested or required distribution is to be made to
ensure that the distribution will be made on or before that date.
The Depositor must provide to the Custodian any application,
certificates, tax waivers, signature guarantees, and other documents
(including proof of legal representative's authority) that the Custodian
requires. The Custodian will not be liable for complying with a
distribution request that appears on its face to be genuine, nor will
the Custodian be liable for refusing to comply with a distribution
request that the Custodian is not satisfied is genuine.
If a distribution request is not made in the correct form, the Custodian
is not responsible and will not be liable to the Depositor for any
losses while the Custodian awaits the distribution request to be made in
the proper form. The Depositor also agrees to fully indemnify the
Custodian for any losses that may result from the Custodian's failing to
act upon an improperly made distribution request.
The Custodian is not obligated to make any distribution, including a
required minimum distribution as specified in Article IV above, absent a
specific written direction from the Depositor (or the Depositor's,
Beneficiary, executor, or administrator) to do so.
Any distributions shall be subject to all applicable tax and other laws
and regulations including possible early withdrawal penalties and
withholding requirements.
The Custodian is empowered to make distribution absent instructions from
the Depositor if directed to do so pursuant to a court order of any kind
and the Custodian shall in such event incur no liability to anyone for
acting in accordance with such court order.
(b) Distribution Upon Death. If the Depositor dies before receiving all of
the proceeds in his or her IRA, payments will be made to the designated
Beneficiary(ies). If the sole beneficiary is the spouse of the
Depositor, the Roth IRA will be treated as that of the spouse. If a
Beneficiary payment election described in Article V, Section 1 of this
Agreement is not made by December 31 of the year after the year of death
the following rules will apply. If the Beneficiaries are or include
anyone other than the Depositor's spouse, the payment method described
in Article V, Section 1(a) will be deemed elected (i.e. the 5-year
rule).
(c) Distributions to a Minor. If a distribution is payable to a person known
by the Custodian to be a minor or otherwise under a legal disability,
the Custodian may, in its absolute discretion, make all or any part of
the distribution to (a) a parent of such person, (b) the guardian,
committee, or other legal representative, whenever appointed, of such
person, (c) a custodial account established under a Uniform Gifts to
Minors Act, Uniform Transfers to Minors Act or similar act, (d) any
person having control or custody of such person, or (e) to such person
directly. The Depositor (or the Depositor's Beneficiary, executor or
administrator) may direct the Custodian to make any distributions from
the Custodial Account directly to any person, corporation or other
entity, including, but not limited to, the fiduciary of a retirement
plan account maintained on behalf of the Depositor.
(d) Asset Transfers to Spouse Upon Divorce. All or any portion of the
Depositor's interest in the Custodial Account may be transferred to a
spouse or former spouse pursuant to a decree of divorce or separate
maintenance or a written instrument incident to such a decree as
provided in Section 408 of the Code, in which event the transferred
portion shall be held as a separate IRA for the benefit of such spouse
or former spouse.
(e) Transferring Assets to and from the Account. The Custodian will accept
amounts transferred or rolled over to this Roth IRA from the trustee or
custodian of another Roth IRA as permitted by statute or applicable
regulations.
However, if this Custodial account is designated as a Roth Conversion
IRA, no contributions other than IRA Conversion Contributions made
during the same tax year will be accepted. The Custodian will not be
responsible for any losses the Depositor may incur as a result of the
timing of any transfer from another trustee or custodian that are due to
circumstances reasonably beyond the control of the Custodian.
Assets held on behalf of the Depositor in the Account may be transferred
directly to the trustee or custodian of another Roth IRA established for
the Depositor, if so directed by the Depositor in a form and manner
acceptable to the Custodian. The Custodian will assume no responsibility
for the tax consequences of any transfer.
7. THE CUSTODIAN
(a) Instructions and Notices. All written notices or communication required
to be given by the Custodian to the Depositor shall be deemed to have
been given when sent by mail to the last known address of the Depositor
in the records of the Custodian. It is the responsibility of the
Depositor to notify the Custodian of any changes in address. All written
instructions, notices, or communications required to be given by the
Depositor to the Custodian shall be mailed or delivered to the Custodian
at the mailing address specified in the Prospectus, and no such
instruction, notice, or communication shall be effective until the
Custodian's actual receipt thereof.
The Custodian, may at its discretion, when so permitted by the Fund
prospectus, accept telephonic instructions, as if they were written
instructions. Any such telephonic instruction may be proved by audio
recorded tape.
(b) Reliance. The Custodian may conclusively rely upon and will be protected
from acting on any written order from or authorized by the Depositor, or
any other notice, request, consent, certificate or other instrument,
paper, or other communication that the Custodian believes to be genuine
and issued in proper form with proper authority, as long as the
Custodian acts in good faith in taking or omitting to take any action in
reliance upon the communication. Neither the Custodian nor the Company
shall have any duty to question the directions of a Depositor (or the
Depositor's Beneficiary, executor or administrator) in the investment,
transfer or distribution of his or her Custodial Account or to advise
him or her regarding the purchase, retention, or sale of assets credited
to the Custodial Account or regarding distributions from the Account.
Neither the Custodian nor the Company shall be liable for any loss that
results from the Depositor's (or the Depositor's Beneficiary, executor,
or administrator) exercise of control (whether by his or her action or
inaction) over the Custodial Account.
(c) Reports; Tax Withholding. As soon as practicable after the close of each
taxable year, and whenever required by the Code, the Custodian shall
deliver to the Depositor a written record reflecting receipts,
distributions and other transactions effected in the Custodial Account
during such period and the fair market value of the assets and
liabilities of the Custodial Account as of the close of such period.
Unless the Depositor sends the Custodian written objection to a report
within sixty (60) days of receipt, the Depositor shall be deemed to have
approved such report, and the Custodian and the Company shall be forever
released and discharged from all liability and accountability to anyone
with respect to their acts, transactions, duties and obligations or
responsibilities as shown on, or reflected by, such report.
The Custodian may reduce the amount of any distribution by the amount
of any required tax withholding unless specified otherwise.
(d) Exclusive Benefit. At no time shall it be possible for any part of the
assets of the Custodial Account to be used for, or diverted to, purposes
other than for the exclusive benefit of the Depositor or the Depositor's
beneficiaries except as specifically provided in this Agreement.
(e) Account Fees and Expenses. The Custodian is entitled to receive the fees
for establishing and maintaining the Custodial Account set forth in the
Disclosure Statement. The Custodian may change its fee schedule from
time to time upon thirty (30) days' advance written notice to the
Depositor. The Custodian has the right to charge the Custodial Account,
including the right to liquidate Fund Shares or to charge the Depositor,
for the Custodian's fees, as well as for any income, gift, estate, and
inheritance taxes (including any transfer taxes incurred in connection
with the Custodial Account assets, and for all other administrative
expenses of the Custodian for performing its duties, including any fees
for legal services provided to the Custodian.
(f) Voting with Respect to Securities (Mailing of Prospectuses, Proxies,
etc.). The Custodian shall mail to the Depositor all prospectuses and
proxies that may come into the Custodian's possession by reason of its
holding Fund Shares in the Custodial Account. A Depositor may direct the
Custodian as to the manner in which any Fund Shares held in the
Custodial Account shall be voted with respect to any matters as to which
the Custodian as holder of record is entitled to vote, coming before any
meeting of shareholders of the Fund that issued such Fund Shares. All
such directions shall be in writing on a form approved by the Custodian
and signed by the Depositor, and delivered to the Custodian within the
time prescribed by it. The Custodian shall vote only those Shares with
respect to which it has received timely written directions from the
Depositor; provided, however, that the Custodian may without such
direction vote shares "present" to the extent that such a vote is needed
to establish a quorum.
(g) Limitations on Custodial Liability and Indemnification. The Depositor
and the Custodian intend that the Custodian shall have and exercise no
discretion, authority, or responsibility as to any investment in
connection with the Custodial Account and the Custodian shall not be
responsible in any way for the purpose, propriety, or tax treatment of
any contribution, or of any distribution, or any other action or
nonaction taken pursuant to the Depositor's direction or that of the
Depositor's Beneficiary, executor, or administrator. The Depositor who
directs the investment of his or her Account shall bear sole
responsibility for the suitability of any directed investment and for
any adverse consequences arising from such an investment, including,
without limitation, the inability of the Custodian to value or to sell
an illiquid investment, or the generation of unrelated business taxable
income with respect to an investment. To the fullest extent permitted by
law, the Depositor (or the Depositor's Beneficiary, executor, or
administrator, as appropriate) shall at all times fully indemnify and
save harmless the Custodian, the Company and their agents, affiliates,
successors, assigns and their officers, directors, and employees, from
any and all liability arising from the Depositor's investment direction
under this Custodial Account and from any other liability whatsoever
that may arise in connection with this Agreement except liability
arising under applicable law or liability arising from gross negligence
or willful misconduct on the part of the indemnified person. Although
the Custodian shall have no responsibility to give effect to a direction
from anyone other than the Depositor (or the Depositor's Beneficiary,
executor, or administrator), the Custodian may, in its discretion,
establish procedures pursuant to which the Depositor may delegate to a
third party any or all of the Depositor's powers and duties hereunder;
provided, however, that in no event may anyone other than the
Depositor's executor execute the application by which this Agreement is
adopted or the form by which the Beneficiary is appointed, and provided,
further, that any such third party to whom the Depositor has so
delegated powers and duties shall be treated as the Depositor for
purposes of applying the preceding sentences of this paragraph and
provisions of Article VIII, Section 3(a).
(h) Resignation or Removal of Custodian. The Company may remove the
Custodian at any time, and the Custodian may resign at any time, upon
thirty (30) days' written notice to the Depositor. Upon the removal or
resignation of the Custodian, the Company may, but shall not be required
to, appoint a successor custodian under this Custodial Agreement;
provided that any successor custodian shall satisfy the requirements of
Section 408(a)(2) of the Code. Upon any such successor's acceptance of
appointment, the Custodian shall transfer the assets of the Custodial
Account, together with the copies of relevant books and records, to such
successor custodian; provided, however, that the Custodian is authorized
to reserve such sum of money or property as it may deem advisable for
payment of any liabilities constituting a charge on or against the
assets of the Custodial Account, or on or against the Custodian or the
Company. The Custodian shall not be liable for the acts or omissions of
any successor to it. If no successor is appointed by the Company, the
Custodial Account shall be terminated and the assets of the Account,
reduced by the amount of any unpaid fees or expenses, will be
distributed to the Depositor.
8. AMENDMENT AND TERMINATION
(a) Amendment. The Depositor and Custodian authorize and direct the Company
to amend this Agreement in any respect at any time (including
retroactively), so that it may conform with applicable provisions of the
Internal Revenue Code, or with any other applicable law as in effect
from time to time. Any amendment made by the Company to comply with the
Code and related regulations does not require the consent of the
Depositor. Such other changes to this Agreement may be made as the
Company deems advisable. Any such amendment shall be effected by
delivery to the Custodian and mailing a copy of such amendment or a
restatement of the Custodial Agreement including any such amendment to
the Depositor at his or her last known address as shown in the records
of the Custodian. The Depositor shall be deemed to consent to any such
amendment(s) if he or she fails to object thereto by written notice
received by the Custodian within thirty (30) calendar days from the date
the Company mails a copy of such amendment(s) or restatement to the
Depositor.
(b) Termination. The Depositor may terminate the Custodial Account at any
time upon notice to the Custodian in a manner and form acceptable to the
Custodian. Upon such termination, the Custodian shall transfer the
assets of the Custodial Account, reduced by the amount of any unpaid
fees or expenses, to the custodian or trustee of another Roth individual
retirement account (within the meaning of Section 408 of the Code)
designated by the Depositor, as described in Article IX, Section 6(e).
The Custodian shall not be liable for losses arising from the acts,
omissions, delays or other inaction of any such transferee custodian or
trustee. If notice of the Depositor's intention to terminate the
Custodial Account is received by the Custodian and the Depositor had not
designated a transferee custodian or trustee for the assets in the
Account, then the Account, reduced by any unpaid fees or expenses, will
be distributed to the Depositor.
9. MISCELLANEOUS
(a) Governing Law. This Agreement, and the duties and obligations of the
Company and the Custodian under the Agreement, shall be construed,
administered and enforced according to the laws of the Commonwealth of
Massachusetts, except as superseded by federal law or statute.
(b) When Effective. This Agreement shall not become effective until
acceptance of the Application by or on behalf of the Custodian as its
principal office, as evidenced by a written notice to the Depositor.
INSTRUCTIONS
(Section references are to the Internal Revenue Code unless otherwise noted.)
PURPOSE OF FORM
Form 5305-RA is a model Custodial account agreement that meets the
requirements of section 408A and has been automatically approved by the IRS. A
Roth individual retirement account (Roth IRA) is established after the form is
fully executed by both the individual (Depositor) and the Custodian. This
account must be created in the United States for the exclusive benefit of the
Depositor or his or her beneficiaries.
Do not file Form 5305-RA with the IRS. Instead, keep it for your records.
Unlike contributions to Traditional individual retirement arrangements,
contributions to a Roth IRA are not deductible from the Depositor's gross
income; and distributions after 5 years that are made when the Depositor is 59
1/2 years of age or older or on account of death, disability, or the purchase
of a home by a first-time homebuyer (limited to $10,000), are not includible
in gross income. For more information on Roth IRAs, including the required
disclosure the Depositor can get from the Custodian, get PUB. 590, Individual
Retirement Arrangements (IRAs).
This Roth IRA can be used by a Depositor to hold: (1) IRA Conversion
Contributions, amounts rolled over or transferred from another Roth IRA, and
annual cash contributions of up to $2,000 from the Depositor; or (2) if
designated as a Roth Conversion IRA (by checking the box on the Application),
only IRA Conversion Contributions for the same tax year.
To simplify the identification of funds distributed from Roth IRAs, Depositors
are encouraged to maintain IRA Conversion Contributions for each tax year in a
separate Roth IRA.
DEFINITIONS
Roth Conversion IRA: A Roth Conversion IRA is a Roth IRA that accepts only IRA
Conversion Contributions made during the same tax year.
IRA Conversion Contributions. IRA Conversion Contributions are amounts rolled
over, transferred, or considered transferred from a nonRoth IRA to a Roth IRA.
A nonRoth IRA is an individual retirement account or annuity described in
section 408(a) or 408(b), other than a Roth IRA.
Custodian: The Custodian must be a bank or savings and loan association, as
defined in section 408(n), or any person who has the approval of the IRS to
act as Custodian.
Depositor: The Depositor is the person who establishes the Custodial account.
SPECIFIC INSTRUCTIONS
Article I: The Depositor may be subject to a 6-percent tax on excess
contributions if (1) contributions to other individual retirement arrangements
of the Depositor have been made for the same tax year, (2) the Depositor's
adjusted gross income exceeds the applicable limits in Article II for the tax
year, or (3) the Depositor's and spouse's compensation does not exceed the
amount contributed for them for the tax year. The Depositor should see the
Disclosure Statement or Pub. 590 for more information.
Article IX: Article IX and any that follow it may incorporate additional
provisions that are agreed to by the Depositor and Custodian to complete the
agreement. They may include, for example, definitions, investment powers,
voting rights, exculpatory provisions, amendment and termination, removal of
the Custodian, Custodian's fees, state law requirements, beginning date of
distributions, accepting only cash, treatment of excess contributions,
prohibited transactions with the Depositor, etc. Use additional pages if
necessary and attach them to this form.
NOTE: Form 5305-RA may be reproduced and reduced in size for adaption to
passbook purposes.
<PAGE>
THE CGM FUNDS o P.O. BOX 449 o BOSTON, MA 02117 o 800-345-4048
<PAGE>
- --------------------------------------------------------------------------------
HOW TO ESTABLISH A CGM ROTH IRA
- --------------------------------------------------------------------------------
A separate application must be completed for Traditional IRAs,
Roth Contributory IRAs and Roth Conversion IRAs. You may use
photocopies if you need additional forms.
TO SET UP A CGM ROTH CONTRIBUTORY IRA . . .
(For individuals who want to make annual contributions up to $2,000 to a CGM
Roth IRA.)
|X| Please complete and sign the IRA Account Application. In Section 2 of
the IRA Account Application please be sure to check the Roth
Contributory IRA box and the Annual Contribution box. Also, in
Section 3 of the IRA Account Application you need to indicate the
investment amount next to each fund you want to invest in.
|X| Please enclose your check for the total investment amount and an
additional $5.00 for the establishment fee. Make your check payable
to State Street Bank and Trust Company. No third party checks (checks
endorsed over to CGM from an individual or institution) will be
accepted.
|X| Please mail the IRA Account Application and check in the enclosed
envelope to CGM.
TO SET UP A CGM ROTH CONVERSION IRA . . .
(For individuals who want to convert an existing Traditional IRA [either from
an existing CGM IRA or a non-CGM IRA] to a CGM Roth IRA.)
|X| Please complete and sign the IRA Account Application. In Section 2 of
the IRA Account Application, please be sure to check the Roth
Conversion IRA box and the Conversion from Traditional IRA to Roth
IRA box. Also, in Section 3 of the IRA Account Application you need
to indicate the investment amount next to each fund you want to
invest in.
|X| Please complete and sign the Roth IRA Conversion Form.
|X| Please make a check payable to:
|_| FOR INDIVIDUALS CONVERTING FROM AN EXISTING CGM IRA. Please
enclose your check for $5.00 for the establishment fee payable to
State Street Bank and Trust Company.
|_| FOR INDIVIDUALS CONVERTING FROM A NON-CGM IRA. If you received
the proceeds from a Traditional IRA, please enclose your check
for the total proceeds and an additional $5.00 for the
establishment fee. Make your check payable to State Street Bank
and Trust Company. If your current IRA Custodian is sending the
proceeds directly to us (for the distribution of your Traditional
IRA to your CGM Roth Conversion IRA), please enclose a $5.00
check payable to State Street Bank and Trust Company to cover the
establishment fee.
Please Note: No third party checks (checks endorsed over to CGM from
an individual or institution) will be accepted.
|X| Please mail the IRA Account Application, Roth IRA Conversion Form,
and check in the enclosed envelope to: CGM Funds, P.O. Box 449,
Boston, MA 02117-0449.
PLEASE CALL US WITH ANY QUESTIONS AT 800-345-4048
IRACHECK 2/98
<PAGE>
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CGM ROTH IRA CONVERSION FORM
- --------------------------------------------------------------------------------
Please complete Sections 1 and 4. Also, fill in Section 2, 3, or 5 as
applicable. Refer to the reverse side for complete instructions. You
should submit a CGM IRA Account Application with this form. A
separate plan must be established for Roth Contributory and Roth
Conversion assets.
1. YOUR NAME AND ADDRESS
- --------------------------------------- [ ] [ ] [ ] - [ ] [ ] - [ ] [ ] [ ] [ ]
Name of Participant Social Security Number
- ---------------------------------------
Address
- --------------------------------------- (---) -----------------------
City State Zip Code Daytime Phone Number
2. CONVERTING YOUR CGM TRADITIONAL IRA TO A CGM ROTH IRA
|_| Please complete the enclosed CGM IRA Account Application and provide us with
the following information:
Existing CGM Traditional IRA Fund(s) Amount to be Converted
and Account Number(s) (if all indicate "all")
- --------------------------------------- $ ------------------------------------
- --------------------------------------- $ ------------------------------------
|_| Please enclose check for $5.00 payable to State Street Bank and Trust
Company to cover the establishment fee.
I authorize you to convert my CGM Traditional IRA assets in the accounts listed
above to a CGM Roth IRA. I have indicated how I want you
to invest those assets in Section 3 of the CGM IRA Account Application. I
understand that this conversion constitutes a rollover and is a taxable event.
3. CONVERTING YOUR TRADITIONAL IRA WITH ANOTHER FIRM TO A CGM ROTH IRA
|_| Please complete the enclosed IRA Account Application.
|_| If you received the proceeds from the distribution of your Traditional IRA,
enclose your check for the conversion proceeds and include a $5.00
establishment fee. Make your check payable to State Street Bank and Trust
Company. No third party checks can be accepted.
|_| If you want the Custodian of your current Traditional IRA to rollover the
proceeds directly to CGM, enclose a check for $5.00 payable to State Street
Bank and Trust Company, and complete Section 5 on the reverse side of this
form.
I certify that I received the enclosed distribution proceeds within the past 60
days and that the assets were previously invested in a Traditional IRA. I have
indicated how I want you to invest those assets in Section 3 of the CGM IRA
Account Application. If I am or will reach age 701/2 in this calendar year, I
certify that the Required Minimum Distribution was taken prior to the
distribution of the assets. I understand that this conversion constitutes a
rollover and is a taxable event.
4. SIGNATURE
I have read and understand the rules and conditions indicated on this form and I
have met the requirements for making a Roth conversion. Due to the important tax
consequences of converting assets to a Roth IRA, I have been advised to see a
tax professional. All information provided by me is true and correct, and may be
relied upon by the Custodian. I assume responsibility for this conversion
transaction and will not hold the Custodian liable for any adverse consequences
that may result. I hereby irrevocably designate the contribution indicated above
as a conversion contribution.
X
- ------------------------------------------ ----------------------------------
Signature Date
PLEASE REVIEW THE RULES AND CONDITIONS ON THE REVERSE SIDE.
5. CONVERTING THE ASSETS OF YOUR TRADITIONAL IRA DIRECTLY TO CGM
To convert your Traditional IRA to a Roth IRA and have the proceeds sent
directly to CGM, please call your current Custodian's transfer department and
verify the correct address and any requirements, such as a signature guarantee.
If you are 70 1/2 or older please refer to Section 6.
- ------------------------------------------ (---) ----------------------------
Name of Current Custodian Custodian's Phone Number
- ------------------------------------------ ----------------------------------
Address IRA Account Number (With Current
Custodian)
- ------------------------------------------ ----------------------------------
City State Zip Code
|_| Please accept this as your [ ] Transfer All OR [ ] Transfer $ or
authorization to: % ------ to a CGM IRA.
|_| The rollover should be [ ] Immediately OR [ ] Upon Maturity of
processed: My Assets
- --------------------------------------------------------------------------------
I request that the above named Signature Guarantee (If Required
Custodian liquidate and rollover my by Current Custodian)
plan assets as cash to State Street
Bank and Trust Company, Custodian Name of Firm: ---------------------
of my CGM Roth Conversion IRA.
X
- ---------------------------------- BY: -------------------------------
YOUR SIGNATURE DATE Authorized Individual
- --------------------------------------------------------------------------------
CUSTODIAN: MAKE CHECK PAYABLE TO:
STATE STREET BANK AND TRUST COMPANY, C/O CGM FUNDS,
P.O. BOX 8511, BOSTON, MA 02266-8511
(Please include the Participant's name and Social Security Number
on your check.)
- --------------------------------------------------------------------------------
ACCEPTANCE BY CUSTODIAN: State Street Bank and Trust Company accepts the assets
being rolled over and agrees to serve as the Custodian of the Roth IRA
Conversion Account established on behalf of the above named individual.
/s/ Illegible
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE, STATE STREET BANK AND TRUST COMPANY DATE
6. RULES AND CONDITIONS APPLICABLE TO CONVERSIONS
A rollover is a way to move money from one IRA plan to another IRA plan. If you
are converting your Traditional IRA to a Roth IRA, the distribution is treated
as a rollover. The Internal Revenue Code (IRC) limits how many rollovers may be
taken (although such annual limits do not apply to conversions), how quickly
rollovers must be completed, and how the Custodian must report the transaction.
By properly completing this form you are certifying to the Custodian that you
have satisfied the rules and conditions applicable to your conversion and that
you are making an irrevocable election to treat the transaction as a rollover.
1. TIMELINESS: The assets you receive from the distributing Traditional IRA
must generally be deposited into a Roth IRA within 60 days after you
receive them. However, this period is 120 days for certain rollovers
relating to first-home purchases. When counting the 60 (or 120) days
include weekends and holidays. There are generally no exceptions to the 60
day rule and the IRS cannot grant extensions. Receipt generally means the
day you actually have the assets in hand. For example, the 60 days would
begin on the day following the day you receive the check in the mail.
2. 70 1/2 ROLLOVER RESTRICTION: If this Roth IRA Conversion is made during or
after the year in which you turn age 701/2, you must take a Required
Minimum Distribution (RMD) based on your life expectancy or the life
expectancy of you and your beneficiary before you convert your IRA account.
It is your responsibility to ensure that you are taking the appropriate
RMD. Failure to do so may result in a penalty tax of 50% of the amount not
taken. Please call your current IRA Custodian if you have any questions
about RMDs.
3. INCOME RESTRICTION: If your adjusted gross income for a year exceeds
$100,000, you are not eligible to convert your Traditional IRA to a Roth
IRA during such year. RMDs are included in the adjusted gross income
restrictions.
4. TAX RETURN RESTRICTION: If you are married and you and your spouse file
separate tax returns for a year, you are not eligible to convert your
Traditional IRA to a Roth IRA during such year.
CAUTION ABOUT COMMINGLING ASSETS: YOU MAY NOT ROLL THE ASSETS INTO AN
EXISTING ROTH CONVERSION IRA WHICH CONTAINS CONVERSION CONTRIBUTIONS MADE
DURING ANOTHER CALENDAR YEAR, OR TO AN EXISTING ROTH CONTRIBUTORY IRA.
Questions? Call 800-345-4048.
IRACONVERT 2/98
<PAGE>
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CGM 403(B)(7) TAX-SHELTERED CUSTODIAL ACCOUNT AGREEMENT
- --------------------------------------------------------------------------------
This Agreement allows you to establish a tax-sheltered custodial account
authorized under Section 403(b)(7) of the Internal Revenue Code. By electing to
reduce your compensation and have your Employer contribute into your
tax-sheltered custodial Account, you will not be taxed on the amounts
contributed or earnings attributable to such amounts until the funds are
withdrawn from your Account.
SECTION ONE: DEFINITIONS
The following words and phrases when used in this Agreement with initial capital
letters shall have the meanings set forth below.
1.01 ACCOUNT - Means the tax-sheltered custodial Account established pursuant
to this Agreement for the benefit of the Participant and when the context
so implies refers to the assets, if any, then held by the Custodian
hereunder.
1.02 AGREEMENT - Means this 403(b)(7) Tax-Sheltered Custodial Account
Agreement.
1.03 BENEFICIARY - Means the person or persons designated by the Participant in
accordance with Section 4.04 to receive any distributions from the Account
upon the Participant's death.
1.04 CODE - Means the Internal Revenue Code of 1986, as amended from time to
time.
1.05 CUSTODIAN - Means State Street Bank and Trust Company or any successor
thereto which qualifies to serve as Custodian in the manner prescribed by
Section 401(f)(2) of the Code.
1.06 EMPLOYER - Means the entity so designated on this Agreement. The Employer
must be an entity described in Section 501(c)(3) of the Code which is
exempt from tax under Section 501(a) of the Code, an educational
organization described in Section 170(b)(1)(A)(ii) of the Code or any
other entity eligible under Section 403(b) of the Code to make
contributions to tax-sheltered custodial accounts.
1.07 PARTICIPANT - Means any person who is regularly employed by the Employer
who elects to participate in this Agreement by completing and signing a
Salary Deferral Agreement or such other form as may be acceptable to the
Employer.
1.08 SALARY DEFERRAL AGREEMENT - Means the Salary Reduction Agreement signed by
the Employee and delivered to the Employer whereby the Employee authorizes
a reduction of salary to be contributed by the Employer to the Employee's
Account established hereunder.
1.09 SPONSOR - Means Capital Growth Management Limited Partnership.
SECTION TWO: CONTRIBUTIONS
2.01 SALARY DEFERRAL AGREEMENT - The Custodian may accept contributions from
the Employer on behalf of a Participant made pursuant to a Salary Deferral
Agreement. A Participant shall designate the amount or percentage of such
Participant's compensation which is to be deferred in the Salary Deferral
Agreement. Such amount or percentage shall be effective until otherwise
modified in writing by the Participant. A Participant may amend or
terminate his or her Salary Deferral Agreement at such times as may be
permitted by the Employer, however, the Participant may not change his or
her election more than once per tax year unless permitted by the Employer
in a uniform and nondiscriminatory manner.
2.02 MAXIMUM CONTRIBUTION LIMITS - In no event shall the contributions to the
Account for a tax year on behalf of a Participant exceed the maximum
allowable deferrals permitted under current law or regulation.
a. The maximum salary deferral made during a tax year on behalf of a
Participant, when aggregated with other salary deferral amounts made
through the Employer (or controlled group of Employers under IRC
414(b), (c), (m) or (o)), shall not exceed the lesser of the maximum
permitted amount for a Participant under Sections 403(b)(2) and 415(c)
of the Code for that year.
b. The maximum of all salary deferrals made during the Participant's tax
year shall not exceed the limitations set forth in Section 402(g) of
the Code.
c. The maximum salary deferrals may be based on a valid election by the
Participant to use available special increase options.
2.03 TRANSFER TO CUSTODIAL ACCOUNT - The Participant may transfer (or arrange
for the transfer of) assets from another annuity contract or custodial
account described in Section 403(b) of the Code to this Account. The
transfer shall be accepted by the Custodian if the Participant certifies
the transaction satisfies all current requirements for such a transaction.
The Custodian may request the Participant to provide such information it
deems necessary prior to accepting the transfer. The Custodian shall not
be responsible for determining whether any transfer is proper.
SECTION THREE: INVESTMENT OF CONTRIBUTIONS
3.01 SHARES OF REGULATED INVESTMENT COMPANIES - All Contributions by a
Participant to his or her Account shall be invested by the Custodian
pursuant to written instructions concerning investment delivered by the
Participant to the Custodian prior to or at the time a contribution is
made to the Account. The Custodian shall, within a reasonable time
following receipt of written instructions from the Participant, invest
such contributions in full or fractional shares of certain regulated
investment companies.
403(b)(7) CUST. AGMT.-5/97
<PAGE>
For purposes of this Agreement, "regulated investment companies" means any
of the following: CGM Mutual Fund, CGM Capital Development Fund (if the
Participant is an eligible investor), CGM Fixed Income Fund, CGM Realty
Fund, New England Cash Management Trust and/or any other taxable funds
sponsored by Capital Growth Management.
If the investment instructions provided by the Participant to the
Custodian are not received by the Custodian or are, in the opinion of the
Custodian, ambiguous, the Custodian may hold or return all or a portion of
the contribution uninvested without liability for loss of income or
appreciation, without liability for interest, dividends or any other gain
whatsoever, pending receipt of proper instructions or clarification. The
Custodian shall advise the Participant of the form and manner in which
investment instructions must be given.
3.02 PARTICIPANT CHANGE OF INVESTMENT - Subject to rules and procedures adopted
by the Custodian, a Participant may, at his or her election, direct the
Custodian to redeem any or all regulated investment company shares held by
the Custodian pursuant to this Agreement and to reinvest the proceeds in
such other regulated investment company shares as directed. Transactions
of this character must conform with the provisions of the current
prospectus for the regulated investment company shares subject to
purchase.
3.03 DIVIDENDS AND DISTRIBUTIONS - Dividends and other distributions received
by the Custodian on shares of any regulated investment company held in the
Account shall be reinvested in additional shares of the regulated
investment company from which the dividend or other distribution
originates, unless the Participant directs the Custodian to act otherwise.
A Participant, upon attaining the age of 591/2, may elect to receive
dividend and capital gains distributions in cash.
Should a Participant have the choice of receiving a distribution of shares
from a regulated investment company in additional shares, cash or other
property, the Custodian shall nonetheless elect to receive such
distribution in additional shares.
3.04 REGISTERED OWNER AND VOTING RIGHTS - All regulated investment company
shares acquired by the Custodian pursuant to this Agreement shall be
registered in the name of the Custodian or its nominee. The Custodian
shall deliver or cause to be executed and delivered to the Participant all
notices, prospectuses, financial statements, proxies and related proxy
information. The Custodian shall vote the shares in accordance with
instructions from the Participant.
SECTION FOUR: DISTRIBUTIONS
4.01 LIMITATIONS ON DISTRIBUTIONS - Subject to the limitations described in
this Agreement, a Participant may request a distribution from the Account.
A Participant's Account may not be distributed prior to the Participant's
a. attainment of age 59 1/2,
b. incurring a disability within the meaning of Section 72(m)(7) of the
Code,
c. death,
d. encountering a financial hardship, or
e. separation from service.
No distribution shall be made to a Participant or Beneficiary (if
applicable) until he or she completes such written forms and provides such
additional information and documentation as the Custodian, in its sole
discretion, may deem necessary.
If the value of the Account immediately preceding the 1989 Plan Year is
ascertainable, such pre-1989 amounts are not subject to the limitations of
Section 4.01.
4.02 FINANCIAL HARDSHIP - For purposes of this Agreement, "financial hardship"
shall include a financial need incurred by the Participant due to illness,
temporary disability, purchase of a home, or educational expenses of the
Participant or any member of his or her immediate family, or any other
immediate and heavy financial need of the Participant; provided, however,
no financial hardship shall exceed or otherwise not conform to the
requirements of Section 403(b)(7) of the Code. No distributions on account
of financial hardship shall exceed the amount determined to be required to
meet the immediate financial need created by the hardship which cannot be
otherwise reasonably accommodated from other resources of the Participant.
Any distribution made on account of a Participant's financial hardship
shall be made to such Participant in a single sum payment in cash pursuant
to written instructions in a form acceptable to the Custodian, and
delivered to the Custodian as may be provided in Section 403(b)(7) of the
Code.
Hardship distributions may consist only of the amounts contributed
pursuant to a Participant's Salary Deferral Agreement.
4.03 FORM OF DISTRIBUTION - Distributions for other than a financial hardship
shall be made in any one or more or any combination of the following
forms:
a. single lump sum payment;
b. monthly, quarterly, semiannual or annual payments over a period
elected by the Participant not to extend beyond the Participant's life
expectancy; or
c. in monthly, quarterly, semiannual or annual payments over a period
selected by the Participant not to exceed the joint life and last
survivor expectancy of the Participant and his or her Beneficiary. At
any time prior to commencement of distribution, the Participant may
make or change the foregoing distribution forms by delivering a
written notice to the Custodian.
Notwithstanding any other provision to the contrary, the Custodian may
make an immediate single sum distribution to the Participant or
Beneficiary (if applicable) if the value of the Account does not
exceed $3,500.
At the discretion of the Custodian, other forms of distribution, if
allowed under applicable provisions of the Code, may be allowed.
In the event a Participant does not elect any of the methods of
distribution described above on or before such Participant's 701/2
birthday, or, for years beginning after December 31, 1996, the
Participant's retirement, if later, the Participant shall be deemed to
have elected distribution made on his or her 701/2 birthday in the
form of periodic payments over the single life expectancy of the
participant using the declining years method of determining the
Participant's life expectancy multiple; provided, however, the
Custodian shall have no liability to the Participant for any tax
penalty or other damages which may result from any inadvertent failure
by the Custodian to make such a distribution. Notwithstanding anything
in this Agreement to the contrary, distributions shall conform to the
minimum distribution requirements of Section 401(a)(9) of the Code and
the regulations thereunder, including Treasury Regulations Sections
1.401(a)(9)-2 and 1.403(b)-2.
If the value of the Account prior to 1987 is determinable, the
pre-1987 amount need not be subject to a required minimum distribution
until the calendar year the Participant attains age 75, or such later
date as may be allowed by law or regulation.
4.04 DESIGNATION OF BENEFICIARY - Each Participant may designate, upon a form
provided by the Custodian, any person or persons (including an entity
other than a natural person) as primary or contingent Beneficiary to
receive all or a specified portion of the Participant's Account in the
event of the Participant's death. A Participant may change or revoke such
Beneficiary designation from time to time by completing and delivering the
proper form to the Custodian.
4.05 DISTRIBUTION UPON DEATH OF PARTICIPANT - If a Participant dies before his
or her entire interest in the Account is distributed to him or her, or if
distribution has commenced to the Participant and his or her surviving
spouse and such surviving spouse dies before the entire interest is
distributed to such spouse, the entire interest or remaining undistributed
balance of such interest shall be distributed in the form of a single sum
cash payment, or other form of payment as permitted under current
applicable code or regulations, to the Beneficiary or Beneficiaries, if
any, designated by the Participant, or his or her spouse as the case may
be. In the event no such Beneficiary has been designated, the
Participant's estate shall receive the balance of the Account.
4.06 DISTRIBUTION OF EXCESS AMOUNTS - The Custodian may make distribution of
any excess to the Participant.
4.07 ELIGIBLE ROLLOVER DISTRIBUTIONS - At the election of a Participant (or the
surviving spouse Beneficiary of a deceased Participant) the Custodian
shall pay any eligible rollover distribution to an individual retirement
plan described in Section 408 of the Code or another annuity contract or
custodial account described in Section 403(b) of the Code in a direct
rollover for that Participant (or Beneficiary). The term "eligible
rollover distribution" shall have the meaning set forth in Sections
402(c)(2) and (4) of the Code and Q&A-3 through Q&A-8 of Treasury
Regulations Section 1.402(c)-2T.
The Participant (or surviving spouse beneficiary) who desires a direct
rollover must specify the individual retirement plan or 403(b) plan to
which the eligible rollover distribution is to be paid and satisfy such
other reasonable requirements as the Custodian may impose.
SECTION FIVE: ADMINISTRATION
5.01 DUTIES OF THE CUSTODIAN - The Custodian shall have the following
obligations and responsibilities:
a. To hold contributions to the Account it receives, invest such
contributions pursuant to the Participant's instructions and
distribute Account assets pursuant to this Agreement;
b. To register any property held by the Custodian in its own name, or in
nominal bearer form, that will pass delivery;
c. To maintain records of all relevant information as may be necessary
for the proper administration of the Account;
d. To allocate earnings, if any, realized from such contributions and
such other data information as may be necessary;
e. To file such returns, reports and other information with the Internal
Revenue Service and other government agencies as may be required of
the Custodian under applicable laws and regulations.
5.02 REPORTS - As soon as practicable after December 31 of each calendar year,
and whenever required by regulations under the Code, the Custodian shall
deliver to the Participant a written report of the Custodian's
transactions relating to the Account during the period from the last
previous accounting and shall file such other reports as may be required
under the Code.
On receipt of the Custodian's report referenced in the preceding paragraph
a Participant shall have a period of 60 days following receipt to deliver
a written objection to the Custodian concerning information provided in
the report. In the event the Participant neglects to file such written
objection, the report shall be deemed approved and in such case, the
Custodian shall be forever released and discharged with respect to all
matters and things included herein.
5.03 CUSTODIAN NOT RESPONSIBLE FOR CERTAIN ACTIONS - Notwithstanding the
foregoing, the Custodian shall have no responsibility for determining the
amount of or collecting contributions to the Account made pursuant to this
Agreement; determining the amount, character or timing of any distribution
to a Participant under this Agreement; determining a Participant's maximum
contribution amount; maintaining or defending any legal action in
connection with this Agreement, unless agreed upon by the Custodian,
Employer and Participant.
5.04 INDEMNIFICATION OF CUSTODIAN - The Employer and Participant shall, to the
extent permitted under law, indemnify and hold the Custodian harmless from
and against any liability which may occur in the administration of the
Account unless arising from the Custodian's breach of its responsibilities
under this Agreement. By execution of this Agreement, it is the specific
intention of the parties that no fiduciary duties be conferred upon the
Custodian nor shall any be implied from this Agreement or the acts of this
Custodian.
5.05 CUSTODIAN'S FEES AND EXPENSES - The Custodian may charge fees in
connection with the Account. In addition, the Custodian has the right to
be reimbursed for any taxes or expenses incurred by or on behalf of the
Account. All such fees, taxes or expenses may be charged against the
Account or, at the option of the Custodian, may be paid directly by the
Participant or Employer. The Custodian reserves the right to change its
fee schedule, or add new fees, at any time upon 30 days prior written
notice to the Participant.
SECTION SIX: AMENDMENT AND TERMINATION
6.01 AMENDMENT OF AGREEMENT - This Agreement may be amended by an agreement in
writing between the Participant and Custodian. In addition, by execution
of this Agreement, the Employer and the Participant delegate to the
Custodian all authority to amend this Agreement by written notification
from the Custodian to the Participant as to any term hereof, at any time
(including retroactively) except that no amendment shall be made which may
operate to disqualify the Account under Section 403(b)(7) of the Code. The
effective date of any amendment hereto shall be the date specified in said
amendment or 30 days subsequent to the time the notification of amendment
is delivered by the Custodian to the Participant.
6.02 TERMINATION BY PARTICIPANT - The Participant reserves the right to
terminate further contributions to his or her Account pursuant to this
Agreement by executing and delivering to the Custodian an executed copy of
an agreement terminating said contributions. The Participant further
reserves the right to terminate his or her adoption of this Agreement in
the event that he or she shall be unable to secure a favorable ruling from
the Internal Revenue Service with respect to the Agreement. In the event
of such termination, the Custodian shall distribute the Account to the
Participant.
6.03 RESIGNATION OR REMOVAL OF CUSTODIAN - The Custodian may resign as
Custodian of any Participant's Account upon 30 days written notice to the
Participant. The Participant may remove a Custodian upon 30 days prior
written notice. Upon such resignation or removal, a successor Custodian
shall be named. Upon designation of a successor Custodian, the Custodian
shall transfer the assets held pursuant to the terms of this Agreement to
the successor Custodian. The Custodian may retain a portion of the assets
to the extent necessary to cover reasonable administrative fees and
expenses.
Where the Custodian is serving as a nonbank custodian pursuant to Section
1.401-12(n) of the Treasury Regulations, the Participant will appoint a
successor custodian upon notification by the Commissioner of Internal
Revenue that such substitution is required because the Custodian has
failed to comply with the requirements of Section 1.401-12(n) or is not
keeping such records or making such returns or rendering such statements
as are required by forms or regulations.
SECTION SEVEN: MISCELLANEOUS
7.01 APPLICABLE LAW - This Agreement is established with the intention that it
qualify as a tax-sheltered custodial account under Section 403(b)(7) of
the Code and that contributions to the same be treated accordingly. To the
extent not governed by Federal law, this Agreement shall be construed,
administered and enforced in accordance with the laws of the Custodian's
state of incorporation.
If any provision of this Agreement shall for any reason be deemed invalid
or unenforceable, the remaining provisions shall, nevertheless, continue
in full force and effect and shall not be invalidated.
7.02 NONALIENATION - The assets of a Participant in his or her Account shall be
nonforfeitable at all times and shall not be subject to alienation,
assignment, trustee process, garnishment, attachment, execution or levy of
any kind, nor shall such assets be subject to the claims of the
Participant's creditors.
7.03 TERMS OF EMPLOYMENT - Neither the fact of the implementation of this
Agreement nor the fact that a common law employee has become a
Participant, shall give to such employee any right to continued
employment; nor shall either fact limit the right of the Employer to
discharge or to deal otherwise with an employee without regard to the
effect such treatment may have upon the employee's rights as a Participant
under this Agreement.
7.04 NOTICES - Any notice or other communication which the Custodian may give
to a Participant shall be deemed given when sent by first class mail to
the Participant's last known address on the Custodian's records. Any
notice or other communication to the Custodian shall not become effective
until the Custodian actually receives it.
7.05 LOANS - The Custodian does not permit loans.
7.06 EMPLOYER CONTRIBUTIONS - The Employer may make contributions to the
Account on behalf of the Participant. The Custodian is not obligated to
operate the Account in accordance with any plan executed by the Employer
unless the Custodian so agrees and the Employer notifies the Custodian and
provides to the Custodian a copy of the Plan Document.
7.07 MATTERS RELATING TO DIVORCE - Upon receipt of a domestic relations order,
the Custodian may retain an independent third party to determine whether
the order is a Qualified Domestic Relations Order pursuant to Section
414(p) of the Code. The Custodian may charge to the Account any and all
expenses associated with the determination.
<PAGE>
- --------------------------------------------------------------------------------
THE CGM FUNDS 403(b)(7) SALARY DEFERRAL AGREEMENT
- --------------------------------------------------------------------------------
Please complete the information requested below and file this form
with your employer. Save a copy for your records.
- --------------------------------------------------------------------------------
PARTICIPANT INFORMATION
- --------------------------------------------------------------------------------
- -------------------------------------- [ ] [ ] [ ] - [ ] [ ] - [ ] [ ] [ ] [ ]
Name Social Security Number
- --------------------------------------
Address
( )
- -------------------------------------- ------------- ------------------------
City State Zip Code Daytime Phone Number
- --------------------------------------------------------------------------------
EMPLOYER INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Name of Employer
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
CUSTODIAN INFORMATION
- --------------------------------------------------------------------------------
NAME AND ADDRESS OF CUSTODIAN: State Street Bank and Trust Company, P.O. Box
8511, Boston, MA 02266-8511
I, the undersigned Participant, hereby agree to defer the following amount or
percentage of my pay into a 403(b)(7) Tax-Sheltered Custodial Account each pay
period by way of payroll deduction:
[ ] $ ____________ (specify dollar amount), or
[ ] ____________ % (specify percentage of pay)
I agree that my pay will be reduced by the amount or percentage I have indicated
above and that my employer will contribute these dollars to my 403(b)(7)
Tax-Sheltered Custodial Account.
- --------------------------------------------------------------------------------
INVESTMENT SELECTION
- --------------------------------------------------------------------------------
I elect to have the Salary Deferral contributions, made on my behalf under this
Agreement, invested as follows: (Please indicate The CGM Fund(s) in which you
want your contributions invested.)
- ---------------------------------------------- -------------------------------%
Name of Fund Allocation Percentage
- ---------------------------------------------- -------------------------------%
Name of Fund Allocation Percentage
- ---------------------------------------------- -------------------------------%
Name of Fund Allocation Percentage
- --------------------------------------------------------------------------------
SIGNATURES
- --------------------------------------------------------------------------------
This Agreement shall be effective for the pay period which begins on:
- --------------------------------------
Date
X
- -------------------------------------- --------------------------------------
Signature of Participant Date
X
- -------------------------------------- --------------------------------------
Authorized Signature of Employer Title
403(b)(7) SALDEFAGMT-5/97
<PAGE>
- --------------------------------------------------------------------------------
THE CGM FUNDS 403(b)(7) TRANSFER FORM
- --------------------------------------------------------------------------------
Please use this form when moving assets directly from one 403(b) or 403(b)(7)
to a 403(b)(7) with CGM.
- --------------------------------------------------------------------------------
YOUR NAME AND ADDRESS
- --------------------------------------------------------------------------------
- -------------------------------------- [ ] [ ] [ ] - [ ] [ ] - [ ] [ ] [ ] [ ]
Name Social Security Number
- --------------------------------------
Address
( )
- -------------------------------------- ------------- ------------------------
City State Zip Code Daytime Phone Number
- --------------------------------------------------------------------------------
INVESTMENT INSTRUCTIONS
- --------------------------------------------------------------------------------
If this is a new plan, please enclose the 403(b)(7) Account Application and
$5.00 plan establishment fee. Make check payable to State Street Bank and Trust
Company. Please note that third party checks are not acceptable.
Please type or print the name of the fund(s) you wish to invest in. If you are
transferring monies to an existing CGM account, please list your account number;
otherwise, write "new":
- ---------------------------------- --------------------- ---------------------
Fund Name Account Number $ Amount / % Amount
- ---------------------------------- --------------------- ---------------------
Fund Name Account Number $ Amount / % Amount
- --------------------------------------------------------------------------------
COMPLETE AND SIGN THESE INSTRUCTIONS
- --------------------------------------------------------------------------------
IMPORTANT: To ensure timely processing of your transfer, please call your
current Custodian and verify the correct address of their transfer department to
determine if there are any transfer requirements, such as a signature guarantee.
If you are 701/2 or older, please refer to the reverse side of this form.
( )
- --------------------------------- ---------------------------------------------
Name of Current Custodian Custodian's Phone Number
- --------------------------------- ---------------------------------------------
Address Account Name or Type (with Current Custodian)
- --------------------------------- ---------------------------------------------
City State Zip Code Account Number (with Current Custodian)
o Please accept this as
your authorization to: [] Transfer All OR [] Transfer $ or % ___________
to a CGM 403(b)(7) Account.
o The transfer should
be processed: [] Immediately OR [] Upon Maturity of my Assets
- --------------------------------------------------------------------------------
I request that the above-named Signature Guarantee (If Required by
Custodian liquidate and transfer my Current Custodian)
403(b)(7) or 403(b) Account assets,
as cash, to State Street Bank and Name of Firm:
Trust Company, Custodian of my CGM -------------------------
403(b)(7) Account.
X By:
- -------------------------------------- -----------------------------------
YOUR SIGNATURE DATE Authorized Individual
- --------------------------------------------------------------------------------
CUSTODIAN: PLEASE MAKE CHECK PAYABLE TO:
STATE STREET BANK AND TRUST COMPANY, C/O THE CGM FUNDS, P.O. BOX 8511,
BOSTON, MA 02266-8511 (PLEASE INCLUDE THE PARTICIPANT'S NAME AND SOCIAL SECURITY
NUMBER ON YOUR CHECK.)
- --------------------------------------------------------------------------------
ACCEPTANCE BY CUSTODIAN
State Street Bank and Trust Company accepts the assets being transferred and
agrees to serve as the Custodian of the 403(b)(7) Account established on behalf
of the above named individual.
/s/ Douglass L. Coyne
- ---------------------------------------------------------
AUTHORIZED SIGNATURE, STATE STREET BANK AND TRUST COMPANY
- --------------------------------------------------------------------------------
RETURN THIS FORM TO: THE CGM FUNDS, P.O. BOX 449, BOSTON, MA 02117-0449
403(b)(7)TRAN-5/97
<PAGE>
- --------------------------------------------------------------------------------
IMPORTANT INFORMATION IF YOU ARE AGE 70 1/2 OR OLDER.
In general, if this transfer is being made during or after a year in which you
turn age 70 1/2, you must take Required Minimum Distributions (RMD) based on
your life expectancy or the life expectancy of you and your beneficiary.
However, if you are still working, distributions can be deferred until you
retire. Once elected, the method of calculating distributions (recalculated or
non-recalculated) cannot be changed. It is your responsibility to ensure that
you are taking the appropriate RMD. Failure to do so may result in a penalty tax
of 50% of the amount not withdrawn. Please call 1-800-345-4048 if you have any
questions about RMDs.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HOW TO TRANSFER ASSETS TO CGM
- --------------------------------------------------------------------------------
1. Complete and sign the 403(b)(7) Application. Your employer's signature is
required only if you are making salary reductions.
2. Complete and sign the 403(b)(7) Transfer Form.
3. Enclose a check for $5.00 made payable to State Street Bank and Trust
Company.
4. Mail items 1-3 to The CGM Funds, P.O. Box 449, Boston, MA 02117 in the
return envelope provided.
5. Upon receipt of your Application, Transfer Form and check, CGM will
establish your 403(b)(7) Account. We will send a letter of acceptance and
your authorization to transfer assets to your current 403(b)(7) or 403(b)
Custodian and provide you with a copy of the letter.
6. After the transferred proceeds have been received by CGM, a statement
confirming the transaction will be mailed to you.
- --------------------------------------------------------------------------------
QUESTIONS? CALL 800-345-4048
<PAGE>
THE CGM FUNDS 403(b)(7) ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
1. PARTICIPANT INFORMATION
- --------------------------------------------------------------------------------
- -------------------------------------- --------------------------------------
Name Employer's Name
- -------------------------------------- --------------------------------------
Address Employer's Address
- -------------------------------------- --------------------------------------
City State Zip Code City State Zip Code
( )
[][][] - [][] - [][][][] ------------- ------------- ------------------------
Social Security Number Date of Birth Participant's Daytime Phone Number
- --------------------------------------------------------------------------------
2. CONTRIBUTIONS ($1,000 MINIMUM FOR INITIAL PURCHASE OR TRANSFER)
- --------------------------------------------------------------------------------
My initial investment in my CGM 403(b)(7) account will come to you from: (Please
check all that apply.)
[] Employer Contributions (salary reductions). I have completed the 403(b)(7)
Salary Deferral Agreement and have submitted it to my Employer. Enclosed is
my Employer's check (minimum of $1,000) for $____________________.
[] Transfer of Assets from another 403(b) or 403(b)(7) account. I have completed
the Transfer Form and am attaching it to this Application.
[] Rollover from an IRA whose assets previously had been invested in a 403(b) or
403(b)(7) Account.
Enclosed is my check for $____________________.
Enclose $5.00 establishment fee. Please make all checks payable to State Street
Bank and Trust Company. No third party checks.
- --------------------------------------------------------------------------------
3. INVESTMENTS
- --------------------------------------------------------------------------------
Select one or more of the following funds: CGM Mutual Fund, CGM Realty Fund, CGM
Fixed Income Fund, CGM Capital Development Fund*, New England Cash Management
Trust-Money Market or U.S. Government Series. There is a $1,000 minimum per
Fund.
- -------------------------------------- --------------------------------------
Fund Name $ Amount / % Amount
- -------------------------------------- --------------------------------------
Fund Name $ Amount / % Amount
*The CGM Capital Development Fund is generally closed to the public. If you are
an eligible investor, please list your current account number
here: ________________________________________. Please refer to Section 8 for
more information.
- --------------------------------------------------------------------------------
4. TELEPHONE EXCHANGE PRIVILEGES
- --------------------------------------------------------------------------------
[] YES [] NO
This service enables you to exchange monies ($1,000 minimum) by telephone among
accounts with the same registration in The CGM Funds or New England Cash
Management Trust. Please see Section 9 for full details.
- --------------------------------------------------------------------------------
5. SIGNATURE(S)
- --------------------------------------------------------------------------------
By this application, my employer and I direct the Custodian to open a separate
Custodial Investment Account for my benefit according to the CGM 403(b)(7)
Tax-Sheltered Custodial Account Agreement, and agree to the provisions listed in
Section 9 of this Form. I acknowledge that I have received a current prospectus
for the fund(s) selected for investment, and that I have completed the
beneficiary designation in Section 6 on the reverse side of this form.
- -------------------------------------- --------------------------------------
Signature of Participant Date Signature of Employer Date
(for salary reduction plans only)
/s/ Douglass L. Coyne (A statement will be sent to you
- -------------------------------------- confirming the above transactions and
Accepted by State Street Bank and will serve as notification of State
Trust Company Street Bank's acceptance. Please note
that there is a $10 annual maintenance
fee per mutual fund account.)
- --------------------------------------------------------------------------------
RETURN THIS FORM TO: THE CGM FUNDS, P.O. BOX 449, BOSTON, MA 02117-0449
403(b)(7)APP-5/97 (OVER)
<PAGE>
- --------------------------------------------------------------------------------
6. DESIGNATION OF BENEFICIARY(IES)
- --------------------------------------------------------------------------------
I designate the individual(s) named below as my primary and secondary
Beneficiary(ies) of this Tax-Sheltered Custodial Account Agreement (TSA). I have
attached an additional page if necessary. I revoke all prior TSA Beneficiary
designations, if any, made by me with respect to this TSA. I understand that I
may change or add Beneficiaries at any time by completing and delivering the
proper form to the Custodian.
If any primary or secondary Beneficiary dies before me, his or her interest and
the interest of his or her heirs shall terminate completely, and the percentage
share of any remaining Beneficiary(ies) shall be increased on a pro rata basis.
Primary Beneficiary(ies)
- -------------------------------------- --------------------------------------
Name Date of Birth Address
- -------------------------------------- --------------------------------------
% Share Social Relationship City State Zip Code
Security
Number
Secondary Beneficiary(ies)
- -------------------------------------- --------------------------------------
Name Date of Birth Address
- -------------------------------------- --------------------------------------
% Share Social Relationship City State Zip Code
Security
Number
- --------------------------------------------------------------------------------
7. SPOUSAL CONSENT
- --------------------------------------------------------------------------------
IF YOU LIVE IN A COMMUNITY OR MARITAL PROPERTY STATE, YOUR SPOUSE MUST COMPLETE
THIS SECTION UNLESS HE OR SHE IS THE SOLE PRIMARY BENEFICIARY.
I consent to the above named beneficiary(ies). By signing this consent, I intend
to change the portion (if any) of this 403(b)(7) which is community or marital
property into the separate property of my spouse. I specifically give to my
spouse any interest I have in the assets deposited in this Account.
- -------------------------------------- ----------------------
Signature of Participant's Spouse Date
- --------------------------------------------------------------------------------
8. WHO CAN PURCHASE SHARES OF CGM CAPITAL DEVELOPMENT FUND?
- --------------------------------------------------------------------------------
Only shareholders of the CGM Capital Development Fund as of September 24, 1993,
who remain shareholders thereafter, may purchase additional shares of the Fund.
The Fund reserves the right to reject any purchase order. This policy supersedes
all previous eligibility requirements. Fund shares are not generally available
to other persons except in special circumstances that have been approved by, or
under the authority of, the Board of Trustees of the Fund. The special
circumstances currently approved by the Board of Trustees of the Fund are
limited to the offer and sale of shares of the Fund to the following additional
persons: trustees of the Fund, employees of the Investment Manager and counsel
to the Fund and the Investment Manager.
- --------------------------------------------------------------------------------
9. PROVISIONS
- --------------------------------------------------------------------------------
I am the Participant named above and I state that I have read the 403(b)(7)
Tax-Sheltered Custodial Account Agreement (TSA) and understand and agree to its
terms and provisions. I hereby establish an Account pursuant to that Agreement
and appoint State Street Bank and Trust Company, or its successors, as Custodian
of the Account. I assume complete responsibility for: (a) determining that I am
eligible for a TSA each year I make a contribution; (b) insuring that all
contributions I make are within the limits set forth by the tax laws; and (c)
the tax consequences of any contributions (including rollover or transfer
contributions) and distributions. I expressly certify that I take complete
responsibility for the type of investment instrument(s) I choose to fund my TSA,
and that the Custodian is released of any liability regarding the performance of
any investment choice I make. I acknowledge receipt of a copy of this Agreement
and of the current prospectus(es) of the mutual fund(s) selected.
If I have elected the "Telephone Exchange" service, I understand that the Fund
may terminate or modify this privilege at any time. I authorize the Fund and its
agents to accept and act upon telephone instructions from me and acknowledge
receipt of the current prospectus of the Fund into which the exchange is made.
The Fund will employ reasonable procedures to confirm that instructions received
by telephone are genuine, such as requesting personal identification information
that appears on your account application and recording the telephone
conversation. I will bear the risk of loss due to unauthorized or fraudulent
instructions regarding my account, although the Fund may be liable if reasonable
procedures are not employed.
<PAGE>
QUESTIONS AND ANSWERS ABOUT 403(b)(7)s
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Q. WHAT IS THE CGM 403(B)(7) TAX SHELTERED CUSTODIAL ACCOUNT?
A. The CGM 403(b)(7) Custodial Account is a voluntary savings plan that allows
you to set aside pre-tax money for retirement. Contributions are made by salary
reduction, and earnings are tax-deferred until you withdraw them.
Q. WHO IS ELIGIBLE?
A. Employees of public schools, colleges and universities, and those working for
home health care, hospital, church and non-profit organizations recognized as
tax-exempt under Section 501(c)(3) of the Internal Revenue Code.
Q. HOW DO I MAKE CONTRIBUTIONS?
A. First, decide how much you want to contribute annually (up to the allowable
limits) to your 403(b)(7). Secondly, determine the amount for each pay period.
Then, complete and sign a Salary Deferral Agreement and give it to your
employer. This will authorize your employer to reduce your paycheck by the
amount of the contribution. Your employer then will send your contributions to
CGM. Once we receive your contribution, we will invest the monies in accordance
with your Investment Selection and will send you a statement to confirm your
purchase. All contributions must be made by your employer.
Q. WHAT ARE MY INVESTMENT OPTIONS?
A. The no-load funds eligible for your 403(b)(7) investments are listed below.
You may invest either in one, or in a combination of the funds best suited to
your circumstances. Be sure to read each fund's prospectus before you invest or
send money.
O CGM FOCUS FUND is a non-diversified and flexibly managed mutual fund that
seeks long-term growth of capital. The Fund intends to pursue its objective by
investing in a core position of equity securities. 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.
O CGM MUTUAL FUND is a flexibly managed balanced fund that seeks reasonable
long-term capital appreciation with a prudent approach to protection of
capital from undue risks. Consideration is given to the production of current
income in the selection of stocks and bonds for the Fund's portfolio.
O CGM REALTY FUND is a mutual fund that seeks above-average income and
long-term growth of capital. The Fund pursues its objective by investing
primarily in equity securities of companies in the real estate industry.
O CGM FIXED INCOME FUND is a "total return" bond fund. The Fund's objective is
to maximize total return by investing in debt securities and preferred stocks
that provide current income, capital appreciation or a combination of both
income and appreciation.
O CGM CAPITAL DEVELOPMENT FUND is an aggressively managed growth fund that
seeks long-term capital appreciation in a diverse group of companies and
industries believed to provide opportunities for capital development. Note:
The Fund is generally closed to the public. Shares are available only to
certain individuals. Eligibility categories are listed in the 403(b)(7)
Application and in the Fund prospectus.
O NEW ENGLAND CASH MANAGEMENT TRUST is a money market fund that seeks to provide
maximum current income consistent with preservation of capital. The Money
Market Series invests in a variety of high quality money market instruments.
The U.S. Government Series invests only in obligations backed by the full
faith and credit of the U.S. Government and in related repurchase agreements.
Both Series are managed by Back Bay Advisors, L.P.
- --------------------------------------------------------------------------------
CONTRIBUTIONS
- --------------------------------------------------------------------------------
Q. HOW MUCH CAN I CONTRIBUTE TO MY PLAN THROUGH SALARY REDUCTION?
A. You can contribute the lesser of the amounts derived from the following three
formulas: (1) the exclusion allowance, (2) the IRC Sec. 415 limit on overall
contributions, including special elective alternatives [the 415 limit is
currently the lesser of 25% of the first $160,000 of compensation, indexed, or
$30,000] and (3) the IRC Sec. 402(g) limit, currently $9,500, indexed. If you
are attempting to maximize contributions, you must calculate each of the
formulas annually. We strongly recommend that you seek the guidance of a tax
adviser or financial planner to determine the amount that you can contribute to
your 403(b)(7) plan. IRS Publication 571 provides general information about
403(b)(7) plans and can be ordered free of charge by calling 800-TAX-FORM
(800-829-3676).
Q. ONCE MY SALARY REDUCTION HAS STARTED, CAN I CHANGE THE AMOUNT?
A. Yes. Your salary reduction amount may be changed by filing a new Salary
Deferral Agreement with your employer.
Q. CAN I STOP MY CONTRIBUTIONS?
A. Yes. You can ask your employer to stop contributing to the plan at the end of
any payroll period. You can participate in the plan again by filing a new Salary
Deferral Agreement with your employer.
Q. CAN I TRANSFER AN EXISTING 403(B) OR 403(B)(7) ACCOUNT INTO A CGM 403(B)(7)
CUSTODIAL ACCOUNT?
A. Yes. You can easily transfer the assets of your existing plan into your new
or existing CGM 403(b)(7) account. Please refer to the back of the Transfer Form
for specific instructions.
Q. WILL MY SALARY REDUCTIONS REDUCE MY EARNINGS FOR SOCIAL SECURITY PURPOSES?
A. No. Your gross income before 403(b)(7) contributions is used for Social
Security tax calculations.
Q. IF 403(B)(7) ASSETS HAVE BEEN DISTRIBUTED TO ME, MAY I ROLL OVER THOSE ASSETS
INTO A CGM IRA?
A. Yes. You can invest your distribution in a new or existing CGM IRA within 60
days from the date you receive the check. Make your check payable to State
Street Bank and Trust Company. Please note that third party checks are not
acceptable. If you are establishing a new account, please complete a CGM IRA
Application. You may wish to keep your rolled-over 403(b)(7) assets in a
separate IRA account for tax reasons.
403(b)(7) Q & A-5/97
<PAGE>
- --------------------------------------------------------------------------------
THE CGM FUNDS SEP-IRA EMPLOYEE ROSTER
- --------------------------------------------------------------------------------
Please use this form whenever you establish an account or make an additional
contribution for participants in your plan.
- --------------------------------------------------------------------------------
Name of Employer's Business
- --------------------------------------------------------------------------------
Employer's Address Daytime Telephone Number
Participant's Name and Investment Information
Social Security Number (Please see other side for list of
investment options)
- -------------------------------------- --------------------------------------
Name Fund
- -------------------------------------- --------------------------------------
Social Security Number (Required) Account Number (if new, write "new")
[ ] Business Owner or [ ] Non-Owner $ ____________________________________
Investment Amount
- --------------------------------------------------------------------------------
- -------------------------------------- --------------------------------------
Name Fund
- -------------------------------------- --------------------------------------
Social Security Number (Required) Account Number (if new, write "new")
[ ] Business Owner or [ ] Non-Owner $ ____________________________________
Investment Amount
- --------------------------------------------------------------------------------
- -------------------------------------- --------------------------------------
Name Fund
- -------------------------------------- --------------------------------------
Social Security Number (Required) Account Number (if new, write "new")
[ ] Business Owner or [ ] Non-Owner $ ____________________________________
Investment Amount
- --------------------------------------------------------------------------------
- -------------------------------------- --------------------------------------
Name Fund
- -------------------------------------- --------------------------------------
Social Security Number (Required) Account Number (if new, write "new")
[ ] Business Owner or [ ] Non-Owner $ ____________________________________
Investment Amount
- --------------------------------------------------------------------------------
- -------------------------------------- --------------------------------------
Name Fund
- -------------------------------------- --------------------------------------
Social Security Number (Required) Account Number (if new, write "new")
[ ] Business Owner or [ ] Non-Owner $ ____________________________________
Investment Amount
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Employer's Signature Date
SEPROSTER9/97
<PAGE>
INVESTMENT OPTIONS
CGM Focus Fund (815)
CGM Mutual Fund (35)
CGM Realty Fund (137)
CGM Fixed Income Fund (38)
CGM Capital Development Fund (36)*
New England Cash Management Trust - Money Market Series (12)
New England Cash Management Trust - U.S. Government Series (83)
* This Fund is currently closed to new investors. Only shareholders of the CGM
Capital Development Fund as of September 24, 1993 who have remained
shareholders continuously since that date, may purchase additional shares of
the Fund. Please refer to page 10, section 9, of the SEP-IRA Account
Application for complete disclosure about eligibility for the CGM Capital
Development Fund.
<PAGE>
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The CGM Funds
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Simplified
- --------------------------------------------------------------------------------
Employee
- --------------------------------------------------------------------------------
Pension
- --------------------------------------------------------------------------------
Plan
- --------------------------------------------------------------------------------
- ------------------
[Fencer Logo]
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<PAGE>
THE CGM FUNDS SEP-IRA
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page 4 Employer's Checklist for Setting Up a New SEP-IRA
Page 5 Eligibility Review and Plan Document Selection
Page 6 Adoption Agreement Instructions
Page 7 Adoption Agreement
Page 9 SEP-IRA Account Application
Page 11 SEP-IRA Transfer Form
Page 13 SEP Summary for Employees
Page 14 Contribution Worksheets
Page 17 Basic Plan Document
Page 19 IRS Opinion Letter
- --------------------------------------------------------------------------------
<PAGE>
EMPLOYER'S CHECKLIST FOR SETTING UP A NEW SEP-IRA
- --------------------------------------------------------------------------------
[1] DETERMINE WHETHER YOU ARE ELIGIBLE TO ESTABLISH A SEP-IRA
|X| Review the Basic Plan Document on page 17 with your attorney or
tax adviser.
|X| Complete the Eligibility Review and Plan Document Selection on
page 5.
- --------------------------------------------------------------------------------
[2] PLEASE COMPLETE THESE FORMS
|X| Complete the Adoption Agreement on page 7 and make an extra copy
for your files. See Adoption Agreement Instructions on page 6.
|X| Ask each participant to complete a copy of the SEP-IRA Account
Application on page 9 (and also the SEP-IRA Transfer Form on page
11 if assets are being transferred from another SEP Plan). You may
photocopy extra copies of both forms, if necessary.
- --------------------------------------------------------------------------------
[3] IF YOU HAVE EMPLOYEES
|X| Complete the SEP Summary for Employees Form on page 13 and
distribute a copy to each participant.
|X| Call us at 800-345-4048 for the following:
o CGM Prospectus. You must distribute copies of the prospectuses
for The CGM Funds to your employees before you make
contributions on their behalf. Please let us know the quantity
you'll need when you call.
o Employee Roster. This sheet asks you to identify each
participant in your SEP Plan and allows us to link all of the
IRAs under your plan.
o Employee Information Booklet. You must provide general
information about your SEP Plan to each employee. We will be
happy to furnish the Employee Information Booklet for each of
your employees. Just let us know the quantity you'll need when
you call.
- --------------------------------------------------------------------------------
[4] RETURN THESE ITEMS TO: CGM FUNDS, P.O. BOX 449, BOSTON, MA 02117
|X| Eligibility Review (page 5)
|X| Adoption Agreement (page 7). Not required for IRS 5305-SEP Plans.
|X| SEP-IRA Account Application for each participant (page 9)*
|X| SEP-IRA Transfer Form for each participant who is transferring
assets to CGM (page 11)*
|X| Employee Roster, if there is more than one participant in the plan
|X| Investment check payable to "State Street Bank and Trust Company"
|X| Application fee check for $5 payable to "State Street Bank and
Trust Company." You may include the $5 application fee in your
investment check.
*You may use photocopies if necessary.
- --------------------------------------------------------------------------------
[5] PLEASE NOTE
The minimum initial investment is $1000 per account. There is a
$5 application fee for each participant; and a $10 annual
maintenance fee will be charged per mutual fund account.
Future contributions made by the employer into each participant's
account must meet the minimum additional investment of $50 per
account. Also, all contributions made by the employer on behalf
of a participant must be designated as "employer contributions."
- --------------------------------------------------------------------------------
ELIGIBILITY REVIEW AND PLAN DOCUMENT SELECTION
- --------------------------------------------------------------------------------
ARE YOU ELIGIBLE TO SET UP A SEP PLAN?
The following questions are designed to help you, as an employer, together with
your attorney and tax adviser, determine whether you are eligible to adopt a SEP
plan. Please answer the following questions and sign below.
YES NO
1. [ ] [ ] Are you the owner of a business or the person authorized by a
business to establish a SEP-IRA plan? If the answer is "NO",
please STOP. You are not eligible to establish this plan.
2. [ ] [ ] Has your business ever maintained a defined benefit plan which is
now terminated? If the answer is "YES", please STOP. You are not
eligible to establish this plan.
WHICH SEP DOCUMENT SHOULD YOU SELECT?
You may invest your SEP-IRA assets with CGM by using either a CGM prototype
SEP-IRA Plan or an IRS Form 5305-SEP. The questions below will help you and your
tax adviser determine which type of plan you should adopt. If you answer "yes"
to questions 3 - 5, you are only eligible to establish a CGM prototype SEP-IRA,
and you may have to include leased employees and/or employees of other
business(es) in your SEP-IRA Plan. Please consult your tax adviser to determine
what additional action, if any, you must take.
3. [ ] [ ] Is the business a member of a controlled group of corporations,
businesses or trades, (whether or not incorporated) within the
meaning of IRC Section 414(b) or 414(c)?
4. [ ] [ ] Is the business a member of an affiliated service group within
the meaning of IRC Section 414(m)?
5. [ ] [ ] Does the business use the services of leased employees within the
meaning of IRC Section 414(n)?
6. [ ] [ ] Do you currently have a SEP? If the answer is "yes," proceed to
the next question. If the answer is "no," you should establish a
CGM prototype SEP-IRA Plan. Please complete all forms requested
in the Employer's Checklist, including the Adoption Agreement on
page 7.
7. [ ] [ ] Will you retain your current SEP once you establish your CGM SEP
Plan? If the answer is "yes," proceed to the next question. If
the answer is no, you should establish a CGM prototype SEP-IRA
Plan. Please complete all forms requested in the Employer's
Checklist, including the Adoption Agreement on page 7.
8. Is your current SEP an IRS Form 5305-SEP or a prototype SEP? Please check
the appropriate box. (If you are uncertain, please check with your current
plan custodian.)
a. [ ] 5305-SEP - You do not need to complete the SEP Adoption Agreement
on page 7. Submit all other forms and check the "5305" box in
Section 2 of the IRA Application on page 9.
b. [ ] Prototype SEP - Please complete all forms requested in the
Employer's Checklist, including the Adoption Agreement on page 7.
SIGNATURE:
I certify that I am an authorized representative of the employer and that the
employer is eligible to establish this SEP-IRA Plan. In determining my
eligibility to adopt this plan, I relied solely upon the advice of my own
advisers, and I agree not to hold Capital Growth Management Limited Partnership,
CGM Trust, CGM Capital Development Fund or State Street Bank and Trust Company
responsible for any liabilities that I may suffer as a result of being found
ineligible to establish this SEP-IRA Plan.
- --------------------------------------------------------------------------------
Name of Employer (Please print or type)
X
- --------------------------------------------------------------------------------
Signature of Employer Date Executed
- --------------------------------------------------------------------------------
<PAGE>
THE CGM FUNDS STANDARD SIMPLIFIED EMPLOYEE PENSION PLAN ADOPTION AGREEMENT
INSTRUCTIONS
- --------------------------------------------------------------------------------
These instructions are designed to help you, the employer, along with your
attorney and/or tax advisor, establish your SEP plan. The instructions are meant
to be used only as a general guide and are not intended as a substitute for
qualified legal or tax advice.
ADOPTION AGREEMENT
This Adoption Agreement is a one-page form that needs to be completed and signed
by the Employer. We recommend that every Employer retain a photocopy of the
completed Adoption Agreement with his or her permanent records.
We will be happy to help you fill out the Adoption Agreement. However, we
recommend that you obtain the advice of your legal or tax advisor before you
sign the Adoption Agreement.
SECTION 1. EMPLOYER INFORMATION
Fill in the requested information.
SECTION 2. EFFECTIVE DATES
This SEP plan is either a new plan (an initial adoption) or an amendment and
restatement of an existing SEP plan.
If this is a new SEP plan, check Option A and fill in the effective date. The
effective date is usually the first day of the plan year in which this Adoption
Agreement is signed. For example, if an employer maintains a plan on a calendar
year basis and this Adoption Agreement is signed on September 24, 1997, the
effective date would be January 1, 1997. If you are establishing a plan for the
prior tax year, the effective date of the plan would be January 1 of the prior
tax year (assuming a calendar year tax basis).
If the reason you are adopting this plan is to amend and replace an existing SEP
plan, check Option B. The existing SEP plan which will be replaced is called a
"prior plan." You will need to know the effective date of the prior plan. The
best way to determine its effective date is to refer to the prior plan Adoption
Agreement. The effective date of this amendment and restatement is usually the
first day of the plan year in which the Adoption Agreement is signed.
SECTION 3. ELIGIBILITY REQUIREMENTS
NOTE: SECTION 3 MUST BE COMPLETED EVEN IF YOU DO NOT HAVE EMPLOYEES.
Within limits, you, as the employer, can specify the number of years your
employees must work for you and the age they must attain before they are
eligible to participate in this plan. Note that the eligibility requirements
which you set up for the plan also apply to you.
Suppose, for example, you establish a service requirement of three of the
immediately preceding five years and an age requirement of 21. In that case,
only those employees (including yourself) who have worked for you for three of
the immediately preceding five years and are at least 21 years old are eligible
to participate in this plan.
PART A. YEARS OF ELIGIBILITY SERVICE REQUIREMENT
Fill in the number of years of service (0, 1, 2 or 3). This number must be
either 0, 1, 2 or 3.
PART B. AGE REQUIREMENT
Fill in the age an employee must attain (no more than 21) to be eligible to
participate in the plan.
PART C. CLASS OF EMPLOYEES ELIGIBLE TO PARTICIPATE
1. Generally you are permitted to exclude employees covered by the terms of a
collective bargaining agreement (e.g., a union agreement) where retirement
benefits were bargained for and those employees who are nonresident aliens
with no U.S. income. If you wish to exclude those employees, check the first
box under Section 3, Part C.
2. You are permitted to exclude those employees who have received less than $400
for 1997 (indexed for cost of living increases) of compensation during the
plan year. Prior to 1996, the amount was $300. If you want to exclude those
employees, check the second box under Section 3, Part C.
SECTION 4. EMPLOYER CONTRIBUTION AND ALLOCATION FORMULA
PART A. CONTRIBUTION FORMULA
Because a SEP plan allows for flexible contributions, the amount of the
contribution will be determined from year to year. There are no blanks to be
completed in Part A.
PART B. ALLOCATION FORMULA
Once the contribution amount has been decided for a plan year, it must be
allocated among the participants in the plan. The contribution can be allocated
using either a pro rata formula or an integrated formula. Check either Option 1
or 2.
OPTION 1. PRO RATA FORMULA
Check this option if you wish to have the contribution allocated to all
qualifying participants based on their compensation for the plan year.
OPTION 2. INTEGRATED FORMULA
Check this option if the plan is to be integrated. Generally, integration is
a method of giving some participants in the plan an extra contribution
allocation. Because of the complexity of integration, you should consult your
tax advisor regarding this issue.
SECTION 5. EMPLOYER SIGNATURE
An authorized representative of the employer must sign and date the Adoption
Agreement. In addition, the prototype sponsor must provide its name, address and
telephone number.
(C)1995 Universal Pensions, Inc., Brainerd, MN 56401
- --------------------------------------------------------------------------------
<PAGE>
------------------
THE CGM FUNDS SIMPLIFIED EMPLOYEE PENSION PLAN [Fencer Logo]
ADOPTION AGREEMENT
------------------
- --------------------------------------------------------------------------------
SECTION 1. EMPLOYER INFORMATION
Name of Employer --------------------------------------------------------------
Address -----------------------------------------------------------------------
- -------------------------------------------------------------------------------
Daytime Telephone Number ------------------------------------------------------
Employer Tax Identification Number --------------------------------------------
Income Tax Year End -----------------------------------------------------------
(month) (day)
Plan Year End -----------------------------------------------------------------
(month) (day)
SECTION 2. EFFECTIVE DATES
Check and complete Option A or B
OPTION A.
[ ] This is the initial adoption of a Simplified Employee Pension plan by the
Employer. The Effective Date of this Plan is _____/_____/_____.
NOTE: The effective date is usually the first day of the Plan Year in which
this Adoption Agreement is signed.
OPTION B.
[ ] This is an amendment and restatement of an existing Simplified Employee
Pension plan (a Prior Plan). The Prior Plan was initially effective on
_____/_____/_____.
The Effective Date of this amendment and restatement is _____/_____/_____.
NOTE: The effective date is usually the first day of the Plan Year in which
this Adoption Agreement is signed.
SECTION 3. ELIGIBILITY REQUIREMENTS
Complete Parts A, B and C
PART A. SERVICE REQUIREMENT
An Employee will be eligible to become a Participant in the Plan after having
performed Service for the Employer during at least _____________ (enter 0, 1, 2
or 3) of the immediately preceding 5 Plan Years.
NOTE: If left blank, the Service Requirement will be deemed to be 0.
PART B. AGE REQUIREMENT
An Employee will be eligible to become a Participant in the Plan after attaining
age _______ (no more than 21).
NOTE: If left blank, it will be deemed there is no age requirement for
eligibility.
PART C. CLASS OF EMPLOYEES ELIGIBLE TO PARTICIPATE
All Employees shall be eligible to become a Participant in the Plan, except the
following (if checked):
[ ] Certain Employees covered by a collective bargaining agreement and
nonresident aliens, as described in Section 3.02 of the Plan.
[ ] Those Employees who have received less than $300 (indexed for cost of
living increases in accordance with Section 408(k)(8) of the Code) of
Compensation from the Employer during the Plan Year.
SECTION 4. EMPLOYER CONTRIBUTION AND ALLOCATION FORMULA
PART A. CONTRIBUTION FORMULA
For each Plan Year the Employer will contribute an amount to be determined from
year to year.
PART B. ALLOCATION FORMULA (Check Option 1 or 2)
OPTION 1. PRO RATA FORMULA.
[ ] The Employer Contribution for each Plan Year shall be allocated to the
IRA of each Participant in the same proportion as such Participant's
Compensation (not in excess of $200,000, indexed for cost of living
increases in accordance with Section 408(k)(8) of the Code) for the
Plan Year bears to the total Compensation of all Participants for such
year. The amount allocated to each Participant's IRA shall be limited
to the lesser of 15 percent of the first $200,000 (indexed) of the
Participant's Compensation or $30,000.
NOTE: See the Basic Plan Document, Section 2.03, seventh paragraph for OBRA '93
changes in the compensation limit.
OPTION 2. INTEGRATED FORMULA.
[ ] Employer Contributions shall be allocated in the manner described in
Section 4.01(B) of the Plan. For purposes of the integrated formula,
the integration level shall be (Choose one):
OPTION 1. [ ] The Taxable Wage Base (TWB)
OPTION 2. [ ] ________% of the TWB level shall be the Taxable Wage
Base.
NOTE: If no box is checked, the integration level shall be the Taxable
Wage Base.
SECTION 5. EMPLOYER SIGNATURE
X
- --------------------------------------------------------------------------------
Signature for Employer Date Signed
- --------------------------------------------------------------------------------
(Print Name)
Capital Growth Management Limited Partnership
- --------------------------------------------------------------------------------
Name of Prototype Sponsor
222 Berkeley Street, Suite 1013, Boston, MA 02116
- --------------------------------------------------------------------------------
Address
(617) 859-7714 or (800) 345-4048
- --------------------------------------------------------------------------------
Telephone Number
Note to Employer: Before signing this Adoption Agreement, you should obtain the
advice of a qualified attorney and tax advisor regarding its completion and the
legal and tax implications of adopting this Plan.
(C)1995 Universal Pensions, Inc., Brainerd, MN 56401
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
THE CGM FUNDS SEP-IRA ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
1. ACCOUNT INFORMATION
Name --------------------------------------------------------------------------
Social Security # [ ] [ ] [ ] - [ ] [ ] - [ ] [ ] [ ] [ ]
Address -----------------------------------------------------------------------
- -------------------------------------------------------------------------------
Date of Birth -----------------------------------------------------------------
Employer/Occupation -----------------------------------------------------------
Daytime Telephone Number (_____) ----------------------------------------------
2. INITIAL CONTRIBUTION INFORMATION (MINIMUM $1000)
Type of Plan: [ ] CGM Prototype or [ ] IRS Form 5305-SEP.
The enclosed check represents:
(If more than one option is selected below, please specify the contribution
amount for each option.)
[ ] SEP-IRA Contribution made by Employer for above participant.
$------------- current year $------------- prior year
[ ] Rollover contribution from another IRA or SEP-IRA.
$-------------
[ ] Transfer of assets from another SEP-IRA. COMPLETE SEP-IRA TRANSFER FORM AND
THE REST OF THIS FORM. $------------------
3. Investment Selection ($1000 minimum per fund)
$ ----------- CGM Focus Fund
$ ----------- CGM Mutual Fund
$ ----------- CGM Realty Fund
$ ----------- CGM Fixed Income Fund
$ ----------- CGM Capital Development Fund - see Section 9.
Existing account number:------------------------.
$ ----------- New England Cash Management Trust
[ ] Money Market Series [ ] U.S. Govt. Series
5.00
$ ----------- INITIAL APPLICATION FEE
(Required for all new plans)
$ ----------- AMOUNT OF CHECK ENCLOSED
MAKE ALL CHECKS PAYABLE TO STATE STREET BANK AND TRUST COMPANY (SSB). IF YOU
SELECT MORE THAN ONE FUND, PLEASE SUBMIT A CHECK FOR EACH FUND. NO THIRD PARTY
CHECKS (CHECKS ENDORSED OVER TO SSB AND CGM FROM AN INDIVIDUAL OR INSTITUTION)
WILL BE ACCEPTED.
4. TELEPHONE EXCHANGE PRIVILEGES
[ ] Yes [ ] No
This service enables you to exchange monies ($1,000 minimum) by telephone among
accounts with the same registration in the CGM Funds or New England Money Market
Funds. Shareholders exchanging into the CGM Capital Development Fund must meet
the eligibility requirements described in Section 9.
5. AUTOMATIC INVESTMENT PLAN - OPTIONAL
If you are the Employer, you can authorize us to debit your bank account and
apply the proceeds to your participant's SEP-IRA Account.
There is a $50 minimum per account. If you are an Employer and if you wish to
set up an Automatic Investment Plan for you or your Plan Participants, please
check this box and complete Section 10 on the reverse side.
6. BENEFICIARY DESIGNATION
This Beneficiary Designation is to be used to indicate the person or persons to
whom the IRA assets should be turned over in the event of your death. If you are
not survived by a validly designated Beneficiary, your benefits will be paid to
your estate in the event of your death. IMPORTANT: If you do not designate a
Beneficiary or if the Beneficiary designated is not a person, you cannot base
your calculations for distributions on joint life expectancy.
The Beneficiaries named herein and the manner of distribution may be changed
or revoked at any time by filing a new designation in writing with the
Custodian. This designation, and any changes or revocation, will only be
effective upon receipt by the Custodian.
PLEASE RETAIN A COPY FOR YOUR RECORDS.
Upon my death, distribute my IRA in equal shares to the following Principal
Beneficiaries who survive me or, if none survives me, in equal shares to the
following Secondary Beneficiaries who survive me:
Principal Beneficiary(ies):
- --------------------------------------------------------------------------------
Name Date of Birth Relationship
- --------------------------------------------------------------------------------
Address
Secondary Beneficiary(ies):
- --------------------------------------------------------------------------------
Name Date of Birth Relationship
- --------------------------------------------------------------------------------
Address
CONSENT OF SPOUSE
(To be used in community property states when spouse is not sole principal
beneficiary): I consent to the above Beneficiary Designation. By signing this
consent, I intend to change the portion (if any) of this IRA which is community
property into the separate property of my spouse. I specifically give to my
spouse any interest I have in the assets deposited in this account.
- --------------------------------------------------------------------------------
Signature of Spouse Date
7. SIGNATURE
By signing below, I certify that I agree to the provisions on the reverse side
listed in Section 8.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE:
X -----------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Please note that there is an annual $10 maintenance fee per account which will
be billed to you each year. (OVER)
- --------------------------------------------------------------------------------
SEPAPP9/97
8. PROVISIONS
By signing this application establishing an IRA under my Employer's Simplified
Employee Pension Plan (SEP-IRA), I (i) appoint State Street Bank and Trust
Company, or its successors, as Custodian of the Account, (ii) state that I have
received, read, accept, and specifically incorporate the Custodial Account
Agreement and Disclosure Statement by reference to this application, (iii)
acknowledge receipt of the current prospectus of the mutual fund(s) selected,
(iv) consent to the Custodian's fee, (v) agree to promptly give instructions to
the Custodian necessary to enable the Custodian to carry out its duties under
the plan, (vi) affirm that my participation is completely voluntary, and (vii)
confirm that my employer has made no specific endorsement of the choice of
investments available under this plan and (viii) certify under penalties of
perjury that the social security number provided is correct. I hereby adopt The
CGM Individual Retirement Account upon the terms and conditions thereof.
|_| If I have elected the "TELEPHONE EXCHANGE" service, I understand that the
Fund may terminate or modify this privilege at any time. The Fund will
employ reasonable procedures to confirm that instructions received by
telephone are genuine, such as requesting personal identification
information that appears on your account application and recording the
telephone conversation. You will bear the risk of loss due to unauthorized
or fraudulent instructions regarding your account, although the Fund may be
liable if reasonable procedures are not employed.
|_| FOR EMPLOYERS ONLY: If I have enrolled in the "AUTOMATIC INVESTMENT PLAN" in
Section 10, I authorize the Fund and its agents to initiate Automated
Clearing House (ACH) debits against the designated account at a bank or
other financial institution. I understand that:
- Fund shares purchased by Automatic Investment Plan must be owned for 15
days before they may be redeemed.
- My employer may terminate my Automatic Investment Plan by sending written
notice to CGM Funds c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511, or by
calling 800-343-5678 within 14 days of my next scheduled debit date.
- The CGM Funds may immediately terminate my Plan in the event that any item
is unpaid by the financial institution.
- The Fund may terminate or modify this privilege at any time.
9. WHO CAN PURCHASE SHARES OF CGM CAPITAL DEVELOPMENT FUND
Only shareholders of the Fund as of September 24, 1993 who remain shareholders
thereafter may purchase additional shares of the Fund. The Fund reserves the
right to reject any purchase order. This policy supersedes all previous
eligibility requirements. Fund shares are not generally available to other
persons except in special circumstances that have been approved by, or under the
authority of, the Board of Trustees of the Fund. The special circumstances
currently approved by the Board of Trustees of the Fund are limited to the offer
and sale of shares of the Fund to the following additional persons: trustees of
the Fund, employees of the Investment Manager and counsel to the Fund and the
Investment Manager.
10. AUTOMATIC INVESTMENT PLAN (AIP) - AVAILABLE ONLY TO EMPLOYERS
If you are an Employer, you can have us debit $50 or more on the same day each
month from your bank account and have it applied to your SEP-IRA account or the
SEP-IRA accounts of your Plan Participants. (Please allow 14 days for the AIP
Plan to start.)
To elect this option, please: |_| ATTACH A CHECK MARKED "VOID" FROM THE BANK
ACCOUNT YOU WILL BE USING.
|_| FILL IN THE INFORMATION REQUESTED BELOW.
Please invest $___________on or about 5th day of each month or 20th day of each
month (5th will be selected if no box is checked)
Please allocate the above investment amount as follows: (Please attach an
additional page if necessary.)
<TABLE>
<CAPTION>
Participant's Name Social Security Number Specific CGM Fund Name Monthly Investment Amount
<S> <C> <C> <C>
$
- ---------------------------------------------------------------------------------------------------------------------------------
$
- ---------------------------------------------------------------------------------------------------------------------------------
$
- ---------------------------------------------------------------------------------------------------------------------------------
$
- ---------------------------------------------------------------------------------------------------------------------------------
$
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL MONTHLY INVESTMENT $
------------------------
I authorize CGM to pay and charge to my account listed below Automated Clearing House (ACH) debits to the CGM Account(s)
listed above. Drafts will be made payable to the order of The CGM Funds. This authority is to remain in effect until revoked
by me in writing and, until you actually receive such notice, I agree you will be fully protected in honoring any such
debits.
</TABLE>
- --------------------------------------------------------------------------------
Name of Bank Bank Account Number
- --------------------------------------------------------------------------------
Name of Depositor(s) as Shown on Bank Records
- --------------------------------------------------------------------------------
X X
- --------------------------------------------------------------------------------
Signature of Employer Signature (if Joint Bank Account)
SEND APPLICATION TO: CGM FUNDS, P.O. BOX 449, BOSTON, MA 02117-0449
- --------------------------------------------------------------------------------
<PAGE>
PLEASE USE THIS FORM WHEN MOVING ASSETS DIRECTLY FROM ONE IRA TO ANOTHER IRA
- --------------------------------------------------------------------------------
THE CGM FUNDS SEP-IRA TRANSFER FORM
- --------------------------------------------------------------------------------
IMPORTANT: CGM will send a formal letter of instruction along with this SEP-IRA
Transfer form to your current Custodian. To ensure timely processing of your
transfer, please call your current Custodian and verify the current address of
their transfer department and any transfer requirements, such as a signature
guarantee. IF YOU ARE AGE 701 1/42 OR OLDER, YOU MUST COMPLETE THE BACK OF THIS
FORM.
TO: ( )
- --------------------------------------------------------------------------------
Name of Current Custodian Telephone Number
- --------------------------------------------------------------------------------
Address City State Zip Code
RE:
- --------------------------------------------------------------------------------
Name of Investment Account Number
|_| I have established an Individual Retirement Account under a SEP-IRA Plan
with the CGM Funds and have appointed State Street Bank and Trust Company as
the Successor Custodian.
|_| Please accept this as your authorization to (check one):
[ ] Liquidate and transfer $ or % ________________ of my IRA assets held by
you in the above account.
[ ] Liquidate and transfer all of my IRA assets held by you in the above
account.
|_| Please process this transaction as follows, effective (check one):
[ ] Immediately [ ] Upon maturity of my assets
|_| MAKE CHECK PAYABLE TO THE SPECIFIC CGM FUND IN WHICH YOU ARE INVESTING.
State Street Bank and Trust Company, Custodian for the SEP-IRA of:
---------------------------------------------------------------------
Participant Name Social Security Number
---------------------------------------------------------------------
CGM Fund CGM Account Number*
* (If existing SEP-IRA account with CGM, indicate your CGM
account number. If new, write "new" and complete SEP-IRA
Account Application.)
|_| Send check to: CGM Funds, c/o State Street Bank and Trust Company, P.O.
Box 8511, Boston, MA 02266-8511
- ------------------------------------
PLEASE SIGN HERE:
X --------------------------------
YOUR SIGNATURE DATE
- ------------------------------------
---------------------------------------
Your Street Address
Signature Guarantee (if required by
current Custodian)
---------------------------------------
City State Zip Code
Name of Firm: ---------------------
( )
By: ------------------------------- ---------------------------------------
Authorized Individual Your Daytime Phone Number
- --------------------------------------------------------------------------------
ACCEPTANCE BY CUSTODIAN
State Street Bank and Trust Company accepts the assets being transferred and
agrees to serve as the Custodian of the IRA Account established on behalf of the
above named individual.
- --------------------------------------------------------------------------------
/s/ Illegible
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE, STATE STREET BANK AND TRUST COMPANY DATE
- --------------------------------------------------------------------------------
SEPIRATRAN9/97 (OVER)
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<PAGE>
- --------------------------------------------------------------------------------
PLEASE COMPLETE THIS SECTION IF YOU ARE 70 1/2 OR OLDER.
If this transfer is being made during or after the year in which you turn age
70 1/2, your required minimum distribution for the current year must be taken
prior to this transfer. You have the following options:
1. Take the distribution from the account to be transferred prior to the
transfer.
2. Determine the dollar amount of the required minimum distribution for the
current year and transfer all assets except that dollar amount. Take that
required minimum distribution by December 31 of the current year, or by April
1 of the next year if you reached age 70 1/2 this year.
3. Take the required minimum distribution from another IRA which you may have.
You must take this action prior to completing this transfer. Kindly notify
your current IRA Plan Custodian in writing if you elect this option. Please
check with your current IRA Custodian for more information about minimum
distributions.
Please complete the following information concerning your distributions:
1. My distributions are based on: (Choose one) single life expectancy or joint
life expectancy.
2. My life expectancy (Choose one) is being recalculated is not being
recalculated.
3. The life expectancy of my Beneficiary (Choose one) is being recalculated is
not being recalculated.
4. The Date of Birth of my Designated Beneficiary being used to calculate
minimum required distributions with respect to the transferor plan is
--------------------. (If there is more than one Designated Beneficiary, you
must use the birthdate of the oldest Beneficiary.)
- --------------------------------------------------------------------------------
RETURN THIS FORM TO: THE CGM FUNDS o P.O. BOX 449 o BOSTON, MA 02117-0449
SEPIRATRAN9/97
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<PAGE>
------------------
THE CGM FUNDS SEP SUMMARY FOR EMPLOYEES [Fencer Logo]
- -------------------------------------------------------------
Please read together with your Employee Information Booklet. ------------------
ESTABLISHMENT OF SEP PLAN
Your employer has adopted a type of employee benefit plan known as a Simplified
Employee Pension (SEP) Plan. In order to become a participant in the Plan, you
must meet the Plan's eligibility requirements specified below. Once you become a
participant, you are entitled to receive a certain share of the amounts your
employer contributes to the Plan. All contributions will be deposited into a
SEP-IRA for you. Contributions made to the Plan for you are yours to keep. These
features of the Plan are explained further in the Employee Information Booklet.
(Employers: Please call the CGM Funds at 800-345-4048 to let us know how many
booklets you will need for your employees.)
The actual Plan is a complex legal document that has been written in a manner
required by the Internal Revenue Service. This document is called a SEP Summary
for Employees. It is designed to explain and summarize the important features of
the Plan. If you have any questions or need additional information about the
Plan, consult --------------------------------------.
(Name of Employer Representative)
You may examine the Plan itself at a reasonable time by making arrangements with
the above mentioned representative of your employer.
ELIGIBILITY REQUIREMENTS
EMPLOYER CONTRIBUTIONS: Your employer is not required to make contributions to
the Plan. However, if a contribution is made, your SEP-IRA will receive a share
of that contribution if you are an "eligible" employee and if you have met the
age and service requirements set forth below.
ELIGIBLE EMPLOYEES: Under the SEP Plan, all employees can participate except the
classifications of employees checked below:
[ ] Those employees covered by the terms of a collective bargaining agreement
(a union agreement) where retirement benefits were negotiated and those
employees who are nonresident aliens.
[ ] Those employees who did not earn at least $400 (for 1997) from the employer
during the year. (This $400 figure is increased by the IRS each year based
on changes in the cost of living.)
AGE REQUIREMENT: You must be at least ________ years old.
SERVICE REQUIREMENT: You must have worked for your employer in at least ________
(must be 0, 1, 2 or 3) of the immediately preceding 5 years.
CONTRIBUTION FORMULA
Any employer contribution will be allocated to your SEP-IRA in accordance with
the formula selected below (check one):
[ ] PRO RATA FORMULA. Each eligible employee will receive a pro rata portion
of the employer contribution equal to the ratio of his or her compensation
to the total compensation of all eligible employees. Thus, the contribution
will be the same percentage of compensation for all employees.
[ ] INTEGRATED FORMULA. Integration allows contribution percentages among
eligible employees to vary. Details about integration are provided in your
Employee Information Booklet. The integration level is (check one):
[ ] The Taxable Wage Base (TWB)
[ ] _______% of the TWB
SEP-IRA WITH PLAN SPONSOR
Under this SEP Plan, you must maintain your SEP-IRA at the following financial
organization subject to the following terms: THE CGM FUNDS, 222 BERKELEY STREET,
BOSTON, MA 02116.
MINIMUM MINIMUM
INITIAL SUBSEQUENT
INVESTMENT OPTIONS INVESTMENT INVESTMENT
- -----------------------------------------------------------------------------
CGM Focus Fund $1,000 $ 50
CGM Mutual Fund $1,000 $ 50
CGM Realty Fund $1,000 $ 50
CGM Fixed Income Fund $1,000 $ 50
CGM Capital Development Fund* $1,000 $ 50
New England Cash Management Trust $ 250 $100
Money Market Series
New England Cash Management Trust $ 250 $100
US Government Series
- --------------------------------------------------------------------------------
*Only shareholders of the CGM Capital Development Fund as of September 24, 1993
who have remained shareholders continuously since that date may purchase
additional shares of the Fund. Please see The CGM Fund SEP-IRA Account
Application (Section 9) for full details.
Before your Employer makes an investment on your behalf, please read the
prospectus(es) for the CGM Fund(s) in which your contribution will be invested.
Please refer to the Disclosure Statement and other documentation given to you by
the above named financial organization for the other terms and conditions which
apply to your SEP-IRA.
(C)1995 Universal Pensions, Inc., Brainerd, MN 56401
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<PAGE>
WORKSHEET A FOR EMPLOYERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THIS SHEET OFFERS GUIDANCE IN CALCULATING YOUR SEP-IRA CONTRIBUTION. PLEASE
SEEK PROFESSIONAL TAX ADVICE TO VALIDATE YOUR COMPUTATIONS.
- -------------------------------------------------------------------------------
HOW TO CALCULATE SEP CONTRIBUTIONS FOR A SELF-EMPLOYED PERSON
Individuals with self-employed income must base their contributions on "net
earnings", rather than W-2 compensation, and special rules apply when
figuring the maximum deduction for these contributions. Please see the
formula and example below for a full explanation.
DEFINITIONS
SELF-EMPLOYED INDIVIDUAL: A self-employed individual is an employee for SEP
purposes. He or she is also the employer. Even if the self-employed
individual is the only eligible employee, he or she can have a SEP-IRA.
COMPENSATION: For self-employed individuals, compensation refers to net
earnings.
NET EARNINGS: For SEP purposes, your net earnings from your business refers
to your income less business expenses, reduced by a deduction for one-half of
your self-employment tax, less your SEP-IRA contribution. (In this case,
"expenses" include SEP plan contributions you make on behalf of any eligible
employees, but exclude the contribution you, as a self-employed person, would
make on your own behalf.)
FORMULA
As mentioned above, the deduction allowed for a contribution must be taken
into account when determining the earned income of a self-employed person.
Because your deduction amount and your net earnings are each dependent on the
other, this adjustment presents a problem.
To solve this problem, you make the adjustment to net earnings indirectly by
reducing the contribution rate called for in the plan. Use the following
worksheet and your income tax forms to find this reduced contribution rate
and your maximum deduction. Make no reduction to the contribution rate for
any common-law employees.
This sheet offers guidance in calculating your SEP-IRA contribution. Please
seek professional tax advice to validate your computations.
- -------------------------------------------------------------------------------
1. Start with the contribution rate (%) you have selected
for all employees. And show that rate as a decimal. ....... -----------
2. Add 1 to the rate. 3. Divide line (1) by line (2). ........ -----------
4. Show your net earnings (not reduced for contributions to
your SEP-IRA) from Schedule C, C-EZ or F (Form 1040) or
Schedule K-1 (Form 1065). ................................. $----------
5. Enter deduction for self-employment tax (from Form 1040) .. $----------
6. Adjusted net earnings (subtract line 5 from line 4) ....... $----------
7. Multiply line 3 by the lesser of $160,000* (indexed) or
the adjusted net earnings on line 6. This is the maximum
deductible contribution to a self-employed person's
SEP-IRA. .................................................. $----------
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* The maximum compensation you may base your contribution on for 1997 is
$160,000
Please refer to the example on the next page.
9/97
WORKA97
- --------------------------------------------------------------------------------
<PAGE>
WORKSHEET A SAMPLE
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS SHEET OFFERS GUIDANCE IN CALCULATING YOUR SEP-IRA CONTRIBUTIONS. PLEASE
SEEK PROFESSIONAL TAX ADVICE TO VALIDATE YOUR COMPUTATIONS.
- --------------------------------------------------------------------------------
EXAMPLE
You are a sole proprietor and have employees. This year you have decided to
contribute 15% of compensation for you and your employees. Your net earnings
from your business (not taking into account a deduction for contributions to
your own SEP-IRA) are $140,000.
Using the worksheet, you figure your maximum deduction for contributions to
your own SEP-IRA as follows:
- --------------------------------------------------------------------------------
1. Contribution rate selected (15%) shown as a decimal . ..... .15
2. Add 1 to the rate. ........................................ 1.15
3. Divide line (1) by line (2). .............................. .130435
4. Show your net earnings (not reduced for contributions to
your SEP-IRA) from Schedule C, C-EZ or F (Form 1040) or
Schedule K-1 (Form 1065) .................................. $140,000
5. Enter deduction for self-employment tax (from Form 1040) .. $ 10,000
6. Adjusted net earnings (subtract line 5 from line 4) ....... $130,000
7. Multiply line 3 by the lesser of $160,000* (indexed) or
the adjusted net earnings on line 6. This is the amount
of your SEP-IRA contribution. ............................. $ 16,956
- --------------------------------------------------------------------------------
* The maximum compensation you may base your contribution on for 1997 is
$160,000
- --------------------------------------------------------------------------------
For more information about SEP-IRAs, you may call the IRS at 800-829-3676
and ask for Publication 560 "Retirement Plans for the Self-Employed" or
Publication 590 "Individual Retirement Arrangements." Each publication is
free of charge.
- --------------------------------------------------------------------------------
9/97
WORKA97
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<PAGE>
WORKSHEET B FOR EMPLOYEES
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS SHEET OFFERS GUIDANCE IN CALCULATING YOUR SEP-IRA CONTRIBUTIONS. PLEASE
SEEK PROFESSIONAL TAX ADVICE TO VALIDATE YOUR COMPUTATIONS.
- --------------------------------------------------------------------------------
HOW TO CALCULATE SEP CONTRIBUTIONS FOR YOUR COMMON-LAW EMPLOYEES
The SEP rules permit you, as the employer, to make a contribution every year
to each eligible employee's SEP-IRA. You can contribute 0% to 15% of the
common-law employee's compensation. The maximum compensation you may base
your contribution on for 1997 is $160,000 (indexed). These contributions are
funded by you. The contribution rate designated can vary from year to year.
The same rate must be applied to all plan participants, including yourself,
within the same year, if you selected pro rata as your allocation formula. If
you have selected the integrated formula as your allocation method, please
contact your tax adviser for assistance in determining your contributions as
the computation is more involved than can be explained in this worksheet.
DEFINITIONS
Common-law employees are those employees who have no financial interest in
your business. Compensation for these employees is the amount recorded on
their W-2 form.
FORMULA
The formula for computing the SEP-IRA contribution using pro-rata allocation
for a common-law employee is as follows:
- --------------------------------------------------------------------------------
1. Decide the percentage (%) of compensation you
wish to contribute for yourself and your employees. ....... ------
Show that rate as a decimal.
2. Show the common-law employee's compensation. .............. $------
3. Multiply line (1) by line (2). This is the maximum
deductible contribution to a common-law employee's
SEP-IRA. .................................................. $------
- --------------------------------------------------------------------------------
Example
Barry is a common-law employee. His compensation for 1997 is $20,000. Barry's
employer has decided to contribute 15% of compensation for each employee.
- --------------------------------------------------------------------------------
1. Contribution rate selected (15%) shown as a decimal. ...... .15
2. Compensation of common-law employee. ...................... $20,000
3. Multiply line (1) by line (2). $20,000 x .15 = ............ $ 3,000
- --------------------------------------------------------------------------------
$3,000 is the amount that the employer may contribute to Barry's SEP-IRA.
9/97
WORKB97
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<PAGE>
------------------
THE CGM FUNDS SIMPLIFIED EMPLOYEE PENSION PLAN [Fencer Logo]
BASIC PLAN DOCUMENT
------------------
- --------------------------------------------------------------------------------
SECTION 1. ESTABLISHMENT AND PURPOSE OF PLAN
1.01 PURPOSE The purpose of this Plan is to provide, in accordance with its
provisions, a Simplified Employee Pension Plan providing benefits upon
retirement for the individuals who are eligible to participate hereunder.
1.02 INTENT TO QUALIFY It is the intent of the Employer that this Plan shall be
for the exclusive benefit of its Employees and shall qualify for approval under
Section 408(k) of the Internal Revenue Code, as amended from time to time (or
corresponding provisions of any subsequent Federal law at that time in effect).
In case of any ambiguity, it shall be interpreted to accomplish such result. It
is further intended that it comply with the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA) as amended from time to time.
1.03 WHO MAY ADOPT An employer who has ever maintained a defined benefit plan
which is now terminated may not participate in this prototype Simplified
Employee Pension Plan. If, subsequent to adopting this Plan, any defined benefit
plan of the Employer terminates, the Employer will no longer participate in this
prototype plan and will be considered to have an individually designed plan.
1.04 USE WITH IRA This prototype Simplified Employee Pension Plan must be used
with an Internal Revenue Service model IRA (Form 5305 or Form 5305-A) or an
Internal Revenue Service approved master or prototype IRA.
SECTION 2. DEFINITIONS
2.01 ADOPTION AGREEMENT Means the document executed by the Employer through
which it adopts the Plan and thereby agrees to be bound by all terms and
conditions of the Plan.
2.02 CODE Means the Internal Revenue Code of 1986 as amended.
2.03 COMPENSATION For the purposes of the $300 limit of Section 408(k)(2)(C) of
the Code shall be defined as Section 414(q)(7) Compensation.
For all other purposes, Compensation shall mean all of a Participant's wages as
defined in Section 3401(a) of the Code for the purposes of income tax
withholding at the source but determined without regard to any rules that limit
the remuneration included in wages based on the nature or location of the
employment or the services performed (such as the exception for agricultural
labor in Section 3401(a)(2) of the Code).
For any Self-Employed Individual covered under the Plan, Compensation will mean
Earned Income.
Compensation shall include only that Compensation which is actually paid or made
available to the Participant during the Plan Year.
Compensation shall include any amount which is contributed by the Employer
pursuant to a salary reduction agreement and which is not includible in the
gross income of the Employee under Sections 125, 402(a)(8), 402(h) or 403(b) of
the Code.
The annual Compensation of each Participant taken into account under the Plan
for any year shall not exceed $200,000. This limitation shall be adjusted by the
Secretary at the same time and in the same manner as under Section 415(d) of the
Code, except the dollar increase in effect on January 1 of any calendar year is
effective for years beginning in such calendar year and the first adjustment to
the $200,000 limitation is effected on January 1, 1990. If a Plan determines
Compensation on a period of time that contains fewer than 12 calendar months,
then the annual Compensation limit is an amount equal to the annual Compensation
limit for the calendar year in which the compensation period begins multiplied
by the ratio obtained by dividing the number of full months in the period by 12.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
Compensation limit. The OBRA '93 annual Compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which Compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual Compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the determination period, and
the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this Plan
to the limitation under Section 401(a)(17) of the Code shall mean the OBRA '93
annual Compensation limit set forth in this provision.
2.04 EARNED INCOME Means the net earnings from self-employment in the trade or
business with respect to which the Plan is established, for which personal
services of the individual are a material income-producing factor. Net earnings
will be determined without regard to items not included in gross income and the
deductions allocable to such items. Net earnings are reduced by contributions by
the Employer to a qualified plan or to a Simplified Employee Pension Plan to the
extent deductible under Section 404 of the Code.
Net earnings shall be determined with regard to the deduction allowed to the
Employer by Section 164(f) of the Code for taxable years beginning after
December 31, 1989.
2.05 EFFECTIVE DATE Means the date the Plan becomes effective as indicated in
the Adoption Agreement.
2.06 EMPLOYEE Means any person who is a natural person employed by the Employer
as a common-law employee and if the Employer is a sole proprietorship or
partnership, any Self-Employed Individual who performs services with respect to
the trade or business of the Employer. Further, any employee of any other
employer required to be aggregated under Section 414(b), (c), (m), or (o) of the
Code and any leased employee required to be treated as an employee of the
Employer under Section 414(n) of the Code shall also be considered an Employee.
2.07 EMPLOYER Means any corporation, partnership or sole proprietorship named in
the Adoption Agreement and any successor who by merger, consolidation, purchase
or otherwise assumes the obligations of the Plan. A partnership is considered to
be the Employer of each of the partners and a sole proprietorship is considered
to be the Employer of the sole proprietor.
2.08 EMPLOYER CONTRIBUTION Means the amount contributed by the Employer to this
Plan.
2.09 IRA Means the designated Individual Retirement Account or Individual
Retirement Annuity, which satisfies the requirements of Section 408 of the Code,
and which is maintained with the Prototype Sponsor by a Participant.
2.10 PARTICIPANT Means any Employee who has met the participation requirements
of Section 3.01 and who is or may become eligible to receive an Employer
Contribution.
2.11 PLAN Means this plan document plus the corresponding Adoption Agreement as
completed and signed by the Employer.
2.12 PLAN YEAR Means the 12 consecutive month period which coincides with
Employer's taxable year or such other 12 consecutive month period as is
designated in the Adoption Agreement.
2.13 PRIOR PLAN Means a plan which was amended or replaced by adoption of this
plan document, as indicated in the Adoption Agreement.
2.14 PROTOTYPE SPONSOR Means the entity specified in the Adoption Agreement
which sponsors this prototype Plan.
2.15 SELF-EMPLOYED INDIVIDUAL Means an individual who has Earned Income for a
Plan Year from the trade or business for which the Plan is established; also, an
individual who would have had Earned Income but for the fact that the trade or
business had no net profits for the Plan Year.
2.16 SERVICE Means the performance of duties by an Employee for the Employer,
for any period of time, however short, for which the Employee is paid or
entitled to payment. When the Employer maintains the Plan of a predecessor
employer, an Employee's Service will include his service for such predecessor
employer.
2.17 TAXABLE WAGE BASE Means the maximum amount of earnings which may be
considered wages for a year under Section 3121(a)(1) of the Code in effect as of
the beginning of the Plan Year.
SECTION 3. ELIGIBILITY AND PARTICIPATION
3.01 ELIGIBILITY REQUIREMENTS Except for those Employees excluded pursuant to
Section 3.02, each Employee of the Employer who fulfills the eligibility
requirements specified in the Adoption Agreement shall, as a condition for
further employment, become a Participant. Each Participant must establish an IRA
with the Prototype Sponsor to which Employer Contributions under this Plan will
be made.
3.02 EXCLUSION OF CERTAIN EMPLOYEES If the Employer has so indicated in the
Adoption Agreement, the following Employees shall not be eligible to become a
Participant in the Plan: (1) Those Employees included in a unit of Employees
covered by the terms of a collective bargaining agreement, provided retirement
benefits were the subject of good faith bargaining; and (2) those Employees who
are nonresident aliens, who have received no earned income from the Employer
which constitutes earned income from sources within the United States.
3.03 ADMITTANCE AS A PARTICIPANT
A. PRIOR PLAN If this Plan is an amendment or continuation of a Prior Plan, each
Employee of the Employer who immediately before the Effective Date was a
participant in said Prior Plan shall be a Participant in this Plan as of said
date.
B. NOTIFICATION OF ELIGIBILITY The Employer shall notify each Employee who
becomes a Participant of his status as a Participant in the Plan and of his
duty to establish an IRA with the Prototype Sponsor to which Employer
Contributions may be made.
C. ESTABLISHMENT OF AN IRA If a Participant fails to establish an IRA for
whatever reason, the Employer may execute any necessary documents to
establish an IRA with the Prototype Sponsor on behalf of the Participant.
3.04 DETERMINATIONS UNDER THIS SECTION The Employer shall determine the
eligibility of each Employee to be a Participant. This determination shall be
conclusive and binding upon all persons except as otherwise provided herein or
by law.
3.05 LIMITATION RESPECTING EMPLOYMENT Neither the fact of the establishment of
the Plan nor the fact that a common-law employee has become a Participant shall
give to that common-law employee any right to continued employment; nor shall
either fact limit the right of the Employer to discharge or to deal otherwise
with a common-law employee without regard to the effect such treatment may have
upon the Employee's rights under the Plan.
SECTION 4. CONTRIBUTIONS AND ALLOCATIONS
4.01 EMPLOYER CONTRIBUTIONS
A. ALLOCATION FORMULA Employer Contributions shall be allocated in accordance
with the allocation formula selected in the Adoption Agreement. Each Employee
who has satisfied the eligibility requirements pursuant to Section 3.01
(thereby becoming a Participant) will share in such allocation.
Employer Contributions made for a Plan Year on behalf of any Participant
shall not exceed the lesser of 15% of Compensation or the limitation in
effect under Code Section 415(c)(1)(A) (indexed for cost of living increases
in accordance with Code Section 415(d)).
B. INTEGRATED ALLOCATION FORMULA If the Employer has selected the integrated
allocation formula in the Adoption Agreement, then Employer Contributions for
the Plan Year will be allocated to Participants' IRAs as follows:
STEP 1 Employer Contributions will be allocated to each Participant's IRA in
the ratio that each Participant's total Compensation bears to all
Participants' total Compensation, but not in excess of 3% of each
Participant's Compensation.
STEP 2 Any Employer Contributions remaining after the allocation in Step 1
will be allocated to each Participant's IRA in the ratio that each
Participant's Compensation for the Plan Year in excess of the integration
level bears to the Compensation of all Participants in excess of the
integration level, but not in excess of 3%.
STEP 3 Any Employer Contributions remaining after the allocation in Step 2
will be allocated to each Participant's IRA in the ratio that the sum of each
Participant's total Compensation and Compensation in excess of the
integration level bears to the sum of all Participants' total Compensation
and Compensation in excess of the integration level, but not in excess of the
maximum disparity rate described in the table below.
STEP 4 Any Employer Contributions remaining after the allocation in Step 3
will be allocated to each Participant's IRA in the ratio that each
Participant's total Compensation for the Plan Year bears to all Participants'
total Compensation for that Plan Year.
The integration level shall be equal to the Taxable Wage Base or such lesser
amount elected by the Employer in the Adoption Agreement.
INTEGRATION LEVEL MAXIMUM DISPARITY RATE
----------------- ----------------------
Taxable Wage Base (TWB) 2.7%
More than $0 but not more than X* 2.7%
More than X* of TWB but not more than 80% of TWB 1.3%
More than 80% of TWB but not more than TWB 2.4%
* X means the greater of $10,000 or 20% of TWB.
C. TIMING OF EMPLOYER CONTRIBUTION Employer Contributions, if any, made on
behalf of Participants for a Plan Year shall be allocated and deposited to
the IRA of each Participant no later than the due date for filing the
Employer's tax return (including extensions).
4.02 VESTING, WITHDRAWAL RIGHTS TO CONTRIBUTIONS All Employer Contributions made
under the Plan on behalf of Employees shall be fully vested and nonforfeitable
at all times. Each Employee shall have an unrestricted right to withdraw at any
time all or a portion of the Employer Contributions made on his behalf. However,
withdrawals taken are subject to the same taxation and penalty provisions of the
Code which are applicable to IRA distributions.
4.03 SIMPLIFIED EMPLOYER REPORTS The Employer shall furnish reports, relating to
contributions made under the Plan, in the time and manner and containing the
information prescribed by the Secretary of the Treasury, to Participants. Such
reports shall be furnished at least annually and shall disclose the amount of
the contribution made under the Plan to the Participant's IRA.
SECTION 5. AMENDMENT OR TERMINATION OF PLAN
5.01 AMENDMENT BY EMPLOYER The Employer reserves the right to amend the
elections made or not made on the Adoption Agreement by executing a new Adoption
Agreement and delivering a copy of the same to the Prototype Sponsor. The
Employer shall not have the right to amend any nonelective provision of the
Adoption Agreement nor the right to amend provisions of this plan document. If
the Employer adopts an amendment to the Adoption Agreement or plan document in
violation of the preceding sentence, the Plan will be deemed to be an
individually designed plan and may no longer participate in this prototype Plan.
5.02 AMENDMENT BY PROTOTYPE SPONSOR By adopting this Plan, the Employer
delegates to the Prototype Sponsor the power to amend or replace the Adoption
Agreement or the Plan to conform them to the provisions of any law, regulations
or administrative rulings pertaining to Simplified Employee Pensions and to make
such other changes to the Plan, which, in the judgment of the Prototype Sponsor,
are necessary or appropriate. The Employer shall be deemed to have consented to
all such amendments; provided however, that no changes may be made without the
consent of the Employer if the effect would be to substantially change the costs
or benefits under the Plan. The Prototype Sponsor shall not have the obligation
to exercise or not to exercise the power delegated to it nor shall the Prototype
Sponsor incur liability of any nature for any act done or failed to be done by
the Prototype Sponsor in good faith in the exercise or nonexercise of the power
delegated hereunder.
5.03 LIMITATIONS ON POWER TO AMEND No amendment by either the Employer or the
Prototype Sponsor shall reduce or otherwise adversely affect any benefits of a
Participant or Beneficiary acquired prior to such amendment unless it is
required to maintain compliance with any law, regulation or administrative
ruling pertaining to Simplified Employee Pensions.
5.04 TERMINATION While the Employer expects to continue the Plan indefinitely,
the Employer shall not be under any obligation or liability to continue
contributions or to maintain the Plan for any given length of time. The Employer
may terminate this Plan at any time by appropriate action of its managing body.
This Plan shall terminate on the occurrence of any of the following events:
A. Delivery to the Prototype Sponsor of a notice of termination executed by the
Employer specifying the effective date of the Plan's termination.
B. Adjudication of the Employer as bankrupt or the liquidation or dissolution of
the Employer.
5.05 NOTICE OF AMENDMENT, TERMINATION Any amendment or termination shall be
communicated by the Employer to all appropriate parties as required by law.
Amendments made by the Prototype Sponsor shall be furnished to the Employer and
communicated by the Employer to all appropriate parties as required by law. Any
filings required by the Internal Revenue Service or any other regulatory body
relating to the amendment or termination of the Plan shall be made by the
Employer.
5.06 CONTINUANCE OF PLAN BY SUCCESSOR EMPLOYER A successor of the Employer may
continue the Plan and be substituted in the place of the present Employer. The
successor and present Employer (or if deceased, the executor of the estate of a
deceased Self-Employed Individual who was the Employer) must execute a written
instrument authorizing such substitution and the successor must complete and
sign a new Adoption Agreement.
(C)1995 Universal Pensions, Inc., Brainerd, MN 56401
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<PAGE>
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27
INTERNAL REVENUE SERVICE Department of the Treasury
Prototype SEP 001
FFN: 50495842700-001 Case: 9580029 Washington, DC 20224
EIN: 04-3076053
Letter Serial No: D410091a
Person to Contact: Ms. Arrington
* CAPITAL GROWTH MANAGEMENT
Telephone Number: (202) 622-8173
222 BERKELEY STREET SUITE 1013
Refer Reply to: CP:E:EP:Q:P3
BOSTON, MA 02116
Date: 03/22/95
Dear Applicant:
In our opinion, the form of your Simplified Employee Pension (SEP) arrangement
is acceptable under section 408(k) of the Internal Revenue Code. This SEP
arrangement is approved for use only in conjunction with an Individual
Retirement Arrangement (IRA) which meets the requirements of Code section 408
and has received a favorable opinion letter, or a model IRA (Forms 5305 and
5305-A).
Employers who adopt this approved plan will be considered to have a retirement
savings program that satisfies the requirements of Code section 408 provided
that it is used in conjunction with an approved IRA. Please provide a copy of
this letter to each adopting employer.
Code section 408(1) and related regulations require that employers who adopt
this SEP arrangement furnish employees in writing certain information about this
SEP arrangement and annual reports of savings program transactions.
Your program may have to be amended to include or revise provisions in order to
comply with future changes in the law or regulations.
If you have any questions concerning IRS processing of this case, call us at the
above telephone number. Please refer to the Letter Serial Number and File Folder
Number shown in the heading of this letter. Please provide those adopting this
plan with your phone number, and advise them to contact your office if they have
any questions about the operation of this plan.
You should keep this letter as a permanent record. Please notify us if you
terminate the form of this plan.
Sincerely yours,
/s/ Illegible
Chief, Employee Plans Technical Branch
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- ------------------ THE CGM FUNDS
[Fencer Logo] Post Office Box 449
Boston, Massachusetts 02117
- ------------------ 800-345-4048 o 617-859-7295 (fax)
SEPIRABOOK 9/97
<PAGE>
- --------------------------------------------------------------------------------
CGM IRA TRANSFER FORM
- --------------------------------------------------------------------------------
Please read the notes on the reverse side before you fill out this form.
To convert assets from a Traditional IRA to a Roth IRA, please call
800-345-4048 for the Roth Conversion Form.
YOUR NAME AND ADDRESS
- --------------------------------------- [ ] [ ] [ ] - [ ] [ ] - [ ] [ ] [ ] [ ]
Name Social Security Number
- ---------------------------------------
Address
- --------------------------------------- (---) -----------------------
City State Zip Code Daytime Phone Number
CGM ACCOUNT INFORMATION
Type of IRA (please check one box): [ ] Traditional Contributory [ ] Traditional
Rollover [ ] Roth Contributory [ ] Roth Conversion
Please print or type the name of your current CGM Fund and your account number.
Indicate the dollar amount or percentage you want to invest in each account. If
you want to establish a new account in another CGM Fund, specify the Fund name
and write "new" under Account Number.
$ AMOUNT / %
FUND NAME ACCOUNT NUMBER AMOUNT TO BE INVESTED
- ---------------------- --------------------- ---------------------------
- ---------------------- --------------------- ---------------------------
PLEASE COMPLETE AND SIGN THESE INSTRUCTIONS
IMPORTANT: To ensure timely processing of your transfer, please call your
current Custodian's Transfer Department and verify the correct address and any
transfer requirements, such as a signature guarantee.
If you are 70 1/2 or older and are transferring assets from a Traditional IRA,
please check this box M and complete the first section on the reverse side of
this form.
Type of IRA (please check one box): [ ] Traditional Contributory
[ ] Traditional Rollover
[ ] Roth Contributory
[ ] Roth Conversion
For Roth IRAs only: Indicate tax year of Initial Investment _______________.
- ---------------------------------------------------------(---) ---------------
Name of Current Current IRA Account Custodian's Phone
Custodian Number Number
- --------------------------------------------------------------------------------
Address City State Zip Code
|_| Please accept this as your [ ] Transfer All OR [ ] Transfer $ or
authorization to: % ------ to my CGM IRA
|_| The transfer should be [ ] Immediately OR [ ] Upon Maturity of
processed: My Assets
- --------------------------------------------------------------------------------
I request that the above named Signature Guarantee (If Required
Custodian liquidate and transfer my by Current Custodian)
IRA assets as cash to State Street
Bank and Trust Company, Custodian Name of Firm: ---------------------
of my CGM IRA.
X
- ---------------------------------- BY: -------------------------------
YOUR SIGNATURE DATE Authorized Individual
- --------------------------------------------------------------------------------
CUSTODIAN: MAKE CHECK PAYABLE TO:
STATE STREET BANK AND TRUST COMPANY, C/O CGM FUNDS,
P.O. BOX 8511, BOSTON, MA 02266-8511
(Please include the Participant's name and Social Security Number
on your check.)
ACCEPTANCE BY CUSTODIAN: State Street Bank and Trust Company accepts the assets
being transferred and agrees to serve as the Custodian of the IRA Account
established on behalf of the above named individual.
/s/ Illegible
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE, STATE STREET BANK AND TRUST COMPANY DATE
IRATRAN 2/98
<PAGE>
- --------------------------------------------------------------------------------
IMPORTANT INFORMATION IF YOU ARE 70 1/2 OR OLDER AND TRANSFERRING ASSETS FROM
A TRADITIONAL IRA
If this transfer is being made during or after the year in which you turn age
70 1/2, your required minimum distribution for the current year must be taken
prior to this transfer. You have the following options:
1. Take the distribution from the account to be transferred prior to the
transfer.
2. Determine the dollar amount of the required minimum distribution for the
current year and transfer all assets except that dollar amount. Take that
required minimum distribution by December 31 of the current year, or by April
1 of the next year if you reached age 70 1/2 this year.
3. Take the required minimum distribution from another IRA which you may have.
You must take this action prior to completing this transfer. Kindly notify
your current IRA Plan Custodian in writing if you elect this option. Please
check with your current IRA Custodian for more information about minimum
distributions.
PLEASE COMPLETE THE FOLLOWING INFORMATION CONCERNING YOUR DISTRIBUTIONS:
1. My distributions are based on (Choose one) [ ] single life expectancy or
[ ] joint life expectancy.
2. My life expectancy (Choose one) [ ] is being recalculated [ ] is not being
recalculated.
3. The life expectancy of my Beneficiary (Choose one) [ ] is being recalculated
[ ] is not being recalculated.
4. The date of birth of my Designated Beneficiary being used to calculate
required minimum distributions with respect to the transferor plan is
-------------------. (If there is more than one Designated Beneficiary, you
must use the birthdate of the oldest Beneficiary.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES ABOUT IRA TRANSFERS...
There are four types of IRAs specified below which may be transferred.
|_| Traditional Contributory |_| Roth Contributory
|_| Traditional Rollover |_| Roth Conversion
Please note that when you transfer IRA assets from one financial institution
to another, you are generally required to move assets to and from the same
type of IRA except for Traditional Contributory and Traditional Rollover
assets which can be commingled. Also, a separate Roth Conversion Plan must be
maintained for each tax year in which a conversion is made. For example, if
you have a "Roth Contributory" IRA with another firm, you must move those
assets into a "Roth Contributory" IRA with the new firm. The Internal Revenue
Service requires you to keep IRA assets segregated in this manner so that tax
reporting can be handled more easily.
If you are unsure of the type of IRA you currently have, please check your
original plan documents or ask the financial institution with whom your
account is currently set up to verify your 'IRA type'. It is very important
that you correctly identify the type of assets before you transfer those
assets to CGM.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
How to Transfer Assets to Your Existing CGM IRA
1. Complete and sign the IRA Transfer Form.
2. Mail the Transfer Form to CGM Funds, P.O. Box 8511, Boston, MA 02266-8511 in
the return envelope provided.
3. Upon receipt of your Transfer Form, CGM will send a letter of acceptance and
your authorization to transfer assets to your current IRA Custodian and
provide you with a copy of the letter.
4. After the transferred IRA proceeds have been received by CGM, a statement
confirming the transaction will be mailed to you.
- --------------------------------------------------------------------------------
RETURN THIS FORM TO: THE CGM FUNDS, P.O. BOX 8511, BOSTON, MA 02266-8511
QUESTIONS? CALL 800-345-4048
<PAGE>
- --------------------------------------------------------------------------------
CGM IRA TRANSFER FORM FOR NEW ACCOUNTS
- --------------------------------------------------------------------------------
Please read the notes on the reverse side before you fill
out this form. To convert assets from a Traditional IRA to a
Roth IRA, please use the Roth IRA Conversion Form in this packet.
YOUR NAME AND ADDRESS
- --------------------------------------- [ ] [ ] [ ] - [ ] [ ] - [ ] [ ] [ ] [ ]
Name Social Security Number
- ---------------------------------------
Address
- --------------------------------------- (---) -----------------------
City State Zip Code Daytime Phone Number
INVESTMENT INSTRUCTIONS
Type of IRA (please check one box): [ ] Traditional Contributory
[ ] Traditional Rollover
[ ] Roth Contributory
[ ] Roth Conversion
|_| Enclose $5.00 plan establishment fee. Make check payable to State Street
Bank and Trust Company.
Please type or print the name of the fund(s) you wish to invest in:
FUND NAME $ AMOUNT / % AMOUNT
- --------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------
PLEASE COMPLETE AND SIGN THESE INSTRUCTIONS
IMPORTANT: To ensure timely processing of your transfer, please call your
current Custodian's Transfer Department and verify the correct address and any
transfer requirements, such as a signature guarantee.
If you are 70 1/2 or older and are transferring assets from a Traditional IRA,
please check this box M and complete the first section on the reverse side of
this form.
Type of IRA (please check one box): [ ] Traditional Contributory
[ ] Traditional Rollover
[ ] Roth Contributory
[ ] Roth Conversion
For Roth IRAs only: Indicate tax year of initial investment -------------.
- ---------------------------------------------------------(---) ---------------
Name of Current Current IRA Account Custodian's Phone
Custodian Number Number
- --------------------------------------------------------------------------------
Address City State Zip Code
|_| Please accept this as your [ ] Transfer All OR [ ] Transfer $ or
authorization to: % ------ to my CGM IRA
|_| The transfer should be [ ] Immediately OR [ ] Upon Maturity of
processed: My Assets
- --------------------------------------------------------------------------------
I request that the above named Signature Guarantee (If Required
Custodian liquidate and transfer my by Current Custodian)
IRA assets as cash to State Street
Bank and Trust Company, Custodian Name of Firm: ---------------------
of my CGM IRA.
X
- ---------------------------------- BY: -------------------------------
YOUR SIGNATURE DATE Authorized Individual
- --------------------------------------------------------------------------------
CUSTODIAN: MAKE CHECK PAYABLE TO:
STATE STREET BANK AND TRUST COMPANY, C/O CGM FUNDS,
P.O. BOX 8511, BOSTON, MA 02266-8511
(Please include the Participant's name and Social Security Number on
your check.)
- --------------------------------------------------------------------------------
ACCEPTANCE BY CUSTODIAN: State Street Bank and Trust Company accepts the assets
being transferred and agrees to serve as the Custodian of the IRA Account
established on behalf of the above named individual.
/s/ Illegible
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE, STATE STREET BANK AND TRUST COMPANY DATE
- --------------------------------------------------------------------------------
IRATRANNEW 2/98
<PAGE>
- --------------------------------------------------------------------------------
IMPORTANT INFORMATION IF YOU ARE 70 1/2 OR OLDER AND TRANSFERRING ASSETS FROM
A TRADITIONAL IRA
If this transfer is being made during or after the year in which you turn age
70 1/2, your required minimum distribution for the current year must be taken
prior to this transfer. You have the following options:
1. Take the distribution from the account to be transferred prior to the
transfer.
2. Determine the dollar amount of the required minimum distribution for the
current year and transfer all assets except that dollar amount. Take that
required minimum distribution by December 31 of the current year, or by April
1 of the next year if you reached age 70 1/2 this year.
3. Take the required minimum distribution from another IRA which you may have.
You must take this action prior to completing this transfer. Kindly notify
your current IRA Plan Custodian in writing if you elect this option. Please
check with your current IRA Custodian for more information about minimum
distributions.
PLEASE COMPLETE THE FOLLOWING INFORMATION CONCERNING YOUR DISTRIBUTIONS:
1. My distributions are based on (Choose one) [ ] single life expectancy or
[ ] joint life expectancy.
2. My life expectancy (Choose one) [ ] is being recalculated [ ] is not being
recalculated.
3. The life expectancy of my Beneficiary (Choose one) [ ] is being recalculated
[ ] is not being recalculated.
4. The date of birth of my Designated Beneficiary being used to calculate
required minimum distributions with respect to the transferor plan is
---------------. (If there is more than one Designated Beneficiary, you must
use the birthdate of the oldest Beneficiary.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES ABOUT IRA TRANSFERS...
There are four types of IRAs specified below which may be transferred.
|_| Traditional Contributory |_| Roth Contributory
|_| Traditional Rollover |_| Roth Conversion
Please note that when you transfer IRA assets from one financial institution
to another, you are generally required to move assets to and from the same
type of IRA except for Traditional Contributory and Traditional Rollover
assets which can be commingled. Also, a separate Roth Conversion Plan must be
maintained for each tax year in which a conversion is made. For example, if
you have a "Roth Contributory" IRA with another firm, you must move those
assets into a "Roth Contributory" IRA with the new firm. The Internal Revenue
Service requires you to keep IRA assets segregated in this manner so that tax
reporting can be handled more easily.
If you are unsure of the type of IRA you currently have, please check your
original plan documents or ask the financial institution with whom your
account is currently set up to verify your 'IRA type'. It is very important
that you correctly identify the type of assets before you transfer those
assets to CGM.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HOW TO TRANSFER ASSETS TO CGM
1. Complete and sign the IRA Account Application.
2. Complete and sign the IRA Transfer Form for New Accounts.
3. Enclose a check for $5.00 made payable to State Street Bank and Trust
Company.
4. Mail the above items to CGM Funds, P.O. Box 449, Boston, MA 02117-0449 in the
return envelope provided.
5. Upon receipt of your IRA Account Application, Transfer Form for New Accounts
and check, CGM will establish your IRA. We will send a letter of acceptance
and your authorization to transfer assets to your current IRA Custodian and
provide you with a copy of the letter.
6. After the transferred IRA proceeds have been received by CGM, a statement
confirming the transaction will be mailed to you.
- --------------------------------------------------------------------------------
RETURN THIS FORM TO: THE CGM FUNDS, P.O. BOX 449, BOSTON, MA 02117-0449
QUESTIONS? CALL 800-345-4048
<PAGE>
- --------------------------------------------------------------------------------
IRA ROLLOVER RULES
- --------------------------------------------------------------------------------
ROTH IRA ROLLOVER
PLEASE REVIEW THIS SHEET WHEN ROLLING OVER ASSETS FROM A ROTH IRA WITH ANOTHER
FIRM TO A CGM ROTH IRA. COMPLETE INSTRUCTIONS FOR AUTHORIZING THE ROLLOVER ARE
GIVEN BELOW:
RULES AND CONDITIONS APPLICABLE TO ROLLOVERS
A rollover is a way to move money from one IRA plan to another IRA plan. The
Internal Revenue Code (IRC) limits how many rollovers may be taken, how quickly
rollovers must be completed, and how the Custodian must report the transaction.
By properly completing and signing the CGM IRA Account Application, you are
certifying to the Custodian that you have satisfied the rules and conditions
applicable to your rollover and that you are making an irrevocable election to
treat the transaction as a rollover. Below are the rules governing rollovers
when assets pass from one Roth IRA to another Roth IRA:
1. TIMELINESS: The assets you receive from the distributing Roth IRA must be
deposited into another Roth IRA within 60 days after you receive them.
However, this period is 120 days for certain rollovers relating to first-
home purchases. When counting the 60 (or 120) days include weekends and
holidays. There are generally no exceptions to the 60 day rule and the IRS
cannot grant extensions. Receipt generally means the day you actually have
the assets in hand. For example, the 60 days would begin on the day
following the day you receive the check in the mail.
2. TWELVE MONTH RESTRICTION: You are entitled to one rollover distribution
per year for each Roth IRA Plan which you have established. Twelve (12)
months must pass after receipt of one distribution which you roll over
before you may take another distribution from the same Roth IRA to roll
over. A Roth IRA is created by executing a plan agreement, not by
depositing a contribution into a separate investment within an existing
Roth IRA. The twelve-month rule is not applicable to conversions from a
Traditional IRA to a Roth IRA.
You are entitled to roll over the same assets only once in a twelve (12)
month period. Twelve (12) months must elapse between the time you receive
a distribution of the assets to be rolled until you receive another
distribution of those same assets for rollover purposes.
CAUTION ABOUT COMMINGLING ASSETS: YOU MAY GENERALLY NOT ROLL THE ASSETS INTO AN
EXISTING ROTH CONVERSION IRA.
HOW TO ROLLOVER YOUR ASSETS TO A CGM ROTH IRA FROM ANOTHER ROTH IRA
1. Complete and sign the IRA Account Application. Please note that Roth
Contributory and Roth Conversion assets must be segregated. A separate plan
must be established for each.
2. Enclose your check for the rollover proceeds (plus $5.00) payable to State
Street Bank and Trust Company.
3. Mail the above items to CGM Funds, PO Box 449, Boston, MA 02117-0449.
4. Upon receipt of your IRA Account Application and check, CGM will establish
your CGM Roth IRA Account. A statement confirming the transaction will be
sent to you.
Questions? Call 800-345-4048.
<PAGE>
TRADITIONAL IRA ROLLOVER
PLEASE REVIEW THIS SHEET WHEN ROLLING OVER ASSETS FROM A TRADITIONAL IRA WITH
ANOTHER FIRM TO A CGM TRADITIONAL IRA. COMPLETE INSTRUCTIONS FOR AUTHORIZING THE
ROLLOVER ARE GIVEN BELOW:
RULES AND CONDITIONS APPLICABLE TO ROLLOVERS
A rollover is a way to move money from one IRA plan to another IRA plan. The
Internal Revenue Code (IRC) limits how many rollovers may be taken, how quickly
rollovers must be completed, and how the Custodian must report the transaction.
By properly completing and signing the CGM IRA Account Application, you are
certifying to the Custodian that you have satisfied the rules and conditions
applicable to your rollover and that you are making an irrevocable election to
treat the transaction as a rollover. Below are the rules governing rollovers
when assets pass from one Traditional IRA to another Traditional IRA:
1. TIMELINESS: The assets you receive from the distributing Traditional IRA
must be deposited into another Traditional IRA within 60 days after you
receive them. However, this period is 120 days for certain rollovers
relating to first-home purchases. When counting the 60 (or 120) days
include weekends and holidays. There are generally no exceptions to the 60
day rule and the IRS cannot grant extensions. Receipt generally means the
day you actually have the assets in hand. For example, the 60 days would
begin on the day following the day you receive the check in the mail.
2. TWELVE MONTH RESTRICTION: You are entitled to one rollover distribution
per year for each Traditional IRA Plan which you have established. Twelve
(12) months must pass after receipt of one distribution which you roll
over before you may take another distribution from the same Traditional
IRA to roll over. A Traditional IRA is created by executing a plan
agreement, not by depositing a contribution into a separate investment
within an existing Traditional IRA.
You are entitled to roll over the same assets only once in a twelve (12)
month period. Twelve (12) months must elapse between the time you receive
a distribution of the assets to be rolled until your receive another
distribution of those same assets for rollover purposes.
HOW TO ROLLOVER YOUR ASSETS TO A CGM TRADITIONAL IRA FROM ANOTHER
TRADITIONAL IRA
1. Complete and sign the IRA Account Application.
2. Enclose your check for the rollover proceeds (plus $5.00) payable to State
Street Bank and Trust Company.
3. Mail the above items to CGM Funds, PO Box 449, Boston, MA 02117-0449.
4. Upon receipt of your IRA Account Application and check, CGM will establish
your CGM Traditional IRA Account. A statement confirming the transaction will
be sent to you.
Questions? Call 800-345-4048.
IRAROLL 2/98
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<NUMBER-OF-SHARES-SOLD> 2627268
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<EXPENSES-NET> 369573
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<SHARES-REINVESTED> 205039
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<GROSS-EXPENSE> 549654
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<NAME> CGM TRUST
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