CGM TRUST, N-30D, 1998-08-20

CGM TRUST
N-30D, 1998-08-20

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<PAGE>

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

CGM Fixed Income Fund declined -1.0% during the second quarter of 1998 compared
to the Merrill Lynch Master Bond Index which returned +2.4% over the same
period. For the first six months of the year CGM Fixed Income Fund returned
+0.6% and the Merrill Lynch Master Bond Index, 4.0%.

The U.S. economy is still strong: First quarter Gross Domestic Product grew at a
very high 5.4% annual rate and, although second quarter numbers are expected to
come in much lower, the pace continues to be brisk and appears sustainable.
Inflation, as measured by the Consumer Price Index, remains low, thanks largely
to commodity prices which have been falling for most of this year and also, to
economic problems in Asia. Corporate profit margins are slightly narrower than
at the end of the first quarter and in a few cases, companies have reported poor
results with most of the blame going to the Asian crisis.

At this point, Asia poses the greatest threat to ongoing economic peace of mind
in the U.S. The Asian recession is far worse than estimated last fall and it
appears that recovery will be slower in coming than originally anticipated.
Additionally, the Japanese economy is in trouble and the weak Yen puts
additional pressure on prices in neighboring countries. Commerce with Asia --
minus Japan -- represents but a small portion of the total U.S. economy so the
principal effect of the recession has been to force prices down, but only on
some of our goods. On one hand, lower prices have a favorable influence on our
rate of inflation; on the other, the situation is very disruptive to the
companies affected. As for the good news, the economic outlook of our far more
significant trading partners in Europe is improving.

In the U.S. equity markets, one of the dominant drivers of higher prices has
been the decline in long-term interest rates. One year ago, the long government
bond traded at a 6.6% yield; today it trades at 5.6%. The S&P 500 Index is now
at 1,140, or 25 times the estimated 1998 per share earnings of companies in the
index. Historically, this ratio is on the high side of equity pricing. Even
higher prices are harder to imagine unless long term rates continue to decline.

The bond market's best performing sector for the quarter was long Treasury
bonds. CGM Fixed Income Fund received some benefit from exposure to that sector
as well as diverse corporate bonds. While quality spreads widened more for the
first time in several years on fears of an economic slowdown resulting from
spill-over from the Asian crisis, falling rates did allow for positive returns
for corporate securities. Performance of CGM Fixed Income Fund was restrained by
its significant exposure to convertible Real Estate Investment Trust (REIT)
securities. Though the underlying REIT stocks have underperformed the market
year-to-date, they offer high dividend yields. We believe this sector will pay
off handsomely for the patient investor.

CGM Fixed Income Fund's three largest sector positions are in REITs, Treasuries
and the telephone industry. The Fund's three largest holdings are Vornado Realty
Trust, Conseco Financial Trust and Pacific Gulf Properties.

/s/ Robert L. Kemp

Robert L. Kemp
President

July 1, 1998

<PAGE>

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

INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------
Total Return for Periods Ended June 30, 1998

CGM FIXED THE FUND'S AVERAGE
INCOME FUND ANNUAL TOTAL RETURN
--------------- -----------------------
5 Years ....................... +50.1% +8.5%
1 Year ........................ + 2.2 +2.2
3 Months ...................... - 1.0 --

The Fund's average annual total return from inception (March 17, 1992) through
June 30, 1998 is +10.1%. The adviser has agreed to limit the Fund's total
operating expenses to 0.85% of its average net assets annually through December
31, 1998. Otherwise the total return since inception, and for the five-year,
one- year and three-month periods ended June 30, 1998, would have been lower.

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

<PAGE>

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

BOARD OF TRUSTEES

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

OFFICERS

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

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
Boston, Massachusetts 02110

TRANSFER AND DIVIDEND PAYING
AGENT AND CUSTODIAN OF ASSETS

STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts 02102

SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY

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

<PAGE>

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

INVESTMENTS AS OF JUNE 30, 1998
(unaudited)

<TABLE>
<CAPTION>
BONDS AND BILLS -- 63.9% OF TOTAL NET ASSETS
FACE
AMOUNT VALUE(a)
----------- ------------
<S> <C> <C>
AUTOMOTIVE & RELATED -- 5.3%
General Motors Corp., 6.75%, 5/01/28 ....................... $1,000,000 $ 1,002,550
Hertz Corp., 6.625%, 5/15/08 ............................... 1,000,000 1,004,500
------------
2,007,050
------------
BANKS -- MONEY CENTER -- 2.7%
Northern Trust Company, 6.25%, 6/02/08 ..................... 1,000,000 1,006,500
------------
ENERGY -- 1.0%
Mitchell Energy & Development Corp., 8.00%, 7/15/99 ........ 300,000 305,202
Mitchell Energy & Development Corp., 9.25%, 1/15/02 ........ 55,000 59,585
------------
364,787
------------
FINANCE -- 4.7%
APP International Finance Co., 11.75%, 10/01/05 ............ 2,000,000 1,760,000
------------
HOUSING AND BUILDING MATERIALS -- 4.1%
Pulte Home Corp., 10.125%, 7/15/99 ......................... 1,500,000 1,555,395
------------
INDUSTRIAL -- 4.1%
Pohang Iron & Steel Limited, 7.125%, 11/01/06 .............. 2,000,000 1,543,780
------------
INSURANCE -- 5.6%
Leucadia National Corp., 7.75%, 8/15/13 .................... 2,000,000 2,124,080
------------
MEDIA -- 4.7%
Innova Sa De, 12.875%, 4/01/07 ............................. 1,750,000 1,776,250
------------
METALS AND MINING -- 2.2%
Freeport McMoran Copper, 7.50%, 11/15/06 ................... 1,065,000 842,521
------------
REAL ESTATE INVESTMENT TRUSTS -- 11.1%
Liberty Property Limited Partnership, 8.20%, 7/01/01
(Convertible) .............................................. 1,700,000 2,040,000
Pacific Gulf Properties, Inc., 8.375%, 2/15/01 (Convertible) 1,850,000 2,136,750
------------
4,176,750
------------
TELEPHONE -- 5.9%
Econophone, Inc., 13.50%, 7/15/07 .......................... 1,000,000 1,160,000
Worldcom, Inc., 7.75%, 4/01/07 ............................. 1,000,000 1,084,660
------------
2,244,660
------------
U.S. GOVERNMENT -- 9.6%
United States Treasury Bills, 5.07%, 9/17/98 ............... 1,500,000 1,484,145
United States Treasury Bonds, 6.125%, 11/15/27 ............. 2,000,000 2,143,120
------------
3,627,265
------------

UTILITIES -- 2.9%
Great Lakes Power, Inc., 9.00%, 8/01/04 .................... $1,000,000 $ 1,116,610
------------
TOTAL BONDS AND BILLS (Identified Cost $23,658,040) .......... 24,145,648
------------

PREFERRED STOCKS -- 34.0%
SHARES

Avalon Properties, Inc., $2.25 ............................. 61,000 1,570,750
Conseco Financing Trust, $2.29 ............................. 82,100 2,139,731
DLJ Capital Trust, $2.105 .................................. 50,000 1,287,500
Duquesne Capital LP, $2.094 ................................ 10,000 258,125
Felcor Suite Hotels, Inc., $1.95 (Convertible) ............. 65,000 1,576,250
Placer Dome, Inc., $2.156 .................................. 50,000 1,262,500
Rouse Capital, $2.313 ...................................... 59,225 1,521,342
UDS Capital, $2.08 ......................................... 30,000 765,000
Vornado Realty Trust, $3.25 (Convertible) .................. 39,000 2,237,625
Yorkshire Capital Trust, $2.02 ............................. 10,000 253,750
------------
TOTAL PREFERRED STOCKS (Identified Cost $13,006,175) ......... 12,872,573
------------

COMMON STOCK WARRANTS -- 0%
Econophone, Inc. Exp. 7/15/07 (Identified Cost $0) ......... 1,000 10,000
------------

FACE
AMOUNT
SHORT-TERM INVESTMENT -- 1.1%

American Express Credit Corp., 5.95%, 7/01/98 (Cost $415,000) $ 415,000 415,000
------------

TOTAL INVESTMENTS -- 99.0% (Identified Cost $37,079,215)(b) ................... 37,443,221
Cash and Receivables .............................................. 721,884
Liabilities ....................................................... (350,518)
------------
TOTAL NET ASSETS -- 100.0% .................................................... $37,814,587
===========

(a) See Note 1A.
(b) Federal Tax Information: At June 30, 1998 the net unrealized appreciation
of investments based on cost of $37,079,215 for Federal income tax purposes
was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost ....................................... $ 1,175,723
Aggregate gross unrealized depreciation for all investments in which ther
is an excess of tax cost over value ....................................... (811,717)
------------
Net unrealized appreciation ................................................... $ 364,006
============

See accompanying notes to financial statements
</TABLE>

<PAGE>

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

STATEMENT OF ASSETS AND LIABILITIES

June 30, 1998
(unaudited)

<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost -- $37,079,215) .................. $37,443,221
Cash ................................................................... 2,279
Receivable for:
Shares of the Fund sold ................................. $106,550
Dividends and interest .................................. 613,055 719,605
-------- -----------
38,165,105
-----------
LIABILITIES
Payable for:
Shares of the Fund redeemed ............................. $295,724 295,724
--------
Accrued expenses:
Management fees ......................................... 4,739
Trustees' fees .......................................... 5,826
Accounting and Administration ........................... 750
Other expenses .......................................... 43,479 54,794
---------- -----------
350,518
-----------
NET ASSETS .............................................................. $37,814,587
===========
Net Assets consist of:
Capital paid-in ....................................................... $38,991,469
Undistributed net investment income ................................... 242,261
Accumulated net realized loss ......................................... (1,783,149)
Unrealized appreciation on investments -- net ......................... 364,006
-----------
NET ASSETS .............................................................. $37,814,587
===========
Shares of beneficial interest outstanding, no par value ............... 3,445,767
===========
Net asset value per share* ............................................. $10.97
===========

*Shares of the Fund are sold and redeemed at net asset value ($37,814,587 / 3,445,767).
</TABLE>

STATEMENT OF OPERATIONS

Six Months Ended June 30, 1998
(unaudited)

INVESTMENT INCOME
Income
Dividends ................................................ $ 475,545
Interest ................................................. 1,144,241
----------
1,619,786
----------
Expenses
Management fees .......................................... 134,804
Trustees' fees ........................................... 11,418
Accounting and Administration ............................ 4,500
Custodian ................................................ 25,374
Transfer agent ........................................... 40,950
Audit and tax services ................................... 13,710
Legal .................................................... 12,750
Printing ................................................. 9,960
Registration ............................................. 13,200
Miscellaneous ............................................ 360
----------
267,026
Less expenses assumed by the investment adviser ............ (90,744)
----------
Net investment income ...................................... 1,443,504
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain on investments -- net ....................... 118,605
Unrealized depreciation -- net ............................ (1,269,130)
----------
Net loss on investments ................................... (1,150,525)
----------
NET INCREASE IN ASSETS FROM OPERATIONS ..................... $ 292,979
==========

See accompanying notes to financial statements

<PAGE>

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

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1998 DECEMBER 31,
(UNAUDITED) 1997
------------ ------------
FROM OPERATIONS
<S> <C> <C>
Net investment income .................................... $ 1,443,504 $ 2,959,630
Net realized gain (loss) from investments ................ 118,605 (1,898,931)
Unrealized appreciation (depreciation) ................... (1,269,130) 443,618
------------ ------------
Increase in net assets from operations ................. 292,979 1,504,317
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................................... (1,244,891) (2,948,479)
Net realized gain on investments ......................... -- --
------------ ------------
(1,244,891) (2,948,479)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................. 4,656,126 13,309,381
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ................... 994,760 2,366,900
Distributions from net realized gain ................... -- --
------------ ------------
5,650,886 15,676,281
Cost of shares redeemed .................................. (10,816,250) (10,946,077)
------------ ------------
Increase (decrease) in net assets derived from capital
share transactions ................................... (5,165,364) 4,730,204
------------ ------------
Total increase (decrease) in net assets .................. (6,117,276) 3,286,042
NET ASSETS
Beginning of period ...................................... 43,931,863 40,645,821
------------ ------------
End of period (including undistributed net investment
income of $242,261 and $43,648, respectively) .......... $ 37,814,587 $ 43,931,863
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................... 414,387 1,146,799
Issued in connection with reinvestment of:
Dividends from net investment income ................... 88,748 205,039
Distributions from net realized gain ................... -- --
------------ ------------
503,135 1,351,838
Redeemed ............................................... (965,886) (945,927)
------------ ------------
Net change ............................................. (462,751) 405,911
============ ============

See accompanying notes to financial statements

</TABLE>

<PAGE>

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

<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED
JUNE 30, 1998 ----------------------------------------------------------------------
(UNAUDITED) 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 ....... $11.24 $11.60 $11.41 $ 9.57 $11.17 $10.26
------ ------ ------ ------ ------ ------
Net investment income (a) ... 0.40 0.78 0.77 0.70 0.73 0.67
Dividends from net investment
income .................... (0.34) (0.78) (0.77) (0.70) (0.73) (0.67)
Net realized and unrealized
gain (loss) on investments. (0.33) (0.36) 0.95 1.84 (1.60) 1.23
Distribution from net
realized gain ............. -- -- (0.76) -- -- (0.32)
Distribution from paid-in
capital ................... -- (0.36) -- -- -- --
------ ------ ------ ------ ------ ------
Net increase (decrease) in
net asset value ........... (0.27) (0.36) 0.19 1.84 (1.60) 0.91
------ ------ ------ ------ ------ ------
Net asset value at the end of
period .................... $10.97 $11.24 $11.60 $11.41 $ 9.57 $11.17
====== ====== ====== ====== ====== ======
Total Return (%) (b) ........ 0.6(c) 3.7 15.4 27.3 -8.0 18.9
Ratios:
Operating expenses to average
net assets (%) ............ 0.85(d) 0.85 0.85 0.85 0.85 0.85
Operating expenses to average
net assets before expense
limitation (%) ............ 1.29(d) 1.26 1.26 1.53 1.46 2.02
Net investment income to
average net assets (%) .... 6.96(d) 6.81 6.53 6.46 7.00 6.30
Portfolio turnover (%) ...... 60(d) 147 149 148 129 149

Net assets at end of period
(in thousands) ............ $37,815 $43,932 $40,646 $31,793 $28,672 $32,883

(a) Net of reimbursement
which amounted to ....... $ 0.02 $ 0.05 $ 0.05 $ 0.07 $ 0.06 $ 0.12
(b) The total return would have been lower had certain expenses not been reimbursed during the period.
(c) Not computed on an annualized basis.
(d) Computed on an annualized basis.
</TABLE>

See accompanying notes to financial statements
<PAGE>

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

NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1998
(unaudited)

1. The Fund is a diversified series of CGM Trust which is organized as a
Massachusetts business trust under the laws of Massachusetts pursuant to an
Agreement and Declaration of Trust. The Trust is registered under the Investment
Company Act of 1940 as an open-end management investment company. The Trust has
four other funds whose financial statements are not presented herein. The Fund
commenced operations on March 17, 1992. The investment objective of the Fund is
to maximize total return by investing in debt securities and preferred stock
that provide current income, capital appreciation or a combination of both
income and appreciation.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.

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

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

C. FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies, and to distribute to its shareholders all of its
taxable income and net realized capital gains within the prescribed time
period. Accordingly, no provision for federal income tax has been made. At
December 31, 1997 there were capital loss carryovers available to offset
future realized gains of approximately $1,902,000 expiring in the year
2005.

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

2. PURCHASES AND SALES OF SECURITIES -- For the period ended June 30, 1998,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $9,345,209 and $12,220,029,
respectively. Purchases and sales of United States government obligations
aggregated $7,336,175 and $9,276,707, respectively.

3. A. MANAGEMENT FEES -- During the period June 30, 1998, the Fund incurred
management fees of $134,804 paid or payable to the Fund's investment
adviser, Capital Growth Management Limited Partnership (CGM), certain
officers and directors of which are also officers and trustees of the
Fund. The management agreement provides for a fee at the annual rate of
0.65% on the first $200 million of the Fund's average daily net assets,
0.55% of the next $300 million and 0.40% of such assets in excess of
$500 million. For the period ended June 30, 1998, CGM waived a portion
of its fee. See Note 4.

B. OTHER EXPENSES -- CGM performs certain administrative, accounting and
other services for the Fund. The expenses of those services, which are
paid to CGM by the Fund, include the following: (i) expenses for
personnel performing bookkeeping, accounting and financial reporting
functions and clerical functions relating to the Fund; (ii) expenses for
services required in connection with the preparation of registration
statements and prospectuses, shareholder reports and notices, proxy
solicitation material furnished to shareholders of the Fund or
regulatory authorities and reports and questionnaires for SEC
compliance; and (iii) registration, filing and other fees in connection
with requirements of regulatory authorities. For the period ended June
30, 1998 these expenses amounted to $4,500 and are shown separately in
the financial statements as Accounting and Administration.

C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to its officers or to any trustees who are directors, officers
or employees of CGM, or any affiliate of CGM, other than registered
investment companies. Each other trustee is compensated by the CGM Funds
with an annual fee of $37,000 plus expenses for each meeting attended.
Of this amount, the Fund is responsible for $3,000 plus an annual
variable fee calculated based on the proportion of the Fund's average
net assets to the aggregate average net assets of the CGM Funds, which
for 1998 is $329. In addition, the Chairman of the Independent Trustees
Committee receives an annual retainer of $1,000.

4. EXPENSE LIMITATION -- Until December 31, 1998, and, thereafter, until further
notice to the Fund, CGM has voluntarily agreed to reduce its management fee and,
if necessary, to assume expenses of the Fund in order to limit the Fund's
expenses to an annual rate of 0.85% of average daily net assets. As a result of
the Fund's expenses exceeding the voluntary expense limitation, CGM waived
$90,744 of its management fee. The Fund incurred operating expenses of $176,282,
representing 0.85% of the average daily net assets.

<PAGE>

CGM
FIXED INCOME
FUND

25th Quarterly Report
June 30, 1998

A No-Load Fund

[LOGO] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110

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

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

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

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

FOR EXISTING ACCOUNTS

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

FOR NEW ACCOUNT APPLICATIONS ONLY

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

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

FQR2 98 Printed in U.S.A.

<PAGE>

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

CGM Mutual Fund declined -2.4% during the second quarter of 1998 compared to the
unmanaged Standard and Poor's 500 Index which increased +3.3% and the Merrill
Lynch Master Bond Index which returned +2.4% over the same period. Returns for
the first six months of the year were +5.1% for CGM Mutual Fund; +17.7% for the
unmanaged S&P 500 Index; and 4.0% for the Merrill Lynch Master Bond Index.

CGM Mutual Fund is 26% invested in Treasury Bills and intermediate bonds. The
equity portion of the portfolio holds important positions in Real Estate
Investment Trusts (REITs), the retail industry and airlines. The REITs have
declined this year and account for much of the underperformance of the Fund. We
believe they are fundamentally attractive and patience will be rewarded. The
Fund's three largest equity holdings are Nokia Corporation, Boston Properties,
Inc. and Equity Office Properties. [Graphic Omitted]

/s/ Robert L. Kemp

Robert L. Kemp
President

July 1, 1998
<PAGE>

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

INVESTMENT PERFORMANCE
(unaudited)
- --------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 1998

CGM THE FUND'S AVERAGE
MUTUAL FUND ANNUAL TOTAL RETURN
------------- -----------------------
10 Years ......................... +249.7% +13.3%
5 Years ......................... + 68.4 +11.0
1 Year .......................... + 4.0 + 4.0
3 Months ........................ - 2.4 --

The percentage figures for the Fund are based upon the beginning net asset
values of $21.06, $29.51, $34.18 and $27.48, respectively, and the June 30,
1998 asset value of $26.66 per share assuming the reinvestment of income
dividends, capital gains and paid-in capital distributions during such
respective periods.

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

BOARD OF TRUSTEES

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

OFFICERS

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

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
Boston, Massachusetts 02110

TRANSFER AND DIVIDEND PAYING
AGENT AND CUSTODIAN OF ASSETS

STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts 02102

SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY

BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 8511
Boston, Massachusetts 02266-8511
<PAGE>
<TABLE>
<CAPTION>
CGM MUTUAL FUND
----------------------------------------------------------------------------------------------------------------------------------
25 YEAR INVESTMENT RECORD
DECEMBER 31, 1972 -- DECEMBER 31, 1998 (UNAUDITED)
----------------------------------------------------------------------------------------------------------------------------------
IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1972
----------------------------------------------------------------------------------------------------------------------------------
-- AND HAD TAKEN ALL DIVIDENDS OR -- HAD REINVESTED ALL DIVIDENDS AND CAPITAL
AND DISTRIBUTIONS IN CASH GAINS DISTRIBUTIONS IN ADDITIONAL SHARES
------------------------------------------------- --------------------------------------------------------
During the Year
You Would Have Received Which Would Represent
--------------------------------- ---------------------------------------
The Value of A Cumulative
The Net Your Original Change
Asset Value Per Share Per Share Investment An Expressed
On of Your Capital Gains Income At Each Annual As An Index With
December Share Would Distributions Dividends Year End Total Return December 31,
31 Have Been of of Would Have Been of 1972 = 100.0
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1972 $16.20 100.0
1973 14.20 $ 0.42 $ 0.42 $14.99 - 7.5 92.5
1974 10.27 -- 0.46 11.27 - 24.8 69.6
1975 12.44 -- 0.43 14.14 + 25.5 87.3
1976 13.96 -- 0.43 16.39 + 15.9 101.2
1977 12.88 -- 0.52 15.72 - 4.1 97.1
1978 12.83 -- 0.65 16.49 + 4.9 101.9
1979 13.81 -- 0.72 18.75 + 13.7 115.9
1980 14.85 -- 0.88 21.53 + 14.8 133.1
1981 13.90 -- 0.97 21.55 + 0.1 133.2
1982 18.16 -- 1.09 30.39 + 41.0 187.8
1983 18.81 -- 1.09 33.40 + 9.9 206.4
1984 17.01 1.86 0.95 35.50 + 6.3 219.4
1985 21.53 -- 1.08 47.75 + 34.5 295.1
1986 22.86 2.75 0.94 59.74 + 25.1 369.2
1987 20.40 4.52 1.06 67.92 + 13.7 419.8
1988 19.94 -- 1.10 70.09 + 3.2 433.2
1989 22.34 0.95 0.93 85.30 + 21.7 527.2
1990 21.64 -- 0.93* 86.24 + 1.1 533.0
1991 26.80 2.64 0.97 121.51 + 40.9 751.0
1992 26.02 1.42 0.93 128.92 + 6.1 796.8
1993 28.88 1.93 0.86 157.02 + 21.8 970.5
1994 25.05 -- 1.04 141.79 - 9.7 876.4
1995 29.43 0.89 0.77 176.24 + 24.3 1089.4
1996 31.42 4.15 0.74 218.01 + 23.7 1347.6
1997 25.52 7.78 0.70 235.89 + 8.2 1458.1
1998(6/30) 26.66 0.05 0.13 247.92 + 5.1 1532.5
------ ------ -------
Totals $29.36 $20.79 +1432.5
----------------------------------------------------------------------------------------------------------------------------------
*Includes $0.05 per share distributed from paid-in capital.
Shares were first offered on November 5, 1929; the net asset value per share, adjusted for stock splits and dividends, was $8.33.
----------------------------------------------------------------------------------------------------------------------------------

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

<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------

INVESTMENTS AS OF JUNE 30, 1998
(unaudited)
COMMON STOCKS -- 73.5% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
AIRLINES -- 9.1%
AMR Corporation (b) ........................... 600,000 $ 9,950,000
Delta Air Lines, Inc. ......................... 365,000 47,176,250
--------------
97,126,250
--------------
AUTO AND RELATED -- 5.2%
Daimler Benz A G Sponsored ADR (c) ............ 575,000 55,954,688
--------------

BANKS -- MONEY CENTER -- 5.7%
Chase Manhattan Corporation ................... 800,000 60,400,000
--------------

BEVERAGES AND TOBACCO -- 4.5%
Philip Morris Companies, Inc. ................. 1,235,000 48,628,125
--------------

DRUGS -- 2.6%
Warner-Lambert Company ........................ 405,000 28,096,875
--------------

ELECTRONIC AND COMMUNICATION EQUIPMENT -- 6.6%
Nokia Corporation ADR (c) ..................... 975,000 70,748,437
--------------

ELECTRIC COMPONENTS -- 1.1%
Philips Electronics N.V. ADR (c) .............. 134,000 11,390,000
--------------

HOTELS AND RESTAURANTS -- 0.5%
Host Marriott Corporation ..................... 300,000 5,343,750
--------------

REAL ESTATE INVESTMENT TRUSTS -- 25.9%
Boston Properties, Inc. ....................... 1,900,000 65,550,000
Equity Office Properties Trust ................ 2,160,000 61,290,000
Felcor Suite Hotels, Inc. ..................... 450,000 14,118,750
Patriot American Hospitality .................. 750,000 17,953,125
Starwood Hotels and Resorts ................... 1,185,000 57,250,313
Vornado Realty Trust .......................... 1,515,000 60,126,562
--------------
276,288,750
--------------
RETAIL -- 9.9%
Kmart Corporation ............................. 3,000,000 57,750,000
Wal Mart Stores, Inc. ......................... 781,000 47,445,750
--------------
105,195,750
--------------
STEEL -- 2.4%
Pohang Iron & Steel Limited ADR (c) ........... 2,106,800 25,281,600
--------------
TOTAL COMMON STOCKS (Identified Cost
$774,607,496) ................................. 784,454,225
--------------

<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 1998 (CONTINUED)
(unaudited)
BONDS AND BILLS -- 25.7%
FACE
AMOUNT VALUE(a)
------ --------
BANK AND INSURANCE -- 13.8%
Korea Development Bank, 6.625%, 11/21/03 ...... $33,850,000 $ 27,349,108
Korea Development Bank, 7.25%, 5/15/06 ........ 70,000,000 57,843,800
Korea Development Bank, 7.375%, 9/17/04 ....... 75,620,000 62,410,698
--------------
147,603,606
--------------
FINANCE -- 5.3%
APP International Finance, 11.75%, 10/01/05 ... 46,750,000 41,140,000
Export Import Bank Korea, 6.375%, 2/15/06 ..... 20,248,000 15,326,926
--------------
56,466,926
--------------
INDUSTRIAL -- 4.2%
Pohang Iron & Steel Limited, 7.125%, 11/01/06 . 9,000,000 6,947,010
Pohang Iron & Steel Limited, 7.375%, 5/15/05 .. 15,000,000 12,149,550
Stone Container Corporation, 9.875%, 2/01/01 .. 25,000,000 25,562,500
--------------
44,659,060
--------------
UNITED STATES TREASURY -- 2.4%
United States Treasury Bills, 5.006%, 9/24/98 . 23,900,000 23,626,823
United States Treasury Bills, 5.041%, 10/01/98. 1,500,000 1,480,980
--------------
25,107,803
--------------
TOTAL BONDS AND BILLS
(Identified Cost $283,669,208) ................ 273,837,395
--------------
SHORT-TERM INVESTMENT -- 0.6%
American Express Credit Corporation,
5.95%, 7/01/98 (Cost $6,440,000) ........... 6,440,000 6,440,000
--------------

TOTAL INVESTMENTS -- 99.8%
(Identified Cost $1,064,716,704)(d) ........................ 1,064,731,620
Cash and Receivables ....................................... 65,273,177
Liabilities ................................................ (63,101,290)
--------------
TOTAL NET ASSETS -- 100% ..................................... $1,066,903,507
==============
(a) See Note 1A.
(b) Non-income producing security.
(c) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank
representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
(d) Federal Tax Information: At June 30, 1998, the net unrealized appreciation
on investments based on cost of $1,064,716,704 for Federal income tax
purposes was as follows:

Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ..... $ 48,493,222
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ..... (48,478,306)
--------------
Net unrealized appreciation .................................. $ 14,916
==============
See accompanying notes to financial statements

<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------

STATEMENT OF
ASSETS AND LIABILITIES

June 30, 1998
(unaudited)

ASSETS
Investments at value (Identified cost --
$1,064,716,704) ...................... $1,064,731,620
Cash ................................... 2,727
Receivable for:
Securities sold ...................... $56,820,252
Shares of the Fund sold .............. 399,685
Dividends and interest ............... 6,776,832
Foreign Tax Reclaim .................. 1,273,681 65,270,450
----------- --------------
1,130,004,797
--------------
LIABILITIES
Payable for:
Securities purchased ................. $59,452,531
Shares of the Fund redeemed .......... 2,880,232 62,332,763
-----------
Accrued expenses:
Management fees ...................... 738,998
Trustees' fees ....................... 20,243
Accounting and Administration ........ 7,000
Other expenses ....................... 2,286 768,527
----------- --------------
--------------
63,101,290
--------------
NET ASSETS ................................................ $1,066,903,507
==============
Net Assets consist of:
Capital paid-in ....................................... $1,002,167,085
Undistributed net investment income ................... 14,634,502
Accumulated net realized gain ......................... 50,087,004
Unrealized appreciation on investments -- net ......... 14,916
--------------
NET ASSETS ................................................ $1,066,903,507
==============
Shares of beneficial interest outstanding, no par value . 40,023,785
==============
Net asset value per share* .............................. $26.66
==============

*Shares of the Fund are sold and redeemed at net asset value
($1,066,903,507 / 40,023,785).

See accompanying notes to financial statements

<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------

STATEMENT OF
OPERATIONS

Six Months Ended June 30, 1998
(unaudited)

INVESTMENT INCOME
Income
Dividends (net of withholding tax of $1,015,033) ............ $14,427,260
Interest .................................................... 11,235,674
-----------
25,662,934
-----------
Expenses
Management fees ............................................. 4,781,536
Trustees' fees .............................................. 35,317
Accounting and Administration ............................... 42,000
Custodian ................................................... 72,850
Transfer agent .............................................. 581,967
Audit and tax services ...................................... 15,500
Legal ....................................................... 8,000
Printing .................................................... 35,000
Registration ................................................ 14,000
Miscellaneous ............................................... 2,000
-----------
5,588,170
-----------
Net investment income ......................................... 20,074,764
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain on investments -- net 51,868,700
Unrealized depreciation -- net .............................. (10,284,563)
-----------
Net gain on investments ..................................... 41,584,137
-----------
NET INCREASE IN ASSETS FROM OPERATIONS .......................... $61,658,901
===========

See accompanying notes to financial statements

<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
<TABLE>

STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
-------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income .............................. $ 20,074,764 $ 24,502,838
Net realized gain from investments ................. 51,868,700 283,265,656
Unrealized appreciation (depreciation) ............. (10,284,563) (206,585,566)
-------------- --------------
Increase in net assets from operations ........... 61,658,901 101,182,928
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ......................... (5,329,952) (25,043,123)
From net realized gain on investments .............. (2,202,085) (283,113,674)
-------------- --------------
(7,532,037) (308,156,797)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ....................... 27,196,408 88,236,330
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ............. 4,484,390 23,590,214
Distributions from net realized gain ............. 1,954,949 262,272,738
-------------- --------------
33,635,747 374,099,282
Cost of shares redeemed ............................ (213,013,543) (191,493,864)
-------------- --------------
Increase (decrease) in net assets derived from
capital share transactions ..................... (179,377,796) 182,605,418
-------------- --------------
Total decrease in net assets ....................... (125,250,932) (24,368,451)

NET ASSETS
Beginning of period ................................ 1,192,154,439 1,216,522,890
-------------- --------------
End of period (including undistributed net
investment income of $14,634,502 and $0,
respectively) .................................... $1,066,903,507 $1,192,154,439
============== ==============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ......................... 1,019,780 2,627,268
Issued in connection with reinvestment of:
Dividends from net investment income ............. 160,488 748,565
Distributions from net realized gain ............. 70,550 10,274,530
-------------- --------------
1,250,818 13,650,363
Redeemed ......................................... (7,943,360) (5,656,108)
-------------- --------------
Net change ....................................... (6,692,542) 7,994,255
============== ==============
</TABLE>

See accompanying notes to financial statements

<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------

<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1998 --------------------------------------------------------------------------
(UNAUDITED) 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 ........... $25.52 $31.42 $29.43 $25.05 $28.88 $26.02
------ ------ ------ ------ ------ ------
Net investment
income ........... 0.50 0.66 0.75 0.73 1.09 0.92
Dividends from net
investment income (0.13) (0.70) (0.74) (0.77) (1.04) (0.86)
Net realized and
unrealized gain
(loss) on
investments ...... 0.82 1.92 6.13 5.31 (3.88) 4.73
Distribution from
net realized gain (0.05) (7.78) (4.15) (0.89) -- (1.81)
Distribution in
excess of net
realized gain .... -- -- -- -- -- (0.12)
------ ------ ------ ------ ------ ------
Net increase
(decrease) in net
asset value ...... 1.14 (5.90) 1.99 4.38 (3.83) 2.86
------ ------ ------ ------ ------ ------
Net asset value at
end of period .... $26.66 $25.52 $31.42 $29.43 $25.05 $28.88
====== ====== ====== ====== ====== ======
Total Return (%) ... 5.1 8.2 23.7 24.3 -9.7 21.8

Ratios:
Operating expenses
to average net
assets (%) ....... 0.98* 0.98 0.87 0.91 0.92 0.93
Net investment
income to average
net assets (%) ... 3.51* 1.91 2.33 2.55 4.39 3.45
Portfolio turnover(%) 295* 386 192 291 173 97
Net assets at end of
period (in
thousands) ($).... 1,066,904 1,192,154 1,216,523 1,154,439 1,063,375 947,115

*Computed on an annualized basis
</TABLE>

See accompanying notes to financial statements

<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1998
(unaudited)

1. The Fund is a diversified series of CGM Trust which is organized as a
Massachusetts business trust under the laws of Massachusetts pursuant to an
Agreement and Declaration of Trust. The Trust is registered under the Investment
Company Act of 1940 as an open-end management investment company. The Trust has
four other Funds whose financial statements are not presented herein. The Fund's
objective is reasonable long-term capital appreciation with a prudent approach
to protection of capital from undue risks. Current income is a consideration in
the selection of the Fund's portfolio securities, but it is not a controlling
factor.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.

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

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

2. PURCHASES AND SALES OF SECURITIES -- For the period ended June 30, 1998,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $1,642,630,088 and
$1,566,989,525, respectively. Purchases and sales of United States government
obligations aggregated $221,067,675 and $335,628,604, respectively.

3. A. MANAGEMENT FEES -- During the period ended June 30, 1998, the Fund
incurred management fees of $4,781,536, paid or payable to the Fund's
investment adviser, Capital Growth Management Limited Partnership
(CGM), certain officers and directors of which are also officers and
trustees of the Fund. The management agreement provides for a fee at
the annual rate of 0.90% on the first $500 million of the Fund's
average daily net assets, 0.80% of the next $500 million and 0.75% of
such assets in excess of $1 billion.

B. OTHER EXPENSES -- CGM performs certain administrative, accounting and
other services for the Fund. The expenses of those services, which
were paid to CGM by the Fund, include the following: (i) expenses for
personnel performing bookkeeping, accounting and financial reporting
functions and clerical functions relating to the Fund; (ii) expenses
for services required in connection with the preparation of
registration statements and prospectuses, shareholder reports and
notices, proxy solicitation material furnished to shareholders of the
Fund or regulatory authorities and reports and questionnaires for SEC
compliance; and (iii) registration, filing and other fees in
connection with requirements of regulatory authorities. The Accounting
and Administration expense of $42,000 is shown separately in the
financial statements.

C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to its officers or to any trustees who are directors,
officers or employees of CGM, or any affiliate of CGM, (other than
registered investment companies). Each other trustee is compensated by
the CGM Funds with an annual fee of $37,000 plus expenses for each
meeting attended. Of this amount, the Fund is responsible for $3,000
plus an annual variable fee calculated based on the proportion of the
Fund's average net assets to the aggregate average net assets of the
CGM Funds, which for 1998 is $12,829. In addition, the Chairman of the
Independent Trustees Committee receives an annual retainer of $1,500.
<PAGE>

CGM
MUTUAL FUND

273rd Quarterly Report
June 30, 1998

A No-Load Fund

[Logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110

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

For information about:
[ ] Account Procedures and Status

[ ] Redemptions

[ ] Exchanges

Call 800-343-5678

[ ] New Account Procedures

[ ] Prospectuses

[ ] Performance

Call 800-345-4048

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

FOR EXISTING ACCOUNTS

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

FOR NEW ACCOUNT APPLICATIONS ONLY

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

MQR2 98 Printed in U.S.A.

<PAGE>

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

CGM American Tax Free Fund increased 1.8% during the second quarter of 1998
compared to the Lehman Municipal Bond Index which increased +1.5% over the same
period. During the first six months of the year, CGM American Tax Free Fund
returned 2.7% as did the Lehman Muncipal Bond Index.

The U.S. economy is still strong: First quarter Gross Domestic Product grew at a
very high 5.4% annual rate and, although second quarter numbers are expected to
come in much lower, the pace continues to be brisk and appears sustainable.
Inflation, as measured by the Consumer Price Index, remains low, thanks largely
to commodity prices which have been falling for most of this year and also, to
economic problems in Asia. Corporate profit margins are slightly narrower than
than at the end of the first quarter and in a few cases, companies have reported
poor results with most of the blame going to the Asian crisis.

As a class, municipal bonds remain inexpensive due to significant supply issues
including the well- received $3 billion Long Island Power Authority issue in the
second quarter. As during the first three months of the year, the best
performance in the municipal bond market came from higher yielding, long
maturity paper. CGM American Tax Free Fund continues to maintain a higher than
average current yield component to the portfolio, and holds longer, liquid,
discount bonds to capitalize on falling rates.

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

/s/ Robert L. Kemp

Robert L. Kemp
President
July 1, 1998
<PAGE>

CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
- --------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 1998

CGM AMERICAN LIPPER GENERAL MUNICIPAL
TAX FREE FUND DEBT FUND AVERAGE
---------------- ----------------------------

3 Years ....................... +25.0% +23.6%
1 Year ........................ + 8.7 + 8.4
3 Months ...................... + 1.8 + 1.3

The Fund's average annual total return since inception (November 10, 1993)
through June 30, 1998 is +5.5%. The adviser has agreed to absorb the Fund's
total operating expenses through December 31, 1998. Otherwise, the Fund's
total return since inception, and for the three-year, one-year, and three-
month periods ended June 30, 1998 would have been lower.

Lipper Analytical Services, Inc. is an independent mutual fund ranking
service. The performance data contained in the report represent past
performance. The investment return and the principal value of an investment in
the Fund will fluctuate so that investors' shares, when redeemed, may be worth
more or less than their original cost.
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------

BOARD OF TRUSTEES

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

OFFICERS

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
Boston, Massachusetts 02110

TRANSFER AND DIVIDEND PAYING
AGENT AND CUSTODIAN OF ASSETS

STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts 02102

SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY

BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 8511
Boston, Massachusetts 02266-8511
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
<TABLE>

INVESTMENTS AS OF JUNE 30, 1998
(unaudited)
MUNICIPAL BONDS -- 95.9% OF TOTAL NET ASSETS
<CAPTION>
FACE
AMOUNT VALUE(a)
------ --------
<S> <C> <C>
CALIFORNIA -- 6.8%
Los Angeles Regional Airport, 6.875%, 11/15/12 ..................... $ 500,000 $ 550,535
Metropolitan Water District Southern California, 5.00%, 7/01/37 .... 500,000 484,170
------------
1,034,705
------------
COLORADO -- 8.1%
Denver City & County Airport, 5.25%, 11/15/23 ...................... 500,000 504,225
E470 Public Highway Authority, 5.00%, 9/01/26 ...................... 750,000 731,145
------------
1,235,370
------------
FLORIDA -- 1.8%
Polk County Industrial Development Authority Revenue Bonds
(IMC Fertilizer), 7.525%, 1/01/15 ................................ 250,000 274,848
------------
HAWAII -- 0.7%
Honolulu City and County Mortgage Revenue, 7.80%, 7/01/24 .......... 95,000 102,506
------------
KENTUCKY -- 2.8%
Kenton County Airport Revenue Bonds (Delta Airlines), 6.75%, 2/01/02 400,000 428,808
------------
LOUISIANA -- 7.0%
Hodge Utility Revenue Bonds (Stone Container), 9.00%, 3/01/10 ...... 1,000,000 1,076,370
------------
MARYLAND -- 5.5%
Howard County Multifamily, Chase Glen Apartments, 7.00%, 7/01/24 ... 750,000 842,250
------------
MASSACHUSETTS -- 5.8%
Massachusetts Municipal Wholesale Electric, 8.75%, 7/01/18 ......... 330,000 399,412
Massachusetts Port Authority, 5.00%, 7/01/27 ....................... 500,000 490,240
------------
889,652
------------
MICHIGAN -- 2.1%
Michigan State Housing Development, 7.05%, 10/01/12 ................ 295,000 316,685
------------
NEW YORK -- 18.7%
Long Island Power Authority Electric System, 5.25%, 12/01/26 ....... 500,000 493,430
New York General Obligation Bonds Series B, 8.25%, 6/01/05 ......... 100,000 121,239
New York General Obligation Bonds Series J, 5.50%, 2/15/26 ......... 500,000 508,550
New York State Dormitory Authority Revenue Bonds, 4.75%, 7/01/14 ... 750,000 733,552
New York State Dormitory Authority Revenue Bonds, 5.75%, 7/01/13 ... 250,000 274,045
New York State Dormitory Authority Revenue Bonds, 5.875%, 5/15/11 .. 250,000 277,835
Port Authority New York and New Jersey Special Obligation
9.125%, 12/01/15 ................................................. 395,000 440,832
------------
2,849,483
------------
PUERTO RICO -- 4.8%
Puerto Rico Commonwealth Infrastructure, 5.00%, 7/01/28 ............ 750,000 736,275
------------
TEXAS -- 13.3%
Alliance Airport Authority Special Facilities Revenue Bonds
(American Airlines Inc. Project), 7.00%, 12/01/11 ................ 250,000 297,042
Bexar County Health Facilities, 5.375%, 11/15/22 ................... 500,000 505,685
North Texas Thruway Authority, 5.00%, 1/01/20 ...................... 500,000 492,870
Harris County Health Facilities Corporation, 5.125%, 6/01/22 ....... 750,000 740,288
------------
2,035,885
------------
VIRGINIA -- 9.0%
Hopewell Industrial Development Authority (Stone Container),
8.25%, 6/01/16 ................................................... 350,000 393,446
Fairfax County Industrial Development Authority, 5.00%, 8/15/25 .... 500,000 483,405
Fairfax County Water Authority, 5.00%, 4/01/29 ..................... 500,000 489,960
------------
1,366,811
------------
WASHINGTON -- 6.3%
Washington State General Obligation, 0%, 7/01/17 ................... 2,550,000 958,596
------------
WISCONSIN -- 3.2%
Southeast Wisconsin Professional Baseball Park District, 0%,12/15/27 . 2,250,000 483,682
------------
TOTAL MUNICIPAL BONDS (Identified Cost $14,138,818) ................................. 14,631,926
------------
TOTAL INVESTMENTS -- 95.9% (Identified Cost $14,138,818)(b) ......................... 14,631,926
Cash and Receivables .................................................... 698,184
Liabilities ............................................................. (66,409)
------------
TOTAL NET ASSETS -- 100.0% .......................................................... $ 15,263,701
============

(a) See Note 1A.
(b) Federal Tax Information: At June 30, 1998 the net unrealized appreciation on
investments based on cost of $14,138,818 for Federal income tax purposes was as
follows:
Aggregate gross unrealized appreciation for all investments in which there is an
excess of value over tax cost ................................................. $ 520,810
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over value ................................................. (27,702)
------------
Net unrealized appreciation ..................................................... $ 493,108
============
</TABLE>

See accompanying notes to financial statements
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------

STATEMENT OF
ASSETS AND LIABILITIES

June 30, 1998
(unaudited)

ASSETS
Investments at value (Identified
cost -- $14,138,818) ..................................... $14,631,926
Cash ....................................................... 443,531
Receivable for:
Shares of the Fund sold .................... $ 200
Interest ................................... 254,453 254,653
-------- -----------
15,330,110
-----------
LIABILITIES
Payable for:
Shares of the Fund redeemed ................ $ 26,000
Expense advance from adviser ............... 40,409 66,409
-------- -----------
NET ASSETS ................................................... $15,263,701
===========
Net Assets consist of:
Capital paid-in .......................................... $15,644,966
Undistributed net investment income ...................... 71,717
Accumulated net realized loss ............................ (946,090)
Unrealized appreciation on investments -- net ............ 493,108
-----------
NET ASSETS ................................................... $15,263,701
===========
Shares of beneficial interest outstanding, no par value ... 1,568,876
===========
Net asset value per share* ................................. $9.73
===========

* Shares of the Fund are sold and redeemed at net asset value
($15,263,701 / 1,568,876).

See accompanying notes to financial statements
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------

STATEMENT OF
OPERATIONS

Six Months Ended June 30, 1998
(unaudited)

INVESTMENT INCOME
Income
Interest .................................................. $ 426,430
----------
Expenses
Management fees ........................................... 44,313
Trustees' fees ............................................ 10,848
Accounting and Administration ............................. 1,500
Custodian ................................................. 26,370
Transfer agent ............................................ 14,190
Audit and tax services .................................... 9,198
Legal ..................................................... 11,400
Printing .................................................. 6,000
Registration .............................................. 10,884
Miscellaneous ............................................. 252
----------
134,955
Less expenses assumed by the
investment adviser ...................................... (134,955)
----------
Net investment income ..................................... 426,430
----------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized gain on investments -- net ......................... 6,895
Unrealized depreciation -- net .............................. (31,101)
----------
Net loss on investments ..................................... (24,206)
----------
NET INCREASE IN ASSETS FROM OPERATIONS ........................ $ 402,224
==========

See accompanying notes to financial statements
<PAGE>

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

<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>

SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
----------- -----------
<S> <C> <C>
FROM OPERATIONS
Net investment income .................................... $ 426,430 $ 806,023
Net realized gain from investments ....................... 6,895 158,954
Unrealized appreciation (depreciation) ................... (31,101) 172,076
----------- -----------
Increase in net assets from operations ................. 402,224 1,137,053
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................................... (354,775) (806,094)
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................. 1,488,517 3,124,269
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ................... 253,758 588,720
----------- -----------
1,742,275 3,712,989
Cost of shares redeemed .................................. (969,026) (2,030,606)
----------- -----------
Increase in net assets derived from capital share
transactions ......................................... 773,249 1,682,383
----------- -----------
Total increase in net assets ............................. 820,698 2,013,342

NET ASSETS
Beginning of period ...................................... 14,443,003 12,429,661
----------- -----------
End of period (including undistributed net investment
income of $71,717 and $63, respectively) ............... $15,263,701 $14,443,003
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................... 153,492 327,534
Issued in connection with reinvestment of:
Dividends from net investment income ................... 26,254 61,837
----------- -----------
179,746 389,371
Redeemed ............................................... (100,090) (213,563)
----------- -----------
Net change ............................................. 79,656 175,808
=========== ===========
</TABLE>

See accompanying notes to financial statements
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
<TABLE>

FINANCIAL HIGHLIGHTS
<CAPTION>
FOR THE FOR THE PERIOD
SIX MONTHS NOVEMBER 10,
ENDED YEAR ENDED DECEMBER 31, 1993(c) THROUGH
JUNE 30, 1998 ------------------------------------------------------ DECEMBER 31,
(UNAUDITED) 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 .......... $ 9.70 $ 9.46 $ 9.77 $ 8.83 $10.25 $10.00
------ ------ ------ ------ ------ ------
Net investment income (a) ...... 0.28 0.58 0.58 0.61 0.58 0.04
Dividends from net investment
income ....................... (0.23) (0.58) (0.58) (0.61) (0.58) (0.04)
Net realized and unrealized gain
(loss) on investments ........ (0.02) 0.24 (0.31) 0.94 (1.42) 0.25
------ ------ ------ ------ ------ ------
Net increase (decrease)
in net asset value ........... 0.03 0.24 (0.31) 0.94 (1.42) 0.25
------ ------ ------ ------ ------ ------
Net asset value at end of period. $ 9.73 $ 9.70 $ 9.46 $ 9.77 $ 8.83 $10.25
====== ====== ====== ====== ====== ======
Total Return (%)(b) ............. 2.7(d) 9.0 2.9 18.0 -8.2 2.9(d)
Ratios:
Operating expenses to
average net assets (%) ........ 0 0 0 0 0 0
Operating expenses to
average net assets
before waiver (%) ............. 1.83(e) 2.04 2.14 2.59 2.42 3.59(e)
Net investment income
to average net assets (%) .... 5.77(e) 6.11 6.10 6.50 6.39 4.95(e)
Portfolio turnover(%) ........... 54(e) 140 107 125 169 0

Net assets at end of period (in
thousands) .................... $15,264 $14,443 $12,430 $11,855 $10,150 $4,786

(a) Net of fees waived and
reimbursed amounted to ...... $ 0.09 $ 0.19 $ 0.20 $ 0.24 $ 0.22 $ 0.03
(b) The total return would have been lower had the total fees and expenses not been waived or reimbursed during
the period.
(c) Commencement of operations.
(d) Not computed on an annualized basis.
(e) Computed on an annualized basis.
</TABLE>

See accompanying notes to financial statements
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1998
(unaudited)

1. The Fund is a diversified series of CGM Trust which is organized as a
Massachusetts business trust under the laws of Massachusetts pursuant to an
Agreement and Declaration of Trust. The Trust is registered under the
Investment Company Act of 1940 as an open-end management investment company.
The Trust has four other funds whose financial statements are not presented
herein. The Fund commenced operations on November 10, 1993. The primary
investment objective of the Fund is to provide high current income exempt from
federal income tax. The Fund's secondary investment objective is capital
appreciation.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.

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

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

C. FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies, and to distribute to its shareholders all of its
taxable and tax exempt income and net realized capital gains, within the
prescribed time period. Accordingly, no provision for federal income tax
has been made. At June 30, 1998, there were capital loss carryovers
available to offset future realized gains of $728,032 expiring in the year
2002 and $224,953 expiring in 2004.

E. OTHER -- The Fund has greater than 10% of its net assets at June 30, 1998
invested in New York and Texas. There are certain risks arising from
geographical concentration in any state. Certain revenue or tax related
events in a state may impair the ability of certain issuers of municipal
securities to pay principal and interest on their obligations.

2. PURCHASES AND SALES OF SECURITIES -- For the period ended June 30, 1998,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $4,584,520 and $3,845,109,
respectively. There were no purchases or sales of United States government
obligations.

3. A. MANAGEMENT FEES -- During the period ended June 30, 1998, the Fund
incurred management fees of $44,313 payable to the Fund's investment
adviser, Capital Growth Management Limited Partnership (CGM), certain
officers and directors of which are also officers and trustees of the
Fund. The management agreement provides for a fee at the annual rate
of 0.60% on the first $500 million of the Fund's average daily net
assets, 0.55% of the next $500 million and 0.45% of such assets in
excess of $1 billion. CGM waived its entire fee. See Note 4.

B. OTHER EXPENSES -- CGM performs certain administrative, accounting and
other services for the Fund. The expenses of those services, which are
paid to CGM by the Fund, include the following: (i) expenses for
personnel performing bookkeeping, accounting and financial reporting
functions and clerical functions relating to the Fund; (ii) expenses
for services required in connection with the preparation of
registration statements and prospectuses, shareholder reports and
notices, proxy solicitation material furnished to shareholders of the
Fund or regulatory authorities and reports and questionnaires for SEC
compliance; and (iii) registration, filing and other fees in
connection with requirements of regulatory authorities. For the period
ended June 30, 1998, these expenses amounted to $1,500 and are shown
separately in the financial statements as Accounting and
Administration. The entire expense was waived by CGM. See Note 4.

C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to its officers or to any trustees who are directors,
officers or employees of CGM, or any affiliate of CGM, other than
registered investment companies. Each other trustee is compensated by
the CGM Funds with an annual fee of $37,000 plus expenses for each
meeting attended. Of this amount, the Fund is responsible for $3,000
plus an annual variable fee calculated based on the proportion of the
Fund's average net assets to the aggregate average net assets of the
CGM Funds, which for 1998 is $99. In addition, the Chairman of the
Independent Trustees Committee receives an annual retainer of $1,000.

4. EXPENSE LIMITATION -- Until December 31, 1998, and, thereafter, until
further notice to the Fund, CGM has voluntarily agreed to waive its management
fee and to assume all expenses of the Fund. For the period ended June 30,
1998, CGM waived its entire management fee of $44,313, the entire Accounting
and Administration expense of $1,500 and assumed Fund expenses of $89,142.
<PAGE>

CGM
AMERICAN
TAX FREE FUND

19th Quarterly Report
June 30, 1998

A No-Load Fund

[LOGO] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110

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

For information about:
[ ] Account Procedures and Status

[ ] Redemptions

[ ] Exchanges

Call 800-343-5678

[ ] New Account Procedures

[ ] Prospectuses

[ ] Performance

Call 800-345-4048

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

FOR EXISTING ACCOUNTS

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

FOR NEW ACCOUNT APPLICATIONS ONLY

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

AQR2 98 Printed in U.S.A.

<PAGE>

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

CGM Realty Fund declined -7.8% during the second quarter of 1998 compared to the
National Association of Real Estate Investment Trusts (NAREIT) Equity REIT index
which lost -4.6%. For the first six months of the year, CGM Realty Fund returned
- -9.5% and the NAREIT Equity REIT Index, -5.0%.

The dominant concentration of office and industrial REITs in the CGM Realty Fund
portfolio is based on expectations of rising rents and occupancies in markets
where demand is outstripping supply growth. The other major concentration is in
hotels where we have focused on the full-service and luxury sector where supply
constraints and strong demand are generating rising room rates and occupancies.
The Fund underperformed its peer group during the first half of 1998 because the
hotel and office and industrial REITs which comprise the bulk of the portfolio
are more volatile in a declining market for REITs. We have invested heavily in
these sectors because the favorable fundamentals are providing the strongest
growth in funds from operation per share. We anticipate that in time, the higher
growth rates these companies enjoy should be reflected in their performance.

CGM Realty Fund's largest positions are, as mentioned, in office/industrial and
hotel REITs and also, in apartment REITs. The Fund's three largest holdings are
Tower Realty Trust, Inc., SL Green Corporation and Prime Group Realty Trust.

/s/ Robert L. Kemp

Robert L. Kemp

July 1, 1998
<PAGE>

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

INVESTMENT PERFORMANCE
(unaudited)
- --------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 1998

THE FUND'S
CGM AVERAGE (NAREIT)
REALTY ANNUAL EQUITY REIT
FUND TOTAL RETURN INDEX
-------- -------------- --------------
3 Years ............... +88.3% +23.5% +19.0%
1 Year ................ + 6.1 + 6.1 + 8.1
3 Months .............. - 7.8 - 4.6

The Fund's average annual total return since inception (May 13, 1994) through
June 30, 1998 is +18.0%. The adviser had limited the Fund's total operating
expenses to 1.00% of its average net assets from inception through December
31, 1997. Otherwise, the Fund's total return since inception and for the
three-year, one-year and three-month periods ended June 30, 1998 would have
been lower.

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

BOARD OF TRUSTEES

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

OFFICERS

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

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
Boston, Massachusetts 02110

TRANSFER AND DIVIDEND PAYING
AGENT AND CUSTODIAN OF ASSETS

STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts 02102

SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY

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

INVESTMENTS AS OF JUNE 30, 1998
(unaudited)

REAL ESTATE INVESTMENT TRUSTS -- 99.0% OF TOTAL NET ASSETS

SHARES VALUE(a)
------ --------
APARTMENTS -- 10.8%
Apartment Investment & Management Company ..... 775,000 $ 30,612,500
Home Properties New York, Inc. ................ 1,057,000 28,208,688
------------
58,821,188
------------
HOTELS -- 26.2%
American General Hospitality .................. 1,230,000 26,137,500
Boykin Lodging Company ........................ 1,262,000 27,369,625
Crown American Realty Trust ................... 655,000 6,345,313
Lasalle Hotel Properties ...................... 1,498,000 25,372,375
Patriot American Hospitality .................. 1,240,000 29,682,500
Starwood Hotels and Resorts ................... 586,000 28,311,125
------------
143,218,438
------------
MISCELLANEOUS -- 2.1%
Glenborough Realty Trust, Inc. ................ 429,000 11,314,875
------------

OFFICE AND INDUSTRIAL -- 59.9%
Bedford Property Investments, Inc. ............ 1,502,000 27,411,500
Boston Properties, Inc. ....................... 870,000 30,015,000
Brandywine Realty Trust ....................... 1,240,000 27,745,000
Equity Office Properties Trust ................ 1,019,000 28,914,125
Liberty Property Trust ........................ 327,000 8,358,937
Pacific Gulf Properties, Inc. ................. 671,400 14,519,025
Parkway Properties, Inc. ...................... 907,000 26,756,500
Prentiss Properties Trust ..................... 1,114,000 27,084,125
Prime Group Realty Trust ...................... 1,970,100 33,737,963
SL Green Realty Corporation ................... 1,810,000 40,725,000
Tower Realty Trust, Inc. ...................... 1,952,000 43,676,000
Vornado Realty Trust .......................... 457,000 18,137,187
------------
327,080,362
------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Identified
Cost $561,014,860) ............................ 540,434,863
------------

SHORT-TERM INVESTMENT -- 0.2%
FACE
AMOUNT VALUE(a)
------ --------
American Express Credit Corporation,
5.95%, 7/01/98 (Cost $1,220,000) ............ $1,220,000 $ 1,220,000
------------

TOTAL INVESTMENTS -- 99.2% (Identified Cost $562,234,860)(b) 541,654,863
Cash, receivables and other assets ......................... 8,115,250
Liabilities ................................................ (3,770,462)
------------
TOTAL NET ASSETS -- 100% ..................................... $545,999,651
============

(a) See Note 1A.
(b) Federal Tax Information: At June 30, 1998 the net unrealized appreciation on
investments based on cost of $562,234,860 for Federal income tax purposes
was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ............................................ $ 17,025,040
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost over
value ................................................... (37,605,037)
------------
Net unrealized depreciation ................................ $(20,579,997)
============

See accompanying notes to financial statements

<PAGE>
CGM REALTY FUND
- --------------------------------------------------------------------------------

STATEMENT OF
ASSETS AND LIABILITIES

June 30, 1998
(unaudited)

ASSETS
Investments at value (Identified cost --
$562,234,860) .......................................... $541,654,863
Cash ...................................................... 69,447
Receivable for:
Securities sold ............................ $1,496,430
Shares of the Fund sold .................... 988,946
Dividends and interest ..................... 5,548,316 8,033,692
----------
Unamortized organizational expenses ....................... 12,111
------------
549,770,113
------------
LIABILITIES
Payable for:
Securities purchased ....................... $2,320,330
Shares of the Fund redeemed ................ 1,022,008 3,342,338
------------
Accrued expenses:
Management fees ............................ 371,210
Trustees' fees ............................. 9,254
Accounting and Administration .............. 3,000
Other expenses ............................. 44,660 428,124
---------- ------------
3,770,462
------------
NET ASSETS ................................................. $545,999,651
============
Net Assets consist of:
Capital paid-in ......................................... $562,463,302
Undistributed net investment income ..................... 7,424,319
Accumulated net realized loss ........................... (3,307,973)
Unrealized depreciation on investments -- net ........... (20,579,997)
------------
NET ASSETS ................................................. $545,999,651
============
Shares of beneficial interest outstanding, no par value . 38,989,917
============
Net asset value per share* ............................... $14.00
============

* Shares of the Fund are sold and redeemed at net asset value
($545,999,651 / 38,989,917).

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

STATEMENT OF
OPERATIONS

Six Months Ended June 30, 1998
(unaudited)

INVESTMENT INCOME
Income:
Dividends ................................................ $ 15,127,482
Interest ................................................. 72,827
------------
15,200,309
------------
Expenses:
Management fees .......................................... 2,279,161
Trustees' fees ........................................... 18,400
Accounting and Administration ............................ 18,000
Custodian ................................................ 51,720
Transfer agent ........................................... 297,500
Audit and tax services ................................... 12,450
Legal .................................................... 11,000
Printing ................................................. 23,300
Registration ............................................. 84,400
Amortization of organization expense ..................... 6,961
Line of Credit commitment fee ............................ 10,111
Miscellaneous ............................................ 4,287
------------
2,817,290
------------
Net investment income ...................................... 12,383,019
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized loss on investments -- net ....................... (3,299,405)
Unrealized depreciation -- net ............................ (64,648,194)
------------
Net loss on investments ................................... (67,947,599)
------------

NET DECREASE IN ASSETS FROM OPERATIONS ....................... $(55,564,580)
============

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

STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ............................ $ 12,383,019 $ 15,337,560
Net realized gain (loss) from investments ........ (3,299,405) 56,525,787
Unrealized appreciation (depreciation) ........... (64,648,194) 9,136,478
------------ ------------
Increase (decrease) in net assets from
operations ................................... (55,564,580) 80,999,825
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ............................ (4,958,700) (15,347,351)
Net realized gain on investments ................. -- (56,478,540)
Tax return of capital ............................ -- (959,745)
------------ ------------
(4,958,700) (72,785,636)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ..................... 256,085,831 386,218,359
Net asset value of shares issued in connection
with reinvestment of:
Dividends from net investment income ........... 4,203,504 12,925,041
Distributions from net realized gain ........... -- 49,450,035
Tax return of capital .......................... -- 758,662
------------ ------------
260,289,335 449,352,097
Cost of shares redeemed .......................... (143,215,375) (129,844,349)
------------ ------------
Increase in net assets derived from capital
share transactions ........................... 117,073,960 319,507,748
------------ ------------
Total increase in net assets ..................... 56,550,680 327,721,937

NET ASSETS
Beginning of period .............................. 489,448,971 161,727,034
------------ ------------

End of period (including undistributed net
investment income of $7,424,319 and
$0, respectively) .............................. $545,999,651 $489,448,971
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ....................... 17,040,769 24,655,430
Issued in connection with reinvestment of:
Dividends from net investment income ........... 286,587 814,265
Distributions from net realized gain ........... -- 3,169,874
Distributions from tax return of capital ....... -- 50,920
------------ ------------
17,327,356 28,690,489
Redeemed ....................................... (9,718,143) (8,465,532)
------------ ------------
Net change ..................................... 7,609,213 20,224,957
============ ============
</TABLE>

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

<TABLE>
FINANCIAL HIGHLIGHTS

<CAPTION>
SIX MONTHS FOR THE YEAR ENDED FOR THE PERIOD
ENDED DECEMBER 31, MAY 13, 1994(c)
JUNE 30, 1998 ---------------------------------------------- THROUGH
(UNAUDITED) 1997 1996 1995 DECEMBER 31, 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 .......................... $15.60 $14.50 $10.89 $ 9.71 $10.00
------ ------ ------ ------ ------
Net investment income (a) ............ 0.32 0.64 0.52 0.54 0.31
Dividends from net investment
income ............................. (0.13) (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 .............. (1.79) 3.17 4.14 1.32 (0.29)
------ ------ ------ ------ ------
Net increase (decrease) in net
asset value ........................ (1.60) 1.10 3.61 1.18 (0.29)
------ ------ ------ ------ ------
Net asset value at end of period ..... $14.00 $15.60 $14.50 $10.89 $ 9.71
====== ====== ====== ====== ======
Total Return (%) ..................... -9.5(d) 26.7(b) 44.1(b) 19.8(b) 0.2(b)(d)

Ratios:
Operating expenses to average net
assets (%) ......................... 1.04(e) 1.00 1.00 1.00 1.00(e)
Operating expenses to average
net assets before expense
limitation (%) ..................... N/A 1.07 1.25 1.68 2.00(e)
Net income to average net
assets (%) ......................... 4.57(e) 4.48 4.97 5.51 7.40(e)
Portfolio turnover (%) ............... 64(e) 128 57 85 47(e)

Net assets at end of period
(in thousands) ...................... $546,000 $489,449 $161,727 $47,694 $34,277

(a) Net of reimbursement which
amounted to ..................... N/A $ 0.01 $ 0.02 $ 0.07 $ 0.04
(b) The total return would have been lower had certain expenses not been reduced during the period.
(c) Commencement of operations.
(d) Not computed on an annualized basis.
(e) Computed on an annualized basis.
</TABLE>

See accompanying notes to financial statements

<PAGE>
CGM REALTY FUND
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1998
(unaudited)

1. The Fund is a diversified series of CGM Trust which is organized as a
Massachusetts business trust under the laws of Massachusetts pursuant to an
Agreement and Declaration of Trust. The Trust is registered under the
Investment Company Act of 1940 as an open-end management investment company.
The Trust has four other funds whose financial statements are not presented
herein. The Fund commenced operations on May 13, 1994. The Fund's investment
objective is to earn above-average income and long-term growth of capital. The
Fund intends to pursue its objective by investing primarily in equity
securities of companies in the real estate industry.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.

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

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

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

2. PURCHASES AND SALE OF SECURITIES -- For the period ended June 30, 1998,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $296,450,518 and $173,367,971,
respectively. There were no purchases or sales of United States government
obligations.

3. A. MANAGEMENT FEES -- During the period ended June 30, 1998, the Fund
incurred management fees of $2,279,161, paid or payable to the Fund's
investment adviser, Capital Growth Management Limited Partnership
(CGM), certain officers and directors of which are also officers and
trustees of the Fund. The management agreement provides for a fee at
the annual rate of 0.85% on the first $500 million of the Fund's
average daily net assets and 0.75% on amounts in excess of $500
million.

B. OTHER EXPENSES -- CGM performs certain administrative, accounting and
other services for the Fund. The expenses of those services, which are
paid to CGM by the Fund, include the following: (i) expenses for
personnel performing bookkeeping, accounting and financial reporting
functions and clerical functions relating to the Fund; (ii) expenses
for services required in connection with the preparation of
registration statements and prospectuses, shareholder reports and
notices, proxy solicitation material furnished to shareholders of the
Fund or regulatory authorities and reports and questionnaires for SEC
compliance; and (iii) registration, filing and other fees in
connection with requirements of regulatory authorities. For the period
ended June 30, 1998 these expenses amounted to $18,000 and are shown
separately in the financial statements as Accounting and
Administration.

C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to its officers or to any trustees who are directors,
officers or employees of CGM, or any affiliate of CGM, (other than
registered investment companies). Each other trustee is compensated by
the CGM Funds with an annual fee of $37,000 plus expenses for each
meeting attended. Of this amount, the Fund is responsible for $3,000
plus an annual variable fee calculated based on the proportion of the
Fund's average net assets to the aggregate average net assets of the
CGM Funds, which for 1998 is $2,614. In addition, the Chairman of the
Independent Trustees Committee receives an annual retainer of $1,000.

4. LINE OF CREDIT -- The Fund has a $20,000,000 committed unsecured line of
credit with its custodian bank. Borrowings under the line will be charged
interest at 0.75% over the current Overnight Federal Funds Rate. The Fund will
incur a commitment fee of 0.10% per annum on the unused portion of the line of
credit, payable quarterly. There were no borrowings under the line of credit
during the period ended June 30, 1998.
<PAGE>

CGM
REALTY FUND

17th Quarterly Report
June 30, 1998

A No-Load Fund

[LOGO] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership

INVESTMENT ADVISER

CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110

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

For information about:
[ ] Account Procedures and Status

[ ] Redemptions

[ ] Exchanges

Call 800-343-5678

[ ] New Account Procedures

[ ] Prospectuses

[ ] Performance

Call 800-345-4048

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

FOR EXISTING ACCOUNTS

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

FOR NEW ACCOUNT APPLICATIONS ONLY

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

RQR2 98 Printed in U.S.A.