<PAGE>
To Our Shareholders:
- --------------------------------------------------------------------------------
CGM Fixed Income Fund returned 3.6% during the second quarter of 1999 compared
to the Merrill Lynch Master Bond Index which declined -0.9%. For the first six
months of the year, CGM Fixed Income Fund returned 5.9% and the Merrill Lynch
Master Bond Index declined -1.5%.
The economy is strong--perhaps, too strong. During the first quarter of 1999,
the Gross Domestic Product grew at a rate of 4.3%, exceeding the 3% rate deemed
by the Federal Reserve Board to be sustainable without risking the build-up of
inflationary forces. Consequently, policymakers increased the Federal Funds rate
by one quarter of one percent on June 30th. We believe much of the economy's
current strength is attributable to technology investments by businesses seeking
to increase productivity, reduce costs or prepare for the millennium. Consumer
spending, which is also brisk, has outpaced increases in personal income and is
thought to be largely fueled by the rising stock market. This phenomenon is
risky as it cannot persist for any length of time. Two years ago, the picture
was remarkably similar. However, then the Japanese and Asian economies were on
the threshold of a slowdown which subsequently relieved export and interest rate
pressures on the US economy. The outlook now is changed with Japan and much of
Asia rebounding and possibly even contributing to our economic growth.
In 1998, the stock market grew despite a small decline in overall corporate
profits. The General Motors strike, tobacco settlement and general cost
pressures took their toll on profits for many companies. So far this year,
profitability has been on the rise without last year's inhibiting factors.
Market performance may well become a contest between higher profits on one hand
and price-to- earnings ratios lowered by the threat of higher interest rates on
the other. Long term government bond rates have risen to 6.0% from 5.6% three
months ago. We believe today's level reflects the current strength of the
economy. We also acknowledge that future rate hikes could negatively affect the
market, complicating the job of finding attractive securities. For the moment,
however, the market has broadened to include a host of previously ignored
companies which are well run and prospering, and provide more opportunities in
individual stock picking and bond selection.
During the second quarter, bond market activity was dominated by fears of Fed
tightening to rein in a perceived rise in inflation later this year and heavy
corporate bond issuance, which combined to produce one of the worst performance
records in history.
CGM Fixed Income Fund, however, outperformed the bond market during the quarter.
Fund performance was boosted by sharp recoveries in the two real estate
investment trust (REIT) convertible debt holdings, strong performance from
high-yield issues and the solid anchor provided by preferred stock holdings. CGM
Fixed Income Fund holds important positions in REITs, and in the finance and
media industries. The Fund's three largest holdings are APP International
Finance Co. (Asia Pulp & Paper), Pacific Gulf Properties, Inc. and Innova Sa De
Real.
/s/ Robert L. Kemp
Robert L. Kemp
President
July 6, 1999
<PAGE>
CGM FIXED INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
- --------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 1999
CGM FIXED THE FUND'S AVERAGE
INCOME FUND ANNUAL TOTAL RETURN
----------- -------------------
5 Years ...................................... +54.9% +9.1%
1 Year ....................................... + 4.1 +4.1
3 Months ..................................... + 3.6 --
The Fund's average annual total return from inception (March 17, 1992) through
June 30, 1999 is +9.2%. The adviser has agreed to limit the Fund's total
operating expenses to 0.85% of its average net assets annually through December
31, 1999. Otherwise the total return since inception, and for the five-year,
one- year and three-month periods ended June 30, 1999, 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
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>
<TABLE>
CGM FIXED INCOME FUND
- ----------------------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 1999
(unaudited)
BONDS AND NOTES -- 64.7% OF TOTAL NET ASSETS
<CAPTION>
FACE
AMOUNT VALUE(a)
------ --------
<S> <C> <C>
AUTOMOTIVE & RELATED -- 2.8%
Dana Corp., 7.00%, 3/01/29 ................................. $1,000,000 $ 918,990
-----------
ENERGY -- 3.2%
Canadian Occidental Petroleum Ltd., 7.125%, 2/04/04 (b) .... 1,000,000 991,070
Mitchell Energy & Development Corp., 9.25%, 1/15/02 ........ 55,000 57,321
-----------
1,048,391
-----------
FINANCE -- 10.5%
APP International Finance Co., 11.75%, 10/01/05 ............ 3,250,000 2,486,250
Household Finance Corp., 5.875%, 2/01/09 ................... 1,000,000 908,540
-----------
3,394,790
-----------
INDUSTRIAL -- 5.7%
Pohang Iron & Steel Limited, 7.125%, 11/01/06 .............. 2,000,000 1,855,000
-----------
MACHINERY -- 3.0%
Case Corporation, 6.25%, 12/01/03 .......................... 1,000,000 982,700
-----------
MEDIA -- 9.9%
Innova Sa De Real, 12.875%, 4/01/07 ........................ 2,750,000 2,200,000
Liberty Media Group, 7.875%, 7/15/09 ....................... 1,000,000 994,040
-----------
3,194,040
-----------
REAL ESTATE INVESTMENT TRUSTS -- 13.4%
Liberty Property Limited Partnership, 8.00%, 7/01/01
(Convertible) ............................................ 1,700,000 2,091,000
Pacific Gulf Properties, Inc., 8.375%, 2/15/01
(Convertible) ............................................ 1,850,000 2,238,500
-----------
4,329,500
-----------
TELEPHONE -- 9.3%
Econophone, Inc., 13.50%, 7/15/07 .......................... 1,000,000 1,065,000
Sprint Capital Corporation, 6.875%, 11/15/28 ............... 1,000,000 906,620
Worldcom, Inc., 7.75%, 4/01/07 ............................. 1,000,000 1,047,250
-----------
3,018,870
-----------
U.S. GOVERNMENT -- 3.6%
United States Treasury Notes, 6.125%, 8/15/07 .............. 1,150,000 1,162,397
-----------
UTILITIES -- 3.3%
Great Lakes Power, Inc., 9.00%, 8/01/04 (b) ................ 1,000,000 1,067,560
-----------
TOTAL BONDS AND NOTES (Identified Cost $20,838,671) .......... 20,972,238
-----------
PREFERRED STOCKS -- 33.9%
SHARES VALUE(a)
------ --------
Avalonbay Communities, Inc., $2.25 ......................... 61,000 $ 1,536,438
Conseco Financing Trust, $2.29 ............................. 68,200 1,739,100
DLJ Capital Trust, $2.105 .................................. 40,000 1,015,000
Duquesne Capital LP, $2.094 ................................ 10,000 251,250
Felcor Lodging Trust, Inc., $1.95 (Convertible) ............ 65,000 1,320,312
Nova Chemicals Corp., $2.26 (b) ............................ 20,000 502,500
Placer Dome, Inc., $2.156 (b) .............................. 50,000 1,156,250
Rouse Capital, $2.313 ...................................... 59,225 1,484,327
Vornado Realty Trust, $3.25 (Convertible) .................. 39,000 1,969,500
-----------
TOTAL PREFERRED STOCKS (Identified Cost $11,914,925) ......... 10,974,677
-----------
COMMON STOCK WARRANTS -- 0%
Econophone, Inc. Exp. 7/15/07 (Identified Cost $0) ......... 1,000 10,000
-----------
FACE
SHORT-TERM INVESTMENT -- 2.9% AMOUNT
------
Chevron USA, Inc., 5.50%, 7/01/99 (Cost $955,000) .......... $ 955,000 955,000
-----------
TOTAL INVESTMENTS -- 101.5% (Identified Cost $33,708,596)(c) ................ 32,911,915
Cash and Receivables ...................................................... 669,960
Liabilities ............................................................... (1,173,620)
-----------
TOTAL NET ASSETS -- 100.0% .................................................. $32,408,255
===========
(a) See Note 1A.
(b) The Fund has greater than 10% of its net assets at June 30, 1999 invested
in Canada.
(c) Federal Tax Information: At June 30, 1999 the net unrealized depreciation
of investments based on cost of $33,708,596 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 ............................. $ 823,812
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ............................. (1,620,493)
-----------
Net unrealized depreciation ............................................. $ (796,681)
===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
CGM FIXED INCOME FUND
- --------------------------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
June 30, 1999
(unaudited)
<S> <C> <C>
ASSETS
Investments at value (Identified cost -- $33,708,596) ......................... $32,911,915
Cash .......................................................................... 15,885
Receivable for:
Shares of the Fund sold ....................................... $ 41,684
Dividends and interest ........................................ 612,391 654,075
-------- -----------
33,581,875
-----------
LIABILITIES
Payable for:
Securities purchased ......................................... 994,040
Shares of the Fund redeemed .................................. 157,769 1,151,809
-------- -----------
Accrued expenses:
Trustees' fees ............................................... 4,392
Accounting and Administration ................................ 665
Other expenses ............................................... 16,754 21,811
-------- -----------
1,173,620
-----------
NET ASSETS ..................................................................... $32,408,255
===========
Net Assets consist of:
Capital paid-in ............................................................... $35,148,273
Undistributed net investment income ........................................... 244,138
Accumulated net realized loss ................................................. (2,187,475)
Unrealized depreciation on investments -- net ................................. (796,681)
-----------
NET ASSETS ..................................................................... $32,408,255
===========
Shares of beneficial interest outstanding, no par value ....................... 3,082,783
===========
Net asset value per share* .................................................... $10.51
===========
* Shares of the Fund are sold and redeemed at net asset value ($32,408,255 / 3,082,783).
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1999
(unaudited)
<S> <C>
INVESTMENT INCOME
Income
Dividends .............................................................. $ 466,587
Interest ............................................................... 1,044,555
----------
1,511,142
----------
Expenses
Management fees ........................................................ 106,980
Trustees' fees ......................................................... 9,300
Accounting and Administration .......................................... 4,000
Custodian .............................................................. 25,200
Transfer agent ......................................................... 26,900
Audit and tax services ................................................. 14,300
Legal .................................................................. 29,000
Printing ............................................................... 8,400
Registration ........................................................... 9,100
Miscellaneous .......................................................... 330
----------
233,510
Less expenses assumed by the investment adviser .......................... (93,613)
----------
Net investment income .................................................... 1,371,245
----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized loss on investments -- net ..................................... (508,948)
Unrealized appreciation -- net .......................................... 1,064,055
----------
Net gain on investments ................................................. 555,107
----------
NET CHANGE IN ASSETS FROM OPERATIONS ..................................... $1,926,352
==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
CGM FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1999 DECEMBER 31,
(UNAUDITED) 1998
----------- ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income .................................... $ 1,371,245 $ 2,903,786
Net realized gain (loss) from investments ................ (508,948) 223,226
Unrealized appreciation (depreciation) ................... 1,064,055 (3,493,873)
----------- -----------
Change in net assets from operations ................... 1,926,352 (366,861)
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................................... (1,161,149) (2,913,392)
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................. 3,117,057 8,714,215
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ................... 912,068 2,316,649
----------- -----------
4,029,125 11,030,864
Cost of shares redeemed .................................. (6,699,877) (17,368,670)
----------- -----------
Change in net assets derived from capital share
transactions ......................................... (2,670,752) (6,337,806)
----------- -----------
Total change in net assets ............................... (1,905,549) (9,618,059)
NET ASSETS
Beginning of period ...................................... 34,313,804 43,931,863
----------- -----------
End of period (including undistributed net investment
income of $244,138 and $34,042, respectively) .......... $32,408,255 $34,313,804
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................... 300,963 804,960
Issued in connection with reinvestment of:
Dividends from net investment income ................... 87,843 216,050
----------- -----------
388,806 1,021,010
Redeemed ............................................... (644,893) (1,590,658)
----------- -----------
Net change ............................................. (256,087) (569,648)
=========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
CGM FIXED INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 --------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------- ------ ------ ------ ------ ------
<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 ............ $10.28 $11.24 $11.60 $11.41 $ 9.57 $11.17
------ ------ ------ ------ ------ ------
Net investment income (a) ........ 0.44 0.83 0.78 0.77 0.70 0.73
Dividends from net investment
income ........................... (0.37) (0.83) (0.78) (0.77) (0.70) (0.73)
Net realized and unrealized
gain (loss) on investments ..... 0.16 (0.96) (0.36) 0.95 1.84 (1.60)
Distribution from net realized
gain ........................... -- -- -- (0.76) -- --
------ ------ ------ ------ ------ ------
Net increase (decrease) in net
asset value .................... 0.23 (0.96) (0.36) 0.19 1.84 (1.60)
------ ------ ------ ------ ------ ------
Net asset value at the end of
period ......................... $10.51 $10.28 $11.24 $11.60 $11.41 $ 9.57
====== ====== ====== ====== ====== ======
Total Return (%) (b) ............. 5.9 (1.2) 3.7 15.4 27.3 (8.0)
Ratios:
Operating expenses to average
net assets (%) ................. 0.85* 0.85 0.85 0.85 0.85 0.85
Operating expenses to average
net assets before expense
limitation (%) ................. 1.42* 1.26 1.26 1.26 1.53 1.46
Net investment income to
average net assets (%) ......... 8.33* 7.56 6.81 6.53 6.46 7.00
Portfolio turnover (%) ........... 54* 52 147 149 148 129
Net assets at end of period (in
thousands) .................. $32,408 $34,314 $43,932 $40,646 $31,793 $28,672
(a) Net of reimbursement which
amounted to .................. $ 0.03 $ 0.05 $ 0.05 $ 0.05 $ 0.07 $ 0.06
(b) The total return would have been lower had certain expenses not been reimbursed during the period.
* Computed on an annualized basis.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CGM FIXED INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1999
(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, 1998 there were capital loss carryovers available to offset future
realized gains of $1,677,676 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, 1999,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $6,845,793 and $10,959,091,
respectively. Purchases and sales of United States government obligations
aggregated $1,942,898 and $3,001,641, respectively.
3. A. MANAGEMENT FEES -- During the period ended June 30, 1999, the Fund
incurred management fees of $106,980 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,
1999, 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, 1999 these expenses amounted to $4,000 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 travel 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 the year of 1999 is $297.
4. EXPENSE LIMITATION -- Until December 31, 1999, 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, for the period ended June 30, 1999, CGM waived $93,613 of its
management fee. The Fund incurred operating expenses of $139,897, representing
0.85% of the average daily net assets.
<PAGE>
CGM
FIXED INCOME
FUND
29th Quarterly Report
June 30, 1999
A No-Load Fund
Investment Adviser
[LOGO] 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 99 Printed in U.S.A.
<PAGE>
To Our Shareholders:
- --------------------------------------------------------------------------------
CGM Mutual Fund returned 6.6% during the second quarter of 1999 compared to the
unmanaged Standard and Poor's 500 Index which increased 7.1% and the Merrill
Lynch Master Bond Index which declined -0.9%. For the first six months of the
year, CGM Mutual Fund returned 11.7%, the unmanaged S&P 500 Index increased
12.4% and the Merrill Lynch Master Bond Index declined -1.5%.
The economy is strong--perhaps, too strong. During the first quarter of 1999,
the Gross Domestic Product grew at a rate of 4.3%, exceeding the 3% rate deemed
by the Federal Reserve Board to be sustainable without risking the build-up of
inflationary forces. Consequently, policymakers increased the Federal Funds rate
by one quarter of one percent on June 30th. We believe much of the economy's
current strength is attributable to technology investments by businesses seeking
to increase productivity, reduce costs or prepare for the millennium. Consumer
spending, which is also brisk, has outpaced increases in personal income and is
thought to be largely fueled by the rising stock market. This phenomenon is
risky as it cannot persist for any length of time. Two years ago, the picture
was remarkably similar. However, then the Japanese and Asian economies were on
the threshold of a slowdown which subsequently relieved export and interest rate
pressures on the US economy. The outlook now is changed with Japan and much of
Asia rebounding and possibly even contributing to our economic growth.
In 1998, the stock market grew despite a small decline in overall corporate
profits. The General Motors strike, tobacco settlement and general cost
pressures took their toll on profits for many companies. So far this year,
profitability has been on the rise without last year's inhibiting factors.
Market performance may well become a contest between higher profits on one hand
and price-to-earnings ratios lowered by the threat of higher interest rates on
the other. Long term government bond rates have risen to 6.0% from 5.6% three
months ago. We believe today's level reflects the current strength of the
economy. We also acknowledge that future rate hikes could negatively affect the
market, complicating the job of finding attractive securities. For the moment,
however, the market has broadened to include a host of previously ignored
companies which are well run and prospering, and provide more opportunities in
individual stock picking and bond selection.
Nearly one quarter of CGM Mutual Fund's assets is invested in US treasury bills
and corporate bonds. The equity section of the portfolio holds important
positions in real estate investment trusts, electronic components and the retail
industry. The three largest equity holdings are Boston Properties, Inc., Pohang
Iron and Steel Co., Ltd., and Apartment Investment and Management Company.
/s/ Robert L. Kemp
Robert L. Kemp
President
July 6, 1999
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
- --------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 1999
CGM THE FUND'S AVERAGE
MUTUAL FUND ANNUAL TOTAL RETURN
----------- -------------------
10 Years ..................................... +264.1% +13.8%
5 Years ..................................... + 95.6 +14.4
1 Year ...................................... + 15.0 +15.0
3 Months .................................... + 6.6 --
The percentage figures for the Fund are based upon the beginning net asset
values of $22.05, $26.60, $26.66 and $27.64, respectively, and the June 30,
1999 asset value of $29.25 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
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, 1973 -- JUNE 30, 1999 (UNAUDITED)
----------------------------------------------------------------------------------------------------------------------------------
IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1973
----------------------------------------------------------------------------------------------------------------------------------
-- 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 1973 = 100.0
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1973 $14.20 100.0
1974 10.27 -- $ 0.46 $10.68 - 24.8% 75.2
1975 12.44 -- 0.43 13.40 + 25.5 94.4
1976 13.96 -- 0.43 15.53 + 15.9 109.4
1977 12.88 -- 0.52 14.89 - 4.1 104.9
1978 12.83 -- 0.65 15.62 + 4.9 110.0
1979 13.81 -- 0.72 17.76 + 13.7 125.1
1980 14.85 -- 0.88 20.39 + 14.8 143.6
1981 13.90 -- 0.97 20.41 + 0.1 143.7
1982 18.16 -- 1.09 28.78 + 41.0 202.6
1983 18.81 -- 1.09 31.63 + 9.9 222.7
1984 17.01 $ 1.86 0.95 33.62 + 6.3 236.7
1985 21.53 -- 1.08 45.22 + 34.5 318.4
1986 22.86 2.75 0.94 56.57 + 25.1 398.3
1987 20.40 4.52 1.06 64.32 + 13.7 452.9
1988 19.94 -- 1.10 66.38 + 3.2 467.4
1989 22.34 0.95 0.93 80.78 + 21.7 568.8
1990 21.64 -- 0.93* 81.67 + 1.1 575.1
1991 26.80 2.64 0.97 115.07 + 40.9 810.3
1992 26.02 1.42 0.93 122.09 + 6.1 859.7
1993 28.88 1.93 0.86 148.71 + 21.8 1047.1
1994 25.05 -- 1.04 134.29 - 9.7 945.5
1995 29.43 0.89 0.77 166.92 + 24.3 1175.3
1996 31.42 4.15 0.74 206.48 + 23.7 1453.8
1997 25.52 7.81 0.67 223.41 + 8.2 1573.0
1998 26.36 0.25 0.98 241.73 + 8.2 1702.0
1999(6/30) 29.25 0.01 0.19 270.01 + 11.7 1901.1
------ ------ -------
Totals $29.18 $21.38 +1801.1
----------------------------------------------------------------------------------------------------------------------------------
*Includes $0.05 per share distributed from paid-in capital.
Shares were first offered on November 5, 1929; the net asset value per share, adjusted for stock splits and dividends,
was $8.33.
----------------------------------------------------------------------------------------------------------------------------------
The performance data contained in this report represent past performance, which is no guarantee of future results. The
investment return on, and the principal value of, an investment in the Fund will fluctuate so that investors' shares, when
redeemed, may be worth more or less than the original cost.
</TABLE>
<PAGE>
<TABLE>
CGM MUTUAL FUND
- ------------------------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 1999
(unaudited)
COMMON STOCKS -- 74.2% OF TOTAL NET ASSETS
<CAPTION>
SHARES VALUE(a)
------ --------
<S> <C> <C>
ALUMINUM -- 5.7%
Alcoa Inc. ................................................. 850,000 $ 52,593,750
------------
AUTO AND RELATED -- 4.6%
Volkswagen AG Sponsored ADR (b)(c) ......................... 3,325,000 41,978,125
------------
BEVERAGES AND TOBACCO -- 1.3%
Anheuser-Busch Companies, Inc. ............................. 168,000 11,917,500
------------
ELECTRONIC COMPONENTS -- 10.8%
Koninklijke Philips Electronics Sponsored ADR (b)(c) ....... 488,520 49,279,455
Texas Instruments, Inc. .................................... 345,000 50,025,000
------------
99,304,455
------------
OFFICE EQUIPMENT AND SUPPLY -- 5.7%
International Business Machines Corporation ................ 94,000 12,149,500
Lexmark International Group, Inc. (d) ...................... 605,000 39,967,813
------------
52,117,313
------------
PAPER PRODUCTS/CONSUMER -- 5.5%
Asia Pulp & Paper Company Ltd. ADR (b)(c) .................. 5,267,400 50,698,725
------------
REAL ESTATE INVESTMENT TRUSTS -- 21.2%
Apartment Investment and Management Company ................ 1,450,000 61,987,500
Boston Properties, Inc. .................................... 1,900,000 68,162,500
Equity Office Properties Trust ............................. 400,000 10,250,000
Vornado Realty Trust ....................................... 1,515,000 53,498,437
------------
193,898,437
------------
RETAIL -- 9.8%
Best Buy Co., Inc. (d) ..................................... 670,000 45,225,000
Circuit City Stores, Inc. .................................. 232,000 21,576,000
Tandy Corporation .......................................... 464,000 22,678,000
------------
89,479,000
------------
STEEL -- 9.6%
Companhia Siderurgica National Sponsored ADR (b)(c) ........ 962,700 25,270,875
Pohang Iron & Steel Co., Ltd. Sponsored ADR (b)(c) ......... 1,880,000 63,215,000
------------
88,485,875
------------
TOTAL COMMON STOCKS (Identified Cost $636,776,475) ............. 680,473,180
------------
BONDS AND BILLS -- 24.9%
FACE
AMOUNT
------
BANK AND INSURANCE -- 12.1%
Korea Development Bank, 6.625%, 11/21/03 (c) ............... $28,850,000 $ 27,352,685
Korea Development Bank, 7.25%, 5/15/06 (c) ................. 24,250,000 23,086,485
Korea Development Bank, 7.375%, 9/17/04 (c) ................ 62,000,000 60,214,400
------------
110,653,570
------------
FINANCE -- 7.8%
APP International Finance, 11.75%, 10/01/05 (c) ............ 46,750,000 35,763,750
Export Import Bank Korea, 6.375%, 2/15/06 (c) .............. 39,398,000 35,802,539
------------
71,566,289
------------
INDUSTRIAL -- 2.9%
CSN Iron S.A., 9.125%, 6/1/07 (c) .......................... 14,300,000 11,011,000
CSN Iron S.A. Restricted, 9.125%, 6/1/07 (c) ............... 20,700,000 15,939,000
------------
26,950,000
------------
UNITED STATES TREASURY -- 2.1%
United States Treasury Bills, 4.379%, 8/05/99 .............. 5,000,000 4,978,222
United States Treasury Bills, 4.452%, 8/26/99 .............. 5,000,000 4,965,000
United States Treasury Bills, 4.533%, 9/23/99 .............. 9,000,000 8,904,690
------------
18,847,912
------------
TOTAL BONDS AND BILLS (Identified Cost $221,392,199) ........... 228,017,771
------------
SHORT-TERM INVESTMENT -- 0.5%
Chevron USA Inc., 5.50%, 7/01/99 (Cost $4,320,000) ............. 4,320,000 4,320,000
------------
TOTAL INVESTMENTS -- 99.6% (Identified Cost $862,488,674) (e) ................ 912,810,951
Cash and Receivables ..................................................... 32,676,575
Liabilities .............................................................. (29,235,666)
------------
TOTAL NET ASSETS -- 100% ..................................................... $916,251,860
============
(a) See Note 1A.
(b) 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.
(c) The table below shows the percentages of the Fund's investments by country.
MARKET VALUE AS A PERCENTAGE
COUNTRY DIVERSIFICATION OF FUND'S NET ASSETS
----------------------- ----------------------------
Brazil ..................................................... 2.8%
Germany .................................................... 4.6%
Netherlands ................................................ 8.3%
Singapore .................................................. 9.4%
South Korea ................................................ 22.9%
United States .............................................. 51.6%
-----
Total Investments ........................................ 99.6%
=====
(d) Non-income producing security.
(e) Federal Tax Information: At June 30, 1999, the net unrealized appreciation
on investments based on cost of $862,488,674 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 .................................... $ 97,862,259
Aggregate gross unrealized depreciation for all investments in which there is
an excess of tax cost over value ........................................... (47,539,982)
------------
Net unrealized appreciation .................................................. $ 50,322,277
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
June 30, 1999
(unaudited)
ASSETS
Investments at value (Identified cost -- $862,488,674) .... $912,810,951
Cash ....................................................... 4,087
Receivable for:
Securities sold ............................. $26,670,631
Shares of the Fund sold ..................... 183,389
Dividends and interest ...................... 5,732,684
Foreign Tax Reclaim ......................... 85,784 32,672,488
----------- ------------
945,487,526
------------
LIABILITIES
Payable for:
Securities purchased ........................ $27,037,820
Shares of the Fund redeemed ................. 1,406,917 28,444,737
----------- ------------
Accrued expenses:
Management fees ............................. 634,522
Trustees' fees .............................. 14,231
Accounting and Administration ............... 7,000
Other expenses .............................. 135,176 790,929
----------- ------------
29,235,666
------------
NET ASSETS ................................................... $916,251,860
============
Net Assets consist of:
Capital paid-in ............................................ $774,844,240
Undistributed net investment income ........................ 10,489,616
Accumulated net realized gain .............................. 80,595,727
Unrealized appreciation on investments -- net ............ 50,322,277
------------
NET ASSETS ................................................... $916,251,860
============
Shares of beneficial interest outstanding, no par value ..... 31,326,296
===========
Net asset value per share* ................................. $29.25
===========
* Shares of the Fund are sold and redeemed at net asset value
($916,251,860 / 31,326,296).
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF
OPERATIONS
Six Months Ended June 30, 1999
(unaudited)
INVESTMENT INCOME
Income
Dividends (net of withholding tax of $145,897) ........... $ 9,977,621
Interest ................................................. 10,517,435
------------
20,495,056
------------
Expenses
Management fees .......................................... 3,892,735
Trustees' fees ........................................... 28,683
Accounting and Administration ............................ 42,000
Custodian ................................................ 75,489
Transfer agent ........................................... 538,069
Audit and tax services ................................... 16,500
Legal .................................................... 32,981
Printing ................................................. 24,870
Registration ............................................. 19,381
Miscellaneous ............................................ 4,249
------------
4,674,957
------------
Net investment income ...................................... 15,820,099
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments -- net 80,937,559
Unrealized appreciation -- net ........................... 5,904,654
------------
Net gain on investments .................................. 86,842,213
------------
NET CHANGE IN ASSETS FROM OPERATIONS ......................... $102,662,312
============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
CGM MUTUAL FUND
- -----------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998
------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ...................................... $ 15,820,099 $ 36,887,976
Net realized gain from investments ....................... 80,937,559 8,861,923
Unrealized appreciation .................................. 5,904,654 34,118,144
------------ --------------
Change in net assets from operations ................... 102,662,312 79,868,043
------------ --------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............................... (6,068,184) (36,150,275)
From net realized gain on investments .................... (319,385) (9,194,452)
------------ --------------
(6,387,569) (45,344,727)
------------ --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................. 14,137,475 44,291,949
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ................... 5,399,029 32,073,979
Distributions from net realized gain ................... 293,231 8,389,398
------------ --------------
19,829,735 84,755,326
Cost of shares redeemed .................................. (140,782,218) (370,503,481)
------------ --------------
Change in net assets derived from capital share
transactions ......................................... (120,952,483) (285,748,155)
------------ --------------
Total change in net assets ............................... (24,677,740) (251,224,839)
NET ASSETS
Beginning of period ...................................... 940,929,600 1,192,154,439
------------ --------------
End of period (including undistributed net investment
income of $10,489,616 and $737,701, respectively) ...... $ 916,251,860 $ 940,929,600
============= ===============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................... 508,433 1,699,743
Issued in connection with reinvestment of:
Dividends from net investment income ................... 186,850 1,233,492
Distributions from net realized gain ................... 10,148 314,649
------------ --------------
705,431 3,247,884
Redeemed ............................................... (5,075,438) (14,267,908)
------------ --------------
Net change ............................................. (4,370,007) (11,020,024)
============= ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
CGM MUTUAL FUND
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 ------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ---- ---- ---- ---- ----
<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 ......................... $26.36 $25.52 $31.42 $29.43 $25.05 $28.88
------ ------ ------ ------ ------ ------
Net investment income ............ 0.50 1.00 0.66 0.75 0.73 1.09
Dividends from net
investment income .............. (0.19) (0.98) (0.67) (0.74) (0.77) (1.04)
Net realized and unrealized gain
(loss) on investments .......... 2.59 1.07 1.92 6.13 5.31 (3.88)
Distribution from net realized
gain ........................... (0.01) (0.25) (7.81) (4.15) (0.89) --
------ ------ ------ ------ ------ ------
Net increase (decrease) in
net asset value ................ 2.89 0.84 (5.90) 1.99 4.38 (3.83)
------ ------ ------ ------ ------ ------
Net asset value at end of period . $29.25 $26.36 $25.52 $31.42 $29.43 $25.05
====== ====== ====== ====== ====== ======
Total Return (%) ................. 11.7 8.2 8.2 23.7 24.3 (9.7)
Ratios:
Operating expenses to average net
assets (%) ..................... 1.03* 1.02 0.98 0.87 0.91 0.92
Net investment income to average
net assets (%) ................. 3.47* 3.56 1.91 2.33 2.55 4.39
Portfolio turnover (%) ........... 238* 280 386 192 291 173
Net assets at end of period
(in thousands) ($) ............. 916,252 940,930 1,192,154 1,216,523 1,154,439 1,063,375
* Computed on an annualized basis.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1999
(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.
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.
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. INVESTMENT RISK -- There are certain additional risks involved in
investing in foreign securities that are not inherent in investments in
domestic securities. These risks may involve adverse political and
economic developments and the possible imposition of currency exchange
blockages or other foreign governmental laws or restrictions. In addition,
the securities of some foreign companies and securities markets are less
liquid and at times more volatile than securities of comparable U.S.
companies and U.S. securities markets.
2. PURCHASES AND SALES OF SECURITIES -- For the period ended June 30, 1999,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $1,074,006,988 and
$1,198,770,350, respectively. Purchases and sales of United States government
obligations aggregated $28,719,864 and $9,927,661, respectively.
3. A. MANAGEMENT FEES -- During the period ended June 30, 1999, the Fund
incurred management fees of $3,892,735, 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, for the period ended June 30,
1999, 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 travel 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 the year of 1999 is $8,104.
<PAGE>
CGM
MUTUAL FUND
277th Quarterly Report
June 30, 1999
A No-Load Fund
Investment Adviser
[LOGO] 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.
MQR2 99 Printed in U.S.A.
<PAGE>
To Our Shareholders:
- --------------------------------------------------------------------------------
CGM American Tax Free Fund declined -2.8% during the second quarter of 1999
compared to the Lehman Municipal Bond Index which declined -1.8%. For the first
six months of the year, CGM American Tax Free Fund returned -2.1%, and the
Lehman Municipal Bond Index, -0.9%.
The economy is strong--perhaps, too strong. During the first quarter of 1999,
the Gross Domestic Product grew at a rate of 4.3%, exceeding the 3% rate deemed
by the Federal Reserve Board to be sustainable without risking the build-up of
inflationary forces. Consequently, policymakers increased the Federal Funds rate
by one quarter of one percent on June 30th. We believe much of the economy's
current strength is attributable to technology investments by businesses seeking
to increase productivity, reduce costs or prepare for the millennium. Consumer
spending, which is also brisk, has outpaced increases in personal income and is
thought to be largely fueled by the rising stock market. This phenomenon is
risky as it cannot persist for any length of time. Two years ago, the picture
was remarkably similar. However, then the Japanese and Asian economies were on
the threshold of a slowdown which subsequently relieved export and interest rate
pressures on the US economy. The outlook now is changed with Japan and much of
Asia rebounding and possibly even contributing to our economic growth.
During the second quarter, bond market activity was dominated by fears of Fed
tightening to rein in a perceived rise in inflation later this year and heavy
corporate bond issuance, which combined to produce one of the worst performance
records in history. Investor apathy in a deteriorating interest rate environment
left the municipal bond market weak.
The CGM American Tax Free Fund portfolio is structured with a longer maturity
bias on account of the current under-valuation of the tax-exempt market. While
this bias caused the Fund to underperform slightly during the second quarter, we
believe the present yield levels will re-attract investor interest in municipal
securities. In general, tax exempt securities now offer better relative rates of
return than were available at any time in the past two years.
CGM American Tax Free Fund's largest sector concentrations are in industrial
development/ pollution control, general obligation bonds and transportation. The
Fund's three largest holdings are Hodge Louisiana (Stone Container), Washington
State General Obligation Bonds and Howard County Maryland Multi-family housing
(Chase Glen Apartments).
/s/ Robert L. Kemp
Robert L. Kemp
President
July 6, 1999
<PAGE>
CGM AMERICAN TAX FREE FUND
- -------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 1999
THE FUNDS
AVERAGE
CGM AMERICAN ANNUAL
TAX FREE FUND TOTAL RETURN
------------- ------------
5 Years ............................ +37.8% +6.6%
1 Year ............................. + 1.6 +1.6
3 Months ........................... - 2.8 --
The Fund's average annual total return since inception (November 10, 1993)
through June 30, 1999 is +4.8%. The adviser has agreed to absorb the Fund's
total operating expenses through December 31, 1999. Otherwise, the Fund's
total return since inception, and for the five-year, one-year, and three-month
periods ended June 30, 1999 would have been lower.
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
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>
<TABLE>
CGM AMERICAN TAX FREE FUND
- ------------------------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 1999
(unaudited)
MUNICIPAL BONDS -- 95.7% OF TOTAL NET ASSETS
<CAPTION>
FACE
AMOUNT VALUE(a)
<S> <C> <C>
CALIFORNIA -- 8.4%
California State General Obligation Bonds, 4.50%, 12/01/21 . $ 500,000 $ 439,540
Los Angeles Regional Airport, 6.875%, 11/15/12 ............. 500,000 536,440
Metropolitan Water District Southern California,
5.00%, 7/01/37 ........................................... 500,000 464,820
------------
1,440,800
------------
COLORADO -- 6.9%
Denver City & County Airport, 5.25%, 11/15/23 .............. 500,000 482,000
E470 Public Highway Authority, 5.00%, 9/01/26 .............. 750,000 702,397
------------
1,184,397
------------
FLORIDA -- 1.5%
Polk County Industrial Development Authority Revenue Bonds
(IMC Fertilizer), 7.525%, 1/01/15 .......................... 250,000 267,790
------------
HAWAII -- 0.6%
Honolulu City and County Mortgage Revenue, 7.80%, 7/01/24 .. 95,000 99,961
------------
KENTUCKY -- 2.4%
Kenton County Airport Revenue Bonds (Delta Airlines),
6.75%, 2/01/02 ........................................... 400,000 417,448
------------
LOUISIANA -- 6.1%
Hodge Utility Revenue Bonds (Stone Container), 9.00%, 3/01/10 1,000,000 1,040,460
------------
MARYLAND -- 4.8%
Howard County Multifamily, Chase Glen Apartments (AvalonBay
Properties), 7.00%, 7/01/24 ................................ 750,000 827,213
------------
MASSACHUSETTS -- 12.4%
Massachusetts Municipal Wholesale Electric, 8.75%, 7/01/18 . 330,000 386,714
Massachusetts Port Authority, 5.00%, 7/01/27 ............... 500,000 462,485
Massachusetts State General Obligation, 0%, 8/01/18 ........ 1,000,000 354,690
Massachusetts State Turnpike Authority, 5.00%, 1/01/39 ..... 500,000 456,150
Plymouth County Certificates of Participation, 5.00%, 4/01/22 500,000 467,125
------------
2,127,164
------------
MICHIGAN -- 3.9%
Michigan State Housing Development, 7.05%, 10/01/12 ........ 195,000 205,317
Wayne Charter County Airport, 5.00%, 12/01/28 .............. 500,000 458,305
------------
663,622
------------
NEW JERSEY -- 2.6%
New Jersey Health Care Facilities, 4.75%, 7/01/28 .......... 500,000 447,290
------------
NEW YORK -- 11.9%
Long Island Power Authority, 5.25%, 12/01/26 ............... 500,000 475,600
New York General Obligation Bonds Series B, 8.25%, 6/01/05 . 100,000 117,601
New York General Obligation Bonds Series J, 5.50%, 2/15/26 . 500,000 495,140
New York State Dormitory Authority Revenue Bonds,
5.75%, 7/01/13 ........................................... 250,000 261,515
New York State Dormitory Authority Revenue Bonds,
5.875%, 5/15/11 .......................................... 250,000 265,690
Port Authority New York and New Jersey Special Obligation,
9.125%, 12/01/15 ......................................... 395,000 423,926
------------
2,039,472
------------
FACE
AMOUNT VALUE(a)
PUERTO RICO -- 4.1%
Puerto Rico Commonwealth Infrastructure, 5.00%, 7/01/28 .... $ 750,000 $ 705,248
------------
SOUTH CAROLINA -- 2.9%
Georgetown County Pollution Control (International Paper),
5.125%, 2/01/12 .......................................... 500,000 490,675
------------
TENNESSEE -- 4.1%
Johnson City Health and Education, 5.125%, 7/01/25 ......... 750,000 708,375
------------
TEXAS -- 9.9%
Alliance Airport Authority Special Facilities Revenue Bonds
(American Airlines Inc. Project), 7.00%, 12/01/11 .......... 250,000 281,932
Bexar County Health Facilities, 5.375%, 11/15/22 ........... 500,000 490,510
Houston Independent School District, 4.75%, 2/15/22 ........ 500,000 452,985
North Texas Thruway Authority, 5.00%, 1/01/20 .............. 500,000 470,085
------------
1,695,512
------------
VIRGINIA -- 2.2%
Hopewell Industrial Development Authority (Stone Container),
8.25%, 6/01/16 ........................................... 350,000 382,655
------------
WASHINGTON -- 8.3%
Seattle Municipal Light and Power, 4.875%, 6/01/21 ......... 500,000 460,470
Washington State General Obligation, 0%, 7/01/17 ........... 2,550,000 960,993
------------
1,421,463
------------
WISCONSIN -- 2.7%
Southeast Wisconsin Professional Baseball Park District, 0%,
12/15/27 ................................................. 2,250,000 462,555
------------
TOTAL MUNICIPAL BONDS (Identified Cost $16,693,128) .......................... 16,422,100
------------
SHORT-TERM INVESTMENT -- 2.7%
Chevron USA, Inc., 5.50%, 7/01/99 (Cost $460,000) .......... 460,000 460,000
------------
TOTAL INVESTMENTS -- 98.4% (Identified Cost $17,153,128)(b) .................. 16,882,100
Cash and Receivables ............................................. 293,104
Liabilities ...................................................... (15,202)
------------
TOTAL NET ASSETS -- 100.0% ................................................... $ 17,160,002
============
(a) See Note 1A.
(b) Federal Tax Information: At June 30, 1999 the net unrealized depreciation on
investments based on cost of $17,153,128 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 .................................... $ 231,872
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value .................................... . (502,900)
------------
Net unrealized depreciation .............................................. . $ (271,028)
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CGM AMERICAN TAX FREE FUND
- -------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
June 30, 1999
(unaudited)
ASSETS
Investments at value (Identified cost -- $17,153,128) ..... $16,882,100
Cash ...................................................... 1,992
Receivable for:
Shares of the Fund sold ...................... $ 5,000
Interest ..................................... 286,112 291,112
-------- -----------
17,175,204
-----------
LIABILITIES
Payable for:
Shares of the Fund redeemed .................. 1,001
Expense advance from adviser ................. 14,201 15,202
-------- -----------
NET ASSETS .................................................. $17,160,002
===========
Net Assets consist of:
Capital paid-in ......................................... $18,237,507
Undistributed net investment income ..................... 82,293
Accumulated net realized loss ........................... (888,770)
Unrealized depreciation on investments -- net ........... (271,028)
-----------
NET ASSETS .................................................. $17,160,002
===========
Shares of beneficial interest outstanding, no par value .. 1,834,765
===========
Net asset value per share* ................................ $9.35
===========
* Shares of the Fund are sold and redeemed at net asset value
($17,160,002 / 1,834,765).
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF
OPERATIONS
Six Months Ended June 30, 1999
(unaudited)
INVESTMENT INCOME
Income
Interest .................................................... $ 486,377
----------
Expenses
Management fees ............................................. 52,265
Trustees' fees .............................................. 8,650
Accounting and Administration ............................... 1,500
Custodian ................................................... 26,400
Transfer agent .............................................. 12,400
Audit and tax services ...................................... 9,750
Legal ....................................................... 25,400
Printing .................................................... 6,000
Registration ................................................ 8,300
Miscellaneous ............................................... 250
----------
150,915
Less expenses assumed by the investment adviser ............. (150,915)
----------
Net investment income ....................................... 486,377
----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Realized loss on investments -- net ........................... (3,981)
Unrealized depreciation -- net ................................ (821,821)
----------
Net loss on investments ....................................... (825,802)
----------
NET CHANGE IN ASSETS FROM OPERATIONS ............................ $ (339,425)
==========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
CGM AMERICAN TAX FREE FUND
- ------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998
----------- ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ...................................... $ 486,377 $ 879,126
Net realized gain (loss) from investments .................. (3,981) 68,196
Unrealized appreciation (depreciation) ..................... (821,821) 26,584
----------- ------------
Change in net assets from operations ..................... (339,425) 973,906
----------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ...................................... (405,559) (877,714)
----------- ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................... 1,659,023 4,055,485
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ..................... 258,192 601,144
----------- ------------
1,917,215 4,656,629
Cost of shares redeemed .................................... (1,718,377) (1,489,676)
----------- ------------
Change in net assets derived from capital share
transactions ........................................... 198,838 3,166,953
----------- ------------
Total change in net assets ................................. (546,146) 3,263,145
NET ASSETS
Beginning of period ........................................ 17,706,148 14,443,003
----------- ------------
End of period (including undistributed net investment
income of $82,293 and $1,475, respectively) ................ $17,160,002 $ 17,706,148
=========== ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ................................. 171,288 415,494
Issued in connection with reinvestment of:
Dividends from net investment income ..................... 26,722 61,756
----------- ------------
198,010 477,250
Redeemed ................................................. (176,447) (153,268)
----------- ------------
Net change ............................................... 21,563 323,982
=========== ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
CGM AMERICAN TAX FREE FUND
- ----------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<CAPTION>
FOR THE
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 ------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ---- ---- ---- ---- ----
<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 ...................... $ 9.77 $ 9.70 $ 9.46 $ 9.77 $ 8.83 $10.25
------ ------ ------ ------ ------ ------
Net investment income (a) ........ 0.27 0.55 0.58 0.58 0.61 0.58
Dividends from net investment
income ......................... (0.22) (0.55) (0.58) (0.58) (0.61) (0.58)
Net realized and unrealized
gain (loss) on investments ..... (0.47) 0.07 0.24 (0.31) 0.94 (1.42)
------ ------ ------ ------ ------ ------
Net increase (decrease) in
net asset value ................ (0.42) 0.07 0.24 (0.31) 0.94 (1.42)
------ ------ ------ ------ ------ ------
Net asset value at end of period . $ 9.35 $ 9.77 $ 9.70 $ 9.46 $ 9.77 $ 8.83
====== ====== ====== ====== ====== ======
Total Return (%) (b) ............. (2.1) 6.5 9.0 2.9 18.0 (8.2)
Ratios:
Operating expenses to average
net assets (%) ................. 0 0 0 0 0 0
Operating expenses to average
net assets before waiver (%) ... 1.73* 1.69 2.04 2.14 2.59 2.42
Net investment income to
average net assets (%) ......... 5.58* 5.63 6.11 6.10 6.50 6.39
Portfolio turnover (%) ........... 29* 37 140 107 125 169
Net assets at end of period
(in thousands) ................. $17,160 $17,706 $14,443 $12,430 $11,855 $10,150
(a) Net of fees waived and
reimbursed amounted to $ 0.08 $ 0.16 $ 0.19 $ 0.20 $ 0.24 $ 0.22
(b) The total return would have been lower had the total fees and expenses not been waived or reimbursed during the period.
* Computed on an annualized basis.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CGM AMERICAN TAX FREE FUND
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1999
(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 December 31, 1998, there were capital loss carryovers
available to offset future realized gains of $659,836 expiring in the year
2002 and $224,953 expiring in 2004.
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. OTHER -- The Fund has greater than 10% of its net assets at June 30, 1999
invested in Massachusetts and New York. There are certain risks arising
from geographical concentration in any state. Certain revenue or tax
related events in a state may impair the ability of certain issuers of
municipal securities to pay principal and interest on their obligations.
2. PURCHASES AND SALES OF SECURITIES -- For the period ended June 30, 1999,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $2,932,430 and $2,520,705,
respectively. There were no purchases or sales of United States government
obligations.
3. A. MANAGEMENT FEES -- During the period ended June 30, 1999, the Fund
incurred management fees of $52,265 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, 1999 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 travel 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 the year of 1999 is $125.
4. EXPENSE LIMITATION -- Until December 31, 1999, 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,
1999, CGM waived its entire management fee of $52,265, the entire Accounting
and Administration expense of $1,500 and assumed Fund expenses of $97,150.
<PAGE>
CGM
AMERICAN
TAX FREE FUND
23rd Quarterly Report
June 30, 1999
A No-Load Fund
Investment Adviser
[LOGO] 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.
AQR2 99 Printed in U.S.A.
<PAGE>
To Our Shareholders:
- --------------------------------------------------------------------------------
CGM Realty Fund returned 18.4% during the second quarter of 1999 compared to the
National Association of Real Estate Investment Trust's (NAREIT) Equity REIT
Index which increased 10.1% over the same period. For the first quarter of 1999
and the year-to-date, CGM Realty Fund results were -5.5% and 11.9%,
respectively, and the NAREIT Equity REIT Index, -4.8%* and 4.8%, respectively.
The economy is strong--perhaps, too strong. During the first quarter of 1999,
the Gross Domestic Product grew at a rate of 4.3%, exceeding the 3% rate
deemed by the Federal Reserve Board to be sustainable without risking the
build-up of inflationary forces. Consequently, policymakers increased the
Federal Funds rate by one quarter of one percent on June 30th. We believe much
of the economy's current strength is attributable to technology investments by
businesses seeking to increase productivity, reduce costs or prepare for the
millennium. Consumer spending, which is also brisk, has outpaced increases in
personal income and is thought to be largely fueled by the rising stock
market. This phenomenon is risky as it cannot persist for any length of time.
Two years ago, the picture was remarkably similar. However, then the Japanese
and Asian economies were on the threshold of a slowdown which subsequently
relieved export and interest rate pressures on the US economy. The outlook now
is changed with Japan and much of Asia rebounding and possibly even
contributing to our economic growth.
In 1998, the stock market grew despite a small decline in overall corporate
profits. The General Motors strike, tobacco settlement and general
cost pressures took their toll on profits for many companies. So far this
year, profitability has been on the rise without last year's inhibiting
factors. Market performance may well become a contest between higher profits
on one hand and price-to-earnings ratios lowered by the threat of higher
interest rates on the other. Long term government bond rates have risen to
6.0% from 5.6% three months ago. We believe today's level reflects the current
strength of the economy. We also acknowledge that future rate hikes could
negatively affect the market, complicating the job of finding attractive
securities. For the moment, however, the market has broadened to include a
host of previously ignored companies which are well run and prospering,
including real estate investment trusts.
Despite months of disappointing market performance, we have remained steadfast
in our belief in the strong fundamentals of REITs, particularly in the office
and industrial sector where demand still exceeds supply and rising rents
contribute to an increase in Funds from Operations. Our commitment bore fruit
in the second quarter when high-valuation jitters sent many investors away
from large capitalization stocks into REITs and other value stocks.
CGM Realty Fund's largest sector positions are in office/industrial REITs,
hotel REITs and apartment REITs. The Fund's three largest holdings are Prime
Group Realty Trust, Apartment Investment and Management Company and SL Green
Realty Corporation.
/s/ Robert L. Kemp
Robert L. Kemp
President
July 6, 1999
* First Quarter 1999 NAREIT Equity REIT Index return was restated by NAREIT
on July 1, 1999.
<PAGE>
CGM REALTY FUND
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
- ----------------------------------------
Total Return for Periods Ended June 30, 1999
THE FUND'S
CGM AVERAGE
REALTY ANNUAL
FUND TOTAL RETURN
-------- --------------
5 years ................................ +93.5% +14.1%
1 Year ................................. - 2.6 - 2.6
3 Months ............................... +18.4 --
The Fund's average annual total return since inception (May 13, 1994) through
June 30, 1999 is +13.7%. 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 five-
year period ended June 30, 1999 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
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>
CGM REALTY FUND
- ----------------------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 1999
(unaudited)
REAL ESTATE INVESTMENT TRUSTS -- 98.7% OF TOTAL NET ASSETS
<CAPTION>
SHARES VALUE(a)
------ --------
<S> <C> <C>
APARTMENTS -- 14.0%
Apartment Investment and Management Company ................ 770,000 $ 32,917,500
Home Properties New York, Inc. ............................. 1,030,000 28,453,750
------------
61,371,250
------------
HOTELS -- 14.8%
Lasalle Hotel Properties ................................... 1,265,000 19,370,313
Legacy Hotels Real Estate Units ............................ 3,329,800 19,560,455
Meristar Hospitality Corporation ........................... 1,169,425 26,238,973
------------
65,169,741
------------
MISCELLANEOUS -- 8.4%
Entertainment Properties Trust ............................. 370,200 6,524,775
Glenborough Realty Trust, Inc. ............................. 1,156,200 20,233,500
Grove Property Trust ....................................... 110,000 1,430,000
Lexford Residential Trust .................................. 360,000 8,595,000
------------
36,783,275
------------
OFFICE AND INDUSTRIAL -- 54.3%
Alexandria Real Estate Equity .............................. 712,400 22,262,500
Bedford Property Investors, Inc. ........................... 614,800 10,989,550
Boston Properties, Inc. .................................... 823,000 29,525,125
Brandywine Realty Trust .................................... 1,322,000 26,192,125
Highwoods Properties, Inc. ................................. 430,000 11,798,125
Mission West Properties .................................... 250,000 2,062,500
Pacific Gulf Properties, Inc. .............................. 844,400 19,104,550
Parkway Properties, Inc. ................................... 310,800 10,295,250
Prentiss Properties Trust .................................. 929,000 21,831,500
Prime Group Realty Trust ................................... 2,195,100 37,728,281
Reckson Associates Realty Corp. ............................ 199,000 4,676,500
SL Green Realty Corporation ................................ 1,491,000 30,472,313
Vornado Realty Trust ....................................... 321,000 11,335,312
------------
238,273,631
------------
RETAIL -- 7.2%
Chelsea GCA Realty, Inc. ................................... 306,000 11,360,250
Crown American Realty Trust ................................ 1,006,400 7,359,300
Philips International Realty Corporation ................... 765,000 12,909,375
------------
31,628,925
------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Identified Cost $437,781,925) ........... 433,226,822
------------
FACE
SHORT-TERM INVESTMENT -- 0.2% AMOUNT VALUE(a)
------ --------
Chevron USA., 5.50%, 07/01/99 (Cost $740,000) .............. $ 740,000 $ 740,000
------------
TOTAL INVESTMENTS -- 98.9% (Identified Cost $438,521,925)(b) ................. 433,966,822
Cash, receivables and other assets ............................... 11,576,944
Liabilities ...................................................... (6,728,232)
------------
TOTAL NET ASSETS -- 100% ..................................................... $438,815,534
============
(a) See Note 1A.
(b) Federal Tax Information: At June 30, 1999 the net unrealized depreciation
on investments based on cost of $438,521,925 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 ...................................... $ 28,947,509
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ................................ (33,502,612)
------------
Net unrealized depreciation ................................................ $ (4,555,103)
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CGM REALTY FUND
- --------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
June 30, 1999
(unaudited)
ASSETS
Investments at value (Identified Cost -- $438,521,925) .... $433,966,822
Cash ...................................................... 4,167
Receivable for:
Securities sold .......................... $5,643,239
Shares of the Fund sold .................. 545,878
Dividends and interest ................... 5,383,660 11,572,777
----------
------------
445,543,766
------------
LIABILITIES
Payable for:
Securities purchased ..................... $5,231,401
Shares of the Fund redeemed .............. 1,050,900
Tax Withholding Liability ................ 77,711 6,360,012
---------- ------------
Accrued expenses:
Management fees .......................... 302,074
Trustees' fees ........................... 8,980
Accounting and Administration ............ 3,167
Other expenses ........................... 53,999 368,220
---------- ------------
6,728,232
------------
NET ASSETS ................................................. $438,815,534
============
Net Assets consist of:
Capital paid-in .......................................... $506,467,258
Undistributed net investment income ...................... 7,099,480
Accumulated net realized loss ............................ (70,195,174)
Unrealized depreciation on investments and foreign currency
transactions -- net .................................... (4,556,030)
------------
NET ASSETS ................................................. $438,815,534
============
Shares of beneficial interest outstanding, no par value ... 34,339,736
============
Net asset value per share* ................................ $12.78
============
* Shares of the Fund are sold and redeemed at net asset value
($438,815,534 / 34,339,736).
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF
OPERATIONS
Six Months Ended June 30, 1999
(unaudited)
INVESTMENT INCOME
Income:
Dividends (net of withholding tax of $77,711) ............ $14,703,115
Interest ................................................. 48,451
-----------
14,751,566
-----------
Expenses:
Management fees .......................................... 1,673,329
Trustees' fees ........................................... 18,272
Accounting and Administration ............................ 19,002
Custodian ................................................ 57,174
Transfer agent ........................................... 223,942
Audit and tax services ................................... 11,750
Legal .................................................... 33,919
Printing ................................................. 16,438
Registration ............................................. 26,560
Amortization of organization expense ..................... 5,035
Line of Credit commitment fee ............................ 10,000
Miscellaneous ............................................ 2,266
-----------
2,097,687
-----------
Net investment income ...................................... 12,653,879
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Realized loss on investments -- net ...................... (13,723,826)
Unrealized appreciation -- net ........................... 44,456,887
-----------
Net gain on investments .................................... 30,733,061
-----------
NET CHANGE IN ASSETS FROM OPERATIONS ......................... $43,386,940
===========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
CGM REALTY FUND
- ----------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ...................................... $ 12,653,879 $ 21,810,594
Net realized loss from investments ......................... (13,723,826) (56,462,786)
Unrealized appreciation (depreciation) ..................... 44,456,887 (93,081,106)
------------ ------------
Change in net assets from operations ..................... 43,386,940 (127,733,298)
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ...................................... (5,554,399) (21,820,376)
Net realized gain on investments ........................... -- --
Tax return of capital ...................................... -- (6,031,564)
------------ ------------
(5,554,399) (27,851,940)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................... 72,225,055 336,265,354
Net asset value of shares issued in connection
with reinvestment of:
Dividends from net investment income ..................... 4,732,084 18,483,827
Distributions from net realized gain ..................... -- --
Tax return of capital .................................... -- 5,109,279
------------ ------------
76,957,139 359,858,460
Cost of shares redeemed .................................... (94,875,618) (274,820,721)
------------ ------------
Change in net assets derived from capital share
transactions ......................................... (17,918,479) 85,037,739
------------ ------------
Total change in net assets ................................. 19,914,062 (70,547,499)
NET ASSETS
Beginning of period ........................................ 418,901,472 489,448,971
------------ ------------
End of period (including undistributed net investment income
of $7,099,480 and $0, respectively) ...................... $438,815,534 $418,901,472
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ................................. 6,044,666 23,546,700
Issued in connection with reinvestment of:
Dividends from net investment income ................... 399,971 1,474,850
Distributions from net realized gain ................... -- --
Distributions from tax return of capital ............... -- 407,676
------------ ------------
6,444,637 25,429,226
Redeemed ............................................... (8,262,419) (20,652,412)
------------ ------------
Net change ............................................. (1,817,782) 4,776,814
============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
CGM REALTY FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<CAPTION>
SIX MONTHS FOR THE YEAR ENDED FOR THE PERIOD
ENDED DECEMBER 31, MAY 13, 1994(c)
JUNE 30, 1999 ------------------------------------------------------ THROUGH
(UNAUDITED) 1998 1997 1996 1995 DECEMBER 31, 1994
----------- ---- ---- ---- ---- -----------------
<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 ............................ $11.59 $15.60 $14.50 $10.89 $ 9.71 $10.00
------ ------ ------ ------ ------ ------
Net investment income (a) ........... 0.38 0.59 0.64 0.52 0.54 0.31
Dividends from net investment income (0.17) (0.59) (0.64) (0.52) (0.54) (0.23)
Distributions from net realized gain -- -- (2.03) (0.41) -- --
Distributions from tax return of
capital ........................... -- (0.16) (0.04) -- (0.14) (0.08)
Distributions in excess of net
investment income ................. -- -- -- (0.12) -- --
Net realized and unrealized gain
(loss) on investments ............. 0.98 (3.85) 3.17 4.14 1.32 (0.29)
------ ------ ------ ------ ------ ------
Net increase (decrease) in net asset
value ............................. 1.19 (4.01) 1.10 3.61 1.18 (0.29)
------ ------ ------ ------ ------ ------
Net asset value at end of period .... $12.78 $11.59 $15.60 $14.50 $10.89 $ 9.71
====== ====== ====== ====== ====== ======
Total Return (%) .................... 11.9(d) (21.2) 26.7(b) 44.1(b) 19.8(b) 0.2(b)(d)
Ratios:
Operating expenses to average net
assets (%) ........................ 1.07(e) 1.04 1.00 1.00 1.00 1.00(e)
Operating expenses to average net
assets before expense limitation (%) N/A N/A 1.07 1.25 1.68 2.00(e)
Net income to average net assets (%) 6.43(e) 4.35 4.48 4.97 5.51 7.40(e)
Portfolio turnover (%) .............. 64(e) 86 128 57 85 47(e)
Net assets at end of period (in
thousands) ........................ $438,816 $418,901 $489,449 $161,727 $47,694 $34,277
(a) Net of reimbursement
which amounted to ............... N/A 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.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CGM REALTY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1999
(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.
A. SECURITY VALUATION -- Equity securities are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees, which provides the last reported sale price for securities listed
on a national securities exchange or on the NASDAQ national market system
or, if no sale was reported and in the case of over-the-counter securities
not so listed, the last reported bid price. Short-term investments having a
maturity of sixty days or less are stated at amortized cost, which
approximates value.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed) and dividend income is recorded on the ex-dividend date. Interest
income is recorded on the accrual basis. Net gain or loss on securities sold
is determined on the identified cost basis. 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, 1998 there were capital loss carry-overs available to offset future
realized gains of $53,821,768 expiring in the year 2006.
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 were amortized over 60 months beginning May 13,
1994 and ending May 12, 1999.
F. FOREIGN CURRENCY TRANSLATION -- All assets and liabilities initially
expressed in terms of foreign currencies are translated into U.S. dollars.
Transactions affecting statement of operations accounts and net realized
gain/(loss) on investments are translated at the rates prevailing at the
dates of the transactions. The Fund does not isolate that portion of the
results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments. Reported net realized foreign
exchange gains or losses arise from sales of foreign currency, currency
gains or losses realized between the trade and settlement dates on
securities transactions and the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes
in the value of assets and liabilities other than investments in
securities at fiscal year end, resulting from changes in the exchange
rate.
2. PURCHASES AND SALE OF SECURITIES -- For the period ended June 30, 1999,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $127,540,719 and
$134,722,436, respectively. There were no purchases or sales of United States
government obligations.
3. A. MANAGEMENT FEES -- During the period ended June 30, 1999, the Fund
incurred management fees of $1,673,329, 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, 1999 these expenses amounted to $19,002 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 travel 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 the year of 1999 is $3,927.
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, 1999.
<PAGE>
CGM REALTY FUND
- --------------------------------------------------------------------------------
CGM
REALTY FUND
21st Quarterly Report
June 30, 1999
A No-Load Fund
Investment Adviser
[LOGO] 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.
RQR2 99 Printed in U.S.A.
<PAGE>
To Our Shareholders:
- --------------------------------------------------------------------------------
CGM Focus Fund returned 20.3% during the second quarter of 1999 compared to
the unmanaged Standard and Poor's 500 Index which increased 7.1% over the same
period. For the first six months of 1999, CGM Focus Fund returned 8.7% and the
unmanaged S&P 500 Index, 12.4%.
The economy is strong--perhaps, too strong. During the first quarter of 1999,
the Gross Domestic Product grew at a rate of 4.3%, exceeding the 3% rate
deemed by the Federal Reserve Board to be sustainable without risking the
build-up of inflationary forces. Consequently, policymakers increased the
Federal Funds rate by one quarter of one percent on June 30th. We believe much
of the economy's current strength is attributable to technology investments by
businesses seeking to increase productivity, reduce costs or prepare for the
millennium. Consumer spending, which is also brisk, has outpaced increases in
personal income and is thought to be largely fueled by the rising stock
market. This phenomenon is risky as it cannot persist for any length of time.
Two years ago, the picture was remarkably similar. However, then the Japanese
and Asian economies were on the threshold of a slowdown which subsequently
relieved export and interest rate pressures on the US economy. The outlook now
is changed with Japan and much of Asia rebounding and possibly even
contributing to our economic growth.
In 1998, the stock market grew despite a small decline in overall corporate
profits. The General Motors strike, tobacco settlement and general cost
pressures took their toll on profits for many companies. So far this year,
profitability has been on the rise without last year's inhibiting factors.
Market performance may well become a contest between higher profits on one
hand and price-to-earnings ratios lowered by the threat of higher interest
rates on the other. Long term government bond rates have risen to 6.0% from
5.6% three months ago. We believe today's level reflects the
current strength of the economy. We also acknowledge that future rate hikes
could negatively affect the market, complicating the job of finding attractive
securities.
For the moment, however, the market has broadened to include a host of
previously ignored companies which are well run and prospering, and provide
more opportunities in individual stock picking and bond selection.
CGM Focus Fund holds important positions in the
manufacturing, retail, and mobile homes and RVs industries. The Fund's three
largest holdings are K-Swiss, Inc., Monaco Coach Corporation and Ames
Department Stores, Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
July 6, 1999
<PAGE>
CGM FOCUS FUND
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
- --------------------------------------------------------------------------------
Total Return for Period Ended June 30, 1999
CGM FOCUS
FUND
---------
1 Year ...................................................... - 2.1%
6 Months .................................................... + 8.7%
3 Months .................................................... +20.3%
The Fund's total return since inception (September 3, 1997) through June 30,
1999 is +5.5%. The adviser has agreed to limit the Fund's total operating
expenses to 1.20% of its average net assets through December 31, 1999.
Otherwise, the Fund's total return since inception, and for the one-year, six-
month, and three-month periods ended June 30, 1999, would have been lower.
The performance data contained in the report represent past performance, which
is no guarantee of future results. The investment return and the principal
value of an investment in the Fund will fluctuate so that investors' shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
CGM FOCUS FUND
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
PETER O. BROWN
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>
CGM FOCUS FUND
- ------------------------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 1999
(unaudited)
COMMON STOCKS -- 99.4% OF TOTAL NET ASSETS
<CAPTION>
SHARES VALUE(a)
------ --------
<S> <C> <C>
COMPUTER SOFTWARE AND SERVICES -- 0.0%
Clarent Corporation (b) .................................... 2,500 $ 37,500
------------
ELECTRONIC COMPONENTS -- 4.2%
Bel Fuse, Inc. ............................................. 130,400 3,651,200
------------
FOOTWEAR -- 6.6%
Saucony, Inc. (b) .......................................... 57,500 1,300,937
Skechers USA, Inc. (b) ..................................... 425,000 4,462,500
------------
5,763,437
------------
HEAVY CAPITAL GOODS -- 4.3%
Terex Corporation (b) ...................................... 124,500 3,789,469
------------
HOME PRODUCTS & COSMETIC -- 6.3%
Salton, Inc. (b) ........................................... 110,000 5,500,000
------------
LIGHT CAPITAL GOODS -- 2.0%
Oshkosh Truck Corporation .................................. 35,000 1,760,938
------------
MANUFACTURING -- 23.1%
First Years, Inc. .......................................... 266,000 3,990,000
K-Swiss, Inc. .............................................. 347,000 16,135,500
------------
20,125,500
------------
MOBILE HOMES & RVS -- 13.7%
Winnebago Industries, Inc. ................................. 27,000 607,500
Monaco Coach Corporation (b) ............................... 191,000 8,081,688
National R.V. Holdings, Inc. (b) ........................... 135,000 3,273,750
------------
11,962,938
------------
PAPER PRODUCTS/CONSUMER -- 8.1%
Asia Pulp & Paper Ltd. Sponsored ADR (c) ................... 732,000 7,045,500
------------
RETAIL -- 19.4%
Ames Department Stores, Inc. (b) ........................... 166,000 7,573,750
Heilig-Meyers Company ...................................... 180,000 1,226,250
Hot Topic, Inc. (b) ........................................ 130,000 3,510,000
InterTan, Inc. (b) ......................................... 225,000 4,612,500
------------
16,922,500
------------
STEEL -- 11.7%
Companhia Siderurgica National Sponsored ADR (c) ........... 218,000 5,722,500
Ispat International N.V .................................... 404,500 4,474,781
------------
10,197,281
------------
TOTAL COMMON STOCKS (Identified Cost $65,505,477) ......................... 86,756,263
------------
COMMON STOCK WARRANTS -- 0.4%
Asia Pulp & Paper Company Ltd., Exp. 7/27/00
(Identified Cost $512,400) ................................... 146,400 $ 384,300
------------
TOTAL INVESTMENTS -- 99.8% (Identified Cost $66,017,877) (d) ................. 87,140,563
Cash, receivables and other assets ........................................ 2,877,966
Liabilities ............................................................... (2,740,930)
------------
TOTAL NET ASSETS -- 100.0% ................................................... $ 87,277,599
============
(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, 1999 the net unrealized appreciation on investments
based on cost of $66,017,877 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 .................................... $24,640,119
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value .................................... (3,517,433)
-----------
Net unrealized appreciation .............................................. $21,122,686
===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CGM FOCUS FUND
- --------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
June 30, 1999
(unaudited)
ASSETS
Investments at value (Identified cost -- $66,017,877) ..... $ 87,140,563
Cash ...................................................... 153,232
Receivable for:
Securities sold ........................... $2,499,615
Shares of the Fund sold ................... 9,550
Dividends and interest..................... 152,225
Foreign tax reclaim ....................... 5,700 2,667,090
----------
Unamortized organizational expenses ........................ 57,644
------------
90,018,529
------------
LIABILITIES
Payable for:
Securities purchased ...................... 2,316,050
Shares of the Fund redeemed ............... 329,609 2,645,659
---------- ------------
Accrued expenses:
Management fees ........................... 54,435
Trustees' fees ............................ 5,224
Accounting and Administrative fees ........ 1,085
Other expenses ............................ 34,527 95,271
---------- ------------
2,740,930
------------
NET ASSETS .................................................. $ 87,277,599
============
Net Assets consist of:
Capital paid-in ......................................... $ 95,362,691
Undistributed net investment income ..................... 450,035
Accumulated net realized loss ........................... (29,657,813)
Unrealized appreciation on investments -- net ........... 21,122,686
------------
NET ASSETS .................................................. $ 87,277,599
============
Shares of beneficial interest outstanding, no par value .. 8,270,950
============
Net asset value per share* ............................... $10.55
============
* Shares of the Fund are sold and redeemed at net asset value
($87,277,599 / 8,270,950).
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF
OPERATIONS
Six Months Ended June 30, 1999
(unaudited)
INVESTMENT INCOME
Income
Dividends (net of withholding tax of $46,942) .............. $ 846,126
Interest ................................................... 166,814
-----------
1,012,940
-----------
Expenses
Management fees ............................................ 461,254
Trustees' fees ............................................. 11,050
Accounting and Administration .............................. 6,500
Custodian .................................................. 33,050
Transfer agent ............................................. 87,350
Audit and tax services ..................................... 15,850
Legal ...................................................... 25,100
Printing ................................................... 17,950
Registration ............................................... 13,550
Amortization of organization expense ....................... 9,003
Line of credit commitment fee .............................. 12,500
Dividend expense on short sales ............................ 9,400
Miscellaneous .............................................. 650
-----------
703,207
Less expenses assumed by the investment adviser ............. (140,302)
-----------
Net investment income ....................................... 450,035
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized loss on investments -- net ......................... (6,280,191)
Unrealized appreciation -- net .............................. 12,217,230
-----------
Net gain on investments ..................................... 5,937,039
-----------
NET CHANGE IN ASSETS FROM OPERATIONS ......................... $ 6,387,074
===========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
CGM FOCUS FUND
- ----------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998
----------- -----------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) ............................. $ 450,035 $ (836,612)
Net realized loss from investments ....................... (6,280,191) (8,382,527)
Unrealized appreciation .................................. 12,217,230 7,190,688
----------- -----------
Change in net assets from operations ................... 6,387,074 (2,028,451)
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................. 5,063,929 78,493,940
Cost of shares redeemed .................................. (34,497,079) (64,927,811)
----------- -----------
Change in net assets derived from capital share
transactions ......................................... (29,433,150) 13,566,129
----------- -----------
Total change in net assets ............................... (23,046,076) 11,537,678
NET ASSETS
Beginning of period ...................................... 110,323,675 98,785,997
----------- -----------
End of period (including undistributed net investment
income of $450,035 and $0, respectively) ............... $87,277,599 $110,323,675
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................... 523,346 7,773,832
Redeemed ................................................. (3,615,135) (6,945,863)
----------- -----------
Net change ............................................... (3,091,789) 827,969
=========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
CGM FOCUS FUND
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<CAPTION>
FOR THE PERIOD
SEPTEMBER 3,
SIX MONTHS 1997(a)
ENDED YEAR ENDED THROUGH
JUNE 30, 1999 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
For a share of the Fund outstanding throughout the
period:
Net asset value at the beginning of period ............ $ 9.71 $ 9.38 $10.00
------ ------ ------
Net investment income (loss) (b) ...................... 0.05 (0.07)(c) (0.02)(c)
Net realized and unrealized gain (loss) on investments 0.79 0.40(d) (0.60)
------ ------ ------
Net increase (decrease) in net asset value ............ 0.84 0.33 (0.62)
------ ------ ------
Net asset value at end of period ...................... $10.55 $ 9.71 $ 9.38
====== ====== ======
Total Return (%) (e) .................................. 8.7(f) 3.5 (6.20)(f)
Ratios:
Operating expenses to average net assets (%) .......... 1.22(g) 1.20 1.20(g)
Operating expenses to average net assets before expense
limitation (%) ...................................... 1.52(g) 1.40 1.63(g)
Net income (loss) to average net assets (%) ........... 0.98(g) (0.65) (0.83)(g)
Portfolio turnover (%) ................................ 285(g) 340 330(g)
Net assets at end of period (in thousands) ............ $87,278 $110,324 $98,786
(a) Commencement of operations.
(b) Net of reimbursement which amounted to .............. $ 0.02 $ 0.02 $ 0.01
(c) Per share net investment loss does not reflect the period's reclassification of permanent differences between book
and tax basis net investment loss. See note 1D.
(d) The amount shown for a share outstanding does not correspond with the aggregate net gain/(loss) on investments for
the period ended December 31, 1998, due to the timing of purchases and redemptions of fund shares in relation to
fluctuating market values of the investments of the Fund.
(e) The total return would have been lower had certain expenses not been reduced during the period.
(f) Not computed on an annualized basis.
(g) Computed on an annualized basis.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CGM FOCUS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1999
(unaudited)
1. The Fund is a non-diversified series of CGM Trust which is organized as a
Massachusetts business trust under the laws of Massachusetts pursuant to an
Agreement and Declaration of Trust. The Trust is registered under the
Investment Company Act of 1940 as an open-end management investment company.
The Trust has four other funds whose financial statements are not presented
herein. The Fund's investment objective is long-term growth of capital. The
Fund intends to pursue its objective by investing in a core position of equity
securities. In addition, should the investment outlook of the Fund's
investment manager so warrant, the Fund may engage in a variety of investment
techniques designed to capitalize on declines in the price of specific equity
securities of one or more companies.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
A. SECURITY VALUATION -- Equity securities are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees, which provides the last reported sale price for securities listed
on a national securities exchange or on the NASDAQ national market system
or, if no sale was reported and in the case of over-the-counter securities
not so listed, the last reported bid price. Short-term investments having a
maturity of sixty days or less are stated at amortized cost, which
approximates value.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed) and dividend income is recorded on the ex-dividend date. Interest
income is recorded on the accrual basis. Net gain or loss on securities sold
is determined on the identified cost basis.
C. FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies, and to distribute to its shareholders all of its taxable income
and net realized capital gains, within the prescribed time period.
Accordingly, no provision for federal income tax has been made. At December
31, 1998 there were capital loss carryovers available to offset future
realized gains of $13,022,258 expiring in the year 2005 and $8,539,209
expiring in the year 2006.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions
are recorded by the Fund on the ex-dividend date. The classification of
income and capital gains distributions is determined in accordance with
income tax regulations. Undistributed net investment income, accumulated net
investment loss, or distributions in excess of net investment income may
include temporary book and tax differences, which will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year end
is distributed in the following year.
E. ORGANIZATION EXPENSE -- Costs incurred in 1997 in connection with the Fund's
organization and registration amounting to $90,771 have been paid by the
Fund. These costs are being amortized over 60 months beginning September 3,
1997.
F. SHORT SALES -- The Fund may sell securities short. A short sale is a
transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. When the
Fund makes a short sale, it must borrow the security sold short to make
delivery to the buyer. The Fund then is obligated to replace the security
borrowed by purchasing the security at the market price at the time of
replacement. While the short sale is outstanding, the Fund is required to
collateralize its obligations, which has the practical effect of limiting
the extent to which the Fund may engage in short sales. At June 30, 1999,
there were no outstanding short sales.
2. PURCHASES AND SALES OF SECURITIES -- For the period ended June 30, 1999,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $140,701,167 and
$176,185,652, respectively. There were no purchases or sales of United States
government obligations.
3. A. MANAGEMENT FEES -- During the period ended June 30, 1999, the Fund
incurred management fees of $461,254, paid or payable to the Fund's
investment adviser, Capital Growth Management Limited Partnership
(CGM), certain officers and directors of which are also officers and
trustees of the Fund. The management agreement provides for a fee at
the annual rate of 1.00% on the first $500 million of the Fund's
average daily net assets, 0.95% of the next $500 million and 0.90% on
amounts in excess of $1 billion. CGM waived a portion of its fee. See
Note 4.
B. 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
questionnaires for SEC compliance; and (iii) registration, filing and
other fees in connection with requirements of regulatory authorities.
For the period ended June 30, 1999 these expenses amounted to $6,500 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 travel expenses for
each meeting attended. Of this amount, the Fund was 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
on the CGM Funds, which for the year of 1999 is $993.
4. EXPENSE LIMITATION -- Until December 31, 1999 and, thereafter until
further notice to the Fund, CGM has voluntarily agreed to reduce its
management fee and, if necessary, to assume expenses of the Fund in order to
limit the Fund's expenses to an annual rate of 1.20% of average daily net
assets exclusive of any dividend expense occurred on short sales. As a result
of the Fund's expenses exceeding the voluntary expense limitation, for the
period ended June 30, 1999, CGM waived $140,302 of its management fee. The
Fund incurred operating expenses of $553,505, representing 1.20% of the
average daily net assets.
5. LINE OF CREDIT -- The Fund has a $20,000,000 committed, secured line of
credit with its custodian bank. Borrowings under the line will be charged
interest at 0.75% over the current Overnight Federal Funds Rate. The Fund will
incur a commitment fee of 0.125% per annum on the unused portion of the line
of credit, payable quarterly. There were no borrowings under the line of
credit during the period ended June 30, 1999.
<PAGE>
CGM
FOCUS FUND
7th Quarterly Report
June 30, 1999
A No-Load Fund
Investment Adviser
[LOGO] 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.
FFQR2 99 Printed in U.S.A.