<PAGE>
TO OUR SHAREHOLDERS:
- --------------------------------------------------------------------------------
CGM Fixed Income Fund returned 0.5% during the fourth quarter of 1999 compared
to the Merrill Lynch Master Bond Index which declined -0.2%. For the year, CGM
Fixed Income Fund returned 3.0% while the Merrill Lynch Master Bond Index
declined -1.0%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
The U.S. economy expanded without interruption throughout 1999 and the expansion
now threatens to break all records for growth and duration. Real economic
growth, net of inflation, is approaching an annual rate of 4% which is well in
excess of the Federal Reserve Board's recommended rate of 2.5% to maintain a
healthy economy. The unemployment rate is down to 4.1% of the labor force and
understandably, pressure is building for higher wages. Thus far, increased wage
and material demands have had little effect on the Consumer Price Index.
However, now we must also add to the equation foreign markets, which are
expanding and will increase demand for our products as well as for raw
materials. Looking forward, we believe inflationary pressures will increase in
2000.
Economic strength has given rise to higher interest rates. The long-term
government bond bottomed out with an interest rate of 4.75% in October 1998.
Since then, it has risen to 6.5%. The Federal Reserve Board has already
increased short-term rates several times and is expected to raise rates again
early in 2000 in order to slow the pace of business activity.
In 1999, fears of Federal Reserve Board rate increases and rising inflation as
well as Y2K worries and heavy corporate bond issuance conspired to produce one
of the worst performing bond markets in history and the single worst since 1994.
The Treasury market led the charge with long bonds providing the greatest price
declines and dragging down other sympathetic markets. Corporate bonds were far
less affected though periodic supply gluts pushed prices lower and widened
quality spreads. The year's few bright spots were in the emerging markets and
convertible securities.
Higher interest rates have already affected most common stocks, particularly
those of companies in older, well-established industries. As previously
mentioned, we believe we have two distinct stock markets: The new technology and
telecommunications companies have enjoyed a bull market of their own where
prices have been driven skyward based on unbridled enthusiasm. We remain
skeptical about how long this process can last and we continue to believe there
is good value in the "other" stock market which includes many depressed cyclical
securities and real estate investment trusts.
PORTFOLIO STRATEGY
With the recovery of the Asian and Latin American markets, CGM Fixed Income
Fund's performance profited from participation in emerging market bonds.
Additionally, several of the Fund's holdings received credit upgrades during the
course of the year. The real estate investment trust (REIT) sector and some of
the preferred stock holdings of cyclical industries fared less well,
particularly at year-end as tax loss selling exaggerated the underperformance of
weaker groups. The maturity and duration of the Fund were shortened to a neutral
exposure relative to the market as a whole.
Looking forward, we are optimistic that the REITs will become the focus of
renewed interest. We do not anticipate significant recovery in the bond market
until such time as the US economy starts to show some real signs of slowing.
Nonetheless, rising bond yields have become more attractive relative to other
investments. In addition, we believe sectors such as high-yield and emerging
markets offer pockets of opportunity to the discriminating investor.
CGM Fixed Income Fund holds important sector positions in REITS, media and
finance. The three largest holdings are APP International Finance Company (Asia
Pulp & Paper), Innova Sa De Real and Liberty Property Limited Partnership.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ Janice H. Saul
Janice H. Saul
Portfolio Manager
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 5, 2000
<PAGE>
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CGM FIXED INCOME FUND AND THE MERRILL LYNCH MASTER BOND INDEX
assuming reinvestment of dividends and capital gains
CGM Fixed Income Fund
Average Annual Total Returns
- --------------------------------------
1 year 5 year Life of Fund*
3.0% 9.2% 8.2%
*(Annualized from 3/17/92 - 12/31/99)
- --------------------------------------
Past performance is no indication
of future results
CGM Fixed Income Fund Merrill Lynch Master Bond Index
- --------------------------------------------------------------------------------
3/17/92 $10,000 $10,000
1992 10,920 10,970
1993 12,984 12,067
1994 11,945 11,729
1995 15,206 13,899
1996 17,548 14,399
1997 18,197 15,796
1998 17,979 17,202
1999 18,518 17,030
CGM FIXED INCOME FUND
PORTFOLIO MANAGERS
- -------------------------------------------------------------------------------
G. Kenneth Heebner has managed CGM Fixed Income Fund with Janice Saul since June
1993. In 1990, Mr. Heebner founded Capital Growth Management Limited Partnership
with Robert L. Kemp. Prior to establishing the new company, Mr. Heebner managed
mutual fund portfolios at Loomis, Sayles and Company. He currently is
responsible for managing CGM Fixed Income Fund's investments convertible into
equity securities. In addition to co-managing CGM Fixed Income Fund, Mr. Heebner
manages CGM Capital Development Fund, CGM Mutual Fund, CGM Realty Fund, CGM
Focus Fund and two other mutual funds.
Janice H. Saul brings to her role as co- manager of CGM Fixed Income Fund more
than a decade of investment experience. She joined Capital Growth Management in
June 1993. Prior to that, she was at Loomis, Sayles and Company where she ran
private accounts for nine years and managed a long-term municipal bond fund from
May 1991 until May 1993. Ms. Saul was associate portfolio manager of CGM Fixed
Income Fund from June through November 1993 and was named co-manager of the
portfolio in December 1993. Ms. Saul is responsible for managing CGM Fixed
Income Fund's debt securities and also manages CGM American Tax Free Fund.
<PAGE>
- -------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Total Return for Periods Ended December 31, 1999
CGM FIXED
INCOME FUND
-----------
5 Years ......................................................... +54.9%
1 Year .......................................................... + 3.0%
3 Months ........................................................ + 0.5%
The Fund's average annual total returns for the five year period ended December
31, 1999 and for the period from inception (March 17, 1992) through December 31,
1999 are +9.2% and +8.2%, respectively. The adviser has agreed to limit the
Fund's total operating expenses to 0.85% of its average net assets annually
through December 31, 2000. Otherwise the total return for each period would have
been lower.
The performance data contained in the report represent past performance, which
is no guarantee of future results. The investment return and the principal value
of an investment in the Fund will fluctuate so that investors' shares, when
redeemed, may be worth more or less than their original cost.
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>
<CAPTION>
CGM FIXED INCOME FUND
- -----------------------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1999
BONDS AND NOTES -- 58.3% OF TOTAL NET ASSETS
FACE
AMOUNT VALUE(a)
------ --------
<S> <C> <C>
BROKERS AND INVESTMENT SERVICES -- 3.6%
Merrill Lynch and Company, Inc., 8.00%, 6/01/07 ............. $ 1,000,000 $ 1,028,480
------------
ENERGY -- 3.8%
Mitchell Energy & Development Corp., 9.25%, 1/15/02 ......... 1,055,000 1,079,423
------------
FINANCE -- 9.7%
APP International Finance Co., 11.75%, 10/01/05 ............. 3,250,000 2,730,000
------------
INDUSTRIAL -- 6.7%
Pohang Iron & Steel Limited, 7.125%, 11/01/06 ............... 2,000,000 1,884,740
------------
MEDIA -- 12.2%
Innova Sa De Real, 12.875%, 4/01/07 ......................... 2,750,000 2,447,500
Liberty Media Corporation, 7.875%, 7/15/09(c) ............... 1,000,000 995,390
------------
3,442,890
------------
REAL ESTATE INVESTMENT TRUSTS -- 7.3%
Liberty Property Limited Partnership, 8.00%, 7/01/01
(Convertible)(b) .......................................... 1,700,000 2,074,000
------------
TELEPHONE -- 7.4%
Econophone, Inc., 13.50%, 7/15/07 ........................... 1,000,000 1,060,000
Worldcom, Inc., 7.75%, 4/01/07 .............................. 1,000,000 1,019,790
------------
2,079,790
------------
UNITED STATES TREASURY -- 4.0%
United States Treasury Notes, 6.125%, 8/15/07 ............... 1,150,000 1,121,250
------------
UTILITIES -- 3.6%
Great Lakes Power, Inc., 9.00%, 8/01/04 ..................... 1,000,000 1,013,060
------------
TOTAL BONDS AND NOTES (Identified Cost $16,055,997) ......... 16,453,633
-----------
PREFERRED STOCKS -- 32.2%
SHARES
------
AvalonBay Communities, Inc., $2.25 .......................... 61,000 1,227,625
Conseco Financing Trust, $2.29 .............................. 68,200 1,440,725
Delta Air Lines, Inc., $2.031 ............................... 10,000 209,375
DLJ Capital Trust, $2.105 ................................... 40,000 882,500
Duquesne Capital LP, $2.094 ................................. 10,000 220,625
Felcor Lodging Trust, Inc., $1.95 (Convertible) ............. 65,000 1,007,500
Nova Chemicals Corp., $2.26 ................................. 20,000 402,500
Placer Dome, Inc., $2.156 ................................... 45,000 787,500
Rouse Capital, $2.313 ....................................... 59,225 1,073,453
Vornado Realty Trust, $3.25 (Convertible) ................... 39,000 1,818,375
------------
TOTAL PREFERRED STOCKS (Identified Cost $12,043,675) ........ 9,070,178
------------
COMMON STOCK -- 7.1%
Pacific Gulf Properties, Inc. (Identified Cost $1,868,426) .. 99,341 2,011,655
------------
COMMON STOCK WARRANTS -- 0%
Destia Communications, Inc. Exp. 7/15/07 (Identified Cost $0)(c) 1,000 10,000
------------
FACE
AMOUNT
------
SHORT-TERM INVESTMENT -- 1.7%
American Express Credit Corporation, 4.25% 1/03/00
(cost $475,000) ............................................ $ 475,000 475,000
------------
TOTAL INVESTMENTS -- 99.3% (Identified Cost $30,443,098)(d) ................. 28,020,466
Cash and Receivables ............................................ 683,647
Liabilities ..................................................... (485,242)
------------
TOTAL NET ASSETS -- 100.0% .................................................. $28,218,871
===========
(a) See Note 1A.
(b) Variable or floating rate security. Rate disclosed is as of December 31, 1999.
(c) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers. At year end the value of the securities amounted to $1,005,390, 3.6%
of net assets.
(d) Federal Tax Information: At December 31, 1999 the net unrealized depreciation of investments
based on cost of $30,443,098 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 ..................................... $ 709,891
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ..................................... (3,132,523)
------------
Net unrealized depreciation ............................................. $ (2,422,632)
============
See accompanying notes to financial statements
</TABLE>
<PAGE>
CGM FIXED INCOME FUND
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investments at value (Identified
cost -- $30,443,098) ................................... $28,020,466
Cash .................................................... 1,304
Receivable for:
Shares of the Fund sold .................. $ 50,431
Dividends and interest ................... 631,912 682,343
--------- -----------
28,704,113
-----------
LIABILITIES
Payable for:
Shares of the Fund
redeemed ................................ 401,780
Distributions declared ................... 28,242 430,022
---------
Accrued expenses:
Management fees .......................... 1,515
Trustees' fees ........................... 4,627
Accounting and
Administration .......................... 663
Transfer Agent fees ...................... 10,289
Other expenses ........................... 38,126 55,220
--------- -----------
485,242
-----------
NET ASSETS ................................................ $28,218,871
===========
Net Assets consist of:
Capital paid-in ........................................ $33,433,069
Accumulated net realized loss .......................... (2,791,566)
Unrealized depreciation on
investments -- net .................................... (2,422,632)
---------------
NET ASSETS ................................................ $28,218,871
===========
Shares of beneficial interest outstanding,
no par value ......................................... 2,910,682
===========
Net asset value per share* .............................. $ 9.69
===========
*Shares of the Fund are sold and redeemed at net asset value
($28,218,871 / 2,910,682).
See accompanying notes to financial statements
<PAGE>
CGM FIXED INCOME FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
INVESTMENT INCOME
Income
Dividends ................................................. $ 999,360
Interest .................................................. 2,000,739
------------
3,000,099
------------
Expenses
Management fees ........................................... 206,247
Trustees' fees ............................................ 18,700
Accounting and Administration ............................. 8,000
Custodian ................................................. 50,150
Transfer agent ............................................ 51,800
Audit and tax services .................................... 29,600
Legal ..................................................... 48,940
Printing .................................................. 15,709
Registration .............................................. 16,069
Miscellaneous ............................................. 605
------------
445,820
Less expenses assumed by the investment adviser ............. (176,113)
------------
Net expenses ................................................ 269,707
------------
Net investment income ....................................... 2,730,392
------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS
Realized loss on investments -- net ........................ (1,113,039)
Unrealized depreciation -- net ............................. (561,896)
------------
Net loss on investments .................................... (1,674,935)
------------
NET CHANGE IN ASSETS FROM
OPERATIONS ................................................. $ 1,055,457
============
See accompanying notes to financial statements
<PAGE>
CGM FIXED INCOME FUND
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income .................................... $ 2,730,392 $ 2,903,786
Net realized gain (loss) from investments ................ (1,113,039) 223,226
Unrealized depreciation .................................. (561,896) (3,493,873)
------------ ------------
Change in net assets from operations ................... 1,055,457 (366,861)
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................................... (2,775,290) (2,913,392)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................. 4,402,780 8,714,215
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ................... 2,145,578 2,316,649
------------ ------------
6,548,358 11,030,864
------------ ------------
Cost of shares redeemed .................................. (10,923,458) (17,368,670)
------------ ------------
Change in net assets derived from capital share
transactions ......................................... (4,375,100) (6,337,806)
------------ ------------
Total change in net assets ............................... (6,094,933) (9,618,059)
NET ASSETS
Beginning of period ...................................... 34,313,804 43,931,863
------------ ------------
End of period (including undistributed net investment
income of $0 and $34,042, respectively) ................ $ 28,218,871 $ 34,313,804
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................... 429,275 804,960
Issued in connection with reinvestment of:
Dividends from net investment income ................... 211,443 216,050
------------ ------------
640,718 1,021,010
------------ ------------
Redeemed ............................................... (1,068,906) (1,590,658)
------------ ------------
Net change ............................................. (428,188) (569,648)
============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE>
CGM FIXED INCOME FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
For a share of the Fund outstanding throughout each year:
Net asset value at the beginning of year ... $10.28 $11.24 $11.60 $11.41 $ 9.57
------ ------ ------ ------ ------
Net investment income (a) .................. 0.89 0.83 0.78 0.77 0.70
Dividends from net investment income ....... (0.90) (0.83) (0.78) (0.77) (0.70)
Net realized and unrealized gain (loss) on
investments .............................. (0.58) (0.96) (0.36) 0.95 1.84
Distribution from net realized gain ........ -- -- -- (0.76) --
------ ------ ------ ------ ------
Net increase (decrease) in net asset value . (0.59) (0.96) (0.36) 0.19 1.84
------ ------ ------ ------ ------
Net asset value at the end of year ......... $ 9.69 $10.28 $11.24 $11.60 $11.41
====== ====== ====== ====== ======
Total Return (%) (b) ....................... 3.0 (1.2) 3.7 15.4 27.3
Ratios:
Operating expenses to average net assets (%) 0.85 0.85 0.85 0.85 0.85
Operating expenses to average net assets
before expense limitation (%) ............ 1.41 1.26 1.26 1.26 1.53
Net investment income to average net assets(%) 8.60 7.56 6.81 6.53 6.46
Portfolio turnover (%) ..................... 47 52 147 149 148
Net assets at end of year (in thousands) ... $28,219 $34,314 $43,932 $40,646 $31,793
(a) Net of reimbursement which amounted to . $ 0.06 $ 0.05 $ 0.05 $ 0.05 $ 0.07
(b) The total return would have been lower had certain expenses not been reimbursed during the year.
</TABLE>
See accompanying notes to financial statements
<PAGE>
CGM FIXED INCOME FUND
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1999
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. Along with
one other fund in a separate Trust, there are six CGM funds (CGM Funds). 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 in the United States 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 accrued daily
and includes accretion of discount and amortization of premium. 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.
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, 1999 there were capital loss carryovers available to offset future
realized gains of $1,677,676 expiring in the year 2005 and $1,113,890
expiring in the year 2007.
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 year ended December 31, 1999,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $12,454,699 and $15,505,244,
respectively. Purchases and sales of United States government obligations
aggregated $3,722,668 and $5,033,238, respectively.
3. A. MANAGEMENT FEES -- During the year ended December 31, 1999, the Fund
incurred management fees of $206,247 paid or payable to the Fund's
investment adviser, Capital Growth Management Limited Partnership
(CGM), certain officers and directors of which are also officers and
trustees of the Fund. The management agreement provides for a fee at
the annual rate of 0.65% on the first $200 million of the Fund's
average daily net assets, 0.55% of the next $300 million and 0.40% of
such assets in excess of $500 million. For the year ended December 31,
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 year ended December
31, 1999 these expenses amounted to $8,000 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 six CGM
Funds with an annual fee of $37,000 plus travel expenses for each
meeting attended. Of this amount, each fund was responsible for $3,000
per trustee plus an annual variable fee calculated based on the
proportion of each fund's average net assets relative to the aggregate
average net assets of the CGM Funds, which for the year ended December
31, 1999 was $297 for the Fund.
4. EXPENSE LIMITATION -- Until December 31, 2000, 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 year
ended December 31, 1999, CGM waived $176,113 of its management fee. The Fund
incurred operating expenses of $269,707, representing 0.85% of the average daily
net assets.
<PAGE>
CGM FIXED INCOME FUND
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of CGM Fixed Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CGM Fixed Income Fund at December
31, 1999, and the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated, in conformity with
accounting principles generally accepted in the United States. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1999 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 8, 2000
<PAGE>
CGM
FIXED INCOME
FUND
8th Annual Report
December 31, 1999
A No-Load Fund
Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
- ------------------------------------------------------------------------------
TELEPHONE NUMBERS
For information about:
[] Account Procedures and Status
[] Redemptions
[] Exchanges
Call 800-343-5678
[] New Account Procedures
[] Prospectuses
[] Performance
Call 800-345-4048
- ------------------------------------------------------------------------------
MAILING ADDRESSES
FOR EXISTING ACCOUNTS
Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511
FOR NEW ACCOUNT APPLICATIONS ONLY
The CGM Funds
P.O. Box 449
Boston, MA 02117-0449
- ------------------------------------------------------------------------------
This report has been prepared for the shareholders of the Fund and is not
authorized for distribution to current or prospective investors in the Fund
unless it is accompanied or preceded by a prospectus.
FAR99 Printed in U.S.A.
<PAGE>
TO OUR SHAREHOLDERS:
- --------------------------------------------------------------------------------
CGM Mutual Fund increased 15.0% during the fourth quarter of 1999 compared to
the unmanaged Standard and Poor's 500 Index which increased 14.9% and the
Merrill Lynch Master Bond Index which declined -0.2%. For the year just ended,
CGM Mutual Fund returned 20.5%, the unmanaged S&P 500 Index increased 21.0% and
the Merrill Lynch Master Bond Index declined -1.0%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
The U.S. economy expanded without interruption throughout 1999 and the expansion
now threatens to break all records for growth and duration. Real economic
growth, net of inflation, is approaching an annual rate of 4% which is well in
excess of the Federal Reserve Board's recommended rate of 2.5% to maintain a
healthy economy. The unemployment rate is down to 4.1% of the labor force and
understandably, pressure is building for higher wages. Thus far, increased wage
and material demands have had little effect on the Consumer Price Index.
However, now we must also add to the equation foreign markets, which are
expanding and will increase demand for our products as well as for raw
materials. Looking forward, we believe inflationary pressures will increase in
2000.
Economic strength has given rise to higher interest rates. The long-term
government bond bottomed out with an interest rate of 4.75% in October 1998.
Since then, it has risen to 6.5%. The Federal Reserve Board has already
increased short-term rates several times and is expected to raise rates again
early in 2000 in order to slow the pace of business activity.
Higher interest rates have already affected most common stocks, particularly
those of companies in older, well-established industries. As previously
mentioned, we believe we have two distinct stock markets: The new technology and
telecommunications companies have enjoyed a bull market of their own where
prices have been driven skyward based on unbridled enthusiasm. We remain
skeptical about how long this process can last and we continue to believe there
is good value in the "other" stock market which includes many depressed cyclical
securities and real estate investment trusts.
PORTFOLIO STRATEGY
CGM Mutual Fund outperformed 95% of its balanced fund peer group in 1999
according to Lipper Analytical Services, Inc. The Fund owned Korean and
Indonesian bonds which provided a significant positive total return while most
domestic bonds declined in value because of rising U.S. interest rates. We sold
most of the Korean bonds during the year and invested approximately 15% of the
Fund in U.S. Treasury Bills in anticipation of higher U.S. interest rates.
The Fund's equity sector performed in line with the S&P 500 Index with strong
gains in paper, steel and some technology stocks offsetting underperforming real
estate investment trusts (REITs) which were one of the largest stock weightings
throughout the year. We continue to hold a major position in REITs in
anticipation of market recognition of the strong fundamentals in this sector of
the economy.
More than one quarter of the CGM Mutual Fund portfolio consists of government
bills and corporate bonds. The equity portion is invested in companies selling
at reasonable price to earnings relationships. The three largest industry
positions are in real estate investment trusts, steel and aluminum. The three
largest equity holdings are Companhia Siderurgica National Sponsored ADR, Pohang
Iron & Steel Co., Ltd. Sponsored ADR and Alcoa Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ Kenneith Heebner
Kenneth Heebner
Portfolio Manager
January 5, 2000
<PAGE>
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CGM MUTUAL FUND,
THE UNMANAGED S&P 500 INDEX, AND THE MERRILL LYNCH MASTER BOND INDEX
assuming reinvestment of dividends and capital gains
- --------------------------------------
CGM Mutual Fund
Average Annual Total Returns
- --------------------------------------
1 year 5 year 10 year
20.5% 16.7% 13.7%
- --------------------------------------
Past performance is no indication
of future results
- --------------------------------------
Unmanaged Merrill Lynch
CGM Mutual Fund S&P 500 Index Master Bond Index
- --------------------------------------------------------------------------------
$10,000 $10,000 $10,000
1990 10,110 9,690 10,910
1991 14,245 12,636 12,645
1992 15,114 13,596 13,606
1993 18,409 14,959 14,966
1994 16,623 15,164 14,540
1995 20,002 20,850 17,238
1996 25,560 25,646 17,850
1997 27,855 34,212 19,591
1998 29,923 43,996 21,335
1999 36,057 53,235 21,122
CGM MUTUAL FUND
PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
G. Kenneth Heebner has managed CGM Mutual Fund since 1981. In 1990, Mr. Heebner
founded Capital Growth Management Limited Partnership with Robert L. Kemp. Prior
to establishing the new company, Mr. Heebner was at Loomis, Sayles and Company
where he managed the Fund, then known as Loomis-Sayles Mutual Fund. In addition
to CGM Mutual Fund, Mr. Heebner currently manages CGM Capital Development Fund,
CGM Realty Fund and CGM Focus Fund as well as two other mutual funds. He also
co-manages CGM Fixed Income Fund with Janice Saul.
INVESTMENT PERFORMANCE
(unaudited)
- ------------------------------------------------------------------------------
Total Return for Periods Ended December 31, 1999
CGM
MUTUAL FUND
---------------
10 Years .................................................. +260.4%
5 Years .................................................. +116.9%
1 Year ................................................... + 20.5%
3 Months ................................................. + 15.0%
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 MUTUAL FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
25 YEAR INVESTMENT RECORD
DECEMBER 31, 1974 -- DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------------
IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1974
- --------------------------------------------------------------------------------------------------------------------------------
-- 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 1974 = 100.0
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1974 $10.27 100.0
1975 12.44 -- $ 0.43 12.89 + 25.5% 125.5
1976 13.96 -- 0.43 14.94 + 15.9 145.5
1977 12.88 -- 0.52 14.33 - 4.1 139.5
1978 12.83 -- 0.65 15.03 + 4.9 146.3
1979 13.81 -- 0.72 17.09 + 13.7 166.3
1980 14.85 -- 0.88 19.62 + 14.8 190.9
1981 13.90 -- 0.97 19.64 + 0.1 191.1
1982 18.16 -- 1.09 27.69 + 41.0 269.5
1983 18.81 -- 1.09 30.43 + 9.9 296.2
1984 17.01 $ 1.86 0.95 32.35 + 6.3 314.9
1985 21.53 -- 1.08 43.51 + 34.5 423.5
1986 22.86 2.75 0.94 54.43 + 25.1 529.8
1987 20.40 4.52 1.06 61.89 + 13.7 602.4
1988 19.94 -- 1.10 63.87 + 3.2 621.7
1989 22.34 0.95 0.93 77.73 + 21.7 756.6
1990 21.64 -- 0.93* 78.59 + 1.1 764.9
1991 26.80 2.64 0.97 110.73 + 40.9 1077.7
1992 26.02 1.42 0.93 117.48 + 6.1 1143.4
1993 28.88 1.93 0.86 143.09 + 21.8 1392.7
1994 25.05 -- 1.04 129.21 - 9.7 1257.6
1995 29.43 0.89 0.77 160.61 + 24.3 1563.2
1996 31.42 4.15 0.74 198.67 + 23.7 1933.7
1997 25.52 7.81 0.67 214.96 + 8.2 2092.3
1998 26.36 0.25 0.98 232.59 + 8.2 2263.9
1999 27.28 3.54 0.84 280.27 + 20.5 2728.0
------ ------ ------
Totals $32.71 $21.57 +2628.0
- ---------------------------------------------------------------------------------------------------------------------------
* 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>
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS -- 70.5% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
ALUMINUM -- 11.9%
Alcan Aluminium Limited(b) .......................... 1,165,000 $ 47,983,438
Alcoa Inc. .......................................... 730,000 60,590,000
------------
108,573,438
------------
ELECTRONIC COMPONENTS -- 10.2%
Koninklijke Philips Electronics Sponsored ADR(c) .... 338,520 45,700,200
Micron Technology, Inc.(d) .......................... 610,000 47,427,500
------------
93,127,700
------------
METALS AND MINING -- 5.4%
Inco Limited(b)(d) .................................. 2,095,000 49,232,500
------------
PAPER PRODUCTS/CONSUMER -- 5.7%
Asia Pulp & Paper Company Ltd. ADR(b)(c)(d) ......... 6,600,000 51,975,000
------------
PRINTING -- 4.3%
Aracruz Celulose S.A. ADR(b)(c) ..................... 1,494,900 39,241,125
------------
REAL ESTATE INVESTMENT TRUSTS -- 17.6%
Apartment Investment and Management Company ......... 1,450,000 57,728,125
Boston Properties, Inc. ............................. 1,900,000 59,137,500
Vornado Realty Trust ................................ 1,315,000 42,737,500
------------
159,603,125
------------
STEEL -- 15.4%
Companhia Siderurgica National Sponsored ADR(b)(c) .. 2,005,000 73,683,750
Pohang Iron & Steel Co., Ltd. Sponsored ADR(b)(c) ... 1,880,000 65,800,000
------------
139,483,750
------------
TOTAL COMMON STOCKS (Identified Cost $555,405,611) .. 641,236,638
------------
BONDS AND BILLS -- 28.9%
FACE
AMOUNT VALUE(a)
---------------
BANK AND INSURANCE -- 3.1%
Korea Development Bank, 6.625%, 11/21/03(b) ......... $28,850,000 $ 27,699,174
------------
FINANCE -- 6.8%
APP International Finance, 11.75%, 10/01/05(b) ...... 46,750,000 39,270,000
APP Finance VI Mauritius Restricted, 0.00%, 11/18/12
(Convertible)(b) .................................... 49,133,000 8,659,691
APP Finance VII Mauritius, 3.50%, 4/30/03
(Convertible)(b)................................... 19,795,000 14,252,400
------------
62,182,091
------------
INDUSTRIAL -- 3.2%
CSN Iron S.A., 9.125%, 6/01/07 ...................... 14,300,000 11,904,750
CSN Iron S.A. Restricted, 9.125%, 6/01/07 ........... 20,700,000 17,232,750
------------
29,137,500
------------
UNITED STATES TREASURY -- 15.8%
United States Treasury Bills, 4.240%, 1/27/00 ....... 40,000,000 39,856,133
United States Treasury Bills, 4.637%, 2/03/00 ....... 5,000,000 4,977,404
United States Treasury Bills, 4.778%, 2/17/00 ....... 40,000,000 39,746,800
United States Treasury Bills, 5.033%, 3/23/00 ....... 59,500,000 58,817,535
------------
143,397,872
------------
TOTAL BONDS AND BILLS (Identified Cost $264,387,878) 262,416,637
------------
SHORT-TERM INVESTMENT -- 0.5%
American Express Credit Corporation, 4.25%, 1/03/00
(Cost $4,080,000) ................................. 4,080,000 4,080,000
------------
TOTAL INVESTMENTS -- 99.9% (Identified Cost $823,873,489)(e) ... 907,733,275
Cash and Receivables ......................................... 34,634,434
Liabilities .................................................. (33,439,530)
------------
TOTAL NET ASSETS -- 100.0% ..................................... $908,928,179
============
(a) See Note 1A.
(b) The Fund has greater than 10% of its assets at December 31, 1999 invested
in each of four countries: Brazil, Canada, Singapore and South Korea.
(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) Non-income producing security.
(e) Federal Tax Information: At December 31, 1999, the net unrealized
appreciation on investments based on cost of $825,205,065 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 ....... $115,144,379
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ....... (32,616,169)
------------
Net unrealized appreciation ................................ $ 82,528,210
============
See accompanying notes to financial statements
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investments at value (Identified
cost -- $823,873,489) .................... $ 907,733,275
Cash ........................................ 2,751,585
Receivable for:
Securities sold ........................... $ 28,433,402
Shares of the Fund sold ................... 186,801
Dividends and interest (net of withholding
tax of $86,546) ......................... 3,262,646 31,882,849
------------- -------------
942,367,709
-------------
LIABILITIES
Payable for:
Securities purchased .................... 25,996,102
Shares of the Fund redeemed ............. 1,366,445
Distributions declared .................. 5,112,161 32,474,708
-------------
Accrued expenses:
Management fees ......................... 645,075
Trustees' fees .......................... 14,380
Accounting and Administration ........... 7,000
Transfer Agent Fees ..................... 224,000
Other expenses .......................... 74,367 964,822
------------- -------------
33,439,530
-------------
NET ASSETS .................................. $ 908,928,179
=============
Net Assets consist of:
Capital paid-in ......................... $ 826,110,413
Undistributed net investment
income ................................ 289,558
Accumulated net realized loss ........... (1,331,578)
Unrealized appreciation on
investments -- net .................... 83,859,786
-------------
NET ASSETS .................................. $ 908,928,179
=============
Shares of beneficial interest
outstanding, no par value ............... 33,323,785
=============
Net asset value per share* ................ $ 27.28
=============
*Shares of the Fund are sold and redeemed at net asset value
($908,928,179 / 33,323,785).
See accompanying notes to financial statements
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
INVESTMENT INCOME
Income
Dividends (net of withholding tax of $242,258) $ 14,386,359
Interest ..................................... 20,299,276
------------
34,685,635
------------
Expenses
Management fees .............................. 7,654,368
Trustees' fees ............................... 57,513
Accounting and Administration ................ 84,000
Custodian .................................... 136,788
Transfer agent ............................... 1,043,733
Audit and tax services ....................... 33,000
Legal ........................................ 48,684
Printing ..................................... 62,600
Registration ................................. 22,142
Miscellaneous ................................ 3,447
------------
9,146,275
------------
Net investment income .......................... 25,539,360
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized gain on investments -- net .......... 103,523,126
Unrealized appreciation -- net ............... 39,442,163
------------
Net gain on investments ...................... 142,965,289
------------
NET CHANGE IN ASSETS FROM
OPERATIONS ..................................... $168,504,649
============
See accompanying notes to financial statements
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998
--------------- ---------------
OPERATIONS
<S> <C> <C>
Net investment income ............................. $ 25,539,360 $ 36,887,976
Net realized gain from investments ................ 103,523,126 8,861,923
Unrealized appreciation ........................... 39,442,163 34,118,144
--------------- ---------------
Change in net assets from operations ............ 168,504,649 79,868,043
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ........................ (25,779,267) (36,150,275)
From net realized gain on investments ............. (103,806,626) (9,194,452)
In excess of net realized gain on investments ..... (1,025,029) --
--------------- ---------------
(130,610,922) (45,344,727)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ...................... 23,213,252 44,291,949
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ............ 23,336,571 32,073,979
Distributions from net realized gain ............ 93,970,504 8,389,398
Distributions in excess of net realized gains on
investments ................................... 927,903 --
--------------- ---------------
141,448,230 84,755,326
Cost of shares redeemed ........................... (211,343,378) (370,503,481)
--------------- ---------------
Change in net assets derived from capital share
transactions .................................. (69,895,148) (285,748,155)
--------------- ---------------
Total change in net assets ........................ (32,001,421) (251,224,839)
NET ASSETS
Beginning of period ............................... 940,929,600 1,192,154,439
--------------- ---------------
End of the period (including undistributed net
investment income of $289,558 and $737,701,
respectively) ................................... $ 908,928,179 $ 940,929,600
=============== ===============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ........................ 825,808 1,699,743
Issued in connection with reinvestment of:
Dividends from net investment income ............ 859,719 1,233,492
Distributions from net realized gain ............ 3,461,873 314,649
Distributions in excess of net realized gain on
investments ................................... 34,184 --
--------------- ---------------
5,181,584 3,247,884
Redeemed ........................................ (7,554,102) (14,267,908)
--------------- ---------------
Net change ...................................... (2,372,518) (11,020,024)
=============== ===============
</TABLE>
See accompanying notes to financial statements
<PAGE>
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
For a share of the Fund outstanding throughout each year:
Net asset value at the
beginning of year .......... $ 26.36 $ 25.52 $ 31.42 $ 29.43 $ 25.05
------------- ------------- ------------- ------------- -------------
Net investment income ........ 0.83 1.00 0.66 0.75 0.73
Dividends from net investment
income ..................... (0.84) (0.98) (0.67) (0.74) (0.77)
Net realized and unrealized
gain on investments ........ 4.47 1.07 1.92 6.13 5.31
Distribution from net realized
gain ....................... (3.51) (0.25) (7.81) (4.15) (0.89)
Distribution in excess of net
realized gain on investments (0.03) -- -- -- --
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net
asset value ................ 0.92 0.84 (5.90) 1.99 4.38
------------- ------------- ------------- ------------- -------------
Net asset value at end of year $ 27.28 $ 26.36 $ 25.52 $ 31.42 $ 29.43
============= ============= ============= ============= =============
Total Return (%) ............. 20.5 8.2 8.2 23.7 24.3
Ratios:
Operating expenses to average
net assets (%) ............. 1.02 1.02 0.98 0.87 0.91
Net investment income to
average net assets (%) ..... 2.86 3.56 1.91 2.33 2.55
Portfolio turnover (%) ....... 200 280 386 192 291
Net assets at end of year (in
thousands) ($) ............. 908,928 940,930 1,192,154 1,216,523 1,154,439
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1999
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. Along with
one other fund in a separate Trust, there are six CGM funds (CGM Funds). 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 in the United States 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 net of
applicable taxes. 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.
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 year ended December 31, 1999,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $1,699,171,629 and
$2,008,364,454, respectively. Purchases and sales of United States government
obligations aggregated $180,285,430 and $82,330,184, respectively.
3. A. MANAGEMENT FEES -- During the year ended December 31, 1999, the Fund
incurred management fees of $7,654,368, 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 $84,000, for the year ended December 31, 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 six CGM
Funds with an annual fee of $37,000 plus travel expenses for each
meeting attended. Of this amount, each fund was responsible for $3,000
per trustee plus an annual variable fee calculated based on the
proportion of each fund's average net assets relative to the aggregate
average net assets of the CGM Funds, which for the year ended December
31, 1999 was $8,104 for the Fund.
- ------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of CGM Mutual Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CGM Mutual Fund at December 31,
1999, and the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 8, 2000
<PAGE>
<TABLE>
<CAPTION>
CGM MUTUAL FUND
- ---------------------------------------------------------------------------------------------
<S> <C>
BOARD OF TRUSTEES INVESTMENT ADVISER
PETER O. BROWN CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
G. KENNETH HEEBNER Boston, Massachusetts 02110
ROBERT L. KEMP
ROBERT B. KITTREDGE TRANSFER AND DIVIDEND PAYING
LAURENS MACLURE AGENT AND CUSTODIAN OF ASSETS
JAMES VAN DYKE QUEREAU, JR. STATE STREET BANK AND TRUST COMPANY
J. BAUR WHITTLESEY Boston, Massachusetts 02102
OFFICERS SHAREHOLDER SERVICING AGENT
ROBERT L. KEMP, President FOR STATE STREET BANK AND
G. KENNETH HEEBNER, Vice President TRUST COMPANY
LESLIE A. LAKE, Vice President and Secretary BOSTON FINANCIAL DATA SERVICES, INC.
KATHLEEN S. HAUGHTON, Vice President P.O. Box 8511
MARTHA I. MAGUIRE, Vice President Boston, Massachusetts 02266-8511
W. DUGAL THOMAS, Vice President
MARY L. STONE, Assistant Vice President
FRANK N. STRAUSS, Treasurer
</TABLE>
<PAGE>
CGM
MUTUAL FUND
70th Annual Report
December 31, 1999
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
- ------------------------------------------------------------------------------
TELEPHONE NUMBERS
For information about:
[] Account Procedures and Status
[] Redemptions
[] Exchanges
Call 800-343-5678
[] New Account Procedures
[] Prospectuses
[] Performance
Call 800-345-4048
- ------------------------------------------------------------------------------
MAILING ADDRESSES
FOR EXISTING ACCOUNTS
Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511
FOR NEW ACCOUNT APPLICATIONS ONLY
The CGM Funds
P.O. Box 449
Boston, MA 02117-0449
- ------------------------------------------------------------------------------
This report has been prepared for the shareholders of the Fund and is not
authorized for distribution to current or prospective investors in the Fund
unless it is accompanied or preceded by a prospectus.
MAR99 Printed in U.S.A.
<PAGE>
TO OUR SHAREHOLDERS:
- --------------------------------------------------------------------------------
CGM American Tax Free Fund declined -1.1% during the fourth quarter of 1999
compared to the Lehman Municipal Bond Index which declined -0.8%. For the year,
CGM American Tax Free Fund fell -5.3% while the Lehman Municipal Bond Index
declined -2.1%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
The U.S. economy expanded without interruption throughout 1999 and the expansion
now threatens to break all records for growth and duration. Real economic
growth, net of inflation, is approaching an annual rate of 4% which is well in
excess of the Federal Reserve Board's recommended rate of 2.5% to maintain a
healthy economy. The unemployment rate is down to 4.1% of the labor force and
understandably, pressure is building for higher wages. Thus far, increased wage
and material demands have had little effect on the Consumer Price Index.
However, now we must also add to the equation foreign markets, which are
expanding and will increase demand for our products as well as for raw
materials. Looking forward, we believe inflationary pressures will increase in
2000.
Economic strength has given rise to higher interest rates. The long-term
government bond bottomed out with an interest rate of 4.75% in October 1998.
Since then, it has risen to 6.5%. The Federal Reserve Board has already
increased short-term rates several times and is expected to raise rates again
early in 2000 in order to slow the pace of business activity.
In 1999, fears of Federal Reserve Board rate increases and rising inflation as
well as Y2K worries and heavy corporate bond issuance conspired to produce one
of the worst performing bond markets in history and the single worst since 1994.
The Treasury market led the charge with long bonds providing the greatest price
declines and dragging down other sympathetic markets. Against this unpromising
backdrop, municipal bonds were further affected by a sharp drop in investor
participation. The soaring stock market dampened any enthusiasm for tax-free
bonds on the part of major investors such as insurance companies and mutual
funds.
PORTFOLIO STRATEGY
CGM American Tax Free underperformed primarily on account of its longer maturity
structure for a good part of the year. During the second half of the year, we
did restructure and shorten the portfolio to position the Fund much more
defensively. The Fund did benefit from some credit upgrades and quality spread
tightening which occurred during 1999.
Looking forward, we believe the tax-exempt market will emerge from the stock
market's shadow to enjoy renewed interest. At present, long high-quality
tax-free investments offer compelling yields of 6% or more which translate into
a 10% tax equivalent yield in the highest federal personal income tax bracket.
We believe CGM American Tax Free Fund is defensively postured towards rising
interest rates and is structured to maintain the high yield it has offered in
the past. We do not anticipate significant recovery in the bond market until
such time as the US economy starts to show some real signs of slowing.
Nonetheless, rising bond yields have become more attractive relative to other
investments and the comparatively low cost of today's tax-exempt market offers
investors an opportunity to diversify away from the more volatile stock market.
CGM American Tax Free Fund's largest sector concentrations are in industrial
revenue/pollution control, general obligation and transportation bonds. The
Fund's three largest holdings are Hodge Louisiana (Stone Container) Utility,
Howard County Maryland Multi-family Housing (Chase Glen Apartments) and Puerto
Rico Infrastructure General Obligation Bonds.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ Janice H. Saul
Janice H. Saul
Portfolio Manager
January 5, 2000
<PAGE>
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CGM AMERICAN TAX FREE FUND AND THE LEHMAN MUNICIPAL BOND INDEX
assuming reinvestment of dividends and capital gains
CGM American Tax Free Fund
Average Annual Total Returns
- --------------------------------------
1 year 5 year Life of Fund*
-5.3% 6.0% 3.8%
*(Annualized from 11/10/93 - 12/31/99)
- --------------------------------------
Past performance is no indication
of future results
- --------------------------------------
CGM American Tax Free Fund Lehman Municipal Bond Index
- --------------------------------------------------------------------------------
11/10/93 $10,000 $10,000
1993 10,290 10,004
1994 9,446 9,518
1995 11,147 11,184
1996 11,470 11,676
1997 12,503 12,750
1998 13,316 13,579
1999 12,610 13,294
CGM AMERICAN TAX FREE FUND
PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
Janice H. Saul joined Capital Growth Management in June 1993, and assumed
management of CGM American Tax Free Fund at its inception, November 10, 1993.
Ms. Saul's experience with municipal securities began in 1979 at Scudder,
Stevens, and Clark. In 1983, she joined Loomis, Sayles and Company where she ran
private accounts for nine years. From 1991 until May 1993, Ms. Saul managed a
new long-term municipal bond fund at Loomis, Sayles and Company. Ms. Saul
currently is also co-manager of CGM Fixed Income Fund.
INVESTMENT PERFORMANCE
(unaudited)
- --------------------------------------------------------------------------------
Total Return for Periods Ended December 31, 1999
CGM AMERICAN
TAX FREE FUND
-------------
5 Years ......................................................... +33.5%
1 Year .......................................................... - 5.3
3 Months ........................................................ - 1.1
The Fund's average annual total returns for the five year period ended December
31, 1999 and from inception (November 10, 1993) through December 31, 1999 are
+6.0% and +3.8%, respectively. The adviser has agreed to absorb the Fund's total
operating expenses through December 31, 2000. Otherwise, the Fund's total return
for each period 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>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1999
MUNICIPAL BONDS -- 96.9% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE(a)
---------- -----------
<S> <C> <C>
ALASKA -- 3.3%
Alaska State Housing Finance Corporation, 5.70%, 6/01/13 ... $ 490,000 $ 487,702
-----------
CALIFORNIA -- 6.1%
California State General Obligation Bonds, 4.50%, 12/01/21 .. 500,000 399,885
Los Angeles Regional Airport (United Airlines), 6.875%,
11/15/12 .................................................. 500,000 522,425
-----------
922,310
-----------
COLORADO -- 7.2%
Denver City & County Airport, 5.25%, 11/15/23 ............... 500,000 444,035
E470 Public Highway Authority, 5.00%, 9/01/26 ............... 750,000 635,010
-----------
1,079,045
-----------
FLORIDA -- 1.7%
Polk County Industrial Development Authority Revenue Bonds
(IMC Fertilizer), 7.525%, 1/01/15 ........................ 250,000 261,730
-----------
HAWAII -- 4.0%
Hawaii State General Obligation Bonds, 5.80%, 9/01/15 ....... 500,000 497,920
Honolulu City and County Mortgage Revenue (FHA Insured),
7.80%, 7/01/24 ............................................ 95,000 98,482
-----------
596,402
-----------
ILLINOIS -- 3.4%
Illinois Student Assistance Loan, 5.75%, 3/01/07 ............ 500,000 516,520
-----------
KENTUCKY -- 2.7%
Kenton County Airport Revenue Bonds (Delta Airlines),
6.75%, 2/01/02 ............................................. 400,000 410,196
-----------
LOUISIANA -- 6.8%
Hodge Utility Revenue Bonds (Stone Container), 9.00%, 3/01/10 . 1,000,000 1,023,530
-----------
MARYLAND -- 5.3%
Howard County Multifamily, Chase Glen Apartments (AvalonBay
Properties), 7.00%, 7/01/24 ................................. 750,000 800,955
-----------
MASSACHUSETTS -- 2.5%
Massachusetts Municipal Wholesale Electric Power Supply
System, 8.75%, 7/01/18 .................................... 330,000 376,929
-----------
MICHIGAN -- 4.4%
Michigan State Hospital Finance Authority, 5.50%, 11/15/08 .. 460,000 450,197
Michigan State Housing Development (Rental Housing Program),
7.05%, 10/01/12 ........................................... 195,000 202,864
-----------
653,061
-----------
NEW JERSEY -- 5.8%
New Jersey Economic Development Authority, 6.00%, 6/15/10 ... 500,000 534,565
New Jersey Economic Development Authority, 6.625%, 9/15/12 .. 325,000 329,050
-----------
863,615
-----------
NEW YORK -- 19.7%
New York General Obligation Bonds Series B, 8.25%, 6/01/05 .. 100,000 114,357
New York General Obligation Bonds Series J, 5.50%, 2/15/26 .. 500,000 447,285
New York State Dormitory Authority Revenue Bonds (City
University Facilities), 5.75%, 7/01/13 .................... 250,000 252,808
New York State Dormitory Authority Revenue Bonds (State
University Facilities), 5.875%, 5/15/11 ................... 250,000 257,822
New York State Throughway Authority Service, 5.75%, 4/01/15 . 500,000 498,445
Port Authority New York and New Jersey Special Obligation,
9.125%, 12/01/15 .......................................... 395,000 414,497
TSASC, Inc., 5.75%, 7/15/15 ................................. 500,000 485,755
United Nations Development Corporation, 6.25%, 7/01/26 ...... 450,000 479,556
-----------
2,950,525
-----------
PENNSYLVANIA -- 3.6%
Philadelphia Water and Waste, 6.25%, 8/01/11 ................ 500,000 535,750
-----------
PUERTO RICO -- 4.3%
Puerto Rico Commonwealth Infrastructure, 5.00%, 7/01/28 ..... 750,000 639,165
-----------
SOUTH CAROLINA -- 6.1%
Georgetown County Pollution Control (International Paper),
5.125%, 2/01/12 ........................................... 500,000 464,810
South Carolina Transportation Infrastructure, 5.375%, 10/01/24 500,000 455,740
-----------
920,550
-----------
TEXAS -- 7.5%
Alliance Airport Authority Special Facilities Revenue Bonds
(American Airlines Inc. Project), 7.00%, 12/01/11 ........ 250,000 268,170
Bexar County Health Facilities, 5.375%, 11/15/22 ............ 500,000 451,595
Houston Independent School District, 4.75%, 2/15/22 ......... 500,000 410,745
-----------
1,130,510
-----------
VIRGINIA -- 2.5%
Hopewell Industrial Development Authority (Stone Container),
8.25%, 6/01/16 ............................................ 350,000 370,955
-----------
TOTAL MUNICIPAL BONDS (Identified Cost $15,055,761) ........................... 14,539,450
-----------
FACE
AMOUNT VALUE(a)
------ --------
SHORT-TERM INVESTMENT -- 2.0%
American Express Credit Corporation, 4.25%,
1/03/00 (Cost $295,000) ..................................... $ 295,000 $ 295,000
------------
TOTAL INVESTMENTS -- 98.9% (Identified
Cost $15,350,761)(b) ........................................................ 14,834,450
Cash and Receivables ......................................................... 283,975
Liabilities .................................................................. (119,544)
-----------
TOTAL NET ASSETS -- 100.0% .................................................... $14,998,881
===========
(a) See Note 1A.
(b) Federal Tax Information: At December 31, 1999 the net unrealized depreciation
on investments based on cost of $15,350,761 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 ..................................... $ 127,609
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ..................................... (643,920)
-----------
Net unrealized depreciation ............................................... $ (516,311)
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investments at value (Identified
cost -- $15,350,761) ................................. $14,834,450
Cash ................................................... 166
Receivable for:
Shares of the Fund sold ................ $ 4,882
Interest ............................... 278,927 283,809
-------- -----------
15,118,425
-----------
LIABILITIES
Payable for:
Shares of the Fund
redeemed ............................. 66,158
Expense advance from
adviser .............................. 39,832
Distributions declared ................. 13,554 119,544
-------- -----------
NET ASSETS ............................................... $14,998,881
===========
Net Assets consist of:
Capital paid-in ...................................... $17,218,035
Undistributed net investment
income ............................................. 758
Accumulated net realized loss ........................ (1,703,601)
Unrealized depreciation on
investments -- net ................................. (516,311)
-----------
NET ASSETS ............................................... $14,998,881
===========
Shares of beneficial interest
outstanding, no par value ........................... 1,718,119
===========
Net asset value per share* ............................. $8.73
===========
*Shares of the Fund are sold and redeemed at net asset value
($14,998,881 / 1,718,119).
See accompanying notes to financial statements.
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
INVESTMENT INCOME
Income Interest ............................................... $ 980,333
----------
Expenses
Management fees ............................................. 102,070
Trustees' fees .............................................. 17,380
Accounting and Administration ............................... 3,000
Custodian ................................................... 54,160
Transfer agent .............................................. 24,500
Audit and tax services ...................................... 19,500
Legal ....................................................... 49,700
Printing .................................................... 11,720
Registration ................................................ 16,780
Miscellaneous ............................................... 765
----------
299,575
Less expenses assumed by the investment adviser ............. (299,575)
----------
Net expenses ................................................ 0
----------
Net investment income ....................................... 980,333
----------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS
Realized loss on investments -- net ........................... (818,812)
Unrealized depreciation -- net ................................ (1,067,104)
----------
Net loss on investments ....................................... (1,885,916)
----------
NET CHANGE IN ASSETS FROM OPERATIONS ............................ (905,583)
==========
See accompanying notes to financial statements.
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ............................... $ 980,333 $ 879,126
Net realized gain (loss) from investments ........... (818,812) 68,196
Unrealized appreciation (depreciation) .............. (1,067,104) 26,584
------------ ------------
Change in net assets from operations .............. (905,583) 973,906
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ............................... (981,050) (877,714)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ........................ 2,645,611 4,055,485
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income .............. 623,166 601,144
------------ ------------
3,268,777 4,656,629
Cost of shares redeemed ............................. (4,089,411) (1,489,676)
------------ ------------
Change in net assets derived from capital share
transactions .................................... (820,634) 3,166,953
------------ ------------
Total change in net assets .......................... (2,707,267) 3,263,145
NET ASSETS
Beginning of period ................................. 17,706,148 14,443,003
------------ ------------
End of period (including undistributed net investment
income of $758 and $1,475 respectively) ........... $ 14,998,881 $ 17,706,148
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares .......................... 280,881 415,494
Issued in connection with reinvestment of:
Dividends from net investment income .............. 67,382 61,756
------------ ------------
348,263 477,250
Redeemed .......................................... (443,346) (153,268)
------------ ------------
Net change ........................................ (95,083) 323,982
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CGM AMERICAN TAX FREE FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
For a share of the Fund outstanding throughout each year:
<S> <C> <C> <C> <C> <C>
Net asset value at the beginning of year $ 9.77 $ 9.70 $ 9.46 $ 9.77 $ 8.83
---------- ---------- ---------- ---------- ----------
Net investment income (a) .............. 0.54 0.55 0.58 0.58 0.61
Dividends from net investment income ... (0.54) (0.55) (0.58) (0.58) (0.61)
Net realized and unrealized gain (loss)
on investments ........................ (1.04) 0.07 0.24 (0.31) 0.94
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset
value ................................. (1.04) 0.07 0.24 (0.31) 0.94
---------- ---------- ---------- ---------- ----------
Net asset value at end of year ......... $ 8.73 $ 9.77 $ 9.70 $ 9.46 $ 9.77
========== ========== ========== ========== ==========
Total Return (%) (b) ................... (5.3) 6.5 9.0 2.9 18.0
Ratios:
Operating expenses to average net assets(%) 0 0 0 0 0
Operating expenses to average net assets
before waiver (%) .................... 1.76 1.69 2.04 2.14 2.59
Net investment income to average net
assets (%) ........................... 5.76 5.63 6.11 6.10 6.50
Portfolio turnover (%) ................. 53 37 140 107 125
Net assets at end of year (in thousands) $ 14,999 $ 17,706 $ 14,443 $ 12,430 $ 11,855
(a) Net of fees waived and reimbursed
amounted to ........................ $ 0.17 $ 0.16 $ 0.19 $ 0.20 $ 0.24
(b) The total return would have been lower had the total fees and expenses not been waived or reimbursed during
the year.
</TABLE>
See accompanying notes to financial statements.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1999
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. Along with
one other fund in a separate Trust, there are six CGM funds (CGM Funds). 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 in the United States 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 accrued daily
and includes accretion of discount and amortization of premium. 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, 1999, there were capital loss carryovers available to offset
future realized gains of $659,836 expiring in the year 2002, $224,953
expiring in 2004, and $818,812 expiring in 2007.
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 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 December 31,
1999 invested in New York. There are certain risks arising from geographical
concentration in any state. Certain revenue or tax related events in a state
may impair the ability of certain issuers of municipal securities to pay
principal and interest on their obligations.
2. PURCHASES AND SALES OF SECURITIES -- For the year ended December 31, 1999,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $8,763,041 and $9,184,843,
respectively. There were no purchases or sales of United States government
obligations.
3. A. MANAGEMENT FEES -- During the year ended December 31, 1999, the Fund
incurred management fees of $102,070 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 for the year end
December 31, 1999. See Note 4. An affiliate of the investment advisor
owns 5% of the Fund at December 31, 1999.
B. OTHER EXPENSES -- CGM performs certain administrative, accounting and
other services for the Fund. The expenses of those services, which are
paid to CGM by the Fund, include the following: (i) expenses for
personnel performing bookkeeping, accounting and financial reporting
functions and clerical functions relating to the Fund; (ii) expenses for
services required in connection with the preparation of registration
statements and prospectuses, shareholder reports and notices, proxy
solicitation material furnished to shareholders of the Fund or
regulatory authorities and reports and questionnaires for SEC
compliance; and (iii) registration, filing and other fees in connection
with requirements of regulatory authorities. For the year ended December
31, 1999 these expenses amounted to $3,000 and are shown separately in
the financial statements as Accounting and Administration. The entire
expense was waived by CGM for the year ended December 31, 1999.
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 six CGM
Funds with an annual fee of $37,000 plus travel expenses for each
meeting attended. Of this amount, each fund was responsible for $3,000
per trustee plus an annual variable fee calculated based on the
proportion of each fund's average net assets relative to the aggregate
average net assets of the CGM Funds, which for the year ended December
31, 1999 was $125 for the Fund.
4. EXPENSE LIMITATION -- Until December 31, 2000, 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 year ended December 31, 1999, CGM
waived its entire management fee of $102,070, the entire Accounting and
Administration expense of $3,000 and assumed other Fund expenses of $194,505.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of CGM American Tax Free Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CGM American Tax Free Fund at
December 31, 1999, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian, provide
a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 8, 2000
<PAGE>
CGM
AMERICAN
TAX FREE FUND
7th Annual Report
December 31, 1999
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
- ------------------------------------------------------------------------------
TELEPHONE NUMBERS
For information about:
[] Account Procedures and Status
[] Redemptions
[] Exchanges
Call 800-343-5678
[] New Account Procedures
[] Prospectuses
[] Performance
Call 800-345-4048
- ------------------------------------------------------------------------------
MAILING ADDRESSES
FOR EXISTING ACCOUNTS
Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511
FOR NEW ACCOUNT APPLICATIONS ONLY
The CGM Funds
P.O. Box 449
Boston, MA 02117-0449
- ------------------------------------------------------------------------------
This report has been prepared for the shareholders of the Fund and is not
authorized for distribution to current or prospective investors in the Fund
unless it is accompanied or preceded by a prospectus.
AAR99 Printed in U.S.A.
<PAGE>
TO OUR SHAREHOLDERS:
- --------------------------------------------------------------------------------
CGM Realty Fund returned 1.2% during the fourth quarter of 1999 compared to the
National Association of Real Estate Investment Trust's (NAREIT) Equity REIT
Index which declined -1.0% over the same period. For the year, CGM Realty Fund
returned 2.6% while the NAREIT Equity REIT Index declined -4.6%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
The U.S. economy expanded without interruption throughout 1999 and the expansion
now threatens to break all records for growth and duration. Real economic
growth, net of inflation, is approaching an annual rate of 4% which is well in
excess of the Federal Reserve Board's recommended rate of 2.5% to maintain a
healthy economy. The unemployment rate is down to 4.1% of the labor force and
understandably, pressure is building for higher wages. Thus far, increased wage
and material demands have had little effect on the Consumer Price Index.
However, now we must also add to the equation foreign markets, which are
expanding and will increase demand for our products as well as for raw
materials. Looking forward, we believe inflationary pressures will increase in
2000.
Economic strength has given rise to higher interest rates. The long-term
government bond bottomed out with an interest rate of 4.75% in October 1998.
Since then, it has risen to 6.5%. The Federal Reserve Board has already
increased short-term rates several times and is expected to raise rates again
early in 2000 in order to slow the pace of business activity.
Higher interest rates have already affected most common stocks, particularly
those of companies in older, well-established industries. As previously
mentioned, we believe we have two distinct stock markets: The new technology and
telecommunications companies have enjoyed a bull market of their own where
prices have been driven skyward based on unbridled enthusiasm. We remain
skeptical about how long this process can last and we continue to believe there
is good value in the "other" stock market which includes many depressed cyclical
securities and real estate investment trusts.
PORTFOLIO STRATEGY
CGM Realty Fund was fully invested in REITs throughout 1999. Although the Fund
significantly underperformed the S&P 500 Index, it ranked in the top decile of
real estate funds measured by Lipper Analytical Services, Inc.
The REIT industry suffered its second year of negative total returns despite
continued strong growth in cash flows and generally rising dividend payments. We
believe REIT cash flows will continue to rise in the year 2000 as most REITs
augment rising incomes on existing properties with incomes from properties
purchased with retained cash flow.
We invest in REITs with, in our view, capable managements and proven records of
accomplishment. Our REITs operate in property types and regions where supply and
demand are favorable and we anticipate rising occupancies and rents.
CGM Realty Fund's largest sector concentrations are in office and industrial
REITs and apartment REITS. The Fund's three largest holdings are SL Green
Realty Corporation, Apartment Investment and Management Company and Home
Properties NY, Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 5, 2000
<PAGE>
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CGM REALTY FUND,
UNMANAGED S&P 500 INDEX AND THE NAREIT EQUITY REIT INDEX
assuming reinvestment of dividends and capital gains
CGM Realty Fund
Average Annual Total Returns
- --------------------------------------
1 year 5 year Life of Fund*
2.6% 12.1% 10.7%
*(Annualized from 5/13/94 - 12/31/99)
- --------------------------------------
Past performance is no indication
of future results
- --------------------------------------
CGM UNMANAGED THE NAREIT
REALTY S&P 500 EQUITY REIT
FUND INDEX INDEX
- --------------------------------------------------------------------------------
5/13/94 $10,000 $10,000 $10,000
12/31/94 10,020 10,340 10,320
12/31/95 12,004 14,218 11,899
12/31/96 17,298 17,488 16,099
12/31/97 21,916 23,328 19,367
12/31/98 17,270 29,700 15,978
12/31/99 17,719 36,300 15,243
CGM REALTY FUND
PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
G. Kenneth Heebner has managed CGM Realty Fund since its inception on May 13,
1994. In 1990, Mr. Heebner founded Capital Growth Management Limited Partnership
with Robert L. Kemp. Prior to establishing the new company, Mr. Heebner managed
mutual funds at Loomis, Sayles and Company. In addition to CGM Realty Fund, he
currently manages CGM Capital Development Fund, CGM Mutual Fund and CGM Focus
Fund and two other mutual funds. He also co-manages CGM Fixed Income Fund with
Janice Saul.
INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Total Return for Periods Ended December 31, 1999
CGM
REALTY FUND
--------
5 Years ........................................ +76.9%
3 Years ........................................ + 2.5%
1 Year ......................................... + 2.6%
3 Months ....................................... + 1.2%
The Fund's average annual total return since inception (May 13, 1994) through
December 31, 1999 is +10.7%. The adviser limited the Fund's total operating
expenses to 1.00% of its average net assets through December 31, 1997.
Otherwise, the Fund's total return since inception and for the five and three
year periods 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
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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>
CGM REALTY FUND
- --------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1999
REAL ESTATE INVESTMENT TRUSTS -- 98.2% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
APARTMENTS -- 15.8%
Apartment Investment and Management Company 770,000 $ 30,655,625
Home Properties New York, Inc. ............ 1,030,000 28,260,625
------------
58,916,250
------------
HOTELS -- 9.8%
Lasalle Hotel Properties .................. 1,242,000 14,515,875
Legacy Hotels Real Estate Units ........... 3,815,000 21,803,776
------------
36,319,651
------------
MISCELLANEOUS -- 2.7%
Entertainment Properties Trust ............ 768,700 10,137,231
------------
OFFICE & INDUSTRIAL -- 58.1%
Alexandria Real Estate Equity ............. 712,400 22,663,225
Bedford Property Investors, Inc. .......... 1,086,600 18,540,113
Boston Properties, Inc. ................... 695,500 21,647,437
Brandywine Realty Trust ................... 1,050,500 17,201,938
Liberty Property Trust .................... 530,000 12,852,500
Mission West Properties, Inc. ............. 520,000 4,030,000
Pacific Gulf Properties, Inc. ............. 884,400 17,909,100
Parkway Properties, Inc. .................. 385,800 11,115,862
Prentiss Properties Trust ................. 904,500 18,994,500
Prime Group Realty Trust .................. 1,412,400 21,450,825
SL Green Realty Corporation ............... 1,473,000 32,037,750
Vornado Realty Trust ...................... 542,000 17,615,000
------------
216,058,250
------------
RESIDENTIAL -- 0.2%
Grove Property Trust ...................... 65,000 861,250
------------
RETAIL -- 11.6%
Chelsea GCA Realty, Inc. .................. 611,000 18,177,250
Crown American Realty Trust ............... 1,003,400 5,518,700
Kimco Realty Corporation .................. 196,400 6,653,050
Philips International Realty Corporation .. 765,000 12,574,687
------------
42,923,687
------------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(Identified Cost $383,688,100) .......................... 365,216,319
------------
See accompanying notes to financial statements
<PAGE>
CGM REALTY FUND
- --------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1999 (CONTINUED)
FACE
SHORT-TERM INVESTMENT -- 1.3% AMOUNT VALUE(a)
------ ---------
American Express Credit Corporation,
4.25%, 1/03/00 (Cost $4,820,000) ..... $4,820,000 $ 4,820,000
------------
TOTAL INVESTMENTS -- 99.5% (Identified Cost
$388,508,100)(b) ...................................... 370,036,319
Cash, receivables and other assets .................... 7,419,841
Liabilities ........................................... (5,626,585)
------------
TOTAL NET ASSETS -- 100% .................................. $371,829,575
============
(a) See Note 1A.
(b) Federal Tax Information: At December 31, 1999 the net unrealized
depreciation on investments based on cost of $391,776,968 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 ... $ 19,754,505
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ... (41,495,154)
------------
Net unrealized depreciation ................................ $(21,740,649)
============
See accompanying notes to financial statements
<PAGE>
CGM REALTY FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investments at value (Identified
cost -- $388,508,100) ................................ $370,036,319
Cash .................................................. 2,681
Foreign cash at value (Identified
cost -- $507,819) .................................... 516,683
Receivable for:
Securities sold ......................... $ 521,959
Shares of the Fund sold ................. 1,519,941
Dividends and interest .................. 4,858,577 6,900,477
---------- ------------
377,456,160
------------
LIABILITIES
Payable for:
Securities purchased .................... 1,875,635
Shares of the Fund
redeemed ............................... 2,760,327
Distributions declared .................. 571,388 5,207,350
----------
Accrued expenses:
Management fees ......................... 257,280
Trustees' fees .......................... 9,159
Accounting and
Administration ......................... 3,167
Transfer Agent fees ..................... 95,000
Other expenses .......................... 54,629 419,235
---------- ------------
5,626,585
------------
NET ASSETS ............................................. $371,829,575
============
Net Assets consist of:
Capital paid-in ...................................... $492,176,100
Accumulated net realized loss ........................ (101,883,608)
Unrealized depreciation on investments
and foreign currency ............................... (18,462,917)
------------
NET ASSETS ............................................. $371,829,575
============
Shares of beneficial interest
outstanding, no par value ........................... 33,552,611
============
Net asset value per share* ............................ $11.08
============
*Shares of the Fund are sold and redeemed at net asset value
($371,829,575 / 33,552,611).
See accompanying notes to financial statements
<PAGE>
CGM REALTY FUND
- --------------------------------------------------------------------------------
STATEMENT OF
OPERATIONS
Year Ended December 31, 1999
INVESTMENT INCOME
Income
Dividends (net of withholding tax of $257,210) ................ $ 25,635,139
Interest ...................................................... 97,714
------------
25,732,853
------------
Expenses
Management fees ............................................... 3,339,116
Trustees' fees ................................................ 36,689
Accounting and Administration ................................. 38,000
Custodian ..................................................... 106,928
Transfer agent ................................................ 430,028
Audit and tax services ........................................ 23,250
Legal ......................................................... 50,879
Printing ...................................................... 38,174
Registration .................................................. 52,400
Amortization of organization expense .......................... 5,035
Line of credit commitment fee ................................. 20,278
Miscellaneous ................................................. 5,319
------------
4,146,096
------------
Net investment income .......................................... 21,586,757
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Realized loss on investments and
foreign currency transactions -- net......................... (45,412,260)
Unrealized appreciation -- net ................................ 30,550,000
------------
Net loss on investments and foreign
currency transactions........................................ (14,862,260)
------------
NET CHANGE IN ASSETS FROM OPERATIONS ............................ $ 6,724,497
============
See accompanying notes to financial statements
<PAGE>
CGM REALTY FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income .............................................. $ 21,586,757 $ 21,810,594
Net realized loss from investments and foreign currency transactions (45,412,260) (56,462,786)
Unrealized appreciation (depreciation) ............................. 30,550,000 (93,081,106)
------------- -------------
Change in net assets from operations ............................. 6,724,497 (127,733,298)
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .............................................. (21,590,268) (21,820,376)
Tax return of capital .............................................. (5,419,920) (6,031,564)
------------- -------------
(27,010,188) (27,851,940)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ....................................... 114,813,735 336,265,354
Net asset value of shares issued in connection with reinvestment of:
Dividends from net investment income ............................. 18,377,972 18,483,827
Tax return of capital ............................................ 4,617,260 5,109,279
------------- -------------
137,808,967 359,858,460
Cost of shares redeemed ............................................ (164,595,173) (274,820,721)
------------- -------------
Change in net assets derived from capital share transactions ..... (26,786,206) 85,037,739
------------- -------------
Total change in net assets ......................................... (47,071,897) (70,547,499)
NET ASSETS
Beginning of period ................................................ 418,901,472 489,448,971
------------- -------------
End of period ...................................................... $ 371,829,575 $ 418,901,472
============= =============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ......................................... 9,813,829 23,546,700
Issued in connection with reinvestment of:
Dividends from net investment income ............................. 1,619,271 1,474,850
Distributions from tax return of capital ......................... 406,824 407,676
------------- -------------
11,839,924 25,429,226
Redeemed ......................................................... (14,444,831) (20,652,412)
------------- -------------
Net change ....................................................... (2,604,907) 4,776,814
============= =============
</TABLE>
See accompanying notes to financial statements
<PAGE>
CGM REALTY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
For a share of the Fund outstanding throughout each year:
<S> <C> <C> <C> <C> <C>
Net asset value at the beginning of year .... $ 11.59 $ 15.60 $ 14.50 $ 10.89 $ 9.71
----------- ----------- ----------- ----------- -----------
Net investment income (a) ................... 0.65 0.59 0.64 0.52 0.54
Dividends from net investment income ........ (0.65) (0.59) (0.64) (0.52) (0.54)
Distributions from net realized gain ........ -- -- (2.03) (0.41) --
Distributions from tax return of capital .... (0.16) (0.16) (0.04) -- (0.14)
Distributions in excess of net investment
income .................................... -- -- -- (0.12) --
----------- ----------- ----------- ----------- -----------
Total Distributions ......................... (0.81) (0.75) (2.71) (1.05) (0.68)
----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments ............................... (0.35) (3.85) 3.17 4.14 1.32
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net asset value .. (0.51) (4.01) 1.10 3.61 1.18
----------- ----------- ----------- ----------- -----------
Net asset value at end of year .............. $ 11.08 $ 11.59 $ 15.60 $ 14.50 $ 10.89
=========== =========== =========== =========== ===========
Total Return (%) ............................ 2.6 (21.2) 26.7(b) 44.1(b) 19.8(b)
Ratios:
Operating expenses to average net assets (%) 1.06 1.04 1.00 1.00 1.00
Operating expenses to average net assets
before expense limitation (%) ............. N/A N/A 1.07 1.25 1.68
Net income to average net assets (%) ........ 5.50 4.35 4.48 4.97 5.51
Portfolio turnover (%) ...................... 49 86 128 57 85
Net assets at end of year (in thousands) .... $ 371,830 $ 418,901 $ 489,449 $ 161,727 $ 47,694
(a) Net of reimbursement which amounted to .. N/A N/A $ 0.01 $ 0.02 $ 0.07
(b) The total return would have been lower had certain expenses not been reduced during the year.
</TABLE>
See accompanying notes to financial statements
<PAGE>
CGM REALTY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1999
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. Along with
one other fund in a separate Trust, there are six CGM funds (CGM Funds). 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 in the United States 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 net of
applicable taxes. 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.
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, 1999 there were capital loss carry-overs available to offset future
realized gains of $53,821,768 expiring in the year 2006 and $44,792,972
expiring in the year 2007.
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.
G. 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 SALE OF SECURITIES -- For the year ended December 31, 1999,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $190,349,393 and $218,573,932,
respectively. There were no purchases or sales of United States government
obligations.
3. A. MANAGEMENT FEES -- During the year ended December 31, 1999, the Fund
incurred management fees of $3,339,116, 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 year ended December
31, 1999 these expenses amounted to $38,000 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 six CGM
Funds with an annual fee of $37,000 plus travel expenses for each
meeting attended. Of this amount, each fund was responsible for $3,000
per trustee plus an annual variable fee calculated based on the
proportion of each fund's average net assets relative to the aggregate
average net assets of the CGM Funds, which for the year ended December
31, 1999 was $3,927 for the Fund.
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 year ended December 31, 1999.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of CGM Realty Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CGM Realty Fund at December 31,
1999, and the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 8, 2000
<PAGE>
CGM
REALTY FUND
6th Annual Report
December 31, 1999
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
- ------------------------------------------------------------------------------
TELEPHONE NUMBERS
For information about:
[] Account Procedures and Status
[] Redemptions
[] Exchanges
Call 800-343-5678
[] New Account Procedures
[] Prospectuses
[] Performance
Call 800-345-4048
- ------------------------------------------------------------------------------
MAILING ADDRESSES
FOR EXISTING ACCOUNTS
Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511
FOR NEW ACCOUNT APPLICATIONS ONLY
The CGM Funds
P.O. Box 449
Boston, MA 02117-0449
- ------------------------------------------------------------------------------
This report has been prepared for the shareholders of the Fund and is not
authorized for distribution to current or prospective investors in the Fund
unless it is accompanied or preceded by a prospectus.
RAR99 Printed in U.S.A.
<PAGE>
TO OUR SHAREHOLDERS:
- --------------------------------------------------------------------------------
CGM Focus Fund returned 23.0% during the fourth quarter of 1999 compared to the
unmanaged Standard and Poor's 500 Index which increased 14.9%. For the year, CGM
Focus Fund returned 8.5% while the unmanaged S&P 500 Index increased 21.0%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
The U.S. economy expanded without interruption throughout 1999 and the expansion
now threatens to break all records for growth and duration. Real economic
growth, net of inflation, is approaching an annual rate of 4% which is well in
excess of the Federal Reserve Board's recommended rate of 2.5% to maintain a
healthy economy. The unemployment rate is down to 4.1% of the labor force and
understandably, pressure is building for higher wages. Thus far, increased wage
and material demands have had little effect on the Consumer Price Index.
However, now we must also add to the equation foreign markets, which are
expanding and will increase demand for our products as well as for raw
materials. Looking forward, we believe inflationary pressures will increase in
2000.
Economic strength has given rise to higher interest rates. The long-term
government bond bottomed out with an interest rate of 4.75% in October 1998.
Since then, it has risen to 6.5%. The Federal Reserve Board has already
increased short-term rates several times and is expected to raise rates again
early in 2000 in order to slow the pace of business activity.
Higher interest rates have already affected most common stocks, particularly
those of companies in older, well-established industries. As previously
mentioned, we believe we have two distinct stock markets: The new technology and
telecommunications companies have enjoyed a bull market of their own where
prices have been driven skyward based on unbridled enthusiasm. We remain
skeptical about how long this process can last and we continue to believe there
is good value in the "other" stock market which includes many depressed cyclical
securities and real estate investment trusts.
PORTFOLIO STRATEGY
CGM Focus Fund was fully invested throughout 1999. The Fund significantly lagged
the S&P 500 Index during the year. Performance was adversely affected by
underweighting in technology stocks and earlier in the year, overweighting in
homebuilding stocks as well as by losses on short sales in internet stocks,
which cumulatively reduced performance by more than 11% during 1999. The Fund
established a major position in foreign paper and steel stocks which should
benefit from a robust global economy in the year 2000. The Fund continues to own
smaller capitalization companies which we consider undervalued. Approximately
17% of the Fund was invested in oil service companies at year-end in
anticipation of improvement in this industry generated by higher energy prices.
CGM Focus Fund's three largest industry positions are in steel, electronic
components and oil service. The Fund's three largest company holdings are in
Companhia Siderurgica National Sponsored ADR, Ispat International N.V. ADR and
Asia Pulp & Paper Ltd. Sponsored ADR.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 5, 2000
<PAGE>
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CGM FOCUS FUND AND THE UNMANAGED S&P 500 INDEX
assuming reinvestment of dividends and capital gains
CGM Focus Fund
Average Annual Total Returns
- --------------------------------------
1 year Life of Fund*
8.5 2.2%
*(Annualized from 9/3/97 - 12/31/99)
- --------------------------------------
Past performance is no indication
of future results
- --------------------------------------
CGM UNMANAGED
FOCUS S&P 500
FUND INDEX
- --------------------------------------------------------------------------------
9/3/97 $10,000 $10,000
12/31/97 9,380 10,490
12/31/98 9,708 13,490
12/31/99 10,534 16,323
CGM FOCUS FUND
PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
G. Kenneth Heebner has managed CGM Focus Fund since its inception on September
3, 1997. In 1990, Mr. Heebner founded Capital Growth Management Limited
Partnership with Robert L. Kemp. Prior to establishing the new company, Mr.
Heebner managed mutual funds at Loomis, Sayles and Company. In addition to CGM
Focus Fund, he currently manages CGM Capital Development Fund, CGM Mutual Fund,
CGM Realty Fund and two other mutual funds. He also co- manages CGM Fixed Income
Fund with Janice Saul.
INVESTMENT PERFORMANCE
(unaudited)
- ------------------------------------------------------------------------------
Total Return for Period Ended December 31, 1999
CGM FOCUS
FUND
--------------------
1 Year ............................................... + 8.5%
3 Months ............................................. +23.0%
The Fund's average annual total return since inception (September 3, 1997)
through December 31, 1999 is +2.2%. The adviser has agreed to limit the Fund's
total operating expenses to 1.20% of its average net assets through December 31,
2000. Otherwise, for each period, the Fund's total return 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>
CGM FOCUS FUND
- --------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1999
COMMON STOCKS -- 97.7% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
COMPUTER SOFTWARE AND SERVICES -- 3.5%
THQ, Inc.(b) .................................. 103,950 $ 2,410,341
-----------
ELECTRONIC AND COMMUNICATION EQUIPMENT -- 3.4%
Dataram Corporation(b) ........................ 106,100 2,380,619
-----------
ELECTRONIC COMPONENTS -- 20.0%
Atmel Corporation(b) .......................... 96,000 2,838,000
Bel Fuse Class A, Inc.(b) ..................... 125,400 3,495,525
Bel Fuse Class B, Inc. ........................ 126,400 3,025,700
Media 100 Inc.(b) ............................. 25,000 660,938
Micron Technology, Inc.(b) .................... 48,000 3,732,000
-----------
13,752,163
-----------
OIL -- SERVICE -- 17.1%
Maverick Tube Corporation(b) .................. 163,000 4,024,062
Precision Drilling Corporation(b) ............. 157,000 4,032,937
Tubos de Acero de Mexico, S.A. ADR(c) ......... 275,000 3,729,687
-----------
11,786,686
-----------
PAPER PRODUCTS/CONSUMER -- 8.4%
Asia Pulp & Paper Ltd. Sponsored ADR(b)(c) .... 732,000 5,764,500
-----------
PRINTING -- 7.3%
Aracruz Celulose S.A. ADR(c)(d) ............... 192,000 5,040,000
-----------
RETAIL -- 7.5%
Hot Topic, Inc.(b) ............................ 222,000 5,161,500
-----------
STEEL -- 25.4%
Companhia Siderurgica National Sponsored
ADR(c)(d)(e) ............................... 202,500 7,441,875
Ispat International N.V. ADR(c) ............... 389,500 6,280,688
Pohang Iron & Steel Co., Ltd. Sponsored
ADR(c) ..................................... 107,500 3,762,500
-----------
17,485,063
-----------
TEXTILE AND APPAREL -- 5.1%
Timberland Company(b) ......................... 66,000 3,489,750
-----------
TOTAL COMMON STOCKS (Identified Cost $55,010,068) ........ 67,270,622
-----------
COMMON STOCK WARRANTS -- 0.2%
Asia Pulp & Paper Company Ltd. Exp. 7/27/00
(Identified Cost $512,400)(b)................ 146,400 137,250
-----------
SHORT-TERM INVESTMENT -- 1.2%
American Express Credit Corporation, 4.25%
1/03/00 (Cost $810,000) .................. $810,000 $ 810,000
-----------
TOTAL INVESTMENTS -- 99.1% (Identified Cost
$56,332,468)(f) .......................................... 68,217,872
Cash, receivables and other assets ....................... 6,640,306
Liabilities .............................................. (5,982,396)
-----------
TOTAL NET ASSETS -- 100.0% .................................. $68,875,782
-----------
SECURITIES SOLD SHORT -- 6.6%
SHARES
------
Amazon.com, Inc.
(Proceeds $5,553,844)(b) .................. 60,000 $ 4,567,500
============
(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) The Fund has greater than 10% of its net assets at December 31, 1999
invested in ADRs from Brazil. (e) A portion of this security has been
segregated as collateral in connection with short sale investments
(See Note 1F).
(f) Federal Tax Information: At December 31, 1999 the net
unrealized appreciation on investments based on cost of
$56,721,500 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 .... $13,102,834
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value .... (1,606,462)
-----------
Net unrealized appreciation ............................. $11,496,372
===========
See accompanying notes to financial statements
<PAGE>
CGM FOCUS FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investments at value (Identified
cost -- $56,332,468) ....................................... $68,217,872
Cash ........................................................ 4,075
Restricted cash ............................................. 5,802,929
Receivable for:
Securities sold ............................ $731,726
Shares of the Fund sold 22,245
Dividends and interest (net of withholding
tax of $4,949) ............................ 25,139
Foreign tax reclaim ........................ 5,700 784,810
----------
Unamortized organizational expenses ......................... 48,492
-----------
74,858,178
-----------
LIABILITIES
Securities sold short at
current market value
(Proceeds $5,553,844) ...................... 4,567,500
Payable for:
Securities purchased ....................... 645,161
Shares of the Fund
redeemed .................................. 641,822
Distributions declared ..................... 6,296 5,860,779
----------
Accrued expenses:
Management fees ............................ 33,249
Trustees' fees ............................. 5,499
Accounting and
administration fees ....................... 1,087
Transfer Agent fees ........................ 30,501
Other expenses ............................. 51,281 121,617
---------- -----------
5,982,396
-----------
NET ASSETS ................................................... $68,875,782
===========
Net Assets consist of:
Capital paid-in ............................................ $79,007,286
Accumulated net realized loss .............................. (23,003,252)
Unrealized appreciation on
investments -- net ........................................ 12,871,748
-----------
NET ASSETS ................................................... $68,875,782
===========
Shares of beneficial interest
outstanding, no par value .................................. 6,560,702
===========
Net asset value per share* .................................. $10.50
===========
*Shares of the Fund are sold and redeemed at net asset value
($68,875,782 / 6,560,702).
See accompanying notes to financial statements
<PAGE>
CGM FOCUS FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
INVESTMENT INCOME
Income
Dividends (net of withholding tax of $52,133) ............. $ 903,655
Interest ................................................. 276,122
----------
1,179,777
----------
Expenses
Management fees .......................................... 820,535
Trustees' fees ........................................... 22,230
Accounting and Administration ............................ 13,000
Custodian ................................................ 64,950
Transfer agent ........................................... 164,140
Audit and tax services ................................... 33,500
Legal .................................................... 49,120
Printing ................................................. 22,430
Registration ............................................. 32,482
Amortization of organization expense ..................... 18,155
Line of credit commitment fee ............................ 25,347
Dividend expense on short sales .......................... 9,400
Miscellaneous ............................................ 2,390
----------
1,277,679
Less expenses assumed by the investment adviser ........... (283,638)
----------
Net expenses .............................................. 994,041
----------
Net investment income ..................................... 185,736
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments -- net ....................... 374,370
Unrealized appreciation -- net ............................ 3,966,292
----------
Net gain on investments ................................... 4,340,662
----------
NET CHANGE IN ASSETS FROM OPERATIONS ....................... $4,526,398
==========
See accompanying notes to financial statements
<PAGE>
CGM FOCUS FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) ....................................... $ 185,736 $ (836,612)
Net realized gain (loss) from investments .......................... 374,370 (8,382,527)
Unrealized appreciation ............................................ 3,966,292 7,190,688
------------- -------------
Change in net assets from operations ............................. 4,526,398 (2,028,451)
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .............................................. (198,376) --
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ....................................... 7,202,078 78,493,940
Net asset value of shares issued in connection with reinvestment of:
Dividends from net investment income ............................. 186,419 --
------------- -------------
7,388,497 78,493,940
Cost of shares redeemed ............................................ (53,164,412) (64,927,811)
------------- -------------
Change in net assets derived from capital share transactions ..... (45,775,915) 13,566,129
------------- -------------
Total change in net assets ......................................... (41,447,893) 11,537,678
NET ASSETS
Beginning of period ................................................ 110,323,675 98,785,997
------------- -------------
End of period ...................................................... $ 68,875,782 $ 110,323,675
============= =============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ......................................... 751,376 7,773,832
Issued in connection with reinvestment of:
Dividends from net investment income ............................. 18,082 --
------------- -------------
769,458 7,773,832
------------- -------------
Redeemed ........................................................... (5,571,495) (6,945,863)
------------- -------------
Net Change ......................................................... (4,802,037) 827,969
============= =============
</TABLE>
See accompanying notes to financial statements
<PAGE>
CGM FOCUS FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 3,
YEAR ENDED DECEMBER 31, 1997(a)
THROUGH
---------------------------- DECEMBER 31,
1999 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) ...................... 0.03 (0.07)(c) (0.02)(c)
Dividends from net investment income .................. (0.03) -- --
Net realized and unrealized gain (loss) on investments 0.79 0.40(d) (0.60)
----------- ----------- -----------
Net increase (decrease) in net asset value ............ 0.79 0.33 (0.62)
----------- ----------- -----------
Net asset value at end of period ...................... $ 10.50 $ 9.71 $ 9.38
=========== =========== ===========
Total Return (%) (e) .................................. 8.5 3.5 (6.20)(f)
Ratios:
Operating expenses to average net assets (%) .......... 1.21(h) 1.20 1.20(g)
Operating expenses to average net assets before expense
limitation (%) ...................................... 1.55 1.40 1.63(g)
Net income (loss) to average net assets (%) ........... 0.23 (0.65) (0.83)(g)
Portfolio turnover (%) ................................ 288 340 330(g)
Net assets at end of period (in thousands) ............ $ 68,876 $ 110,324 $ 98,786
(a) Commencement of operations .......................
(b) Net of reimbursement which amounted to ........... $ 0.04 $ 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.
(h) Includes the dividend expense on short sales which are excluded from the voluntary expense limitation
of 1.20%. See note 4.
</TABLE>
See accompanying notes to financial statements
<PAGE>
CGM FOCUS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1999
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. Along with
one other fund in a separate Trust, there are six CGM funds (CGM Funds). 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 in the United States 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 net of
applicable taxes. 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, 1999 there were capital loss carryovers available to offset future
realized gains of $13,022,258 expiring in the year 2005, $8,539,209 expiring
in the year 2006, and $1,052,753 expiring in the year 2007.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions
are recorded by the Fund on the ex-dividend date. The classification of
income and capital gains distributions is determined in accordance with
income tax regulations. Undistributed net investment income, accumulated net
investment loss, or distributions in excess of net investment income may
include temporary book and tax differences, which will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year end
is distributed in the following year.
E. ORGANIZATION EXPENSE -- Costs incurred in 1997 in connection with the Fund's
organization and registration amounting to $90,771 have been paid by the
Fund. These costs are being amortized over 60 months beginning September 3,
1997.
F. SHORT SALES -- The Fund may sell securities short. A short sale is a
transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. When the
Fund makes a short sale, it must borrow the security sold short to make
delivery to the buyer. The Fund then is obligated to replace the security
borrowed by purchasing the security at the market price at the time of
replacement. While the short sale is outstanding, the Fund is required to
collateralize its obligations, which has the practical effect of limiting
the extent to which the Fund may engage in short sales. At December 31, 1999
the market value of securities and cash segregated to cover short positions
was $5,071,500 and $5,802,929, respectively. Securities sold short at
December 31, 1999 and their related market values are set forth in the
schedule of investments.
G. 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 year ended December 31, 1999,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $236,952,242 and $292,205,355,
respectively. There were no purchases or sales of United States government
obligations.
3. A. MANAGEMENT FEES -- During the year ended December 31, 1999, the Fund
incurred management fees of $820,535, 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 year ended December 31, 1999 these expenses amounted to $13,000
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 six CGM
Funds with an annual fee of $37,000 plus travel expenses for each
meeting attended. Of this amount, each fund was responsible for $3,000
per trustee plus an annual variable fee calculated based on the
proportion of each fund's average net assets relative to the aggregate
average net assets on the CGM Funds, which for the year ended December
31, 1999 was $993 for the Fund.
4. EXPENSE LIMITATION -- Until December 31, 2000 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 incurred on short sales. As a result of the Fund's expenses
exceeding the voluntary expense limitation, for the year ended December 31,
1999, CGM waived $283,638 of its management fee. The Fund incurred operating
expenses of $984,641, 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 year ended December 31, 1999.
<PAGE>
CGM FOCUS FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of CGM Focus Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of CGM Focus Fund at
December 31, 1999, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 8, 2000
<PAGE>
CGM
FOCUS FUND
3rd Annual Report
December 31, 1999
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
- -------------------------------------------------------------------------------
TELEPHONE NUMBERS
For information about:
[] Account Procedures and Status
[] Redemptions
[] Exchanges
Call 800-343-5678
[] New Account Procedures
[] Prospectuses
[] Performance
Call 800-345-4048
- -------------------------------------------------------------------------------
MAILING ADDRESSES
FOR EXISTING ACCOUNTS
Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511
FOR NEW ACCOUNT APPLICATIONS ONLY
The CGM Funds
P.O. Box 449
Boston, MA 02117-0449
- -------------------------------------------------------------------------------
This report has been prepared for the shareholders of the Fund and is not
authorized for distribution to current or prospective investors in the Fund
unless it is accompanied or preceded by a prospectus.
FFAR99 Printed in U.S.A.