UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-00082
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CGM TRUST
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(Exact name of registrant as specified in charter)
One International Place, Boston, Massachusetts 02110
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(Address of principal executive offices) (Zip code)
T. John Holton, Esq.
Bingham McCutchen LLP
150 Federal Street
Boston, MA 02110
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-737-3225
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Date of fiscal year end: December 31, 2005
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Date of reporting period: December 31, 2005
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ITEM 1. REPORTS TO STOCKHOLDERS.
CGM
MUTUAL FUND
76th Annual Report
December 31, 2005
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS:
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CGM Mutual Fund returned 0.3% during the fourth quarter of 2005 compared to the
unmanaged Standard and Poor's 500 Index which returned 2.1% and the Merrill
Lynch Master Bond Index which returned 0.6% for the same period. For the year
just ended, CGM Mutual Fund returned 14.6%, the unmanaged S&P Index returned
4.9% and the Merrill Lynch Master Bond Index returned 2.6%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
The U.S. economy in 2005 left little room for complaint: Last year's worst fears
of a weaker dollar or a slowdown triggered by higher crude oil prices or rising
interest rates failed to materialize. Instead, we enjoyed another year of
above-trend growth in real Gross Domestic Product with solid gains in corporate
profits again leading the way. This multi-year recovery is still creating new
jobs and shaved the unemployment rate to just under 5% at the end of 2005. In a
near repeat of 2004, the economy continued to be propelled by a strong market
for new houses almost all year long despite numerous interest rate hikes by the
Federal Reserve Board.
Now that we are contemplating the fifth year of the expansion, we believe the
economy will grow at a slower rate on the consumer or retail level, but with
even more gusto when it comes to capital spending by corporations and continued
rebuilding in the aftermath of 2005's severe storms. Inflation pressures may
begin to surface and the Fed will be on the hot seat to apply just the right
amount of pressure to restrain inflation without tipping the economy into
recession. Thus far, the leap in the Federal Funds rate from 1% to 4.25% over
two years has yet to be reflected in the long-term interest rate market. The
yield on the ten year U.S. government bond was 4.25% in January of 2004, 4.24%
last January and is now 4.39%. Mortgage rates are just slightly higher than they
were one year ago though new, tougher lending standards on the part of financial
institutions (with potentially even more stringent regulations on the way) could
put a damper on the new home market as seemed to be indicated by November's
significantly lower number of housing starts.
In 2000, the S&P 500 Index closed out the year at 1345. On December 31, 2005, it
was 1250. Despite the decline, earnings per share of the Index have risen thirty
percent over the past five years. This year was no exception with a 3% increase
in share prices in the S&P 500 Index while earnings jumped roughly 11%. The
erosion of price-to-earnings multiples is slowly correcting the over- generous
pricing that crept into the market during the tech boom of the late 1990s. By
historical standards, the market still has a way to go before anyone is ready to
declare an overall bargain. Nonetheless, we believe the market offers some
interesting values looking forward should inflation be limited to 2% or 3% per
year.
PORTFOLIO STRATEGY
In 2005, the CGM Mutual Fund common stock position ranged between 67% and 73% of
assets reflecting our belief in continued worldwide economic growth. We
maintained significant positions in a number of energy-related industries
throughout the year in anticipation of oil and gas prices rising above consensus
expectations. At the start of the year, the aggregate position in several
energy-related sectors totaled 24% of the Fund's portfolio, rose as high as 42%
on September 30, and was reduced to 17% at year end.
At the beginning of January, the portfolio had significant positions in steel
(16%) and in global wireless telephone companies (17%) which were eliminated
during the first half of the year. During the last six months of 2005, the Fund
established positions of 12% in real estate investment trusts and 20% in copper
and gold stocks.
Most of the Fund's gains during 2005 were in the energy sector. The largest
energy stock increases were in Amerada Hess Corporation, Peabody Energy
Corporation and ConocoPhillips. Smaller gains occurred in copper producer Phelps
Dodge Corporation and internet search engine Google, Inc. Small losses occurred
in The Hershey Company and Harrah's Entertainment, Inc.
The fixed income section of the portfolio ranged between 27% and 33% of Fund
assets and was invested in U.S. Treasury Bills in anticipation of higher
short-term interest rates.
On December 31, 2005, the Fund's three largest industry positions in the equity
portion of the portfolio were in metals and mining, real estate investment
trusts and copper. The three largest equity holdings were Phelps Dodge
Corporation, Altria Group, Inc. and Freeport-McMoRan Copper & Gold, Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 3, 2006
COMPARISONS 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
through 12/31/05
- ----------------------------
1 year 5 year 10 year
14.6% 5.5% 7.2%
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Past performance is no
indication of future results
- ----------------------------
Unmanaged
CGM S&P 500 Merrill Lynch
Mutual Fund Index Master Bond Index
------------------------------------------------------------
$10,000 $10,000 $10,000
1996 12,370 12,300 10,360
1997 13,384 16,408 11,365
1998 14,482 21,101 12,376
1999 17,451 25,532 12,253
2000 15,426 23,209 13,686
2001 13,637 20,447 14,822
2002 11,332 15,928 16,364
2003 15,831 20,500 17,035
2004 17,557 22,734 17,767
2005 20,120 23,848 18,229
CGM MUTUAL FUND
PORTFOLIO MANAGER
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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.
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See the Schedule of Investments on page 3 for the percentage of net assets of
the Fund invested in particular industries or securities as of December 31,
2005.
INVESTMENT PERFORMANCE
(unaudited)
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Cumulative Total Return for Periods Ended
December 31, 2005
CGM
MUTUAL FUND
---------------
10 Years .................................................... +101.3%
5 Years .................................................... + 30.6
1 Year ..................................................... + 14.6
3 Months ................................................... + 0.3
The performance data contained in the report represent past performance, which
is no guarantee of future results. The graph and table above do not reflect the
deduction of taxes a shareholder would pay on Fund distributions or the
redemption of Fund shares and assume the reinvestment of all Fund distributions.
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. Current performance may be lower or higher than the
performance data quoted.
Commencing July 1, 2003 and ending June 30, 2004, Capital Growth Management
agreed to voluntarily waive a portion of the management fee, lowering the annual
rate to 0.72% of the Fund's average daily net assets. Otherwise, the total
return for the 10- and 5-year periods ended December 31, 2005 would have been
lower.
CGM MUTUAL FUND
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INVESTMENTS AS OF DECEMBER 31, 2005
COMMON STOCKS -- 67.2% OF TOTAL NET ASSETS
SHARES VALUE(a)
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BEVERAGES AND TOBACCO -- 5.1%
Altria Group, Inc. .......................................................................... 350,000 $ 26,152,000
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BUSINESS SERVICES -- 2.6%
FedEx Corporation ........................................................................... 130,000 13,440,700
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COPPER -- 5.9%
Phelps Dodge Corporation .................................................................... 210,000 30,212,700
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ENGINEERING -- 3.5%
Fluor Corporation ........................................................................... 235,000 18,156,100
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FOOD - RETAILERS AND WHOLESALERS -- 4.1%
The Hershey Company ......................................................................... 378,000 20,884,500
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FREIGHT TRANSPORTATION -- 0.7%
Union Pacific Corporation ................................................................... 45,000 3,622,950
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METALS AND MINING -- 17.3%
Anglo American Plc ADR(b) ................................................................... 630,000 21,911,400
Arch Coal, Inc. ............................................................................. 205,000 16,297,500
Freeport-McMoRan Copper & Gold Inc. ......................................................... 475,000 25,555,000
Newmont Mining Corporation .................................................................. 475,000 25,365,000
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89,128,900
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MISCELLANEOUS -- 2.6%
Grant Prideco, Inc.(c) ...................................................................... 300,000 13,236,000
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OIL AND GAS WELL DRILLING -- 4.6%
Nabors Industries Ltd.(c) ................................................................... 310,000 23,482,500
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OIL - INDEPENDENT PRODUCTION -- 4.1%
Occidental Petroleum Corporation ............................................................ 265,000 21,168,200
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OIL - SERVICE -- 4.8%
Schlumberger Limited ........................................................................ 257,000 24,967,550
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REAL ESTATE INVESTMENT TRUSTS -- 11.9%
AvalonBay Communities, Inc. ................................................................. 200,000 17,850,000
General Growth Properties, Inc. ............................................................. 110,000 5,168,900
Host Marriott Corporation ................................................................... 1,300,000 24,635,000
SL Green Realty Corp. ....................................................................... 180,000 13,750,200
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61,404,100
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TOTAL COMMON STOCKS (Identified Cost $324,499,236) ............................................ 345,856,200
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BILLS -- 32.5% OF TOTAL NET ASSETS
FACE
AMOUNT VALUE(a)
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UNITED STATES TREASURY -- 32.5%
United States Treasury Bills, 2.766%, 01/05/06 .............................................. $20,000,000 $ 19,992,333
United States Treasury Bills, 3.531%, 01/19/06 .............................................. 39,000,000 38,927,460
United States Treasury Bills, 3.636%, 01/26/06 .............................................. 3,000,000 2,992,146
United States Treasury Bills, 3.749%, 03/09/06 .............................................. 14,000,000 13,901,566
United States Treasury Bills, 3.784%, 03/16/06 .............................................. 76,500,000 75,901,694
United States Treasury Bills, 3.827%, 02/16/06 .............................................. 15,500,000 15,422,956
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TOTAL BILLS (Identified Cost $167,136,910) .................................................... 167,138,155
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SHORT-TERM INVESTMENT -- 0.3% OF TOTAL NET ASSETS
American Express Credit Corporation, 4.18%, 01/03/06
(Cost $1,395,000) ......................................................................... 1,395,000 1,395,000
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TOTAL INVESTMENTS -- 100.0% (Identified Cost $493,031,146)(d) ................................................. 514,389,355
Cash and receivables ........................................................................................ 6,338,180
Liabilities ................................................................................................. (6,115,866)
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TOTAL NET ASSETS -- 100.0% .................................................................................... $514,611,669
============
(a) See Note 1A.
(b) An American Depositary Receipt (ADR) is a certificate issued by a U.S. bank representing the right to receive securities
of the foreign issuer described. The values of ADRs are significantly influenced by trading on exchanges not located in
the United States or Canada.
(c) Non-income producing security.
(d) Federal Tax Information: At December 31, 2005, the net unrealized appreciation on investments based on cost of
$493,285,846 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 ................................................................................................ $ 25,541,016
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost
over value .............................................................................................. (4,437,507)
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$ 21,103,509
============
See accompanying notes to financial statements.
CGM MUTUAL FUND
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STATEMENT OF
ASSETS AND LIABILITIES
December 31, 2005
ASSETS
Investments at value (Identified
cost -- $493,031,146) ........................................ $514,389,355
Cash ........................................................... 994
Receivable for:
Securities sold ............................... $5,287,568
Shares of the Fund sold........................ 39,314
Dividends and interest ........................ 1,010,304 6,337,186
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Total assets ............................................. 520,727,535
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LIABILITIES
Payable for:
Securities purchased .......................... 5,002,626
Shares of the Fund redeemed ................... 543,659
Distributions declared ........................ 11 5,546,296
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Accrued expenses:
Management fees ............................... 393,702
Trustees' fees ................................ 16,063
Accounting, Administration and Compliance ..... 8,889
Transfer agent fees ........................... 78,074
Other expenses ................................ 72,842 569,570
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Total liabilities ........................................ 6,115,866
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NET ASSETS ..................................................... $514,611,669
============
Net Assets consist of:
Capital paid-in .............................................. $493,508,160
Accumulated net realized loss ................................ (254,700)
Net unrealized appreciation on investments ................... 21,358,209
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NET ASSETS ..................................................... $514,611,669
============
Shares of beneficial interest outstanding, no par value ....... 18,449,612
============
Net asset value per share* ..................................... $27.89
======
* Shares of the Fund are sold and redeemed at net asset value
($514,611,669 / 18,449,612).
See accompanying notes to financial statements.
CGM MUTUAL FUND
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STATEMENT OF
OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME
Income
Dividends (net of withholding tax of
$138,998) ................................................. $ 6,678,094
Interest ................................................... 4,325,343
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11,003,437
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Expenses
Management fees ............................................ 4,518,674
Trustees' fees ............................................. 64,320
Accounting, Administration and Compliance .................. 106,673
Custodian .................................................. 100,157
Transfer agent fees ........................................ 522,070
Audit and tax services ..................................... 32,700
Legal ...................................................... 52,733
Printing ................................................... 75,821
Registration ............................................... 30,462
Miscellaneous .............................................. 2,706
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5,506,316
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Net investment income ....................................... 5,497,121
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REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Net realized gain on investments and foreign currency
transactions ............................................ 80,829,927
Net unrealized depreciation ............................... (17,869,171)
------------
Net realized and unrealized gain on investments and
foreign currency transactions ........................... 62,960,756
------------
NET CHANGE IN ASSETS FROM
OPERATIONS ................................................. $ 68,457,877
============
See accompanying notes to financial statements.
CGM MUTUAL FUND
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STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
-----------------------------------
2005 2004
---------------- ----------------
OPERATIONS
Net investment income .................................. $ 5,497,121 $ 3,153,943
Net realized gain from investments and foreign currency
transactions ......................................... 80,829,927 109,328,753
Unrealized depreciation ................................ (17,869,171) (64,617,245)
------------ ------------
Change in net assets from operations ................. 68,457,877 47,865,451
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............................. (5,573,344) (3,214,099)
Net realized long-term capital gain on investments ..... (14,846,567) --
------------ ------------
(20,419,911) (3,214,099)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ........................... 17,461,378 8,478,985
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ................. 4,911,392 2,826,556
Distribution from net long-term realized capital gain 13,467,340 --
------------ ------------
35,840,110 11,305,541
Cost of shares redeemed ................................ (50,709,410) (51,660,870)
------------ ------------
Change in net assets derived from capital share
transactions ....................................... (14,869,300) (40,355,329)
------------ ------------
Total change in net assets ............................. 33,168,666 4,296,023
NET ASSETS
Beginning of year ...................................... 481,443,003 477,146,980
------------ ------------
End of the year ........................................ $514,611,669 $481,443,003
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................. 638,159 361,240
Issued in connection with reinvestment of:
Dividends from net investment income ................. 177,340 123,588
Distribution from net long-term realized capital gain 482,182 --
------------ ------------
1,297,681 484,828
Redeemed ............................................... (1,858,000) (2,218,413)
------------ ------------
Net change ............................................. (560,319) (1,733,585)
============ ============
See accompanying notes to financial statements.
CGM MUTUAL FUND
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FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
2005 2004 2003 2002 2001(a)
For a share of the Fund outstanding throughout each period:
Net asset value at the beginning of period $25.33 $23.00 $16.65 $20.47 $23.38
------ ------ ------ ------ ------
Net investment income(b) ............... 0.30(c) 0.16(c) 0.23(c) 0.26(c) 0.19
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ......................... 3.40 2.33 6.35 (3.67) (2.90)
------ ------ ------ ------ ------
Total from investment operations ....... 3.70 2.49 6.58 (3.41) (2.71)
------ ------ ------ ------ ------
Dividends from net investment income ... (0.31) (0.16) (0.23) (0.41) (0.20)
Distribution from net long-term realized
gain ................................. (0.83) -- -- -- --
------ ------ ------ ------ ------
Total Distributions .................... (1.14) (0.16) (0.23) (0.41) (0.20)
------ ------ ------ ------ ------
Net increase (decrease) in net asset
value ................................ 2.56 2.33 6.35 (3.82) (2.91)
------ ------ ------ ------ ------
Net asset value at end of period ....... $27.89 $25.33 $23.00 $16.65 $20.47
====== ====== ====== ====== ======
Total Return (%) ....................... 14.6 10.9(d) 39.7(d) (16.9) (11.6)
Ratios:
Operating expenses to average net assets
(%) .................................. 1.09 1.02 1.07 1.14 1.10
Operating expenses to average net assets
before
management fee waiver (%) ............ N/A 1.11 1.17 N/A N/A
Net investment income to average net
assets (%) ........................... 1.09 0.68 1.23 1.30 1.00
Portfolio turnover (%) ................. 336 314 260 191 236
Net assets at end of period (in
thousands) ($).......................... 514,612 481,443 477,147 376,089 498,972
(a) As required, effective January 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium and discount on debt securities. The effect of this change for the year
ended December 31, 2001 was to increase net investment income per share by $0.04, decrease net realized and unrealized
gains and losses per share by $0.04, and increase the ratio of net investment income to average net assets from 0.82% to
1.00%.
(b) Net of management fee waiver which
amounted to ($) .................... N/A 0.02 0.02 N/A N/A
(c) Per share net investment income has been calculated using the average shares outstanding during the period.
(d) The total return would have been lower had the management fee not been reduced during the period.
See accompanying notes to financial statements.
CGM MUTUAL FUND
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NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2005
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
two other Funds whose financial statements are not presented herein. Along with
one other fund in a separate Trust, there are four 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 accounting principles
generally accepted in the United States of America 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. The pricing service provides the last reported sale price for
securities listed on a national securities exchange or in the case of the
NASDAQ national market system, the NASDAQ official closing price. For
securities with no sale reported and in the case of over-the-counter
securities not so listed, the last reported bid price is used. 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. 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 net of
applicable foreign taxes. Interest income is recorded on an accrual basis
and includes amortization of premium and discount. Net gain or loss on
securities sold is determined on the identified cost basis. Dividend
payments received by the Fund from its investment in REITs may be comprised
of ordinary income, capital gains, and return of capital and as such are
recorded as dividend income, capital gains or cost, as appropriate.
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, 2005, there were no capital loss carryovers available to offset future
realized gains. During the year 2005 the Fund utilized $66,115,472 of
capital loss carryovers. The tax basis components of the distributable
earnings of the Fund were $21,103,509 which represents the unrealized
appreciation on investments as of December 31, 2005.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions
are recorded by the Fund on the ex-dividend date. The classification of
income and capital gains distributions is determined in accordance with
income tax regulations. Distributions from net investment income and
short-term capital gains are treated as ordinary income for income tax
purposes. Permanent book and tax differences relating to shareholder
distributions may result in reclassifications to paid-in capital. These
differences are primarily related to foreign exchange gain/loss. The Fund
also utilized earnings and profits distributed to shareholders on redemption
of shares as a part of the dividend deduction for income tax purposes.
Undistributed net investment income or accumulated net investment loss may
include temporary book and tax differences such as tax deferral of losses on
wash sales, which will reverse in a subsequent period. Any taxable income or
gain remaining at fiscal year end is distributed in the following year.
During the year ended December 31, 2005, the tax character of distributions
paid was as follows: ordinary income $5,496,837 and long- term capital gains
$14,923,074.
E. 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 the end of
the period, resulting from changes in the exchange rate.
F. INDEMNITIES -- In the normal course of business, CGM Mutual Fund may enter
into contracts that provide indemnities to third parties for various
potential losses and claims. CGM Mutual Fund's maximum exposure under these
arrangements is unknown as this would depend on future claims that may be
made against CGM Mutual Fund. The risk of material loss from such claims is
considered remote.
2. 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.
3. PURCHASES AND SALES OF SECURITIES -- For the period ended December 31, 2005,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $1,244,836,861 and
$1,315,776,683, respectively. There were no purchases or sales of long-term
United States government obligations.
4. A. MANAGEMENT FEES -- During the period ended December 31, 2005, the Fund
incurred management fees of $4,518,674, 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,
compliance 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; (iii) registration, filing and other fees in connection with
requirements of regulatory authorities and (iv) compliance in connection
to the Investment Company Act of 1940 and the Sarbanes Oxley Act of 2002.
The Accounting, Administration and Compliance expense of $106,673, for
the period ended December 31, 2005, is shown separately in the financial
statements. These expenses include the reimbursement of a portion of the
compensation expenses incurred by CGM for its employees who provide these
administrative, accounting, compliance, and other services to the Fund,
some of whom are officers of the Fund. Of the total expense
reimbursement, $84,088 represented reimbursements by the Fund to CGM for
a portion of the salaries of CGM employees who are officers of the Fund.
C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to any trustees who are directors, officers or employees of CGM,
or any affiliate of CGM (other than registered investment companies). For
the period ended December 31, 2005, each disinterested trustee was
compensated by the CGM Funds with an annual fee of $50,000 plus travel
expenses for each meeting attended. The disinterested trustees are
responsible for the audit committee functions of the CGM Funds and have
designated a chairman to oversee those functions who receives an
additional $30,000 annually. Of these amounts, each of the CGM Funds is
responsible for $7,000 per trustee annually, plus an annual variable fee
calculated based on the proportion of each of the CGM Funds' average net
assets relative to the aggregate average net assets of the CGM Funds.
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of CGM Trust 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 (the "Fund," a
series of CGM Trust) at December 31, 2005, 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 of America. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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, 2005 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 16, 2006
ADDITIONAL INFORMATION
(unaudited)
AVAILABILITY OF PROXY VOTING INFORMATION:
Proxy voting policies and information regarding how the Fund voted proxies
relating to portfolio securities during the twelve month period ended June 30,
2005 are available without charge, upon request by calling 1-800-345-3048. The
policies also appear in the Fund's Statement of Additional Information, which
can be found on the SEC's website, http://www.sec.gov. The voting records can
also be found on the SEC's website on the N-PX filing.
PORTFOLIO HOLDINGS:
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
FUND EXPENSES
As a shareholder of CGM Mutual Fund, you incur two types of costs: (1)
transaction costs, which could include, among other charges, wire fees and
custodial maintenance fees for certain types of accounts and (2) ongoing costs,
including management fees and other Fund expenses. This Example is intended to
help you understand your ongoing costs (in dollars) of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period July 1, 2005 to December 31, 2005.
ACTUAL RETURN AND EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as any wire
fees or custodial maintenance fees that may be payable. Therefore, the second
line of the table is useful in comparing ongoing costs only, and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
- -------------------------------------------------------------------------------
Beginning Ending Expenses Paid
Account Value Account Value During Period*
7/01/05 12/31/05 7/01/05 - 12/31/05
- -------------------------------------------------------------------------------
Actual $1,000.00 $1,066.62 $5.68
- -------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000.00 $1,019.71 $5.55
- -------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.09%, multiplied
by the average account value over the period, multiplied by 184/ 365 (to
reflect the one-half year period).
CGM MUTUAL FUND
- -----------------------------------------------------------------------------------------------------------------------------------
25 YEAR INVESTMENT RECORD
DECEMBER 31, 1980 -- DECEMBER 31, 2005 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1980
- -----------------------------------------------------------------------------------------------------------------------------------
-- 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 Shares Would Distributions Distributions Year End Total Return December 31,
31 Have Been of of Would Have Been of 1980 = 100.0
- ---------------------------------------------------------------------------------------------------------------------------------
1980 $14.85 100.0
1981 13.90 -- $ 0.97 $ 14.86 + 0.1% 100.1
1982 18.16 -- 1.09 20.95 + 41.0 141.1
1983 18.81 -- 1.09 23.02 + 9.9 155.1
1984 17.01 $ 1.86 0.95 24.47 + 6.3 164.9
1985 21.53 -- 1.08 32.91 + 34.5 221.8
1986 22.86 2.75 0.94 41.17 + 25.1 277.5
1987 20.40 4.52 1.06 46.81 + 13.7 315.5
1988 19.94 -- 1.10 48.31 + 3.2 325.6
1989 22.34 0.95 0.93 58.79 + 21.7 396.3
1990 21.64 -- 0.93* 59.44 + 1.1 400.7
1991 26.80 2.64 0.97 83.75 + 40.9 564.6
1992 26.02 1.42 0.93 88.86 + 6.1 599.0
1993 28.88 1.93 0.86 108.23 + 21.8 729.6
1994 25.05 -- 1.04 97.73 - 9.7 658.8
1995 29.43 0.89 0.77 121.48 + 24.3 818.9
1996 31.42 4.15 0.74 150.27 + 23.7 1013.0
1997 25.52 7.81 0.67 162.59 + 8.2 1096.1
1998 26.36 0.25 0.98 175.92 + 8.2 1186.0
1999 27.28 3.54 0.84 211.98 + 20.5 1429.1
2000 23.38 -- 0.73 187.39 - 11.6 1263.3
2001 20.47 -- 0.20 165.65 - 11.6 1116.8
2002 16.65 -- 0.41 137.66 - 16.9 928.1
2003 23.00 -- 0.23 192.31 + 39.7 1296.6
2004 25.33 -- 0.16 213.27 + 10.9 1437.9
2005 27.89 0.83 0.31 244.41 + 14.6 1647.8
------ ------ ------
Totals $33.54 $19.98 +1547.8
- -----------------------------------------------------------------------------------------------------------------------------------
* 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 table above
does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 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 the original cost. Current performance may be lower or higher than the performance data quoted. The
advisor waived $0.02 and $0.02 per share of management fee in 2003 and 2004, respectively. Otherwise, the annual total return for
2003 and 2004 and cumulative 25-year return would have been lower.
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/2005
We are providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
For the year ended December 31, 2005, the Fund designated $14,969,438 as long-
term capital dividends.
TRUSTEES AND OFFICERS
The Fund is supervised by the board of trustees (the "Board") of the Trust. The
Board is responsible for the general oversight of the Fund, including general
supervision and review of the Fund's investment activities. The Board, in turn,
elects the officers who are responsible for administering the Fund's day-to-day
operations.
An asterisk in the table below identifies those trustees and officers who are
"interested persons" of the Trust as defined in the Investment Company Act of
1940. Each trustee and officer of the Trust noted as an interested person is
interested by virtue of that individual's position with Capital Growth
Management Limited Partnership ("CGM"), the Fund's investment adviser, as
described in the table below. Each trustee serves during the continued lifetime
of the Trust or until he earlier dies, resigns or is removed, or if sooner,
until the election and qualification of his successor. Each officer serves until
his or her successor is elected or qualified or until the officer sooner dies,
resigns, or is removed or becomes disqualified.
The trustees and officers of the Trust, their ages, their principal occupations
during the past five years, the number of CGM Funds they oversee, and other
directorships they hold are set forth below. Unless otherwise noted below, the
address of each interested trustee and officer is One International Place,
Boston, Massachusetts 02110. Correspondence intended for the trustees who are
not "interested persons" of the Trust may be sent c/o Capital Growth Management,
One International Place, Boston, Massachusetts 02110.
The Statement of Additional Information for the Fund includes additional
information about Fund trustees and is available, without charge, upon request
by calling the CGM Marketing Department, toll free, at 800-345-4048.
PRINCIPAL NUMBER OF
OCCUPATION FUNDS IN THE
DURING PAST CGM FUNDS
POSITION HELD AND 5 YEARS AND OTHER COMPLEX
NAME, ADDRESS AND AGE LENGTH OF TIME SERVED DIRECTORSHIPS HELD OVERSEEN
- --------------------- --------------------- ------------------ ------------
INTERESTED TRUSTEES
G. Kenneth Heebner* Trustee since 1993 Co-founder and Employee, 4
age 65 CGM; Controlling Owner,
Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* Trustee since 1990 Co-founder and Employee, 4
age 73 CGM; Non-voting Owner,
Kenbob, Inc. (general
partner of CGM)
DISINTERESTED TRUSTEES
Peter O. Brown Trustee since 1993 Counsel (formerly, 4
age 65 Partner), Harter, Secrest
& Emery LLP (law firm);
Trustee, TT International
U.S.A. Master and Feeder
Trusts (four mutual
funds)
Mark W. Holland Trustee since 2004 President, Wellesley 4
age 56 Financial Advisors, LLC;
formerly Vice President
and Chief Operating
Officer, Fixed Income
Management, Loomis,
Sayles & Company, L.P.;
formerly Director,
Loomis, Sayles & Company,
L.P.
Laurens MacLure Trustee since 1990 Retired; formerly 4
age 80 President and Chief
Executive Officer, New
England Deaconess
Hospital; formerly
Trustee, New England
Zenith Fund; formerly
Director, Massachusetts
Blue Cross/Blue Shield
James Van Dyke Quereau, Jr. Trustee since 1993 Managing Partner and 4
age 57 Director, Stratton
Management Company
(investment management);
Director and Vice
President, Semper Trust
Co.
J. Baur Whittlesey Trustee since 1990 Member, Ledgewood Law 4
age 59 Firm, P.C.
OFFICERS
G. Kenneth Heebner* Vice President since 1990 Co-founder and Employee, 4
age 65 CGM; Controlling Owner,
Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* President since 1990 Co-founder and Employee, 4
age 73 CGM; Non-voting Owner,
Kenbob, Inc. (general
partner of CGM)
David C. Fietze* Chief Compliance Officer Employee - Legal counsel, 4
age 36 since 2004 CGM; formerly counsel,
address: Bartlett Hackett
222 Berkeley Street, Feinberg, P.C.; formerly
Boston, Massachusetts counsel, McLane, Graf,
02116 Raulerson & Middleton
Kathleen S. Haughton* Vice President since 1992 Employee - Investor 4
age 45 and Anti-Money Laundering Services Division, CGM
address: Compliance Officer since 2002
222 Berkeley Street,
Boston, Massachusetts
02116
Jem A. Hudgins* Treasurer since 2004 Employee - CGM; formerly 4
age 42 Vice President - Tax and
Treasury, AEW Capital
Management L.P.
Leslie A. Lake* Vice President and Secretary Employee - Office 4
age 60 since 1992 Administrator, CGM
Martha I. Maguire* Vice President since 1994 Employee - Funds 4
age 50 Marketing, CGM
Employee - Portfolio 4
Mary L. Stone* Assistant Vice President Transactions, CGM
age 61 since 1990
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
- --------------------------------------------------
TELEPHONE NUMBERS
For information about:
[ ] Account Procedures and Status
[ ] Redemptions
[ ] Exchanges
Call 800-343-5678
[ ] New Account Procedures
[ ] Prospectuses
[ ] Performance
[ ] Proxy Voting Policies and Voting Records
[ ] Complete Schedule of Portfolio Holdings for the
1st & 3rd Quarters (as filed on Form N-Q)
Call 800-345-4048
- --------------------------------------------------
MAILING ADDRESS
CGM Shareholder Services
c/o Boston Financial Data Services
P.O. Box 8511 Boston, MA 02266-8511
- --------------------------------------------------
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.
MAR 05 Printed in U.S.A.
CGM
REALTY FUND
12th Annual Report
December 31, 2005
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Realty Fund returned 4.4% during the fourth quarter of 2005 compared to
the unmanaged Standard and Poor's 500 Index which returned 2.1% and the
National Association of Real Estate Investment Trusts (NAREIT) Equity REIT
Index which returned 1.5% for the quarter. For the year just ended, CGM Realty
Fund returned 27.0%, the unmanaged S&P Index returned 4.9% and the NAREIT
Equity REIT Index returned 12.2%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
The U.S. economy in 2005 left little room for complaint: Last year's worst
fears of a weaker dollar or a slowdown triggered by higher crude oil prices or
rising interest rates failed to materialize. Instead, we enjoyed another year
of above-trend growth in real Gross Domestic Product with solid gains in
corporate profits again leading the way. This multi-year recovery is still
creating new jobs and shaved the unemployment rate to just under 5% at the end
of 2005. In a near repeat of 2004, the economy continued to be propelled by a
strong market for new houses almost all year long despite numerous interest
rate hikes by the Federal Reserve Board.
Now that we are contemplating the fifth year of the expansion, we believe the
economy will grow at a slower rate on the consumer or retail level, but with
even more gusto when it comes to capital spending by corporations and
continued rebuilding in the aftermath of 2005's severe storms. Inflation
pressures may begin to surface and the Fed will be on the hot seat to apply
just the right amount of pressure to restrain inflation without tipping the
economy into recession. Thus far, the leap in the Federal Funds rate from 1%
to 4.25% over two years has yet to be reflected in the long-term interest rate
market. The yield on the ten year U.S. government bond was 4.25% in January of
2004, 4.24% last January and is now 4.39%. Mortgage rates are just slightly
higher than they were one year ago though new, tougher lending standards on
the part of financial institutions (with potentially even more stringent
regulations on the way) could put a damper on the new home market as seemed to
be indicated by November's significantly lower number of housing starts.
In 2000, the S&P 500 Index closed out the year at 1345. On December 31, 2005,
it was 1250. Despite the decline, earnings per share of the Index have risen
thirty percent over the past five years. This year was no exception with a 3%
increase in share prices in the S&P 500 Index while earnings jumped roughly
11%. The erosion of price-to-earnings multiples is slowly correcting the over-
generous pricing that crept into the market during the tech boom of the late
1990s. By historical standards, the market still has a way to go before anyone
is ready to declare an overall bargain. Nonetheless, we believe the market
offers some interesting values looking forward should inflation be limited to
2% or 3% per year.
PORTFOLIO STRATEGY
CGM Realty Fund remained fully invested throughout 2005 but the Fund made
significant strategic shifts during the year.
The Fund entered 2005 with 64% of its assets invested in homebuilding stocks.
These investments were eliminated in the first half of 2005 reflecting
concerns about inflated home pricing in key markets. The Fund made a major
commitment to real estate investment trusts which rose from 44% of the
portfolio on March 31 to 73% at year end. Hotels remained the largest REIT
category throughout the year. The Fund also made significant investments in
regional malls, office and apartment real estate investment trusts. Mining
companies (principally coal mines) ranged from 33% of the portfolio on March
31 to 18% at year end.
Real estate investment trusts were the largest factor in the Fund's
appreciation in 2005 followed by homebuilders and mining companies. The
largest individual gains occurred in Arch Coal, Inc., and CB Richard Ellis
Group, Inc., the leading commercial real estate broker.
On December 31, 2005, the Fund's three largest holdings were Arch Coal, Inc.,
CB Richard Ellis Group, Inc. and General Growth Properties, Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 3, 2006
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
through 12/31/05
- ----------------------------
1 year 5 year 10 year
27.0% 28.9% 21.1%
- ----------------------------
Past performance is no
indication of future results
- ----------------------------
Unmanaged
CGM S&P 500 NAREIT
Realty Fund Index Equity REIT Index
------------------------------------------------------
$10,000 $10,000 $10,000
1996 14,410 12,300 13,530
1997 18,257 16,408 16,277
1998 14,387 21,101 13,428
1999 14,761 25,532 12,810
2000 19,071 23,209 16,192
2001 20,044 20,447 18,443
2002 20,745 15,928 19,144
2003 39,354 20,500 26,247
2004 53,324 22,734 34,540
2005 67,722 23,848 38,754
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.
- --------------------------------------------------------------------------------
See the Schedule of Investments on page 3 for the percentage of net assets of
the Fund invested in particular industries or securities as of December 31,
2005.
INVESTMENT PERFORMANCE
(unaudited)
- ------------------------------------------------------------------
Cumulative Total Return for Periods
Ended December 31, 2005
CGM
REALTY FUND
--------
10 Years ....................................... +577.9%
5 Years ........................................ +255.3
1 Year ......................................... + 27.0
3 Months ....................................... + 4.4
The adviser limited the Fund's total operating expenses to 1.00% of its
average net assets through December 31, 1997. Otherwise, the Fund's total
return for the ten year period would have been lower.
The performance data contained in the report represent past performance, which
is no guarantee of future results. The graph and table above do not reflect
the deduction of taxes a shareholder would pay on Fund distributions or the
redemption of Fund shares and assume the reinvestment of all Fund
distributions. 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. Current performance may be lower
or higher than the performance data quoted.
CGM REALTY FUND
- -------------------------------------------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 2005
COMMON STOCKS -- 99.4% OF TOTAL NET ASSETS
REAL ESTATE INVESTMENT TRUSTS -- 73.4%
SHARES VALUE(a)
------ --------
APARTMENTS -- 10.7%
AvalonBay Communities, Inc. ................................................ 575,400 $ 51,354,450
Essex Property Trust, Inc. ................................................. 575,000 53,015,000
Home Properties, Inc. ...................................................... 160,000 6,528,000
---------------
110,897,450
---------------
HOTELS -- 32.1%
DiamondRock Hospitality Company(b) ......................................... 3,679,000 44,000,840
FelCor Lodging Trust Incorporated .......................................... 2,977,600 51,244,496
Host Marriott Corporation .................................................. 2,900,000 54,955,000
Innkeepers USA Trust(b) .................................................... 3,309,200 52,947,200
LaSalle Hotel Properties ................................................... 1,635,300 60,048,216
Strategic Hotel Capital, Inc. .............................................. 480,000 9,878,400
Sunstone Hotel Investors, Inc. ............................................. 2,178,900 57,893,373
---------------
330,967,525
---------------
OFFICE AND INDUSTRIAL -- 10.6%
Maguire Properties Inc. .................................................... 100,000 3,090,000
SL Green Realty Corp. ...................................................... 756,300 57,773,757
Vornado Realty Trust ....................................................... 580,000 48,412,600
---------------
109,276,357
---------------
RETAIL -- 20.0%
CBL & Associates Properties, Inc. .......................................... 1,165,000 46,029,150
General Growth Properties, Inc. ............................................ 1,325,000 62,261,750
Simon Property Group, Inc. ................................................. 670,000 51,342,100
The Macerich Company ....................................................... 695,000 46,662,300
---------------
206,295,300
---------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Identified cost $570,287,670) ......... 757,436,632
---------------
OTHER COMMON STOCKS -- 26.0%
METALS AND MINING -- 18.4%
Arch Coal, Inc. ............................................................ 1,030,000 81,885,000
CONSOL Energy Inc. ......................................................... 170,000 11,080,600
Foundation Coal Holdings, Inc. ............................................. 1,367,000 51,946,000
Peabody Energy Corporation ................................................. 549,300 45,273,306
---------------
190,184,906
---------------
REAL ESTATE SERVICES -- 7.6%
CB Richard Ellis Group, Inc.(c) ............................................ 1,327,900 78,146,915
---------------
TOTAL OTHER COMMON STOCKS (Identified Cost $165,105,467) ................... 268,331,821
---------------
TOTAL COMMON STOCKS (Identified Cost $735,393,137) ......................... 1,025,768,453
---------------
FACE
SHORT-TERM INVESTMENT -- 0.2% OF TOTAL NET ASSETS AMOUNT VALUE(a)
------ --------
American Express Credit Corporation, 4.18%,
1/03/06 (Cost $1,950,000) ............................................... $ 1,950,000 $ 1,950,000
---------------
TOTAL INVESTMENTS -- 99.6% (Identified Cost $737,343,137(d) ................ 1,027,718,453
Cash and receivables ........................................... 10,029,592
Liabilities .................................................... (5,781,673)
---------------
TOTAL NET ASSETS -- 100% ................................................... $ 1,031,966,372
===============
(a) See Note 1A.
(b) Non-controlled affiliate (See Note 5).
(c) Non-income producing security.
(d) Federal Tax Information: At December 31, 2005 the net unrealized appreciation on investments based on cost of
$737,811,563 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 .................................................................... $ 290,016,226
Aggregate gross unrealized depreciation for all investments in which there is an excess of
tax cost over value .................................................................... (109,336)
---------------
$ 289,906,890
===============
See accompanying notes to financial statements.
CGM REALTY FUND
- --------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
December 31, 2005
ASSETS
Investments at value:
Unaffiliated issuers (Identified cost --
$656,940,492) ........................... $930,770,413
Non-controlled affiliates (Identified cost
-- $80,402,645) ......................... 96,948,040 $1,027,718,453
------------
Cash ...................................... 934
Receivable for:
Securities sold .......................... 2,064,272
Shares of the Fund sold .................. 3,556,224
Dividends and
interest ................................ 4,408,162 10,028,658
------------ --------------
Total assets ........................................... 1,037,748,045
--------------
LIABILITIES
Payable for:
Shares of the Fund
redeemed ................................ 4,885,028
Distributions declared 150 4,885,178
------------
Accrued expenses:
Management fees .......................... 715,181
Trustees' fees ........................... 20,179
Accounting,
Administration and
Compliance .............................. 14,502
Transfer agent fees ...................... 59,146
Other expenses ........................... 87,487 896,495
------------ --------------
Total liabilities ...................................... 5,781,673
--------------
NET ASSETS ................................................... $1,031,966,372
==============
Net Assets consist of:
Capital paid-in ............................................ $742,059,482
Accumulated net realized loss on
investments ............................................... (468,426)
Net unrealized appreciation on
investments ............................................... 290,375,316
--------------
NET ASSETS ................................................... $1,031,966,372
==============
Shares of beneficial interest
outstanding, no par value ................................. 37,959,443
==============
Net asset value per share* .................................. $27.19
==============
* Shares of the Fund are sold and redeemed at net asset value
($1,031,966,372 / 37,959,443).
See accompanying notes to financial statements.
CGM REALTY FUND
- --------------------------------------------------------------------------------
STATEMENT OF
OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME
Income
Dividends (including dividend income
of $4,960,760 from non-controlled
affiliated issuers) ....................................... $ 20,228,753
Interest ................................................... 834,858
-------------
21,063,611
-------------
Expenses
Management fees ............................................ 7,508,586
Trustees' fees ............................................. 80,785
Accounting, Administration and Compliance .................. 174,019
Custodian .................................................. 144,106
Transfer agent fees ........................................ 376,614
Audit and tax services ..................................... 32,950
Legal ...................................................... 95,403
Printing ................................................... 79,461
Registration ............................................... 42,709
Line of Credit Commitment fee .............................. 20,279
Miscellaneous .............................................. 4,081
-------------
8,558,993
-------------
Net investment income ....................................... 12,504,618
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain on investments (including net realized
gain of $516,574 on sales of investments in non-controlled
affiliated issuers) ....................................... 289,797,597
Net unrealized depreciation ................................. (78,538,199)
-------------
Net realized and unrealized gain on investments ............. 211,259,398
-------------
NET CHANGE IN ASSETS FROM
OPERATIONS .................................................. $ 223,764,016
==============
See accompanying notes to financial statements.
CGM REALTY FUND
- -----------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
--------------------------------------
2005 2004
------------------- -----------------
FROM OPERATIONS
Net investment income ................................ $ 12,504,618 $ 4,666,175
Net realized gain from investments ................... 289,797,597 89,728,133
Unrealized appreciation (depreciation) ............... (78,538,199) 108,077,150
-------------- ------------
Change in net assets from operations ............... 223,764,016 202,471,458
-------------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ................................ (12,422,326) (4,272,407)
Net realized short-term capital gain on investments .. -- (3,828,368)
Net realized long-term capital gain on investments ... (288,661,910) (85,899,002)
-------------- ------------
(301,084,236) (93,999,777)
-------------- ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ......................... 325,608,158 215,709,993
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ............... 10,680,770 3,538,293
Distributions from net short-term realized capital
gain ............................................. -- 3,236,998
Distributions from net long-term realized capital
gain ............................................. 233,849,052 72,630,888
-------------- ------------
570,137,980 295,116,172
Cost of shares redeemed .............................. (246,250,567) (262,608,312)
-------------- ------------
Change in net assets derived from capital share
transactions ..................................... 323,887,413 32,507,860
-------------- ------------
Total change in net assets ........................... 246,567,193 140,979,541
NET ASSETS
Beginning of year .................................... 785,399,179 644,419,638
-------------- ------------
End of year .......................................... $1,031,966,372 $785,399,179
============== ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ........................... 10,068,827 8,092,763
Issued in connection with reinvestment of:
Dividends from net investment income ............... 350,540 130,730
Distributions from net short-term realized capital gain -- 110,027
Distributions from net long-term realized capital gain 8,603,718 2,468,759
-------------- ------------
19,023,085 10,802,279
Redeemed ............................................. (7,636,395) (10,268,528)
-------------- ------------
Net change ........................................... 11,386,690 533,751
============== ============
See accompanying notes to financial statements.
CGM REALTY FUND
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2005 2004 2003 2002 2001
------ ------ ------ ------ ------
For a share of the Fund outstanding
throughout each period:
Net asset value at the beginning of period . $29.56 $24.75 $13.39 $13.47 $13.53
------ ------ ------ ------ ------
Net investment income(a) ................... 0.43 0.19 0.03 0.40 0.48
Net realized and unrealized gain on
investments and foreign currency
transactions ............................. 7.51 8.55 11.93 0.10 0.17
------ ------ ------ ------ ------
Total from investment operations ........... 7.94 8.74 11.96 0.50 0.65
------ ------ ------ ------ ------
Dividends from net investment income ....... (0.43) (0.18) (0.04) (0.58) (0.71)
Distribution from net short-term realized
gain ..................................... -- (0.16) -- -- --
Distribution from net long-term realized
gain ..................................... (9.88) (3.59) (0.56) -- --
------ ------ ------ ------ ------
Total Distributions ........................ (10.31) (3.93) (0.60) (0.58) (0.71)
------ ------ ------ ------ ------
Net increase (decrease) in net asset value . (2.37) 4.81 11.36 (0.08) (0.06)
------ ------ ------ ------ ------
Net asset value at end of period ........... $27.19 $29.56 $24.75 $13.39 $13.47
====== ====== ====== ====== ======
Total Return (%) ........................... 27.0 35.5 89.7 3.5 5.1
Ratios:
Operating expenses to average net assets (%)
.......................................... 0.92 0.96 1.02 1.03 1.00
Net investment income to average net assets (%) 1.34 0.73 0.16 2.70 3.63
Portfolio turnover (%) ..................... 136 43 68 173 131
Net assets at end of period
(in thousands) ($) ....................... 1,031,966 785,399 644,420 339,757 383,156
(a) Per share net investment income has been calculated using the average shares outstanding during the period.
See accompanying notes to financial statements.
CGM REALTY FUND
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2005
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
two other funds whose financial statements are not presented herein. Along with
one other fund in a separate Trust, there are four CGM Funds. The Fund commenced
operations on May 13, 1994. The Fund's investment objective is to provide a
combination of 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 accounting principles
generally accepted in the United States of America 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. The pricing service provides the last reported sale price for
securities listed on a national securities exchange or in the case of the
NASDAQ national market system, the NASDAQ official closing price. For
securities with no sale reported and in the case of over-the-counter
securities not so listed, the last reported bid price is used. 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
net of applicable foreign taxes, a portion of which may be recoverable.
The Fund will accrue such taxes and recoveries as applicable based upon
its current interpretations of the tax rules and regulations that exist in
the markets in which it invests. Interest income is recorded on the
accrual basis and includes amortization of premium and discount. Net gain
or loss on securities sold is determined on the identified cost basis.
Dividend payments received by the Fund from its investment in REITs may
consist of ordinary income, capital gains and return of capital and as
such are recorded as dividend income, capital gains or cost, as
appropriate. Non-cash dividend payments, if any, are recorded at the fair
market value of the securities received.
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, 2005 there were no capital loss carryovers available to offset future
realized gains. The tax basis components of the distributable earnings of
the Fund are $289,906,890 which represents the unrealized appreciation on
investments as of December 31, 2005.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions
are recorded by the Fund on the ex-dividend date. The classification of
income and capital gains distributions is determined in accordance with
income tax regulations. Distributions from net investment income and
short-term capital gains are treated as ordinary income for income tax
purposes. Permanent book and tax differences relating to shareholder
distributions may result in reclassifications to paid-in capital or
accumulated realized gain/loss. The Fund also utilized earnings and
profits distributed to shareholders on redemption of shares as a part of
the dividend deduction for income tax purposes. Undistributed net
investment income or accumulated net investment loss may include temporary
book and tax differences such as tax deferral of losses on wash sales,
which will reverse in a subsequent period. Any taxable income or gain
remaining at fiscal year end is distributed in the following year. During
the year ended December 31, 2005, the tax character of distributions paid
was as follows: ordinary income $12,422,326 and long-term capital gains
$288,661,910.
E. INDEMNITIES -- In the normal course of business, CGM Realty Fund may enter
into contracts that provide indemnities to third parties for various
potential losses and claims. CGM Realty Fund's maximum exposure under
these arrangements is unknown as this would depend on future claims that
may be made against CGM Realty Fund. The risk of material loss from such
claims is considered remote.
2. PURCHASES AND SALE OF SECURITIES -- For the period ended December 31,
2005, purchases and sales of securities other than United States government
obligations and short-term investments aggregated $1,290,123,739 and
$1,251,508,411, respectively. There were no purchases or sales of long-term
United States government obligations.
3. A. MANAGEMENT FEES -- During the period ended December 31, 2005, the Fund
incurred management fees of $7,508,586, 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,
compliance 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; (iii) registration, filing and
other fees in connection with requirements of regulatory authorities;
and (iv) compliance in connection to the Investment Company Act of
1940 and the Sarbanes Oxley Act of 2002. The Accounting,
Administration and Compliance expense of $174,019, for the period
ended December 31, 2005, is shown separately in the financial
statements. These expenses include the reimbursement of a portion of
the compensation expenses incurred by CGM for its employees who
provide these administrative, accounting, compliance, and other
services to the Fund, some of whom are officers of the Fund. Of the
total expense reimbursement, $137,175 represented reimbursements by
the Fund to CGM for a portion of the salaries of CGM employees who are
officers of the Fund.
C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to any trustees who are directors, officers or employees of
CGM, or any affiliate of CGM (other than registered investment
companies). For the period ended December 31, 2005, each disinterested
trustee was compensated by the CGM Funds with an annual fee of $50,000
plus travel expenses for each meeting attended. The disinterested
trustees are responsible for the audit committee functions of the CGM
Funds and have designated a chairman to oversee those functions who
receives an additional $30,000 annually. Of these amounts, each of the
CGM Funds is responsible for $7,000 per trustee annually, plus an
annual variable fee calculated based on the proportion of each of the
CGM Funds' average net assets relative to the aggregate average net
assets of the CGM Funds.
4. LINE OF CREDIT -- The Fund has a $20,000,000 committed unsecured line of
credit with State Street Bank and Trust Company. Borrowings under the line
will be charged interest at 0.75% over the current Overnight Federal Funds
Rate. The Fund will incur a commitment fee of 0.10% per annum on the unused
portion of the line of credit, payable quarterly. There were no borrowings
under the line of credit during the period ended
December 31, 2005.
5. AFFILIATED ISSUERS -- Affiliated issuers, as defined under the Investment
Company Act of 1940, are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer. The
following summarizes transactions with affiliates of the Fund during the
period ended December 31, 2005:
NUMBER OF NUMBER OF
SHARES HELD GROSS GROSS SHARES HELD DIVIDEND MARKET VALUE
NAME OF ISSUER DECEMBER 31, 2004 PURCHASES SALES DECEMBER 31, 2005 INCOME DECEMBER 31, 2005
- -------------- ----------------- --------- ----- ----------------- ------ -----------------
DiamondRock Hospitality
Company ................... 0 3,679,000 0 3,679,000 $1,330,571 $ 44,000,840
Innkeepers USA Trust ....... 2,864,200 445,000 0 3,309,200 779,384 52,947,200
LaSalle Hotel Properties** . 1,635,300 0 0 1,635,300 1,583,468 --
Strategic Hotel
Capital, Inc.** ........... 321,400 2,699,000 2,540,400 480,000 70,964 --
Sunstone Hotel Investors,
Inc.** .................... 1,940,000 238,900 0 2,178,900 1,196,373 --
William Lyon Homes*+ ....... 350,700 110,000 460,700 0 0 0
---------- ------------
Totals ................. $4,960,760 $ 96,948,040
========== ============
* Position in issuer liquidated during the preceding twelve months.
** No longer considered an affiliated issuer.
+ Non-income producing security.
CGM REALTY FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of the CGM Trust 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
(the "Fund," a series of CGM Trust) at December 31, 2005, 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 of America. 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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, 2005 by correspondence with the
custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 16, 2006
ADDITIONAL INFORMATION
(unaudited)
AVAILABILITY OF PROXY VOTING INFORMATION:
Proxy voting policies and information regarding how the Fund voted proxies
relating to portfolio securities during the twelve month period ended June 30,
2005 are available without charge, upon request by calling
1-800-345-4048. The policies also appear in the Fund's Statement of Additional
Information, which can be found on the SEC's website, http://www.sec.gov. The
voting records can also be found on the SEC's website on the N-PX filing.
PORTFOLIO HOLDINGS:
The Fund files its complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms
N-Q are available on the SEC's website at http://www.sec.gov and may be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
CGM REALTY FUND
- --------------------------------------------------------------------------------
FUND EXPENSES
As a shareholder of CGM Realty Fund, you incur two types of costs: (1)
transaction costs, which could include, among other charges, wire fees and
custodial maintenance fees for certain types of accounts and (2) ongoing
costs, including management fees and other Fund expenses. This Example is
intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period July 1, 2005 to December 31, 2005.
ACTUAL RETURN AND EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is
not the Fund's actual return. The hypothetical account values and expenses may
not be used to estimate the actual ending account balance or expenses you paid
for the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as any wire
fees or custodial maintenance fees that may be payable. Therefore, the second
line of the table is useful in comparing ongoing costs only, and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
- -------------------------------------------------------------------------------
Beginning Ending Expenses Paid
Account Value Account Value During Period*
7/01/05 12/31/05 7/01/05 - 12/31/05
- -------------------------------------------------------------------------------
Actual $1,000.00 $1,161.88 $4.90
- -------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000.00 $1,020.67 $4.58
- -------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 0.90%,
multiplied by the average account value over the period, multiplied by 184/
365 (to reflect the one-half year period).
CGM REALTY FUND
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/2005
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
For the year ended December 31, 2005, the Fund designated $289,793,243 as
long-term capital dividends.
TRUSTEES AND OFFICERS
The Fund is supervised by the board of trustees (the "Board") of the Trust.
The Board is responsible for the general oversight of the Fund, including
general supervision and review of the Fund's investment activities. The Board,
in turn, elects the officers who are responsible for administering the Fund's
day-to-day operations.
An asterisk in the table below identifies those trustees and officers who are
"interested persons" of the Trust as defined in the Investment Company Act of
1940. Each trustee and officer of the Trust noted as an interested person is
interested by virtue of that individual's position with Capital Growth
Management Limited Partnership ("CGM"), the Fund's investment adviser, as
described in the table below. Each trustee serves during the continued
lifetime of the Trust or until he earlier dies, resigns or is removed, or if
sooner, until the election and qualification of his successor. Each officer
serves until his or her successor is elected or qualified or until the officer
sooner dies, resigns, or is removed or becomes disqualified.
The trustees and officers of the Trust, their ages, their principal
occupations during the past five years, the number of CGM Funds they oversee,
and other directorships they hold are set forth below. Unless otherwise
noted below, the address of each interested trustee and officer is One
International Place, Boston, Massachusetts 02110. Correspondence intended for
the trustees who are not "interested persons" of the Trust may be sent c/o
Capital Growth Management, One International Place, Boston, Massachusetts
02110.
The Statement of Additional Information for the Fund includes additional
information about Fund trustees and is available, without charge, upon request
by calling the CGM Marketing Department, toll free, at 800-345-4048.
PRINCIPAL NUMBER OF
OCCUPATION FUNDS IN THE
DURING PAST CGM FUNDS
POSITION HELD AND 5 YEARS AND OTHER COMPLEX
NAME, ADDRESS AND AGE LENGTH OF TIME SERVED DIRECTORSHIPS HELD OVERSEEN
- --------------------- --------------------- ------------------ ------------
INTERESTED TRUSTEES
G. Kenneth Heebner* Trustee since 1993 Co-founder and Employee, 4
age 65 CGM; Controlling Owner,
Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* Trustee since 1990 Co-founder and Employee, 4
age 73 CGM; Non-voting Owner,
Kenbob, Inc. (general
partner of CGM)
DISINTERESTED TRUSTEES
Peter O. Brown Trustee since 1993 Counsel (formerly, 4
age 65 Partner), Harter, Secrest
& Emery LLP (law firm);
Trustee, TT International
U.S.A. Master and Feeder
Trusts (four mutual
funds)
Mark W. Holland Trustee since 2004 President, Wellesley 4
age 56 Financial Advisors, LLC;
formerly Vice President
and Chief Operating
Officer, Fixed Income
Management, Loomis,
Sayles & Company, L.P.;
formerly Director,
Loomis, Sayles & Company,
L.P.
Laurens MacLure Trustee since 1990 Retired; formerly 4
age 80 President and Chief
Executive Officer, New
England Deaconess
Hospital; formerly
Trustee, New England
Zenith Fund; formerly
Director, Massachusetts
Blue Cross/Blue Shield
James Van Dyke Quereau, Jr. Trustee since 1993 Managing Partner and 4
age 57 Director, Stratton
Management Company
(investment management);
Director and Vice
President, Semper Trust
Co.
J. Baur Whittlesey Trustee since 1990 Member, Ledgewood Law 4
age 59 Firm, P.C.
OFFICERS
G. Kenneth Heebner* Vice President since 1990 Co-founder and Employee, 4
age 65 CGM; Controlling Owner,
Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* President since 1990 Co-founder and Employee, 4
age 73 CGM; Non-voting Owner,
Kenbob, Inc. (general
partner of CGM)
David C. Fietze* Chief Compliance Officer Employee - Legal counsel, 4
age 36 since 2004 CGM; formerly counsel,
address: Bartlett Hackett
222 Berkeley Street, Feinberg, P.C.; formerly
Boston, Massachusetts counsel, McLane, Graf,
02116 Raulerson & Middleton
Kathleen S. Haughton* Vice President since 1992 Employee - Investor 4
age 45 and Anti-Money Laundering Services Division, CGM
address: Compliance Officer since 2002
222 Berkeley Street,
Boston, Massachusetts
02116
Jem A. Hudgins* Treasurer since 2004 Employee - CGM; formerly 4
age 42 Vice President - Tax and
Treasury, AEW Capital
Management L.P.
Leslie A. Lake* Vice President and Secretary Employee - Office 4
age 60 since 1992 Administrator, CGM
Martha I. Maguire* Vice President since 1994 Employee - Funds 4
age 50 Marketing, CGM
Employee - Portfolio 4
Mary L. Stone* Assistant Vice President Transactions, CGM
age 61 since 1990
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
- --------------------------------------------------
TELEPHONE NUMBERS
For information about:
[ ] Account
Procedures and Status
[ ] Redemptions
[ ] Exchanges
Call 800-343-5678
[ ] New Account Procedures
[ ] Prospectuses
[ ] Performance
[ ] Proxy Voting Policies and Voting Records
[ ] Complete Schedule of Portfolio Holdings for the 1st & 3rd Quarters
(as filed on Form N- Q)
Call 800-345-4048
- --------------------------------------------------
MAILING ADDRESS
CGM Shareholder Services
c/o Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511
- --------------------------------------------------
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.
RAR 05 Printed in U.S.A.
CGM
FOCUS FUND
9th Annual Report
December 31, 2005
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Focus Fund returned -6.7% during the fourth quarter of 2005 compared to
the unmanaged Standard and Poor's 500 Index which returned 2.1% for the
quarter. For the year just ended, CGM Focus Fund returned 25.2% and the
unmanaged S&P Index returned 4.9%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
The U.S. economy in 2005 left little room for complaint: Last year's worst
fears of a weaker dollar or a slowdown triggered by higher crude oil prices or
rising interest rates failed to materialize. Instead, we enjoyed another year
of above-trend growth in real Gross Domestic Product with solid gains in
corporate profits again leading the way. This multi-year recovery is still
creating new jobs and shaved the unemployment rate to just under 5% at the end
of 2005. In a near repeat of 2004, the economy continued to be propelled by a
strong market for new houses almost all year long despite numerous interest
rate hikes by the Federal Reserve Board.
Now that we are contemplating the fifth year of the expansion, we believe the
economy will grow at a slower rate on the consumer or retail level, but with
even more gusto when it comes to capital spending by corporations and
continued rebuilding in the aftermath of 2005's severe storms. Inflation
pressures may begin to surface and the Fed will be on the hot seat to apply
just the right amount of pressure to restrain inflation without tipping the
economy into recession. Thus far, the leap in the Federal Funds rate from 1%
to 4.25% over two years has yet to be reflected in the long-term interest rate
market. The yield on the ten year U.S. government bond was 4.25% in January of
2004, 4.24% last January and is now 4.39%. Mortgage rates are just slightly
higher than they were one year ago though new, tougher lending standards on
the part of financial institutions (with potentially even more stringent
regulations on the way) could put a damper on the new home market as seemed to
be indicated by November's significantly lower number of housing starts.
In 2000, the S&P 500 Index closed out the year at 1345. On December 31, 2005,
it was 1250. Despite the decline, earnings per share of the Index have risen
thirty percent over the past five years. This year was no exception with a 3%
increase in share prices in the S&P 500 Index while earnings jumped roughly
11%. The erosion of price-to-earnings multiples is slowly correcting the over-
generous pricing that crept into the market during the tech boom of the late
1990s. By historical standards, the market still has a way to go before anyone
is ready to declare an overall bargain. Nonetheless, we believe the market
offers some interesting values looking forward should inflation be limited to
2% or 3% per year.
PORTFOLIO STRATEGY
CGM Focus Fund remained fully invested last year in expectation of continued
economic growth. We believed oil and gas prices would significantly exceed
consensus estimates throughout 2005 and increased the energy concentration to
more than 40% of Fund assets in the first quarter of the year and maintained
concentrations above that level during the balance of 2005. Our energy
investments included oil and gas production companies, oil service companies,
oil and gas tubular goods producers, and coal mining stocks.
The Fund was 23% invested in steel producing companies at the beginning of the
year. This position was eliminated by midyear reflecting concerns about
excessive growth in Chinese steel production. The Fund increased its
investment in gold and copper mining stocks to just over 23% of assets at year
end as we anticipated inadequate supplies of these commodities in the face of
rising global demands.
The Fund established a significant short position during the year which rose
to 43% of the assets at year end since we believed that a number of securities
in a variety of industries were selling at excessive valuations relative to
their prospects.
Most of the Fund's appreciation in 2005 occurred in the energy sector. The
largest energy gains were realized by Peabody Energy Corporation, Canadian
Natural Resources Limited and Tenaris S.A. ADR, a manufacturer of gas and oil
tubular goods. Outside the energy sector, the two stocks with the greatest
appreciation were Phelps Dodge Corporation and Southern Copper Corporation.
Overall the Fund's short positions had a negative impact on 2005 performance.
On December 31, 2005, the Fund's three largest industry positions were in
metals and mining, independent oil production and copper. The Fund's three
largest holdings were Phelps Dodge Corporation, Southern Copper Corporation
and Suncor Energy, Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 3, 2006
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
through 12/31/05
- --------------------------------
1 year 5 year Life of Fund*
25.2% 23.3% 20.2%
*(Annualized from 9/3/97 - 12/31/2005)
- --------------------------------
Past performance is no
indication of future results
- -====---------------------------
Unmanaged
CGM S&P 500
Focus Fund Index
- -----------------------------------------------------
$10,000 $10,000
1997 9,380 10,490
1998 9,708 13,490
1999 10,534 16,323
2000 16,211 14,838
2001 23,944 13,072
2002 19,682 10,183
2003 32,770 13,106
2004 36,834 14,534
2005 46,116 15,246
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
and CGM Realty Fund.
- --------------------------------------------------------------------------------
See the Schedule of Investments on page 3 for the percentage of net assets of
the Fund invested in particular industries or securities as of December 31,
2005.
INVESTMENT PERFORMANCE
(unaudited)
- ------------------------------------------------------------------------------
Cumulative Total Return for Periods Ended
December 31, 2005
CGM FOCUS
FUND
-----------------------
5 Years ........................................... +184.5%
1 Year ............................................ + 25.2
3 Months .......................................... - 6.7
The Fund's average annual total return since inception (September 3, 1997)
through December 31, 2005 is +20.2%. The adviser limited the Fund's total
operating expenses to 1.20% of its average net assets exclusive of any
dividend expense incurred on short sales through December 31, 2001. Otherwise,
the Fund's total return since inception and for the five-year period ended
December 31, 2005 would have been lower.
The performance data contained in the report represent past performance, which
is no guarantee of future results. The graph and table above do not reflect
the deduction of taxes a shareholder would pay on Fund distributions or the
redemption of Fund shares and assume the reinvestment of all Fund
distributions. 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. Current performance may be lower
or higher than the performance data quoted.
CGM FOCUS FUND
- -------------------------------------------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 2005
COMMON STOCKS -- 102.6% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
AEROSPACE -- 4.9%
Embraer-Empresa Brasileira de Aeronautica S.A. ADR(b)(c) ................. 2,075,000 $ 81,132,500
---------------
BEVERAGES AND TOBACCO -- 4.4%
Altria Group, Inc. ....................................................... 975,000 72,852,000
---------------
BUSINESS SERVICES -- 4.2%
UTi Worldwide Inc. ....................................................... 740,000 68,701,600
---------------
COPPER -- 11.9%
Phelps Dodge Corporation(c) .............................................. 685,000 98,550,950
Southern Copper Corporation .............................................. 1,450,000 97,121,000
---------------
195,671,950
---------------
ELECTRONIC AND COMMUNICATION EQUIPMENT -- 3.2%
Apple Computer, Inc.(d) .................................................. 720,000 51,760,800
---------------
LEISURE -- 5.5%
Station Casinos, Inc.(c) ................................................. 1,332,000 90,309,600
---------------
METALS AND MINING -- 17.3%
Anglo American Plc ADR(b)(c) ............................................. 1,730,000 60,169,400
Freeport-McMoRan Copper & Gold Inc.(c) ................................... 1,620,000 87,156,000
Newmont Mining Corporation ............................................... 905,000 48,327,000
Peabody Energy Corporation(c) ............................................ 1,073,000 88,436,660
---------------
284,089,060
---------------
MISCELLANEOUS -- 5.6%
Tenaris S.A. ADR(b) ...................................................... 795,000 91,027,500
---------------
OIL AND GAS WELL DRILLING -- 5.8%
Nabors Industries Ltd.(c)(d) ............................................. 1,249,600 94,657,200
---------------
OIL - INDEPENDENT PRODUCTION -- 13.0%
Canadian Natural Resources Limited(c)(e) ................................. 1,880,000 93,285,600
EOG Resources, Inc. ...................................................... 520,000 38,152,400
Occidental Petroleum Corporation ......................................... 1,025,000 81,877,000
---------------
213,315,000
---------------
OIL REFINING -- 11.0%
Amerada Hess Corporation(c) .............................................. 666,000 84,462,120
Suncor Energy Inc.(c)(e) ................................................. 1,526,200 96,349,006
---------------
180,811,126
---------------
OIL SERVICES -- 5.6%
Baker Hughes Incorporated ................................................ 265,000 16,106,700
Halliburton Company ...................................................... 211,100 13,079,756
Schlumberger Limited ..................................................... 650,000 63,147,500
---------------
92,333,956
---------------
TECHNOLOGY -- 4.9%
Google Inc.(c)(d) ........................................................ 194,000 80,482,840
---------------
TELEPHONE -- 5.3%
Open Joint Stock Company "Vimpel-Communications"
ADR(b)(c)(d) ........................................................... 1,960,000 $ 86,690,800
---------------
TOTAL COMMON STOCKS (Identified Cost $1,371,511,662) ....................... 1,683,835,932
---------------
SHORT-TERM INVESTMENT -- 1.4% OF NET ASSETS
FACE
AMOUNT
------
American Express Credit Corporation, 4.18%, 01/03/06 (Cost $22,525,000) .. $ 22,525,000 22,525,000
---------------
TOTAL INVESTMENTS -- 104.0% (Identified Cost $1,394,036,662)(f) ................... 1,706,360,932
Cash and receivables ........................................................... 720,253,414
Liabilities .................................................................... (785,471,294)
---------------
TOTAL NET ASSETS -- 100.0% ........................................................ $1,641,143,052
==============
(a) See Note 1A.
(b) An American Depositary Receipt (ADR) is a certificate issued by a U.S. bank representing the right to receive
securities of the foreign issuer described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
(c) A portion of this security has been segregated as collateral in connection with short sale investments. (See
Note 1E.)
(d) Non-income producing security.
(e) The Fund has approximately 12% of its net assets at December 31, 2005 invested in companies incorporated in
Canada.
(f) Federal Tax Information: At December 31, 2005 the net unrealized appreciation on
investments based on cost of $1,395,517,302 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 ..................................................................... $ 322,748,063
Aggregate gross unrealized depreciation for all investments in which there is an excess
of tax cost over value .................................................................. (11,904,433)
---------------
$ 310,843,630
==============
SECURITIES SOLD SHORT (PROCEEDS $635,798,884)
SHARES VALUE
Abercrombie & Fitch Co. .................................. 650,000 $ 42,367,000
Amazon.com, Inc. ......................................... 2,021,500 95,313,725
Countrywide Financial Corporation ........................ 1,780,000 60,858,200
Dell Inc. ................................................ 1,300,000 38,987,000
Dendreon Corporation ..................................... 340,000 1,842,800
Geron Corporation ........................................ 310,000 2,669,100
Jefferies Group, Inc. .................................... 1,027,800 46,230,444
Neurochem Inc. ........................................... 90,000 1,284,300
NPS Pharmaceuticals, Inc. ................................ 340,000 4,025,600
Qwest Communications International Inc. .................. 15,750,000 88,987,500
Sears Holdings Corporation ............................... 725,000 83,759,250
Sepracor Inc. ............................................ 1,630,000 84,108,000
Sirius Satellite Radio Inc. .............................. 12,200,000 81,740,000
Sun Microsystems, Inc. ................................... 18,500,000 77,515,000
-------------
$ 709,687,919
=============
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
December 31, 2005
ASSETS
Investments at value (Identified
cost -- $1,394,036,662) ................................... $1,706,360,932
Cash ........................................................ 1,316
Restricted cash ............................................. 638,994,433
Receivable for:
Securities sold ............................ $ 67,578,030
Shares of the Fund sold .................... 10,438,040
Dividends and interest...................... 3,241,595 81,257,665
------------ --------------
Total assets ............................................ 2,426,614,346
--------------
LIABILITIES
Securities sold short at current market
value (Proceeds $635,798,884) ............................. 709,687,919
Payable for:
Securities purchased........................ 66,712,461
Shares of the Fund redeemed ................ 7,427,901
Distributions declared...................... 8,456
Tax withholding liability .................. 103,606 74,252,424
------------
Accrued expenses:
Management fees ............................ 1,311,039
Trustees' fees ............................. 21,993
Accounting, Administration and Compliance .. 16,965
Transfer agent fees ........................ 75,297
Other expenses ............................. 105,657 1,530,951
------------ --------------
Total liabilities ....................................... 785,471,294
--------------
NET ASSETS .................................................. $1,641,143,052
==============
Net Assets consist of:
Capital paid-in ........................................... $1,414,596,105
Accumulated net realized loss.............................. (11,887,350)
Net unrealized appreciation (depreciation) on investments:
Long positions ........................................... 312,323,332
Short positions .......................................... (73,889,035)
--------------
NET ASSETS .................................................. $1,641,143,052
==============
Shares of beneficial interest
outstanding, no par value ................................. 49,132,422
==========
Net asset value per share* .................................. $33.40
======
* Shares of the Fund are sold and redeemed at net asset value
($1,641,143,052 / 49,132,422).
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
STATEMENT OF
OPERATIONS
Year Ended December 31, 2005
INVESTMENT INCOME
Income
Dividends (net of withholding tax of $659,482) ........... $ 21,412,553
Interest on restricted cash ............................. 13,157,451
Interest ................................................ 644,817
------------
35,214,821
------------
Expenses
Management fees .......................................... 12,154,283
Trustees' fees ........................................... 88,041
Accounting, Administration and Compliance ................ 203,582
Custodian ................................................ 199,573
Transfer agent fees ...................................... 538,040
Audit and tax services ................................... 32,950
Legal .................................................... 129,239
Printing ................................................. 112,775
Registration ............................................. 56,302
Line of Credit commitment fee ............................ 25,348
Dividend on short sales .................................. 1,828,625
Interest related to securities sold short ................ 153,990
Miscellaneous ............................................ 4,924
------------
15,527,672
------------
Net investment income ...................................... 19,687,149
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net realized gain (loss) on investments
and foreign currency transactions:
Long transactions ........................................ 177,798,271
Short transactions ....................................... (39,303,905)
Futures contracts ........................................ (532,417)
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities in foreign
currencies:
Long transactions ........................................ 167,861,551
Short transactions ....................................... (73,143,897)
------------
Net realized and unrealized gain on investments and foreign
currency transactions .................................... 232,679,603
------------
NET CHANGE IN ASSETS FROM OPERATIONS ......................... $252,366,752
============
See accompanying notes to financial statements.
CGM FOCUS FUND
- ---------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
------------------------------
2005 2004
------------- -------------
FROM OPERATIONS
Net investment income .................................................. $ 19,687,149 $ 1,172,585
Net realized gain from investments and foreign
currency transactions ................................................ 137,961,949 195,830,533
Unrealized appreciation (depreciation) ................................. 94,717,654 (102,607,485)
------------- -------------
Change in net assets from operations ................................. 252,366,752 94,395,633
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................................................. (19,764,129) (1,122,661)
Net realized short-term capital gain on investments .................... (80,853,254) --
Net realized long-term capital gain on investments ..................... (59,292,387) (114,230,602)
------------- -------------
(159,909,770) (115,353,263)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ........................................... 781,861,059 350,770,119
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ................................. 15,971,092 902,239
Distributions from net short-term realized capital
gain ............................................................... 67,062,737 --
Distributions from net long-term realized capital
gain ............................................................... 49,185,408 94,668,422
------------- -------------
914,080,296 446,340,780
Cost of shares redeemed ................................................ (284,231,272) (282,045,208)
------------- -------------
Change in net assets derived from capital share
transactions ....................................................... 629,849,024 164,295,572
------------- -------------
Total change in net assets ............................................. 722,306,006 143,337,942
NET ASSETS
Beginning of year ...................................................... 918,837,046 775,499,104
------------- -------------
End of year ............................................................ $1,641,143,052 $ 918,837,046
============== =============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................................. 22,491,195 11,433,308
Issued in connection with reinvestment of:
Dividends from net investment income ................................. 478,574 30,751
Distributions from net short-term realized capital
gain ............................................................... 2,008,467 --
Distributions from net long-term realized capital
gain ............................................................... 1,473,058 3,226,599
------------- -------------
26,451,294 14,690,658
Redeemed ............................................................... (8,458,557) (9,464,607)
------------- -------------
Net change ............................................................. 17,992,737 5,226,051
============= =============
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
Year Ended December 31, 2005
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Change in net assets resulting from operations ............. $ 252,366,752
Adjustments to reconcile change in net assets from
operations to net cash provided by operating activities:
Purchase of investment securities ........................ (3,850,187,630)
Buy to cover of investment securities held short ......... (1,138,384,687)
Proceeds from disposition of investment securities ....... 3,426,564,481
Proceeds from short sale investment securities ........... 1,674,947,859
Sale of short-term investment securities, net ............ (3,115,000)
Sale of repurchase agreements, net ....................... 110,625,000
Futures transactions ..................................... (736,836)
Increase in deposits with brokers for short sales ........ (578,976,770)
Increase in dividends and interest receivable ............ (715,655)
Increase in receivables for securities sold .............. (37,196,784)
Decrease in securities purchased to cover short sales .... (107,642,188)
Decrease in dividends and interest on short sales payable (2,108,231)
Decrease in tax withholding liability .................... (225,443)
Increase in payable for securities purchased ............. 34,895,051
Amortization of short bonds .............................. (3,755)
Decrease in variation margin payable ..................... (21,000)
Increase in accrued expenses ............................. 604,593
Increase in miscellaneous income ......................... 6,456
Mark to market on receivables and liabilities ............ (881)
Unrealized appreciation on securities and currencies ..... (94,717,654)
Net realized gain from investments and currencies ........ (137,961,949)
--------------
Net cash used in operating activities ...................... (451,984,271)
--------------
Cash flows from financing activities:
Proceeds from shares sold .................................. 775,068,606
Payment on shares redeemed ................................. (285,510,391)
Cash distributions paid .................................... (37,573,378)
--------------
Net cash provided by financing activities .................. 451,984,837
--------------
Net increase in cash ......................................... 566
Cash:
Beginning balance .......................................... 750
--------------
Ending balance ............................................. $ 1,316
==============
Supplemental disclosure of cash flow information:
Noncash financing activities not included herein consist of reinvestment of
dividends and distributions of $132,219,237.
See accompanying notes to financial statements.
CGM FOCUS FUND
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
2005 2004 2003 2002 2001
---- ---- ---- ---- ----
For a share of the Fund outstanding
throughout the period:
Net asset value at the beginning of
period ............................... $29.51 $29.93 $17.98 $21.87 $15.80
------ ------ ------ ------ ------
Net investment income (loss)(a) ........ 0.52(b)(c) 0.04(b)(c) (0.21)(b) (0.21)(b) 0.01
Net realized and unrealized gain (loss)
on investments
and foreign currency transactions .... 6.93 3.65 12.16 (3.68) 7.51
------ ------ ------ ------ ------
Total from investment operations ....... 7.45 3.69 11.95 (3.89) 7.52
------ ------ ------ ------ ------
Dividends from net investment income ... (0.44) (0.04) -- -- (0.01)
Distribution from net short-term
realized gain ........................ (1.80) -- -- -- (1.34)
Distribution from net long-term realized
gain ................................. (1.32) (4.07) -- -- (0.10)
------ ------ ------ ------ ------
Total Distributions .................... (3.56) (4.11) -- -- (1.45)
------ ------ ------ ------ ------
Net increase (decrease) in net asset
value ................................ 3.89 (0.42) 11.95 (3.89) 6.07
------ ------ ------ ------ ------
Net asset value at end of period ....... $33.40 $29.51 $29.93 $17.98 $21.87
====== ====== ====== ====== ======
Total Return (%) ....................... 25.2 12.4 66.5 (17.8) 47.7(d)
Ratios:
Operating expenses to average net
assets (%) ........................... 1.07 1.12 1.18 1.18 1.20
Dividends and interest on short
positions to average net assets (%) .. 0.15 0.09 -- 0.02 --
------ ------ ------ ------ ------
Total expenses to average net assets (%) 1.22 1.21 1.18 1.20 1.20
====== ====== ====== ====== ======
Operating expenses to average net assets
before expense limitation (%) ........ N/A N/A N/A N/A 1.32
Dividends and interest on short
positions to average net assets before
expense limitation (%) ............... N/A N/A N/A N/A --
------ ------ ------ ------ ------
Total expenses to average net assets
before expense limitation (%) ........ N/A N/A N/A N/A 1.32
====== ====== ====== ====== ======
Net investment income (loss) to average
net
assets (%) ........................... 1.55 0.14 (0.92) (0.98) 0.11
Portfolio turnover (%) ................. 282 327 204 155 254
Net assets at end of period (in
thousands) ($) ......................... 1,641,143 918,837 775,499 383,983 249,562
(a) Net of reimbursement which amounted
to ($) ............................. N/A N/A N/A N/A 0.01
(b) Per share net investment income (loss) has been calculated using the average shares outstanding during the period.
(c) Net investment income (loss) per share excluding all related short sale income and expenses for the period ended
December 31, 2004 was $0.06, and for the period ended December 31, 2005 was $0.23.
(d) The total return would have been lower had certain expenses not been reduced during the period.
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2005
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 two other funds whose financial statements are not presented
herein. Along with one other fund in a separate Trust, there are four CGM
Funds. The Fund's investment objective is long-term growth of capital. The
Fund intends to pursue its objective by investing in a smaller number of
companies, and/or in a more limited number of sectors than diversified mutual
funds. In addition, should the investment outlook of the Fund's investment
manager so warrant, the Fund may engage in a variety of investment techniques
including short sales designed to capitalize on declines in the market price
of specific equity securities of one or more companies or declines in market
indexes.
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 accounting principles
generally accepted in the United States of America 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. The pricing service provides the last reported sale price for
securities listed on a national securities exchange or, in the case of the
NASDAQ national market system, the NASDAQ official closing price. For
securities with no sale reported and in the case of over-the-counter
securities not so listed, the last reported bid price is used for long
positions and the last reported ask price for short positions. Short-term
investments having a maturity of sixty days or less are stated at
amortized cost, which approximates value. Other assets and securites 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 net of applicable foreign taxes. Interest income is
recorded on the accrual basis and includes amortization of premium and
discount. 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, 2005, there were no capital loss carryovers available to
offset future realized gains. The tax basis components of the distributable
earnings of the Fund are $310,843,630 which represents the unrealized
appreciation on investments as of December 31, 2005.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions
are recorded by the Fund on the ex-dividend date. The classification of
income and capital gains distributions is determined in accordance with
income tax regulations. Distributions from net investment income and
short-term capital gains are treated as ordinary income for income tax
purposes. Permanent book and tax differences relating to shareholder
distributions may result in reclassifications to paid-in capital or
accumulated realized gain/loss. These differences are primarily related to
amortization on bonds held short, dividends on short positions which were
held less than forty-five days and foreign exchange gains/losses. The Fund
also utilized earnings and profits distributed to shareholders on
redemption of shares as a part of the dividend deduction for income tax
purposes. Undistributed net investment income or accumulated net investment
loss may include temporary book and tax differences such as tax deferral of
losses on wash sales and unrealized gain (loss) on futures contracts, which
will reverse in a subsequent period. Any taxable income or gain remaining
at fiscal year end is distributed in the following year. During the year
ended December 31, 2005, the tax character of distributions paid was as
follows: ordinary income $100,617,383 and long-term gains $59,292,387.
E. 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. The Fund is liable for any dividends or interest paid on
securities sold short. 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. The
market value of securities held in a segregated account at December 31,
2005 was $930,598,080 and the value of cash held in a segregated account
was $638,994,433.
F. CURRENCY FUTURES CONTRACTS -- The Fund may seek to manage exposure to the
relevant markets or to profit from changes in currency exchange rates
using currency futures contracts and other derivatives. The Fund will only
engage in transactions in futures contracts that are traded on a United
States exchange or board of trade. The value of futures contracts
positions could be adversely affected by a number of complex political and
economic factors applicable to the countries issuing the underlying
currencies. When the Fund invests in futures contracts these investments
can disproportionately increase losses when currency exchange rates are
changing. The Fund may not fully benefit from, or may lose money on,
currency futures contracts if the Fund's investment manager fails to
accurately predict changes in their value.
Upon entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract the Fund agrees to
receive from or pay to the futures broker an amount of cash equal to the
daily fluctuation in the value of the contract. Such receipts or payments
are known as variation margin and are recorded by the Fund as unrealized
gains and losses. When the contract is closed the Fund records a realized
gain or loss equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed. As of
December 31, 2005 all futures contracts were closed.
G. INDEMNITIES -- In the normal course of business, CGM Focus Fund may enter
into contracts that provide indemnities to third parties for various
potential losses and claims. CGM Focus Fund's maximum exposure under these
arrangements is unknown as this would depend on future claims that may be
made against CGM Focus Fund. The risk of material loss from such claims is
considered remote.
H. STATEMENT OF CASH FLOWS -- Information on the Fund's financial
transactions which have been settled through the receipt and disbursement
of cash is presented in the financial statement entitled Statement of Cash
Flows. The cash amount shown in the Statement of Cash Flows at December
31, 2005 represents cash maintained by the custodian.
I. 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 the end of the period, resulting from changes in the
exchange rate.
2. 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.
3. PURCHASES AND SALES OF SECURITIES -- For the period ended December 31,
2005, purchases and sales of securities other than United States government
obligations and short-term investments aggregated $3,850,187,630 and
$3,425,579,403, respectively. There were no purchases of long-term United
States government obligations and there were aggregate sales of long-term
United States government obligations of $985,078 for the period ended December
31, 2005.
4. A. MANAGEMENT FEES -- During the period ended December 31, 2005, the Fund
incurred management fees of $12,154,283, 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.
B. OTHER EXPENSES -- CGM performs certain administrative, accounting,
compliance 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; (iii) registration,
filing and other fees in connection with requirements of regulatory
authorities; and (iv) compliance in connection to the Investment Company
Act of 1940 and to Sarbanes Oxley Act of 2002. The Accounting,
Administration and Compliance expense of $203,582, for the period ended
December 31, 2005, is shown separately in the financial statements. These
expenses include the reimbursement of a portion of the compensation
expenses incurred by CGM for its employees who provide these
administrative, accounting, compliance, and other services to the Fund,
some of whom are officers of the Fund. Of the total expense
reimbursement, $160,480 represented reimbursements by the Fund to CGM for
a portion of the salaries of CGM employees who are officers of the Fund.
C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to any trustees who are directors, officers or employees of CGM,
or any affiliate of CGM (other than registered investment companies). For
the period ended December 31, 2005, each disinterested trustee was
compensated by the CGM Funds with an annual fee of $50,000 plus travel
expenses for each meeting attended. The disinterested trustees are
responsible for the audit committee functions of the CGM Funds and have
designated a chairman to oversee those functions who receives an
additional $30,000 annually. Of these amounts, each of the CGM Funds is
responsible for $7,000 per trustee annually, plus an annual variable fee
calculated based on the proportion of each of the CGM Funds' average net
assets relative to the aggregate average net assets of the CGM Funds.
5. LINE OF CREDIT -- The Fund has a $20,000,000 committed, secured line of
credit with State Street Bank and Trust Company. Borrowings under the line
will be charged interest at 0.75% over the current Overnight Federal Funds
Rate. The Fund will incur a commitment fee of 0.125% per annum on the unused
portion of the line of credit, payable quarterly. There were no borrowings
under the line of credit during the period ended December 31, 2005.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of CGM Trust 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, of
changes in net assets, and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of CGM Focus Fund (the
"Fund," a series of CGM Trust) at December 31, 2005, the results of its
operations, the changes in its net assets, its cash flows and the financial
highlights for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 16, 2006
ADDITIONAL INFORMATION
(unaudited)
AVAILABILITY OF PROXY VOTING INFORMATION:
Proxy voting policies and information regarding how the Fund voted proxies
relating to portfolio securities during the twelve month period ended June 30,
2005 are available without charge, upon request by calling 1-800-345-4048. The
policies also appear in the Fund's Statement of Additional Information, which
can be found on the SEC's website, http://www.sec.gov. The voting records can
also be found on the SEC's
website on the N-PX filing.
PORTFOLIO HOLDINGS:
The Fund files its complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms
N-Q are available on the SEC's website at http://www.sec.gov and may be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
FUND EXPENSES
As a shareholder of CGM Focus Fund, you incur two types of costs: (1)
transaction costs, which could include, among other charges, wire fees and
custodial maintenance fees for certain types of accounts and (2) ongoing
costs, including management fees and other Fund expenses. This Example is
intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period July 1, 2005 to December 31, 2005.
ACTUAL RETURN AND EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is
not the Fund's actual return. The hypothetical account values and expenses may
not be used to estimate the actual ending account balance or expenses you paid
for the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as any wire
fees or custodial maintenance fees that may be
payable. Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs
of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
- -------------------------------------------------------------------------------
Expenses Paid
Beginning Ending During Period*
Account Value Account Value 7/01/05 - 12/
7/01/05 12/31/05 31/05
- -------------------------------------------------------------------------------
Actual $1,000.00 $1,096.12 $6.39
- -------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000.00 $1,019.11 $6.16
- -------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.21%, which
includes expenses related to short sales activity, multiplied by the average
account value over the period, multiplied by 184/365 (to reflect the one-
half year period).
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/2005
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
For the year ended December 31, 2005, the Fund designated $59,865,860 as long-
term capital dividends.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
The Fund is supervised by the board of trustees (the "Board") of the Trust.
The Board is responsible for the general oversight of the Fund, including
general supervision and review of the Fund's investment activities. The Board,
in turn, elects the officers who are responsible for administering the Fund's
day-to-day operations.
An asterisk in the table below identifies those trustees and officers who are
"interested persons" of the Trust as defined in the Investment Company Act of
1940. Each trustee and officer of the Trust noted as an interested person is
interested by virtue of that individual's position with Capital Growth
Management Limited Partnership ("CGM"), the Fund's investment adviser, as
described in the table below. Each trustee serves during the continued
lifetime of the Trust or until he earlier dies, resigns or is removed, or if
sooner, until the election and qualification of his successor. Each officer
serves until his or her successor is elected or qualified or until the officer
sooner dies, resigns, or is removed or becomes disqualified.
The trustees and officers of the Trust, their ages, their principal
occupations during the past five years, the number of CGM Funds they oversee,
and other directorships they hold are set forth below. Unless otherwise noted
below, the address of each interested trustee and officer is One International
Place, Boston, Massachusetts 02110. Correspondence intended for the trustees
who are not "interested persons" of the Trust may be sent c/o Capital Growth
Management, One International Place, Boston, Massachusetts 02110.
The Statement of Additional Information for the Fund includes additional
information about Fund trustees and is available, without charge, upon request
by calling the CGM Marketing Department, toll free, at 800-345-4048.
PRINCIPAL NUMBER OF
OCCUPATION FUNDS IN THE
DURING PAST CGM FUNDS
POSITION HELD AND 5 YEARS AND OTHER COMPLEX
NAME, ADDRESS AND AGE LENGTH OF TIME SERVED DIRECTORSHIPS HELD OVERSEEN
- --------------------- --------------------- ------------------ ------------
INTERESTED TRUSTEES
G. Kenneth Heebner* Trustee since 1993 Co-founder and Employee, 4
age 65 CGM; Controlling Owner,
Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* Trustee since 1990 Co-founder and Employee, 4
age 73 CGM; Non-voting Owner,
Kenbob, Inc. (general
partner of CGM)
DISINTERESTED TRUSTEES
Peter O. Brown Trustee since 1993 Counsel (formerly, 4
age 65 Partner), Harter, Secrest
& Emery LLP (law firm);
Trustee, TT International
U.S.A. Master and Feeder
Trusts (four mutual
funds)
Mark W. Holland Trustee since 2004 President, Wellesley 4
age 56 Financial Advisors, LLC;
formerly Vice President
and Chief Operating
Officer, Fixed Income
Management, Loomis,
Sayles & Company, L.P.;
formerly Director,
Loomis, Sayles & Company,
L.P.
Laurens MacLure Trustee since 1990 Retired; formerly 4
age 80 President and Chief
Executive Officer, New
England Deaconess
Hospital; formerly
Trustee, New England
Zenith Fund; formerly
Director, Massachusetts
Blue Cross/Blue Shield
James Van Dyke Quereau, Jr. Trustee since 1993 Managing Partner and 4
age 57 Director, Stratton
Management Company
(investment management);
Director and Vice
President, Semper Trust
Co.
J. Baur Whittlesey Trustee since 1990 Member, Ledgewood Law 4
age 59 Firm, P.C.
OFFICERS
G. Kenneth Heebner* Vice President since 1990 Co-founder and Employee, 4
age 65 CGM; Controlling Owner,
Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* President since 1990 Co-founder and Employee, 4
age 73 CGM; Non-voting Owner,
Kenbob, Inc. (general
partner of CGM)
David C. Fietze* Chief Compliance Officer Employee - Legal counsel, 4
age 36 since 2004 CGM; formerly counsel,
address: Bartlett Hackett
222 Berkeley Street, Feinberg, P.C.; formerly
Boston, Massachusetts counsel, McLane, Graf,
02116 Raulerson & Middleton
Kathleen S. Haughton* Vice President since 1992 Employee - Investor 4
age 45 and Anti-Money Laundering Services Division, CGM
address: Compliance Officer since 2002
222 Berkeley Street,
Boston, Massachusetts
02116
Jem A. Hudgins* Treasurer since 2004 Employee - CGM; formerly 4
age 42 Vice President - Tax and
Treasury, AEW Capital
Management L.P.
Leslie A. Lake* Vice President and Secretary Employee - Office 4
age 60 since 1992 Administrator, CGM
Martha I. Maguire* Vice President since 1994 Employee - Funds 4
age 50 Marketing, CGM
Employee - Portfolio 4
Mary L. Stone* Assistant Vice President Transactions, CGM
age 61 since 1990
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
- --------------------------------------------------
TELEPHONE NUMBERS
For information about:
[ ] Account Procedures and Status
[ ] Redemptions
[ ] Exchanges
Call 800-343-5678
[ ] New Account Procedures
[ ] Prospectuses
[ ] Performance
[ ] Proxy Voting Policies and Voting Records
[ ] Complete Schedule of Portfolio Holdings for the
1st & 3rd Quarters (as filed on Form N-Q)
Call 800-345-4048
- --------------------------------------------------
MAILING ADDRESS
CGM Shareholder Services
c/o Boston Financial Data Services
P.O. Box 8511 Boston, MA 02266-8511
- --------------------------------------------------
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.
FFAR 05 Printed in U.S.A.
ITEM 2. CODE OF ETHICS.
CGM Trust has adopted a code of ethics that applies to the registrant's
principal executive officer and principal financial officer (the "Code"). The
Code is filed herewith as Exhibit 99.CODE ETH. There were no amendments to the
Code required to be disclosed in response to this Item 2 during the fiscal year
ended December 31, 2005. There were no waivers or implicit waivers from the Code
granted by the registrant during the fiscal year ended December 31, 2005.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Trust's Board of Trustees has determined that it has at least one audit
committee financial expert serving on its audit committee. The name of the audit
committee financial expert is James Van Dyke Quereau, Jr. James Van Dyke
Quereau, Jr. is "independent" as defined in in Item 3(a)(2) of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fee: The aggregate fees billed for each of the last two fiscal
years for professional services rendered by the principal
accountant for the audit of CGM Trust's annual financial
statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings
or engagements are the following: 2004 - $80,250 and 2005 -
$80,250.
(b) Audit-Related Fees: The aggregate fees billed in each of the last
two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the
performance of the audit of CGM Trust's financial statements and
are not reported under paragraph (a) of this Item are the
following: 2004 - $0 and 2005 - $0.
(c) Tax Fees: The aggregate fees billed in each of the last two fiscal
years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning are
the following: 2004 - $11,000 and 2005 - $11,000. The nature of
the services comprising the fees disclosed under this category
is tax compliance services related to the preparation and review
of federal income and excise tax returns and review of excise
tax distribution requirements.
(d) All Other Fees: The aggregate fees billed in each of the last two
fiscal years for products and services provided by the principal
accountant, other than the services reported in paragraphs (a)
through (c) of this Item are the following: 2004 - $0 and 2005 -
$0.
(e) (1) The Trustees Committees of the Boards of Trustees of the CGM
Trust and CGM Capital Development Fund (the "Trustees
Committees")are required to pre-approve (i)all audit services,
tax services and permitted non-audit services provided by
PricewaterhouseCoopers LLP or any other independent public
accountant engaged by the CGM Trust and the CGM Capital
Development Fund(the "Trusts") and (ii)any engagement of
PricewaterhouseCoopers LLP to provide non-audit services to (a)
Capital Growth Management Limited Partnership ("CGM"), and (b)
any entity controlling, controlled by, or under common control
with CGM that provides ongoing services to the Trusts if the
engagement relates directly to the operations and financial
reporting of the Trusts. The Trustees Committees generally
review each necessary pre-approval on a case by base basis.
However, the Trustees Committees have authorized the President
or Treasurer of each of the CGM Trust, on behalf of its series,
and the CGM Capital Development Fund (collectively with the
series of the CGM Trust, the "Funds") to incur additional fees
totaling in the aggregate not more than $7,500.00 for services
relating to the audit of the Funds for the fiscal year ended
December 31, 2005, the close-out of the 2005 accounts,
calculation of year-end dividends, and/or related tax or
accounting matters.
(2) 0% of services described in each of paragraphs (b) through (d)
of this Item were approved by the audit committee pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) The aggregate non-audit fees billed by CGM Trust's accountant for
services rendered to (i)CGM Trust, (ii)CGM, and (iii)any entity
controlling, controlled by, or under common control with CGM that
provides ongoing services to the CGM Trust for each of the last two
fiscal years of the CGM Trust are the following: 2004 - $11,000 and
2005 - $11,000.
(h) There were no non-audit services that were rendered to the CGM or
any entity controlling, controlled by, or under common control with
CGM that provides ongoing services to the CGM Trust that were not
pre-approved pursuant to paragraph (c)(7)(ii) or Rule 2-01 of
Regulation S-X, thus no consideration by the Trustees Committees was
necessary to determine if services were compatible with maintaining
the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable. Investments in securities of unaffiliated issuers as of
December 31, 2005, as set forth in 210.12-12 of Regulation S-X,are included as
part of the report to shareholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
As described in the CGM Trust's most recent proxy statement on Schedule 14A
filed on September 24, 2004, the CGM Trust does not have a formal policy for
considering any trustee candidates recommended by shareholders.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the CGM Trust's disclosure controls and
procedures within 90 days of the filing of this Form N-CSR, the principal
executive officer and principal financial officer of CGM Trust have concluded
that the CGM Trust's disclosure controls and procedures are effective to provide
reasonable assurance that information required to be disclosed by the CGM Trust
on Form N-CSR and Form N-Q is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
(b) There were no changes in CGM Trust's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the
CGM Trust's last fiscal quarter of the period covered by this report.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics described in Item 2 is attached hereto as EX-99.CODE ETH.
(a)(2) Certifications for each principal executive officer and principal
financial officer of the registrant as required by Rule 30a-2(a) under the
Investment Company Act of 1940 are attached hereto as EX-99.CERT.
(b) Certifications for each principal executive officer and principal financial
officer of the registrant as required by Rule 30a-2(b) under the Investment
Company Act of 1940 are attached hereto as EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CGM Trust
By: /S/Robert L. Kemp
Robert L. Kemp
President
Principal Executive Officer
Date: February 22, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /S/ Robert L. Kemp
Robert L. Kemp
President
Principal Executive Officer
Date: February 22, 2006
By: /S/ Jem A. Hudgins
Jem A. Hudgins
CFO & Treasurer
Principal Financial Officer
Date: February 22, 2006