EX-99.CODE ETH
CGM FOCUS FUND
CGM REALTY FUND
CGM MUTUAL FUND
CGM CAPITAL DEVELOPMENT FUND
(Each a "Fund," collectively the "Funds")
CODE OF ETHICS UNDER THE SARBANES-OXLEY ACT
I. INTRODUCTION
The Board of Trustees of the Funds has established this Code of Ethics (the
"Code") in accordance with the Sarbanes-Oxley Act of 2002 and the rules
promulgated thereunder. This Code does not supersede or otherwise affect the
separate codes of ethics that the Funds and the investment adviser of the Funds
have adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940, as
amended, and Rule 204A-1 under the Investment Advisers Act of 1940, as amended.
This Code is designed to deter wrongdoing and promote:
(i) honest and ethical conduct, including the ethical handling of
actual or apparent conflicts of interest between personal and
professional relationships;
(ii) full, fair, accurate, timely, and understandable disclosure in
reports and documents that the Funds file with, or submit to,
the Securities and Exchange Commission ("SEC") and in other
public communications made by the Funds;
(iii) compliance with applicable governmental laws, rules, and
regulations;
(iv) the prompt internal reporting of violations of the Code to an
appropriate person or persons; and
(v) accountability for adherence to the Code.
The Code applies to the Funds' principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed by the
Funds or a third party (collectively, "Covered Officers," each of whom is set
forth in Exhibit A). For the purposes of this Code, the Review Officer is David
Fietze.
II. PRINCIPLES OF HONEST AND ETHICAL CONDUCT
A. General Objectives
The Funds expect their Covered Officers to adhere to the highest possible
standards of honest and ethical conduct. All Covered Officers are expected to
handle actual or apparent conflicts of interest between personal and
professional relationships in a manner that is above reproach, and to place the
interests of the Funds above their own personal interests.
B. Conflicts of Interest
All Covered Officers should be scrupulous in avoiding a conflict of interest
with regard to the Funds' interests. A conflict of interest occurs when an
individual's private interest interferes in any way -- or even appears to
interfere -- with the interests of a Fund. A conflict situation can arise when a
Covered Officer takes actions or has interests that may make it difficult to
perform his or her work for a Fund objectively and effectively. Conflicts of
interest also arise when a Covered Officer, or a member of his or her family,
receives improper benefits as a result of his or her position with the Funds,
whether such benefits are received from the Funds or a third party. ANY CONFLICT
OF INTEREST THAT ARISES IN A SPECIFIC SITUATION OR TRANSACTION MUST BE DISCLOSED
BY THE COVERED OFFICER TO THE REVIEW OFFICER AND RESOLVED BEFORE TAKING ANY
ACTION.
Conflicts of interest may not always be evident, and Covered Officers should
consult with the Review Officer or the Funds' legal counsel if they are
uncertain about any situation.
Examples of possible conflicts of interest include:
1. Outside Employment or Activities
Covered Officers may not engage in any outside employment or activity that
interferes with their performance or responsibilities to the Funds or is
otherwise in conflict with or prejudicial to the Funds. A Covered Officer must
disclose to the Review Officer any outside employment or activity that may
constitute a conflict of interest and obtain the Review Officer's approval
before engaging in any such employment or activity.
2. Gifts
Covered Officers may not accept gifts or other items of more than $250. value
annually from any person or entity that does business with or on behalf of the
Funds.
3. Other Situations
Because other conflicts of interest may arise, it would be impractical to
attempt to list all possible situations in this Code. If a proposed transaction
or situation raises any questions or doubts, a Covered Officer should consult
with the Review Officer or the Funds' counsel before engaging in the transaction
or activity.
C. Corporate Opportunities
Covered Officers may not exploit for their own personal gain, or for the
personal gain of their family members or relatives, opportunities that are
discovered through the use of Fund property, information, or position, unless
the opportunity is first disclosed fully in writing to the Board of Trustees and
the Board of Trustees declines to pursue such opportunity.
III. FULL, FAIR, ACCURATE, TIMELY, AND UNDERSTANDABLE DISCLOSURE IN FUND
DISCLOSURE AND REPORTING DOCUMENTS
As a registered investment company, it is of critical importance that each
Fund's public communications, reports, and SEC filings contain full, fair,
accurate, timely, and understandable disclosure. Accordingly, the Funds' Covered
Officers are expected to consider it central to their roles as officers of the
Funds to promote full, fair, accurate, timely, and understandable disclosure in
the Funds' public communications and reports, and in the documents that the
Funds file with, or submit to, the SEC.
Depending on his or her position with the Funds, a Covered Officer may be called
upon to provide necessary information to make the Funds' public reports,
communications, and SEC filings and submissions complete, fair, and
understandable. The Funds expect their Covered Officers to take this
responsibility very seriously and to provide prompt and accurate answers to
inquiries related to the Funds' public disclosure requirements. Covered Officers
may be asked to certify the accuracy of all responses and information provided
for inclusion in the Funds' public reports, communications, and SEC filings and
submissions.
IV. COMPLIANCE WITH APPLICABLE GOVERNMENTAL RULES AND REGULATIONS
As a registered investment company, each Fund is subject to regulation by the
SEC and must comply with Federal securities laws and regulations, as well as
other applicable laws. The Funds insist on strict compliance with the spirit and
the letter of these laws and regulations. Each Covered Officer shall cooperate
with the Funds' counsel, the Funds' independent accountants, and the Funds'
other service providers with the goal of maintaining the Funds' material
compliance with applicable governmental rules and regulations.
The Funds expect their Covered Officers to comply with all laws, rules, and
regulations applicable to the Funds' operations and business. Covered Officers
should seek guidance whenever they are in doubt as to the applicability of any
law, rule, or regulation, or regarding any contemplated course of action.
Covered Officers should also make use of the various guidelines which the Funds
and their service providers have prepared on specific laws and regulations. If
in doubt on a course of action, a good guideline is "always ask first, act
later" -- if you are unsure of what to do in any situation, seek guidance before
you act.
Upon obtaining knowledge of any material violation of any applicable law, rule,
or regulation by a Fund or a person acting with or on behalf of a Fund, a
Covered Officer shall report such violation to the Review Officer, the Funds'
counsel, or both. (See Section VI of the Code for a discussion of reporting Code
violations.) Each Covered Officer shall cooperate or take such steps as may be
necessary or appropriate to remedy any such material violation.
V. CONFIDENTIALITY
The Funds' Covered Officers must maintain the confidentiality of information
entrusted to them by the Funds, except when disclosure is authorized by the
Funds' counsel or required by laws or regulations. Whenever possible, Covered
Officers should consult with the Funds' counsel if they believe they have a
legal obligation to disclose confidential information. Confidential information
includes all non-public information that might be of use to competitors or
harmful to the Funds or their shareholders if disclosed. The obligation to
preserve confidential information continues even after employment as a Covered
Officer ends.
VI. PROMPT INTERNAL REPORTING OF VIOLATIONS OF THE CODE; EVALUATION OF
POSSIBLE VIOLATIONS; DETERMINATION OF SANCTIONS
A. Reporting to Review Officer. The Funds' Covered Officers shall
promptly report knowledge of, or information concerning, any
material violation of this Code to the Review Officer. Any such
report shall be in writing, and shall describe in reasonable
detail the conduct that such Covered Officer believes to have
violated this Code. The Review Officer shall also have the
authority to draft a report of a suspected material violation of
the Code, if no written report is made by a Covered Officer.
B. Evaluation of Reports. The Review Officer shall then consult
with the Funds' counsel to the extent necessary to determine
whether the reported conduct actually violates the Code. If it
is determined that there has been a violation of the Code, the
Review Officer will determine (in consultation with the Funds'
counsel) whether the violation has had or may have, in the
reasonable judgment of the Review Officer, a material adverse
impact upon a Fund.
1. No Material Adverse Impact on a Fund. If the Review Officer
determines that the violation has not caused a material
adverse impact upon a Fund, the Review Officer shall
determine what sanctions, if any, may be appropriate for the
violation. (See Section VIII of the Code for a discussion of
possible sanctions.)
2. Material Adverse Impact on a Fund. If the Review Officer
determines that the violation has caused a material adverse
impact upon a Fund, the Review Officer shall promptly notify
the Board of such violation. The Board shall be entitled to
consult with independent legal counsel to determine whether
the violation actually has had a material adverse impact
upon a Fund; to formulate sanctions, if any, appropriate for
the violation; or for any other purpose that the Board, in
its business judgment, determines to be necessary or
advisable. (See Section VIII of the Code for a discussion of
possible sanctions.)
C. Periodic Reports by Review Officer to Board of Trustees. The
Review Officer shall report to the Board at each regularly
scheduled Board meeting all violations of this Code with respect
to the Funds (whether or not they caused a material adverse
impact upon a Fund) and all sanctions imposed.
VII. WAIVERS OF PROVISIONS OF THE CODE
A. Waivers. A Covered Officer may request a waiver of a provision
of this Code if there is a reasonable likelihood that a
contemplated action would be a material departure from a
provision of the Code. Waivers will not be granted except under
extraordinary or special circumstances.
The process of requesting a waiver shall consist of the
following steps:
a. The Covered Officer shall set forth a request for waiver in
writing and submit such request to the Review Officer. The
request shall describe the conduct, activity, or transaction
for which the Covered Officer seeks a waiver, and shall
briefly explain the reason for engaging in the conduct,
activity, or transaction.
b. The determination with respect to the waiver shall be made
in a timely fashion by the Review Officer, in consultation
with Funds' counsel, and submitted to the Board for
ratification.
c. The decision with respect to the waiver request shall be
documented and kept in the Funds' records for the
appropriate period mandated by applicable law or regulation.
B. Disclosure of Waivers. To the extent required by applicable law,
waivers (including "implicit waivers") shall be publicly
disclosed on a timely basis. An "implicit waiver" is defined as
the Funds' failure to take action within a reasonable period of
time regarding a material departure from a provision of the Code
that has been made known to an "executive officer" of the Funds.
For this purpose, an "executive officer" is the Funds' President
or Chief Executive Officer, Vice President (who is in charge of
a principal policymaking function), or any other person who
performs similar policymaking functions for the Funds. For the
purpose of determining whether an "implicit waiver" has
occurred, if a material departure from a provision of the Code
is known only by the Covered Officer who has caused the material
departure, the material departure will not be considered to have
been made known to an executive officer of the Funds.
VIII. ACCOUNTABILITY FOR ADHERENCE TO THE CODE
The matters covered in this Code are of the utmost importance to the Funds and
their shareholders, and are essential to the Funds' ability to conduct their
business in accordance with their stated values. The Funds' Covered Officers are
expected to adhere to these rules in carrying out their duties for the Funds.
The Funds will, if appropriate, take action against any of their Covered
Officers whose actions are found to violate this Code. Sanctions for violations
of the Code may include, among other things, a requirement that the violator
undergo training related to the violation, a letter of sanction, the imposition
of a monetary penalty, and/or suspension or termination of the employment of the
violator. Where a Fund has suffered a loss because of violations of this Code or
applicable laws, regulations, or rules, it may pursue its remedies against the
individuals or entities responsible.
IX. RECORDKEEPING
A. General. Each Fund requires accurate recording and reporting of
information in order to make responsible business decisions. Each Fund's books,
records, accounts and financial statements must be maintained in reasonable
detail, must appropriately reflect the Fund's transactions, and must conform
both to applicable legal requirements and to the Fund's system of internal
controls.
B. Code of Ethics Records. A copy of this Code, any amendments hereto,
and any reports or other records created in relation to waivers of or amendments
to provisions of this Code shall be kept as records of the Funds for six years
from the end of the fiscal year in which such document was created. Such records
shall be furnished to the SEC or its staff upon request.
X. AMENDMENTS TO THE CODE
The Covered Officers and the Review Officer are encouraged to recommend
improvements to this Code to the Board of Trustees. The Funds' Board may amend
the Code in its discretion with respect to the Funds. In connection with any
amendment to the Code, the Review Officer shall prepare a brief description of
the amendment, in order that this description may be disclosed in accordance
with applicable law and regulations. Any amendment requires the approval of a
majority of the independent members of the Board as well as a majority of the
overall Board.
Dated: October 27, 2005.
EXHIBIT A
COVERED OFFICERS
Principal Executive Officer Robert L. Kemp (President)
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Principal Financial Officer Jem Hudgins (Treasurer)
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