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, 2006
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Date of reporting period: December 31, 2006
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ITEM 1. REPORTS TO STOCKHOLDERS.
CGM
MUTUAL FUND
77th Annual Report
December 31, 2006
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS:
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CGM Mutual Fund increased 3.1% during the fourth quarter of 2006 compared to
the unmanaged Standard and Poor's 500 Index which returned 6.7% and the
Merrill Lynch Master Bond Index which grew 1.2%. For the year just ended, CGM
Mutual Fund returned 5.5%, the unmanaged S&P 500 Index increased 15.8% and the
Merrill Lynch Master Bond Index returned 4.3%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
2006 was another year of economic expansion with November marking the fifth
anniversary of the start of the current growth cycle. The year took off with a
bang with real Gross Domestic Product jumping by 5.6% (annualized) in the
first quarter, but GDP growth slowed significantly to a 2.0% rate (annualized)
by the third quarter. Two sectors were largely responsible for putting on the
economic brakes: First, the American auto industry continues to lose market
share and is increasingly forced to cut back in order to compete with foreign
brands. Second, after four years of booming business and unsustainably
spiraling prices, in our view, the homebuilding industry is feeling the pinch,
curiously though, in spite of low unemployment and relatively low interest
rates. Downturns in these two major industries notwithstanding, the US economy
added 140,000 jobs per month in 2006 with the largest gains coming in the
health and service sectors.
The Federal Reserve Board ratcheted up the Federal Funds rate from 1% in June
of 2004 to 5.25% in June of 2006 in an attempt to slow the economy and ward
off inflation. We believe the Fed's plan seems to be working since core
inflation (ex food and energy) clocked in at a growth rate of 2.2%
(annualized) over the past three months, down from 3.5% (annualized) in July.
Four consecutive meetings of the Fed have come and gone since its last rate
hike and the long term (ten-year) treasury yield has declined from 5.1% in
June 2006 to 4.7% at year end. We are still experiencing the "inverted yield
curve," we described in our last report and, though this state of affairs when
short-term interest rates exceed long-term interest rates is often considered
a harbinger of recession, we believe otherwise. Vital signs, most notably the
strength of employment numbers, a recovery in Consumer Confidence and the fact
that weakness in the housing industry hasn't spread to other businesses, in
our opinion, point to continued growth at a modest rate.
From January 3, 2006 until early May of 2006, the US equity market as measured
by the S&P 500 Index rose 6% from 1,248 to 1,325. The S&P dropped 7.5% to
1,225 in mid-June and then, gradually climbed 16% exclusive of dividends over
the remaining months to 1,418 at year end. Given year-end profit levels, the
S&P 500 Index was priced about 16 times earnings of the Index at the end of
2006, which seems to us quite reasonable in light of current inflation and
long term interest rates.
PORTFOLIO STRATEGY
In 2006, the equity position of CGM Mutual Fund ranged between 60% and 73% of
the Fund's total net assets, which reflected our belief in continued worldwide
economic growth.
A significant portion of the Fund's equity portfolio during 2006 was invested
in energy-related securities, which represented 16% of total Fund net assets
on December 31, 2005 and grew to 36% of total Fund net assets on June 30, 2006
through a combination of purchases and stock appreciation. We maintained that
position in anticipation of continued increases in oil and gas prices. Indeed,
the price of oil rose from $60 per barrel in January 2006 to $78 a barrel in
July, but then, fell abruptly to under $60 in September. The value of the
portfolio's energy-related stocks declined significantly along with the cost
of oil and the position was reduced to 15.6% of total Fund net assets at the
end of September and to 10% by year end. As a result, the Fund underperformed
the unmanaged Standard and Poor's 500 Index by 9.6% during the third quarter
of the year which had a significant negative impact on the Fund's overall 2006
performance
During 2006, CGM Mutual Fund also owned a number of metals and mining stocks
which generated modest gains. Additionally, we established a position in
brokerage and investment bankers during the second half of the year which
represented 20% of the Fund's total net assets at year end.
The Fund's fixed income component ranged from 27% to 40% of total net assets
throughout the year and was invested exclusively in U.S. Treasury Bills.
At year end, CGM Mutual Fund's fixed income exposure was 27% of total net
assets. In the equity portion of the portfolio on December 31, 2006, the three
largest positions were in the brokerage and investment services, oil service
and money center banking industries. The Fund's three largest holdings were
The Goldman Sachs Group, Inc., Morgan Stanley and Deere & Company.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 3, 2007
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 12/31/06
- ----------------------------
1 year 5 year 10 year
5.5% 9.3% 5.6%
- ----------------------------
Past performance is no
indication of future results
- ----------------------------
Unmanaged
CGM S&P 500 Merrill Lynch
Mutual Fund Index Master Bond Index
-----------------------------------------------------------
Start $10,000 $10,000 $10,000
1997 10,820 13,340 10,970
1998 11,707 17,155 11,946
1999 14,107 20,758 11,827
2000 12,471 18,869 13,211
2001 11,024 16,624 14,308
2002 9,161 12,950 15,796
2003 12,798 16,667 16,444
2004 14,193 18,484 17,151
2005 16,265 19,390 17,597
2006 17,160 22,454 18,354
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 pages 3 and 4 for the percentage of net
assets of the Fund invested in particular industries or securities as
of December 31, 2006.
INVESTMENT PERFORMANCE
(unaudited)
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Cumulative Total Return for Periods Ended
December 31, 2006
CGM
MUTUAL FUND
-----------
10 Years ....................................................... +71.7%
5 Years ....................................................... +55.8
1 Year ........................................................ + 5.5
3 Months ...................................................... + 3.1
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, 2006 would have been lower.
CGM MUTUAL FUND
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INVESTMENTS AS OF DECEMBER 31, 2006
COMMON STOCKS -- 72.9% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
AIRLINES -- 2.2%
Gol Linhas Aereas Inteligentes S.A. ADR (b) .................................. 380,000 $ 10,894,600
------------
BANKS - MONEY CENTER -- 7.5%
Bank of America Corporation .................................................. 480,000 25,627,200
Citigroup Inc. ............................................................... 220,000 12,254,000
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37,881,200
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BROKERAGE/INVESTMENT SERVICES -- 20.2%
Lehman Brothers Holdings Inc. ................................................ 225,000 17,577,000
Merrill Lynch & Co., Inc. .................................................... 285,000 26,533,500
Morgan Stanley ............................................................... 345,000 28,093,350
The Goldman Sachs Group, Inc. ................................................ 150,000 29,902,500
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102,106,350
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BUSINESS SERVICES -- 5.3%
CB Richard Ellis Group, Inc. (c) ............................................. 810,000 26,892,000
------------
DRUGS -- 4.4%
Allergan, Inc. ............................................................... 185,000 22,151,900
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FINANCIAL SERVICES -- 5.5%
MasterCard Incorporated ...................................................... 280,000 27,577,200
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HEAVY CAPITAL GOODS -- 2.9%
Cummins, Inc. ................................................................ 125,000 14,772,500
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MACHINERY -- 5.6%
Deere & Company .............................................................. 295,000 28,045,650
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METALS AND MINING -- 4.0%
Companhia Vale Do Rio Doce ADR (b) ........................................... 680,000 20,223,200
------------
MISCELLANEOUS -- 2.6%
Nike, Inc. ................................................................... 134,000 13,270,020
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OFFSHORE DRILLING -- 1.1%
Transocean, Inc. (c) ......................................................... 67,000 5,419,630
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OIL SERVICE -- 8.9%
Baker Hughes Incorporated .................................................... 320,000 23,891,200
Schlumberger Limited ......................................................... 335,000 21,158,600
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45,049,800
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TELEPHONE -- 2.7%
AT&T, Inc. ................................................................... 380,000 13,585,000
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TOTAL COMMON STOCKS (Identified Cost $348,013,357) ............................. 367,869,050
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BILLS -- 26.7% OF TOTAL NET ASSETS
FACE
AMOUNT
------
UNITED STATES TREASURY -- 26.7%
United States Treasury Bills, 3.592%, 01/04/07 ............................... $20,000,000 $ 19,992,033
United States Treasury Bills, 3.646%, 01/04/07 ............................... 5,500,000 5,497,773
United States Treasury Bills, 4.638%, 03/01/07 ............................... 23,400,000 23,220,522
United States Treasury Bills, 4.684%, 03/15/07 ............................... 65,000,000 64,380,160
United States Treasury Bills, 4.788%, 01/25/07 ............................... 5,000,000 4,983,433
United States Treasury Bills, 4.839%, 02/08/07 ............................... 4,000,000 3,979,142
United States Treasury Bills, 4.842%, 02/22/07 ............................... 7,500,000 7,446,917
United States Treasury Bills, 4.863%, 02/15/07 ............................... 5,500,000 5,466,037
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TOTAL BILLS (Identified Cost $134,947,222) ..................................... 134,966,017
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SHORT-TERM INVESTMENT -- 0.4% OF TOTAL NET ASSETS
American Express Credit Corporation, 5.26%, 01/02/07 (Cost $1,920,000) ....... 1,920,000 1,920,000
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TOTAL INVESTMENTS -- 100.0% (Identified Cost $484,880,579) .................................... 504,755,067
Cash and receivables ........................................................................ 13,187,989
Liabilities ................................................................................. (13,368,822)
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TOTAL NET ASSETS -- 100.0% .................................................................... $504,574,234
============
(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.
See accompanying notes to financial statements.
CGM MUTUAL FUND
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STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
ASSETS
Investments at value (Identified
cost $484,880,579) ........................................... $504,755,067
Cash .......................................................... 3,033
Receivable for:
Securities sold ............................... $12,952,087
Shares of the Fund sold ....................... 14,270
Dividends and interest ........................ 218,599 13,184,956
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Total assets ............................................ 517,943,056
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LIABILITIES
Payable for:
Securities purchased .......................... 12,315,358
Shares of the Fund redeemed ................... 497,879
Distributions declared ........................ (2,639) 12,810,598
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Accrued expenses:
Management fees ............................... 387,749
Trustees' fees ................................ 12,184
Accounting, Administration and Compliance
expenses ..................................... 7,873
Transfer agent fees ........................... 80,861
Other expenses ................................ 69,557 558,224
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Total liabilities ....................................... 13,368,822
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NET ASSETS .................................................... $504,574,234
============
Net Assets consist of:
Capital paid-in ............................................. $484,699,746
Net unrealized appreciation on investments .................. 19,874,488
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NET ASSETS .................................................... $504,574,234
============
Shares of beneficial interest outstanding, no par value ....... 18,162,578
============
Net asset value per share* .................................... $27.78
======
* Shares of the Fund are sold and redeemed at net asset value
($504,574,234 / 18,162,578).
See accompanying notes to financial statements.
CGM MUTUAL FUND
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STATEMENT OF OPERATIONS
Year Ended December 31, 2006
INVESTMENT INCOME
Income:
Dividends (net of withholding tax of $53,390) ............. $ 5,514,669
Interest .................................................. 8,176,297
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13,690,966
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Expenses:
Management fees ........................................... 4,676,673
Trustees' fees ............................................ 57,006
Accounting, Administration and Compliance expenses ........ 94,481
Custodian fees and expenses ............................... 105,756
Transfer agent fees ....................................... 500,860
Audit and tax services .................................... 35,800
Legal ..................................................... 23,743
Printing .................................................. 72,081
Registration fees ......................................... 26,378
Miscellaneous expenses .................................... 2,614
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5,595,392
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Net investment income ....................................... 8,095,574
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gains on investments and foreign currency
transactions ............................................. 21,496,524
Net unrealized depreciation ............................... (1,483,721)
------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions ........................ 20,012,803
------------
CHANGE IN NET ASSETS FROM OPERATIONS ........................ $ 28,108,377
============
See accompanying notes to financial statements.
CGM MUTUAL FUND
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STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
-----------------------------
2006 2005
------------ ------------
OPERATIONS
Net investment income ........................................................... $ 8,095,574 $ 5,497,121
Net realized gains from investments and foreign currency transactions ........... 21,496,524 80,829,927
Net unrealized depreciation ..................................................... (1,483,721) (17,869,171)
------------ ------------
Change in net assets from operations .......................................... 28,108,377 68,457,877
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ...................................................... (7,978,514) (5,573,344)
Net short-term realized capital gains on investments ............................ (20,947,527) --
Net long-term realized capital gains on investments ............................. -- (14,846,567)
------------ ------------
(28,926,041) (20,419,911)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares .................................................... 15,755,750 17,461,378
Net asset value of shares issued in connection with reinvestment of:
Dividends from net investment income .......................................... 7,057,743 4,911,392
Distributions from net short-term realized capital gains on investments ....... 19,051,989 --
Distributions from net long-term realized capital gains on investments ........ -- 13,467,340
------------ ------------
41,865,482 35,840,110
Cost of shares redeemed ......................................................... (51,085,253) (50,709,410)
------------ ------------
Change in net assets derived from capital share transactions .................. (9,219,771) (14,869,300)
------------ ------------
Total change in net assets ...................................................... (10,037,435) 33,168,666
NET ASSETS
Beginning of year ............................................................... 514,611,669 481,443,003
------------ ------------
End of the year ................................................................. $504,574,234 $514,611,669
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ...................................................... 540,144 638,159
Issued in connection with reinvestment of:
Dividends from net investment income .......................................... 243,191 177,340
Distributions from net short-term realized capital gains on investments ....... 682,622 --
Distributions from net long-term realized capital gains on investments ........ -- 482,182
------------ ------------
1,465,957 1,297,681
Redeemed ........................................................................ (1,752,991) (1,858,000)
------------ ------------
Net change ...................................................................... (287,034) (560,319)
============ ============
See accompanying notes to financial statements.
CGM MUTUAL FUND
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FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2006 2005 2004 2003 2002
For a share of the Fund outstanding throughout each period:
Net asset value at the beginning of period ................ $27.89 $25.33 $23.00 $16.65 $20.47
------- ------- ------- ------- -------
Net investment income(a)(b) ............................... 0.45 0.30 0.16 0.23 0.26
Net realized and unrealized gain (loss) on investments and
foreign currency transactions ............................ 1.09 3.40 2.33 6.35 (3.67)
------- ------- ------- ------- -------
Total from investment operations .......................... 1.54 3.70 2.49 6.58 (3.41)
------- ------- ------- ------- -------
Dividends from net investment income ...................... (0.45) (0.31) (0.16) (0.23) (0.41)
Distribution from net short-term realized gains ........... (1.20) -- -- -- --
Distribution from net long-term realized gains ............ -- (0.83) -- -- --
------- ------- ------- ------- -------
Total Distributions ....................................... (1.65) (1.14) (0.16) (0.23) (0.41)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value ................ (0.11) 2.56 2.33 6.35 (3.82)
------- ------- ------- ------- -------
Net asset value at end of period .......................... $27.78 $27.89 $25.33 $23.00 $16.65
======= ======= ======= ======= =======
Total Return (%) .......................................... 5.5 14.6 10.9(c) 39.7(c) (16.9)
Ratios:
Operating expenses to average net assets (%) .............. 1.07 1.09 1.02 1.07 1.14
Operating expenses to average net assets
before management fee waiver (%) ......................... N/A N/A 1.11 1.17 N/A
Net investment income to average net assets (%) ........... 1.55 1.09 0.68 1.23 1.30
Portfolio turnover (%) .................................... 504 336 314 260 191
Net assets at end of period (in thousands) ($)............. 504,574 514,612 481,443 477,147 376,089
(a) Net of management fee waiver which amounted to ($) .... N/A N/A 0.02 0.02 N/A
(b) Per share net investment income has been calculated using the average shares outstanding during the period.
(c) 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, 2006
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 November 5, 1929. 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 a reduction to security 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, 2006, there were no capital loss carryovers available to
offset future realized gains.
As of December 31, 2006, the components of distributable earnings on a tax
basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED LONG-TERM NET UNREALIZED
ORDINARY INCOME CAPITAL GAINS APPRECIATION/(DEPRECIATION)
--------------- ----------------------- ---------------------------
$-- $-- $19,874,488
The identified cost of investments in securities owned by the Fund for
federal income tax purposes, and their respective gross unrealized
appreciation and depreciation at December 31, 2006 was as follows:
GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED
IDENTIFIED COST APPRECIATION DEPRECIATION APPRECIATION
--------------- ---------------- ---------------- --------------
$484,880,579 $23,178,962 $(3,304,474) $19,874,488
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.
The tax character of distributions paid during the period ended December 31,
2006, was as follows:
LONG-TERM
ORDINARY INCOME CAPITAL GAINS TOTAL
--------------- ------------- -----
$28,926,041 $-- $28,926,041
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. FOREIGN 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,
2006, purchases and sales of securities other than United States government
obligations and short-term investments aggregated $1,763,242,358 and
$1,761,136,068, respectively. There were no purchases or sales of long-term
United States government obligations.
4. A. MANAGEMENT FEES -- During the period ended December 31, 2006, the Fund
incurred management fees of $4,676,673, 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 $94,481, for the period ended December 31, 2006,
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, $73,580 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, 2006, 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. OTHER -- On July 13, 2006 the Financial Accounting Standards Board (FASB)
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income
Taxes" (FIN48). FIN 48 provides guidance for how uncertain tax positions
should be recognized, measured, presented and disclosed in the financial
statements. FIN 48 requires the evaluation of tax positions taken or expected
to be taken in the course of preparing the fund's tax returns to determine
whether the tax positions are "more likely than not" of being sustained by the
applicable tax authority. Tax positions not deemed to meet the more likely
than not threshold would be recorded as a tax benefit or expense in the
current year. Adoption of FIN 48 is required for the first financial statement
reporting period after June 29, 2007 and is to be applied to all open tax
years as of the effective date. At this time, management is evaluating the
implications of FIN 48 and its impact on the financial statements, if any, has
not yet been determined.
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, 2006, 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, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 14, 2007
CGM MUTUAL FUND
- -------------------------------------------------------------------------------
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,
2006 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, 2006 to December 31, 2006.
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*
7/01/06 12/31/06 7/01/06 - 12/31/06
- -------------------------------------------------------------------------------
Actual $1,000.00 $990.37 $5.37
- -------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000.00 $1,019.81 $5.45
- -------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.07%,
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, 1981 -- DECEMBER 31, 2006 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1981
- -----------------------------------------------------------------------------------------------------------------------------------
-- 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 1981 = 100.0
- -----------------------------------------------------------------------------------------------------------------------------------
1981 $13.90 100.0
1982 18.16 -- $ 1.09 $ 19.60 + 41.0% 141.0
1983 18.81 -- 1.09 21.54 + 9.9 155.0
1984 17.01 $ 1.86 0.95 22.90 + 6.3 164.8
1985 21.53 -- 1.08 30.80 + 34.5 221.7
1986 22.86 2.75 0.94 38.53 + 25.1 277.3
1987 20.40 4.52 1.06 43.81 + 13.7 315.3
1988 19.94 -- 1.10 45.21 + 3.2 325.4
1989 22.34 0.95 0.93 55.02 + 21.7 396.0
1990 21.64 -- 0.93* 55.63 + 1.1 400.4
1991 26.80 2.64 0.97 78.38 + 40.9 564.2
1992 26.02 1.42 0.93 83.16 + 6.1 598.6
1993 28.88 1.93 0.86 101.29 + 21.8 729.1
1994 25.05 -- 1.04 91.46 - 9.7 658.4
1995 29.43 0.89 0.77 113.68 + 24.3 818.4
1996 31.42 4.15 0.74 140.62 + 23.7 1012.4
1997 25.52 7.81 0.67 152.15 + 8.2 1095.4
1998 26.36 0.25 0.98 164.63 + 8.2 1185.2
1999 27.28 3.54 0.84 198.38 + 20.5 1428.2
2000 23.38 -- 0.73 175.37 - 11.6 1262.5
2001 20.47 -- 0.20 155.03 - 11.6 1116.1
2002 16.65 -- 0.41 128.83 - 16.9 927.5
2003 23.00 -- 0.23 179.98 + 39.7 1295.7
2004 25.33 -- 0.16 199.60 + 10.9 1436.9
2005 27.89 0.83 0.31 228.74 + 14.6 1646.7
2006 27.78 1.20 0.45 241.32 + 5.5 1737.3
------ ------ -------
Totals $34.74 $19.46 +1637.3
- -----------------------------------------------------------------------------------------------------------------------------------
* 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 on, and the principal value of, an investment in the Fund will fluctuate so that investors' shares, when redeemed,
may be worth more or less than the original cost. 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 12/31/2006
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, 2006, the Fund designated $43,768 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.
NUMBER OF
FUNDS IN THE
PRINCIPAL OCCUPATION DURING CGM FUNDS
POSITION HELD AND PAST 5 YEARS AND COMPLEX
NAME, ADDRESS AND AGE LENGTH OF TIME SERVED OTHER DIRECTORSHIPS HELD OVERSEEN
- --------------------- --------------------- --------------------------- ------------
INTERESTED TRUSTEES
G. Kenneth Heebner* Trustee since 1993 Co-founder and Employee, CGM; 4
age 66 Controlling Owner, Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* Trustee since 1990 Co-founder and Employee, CGM; Non-voting 4
age 74 Owner, Kenbob, Inc. (general partner of CGM)
DISINTERESTED TRUSTEES
Peter O. Brown Trustee since 1993 Counsel (formerly, Partner), Harter, 4
age 66 Secrest & Emery LLP (law firm); formerly
Executive Vice President and Chief
Operating Officer, The Glenmeade Trust
Company (from 1990 to 1993); formerly
Senior Vice President, J.P. Morgan Chase
Bank (from 1981 to 1990); Trustee, TT
International U.S.A. Master and Feeder
Trusts (four mutual funds) from
2000-2005
Mark W. Holland Trustee since 2004 President, Wellesley Financial Advisors, 4
age 57 LLC (since 2003); formerly Vice President
and Chief Operating Officer, Fixed
Income Management, Loomis, Sayles &
Company, L.P.; formerly Director, Loomis,
Sayles & Company, L.P. (from 1999 to
2002)
James Van Dyke Quereau, Jr. Trustee since 1993 Managing Partner and Director, Stratton 4
age 58 Management Company (investment
management); Director and Vice
President, Semper Trust Co.
J. Baur Whittlesey Trustee since 1990 Member, Ledgewood, P.C. (law firm) 4
age 60
OFFICERS
G. Kenneth Heebner* Vice President since 1990 Co-founder and Employee, CGM; 4
age 66 Controlling Owner, Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* President since 1990 Co-founder and Employee, CGM; Non-voting 4
age 74 Owner, Kenbob, Inc. (general partner of CGM)
David C. Fietze* Chief Compliance Officer Employee - Legal counsel, CGM; 4
age 37 since 2004 formerly counsel, Bartlett Hackett
address: Feinberg, P.C.
38 Newbury Street
Boston, Massachusetts
02116
Kathleen S. Haughton* Vice President since 1992 Employee - Investor Services Division, CGM 4
age 46 and Anti-Money
address: Laundering Compliance
38 Newbury Street Officer since 2002
Boston, Massachusetts
02116
Jem A. Hudgins* Treasurer since 2004 Employee - CGM 4
age 43
Leslie A. Lake* Vice President and Employee - Office Administrator, CGM 4
age 61 Secretary since 1992
Martha I. Maguire* Vice President since 1994 Employee - Funds Marketing, CGM 4
age 51
Mary L. Stone* Assistant Vice President Employee - Portfolio Transactions, CGM 4
age 62 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 02111
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 06 Printed in U.S.A.
CGM
REALTY FUND
13th Annual Report
December 31, 2006
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Realty Fund increased 9.8% during the fourth quarter of 2006 compared to
the unmanaged Standard and Poor's 500 Index which returned 6.7% and the FTSE
NAREIT U.S. Real Estate Equity REIT Index which grew 9.5%. For the year just
ended, CGM Realty Fund returned 29.0%, the unmanaged S&P 500 Index increased
15.8% and the FTSE NAREIT U.S. Real Estate Equity REIT Index returned 35.1%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
2006 was another year of economic expansion with November marking the fifth
anniversary of the start of the current growth cycle. The year took off with a
bang with real Gross Domestic Product jumping by 5.6% (annualized) in the
first quarter, but GDP growth slowed significantly to a 2.0% rate (annualized)
by the third quarter. Two sectors were largely responsible for putting on the
economic brakes: First, the American auto industry continues to lose market
share and is increasingly forced to cut back in order to compete with foreign
brands. Second, after four years of booming business and unsustainably
spiraling prices, in our view, the homebuilding industry is feeling the pinch,
curiously though, in spite of low unemployment and relatively low interest
rates. Downturns in these two major industries notwithstanding, the US economy
added 140,000 jobs per month in 2006 with the largest gains coming in the
health and service sectors.
The Federal Reserve Board ratcheted up the Federal Funds rate from 1% in June
of 2004 to 5.25% in June of 2006 in an attempt to slow the economy and ward
off inflation. We believe the Fed's plan seems to be working since core
inflation (ex food and energy) clocked in at a growth rate of 2.2%
(annualized) over the past three months, down from 3.5% (annualized) in July.
Four consecutive meetings of the Fed have come and gone since its last rate
hike and the long term (ten-year) treasury yield has declined from 5.1% in
June 2006 to 4.7% at year end. We are still experiencing the "inverted yield
curve," we described in our last report and, though this state of affairs when
short-term interest rates exceed long-term interest rates is often considered
a harbinger of recession, we believe otherwise. Vital signs, most notably the
strength of employment numbers, a recovery in Consumer Confidence and the fact
that weakness in the housing industry hasn't spread to other businesses, in
our opinion, point to continued growth at a modest rate.
From January 3, 2006 until early May of 2006, the US equity market as measured
by the S&P 500 Index rose 6% from 1,248 to 1,325. The S&P dropped 7.5% to 1,225
in mid-June and then, gradually climbed 16% exclusive of dividends over the
remaining months to 1,418 at year end. Given year-end profit levels, the S&P
500 Index was priced about 16 times earnings of the Index at the end of 2006,
which seems to us quite reasonable in light of current inflation and long term
interest rates.
PORTFOLIO STRATEGY
Real Estate Investment Trusts (REITs) were the dominant investment category in
the CGM Realty Fund portfolio in 2006 and accounted for between 69% and 85% of
Fund net assets throughout the year.
The Fund's investments in office and industrial REITs, which were concentrated
in markets with rising rents and declining vacancies, including New York City,
Washington, D.C. and Los Angeles, represented 11% of the total portfolio at
the beginning of the year and climbed to 30% of the portfolio at year end.
Apartment REITs increased from 11% of the portfolio in January 2006 to 35% of
the portfolio at year end in anticipation of rising rents in markets on both
coasts. The Fund's holdings in office REITs and apartment REITs had a positive
impact on Fund performance.
We began 2006 with nearly one third of the Fund invested in hotel REITs, but
virtually eliminated the position in the second half of the year as we
projected high room rates and profitability in many cities would lead to an
eventual increase in supply. By and large, hotel REIT holdings of the
portfolio returned mixed results.
Beyond the REIT universe, the Fund also invested in mining companies during
the year and sold them at a loss, while holdings in a commercial real estate
broker made a positive contribution to Fund performance in 2006.
At year end, CGM Realty Fund was 81% invested in REITs. The Fund's portfolio
was 35% invested in apartment REITS, 30% in office and industrial REITs and
16% in storage, hotel, retail and miscellaneous REITs. On December 31, 2006,
the Fund's three largest holdings were SL Green Realty Corp., CB Richard Ellis
Group, Inc., and Public Storage, Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 3, 2007
COMPARISONS OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CGM REALTY FUND, THE
UNMANAGED S&P 500 INDEX, AND THE FTSE NAREIT U.S. REAL ESTATE EQUITY REIT INDEX
assuming reinvestment of dividends and capital gains
- ----------------------------
CGM REALTY FUND
Average Annual Total Returns
through 12/31/06
- ----------------------------
1 year 5 year 10 year
29.0% 34.2% 19.8%
- ----------------------------
Past performance is no
indication of future results
- ----------------------------
Unmanaged FTSE NAREIT U.S.
CGM S&P 500 Real Estate
Realty Fund Index Equity REIT Index
-----------------------------------------------------------
Start $10,000 $10,000 $10,000
1997 12,670 13,340 12,030
1998 9,984 17,155 9,925
1999 10,244 20,758 9,468
2000 13,235 18,869 11,968
2001 13,910 16,624 13,632
2002 14,397 12,950 14,150
2003 27,311 16,667 19,400
2004 37,006 18,484 25,530
2005 46,998 19,390 28,645
2006 60,627 22,454 38,699
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 pages 3 and 4 for the percentage of net
assets of the Fund invested in particular industries or securities as of
December 31, 2006.
INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Cumulative Total Return for Periods
Ended December 31, 2006
CGM
REALTY FUND
-----------
10 Years ....................................................... +507.0%
5 Years ....................................................... +336.0
1 Year ........................................................ + 29.0
3 Months ...................................................... + 9.8
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, 2006
COMMON STOCKS -- 98.7% OF TOTAL NET ASSETS
REAL ESTATE INVESTMENT TRUSTS -- 81.3%
SHARES VALUE(a)
------ --------
APARTMENTS -- 34.9%
Apartment Investment and Management Company .................................. 1,355,000 $ 75,907,100
Archstone-Smith Trust ........................................................ 1,210,000 70,434,100
AvalonBay Communities, Inc. .................................................. 585,400 76,131,270
BRE Properties, Inc. ......................................................... 1,200,000 78,024,000
Equity Residential ........................................................... 1,420,000 72,065,000
Essex Property Trust, Inc. ................................................... 575,000 74,318,750
Home Properties, Inc. ........................................................ 1,140,000 67,567,800
--------------
514,448,020
--------------
HOTELS -- 1.1%
DiamondRock Hospitality Company .............................................. 880,000 15,848,800
--------------
MISCELLANEOUS -- 5.2%
Entertainment Properties Trust ............................................... 1,302,300 76,106,412
--------------
OFFICE AND INDUSTRIAL -- 30.2%
AMB Property Corporation ..................................................... 1,055,000 61,833,550
Boston Properties, Inc. ...................................................... 700,000 78,316,000
Douglas Emmett, Inc. ......................................................... 2,730,000 72,590,700
Maguire Properties, Inc. ..................................................... 30,000 1,200,000
Prologis ..................................................................... 1,037,700 63,061,029
SL Green Realty Corp. ........................................................ 756,300 100,421,514
Vornado Realty Trust ......................................................... 565,000 68,647,500
--------------
446,070,293
--------------
RETAIL -- 4.4%
Simon Property Group, Inc. ................................................... 300,000 30,387,000
Tanger Factory Outlet Centers, Inc. .......................................... 891,500 34,839,820
--------------
65,226,820
--------------
STORAGE -- 5.5%
Public Storage, Inc. ......................................................... 830,000 80,925,000
--------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Identified cost $968,554,542) ........... 1,198,625,345
--------------
OTHER COMMON STOCKS -- 17.4%
HOUSING AND BUILDING MATERIAL -- 5.5%
Desarrolladora Homex, S.A.B. de C.V. ADR (b)(c) .............................. 1,365,600 80,665,992
--------------
LEISURE -- 5.3%
Las Vegas Sands Corp. (b) .................................................... 870,000 77,847,600
--------------
REAL ESTATE SERVICES -- 6.6%
CB Richard Ellis Group, Inc. (b) ............................................. 2,665,300 88,487,960
Jones Lang LaSalle Incorporated .............................................. 100,000 9,217,000
--------------
97,704,960
--------------
TOTAL OTHER COMMON STOCKS (Identified Cost $231,763,815) ..................... 256,218,552
--------------
TOTAL COMMON STOCKS (Identified Cost $1,200,318,357) ......................... 1,454,843,897
--------------
SHORT-TERM INVESTMENT -- 1.0% OF TOTAL NET ASSETS
FACE
AMOUNT
------
American Express Credit Corporation, 5.26%, 1/02/07 (Cost $14,760,000) ....... $14,760,000 14,760,000
--------------
TOTAL INVESTMENTS -- 99.7% (Identified Cost $1,215,078,357) .................... 1,469,603,897
Cash and receivables ......................................................... 12,151,290
Liabilities .................................................................. (7,009,471)
--------------
TOTAL NET ASSETS -- 100.0% ..................................................... $1,474,745,716
==============
(a) See Note 1A.
(b) Non-income producing security.
(c) 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.
See accompanying notes to financial statements.
CGM REALTY FUND
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
ASSETS
Investments at value:
(Identified cost $1,215,078,357) ........................... $1,469,603,897
Cash ........................................................ 629
Receivable for:
Shares of the Fund sold ..................... $3,047,784
Dividends and interest ...................... 9,102,877 12,150,661
---------- --------------
Total assets .......................................... 1,481,755,187
--------------
LIABILITIES
Payable for:
Shares of the Fund redeemed ................. 5,742,935
Distributions declared ...................... 20,273 5,763,208
---------- --------------
Accrued expenses:
Management fees ............................. 1,007,609
Trustees' fees .............................. 16,093
Accounting, Administration and Compliance
expenses ................................... 15,788
Transfer agent fees ......................... 66,985
Other expenses .............................. 139,788 1,246,263
---------- --------------
Total liabilities ..................................... 7,009,471
--------------
NET ASSETS .................................................. $1,474,745,716
==============
Net Assets consist of:
Capital paid-in ........................................... $1,220,220,176
Net unrealized appreciation on investments ................ 254,525,540
--------------
NET ASSETS .................................................. $1,474,745,716
==============
Shares of beneficial interest outstanding, no par value .... 54,499,444
==============
Net asset value per share* .................................. $27.06
======
* Shares of the Fund are sold and redeemed at net asset value
($1,474,745,716 / 54,499,444).
See accompanying notes to financial statements.
CGM REALTY FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 2006
INVESTMENT INCOME
Income:
Dividends (net of withholding tax of $21,563 and includes
dividend income of $3,588,694 from non-controlled
affiliated issuers) ........................................ $ 30,590,519
Interest .................................................... 552,079
------------
31,142,598
------------
Expenses:
Management fees ............................................. 10,365,690
Trustees' fees .............................................. 75,190
Accounting, Administration and Compliance expenses .......... 189,465
Custodian fees and expenses ................................. 186,370
Transfer agent fees ......................................... 436,095
Audit and tax services ...................................... 36,000
Legal ....................................................... 59,727
Printing .................................................... 74,351
Registration fees ........................................... 132,434
Line of credit commitment fee ............................... 20,277
Miscellaneous expenses ...................................... 4,979
------------
11,580,578
------------
Net investment income ......................................... 19,562,020
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gains on investments (including net realized
gains of $8,127,212 on sales of investments in
non-controlled affiliated issuers) ......................... 342,376,727
Net unrealized depreciation ................................. (35,849,776)
------------
Net realized and unrealized gains on investments ............ 306,526,951
------------
CHANGE IN NET ASSETS FROM OPERATIONS .......................... $326,088,971
============
See accompanying notes to financial statements.
CGM REALTY FUND
- -------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
---------------------------------
2006 2005
-------------- --------------
FROM OPERATIONS
Net investment income .................................. $ 19,562,020 $ 12,504,618
Net realized gains from investments .................... 342,376,727 289,797,597
Unrealized depreciation ................................ (35,849,776) (78,538,199)
-------------- --------------
Change in net assets from operations ................. 326,088,971 223,764,016
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................................. (19,562,020) (12,422,326)
Net short-term realized capital gains on investments ... (18,539,617) --
Net long-term realized capital gains on investments .... (317,224,877) (288,661,910)
-------------- --------------
(355,326,514) (301,084,236)
-------------- --------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ........................... 457,184,132 325,608,158
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ................. 17,159,267 10,680,770
Distributions from net short-term realized capital
gains on investments ................................ 13,157,171 --
Distributions from net long-term realized capital
gains on investments ................................ 251,776,661 233,849,052
-------------- --------------
739,277,231 570,137,980
Cost of shares redeemed ................................ (267,260,344) (246,250,567)
-------------- --------------
Change in net assets derived from capital share
transactions ........................................ 472,016,887 323,887,413
-------------- --------------
Total change in net assets ............................. 442,779,344 246,567,193
NET ASSETS
Beginning of period .................................... 1,031,966,372 785,399,179
-------------- --------------
End of period .......................................... $1,474,745,716 $1,031,966,372
============== ==============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................. 14,825,477 10,068,827
Issued in connection with reinvestment of:
Dividends from net investment income ................. 539,589 350,540
Distributions from net short-term realized capital
gains on investments ................................ 487,664 --
Distributions from net long-term realized capital
gains on investments ................................ 9,331,664 8,603,718
-------------- --------------
25,184,394 19,023,085
Redeemed ............................................... (8,644,393) (7,636,395)
-------------- --------------
Net Change ............................................. 16,540,001 11,386,690
============== ==============
See accompanying notes to financial statements.
CGM REALTY FUND
- ----------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2006 2005 2004 2003 2002
For a share of the Fund outstanding throughout each period:
Net asset value at the beginning of period ............... $27.19 $29.56 $24.75 $13.39 $13.47
--------- --------- ------- ------- -------
Net investment income (a) ................................ 0.45 0.43 0.19 0.03 0.40
Net realized and unrealized gains on investments ......... 7.37 7.51 8.55 11.93 0.10
--------- --------- ------- ------- -------
Total from investment operations ......................... 7.82 7.94 8.74 11.96 0.50
--------- --------- ------- ------- -------
Dividends from net investment income ..................... (0.45) (0.43) (0.18) (0.04) (0.58)
Distribution from net short-term realized gains .......... (0.42) -- (0.16) -- --
Distribution from net long-term realized gains ........... (7.08) (9.88) (3.59) (0.56) --
--------- --------- ------- ------- -------
Total Distributions ...................................... (7.95) (10.31) (3.93) (0.60) (0.58)
--------- --------- ------- ------- -------
Net increase (decrease) in net asset value ............... (0.13) (2.37) 4.81 11.36 (0.08)
--------- --------- ------- ------- -------
Net asset value at end of period ......................... $27.06 $27.19 $29.56 $24.75 $13.39
========= ========= ======= ======= =======
Total return (%) ......................................... 29.0 27.0 35.5 89.7 3.5
Ratios:
Operating expenses to average net assets (%) ............. 0.88 0.92 0.96 1.02 1.03
Net investment income to average net assets (%) .......... 1.49 1.34 0.73 0.16 2.70
Portfolio turnover (%) ................................... 160 136 43 68 173
Net assets at end of period (in thousands) ($) ........... 1,474,746 1,031,966 785,399 644,420 339,757
(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, 2006
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, including real
estate investment trusts.
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 a reduction to security 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, 2006 there were no capital loss carryovers available to offset
future realized gains.
As of December 31, 2006, the components of distributable earnings on a tax
basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED LONG-TERM NET UNREALIZED
ORDINARY INCOME CAPITAL GAINS APPRECIATION/(DEPRECIATION)
--------------- ----------------------- ---------------------------
$-- $-- $254,525,540
The identified cost of investments in securities owned by the Fund for
federal income tax purposes, and their respective gross unrealized
appreciation and depreciation at December 31, 2006 was as follows:
GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED
IDENTIFIED COST APPRECIATION DEPRECIATION APPRECIATION
--------------- ---------------- ---------------- --------------
$1,215,078,357 $256,280,545 $(1,755,005) $254,525,540
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.
The tax character of distributions paid during the period ended December 31,
2006, were as follows:
LONG-TERM
ORDINARY INCOME CAPITAL GAINS TOTAL
--------------- ------------- -----
$38,101,637 $317,224,877 $355,326,514
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 SALES OF SECURITIES -- For the period ended December 31,
2006, purchases and sales of securities other than United States government
obligations and short-term investments aggregated $2,233,020,899 and
$2,092,630,017, respectively. There were no purchases or sales of long-term
United States government obligations.
3. A. MANAGEMENT FEES -- During the period ended December 31, 2006, the
Fund incurred management fees of $10,365,690, 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
$189,465, for the period ended December 31, 2006, 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, $147,552 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, 2006, 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, 2006.
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, 2006:
NUMBER OF NUMBER OF NUMBER OF
SHARES HELD SHARES NUMBER OF SHARES HELD DIVIDEND MARKET VALUE
NAME OF ISSUER DECEMBER 31, 2005 PURCHASED SHARES SOLD DECEMBER 31, 2006 INCOME DECEMBER 31, 2006
- -------------- ----------------- --------- ----------- ----------------- -------- -----------------
Ashford Hospitality
Trust, Inc.+ ............. 0 4,795,000 4,795,000 0 $ 871,000 $0
DiamondRock Hospitality
Company* ................. 3,679,000 880,000 3,679,000 880,000 2,303,460 0
Innkeepers USA
Trust+ ................... 3,309,200 0 3,309,200 0 414,234 0
---------- --
Totals ................ $3,588,694 $0
========== ==
* No longer considered an affiliated issuer.
+ Position in issuer liquidated during the preceding twelve months.
6. OTHER -- On July 13, 2006 the Financial Accounting Standards Board (FASB)
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income
Taxes" (FIN48). FIN 48 provides guidance for how uncertain tax positions
should be recognized, measured, presented and disclosed in the financial
statements. FIN 48 requires the evaluation of tax positions taken or expected
to be taken in the course of preparing the fund's tax returns to determine
whether the tax positions are "more likely than not" of being sustained by the
applicable tax authority. Tax positions not deemed to meet the more likely
than not threshold would be recorded as a tax benefit or expense in the
current year. Adoption of FIN 48 is required for the first financial statement
reporting period after June 29, 2007 and is to be applied to all open tax
years as of the effective date. At this time, management is evaluating the
implications of FIN 48 and its impact on the financial statements, if any, has
not yet been determined.
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, 2006, 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, 2006 by correspondence with the
custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 14, 2007
CGM REALTY FUND
- -------------------------------------------------------------------------------
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,
2006 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, 2006 to December 31, 2006.
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*
7/01/06 12/31/06 7/01/06 - 12/31/06
- --------------------------------------------------------------------------------
Actual $1,000.00 $1,138.56 $4.69
- --------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000.00 $1,020.82 $4.43
- --------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 0.87%,
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 12/31/2006
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, 2006, the Fund designated $320,626,681 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 66 CGM; Controlling Owner,
Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* Trustee since 1990 Co-founder and Employee, 4
age 74 CGM; Non-voting Owner,
Kenbob, Inc. (general
partner of CGM)
DISINTERESTED TRUSTEES
Peter O. Brown Trustee since 1993 Counsel (formerly, 4
age 66 Partner), Harter, Secrest
& Emery LLP (law firm);
formerly Executive Vice
President and Chief
Operating Officer, The
Glenmeade Trust Company
(from 1990 to 1993);
formerly Senior Vice
President, J.P. Morgan
Chase Bank (from 1981-
1990); Trustee, TT
International U.S.A.
Master and Feeder Trusts
(four mutual funds)
from 2000-2005
Mark W. Holland Trustee since 2004 President, Wellesley 4
age 57 Financial Advisors, LLC
(since 2003); formerly
Vice President and Chief
Operating Officer, Fixed
Income Management,
Loomis, Sayles & Company,
L.P.; formerly Director,
Loomis, Sayles & Company,
L.P. (from 1999-2002)
James Van Dyke Quereau, Jr. Trustee since 1993 Managing Partner and 4
age 58 Director, Stratton
Management Company
(investment management);
Director and Vice
President, Semper Trust
Co.
J. Baur Whittlesey Trustee since 1990 Member, Ledgewood, P.C. 4
age 60 (law firm)
OFFICERS
G. Kenneth Heebner* Vice President since 1990 Co-founder and Employee, 4
age 66 CGM; Controlling Owner,
Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* President since 1990 Co-founder and Employee, 4
age 74 CGM; Non-voting Owner,
Kenbob, Inc. (general
partner of CGM)
David C. Fietze* Chief Compliance Officer Employee - Legal counsel, 4
age 37 since 2004 CGM; formerly counsel,
address: Bartlett Hackett
38 Newbury Street Feinberg, P.C.
Boston, Massachusetts
02116
Kathleen S. Haughton* Vice President since 1992 Employee - Investor 4
age 46 and Anti-Money Laundering Services Division, CGM
address: Compliance Officer since 2002
38 Newbury Street
Boston, Massachusetts
02116
Jem A. Hudgins* Treasurer since 2004 Employee - CGM 4
age 43
Leslie A. Lake* Vice President and Secretary Employee - Office 4
age 61 since 1992 Administrator, CGM
Martha I. Maguire* Vice President since 1994 Employee - Funds 4
age 51 Marketing, CGM
Mary L. Stone* Assistant Vice President Employee - Portfolio 4
age 62 since 1990 Transactions, CGM
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 02111
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 06 Printed in U.S.A.
CGM
FOCUS FUND
10th Annual Report
December 31, 2006
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Focus Fund increased 7.0% during the fourth quarter of 2006 compared to
the unmanaged Standard and Poor's 500 Index which returned 6.7%. For the year
just ended, CGM Focus Fund returned 15.0% and the unmanaged S&P 500 Index
increased 15.8%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
2006 was another year of economic expansion with November marking the fifth
anniversary of the start of the current growth cycle. The year took off with a
bang with real Gross Domestic Product jumping by 5.6% (annualized) in the
first quarter, but GDP growth slowed significantly to a 2.0% rate (annualized)
by the third quarter. Two sectors were largely responsible for putting on the
economic brakes: First, the American auto industry continues to lose market
share and is increasingly forced to cut back in order to compete with foreign
brands. Second, after four years of booming business and unsustainably
spiraling prices, in our view, the homebuilding industry is feeling the pinch,
curiously though, in spite of low unemployment and relatively low interest
rates. Downturns in these two major industries notwithstanding, the US economy
added 140,000 jobs per month in 2006 with the largest gains coming in the
health and service sectors.
The Federal Reserve Board ratcheted up the Federal Funds rate from 1% in June
of 2004 to 5.25% in June of 2006 in an attempt to slow the economy and ward
off inflation. We believe the Fed's plan seems to be working since core
inflation (ex food and energy) clocked in at a growth rate of 2.2%
(annualized) over the past three months, down from 3.5% (annualized) in July.
Four consecutive meetings of the Fed have come and gone since its last rate
hike and the long term (ten-year) treasury yield has declined from 5.1% in
June 2006 to 4.7% at year end. We are still experiencing the "inverted yield
curve," we described in our last report and, though this state of affairs when
short-term interest rates exceed long-term interest rates is often considered
a harbinger of recession, we believe otherwise. Vital signs, most notably the
strength of employment numbers, a recovery in Consumer Confidence and the fact
that weakness in the housing industry hasn't spread to other businesses, in
our opinion, point to continued growth at a modest rate.
From January 3, 2006 until early May of 2006, the US equity market as measured
by the S&P 500 Index rose 6% from 1,248 to 1,325. The S&P dropped 7.5% to
1,225 in mid-June and then, gradually climbed 16% exclusive of dividends over
the remaining months to 1,418 at year end. Given year-end profit levels, the
S&P 500 Index was priced about 16 times earnings of the Index at the end of
2006, which seems to us quite reasonable in light of current inflation and
long term interest rates.
PORTFOLIO STRATEGY
CGM Focus Fund was fully invested throughout the year, which reflected our
belief in continued worldwide economic growth. The portfolio had several
significant sector positions in 2006 with varying effects on Fund performance.
The Fund began the year with 35% of the portfolio invested in energy-related
securities. This weighting was increased to 47% of CGM Focus Fund net assets
in June in anticipation of continued increases in energy prices. The price of
a barrel of oil was $60 in January of 2006, rose to $78 in July and then, fell
abruptly to less than $60 at the end of September. The value of the
portfolio's energy-related stocks declined significantly along with the price
of oil. As a consequence, the Fund's energy position was reduced to 22% of net
assets at the end of September and was trimmed further during the fourth
quarter of the year.
CGM Focus Fund also held meaningful positions in foreign mining and steel
companies, as well as in the telecommunication industries at various times
throughout the year. These positions had a positive impact on the Fund's
performance. Short positions had a small, negative portfolio impact for 2006.
On December 31, 2006, the Fund held large long positions in the brokerage and
investment services, telephone and oil service industries. The Fund's three
largest long holdings were Allegheny Technologies, Incorporated, Open Joint
Stock Company "Vimpel-Communications" ADR and The Goldman Sachs Group, Inc.
Approximately 16% of the Fund's total net assets were invested in securities
sold short at year end.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 3, 2007
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 12/31/06
- --------------------------------
1 year 5 year Life of Fund*
15.0% 17.2% 19.6%
*(Annualized from 9/3/97 - 12/31/2006)
- --------------------------------
Past performance is no
indication of future results
- --------------------------------
Unmanaged
CGM S&P 500
Focus Fund Index
-----------------------------------------------------
1997 $10,000 $10,000
1997 9,380 10,490
1998 9,708 13,490
1999 10,533 16,323
2000 16,210 14,838
2001 23,942 13,072
2002 19,680 10,183
2003 32,767 13,106
2004 36,830 14,535
2005 46,111 15,247
2006 53,028 17,656
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 pages 3 and 4 for the percentage of net
assets of the Fund invested in particular industries or securities as of
December 31, 2006.
INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Cumulative Total Return for Periods Ended
December 31, 2006
CGM FOCUS
FUND
---------
5 Years ....................................................... +121.5%
1 Year ........................................................ + 15.0
3 Months ...................................................... + 7.0
The Fund's average annual total return since inception (September 3, 1997)
through December 31, 2006 is +19.6%. 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 average annual and cumulative total returns since inception and for
the five-year period ended December 31, 2006 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, 2006
COMMON STOCKS -- 100.5% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
AEROSPACE -- 4.5%
Embraer-Empresa Brasileira de Aeronautica S.A. ADR (b) ..................... 2,483,200 $ 102,878,976
---------------
BANKS - MONEY CENTER -- 1.1%
Citigroup Inc. ............................................................. 470,000 26,179,000
---------------
BROKERAGE/INVESTMENT SERVICES -- 25.1%
Lehman Brothers Holdings Inc. .............................................. 760,000 59,371,200
Merrill Lynch & Co., Inc. (c) .............................................. 1,550,000 144,305,000
Morgan Stanley (c) ......................................................... 1,660,000 135,173,800
The Bear Stearns Companies, Inc. ........................................... 500,000 81,390,000
The Goldman Sachs Group, Inc. (c) .......................................... 750,000 149,512,500
---------------
569,752,500
---------------
CHEMICALS - SPECIALTY -- 4.4%
Potash Corporation of Saskatchewan, Inc. ................................... 705,000 101,153,400
---------------
ENGINEERING -- 5.1%
Fluor Corporation .......................................................... 1,430,000 116,759,500
---------------
FINANCIAL SERVICES -- 5.6%
MasterCard Incorporated .................................................... 1,286,000 126,658,140
---------------
LEISURE -- 5.3%
Las Vegas Sands Corp. (d) .................................................. 1,335,700 119,518,436
---------------
MACHINERY -- 5.3%
Deere & Company ............................................................ 1,265,000 120,263,550
---------------
METALS AND MINING -- 9.5%
Allegheny Technologies Incorporated (c) .................................... 2,100,000 190,428,000
Titanium Metals Corporation (d) ............................................ 850,000 25,083,500
---------------
215,511,500
---------------
MISCELLANEOUS -- 4.7%
Tenaris S.A. ADR (b) ....................................................... 2,155,000 107,512,950
---------------
OIL - INDEPENDENT PRODUCTION -- 3.1%
Canadian Natural Resources Limited ......................................... 220,000 11,710,600
Petroleo Brasileiro S.A. - Petrobras ADR (b) ............................... 565,000 58,189,350
---------------
69,899,950
---------------
OIL REFINING -- 0.8%
Suncor Energy Inc. ......................................................... 230,000 18,149,300
---------------
OIL SERVICE -- 9.9%
Baker Hughes Incorporated .................................................. 1,470,000 109,750,200
Schlumberger Limited ....................................................... 1,810,000 114,319,600
---------------
224,069,800
---------------
RETAIL -- 2.9%
Coach, Inc. (d) ............................................................ 1,040,000 44,678,400
J.C. Penney Company, Inc. .................................................. 280,000 21,660,800
---------------
66,339,200
---------------
TELEPHONE -- 13.2%
Mobile TeleSystems OJSC ADR (b)(c)(e) ...................................... 2,700,000 135,513,000
Open Joint Stock Company "Vimpel-Communications" ADR (b)(c)(d)(e) .......... 2,070,000 163,426,500
---------------
298,939,500
---------------
TOTAL COMMON STOCKS (Identified Cost $1,976,417,063) ......................................... 2,283,585,702
---------------
SHORT-TERM INVESTMENT -- 0.9% OF TOTAL NET ASSETS
FACE
AMOUNT
------
American Express Credit Corporation, 5.26%, 1/02/07 (Cost $19,665,000) ....... $ 19,665,000 19,665,000
---------------
TOTAL INVESTMENTS - 101.4% (Identified Cost $1,996,082,063) ................................... 2,303,250,702
Cash and receivables ........................................................................ 401,953,325
Liabilities ................................................................................. (433,165,265)
---------------
TOTAL NET ASSETS -- 100.0% .................................................................... $ 2,272,038,762
===============
(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 13% of its net assets at December 31, 2006 invested in companies incorporated in
Russia.
SECURITIES SOLD SHORT (PROCEEDS $323,789,796)
SHARES VALUE
------ -----
Amazon.com, Inc. ......................................................... 3,850,000 $ 151,921,000
Countrywide Financial Corporation ........................................ 3,520,000 149,424,000
Sirius Satellite Radio Inc. .............................................. 18,900,000 66,906,000
---------------
$ 368,251,000
===============
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
ASSETS
Investments at value (Identified cost
$1,996,082,063) ........................................... $2,303,250,702
Cash ........................................................ 3,076
Deposits with brokers for short sales ....................... 344,182,367
Receivable for:
Securities sold .......................... $ 49,551,185
Shares of the Fund sold .................. 5,417,145
Dividends and interest ................... 2,799,552 57,767,882
------------- --------------
Total assets ............................................ 2,705,204,027
--------------
LIABILITIES
Securities sold short at current market value (Proceeds
$323,789,796) ............................................. 368,251,000
Payable for:
Securities purchased ..................... 50,637,544
Shares of the Fund redeemed .............. 12,005,931
Distributions declared ................... 5,314
Tax withholding liability ................ 85,257 62,734,046
-------------
Accrued expenses:
Management fees .......................... 1,826,964
Trustees' fees ........................... 20,967
Accounting, Administration and
Compliance expenses .................... 25,108
Transfer agent fees ...................... 105,889
Other expenses ........................... 201,291 2,180,219
------------- --------------
Total liabilities ....................................... 433,165,265
--------------
NET ASSETS .................................................. $2,272,038,762
==============
Net Assets consist of:
Capital paid-in ........................................... $2,026,665,695
Accumulated net realized loss ............................. (17,334,263)
Net unrealized appreciation (depreciation) on investments:
Long positions .......................................... 307,168,534
Short positions ......................................... (44,461,204)
--------------
NET ASSETS .................................................. $2,272,038,762
==============
Shares of beneficial interest outstanding, no par value ..... 65,505,851
==========
Net asset value per share* .................................. $34.68
======
* Shares of the Fund are sold and redeemed at net asset value ($2,272,038,762 /
65,505,851).
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 2006
INVESTMENT INCOME
Income:
Dividends (net of withholding tax of $712,020) .............. $ 43,609,171
Interest on restricted cash ................................. 31,436,023
Interest .................................................... 936,887
------------
75,982,081
------------
Expenses:
Management fees ............................................. 20,688,930
Trustees' fees .............................................. 97,865
Accounting, Administration and Compliance expenses .......... 301,300
Custodian fees and expenses ................................. 293,778
Transfer agent fees ......................................... 696,489
Audit and tax services ...................................... 36,000
Legal ....................................................... 134,647
Printing .................................................... 131,022
Registration fees ........................................... 204,594
Line of credit commitment fee ............................... 39,515
Dividends on short sales .................................... 3,893,925
Miscellaneous expenses ...................................... 7,805
------------
26,525,870
------------
Net investment income ........................................ 49,456,211
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on investments:
Long transactions .......................................... 263,926,321
Net increase from payments by affiliates for a
trading loss ............................................. 322,881
Short transactions ......................................... (90,385,302)
Net unrealized appreciation (depreciation) on
investments and translation of assets and liabilities
in foreign currencies:
Long transactions .......................................... (5,154,798)
Short transactions ......................................... 29,427,831
------------
Net realized and unrealized gains on investments and
foreign currency transactions ............................... 198,136,933
------------
CHANGE IN NET ASSETS FROM OPERATIONS .......................... $247,593,144
============
See accompanying notes to financial statements.
CGM FOCUS FUND
- ---------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
------------------------------
2006 2005
-------------- --------------
FROM OPERATIONS
Net investment income .................................................... $ 49,456,211 $ 19,687,149
Net realized gains from investments ...................................... 173,863,900 137,961,949
Unrealized appreciation .................................................. 24,273,033 94,717,654
-------------- --------------
Change in net assets from operations ................................... 247,593,144 252,366,752
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................................................... (48,763,442) (19,764,129)
Net short-term realized capital gains on investments ..................... -- (80,853,254)
Net long-term realized capital gains on investments ...................... (175,789,197) (59,292,387)
-------------- --------------
(224,552,639) (159,909,770)
-------------- --------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................................. 997,758,557 781,861,059
Net asset value of shares issued in connection with reinvestment of:
Dividends from net investment income ................................... 40,066,125 15,971,092
Distributions from net short-term realized capital
gains on investments ................................................. -- 67,062,737
Distributions from net long-term realized capital
gains on investments ................................................. 148,382,402 49,185,408
-------------- --------------
1,186,207,084 914,080,296
Cost of shares redeemed .................................................. (578,351,879) (284,231,272)
-------------- --------------
Change in net assets derived from capital share
transactions ......................................................... 607,855,205 629,849,024
-------------- --------------
Total change in net assets ............................................... 630,895,710 722,306,006
NET ASSETS
Beginning of period ...................................................... 1,641,143,052 918,837,046
-------------- --------------
End of period ............................................................ $2,272,038,762 $1,641,143,052
============== ==============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................................... 26,593,050 22,491,195
Issued in connection with reinvestment of:
Dividends from net investment income ................................... 1,150,667 478,574
Distributions from net short-term realized capital
gains on investments ................................................. -- 2,008,467
Distributions from net long-term realized capital
gains on investments ................................................. 4,261,150 1,473,058
-------------- --------------
32,004,867 26,451,294
Redeemed ................................................................. (15,631,438) (8,458,557)
-------------- --------------
Net Change ............................................................... 16,373,429 17,992,737
============== ==============
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
Year Ended December 31, 2006
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Change in net assets resulting from operations ............ $ 247,593,144
Adjustments to reconcile change in net assets resulting
from operations to net cash provided by operating
activities:
Purchase of investment securities ....................... (7,659,830,047)
Buy to cover of investment securities held short ........ (2,436,904,501)
Proceeds from disposition of investment securities ...... 7,318,850,966
Proceeds from short sale of investment securities ....... 2,034,510,110
Sale of short-term investment securities, net ........... 2,860,000
Decrease in deposits with brokers for short sales ....... 294,812,066
Decrease in dividends and interest receivable ........... 442,043
Decrease in receivables for securities sold ............. 18,026,846
Decrease in tax withholding liability ................... (18,349)
Decrease in payable for securities purchased ............ (16,074,917)
Increase in accrued expenses ............................ 649,268
Mark to market on receivables and liabilities ........... 835
Net increase from payments by affiliates for trading
loss .................................................. 322,881
Unrealized appreciation on securities and currencies .... (24,273,033)
Net realized gains from investments ..................... (173,863,900)
---------------
Net cash used in operating activities ..................... (392,896,588)
---------------
Cash flows from financing activities:
Proceeds from shares sold ................................. 1,002,773,440
Payment on shares redeemed ................................ (573,767,837)
Cash distributions paid ................................... (36,107,255)
---------------
Net cash provided by financing activities ................. 392,898,348
---------------
Net increase in cash ........................................ 1,760
Cash:
Beginning balance ......................................... 1,316
---------------
Ending balance ............................................ $ 3,076
===============
Supplemental disclosure of cash flow information:
Noncash financing activities not included herein consist of reinvestment of
dividends and distributions of $188,448,527.
See accompanying notes to financial statements.
CGM FOCUS FUND
- ----------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
2006 2005 2004 2003 2002
------------ ------------ ---------- ---------- ----------
For a share of the Fund outstanding
throughout each period:
Net asset value at the beginning of
period ................................ $33.40 $29.51 $29.93 $17.98 $21.87
------ ------ ------ ------ ------
Net investment income (loss) (a) ........ 0.82(b) 0.52(b) 0.04(b) (0.21) (0.21)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .......................... 4.19 6.93 3.65 12.16 (3.68)
------ ------ ------ ------ ------
Total from investment operations ........ 5.01 7.45 3.69 11.95 (3.89)
------ ------ ------ ------ ------
Dividends from net investment income .... (0.81) (0.44) (0.04) -- --
Distribution from net short-term realized
gains ................................. -- (1.80) -- -- --
Distribution from net long-term realized
gains ................................. (2.92) (1.32) (4.07) -- --
------ ------ ------ ------ ------
Total Distributions ..................... (3.73) (3.56) (4.11) -- --
------ ------ ------ ------ ------
Net increase (decrease) in net asset
value ................................. 1.28 3.89 (0.42) 11.95 (3.89)
------ ------ ------ ------ ------
Net asset value at end of period ........ $34.68 $33.40 $29.51 $29.93 $17.98
====== ====== ====== ====== ======
Total return (%) ........................ 15.0(c) 25.2 12.4 66.5 (17.8)
Ratios:
Operating expenses to average net assets
(%) ................................... 1.02 1.07 1.12 1.18 1.18
Dividends and interest on short positions
to average net assets (%) ............. 0.18 0.15 0.09 -- 0.02
------ ------ ------ ------ ------
Total expenses to average net assets (%) 1.20 1.22 1.21 1.18 1.20
====== ====== ====== ====== ======
Net investment income (loss) to average
net assets (%) ........................ 2.23 1.55 0.14 (0.92) (0.98)
Portfolio turnover (%) .................. 333 282 327 204 155
Net assets at end of period (in
thousands) ($) ........................ 2,272,039 1,641,143 918,837 775,499 383,983
(a) Per share net investment income (loss) has been calculated using the average shares outstanding during the period.
(b) Net investment income per share excluding all related short sale income and expenses for the period ended December 31,
2004 was $0.06, for the period ended December 31, 2005 was $0.23 and for the period ended December 31, 2006 was $0.36.
(c) In 2006, the Fund's total return consists of a voluntary reimbursement by the adviser for a realized investment loss.
Excluding this item, the total return would have been 0.01% less.
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2006
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 commenced operations on September 3, 1997. 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, 2006, there were no capital loss carryovers available to
offset future realized gains.
As of December 31, 2006, the components of distributable earnings on a tax
basis were as follows:
UNDISTRIBUTED NET UNREALIZED
UNDISTRIBUTED LONG-TERM APPRECIATION/
ORDINARY INCOME CAPITAL GAINS (DEPRECIATION)
--------------- ------------- --------------
$ -- $ -- $245,373,068
The identified cost of investments in securities, held long, owned by the
Fund for federal income tax purposes, and their respective gross
unrealized appreciation and depreciation at December 31, 2006 was as
follows:
GROSS GROSS
UNREALIZED UNREALIZED NET UNREALIZED
IDENTIFIED COST APPRECIATION DEPRECIATION APPRECIATION
--------------- ------------ ------------ ------------
$2,002,097,256 $323,385,331 $(22,231,885) $301,153,446
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
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,
which will reverse in a subsequent period. Any taxable income or gain
remaining at fiscal year end is distributed in the following year.
The tax character of distributions paid during the period ended December
31, 2006, were as follows:
ORDINARY INCOME LONG-TERM CAPITAL GAINS TOTAL
--------------- ----------------------- -----
$48,763,442 $175,789,197 $224,552,639
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,
2006 was $776,750,000 and the value of cash held in a segregated account
was $344,182,367.
F. 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.
G. 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, 2006 represents cash maintained by the custodian.
H. 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. FOREIGN 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,
2006, purchases and sales of securities other than United States government
obligations and short-term investments aggregated $7,659,830,047 and
$7,318,850,966, respectively. There were no purchases or sales of long-term
United States government obligations for the period ended December 31, 2006.
4. A. MANAGEMENT FEES -- During the period ended December 31, 2006, the Fund
incurred management fees of $20,688,930, 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 $301,300, for the
period ended December 31, 2006, 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, $234,646 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, 2006, 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.
D. LOSS REIMBURSEMENT -- During the year, while transacting a trade on
behalf of the Fund, CGM placed an incorrect trade with a broker. As a
result of the trade, the Fund incurred a loss of $322,881 which was
reimbursed to the Fund by CGM.
5. LINE OF CREDIT -- The Fund had a $20,000,000 committed, secured line of
credit with State Street Bank and Trust Company through January 25, 2006. On
January 26, 2006 the Fund increased the line of credit to $40,000,000.
Borrowings under the line will be charged interest at 0.75% over the current
Overnight Federal Funds Rate. The Fund incurred a commitment fee of 0.125% per
annum on the unused portion of the line of credit through January 25, 2006 and
after that date the Fund incurred a commitment fee of 0.1% 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, 2006.
6. OTHER -- On July 13, 2006 the Financial Accounting Standards Board (FASB)
released FASB Interpretation No. 48 "Accounting for Uncertainty in Income
Taxes" (FIN48). FIN 48 provides guidance for how uncertain tax positions
should be recognized, measured, presented and disclosed in the financial
statements. FIN 48 requires the evaluation of tax positions taken or expected
to be taken in the course of preparing the fund's tax returns to determine
whether the tax positions are "more likely than not" of being sustained by the
applicable tax authority. Tax positions not deemed to meet the more likely
than not threshold would be recorded as a tax benefit or expense in the
current year. Adoption of FIN 48 is required for the first financial statement
reporting period after June 29, 2007 and is to be applied to all open tax
years as of the effective date. At this time, management is evaluating the
implications of FIN 48 and its impact on the financial statements, if any, has
not yet been determined.
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, 2006, 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, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 14, 2007
CGM FOCUS FUND
- -------------------------------------------------------------------------------
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,
2006 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, 2006 to December 31, 2006.
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*
7/01/06 12/31/06 7/01/06 - 12/31/06
- --------------------------------------------------------------------------------
Actual $1,000.00 $ 996.76 $5.69
- --------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000.00 $1,019.51 $5.75
- --------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.13%, 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 12/31/2006
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, 2006, the Fund designated $179,017,313 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.
NUMBER OF
FUNDS IN THE
PRINCIPAL OCCUPATION DURING CGM FUNDS
POSITION HELD AND PAST 5 YEARS AND COMPLEX
NAME, ADDRESS AND AGE LENGTH OF TIME SERVED OTHER DIRECTORSHIPS HELD OVERSEEN
- --------------------- --------------------- ------------------------ --------
INTERESTED TRUSTEES
G. Kenneth Heebner* Trustee since 1993 Co-founder and Employee, CGM; Controlling 4
age 66 Owner, Kenbob, Inc. (general partner of
CGM)
Robert L. Kemp* Trustee since 1990 Co-founder and Employee, CGM; Non-voting 4
age 74 Owner, Kenbob, Inc. (general partner of
CGM)
DISINTERESTED TRUSTEES
Peter O. Brown Trustee since 1993 Counsel (formerly, Partner), Harter, 4
age 66 Secrest & Emery LLP (law firm); formerly
Executive Vice President and Chief
Operating Officer, The Glenmeade Trust
Company (from 1990 to 1993); formerly
Senior Vice President, J.P. Morgan Chase
Bank (from 1981-1990); Trustee, TT
International U.S.A. Master and Feeder
Trusts (four mutual funds) from 2000-2005
Mark W. Holland Trustee since 2004 President, Wellesley Financial Advisors, 4
age 57 LLC (since 2003); formerly Vice President
and Chief Operating Officer, Fixed Income
Management, Loomis, Sayles & Company, L.P.;
formerly Director, Loomis, Sayles &
Company, L.P. (from 1999-2002)
James Van Dyke Quereau, Jr. Trustee since 1993 Managing Partner and Director, Stratton 4
age 58 Management Company (investment management);
Director and Vice President, Semper Trust
Co.
J. Baur Whittlesey Trustee since 1990 Member, Ledgewood, P.C. (law firm) 4
age 60
OFFICERS
G. Kenneth Heebner* Vice President since 1990 Co-founder and Employee, CGM; Controlling 4
age 66 Owner, Kenbob, Inc. (general partner of
CGM)
Robert L. Kemp* President since 1990 Co-founder and Employee, CGM; Non-voting 4
age 74 Owner, Kenbob, Inc. (general partner of
CGM)
David C. Fietze* Chief Compliance Officer since Employee - Legal counsel, CGM; formerly 4
age 37 2004 counsel, Bartlett Hackett Feinberg, P.C.
address:
38 Newbury Street
Boston, Massachusetts
02116
Kathleen S. Haughton* Vice President since 1992 Employee - Investor Services Division, CGM 4
age 46 and Anti-Money Laundering
address: Compliance Officer since 2002
38 Newbury Street
Boston, Massachusetts
02116
Jem A. Hudgins* Treasurer since 2004 Employee - CGM 4
age 43
Leslie A. Lake* Vice President and Secretary Employee - Office Administrator, CGM 4
age 61 since 1992
Martha I. Maguire* Vice President since 1994 Employee - Funds Marketing, CGM 4
age 51
Mary L. Stone* Assistant Vice President since Employee - Portfolio Transactions, CGM 4
age 62 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 02111
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 06 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, 2006. There were no waivers or implicit waivers from the
Code granted by the registrant during the fiscal year ended December 31, 2006.
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 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: 2005 - $86,700 and
2006 - $91,800.
(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: 2005 - $0 and 2006 - $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: 2005 - $11,900 and 2006 - $12,700. 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: 2005
- $0 and 2006 - $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, 2006, the close-out of the 2006 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: 2005 - $11,900 and
2006 - $12,700.
(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, 2006, 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 26, 2007
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 26, 2007
By: /S/ Jem A. Hudgins
Jem A. Hudgins
CFO & Treasurer
Principal Financial Officer
Date: February 26, 2007