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
(Exact name of registrant as specified in charter)
One International Place, Boston, Massachusetts 02110
----------------------------------------------------
(Address of principal executive offices) (Zip code)
T. John Holton, Esq.
Bingham McCutchen LLP
150 Federal Street
Boston, MA 02110
----------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-737-3225
--------------
Date of fiscal year end: December 31, 2007
-----------------
Date of reporting period: June 30, 2007
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ITEM 1. REPORTS TO STOCKHOLDERS.
CGM
MUTUAL FUND
309th Quarterly Report
June 30, 2007
A No-Load Fund
[Graphic Omitted] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS
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CGM Mutual Fund increased 15.6% during the second quarter of 2007 compared to
the unmanaged Standard and Poor's 500 Index which returned 6.3% and the Merrill
Lynch US Corporate, Government and Mortgage Bond Index which declined -0.5%.
For the first six months of the year, CGM Mutual Fund returned 14.9%, the S&P
500 Index, 7.0% and the Merrill Lynch US Corporate, Government and Mortgage
Bond Index, 1.0%.
Against the backdrop of a slow growth economy, US business activity perked up
over the past three months. The Federal Reserve Board's Beige Book indicated
growth in manufacturing and jobs for all twelve regions of the country in April
and May. Indeed, the economy grew at a faster clip in the second quarter of
this year than in the first, which is good news. Manufacturing companies that
produce capital goods for other businesses are thriving and those sectors of
the economy that derive profits in global markets are faring exceptionally well
which is significant given estimates that suggest nearly 50% of revenues of S&P
500 companies comes from outside the US.
The 800 pound gorilla in the US economy right now is the housing sector which
is experiencing one of its largest downturns in years. New housing starts in
May were off 24.2% from May of 2006 and the National Association of Home
Builders' market index for sale of new single family houses declined from 30 in
April to 28 in May which is its lowest level in 16 years (50 and above
indicates expansion). Housing-related businesses are affected and there is some
slowing in retail activity as well.
On the bright side, the Fed seems to have achieved its goal of warding off
inflation--at least for the time being--by raising short term interest rates
from 1% to 5.25% between June 2004 and June of last year. The core inflation
rate (ex food and energy) for the 12 months ended May 31 is down to a
relatively benign 1.9%. On one hand, major domestic corporations with overseas
exposure seem to have been unaffected by the rate hikes. On the other, we
believe the resulting lower inflation is just what bond investors need in order
for long term interest rates on Treasury issues to remain in the 5.0%-5.5%
range which is up from the extreme lows of fairly recently, but still
relatively cheap. However, we believe the inflation fight is anything but over
as volatile sectors like food and energy heat up, the dollar experiences
continued weakness and commodity prices rise.
The Fed has held the Federal Funds rate steady at 5.25% for one year now and,
at its meeting last week, again took no action. The long term Treasury bond
(10-year maturity) yielded 5.10% at this time last year and is now 5.04%.
Relative to short term interest levels, these rates are surprisingly low.
Looking ahead, inflation is one risk affecting long-term bond rates and another
traces back to the housing market: huge amounts of complex investment
instruments owned by institutions and hedge funds are backed by sub prime
mortgages. We believe the housing swoon puts the value of many of these
securities in jeopardy and in fact, a few hedge funds have already suffered
major losses. Should additional losses surface, this topic will warrant closer
scrutiny.
CGM Mutual Fund was approximately 25% invested in US Treasury bills at quarter
end. The equity portion of the portfolio held major positions in the oil
service, telephone and metals and mining industries. The Fund's three largest
equity holdings were Schlumberger Limited (oil service), Companhia Vale do Rio
Doce ADR (mining) and Petroleo Brasileiro S.A.-Petrobas ADR (oil production).
/s/ Robert L. Kemp
Robert L. Kemp
President
July 2, 2007
CGM MUTUAL FUND
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INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 2007
THE FUND'S
CUMULATIVE THE FUND'S AVERAGE
TOTAL RETURN ANNUAL TOTAL RETURN
------------------ ------------------------
10 Years ................... +80.5% + 6.1%
5 Years ................... +70.9 +11.3
1 Year .................... +13.8 +13.8
3 Months .................. +15.6 --
The performance data contained in the report represent past performance, which
is no guarantee of future results. The table above does not reflect the
deduction of taxes a shareholder would pay on Fund distributions or the
redemption of Fund shares and assumes 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
Fund's cumulative total return and average annual total return for the 10- and
5-year periods ended June 30, 2007 would have been lower.
- -------------------------------------------------------------------------------
See the Schedule of Investments on the next page for the percentage of net
assets of the Fund invested in particular industries or securities as of June
30, 2007.
CGM MUTUAL FUND
- ------------------------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 2007
(unaudited)
COMMON STOCKS -- 73.7% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
BANKS - MONEY CENTER -- 4.3%
Banco Itau Holding Financeira S.A. ADR (b)(c) ............ 530,000 $ 23,553,200
------------
BUSINESS SERVICES -- 4.4%
Research In Motion Limited (d) ........................... 118,000 23,598,820
------------
ELECTRONIC AND COMMUNICATION EQUIPMENT -- 5.1%
General Cable Corporation (d) ............................ 365,000 27,648,750
------------
ENGINEERING -- 4.8%
Fluor Corporation ........................................ 235,000 26,171,950
------------
FINANCIAL SERVICES -- 4.6%
MasterCard Incorporated .................................. 150,000 24,880,500
------------
FOOD - AGRIBUSINESS -- 4.6%
Monsanto Company ......................................... 370,000 24,989,800
------------
METALS AND MINING -- 6.4%
Companhia Vale do Rio Doce ADR (b)(c) .................... 780,000 34,749,000
------------
MISCELLANEOUS -- 3.6%
Air Products and Chemicals, Inc. ......................... 245,000 19,690,650
------------
OFFSHORE DRILLING -- 4.3%
Diamond Offshore Drilling, Inc. .......................... 230,000 23,358,800
------------
OIL - INDEPENDENT PRODUCTION -- 5.8%
Petroleo Brasileiro S.A. - Petrobras ADR (b)(c) .......... 260,000 31,530,200
------------
OIL SERVICE -- 11.6%
Baker Hughes Incorporated ................................ 315,000 26,500,950
Schlumberger Limited ..................................... 430,000 36,524,200
------------
63,025,150
------------
TELEPHONE -- 9.0%
AT&T Inc. ................................................ 610,000 25,315,000
Mobile TeleSystems OJSC ADR (b) .......................... 390,000 23,622,300
------------
48,937,300
------------
TEXTILE AND APPAREL -- 5.2%
Deckers Outdoor Corporation (d) .......................... 280,000 28,252,000
------------
TOTAL COMMON STOCKS (Identified cost $341,953,802) ............................ 400,386,120
------------
BILLS -- 25.8% OF TOTAL NET ASSETS
FACE
AMOUNT
------
UNITED STATES TREASURY -- 25.8%
United States Treasury Bills, 3.919%, 07/05/07 ........... $ 25,000,000 24,986,403
United States Treasury Bills, 4.441%, 08/30/07 ........... 23,400,000 23,225,249
United States Treasury Bills, 4.459%, 08/09/07 ........... 13,000,000 12,935,921
United States Treasury Bills, 4.463%, 09/13/07 ........... 50,000,000 49,539,400
United States Treasury Bills, 4.577%, 09/06/07 ........... 16,000,000 15,862,864
United States Treasury Bills, 4.624%, 09/20/07 ........... 5,000,000 4,947,890
United States Treasury Bills, 4.632%, 07/26/07 ........... 5,000,000 4,983,333
United States Treasury Bills, 4.646%, 08/09/07 ........... 4,000,000 3,979,460
------------
TOTAL BILLS (Identified Cost $140,441,925) .................................... 140,460,520
------------
SHORT-TERM INVESTMENT -- 1.1% OF TOTAL NET ASSETS
American Express Credit Corporation, 5.23%, 07/02/07 (Cost
$6,140,000) .............................................. 6,140,000 6,140,000
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TOTAL INVESTMENTS -- 100.6% (Identified cost $488,535,727) .................... 546,986,640
Cash and receivables ........................................................ 2,266,741
Liabilities ................................................................. (5,485,322)
------------
TOTAL NET ASSETS -- 100.0% ............................................... $543,768,059
============
(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) The Fund has approximately 17% of its net assets at June 30, 2007 invested in companies
incorporated in Brazil.
(d) Non-income producing security.
See accompanying notes to financial statements.
CGM MUTUAL FUND
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STATEMENT OF
ASSETS AND LIABILITIES
June 30, 2007
(unaudited)
ASSETS
Investments at value (Identified cost -
$488,535,727) .............................................. $546,986,640
Cash ......................................................... 635
Receivable for:
Securities sold ............................... $2,015,393
Shares of the Fund sold ....................... 9,953
Dividends and
interest .................................... 240,760 2,266,106
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Total assets ................................................. 549,253,381
------------
LIABILITIES
Payable for:
Securities purchased .......................... 4,390,668
Shares of the Fund redeemed ................... 506,329
Distributions declared ........................ 131 4,897,128
----------
Accrued expenses:
Management fees ............................... 391,826
Trustees' fees ................................ 10,786
Accounting, Administration and Compliance
expenses .................................... 9,164
Transfer Agent fees ........................... 110,140
Other expenses ................................ 66,278 588,194
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Total liabilities ............................................ 5,485,322
------------
NET ASSETS ..................................................... $543,768,059
============
Net Assets consist of:
Capital paid-in ............................................ $453,582,152
Undistributed net investment income ........................ 1,502,077
Accumulated net realized gains on investments .............. 30,232,917
Net unrealized appreciation on investments ................. 58,450,913
------------
NET ASSETS ..................................................... $543,768,059
============
Shares of beneficial interest
outstanding, no par value .................................. 17,075,708
============
Net asset value per share* ................................... $31.84
======
* Shares of the Fund are sold and redeemed at net asset value
($543,768,059 / 17,075,708).
See accompanying notes to financial statements.
CGM MUTUAL FUND
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STATEMENT OF
OPERATIONS
Six Months Ended June 30, 2007
(unaudited)
INVESTMENT INCOME
Income:
Dividends (net of withholding tax of $137,862) ........... $ 2,342,262
Interest ................................................. 3,262,197
------------
5,604,459
------------
Expenses:
Management fees .......................................... 2,249,351
Trustees' fees ........................................... 22,388
Accounting, Administration and Compliance expenses ....... 54,984
Custodian fees and expenses .............................. 53,260
Transfer agent fees ...................................... 246,870
Audit and tax services ................................... 18,300
Legal .................................................... 14,109
Printing ................................................. 37,905
Registration fees ........................................ 12,945
Miscellaneous expenses ................................... 732
------------
2,710,844
------------
Net investment income ...................................... 2,893,615
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gains on investments (including gains
realized from litigation of $1,488,317) ................ 30,232,917
Net unrealized appreciation .............................. 38,576,425
------------
Net realized and unrealized gains on investments ......... 68,809,342
------------
CHANGE IN NET ASSETS FROM
OPERATIONS ................................................. $ 71,702,957
============
See accompanying notes to financial statements.
CGM MUTUAL FUND
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STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
(UNAUDITED) 2006
------------- -------------
FROM OPERATIONS
Net investment income .................................... $ 2,893,615 $ 8,095,574
Net realized gains on investments and foreign currency
transactions ........................................... 30,232,917 21,496,524
Net unrealized appreciation (depreciation) ............... 38,576,425 (1,483,721)
------------- -------------
Change in net assets from operations ................... 71,702,957 28,108,377
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FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................................... (1,391,538) (7,978,514)
Net short-term realized capital gains on investments ..... -- (20,947,527)
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(1,391,538) (28,926,041)
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FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................. 3,726,628 15,755,750
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ................... 1,230,418 7,057,743
Distributions from net short-term realized capital gains
on investments ......................................... -- 19,051,989
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4,957,046 41,865,482
Cost of shares redeemed .................................. (36,074,640) (51,085,253)
------------- -------------
Change in net assets derived from capital share
transactions ........................................... (31,117,594) (9,219,771)
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Total change in net assets ............................... 39,193,825 (10,037,435)
NET ASSETS
Beginning of period ...................................... 504,574,234 514,611,669
------------- -------------
End of period (including undistributed net investment
income of $1,502,077
and $0 at June 30, 2007 and December 31, 2006,
respectively) .......................................... $543,768,059 $504,574,234
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................... 128,977 540,144
Issued in connection with reinvestment of:
Dividends from net investment income ................... 42,765 243,191
Distributions from net short-term realized capital gains
on investments ......................................... -- 682,622
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171,742 1,465,957
Redeemed ................................................. (1,258,612) (1,752,991)
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Net change ............................................... (1,086,870) (287,034)
============ ============
See accompanying notes to financial statements.
CGM MUTUAL FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SIX MONTHS
ENDED FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, 2007 ------------------------------------------------------
(UNAUDITED) 2006 2005 2004 2003 2002
------ ------ ------ ------ ------
For a share of the Fund outstanding
throughout each period:
Net asset value at beginning of period .................... $27.78 $27.89 $25.33 $23.00 $16.65 $20.47
------ ------ ------ ------ ------ ------
Net investment income (a)(b) .............................. 0.17 0.45 0.30 0.16 0.23 0.26
Net realized and unrealized gains (losses) on investments
and foreign currency transactions ....................... 3.97 1.09 3.40 2.33 6.35 (3.67)
------ ------ ------ ------ ------ ------
Total from investment operations .......................... 4.14 1.54 3.70 2.49 6.58 (3.41)
------ ------ ------ ------ ------ ------
Dividends from net investment income ...................... (0.08) (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 ....................................... (0.08) (1.65) (1.14) (0.16) (0.23) (0.41)
------ ------ ------ ------ ------ ------
Net increase (decrease) in net asset value ................ 4.06 (0.11) 2.56 2.33 6.35 (3.82)
------ ------ ------ ------ ------ ------
Net asset value at end of period .......................... $31.84 $27.78 $27.89 $25.33 $23.00 $16.65
====== ====== ====== ====== ====== ======
Total Return (%) .......................................... 14.9 5.5 14.6 10.9(c) 39.7(c) (16.9)
Ratios:
Operating expenses to average net assets (%) .............. 1.08* 1.07 1.09 1.02 1.07 1.14
Operating expenses to average net assets before management
fee waiver (%) .......................................... N/A N/A N/A 1.11 1.17 N/A
Net investment income to average net assets (%) ........... 1.16* 1.55 1.09 0.68 1.23 1.30
Portfolio turnover (%) .................................... 532* 504 336 314 260 191
Net assets at end of period (in thousands) ($)............. 543,768 504,574 514,612 481,443 477,147 376,089
(a) Net of management fee waiver which
amounted to ($) ....................................... N/A 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.
* Computed on an annualized basis.
See accompanying notes to financial statements.
CGM MUTUAL FUND
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NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2007
(unaudited)
1. The Fund is a diversified series of CGM Trust which is organized as a
Massachusetts business trust under the laws of Massachusetts pursuant to an
Agreement and Declaration of Trust. The Trust is registered under the
Investment Company Act of 1940 as an open-end management investment company.
The Trust has 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 NET UNREALIZED
ORDINARY LONG-TERM APPRECIATION/
INCOME CAPITAL GAINS (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 June 30, 2007 were as follows:
GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED
IDENTIFIED COST APPRECIATION DEPRECIATION APPRECIATION
--------------- ------------ ------------ ------------
$492,449,894 $54,979,888 $(443,142) $54,536,746
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, were 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 June 30, 2007,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $981,953,805 and
$1,016,758,264, respectively. There were no purchases or sales of long-term
United States government obligations.
4. A. MANAGEMENT FEES -- During the period ended June 30, 2007, the Fund
incurred management fees of $2,249,351, 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 $54,984,
for the period ended June 30, 2007, 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, $42,333 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 ending December 31, 2007, each disinterested
trustee will be 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. NEW ACCOUNTING PRONOUNCEMENTS -- In June 2006, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109, "Accounting for Income Taxes". FIN 48 establishes financial
reporting rules regarding recognition and measurement of tax positions taken
or expected to be taken on a tax return. 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 years as of the effective date. Based on management's
analysis, FIN 48 does not have a material impact on the Fund's financial
statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, (FAS 157) "Fair Value Measurements". FAS 157 defines fair value,
establishes a framework for measuring fair value in accordance with generally
accepted accounting principles and expands disclosure about fair value
measurements. FAS 157 is effective for fiscal years beginning after November
15, 2007. Management is currently evaluating the impact of adopting FAS 157.
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, account fees (for
certain retirement accounts) and wire fees 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 January 1, 2007 to June 30, 2007.
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 account 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*
1/01/07 6/30/07 1/01/07 - 6/30/07
- --------------------------------------------------------------------------------
Actual $1,000.00 $1,149.30 $5.76
- --------------------------------------------------------------------------------
Hypothetical
(5% return
before expenses) $1,000.00 $1,019.44 $5.41
- --------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.08%,
multiplied by the average account value over the period, multiplied by 181/
365 (to reflect the one-half year period).
CGM MUTUAL FUND
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
25 YEAR INVESTMENT RECORD
DECEMBER 31, 1981 -- JUNE 30, 2007 (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
2007 (6/30) 31.84 -- 0.08 277.28 + 14.9 1996.2
----- ----- -------
Totals $34.74 $19.54 +1896.2
---------------------------------------------------------------------------------------------------------------------------------
*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 the 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
- --------------------------------------------------------------------------------
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,
2007 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 Fund's Form 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.
ADVISORY AGREEMENT APPROVAL:
In considering renewal of the advisory agreement, during meetings held in
March and April 2007, the Board of Trustees of the Fund (the "Board")
considered the following factors and came to the following conclusions:
1. The Board considered the nature, extent, quality and scope of the
investment advisory and administrative services provided by CGM to the Fund.
The Board agreed that the nature, extent, quality and scope of the CGM
professional team working on the Fund was very high, and was satisfied with
the quality of CGM's advisory and administrative services.
2. The Board considered the investment performance of the Fund and CGM and
reviewed information regarding the performance of the Fund as compared to a
peer group of other balanced funds selected and provided by Lipper, Inc., an
independent provider of investment company data. The Board determined that the
Fund's performance was above the mean compared to other mutual funds included
in the Lipper reports for the three- and five-year periods ended December 31,
2006, although performance was below the median performance of such funds for
the one-year period ended December 31, 2006. The Board agreed that this
performance reflected in large measure the focus of CGM on long-term
performance in managing the Fund's assets, rather than pursuing short-term
market movements. The Board acknowledged that, while for some periods this
focus on long-term performance might cause the Fund to lag other comparable
mutual funds with a more short-term focus, the results over the three- and
five-year periods demonstrated that CGM's approach had proven its worth.
3. The Board discussed the costs of the services provided and profits
realized by CGM from the relationship with the mutual funds advised by CGM and
each of the separate accounts managed by CGM, and found that the profit
margins were reasonable and not excessive.
4. The Board discussed with CGM whether economies of scale might be realized
with growth in the Fund. Given the relatively small size of the Fund and CGM's
investment style, the Board determined that it would not be advisable at this
time to seek to make adjustments to the break point structure of the advisory
fees paid by the Fund.
5. The Board received and considered information comparing the advisory fees
paid by the Fund and the overall expenses borne by the Fund with those of
funds in the relevant expense universe as selected and provided by Lipper,
Inc. The Board noted that the overall expense ratio of the Fund was above the
average of the expense ratios of other mutual funds included in the Lipper
reports, but reasonable in light of the services provided by CGM to the Fund.
The Board also reviewed information regarding fees charged by CGM to its other
clients, including its separate account clients. CGM reviewed with the Board
the significant differences in scope of services provided to the Fund and to
those other clients, noting that the Fund required a greater allocation of
management's time as a result of its differing investment mandate and the fact
that it is a publicly offered investment vehicle. The Board discussed the fee
comparisons in light of the differences required to manage these different
types of accounts. Based on these comparisons, the Board concluded that the
advisory fees paid by the Fund and the overall expenses borne by the Fund were
fair and reasonable.
In addition to the foregoing, in light of the fact that CGM could potentially
benefit from soft dollar arrangements of the Fund, the Board of Trustees
reviewed the brokerage commissions of the Fund and concluded that the
brokerage commissions were reasonable, particularly given the Fund's
relatively small size and focus on best execution.
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
PETER O. BROWN
G. KENNETH HEEBNER
MARK W. HOLLAND
ROBERT L. KEMP
JAMES VAN DYKE QUEREAU, JR.
J. BAUR WHITTLESEY
OFFICERS
ROBERT L. KEMP, President
G. KENNETH HEEBNER, Vice President
DAVID C. FIETZE, Chief Compliance Officer
KATHLEEN S. HAUGHTON, Vice President
JEM A. HUDGINS, Treasurer
LESLIE A. LAKE, Vice President and Secretary
MARTHA I. MAGUIRE, Vice President
MARY L. STONE, Assistant Vice President
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
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
- --------------------------------------------------
TELEPHONE NUMBERS
For information about:
[ ] Account Procedures and Status
[ ] Redemptions
[ ] Exchanges
Call 800-343-5678
[ ] New Account Procedures
[ ] Prospectuses
[ ] Performance
[ ] 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.
MQR2 07 Printed in U.S.A.
CGM
REALTY FUND
53rd Quarterly Report
June 30, 2007
A No-Load Fund
[Graphic Omitted] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS:
- --------------------------------------------------------------------------------
CGM Realty Fund increased 11.2% during the second quarter of 2007 compared to
the unmanaged Standard and Poor's 500 Index which returned 6.3% and the FTSE
NAREIT US Real Estate Equity REIT Index which declined -9.0%. For the first six
months of the year, CGM Realty Fund returned 14.7%, the S&P 500 Index, 7.0% and
the FTSE NAREIT US Real Estate Equity REIT Index, -5.9%.
Against the backdrop of a slow growth economy, US business activity perked up
over the past three months. The Federal Reserve Board's Beige Book indicated
growth in manufacturing and jobs for all twelve regions of the country in April
and May. Indeed, the economy grew at a faster clip in the second quarter of
this year than in the first, which is good news. Manufacturing companies that
produce capital goods for other businesses are thriving and those sectors of
the economy that derive profits in global markets are faring exceptionally well
which is significant given estimates that suggest nearly 50% of revenues of S&P
500 companies comes from outside the US.
The 800 pound gorilla in the US economy right now is the housing sector which
is experiencing one of its largest downturns in years. New housing starts in
May were off 24.2% from May of 2006 and the National Association of Home
Builders' market index for sale of new single family houses declined from 30 in
April to 28 in May which is its lowest level in 16 years (50 and above
indicates expansion). Housing-related businesses are affected and there is some
slowing in retail activity as well.
On the bright side, the Fed seems to have achieved its goal of warding off
inflation -- at least for the time being -- by raising short term interest
rates from 1% to 5.25% between June 2004 and June of last year. The core
inflation rate (ex food and energy) for the 12 months ended May 31 is down to a
relatively benign 1.9%. On one hand, major domestic corporations with overseas
exposure seem to have been unaffected by the rate hikes. On the other, we
believe the resulting lower inflation is just what bond investors need in order
for long term interest rates on Treasury issues to remain in the 5.0%-5.5%
range which is up from the extreme lows of fairly recently, but still
relatively cheap. However, we believe the inflation fight is anything but over
as volatile sectors like food and energy heat up, the dollar experiences
continued weakness and commodity prices rise.
The Fed has held the Federal Funds rate steady at 5.25% for one year now and,
at its meeting last week, again took no action. The long term Treasury bond
(10-year maturity) yielded 5.10% at this time last year and is now 5.04%.
Relative to short term interest levels, these rates are surprisingly low.
Looking ahead, inflation is one risk affecting long-term bond rates and another
traces back to the housing market: huge amounts of complex investment
instruments owned by institutions and hedge funds are backed by sub prime
mortgages. We believe the housing swoon puts the value of many of these
securities in jeopardy and in fact, a few hedge funds have already suffered
major losses. Should additional losses surface, this topic will warrant closer
scrutiny.
CGM Realty Fund held major positions in real estate investment trusts and in
the metals and mining and basic materials industries at quarter end. The Fund's
REIT position consisted entirely of office and industrial REITs. The Fund's
three largest holdings were Rio Tinto plc ADR (mining), Companhia Vale do Rio
Doce ADR (mining) and Potash Corporation of Saskatchewan Inc. (fertilizer).
/s/ Robert L. Kemp
Robert L. Kemp
President
July 2, 2007
CGM REALTY FUND
- -------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 2007
THE FUND'S
THE FUND'S AVERAGE
CUMULATIVE ANNUAL
TOTAL RETURN TOTAL RETURN
------------ ------------
10 years ................... +543.7% +20.5%
5 years .................... +301.8 +32.1
1 Year ..................... + 30.6 +30.6
3 Months ................... + 11.2 --
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 table above does not reflect the
deduction of taxes a shareholder would pay on Fund distributions or the
redemption of Fund shares and assumes 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.
- -------------------------------------------------------------------------------
See the Schedule of Investments on the next page for the percentage of net
assets of the Fund invested in particular industries or securities as of June
30, 2007.
CGM REALTY FUND
- -----------------------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 2007
(unaudited)
COMMON STOCKS -- 98.7% OF TOTAL NET ASSETS
REAL ESTATE INVESTMENT TRUSTS -- 21.3% SHARES VALUE(a)
------------ --------------
OFFICE AND INDUSTRIAL -- 21.3%
Boston Properties, Inc. .................................. 685,000 $ 69,959,050
Digital Realty Trust, Inc. ............................... 2,160,000 81,388,800
Douglas Emmett, Inc. ..................................... 3,150,000 77,931,000
SL Green Realty Corp. .................................... 641,300 79,450,657
Vornado Realty Trust ..................................... 525,000 57,666,000
--------------
366,395,507
--------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Identified cost $309,641,531) ........ 366,395,507
--------------
OTHER COMMON STOCKS -- 77.4%
BASIC MATERIALS -- 17.0%
CONSOL Energy Inc. ....................................... 1,186,500 54,709,515
Martin Marietta Materials, Inc. .......................... 508,900 82,451,978
Peabody Energy Corporation ............................... 1,690,000 81,762,200
Vulcan Materials Company ................................. 645,000 73,878,300
--------------
292,801,993
--------------
COPPER -- 10.9%
Freeport-McMoRan Copper & Gold Inc. ...................... 1,300,000 107,666,000
Southern Copper Corporation .............................. 845,000 79,649,700
--------------
187,315,700
--------------
FERTILIZER -- 13.6%
Potash Corporation of Saskatchewan Inc. .................. 1,555,800 121,305,726
The Mosaic Company (b) ................................... 2,920,000 113,938,400
--------------
235,244,126
--------------
HOUSING AND BUILDING MATERIAL -- 4.7%
Desarrolladora Homex, S.A.B. de C.V. ADR (b)(c) .......... 1,335,600 80,924,004
--------------
METALS AND MINING -- 20.9%
BHP Billiton Limited ADR (c) ............................. 1,960,000 117,110,000
Companhia Vale do Rio Doce ADR (c) ....................... 2,730,000 121,621,500
Rio Tinto plc ADR (c) .................................... 400,000 122,448,000
--------------
361,179,500
--------------
REAL ESTATE SERVICES -- 10.3%
CB Richard Ellis Group, Inc. (b) ......................... 2,665,300 97,283,450
Jones Lang LaSalle Incorporated .......................... 710,000 80,585,000
--------------
177,868,450
--------------
TOTAL OTHER COMMON STOCKS (Identified cost $1,076,292,789) ................. 1,335,333,773
--------------
TOTAL COMMON STOCKS (Identified cost $1,385,934,320) ....................... 1,701,729,280
--------------
FACE
SHORT-TERM INVESTMENT -- 2.0% OF TOTAL NET ASSETS AMOUNT
------------
American Express Credit Corporation, 5.23%, 07/02/07
(Cost $34,155,000) ....................................... $ 34,155,000 34,155,000
--------------
TOTAL INVESTMENTS -- 100.7% (Identified cost $1,420,089,320) .................. 1,735,884,280
Cash and receivables ........................................................ 12,172,520
Liabilities ................................................................. (23,906,226)
--------------
TOTAL NET ASSETS -- 100.0% .................................................... $1,724,150,574
==============
(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
June 30, 2007
(unaudited)
ASSETS
Investments at value: (identified cost --
$1,420,089,320) ....................................... $1,735,884,280
Cash .................................................... 2,613
Receivable for:
Securities sold ....................... $ 8,638,418
Shares of the Fund sold ............... 1,471,650
Dividends and interest ................ 2,059,839 12,169,907
----------- --------------
Total assets ............................................ 1,748,056,800
--------------
LIABILITIES
Payable for:
Securities purchased .................. 15,008,280
Shares of the Fund redeemed ........... 7,518,552 22,526,832
-----------
Accrued expenses:
Management fees ....................... 1,115,151
Trustees' fees ........................ 16,888
Accounting, Administration and
Compliance expenses ................. 21,162
Transfer agent fees ................... 108,272
Other expenses ........................ 117,921 1,379,394
----------- --------------
Total liabilities ....................................... 23,906,226
--------------
NET ASSETS ................................................ $1,724,150,574
==============
Net Assets consist of:
Capital paid-in ....................................... $1,255,323,177
Undistributed net investment income ................... 4,268,942
Accumulated net realized gains on investments ......... 148,763,495
Net unrealized appreciation on investments ............ 315,794,960
--------------
NET ASSETS ................................................ $1,724,150,574
==============
Shares of beneficial interest outstanding, no par value . 55,629,155
==============
Net asset value per share* .............................. $30.99
==============
* Shares of the Fund are sold and redeemed at net asset value
($1,724,150,574 / 55,629,155).
See accompanying notes to financial statements.
CGM REALTY FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2007
(unaudited)
INVESTMENT INCOME
Income:
Dividends (net of withholding tax of $174,849) .......... $ 12,955,243
Interest ................................................ 349,684
Other ................................................... 238,777
------------
13,543,704
------------
Expenses:
Management fees ......................................... 6,353,965
Trustees' fees .......................................... 34,568
Accounting, Administration and Compliance expenses ...... 126,972
Custodian fees and expenses ............................. 108,713
Transfer agent fees ..................................... 250,895
Audit and tax services .................................. 18,450
Legal ................................................... 38,131
Printing ................................................ 46,645
Registration fees ....................................... 40,331
Line of credit commitment fee ........................... 10,139
Miscellaneous expenses .................................. 1,081
------------
7,029,890
------------
Net investment income ..................................... 6,513,814
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gains on investments ......................... 148,763,495
Net unrealized appreciation ............................... 61,269,420
------------
Net realized and unrealized gains on investments .......... 210,032,915
------------
CHANGE IN NET ASSETS FROM OPERATIONS ........................ $216,546,729
============
See accompanying notes to financial statements.
CGM REALTY FUND
- ---------------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
(UNAUDITED) 2006
-------------- --------------
FROM OPERATIONS
Net investment income ..................................................... $ 6,513,814 $ 19,562,020
Net realized gains from investments ....................................... 148,763,495 342,376,727
Unrealized appreciation (depreciation) .................................... 61,269,420 (35,849,776)
-------------- --------------
Change in net assets from operations .................................... 216,546,729 326,088,971
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ..................................................... (2,244,872) (19,562,020)
Net short-term realized capital gains on investments ...................... -- (18,539,617)
Net long-term realized capital gains on investments ....................... -- (317,224,877)
-------------- --------------
(2,244,872) (355,326,514)
-------------- --------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares .............................................. 268,737,678 457,184,132
Net asset value of shares issued in connection with reinvestment of:
Dividends from net investment income .................................... 1,826,811 17,159,267
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
-------------- --------------
270,564,489 739,277,231
Cost of shares redeemed ................................................... (235,461,488) (267,260,344)
-------------- --------------
Change in net assets derived from capital share transactions ............ 35,103,001 472,016,887
-------------- --------------
Total change in net assets ................................................ 249,404,858 442,779,344
NET ASSETS
Beginning of period ....................................................... 1,474,745,716 1,031,966,372
-------------- --------------
End of period (includes undistributed net investment income of $4,268,942
and $0 at June 30, 2007 and December 31, 2006, respectively) ............ $1,724,150,574 $1,474,745,716
============== ==============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ................................................ 9,211,663 14,825,477
Issued in connection with reinvestment of:
Dividends from net investment income .................................... 60,807 539,589
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
-------------- --------------
9,272,470 25,184,394
Redeemed .................................................................. (8,142,759) (8,644,393)
-------------- --------------
Net change ................................................................ 1,129,711 16,540,001
============== ==============
See accompanying notes to financial statements.
CGM REALTY FUND
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SIX MONTHS
ENDED FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, 2007 ----------------------------------------------------------
(UNAUDITED) 2006 2005 2004 2003 2002
------------ ------ ------ ------ ------ ------
For a share of the Fund outstanding throughout
each period:
Net asset value at beginning of period ........... $27.06 $27.19 $29.56 $24.75 $13.39 $13.47
------ ------ ------ ------ ------ ------
Net investment income (a) ........................ 0.12 0.45 0.43 0.19 0.03 0.40
Net realized and unrealized gains on investments . 3.85 7.37 7.51 8.55 11.93 0.10
------ ------ ------ ------ ------ ------
Total from investment operations ................. 3.97 7.82 7.94 8.74 11.96 0.50
------ ------ ------ ------ ------ ------
Dividends from net investment income ............. (0.04) (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 .............................. (0.04) (7.95) (10.31) (3.93) (0.60) (0.58)
------ ------ ------ ------ ------ ------
Net increase (decrease) in net asset value ....... 3.93 (0.13) (2.37) 4.81 11.36 (0.08)
------ ------ ------ ------ ------ ------
Net asset value at end of period ................. $30.99 $27.06 $27.19 $29.56 $24.75 $13.39
====== ====== ====== ====== ====== ======
Total Return (%) ................................. 14.7 29.0 27.0 35.5 89.7 3.5
Ratios:
Operating expenses to average net assets (%) ..... 0.86* 0.88 0.92 0.96 1.02 1.03
Net investment income to average net assets (%) .. 0.80* 1.49 1.34 0.73 0.16 2.70
Portfolio turnover (%) ........................... 201* 160 136 43 68 173
Net assets at end of period
(in thousands) ($) ............................. 1,724,151 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.
* Computed on an annualized basis.
See accompanying notes to financial statements.
CGM REALTY FUND
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2007
(unaudited)
1. The Fund is a diversified series of CGM Trust which is organized as a
Massachusetts business trust under the laws of Massachusetts pursuant to an
Agreement and Declaration of Trust. The Trust is registered under the
Investment Company Act of 1940 as an open-end management investment company.
The Trust has two other funds whose financial statements are not presented
herein. Along with one other fund in a separate Trust, there are four CGM
Funds. The Fund commenced operations on May 13, 1994. The Fund's investment
objective is to provide a combination of income and long-term growth of
capital. The Fund intends to pursue its objective by investing primarily in
equity securities of companies in the real estate industry.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION -- Equity securities are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees. The pricing service provides the last reported sale price for
securities listed on a national securities exchange or in the case of the
NASDAQ national market system, the NASDAQ official closing price. For
securities with no sale reported and in the case of over-the-counter
securities not so listed, the last reported bid price is used. Short-term
investments having a maturity of sixty days or less are stated at
amortized cost, which approximates value. Other assets and securities
which are not readily marketable will be valued in good faith at fair
value using methods determined by the Board of Trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed) and dividend income is recorded on the ex-dividend date
net of applicable foreign taxes, a portion of which may be recoverable.
The Fund will accrue such taxes and recoveries as applicable based upon
its current interpretations of the tax rules and regulations that exist in
the markets in which it invests. Interest income is recorded on the
accrual basis and includes amortization of premium and discount. Net gain
or loss on securities sold is determined on the identified cost basis.
Dividend payments received by the Fund from its investment in REITs may
consist of ordinary income, capital gains and return of capital and as
such are recorded as dividend income, capital gains or 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 carry-
overs 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 NET UNREALIZED
ORDINARY LONG-TERM APPRECIATION/
INCOME CAPITAL GAINS (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 June 30, 2007 were as follows:
GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED
IDENTIFIED COST APPRECIATION DEPRECIATION APPRECIATION
--------------- ---------------- ---------------- --------------
$1,420,153,264 $325,933,550 $(10,202,534) $315,731,016
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:
ORDINARY LONG-TERM
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. 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 June 30, 2007,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $1,646,658,257 and
$1,609,805,789, respectively. There were no purchases or sales of long-term
United States government obligations.
4. A. MANAGEMENT FEES -- During the period ended June 30, 2007, the Fund
incurred management fees of $6,353,965, 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 $126,972, for the period
ended June 30, 2007, 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, $90,024 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 ending June 30, 2007, each disinterested
trustee will be compensated by the CGM Funds with an annual fee of
$50,000 plus travel expenses for each meeting attended. The
disinterested trustees are responsible for the audit committee
functions of the CGM Funds and have designated a chairman to oversee
those functions who receives an additional $30,000 annually. Of these
amounts, each of the CGM Funds is responsible for $7,000 per trustee
annually, plus an annual variable fee calculated based on the
proportion of each of the CGM Funds' average net assets relative to
the aggregate average net assets of the CGM Funds.
5. LINE OF CREDIT -- The Fund has a $20,000,000 committed 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 June 30, 2007.
6. NEW ACCOUNTING PRONOUNCEMENTS -- In June 2006, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109, "Accounting for Income Taxes". FIN 48 establishes financial
reporting rules regarding recognition and measurement of tax positions taken
or expected to be taken on a tax return. 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 years as of the effective date. Based on management's
analysis, FIN 48 does not have a material impact on the Fund's financial
statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, (FAS 157) "Fair Value Measurements". FAS 157 defines fair value,
establishes a framework for measuring fair value in accordance with generally
accepted accounting principles and expands disclosure about fair value
measurements. FAS 157 is effective for fiscal years beginning after November
15, 2007. Management is currently evaluating the impact of adopting FAS 157.
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, account fees (for
certain retirement accounts) and wire fees 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 January 1, 2007 to June 30, 2007.
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 account 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*
1/01/07 6/30/07 1/01/07 - 6/30/07
- --------------------------------------------------------------------------------
Actual $1,000.00 $1,146.80 $4.58
- --------------------------------------------------------------------------------
Hypothetical
(5% return
before expenses) $1,000.00 $1,020.53 $4.31
- --------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 0.86%,
multiplied by the average account value over the period, multiplied by 181/
365 (to reflect the one-half year period).
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,
2007 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 Fund's Form 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.
ADVISORY AGREEMENT APPROVAL:
In considering renewal of the advisory agreement, during meetings held in
March and April 2007, the Board of Trustees of the Fund (the "Board")
considered the following factors and came to the following conclusions:
1. The Board considered the nature, extent, quality and scope of the
investment advisory and administrative services provided by CGM to the Fund.
The Board agreed that the nature, extent, quality and scope of the CGM
professional team working on the Fund was very high, and was satisfied with
the quality of CGM's advisory and administrative services.
2. The Board considered the investment performance of the Fund and CGM and
reviewed information regarding the performance of the Fund as compared to a
peer group of other real estate funds selected and provided by Lipper, Inc.,
an independent provider of investment company data. The Board determined that
the Fund's performance was above the mean compared to other mutual funds
included in the Lipper reports for the three-, five- and ten-year periods
ended December 31, 2006, although performance was below the median performance
of such funds for the one-year period ended December 31, 2006. The Board
agreed that this performance reflected in large measure the focus of CGM on
long-term performance in managing the Fund's assets, rather than pursuing
short-term market movements. The Board acknowledged that, while for some
periods this focus on long-term performance might cause the Fund to lag other
comparable mutual funds with a more short-term focus, over the longer term
CGM's approach had proven its worth.
3. The Board discussed the costs of the services provided and profits
realized by CGM from the relationship with the mutual funds advised by CGM and
each of the separate accounts managed by CGM, and found that the profit
margins were reasonable and not excessive.
4. The Board discussed with CGM whether economies of scale might be realized
with growth in the Fund. Given CGM's investment style and performance, the
Board determined that it would not be advisable at this time to seek to make
adjustments to the break point structure of the advisory fees paid by the
Fund.
5. The Board received and considered information comparing the advisory fees
paid by the Fund and the overall expenses borne by the Fund with those of
funds in the relevant expense universe as selected and provided by Lipper,
Inc. The Board noted that the overall expense ratio of the Fund was below the
average of the expense ratios of other mutual funds included in the Lipper
reports. The Board also reviewed information regarding fees charged by CGM to
its other clients, including its separate account clients. CGM reviewed with
the Board the significant differences in scope of services provided to the
Fund and to those other clients, noting that the Fund required a greater
allocation of management's time as a result of its differing investment
mandate and the fact that it is a publicly offered investment vehicle. The
Board discussed the fee comparisons in light of the differences required to
manage these different types of accounts. Based on these comparisons, the
Board concluded that the advisory fees paid by the Fund and the overall
expenses borne by the Fund were fair and reasonable.
In addition to the foregoing, in light of the fact that CGM could potentially
benefit from soft dollar arrangements of the Fund, the Board of Trustees
reviewed the brokerage commissions of the Fund and concluded that the
brokerage commissions were reasonable, particularly given the Fund's focus on
best execution.
CGM REALTY FUND
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
PETER O. BROWN
G. KENNETH HEEBNER
MARK W. HOLLAND
ROBERT L. KEMP
JAMES VAN DYKE QUEREAU, JR.
J. BAUR WHITTLESEY
OFFICERS
ROBERT L. KEMP, President
G. KENNETH HEEBNER, Vice President
DAVID C. FIETZE, Chief Compliance Officer
KATHLEEN S. HAUGHTON, Vice President
JEM A. HUDGINS, Treasurer
LESLIE A. LAKE, Vice President and Secretary
MARTHA I. MAGUIRE, Vice President
MARY L. STONE, Assistant Vice President
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
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
- --------------------------------------------------
TELEPHONE NUMBERS
For information about:
[ ] Account Procedures and Status
[ ] Redemptions
[ ] Exchanges
Call 800-343-5678
[ ] New Account Procedures
[ ] Prospectuses
[ ] Performance
[ ] 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.
RQR2 07 Printed in U.S.A.
CGM
FOCUS FUND
39th Quarterly Report
June 30, 2007
A No-Load Fund
[Graphic Omitted] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Focus Fund increased 12.8% during the second quarter of 2007 compared to
the unmanaged Standard and Poor's 500 Index which returned 6.3%. For the first
six months of the year, CGM Focus Fund rose 23.4% while the S&P 500 Index
returned 7.0%.
Against the backdrop of a slow growth economy, US business activity perked up
over the past three months. The Federal Reserve Board's Beige Book indicated
growth in manufacturing and jobs for all twelve regions of the country in April
and May. Indeed, the economy grew at a faster clip in the second quarter of
this year than in the first, which is good news. Manufacturing companies that
produce capital goods for other businesses are thriving and those sectors of
the economy that derive profits in global markets are faring exceptionally well
which is significant given estimates that suggest nearly 50% of revenues of S&P
500 companies comes from outside the US.
The 800 pound gorilla in the US economy right now is the housing sector which
is experiencing one of its largest downturns in years. New housing starts in
May were off 24.2% from May of 2006 and the National Association of Home
Builders' market index for sale of new single family houses declined from 30 in
April to 28 in May which is its lowest level in 16 years (50 and above
indicates expansion). Housing-related businesses are affected and there is some
slowing in retail activity as well.
On the bright side, the Fed seems to have achieved its goal of warding off
inflation--at least for the time being--by raising short term interest rates
from 1% to 5.25% between June 2004 and June of last year. The core inflation
rate (ex food and energy) for the 12 months ended May 31 is down to a
relatively benign 1.9%. On one hand, major domestic corporations with overseas
exposure seem to have been unaffected by the rate hikes. On the other, we
believe the resulting lower inflation is just what bond investors need in order
for long term interest rates on Treasury issues to remain in the 5.0%-5.5%
range which is up from the extreme lows of fairly recently, but still
relatively cheap. However, we believe the inflation fight is anything but over
as volatile sectors like food and energy heat up, the dollar experiences
continued weakness and commodity prices rise.
The Fed has held the Federal Funds rate steady at 5.25% for one year now and,
at its meeting last week, again took no action. The long term Treasury bond
(10-year maturity) yielded 5.10% at this time last year and is now 5.04%.
Relative to short term interest levels, these rates are surprisingly low.
Looking ahead, inflation is one risk affecting long-term bond rates and another
traces back to the housing market: huge amounts of complex investment
instruments owned by institutions and hedge funds are backed by sub prime
mortgages. We believe the housing swoon puts the value of many of these
securities in jeopardy and in fact, a few hedge funds have already suffered
major losses. Should additional losses surface, this topic will warrant closer
scrutiny.
CGM Focus Fund held major long positions in the oil service, metals and mining
and engineering industries at quarter end. The Fund's three largest long
holdings were Open Joint Stock Company "Vimpel-Communications" ADR, Potash
Corporation of Saskatchewan, Inc. and Schlumberger Limited. The Fund was also
approximately 8% invested in stocks sold short at June 30 (percentage of total
net assets). The short positions were in financial services and regional banks.
The three largest short positions were Countrywide Financial Corporation,
Indymac Bancorp, Inc. and Fortress Investment Group LLC.
/s/ Robert L. Kemp
Robert L. Kemp
President
July 2, 2007
CGM FOCUS FUND
- -------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 2007
THE FUND'S
CUMULATIVE THE FUND'S AVERAGE
TOTAL RETURN ANNUAL TOTAL RETURN
------------ -------------------
5 Years .................... +150.2% +20.1%
1 Year ..................... + 23.0 +23.0
3 Months ................... + 12.8 --
The Fund's average annual total return since inception (September 3, 1997)
through June 30, 2007 is +21.1%. 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 total return since inception would have been lower.
The performance data contained in the report represent past performance, which
is no guarantee of future results. The table above does not reflect the
deduction of taxes a shareholder would pay on Fund distributions or the
redemption of Fund shares and assumes 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.
- -------------------------------------------------------------------------------
See the Schedule of Investments beginning on the next page for the percentage
of net assets of the Fund invested in particular industries or securities as of
June 30, 2007.
CGM FOCUS FUND
- -----------------------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 2007
(unaudited)
COMMON STOCKS -- 98.4% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
AEROSPACE -- 4.5%
Embraer-Empresa Brasileira de Aeronautica S.A. ADR (b)(c) .. 2,799,500 $ 134,963,895
--------------
BEVERAGES AND TOBACCO -- 1.7%
Hansen Natural Corporation (d) ........................... 1,200,000 51,576,000
--------------
BUSINESS SERVICES -- 3.8%
Research In Motion Limited (d) ........................... 570,000 113,994,300
--------------
CHEMICALS - SPECIALTY -- 10.8%
Potash Corporation of Saskatchewan Inc. .................. 2,275,000 177,381,750
The Mosaic Company (d) ................................... 3,690,000 143,983,800
--------------
321,365,550
--------------
COPPER -- 4.9%
Freeport-McMoRan Copper & Gold Inc. ...................... 1,750,000 144,935,000
--------------
ENGINEERING -- 12.4%
Fluor Corporation ........................................ 1,320,000 147,008,400
Foster Wheeler Ltd. (d) .................................. 742,800 79,472,172
McDermott International, Inc. (d) ........................ 1,750,000 145,460,000
--------------
371,940,572
--------------
FINANCIAL SERVICES -- 4.4%
MasterCard Incorporated .................................. 788,000 130,705,560
--------------
HEAVY CAPITAL GOODS - 4.6%
Cummins Inc. ............................................. 1,365,000 138,151,650
--------------
METALS AND MINING -- 12.8%
BHP Billiton Limited ADR (b) ............................. 2,300,000 137,425,000
Companhia Vale do Rio Doce ADR (b)(c)(e) ................. 3,730,000 166,171,500
Rio Tinto plc ADR (b) .................................... 260,000 79,591,200
--------------
383,187,700
--------------
OFFSHORE DRILLING -- 4.5%
Transocean Inc. (d) ...................................... 1,255,000 133,004,900
--------------
OIL - INDEPENDENT PRODUCTION -- 8.2%
CNOOC Limited ADR (b) .................................... 716,000 81,402,040
Petroleo Brasileiro S.A. - Petrobras ADR (b)(c)(e) ....... 1,360,000 164,927,200
--------------
246,329,240
--------------
SHARES
------
OIL SERVICE -- 19.4%
Baker Hughes Incorporated (e) ............................ 1,650,000 138,814,500
National Oilwell Varco, Inc. (d) ......................... 1,330,000 138,639,200
Schlumberger Limited (e) ................................. 1,960,000 166,482,400
Weatherford International Ltd. (d) ....................... 2,420,000 133,680,800
--------------
577,616,900
--------------
TELEPHONE -- 6.4%
Open Joint Stock Company "Vimpel-Communications"
ADR (b)(e) ............................................. 1,820,000 191,755,200
--------------
TOTAL COMMON STOCKS (Identified cost $2,482,285,979) ....................... 2,939,526,467
--------------
SHORT-TERM INVESTMENT -- 0.6% OF TOTAL NET ASSETS
FACE
AMOUNT
------
American Express Credit Corporation, 5.23%, 07/02/07
(Cost $18,070,000) .................................... $18,070,000 18,070,000
--------------
TOTAL INVESTMENTS -- 99.0% (Identified cost $2,500,355,979) ................ 2,957,596,467
Cash and receivables .................................................... 483,791,241
Liabilities ............................................................. (453,328,788)
--------------
TOTAL NET ASSETS -- 100.0% ................................................. $2,988,058,920
==============
(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) The Fund has approximately 16% of its net assets at June 30, 2007 invested in companies
incorporated in Brazil.
(d) Non-income producing security.
(e) A portion of this security has been segregated as collateral in connection with short sale
investments. (See Note 1E.)
SECURITIES SOLD SHORT (PROCEEDS $256,177,219)
SHARES VALUE(a)
------ --------
Countrywide Financial Corporation .......................... 4,200,000 $152,670,000
FirstFed Financial Corp. ................................... 375,000 21,273,750
Fortress Investment Group LLC .............................. 975,000 23,224,500
Indymac Bancorp, Inc. ...................................... 1,875,000 54,693,750
------------
$251,862,000
============
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
June 30, 2007
(unaudited)
ASSETS
Investments at value (Identified
cost -- $2,500,355,979) ............................... $2,957,596,467
Cash .................................................... 4,706
Deposits with brokers for short sales ................... 281,546,511
Receivable for:
Securities sold ........................ $192,459,232
Shares of the Fund sold ................ 4,710,454
Dividends and interest ................. 5,070,338 202,240,024
------------ --------------
Total assets ............................................ 3,441,387,708
--------------
LIABILITIES
Securities sold short at current market
value (Proceeds $256,177,219) .......................... 251,862,000
Payable for:
Securities purchased ................... 192,992,889
Shares of the Fund redeemed ............ 5,307,004
Tax withholding liability .............. 546,425 198,846,318
------------
Accrued expenses:
Management fees ........................ 2,204,645
Trustees' fees ......................... 21,914
Accounting, Administration and
Compliance expenses .................. 31,086
Transfer agent fees .................... 147,907
Other expenses ......................... 214,918 2,620,470
------------ --------------
Total liabilities ....................................... 453,328,788
--------------
NET ASSETS ............................................... $2,988,058,920
==============
Net Assets consist of:
Capital paid-in ........................................ $2,199,413,799
Undistributed net investment income .................... 4,021,623
Accumulated net realized gains on investments ......... 323,067,791
Net unrealized appreciation on investments:
Long positions ....................................... 457,240,488
Short positions ...................................... 4,315,219
--------------
NET ASSETS ............................................... $2,988,058,920
==============
Shares of beneficial interest
outstanding, no par value ............................ 69,790,698
==============
Net asset value per share* ............................. $42.81
==============
* Shares of the Fund are sold and redeemed at net asset value
($2,988,058,920 / 69,790,698).
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2007
(unaudited)
INVESTMENT INCOME
Income:
Dividends (net of withholding tax of $982,523) .......... $ 13,460,088
Interest on restricted cash ............................. 6,518,235
Interest ................................................ 494,750
------------
20,473,073
------------
Expenses:
Management fees ......................................... 11,736,752
Trustees' fees .......................................... 44,619
Accounting, Administration and
Compliance expenses ................................... 186,520
Custodian fees and expenses ............................. 166,407
Transfer agent fees ..................................... 375,781
Audit and tax services .................................. 18,450
Legal ................................................... 62,081
Printing ................................................ 67,106
Registration fees ....................................... 56,576
Line of credit commitment fee ........................... 8,156
Dividend on short sales ................................. 3,715,500
Miscellaneous expenses .................................. 13,502
------------
16,451,450
------------
Net investment income ..................................... 4,021,623
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments:
Long transactions ......................................... 382,964,406
Short transactions ........................................ (42,562,352)
Net unrealized appreciation on investments:
Long transactions ......................................... 150,071,954
Short transactions ........................................ 48,776,423
------------
Net realized and unrealized gains on investments ............ 539,250,431
------------
CHANGE IN NET ASSETS FROM
OPERATIONS ................................................ $543,272,054
============
See accompanying notes to financial statements.
STATEMENT OF CHANGES IN NET ASSETS
CGM FOCUS FUND
- -------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
(UNAUDITED) 2006
------------- ------------
FROM OPERATIONS
Net investment income ................................ $ 4,021,623 $ 49,456,211
Net realized gains from investments .................. 340,402,054 173,863,900
Unrealized appreciation .............................. 198,848,377 24,273,033
-------------- --------------
Change in net assets from operations ............... 543,272,054 247,593,144
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ................................ -- (48,763,442)
Net long-term realized capital gains on investments .. -- (175,789,197)
-------------- --------------
-- (224,552,639)
-------------- --------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ......................... 474,513,088 997,758,557
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ............... -- 40,066,125
Distributions from net long-term realized capital
gains on investments ............................... -- 148,382,402
-------------- --------------
474,513,088 1,186,207,084
Cost of shares redeemed .............................. (301,764,984) (578,351,879)
-------------- --------------
Change in net assets derived from capital share
transactions ..................................... 172,748,104 607,855,205
-------------- --------------
Total change in net assets ........................... 716,020,158 630,895,710
NET ASSETS
Beginning of period .................................. 2,272,038,762 1,641,143,052
-------------- --------------
End of period (including undistributed net investment
income of $4,021,623 and $0 at June 30, 2007 and
December 31, 2006, respectively) ................... $2,988,058,920 $2,272,038,762
============== ==============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ........................... 12,321,745 26,593,050
Issued in connection with reinvestment of:
Dividends from net investment income ............... -- 1,150,667
Distributions from net long-term realized capital
gains on investments ................................... -- 4,261,150
-------------- --------------
12,321,745 32,004,867
Redeemed ............................................. (8,036,898) (15,631,438)
-------------- --------------
Net change ........................................... 4,284,847 16,373,429
============== ==============
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2007
(unaudited)
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Change in net assets resulting from operations ........... $ 543,272,054
Adjustments to reconcile change in net assets resulting
from operations to net cash provided by operating
activities:
Purchase of investment securities ...................... (5,351,174,552)
Buy to cover of investment securities held short ....... (466,448,304)
Proceeds from disposition of investment securities ..... 5,228,225,164
Proceeds from short sale of investment securities ...... 356,273,374
Sale of short-term investment securities, net .......... 1,595,000
Decrease in deposits with brokers for short sales ...... 62,635,856
Increase in dividends and interest receivable .......... (2,270,786)
Increase in receivables for securities sold ............ (142,908,047)
Increase in tax withholding liability .................. 461,168
Increase in payable for securities purchased ........... 142,355,345
Increase in accrued expenses ........................... 440,251
Increase in miscellaneous income ....................... 44,879
Mark to market on receivable and liabilities ........... 105
Unrealized appreciation on securities .................. (198,848,377)
Net realized gains from investments .................... (340,402,054)
---------------
Net cash used in operating activities .................... (166,748,924)
---------------
Cash flows from financing activities:
Proceeds from shares sold ................................ 475,219,780
Payment on shares redeemed ............................... (308,463,912)
Cash distributions paid .................................. (5,314)
---------------
Net cash provided by financing activities ................ 166,750,554
---------------
Net increase in cash ....................................... 1,630
Cash:
Beginning balance ........................................ 3,076
---------------
Ending balance ........................................... $ 4,706
===============
See accompanying notes to financial statements.
CGM FOCUS FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2007 ---------------------------------------------------------------------------
(UNAUDITED) 2006 2005 2004 2003 2002
------------- ----------- ----------- --------- --------- ---------
For a share of the Fund
outstanding
throughout the period:
Net asset value at beginning
of period ..................... $34.68 $33.40 $29.51 $29.93 $17.98 $21.87
------ ------ ------ ------ ------ ------
Net investment income (loss) (a) 0.06(b) 0.82(b) 0.52(b) 0.04(b) (0.21) (0.21)
Net realized and unrealized
gains (losses) on
investments and foreign
currency transactions ......... 8.07 4.19 6.93 3.65 12.16 (3.68)
------ ------ ------ ------ ------ ------
Total from investment operations 8.13 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 ............... 8.13 1.28 3.89 (0.42) 11.95 (3.89)
------ ------ ------ ------ ------ ------
Net asset value at end of
period ........................ $42.81 $34.68 $33.40 $29.51 $29.93 $17.98
====== ====== ====== ====== ====== ======
Total Return (%) ................ 23.4 15.0(c) 25.2 12.4 66.5 (17.8)
Ratios:
Operating expenses to
average net assets (%) ........ 1.01* 1.02 1.07 1.12 1.18 1.18
Dividends and interest on
short positions to average
net assets (%) ................ 0.29* 0.18 0.15 0.09 -- 0.02
------ ------ ------ ------ ------ ------
Total expenses to average
net assets (%) ................ 1.30* 1.20 1.22 1.21 1.18 1.20
====== ====== ====== ====== ====== ======
Net investment income (loss)
to average net assets (%) ..... 0.32* 2.23 1.55 0.14 (0.92) (0.98)
Portfolio turnover (%) .......... 418* 333 282 327 204 155
Net assets at end of period
(in thousands) ($) .............. 2,988,059 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 (loss) 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 and for
the period ended June 30, 2007 was $0.02.
(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.
* Computed on an annualized basis.
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2007
(unaudited)
1. The Fund is a non-diversified series of CGM Trust which is organized as a
Massachusetts business trust under the laws of Massachusetts pursuant to an
Agreement and Declaration of Trust. The Trust is registered under the
Investment Company Act of 1940 as an open-end management investment company.
The Trust has 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 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 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 UNDISTRIBUTED NET UNREALIZED
ORDINARY LONG-TERM APPRECIATION/
INCOME CAPITAL GAINS (DEPRECIATION)
------------- ------------- --------------
$ -- $ -- $245,373,068
The identified cost of investments in securities held long by the Fund for
federal income tax purposes, and their respective gross unrealized
appreciation and depreciation at June 30, 2007 were as follows:
GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED
IDENTIFIED COST APPRECIATION DEPRECIATION APPRECIATION
--------------- ---------------- ---------------- -------------
$2,529,207,505 $442,025,207 $(13,636,245) $428,388,962
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 LONG-TERM
INCOME 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 June 30, 2007
was $671,850,000 and the value of cash held in a segregated account was
$281,546,511.
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 June 30, 2007
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 June 30, 2007,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $5,351,174,552 and
$5,228,225,164, respectively. There were no purchases or sales of long-term
United States government obligations for the period ended June 30, 2007.
4. A. MANAGEMENT FEES -- During the period ended June 30, 2007, the Fund
incurred management fees of $11,736,752, 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 $186,520, for the period ended June 30, 2007, 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, $129,474 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 ending December 31, 2007, each disinterested trustee will be
compensated by the CGM Funds with an annual fee of $50,000 plus travel
expenses for each meeting attended. The disinterested trustees are
responsible for the audit committee functions of the CGM Funds and have
designated a chairman to oversee those functions who receives an additional
$30,000 annually. Of these amounts, each of the CGM Funds is responsible
for $7,000 per trustee annually, plus an annual variable fee calculated
based on the proportion of each of the CGM Funds' average net assets
relative to the aggregate average net assets of the CGM Funds.
5. LINE OF CREDIT -- The Fund has a $40,000,000 committed, secured line of
credit with State Street Bank and Trust Company. Borrowings under the line
will be charged interest at 0.75% over the current Overnight Federal Funds
Rate. The Fund will incur a commitment fee of 0.1% 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 June 30, 2007.
6. NEW ACCOUNTING PRONOUNCEMENTS -- In June 2006, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109, "Accounting for Income Taxes". FIN 48 establishes financial
reporting rules regarding recognition and measurement of tax positions taken
or expected to be taken on a tax return. 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 years as of the effective date. Based on management's
analysis, FIN 48 does not have a material impact on the Fund's financial
statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, (FAS 157) "Fair Value Measurements". FAS 157 defines fair value,
establishes a framework for measuring fair value in accordance with generally
accepted accounting principles and expands disclosure about fair value
measurements. FAS 157 is effective for fiscal years beginning after November
15, 2007. Management is currently evaluating the impact of adopting FAS 157.
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, account fees (for
certain retirement accounts) and wire fees 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 January 1, 2007 to June 30, 2007.
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 account 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*
1/01/07 6/30/07 1/01/07 - 6/30/07
- --------------------------------------------------------------------------------
Actual $1,000.00 $1,234.40 $7.20
- --------------------------------------------------------------------------------
Hypothetical
(5% return
before expenses) $1,000.00 $1,018.35 $6.51
- --------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.30%, which
includes expenses related to short sales activity, multiplied by the average
account value over the period, multiplied by 181/365 (to reflect the one-
half year period).
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,
2007 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 Fund's Form 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.
ADVISORY AGREEMENT APPROVAL:
In considering renewal of the advisory agreement, during meetings held in
March and April 2007, the Board of Trustees of the Fund (the "Board")
considered the following factors and came to the following conclusions:
1. The Board considered the nature, extent, quality and scope of the
investment advisory and administrative services provided by CGM to the Fund.
The Board agreed that the nature, extent, quality and scope of the CGM
professional team working on the Fund was very high, and was satisfied with
the quality of CGM's advisory and administrative services.
2. The Board considered the investment performance of the Fund and CGM and
reviewed information regarding the performance of the Fund as compared to a
peer group of other capital appreciation funds selected and provided by
Lipper, Inc., an independent provider of investment company data. The Board
determined that the Fund's performance was above the mean compared to other
mutual funds included in the Lipper reports for the one-, three-, five- and
nine-year periods ended December 31, 2006. The Board agreed that this
performance reflected in large measure the focus of CGM on long-term
performance in managing the Fund's assets, rather than pursuing short-term
market movements. The Board acknowledged that, while for some periods this
focus on long-term performance might cause the Fund to lag other comparable
mutual funds with a more short-term focus, over the longer term CGM's approach
had proven its worth.
3. The Board discussed the costs of the services provided and profits
realized by CGM from the relationship with the mutual funds advised by CGM and
each of the separate accounts managed by CGM, and found that the profit
margins were reasonable and not excessive.
4. The Board discussed with CGM whether economies of scale might be realized
with growth in the Fund. The Board considered the Fund's ability to sell
securities short and the increased efforts on the part of CGM required to
carry out these activities as Fund assets increase. Given the Fund's
investment style and performance, the Board determined that it would not be
advisable at this time to seek to make adjustments to the break point
structure of the advisory fees paid by the Fund.
5. The Board received and considered information comparing the advisory fees
paid by the Fund and the overall expenses borne by the Fund with those of
funds in the relevant expense universe as selected and provided by Lipper,
Inc. The Board noted that the overall expense ratio of the Fund was below the
average of the expense ratios of other mutual funds included in the Lipper
reports. The Board also reviewed information regarding fees charged by CGM to
its other clients, including its separate account clients. CGM reviewed with
the Board the significant differences in scope of services provided to the
Fund and to those other clients, noting that the Fund required a greater
allocation of management's time as a result of its differing investment
mandate and the fact that it is a publicly offered investment vehicle. The
Board discussed the fee comparisons in light of the differences required to
manage these different types of accounts. Based on these comparisons, the
Board concluded that the advisory fees paid by the Fund and the overall
expenses borne by the Fund were fair and reasonable.
In addition to the foregoing, in light of the fact that CGM could potentially
benefit from soft dollar arrangements of the Fund, the Board of Trustees
reviewed the brokerage commissions of the Fund and concluded that the
brokerage commissions were reasonable, particularly given the Fund's focus on
best execution.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
BOARD OF TRUSTEES
PETER O. BROWN
G. KENNETH HEEBNER
MARK W. HOLLAND
ROBERT L. KEMP
JAMES VAN DYKE QUEREAU, JR.
J. BAUR WHITTLESEY
OFFICERS
ROBERT L. KEMP, President
G. KENNETH HEEBNER, Vice President
DAVID C. FIETZE, Chief Compliance Officer
KATHLEEN S. HAUGHTON, Vice President
JEM A. HUDGINS, Treasurer
LESLIE A. LAKE, Vice President and Secretary
MARTHA I. MAGUIRE, Vice President
MARY L. STONE, Assistant Vice President
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
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
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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
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MAILING ADDRESS
CGM Shareholder Services
c/o Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511
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This report has been prepared for the
shareholders of the Fund and is not authorized
for distribution to current or prospective
investors in the Fund unless it is accompanied
or preceded by a prospectus.
FFQR2 07 Printed in U.S.A.
ITEM 2. CODE OF ETHICS.
Not applicable for semi-annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable. Investments in securities of unaffiliated issuers as of June
30, 2007, as set forth in Section 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 second fiscal quarter of the period covered by this report.
ITEM 12. EXHIBITS.
(a)(1) Not applicable.
(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.
(a)(3) Not applicable.
(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: August 23, 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: August 23, 2007
By: /S/ Jem A. Hudgins
Jem A. Hudgins
CFO & Treasurer
Principal Financial Officer
Date: August 23, 2007