UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-00082
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CGM TRUST
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(Exact name of registrant as specified in charter)
One International Place, Boston, Massachusetts 02110
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(Address of principal executive offices) (Zip code)
T. John Holton, Esq.
Bingham McCutchen LLP
150 Federal Street
Boston, MA 02110
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-737-3225
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Date of fiscal year end: December 31, 2007
-----------------
Date of reporting period: December 31, 2007
-----------------
CGM
MUTUAL FUND
78th Annual Report
December 31, 2007
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS:
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CGM Mutual Fund increased 6.4% during the fourth quarter of 2007 compared to
the unmanaged Standard and Poor's 500 Index which returned -3.3% and the
Merrill Lynch U.S. Corporate, Government and Mortgage Bond Index which returned
3.1%. For the year just ended, CGM Mutual Fund returned 38.5%, the S&P 500
Index, 5.5% and the Merrill Lynch U.S. Corporate, Government and Mortgage Bond
Index, 7.2%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
November marked the sixth anniversary of the U.S. economic expansion. Indeed,
the longevity of the current economic cycle as well as the bull market in
common stocks is testing historical records. Now, however, there are signs of
slowdown on the business horizon as damage precipitated by past excesses in the
housing market along with years of easy credit availability is corrected. Cheap
money rates and the marketing of subprime mortgage loans mixed in with
high-grade paper (packaged and sold as prime credits) have led to payment
defaults on the consumer level and huge institutional losses. Home buyers were
wooed with mortgages they couldn't afford, wrong-headedly assuming that rising
home prices would bail them out. Instead home prices declined, loans went south
and the financial institutions and investors who purchased mortgage- backed
securities took the hit. Billions in assets have been and continue to be
written off as worthless while many banks and other financial entities scramble
to raise capital to shore up balance sheets. Well-publicized losses have
already cost top jobs at both Citigroup and Merrill Lynch and still the full
extent of the devastation is unclear since no one really knows the value of
many of these esoteric packages of now delinquent mortgages. The Federal
Reserve Board has taken several steps to encourage borrowing and inject
liquidity into the market which we hope will stabilize the credit markets. For
the moment though, the uncertainty has spawned a flight to quality in the bond
market driving yields on the 10-year government bond from 5.04% in June to
4.03% at year end.
In addition to the credit crisis, a second troubling sign emerged today with
the release of the Institute for Supply Management's index of manufacturing
which dropped to 47.7 in December from 50.8 the month before, thereby
confirming a slowdown. And, yet another uncertainty in the economic landscape
is the enormous rise in the price of crude oil. The year began with crude at
$50 a barrel and ended with it at $98. In the past, rising oil prices have
acted like a large tax resulting in a pull back in consumer spending. This time
around, the consumer appears to be a bit more resilient and so far, despite
some spending cuts, the dire consequences of past predictions have yet to
materialize.
The credit crisis is serious and has wreaked havoc on many financial
institutions. Manufacturing may well be slowing and the price of oil remains
high. However, there are many sectors of the economy prospering at the same
time. The annual GDP growth rate in the third quarter of 2007 was a hefty 4.9%.
Businesses that supply global markets, rapidly developing countries like China,
Brazil, Russia and India in particular, are faring well. The U.S. agricultural
sector is booming and heavy capital industries, including aerospace and
defense, are strong. The unemployment rate remains low, the S&P 500 Index
closed the year off just 6% from its all-time high in October despite ongoing
credit travails and the Fed continues to reduce short-term interest rates. We
are hopeful the economy can weather current turbulence and resume a more
measured growth pattern later in the new year.
PORTFOLIO STRATEGY
In 2007, the equity position of CGM Mutual Fund ranged between 71% and 75% of
the Fund's total net assets reflecting our belief in continued worldwide
economic growth.
At the beginning of the year, the Fund's largest sector position was in
investment banks, but these securities were sold during the first six months of
2007 as it became apparent their exposure to the developing mortgage finance
crisis would negatively impact earnings. The Fund's largest sector positions in
the second half of the year were energy, industrial raw materials and
agricultural stocks, all of which benefited from the growing commodity appetite
of the economies of emerging countries.
The three largest contributors to Fund performance in 2007 were Petroleo
Brasileiro S.A.-Petrobras ADR, the leading Brazilian oil and gas company,
Companhia Vale do Rio Doce ADR, a Brazilian nickel and iron ore producer and
Schlumberger Limited, the world's leading oil service company. The Fund
suffered a significant loss in Las Vegas Sands Corp., a prominent casino
company.
On December 31, 2007, CGM Mutual Fund was approximately 28% invested in U.S.
Treasury bills. In the equity portion of the portfolio at year end, the three
largest positions were in the machinery, oil service and independent oil
production industries. The Fund's three largest stock holdings were Petroleo
Brasileiro S.A.-Petrobras ADR, Schlumberger Limited and CNH Global N.V., a
machinery manufacturer.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 2, 2008
COMPARISONS OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CGM MUTUAL FUND, THE
UNMANAGED S&P 500 INDEX, AND THE MERRILL LYNCH U.S. CORPORATE, GOVERNMENT AND
MORTGAGE BOND INDEX assuming reinvestment of dividends and capital gains
- ----------------------------
CGM MUTUAL FUND
Average Annual Total Returns
through 12/31/07
- ----------------------------
1 year 5 year 10 year
38.5% 21.0% 8.2%
- ----------------------------
Past performance is no
indication of future results
- ----------------------------
Unmanaged Merrill Lynch
CGM S&P 500 U.S. Corporate, Government
Mutual Fund Index and Mortgage Bond Index
--------------------------------------------------------------------
Start $10,000 $10,000 $10,000
1998 10,820 12,860 10,890
1999 13,038 15,561 10,781
2000 11,526 14,145 12,042
2001 10,189 12,462 13,041
2002 8,467 9,708 14,397
2003 11,828 12,494 14,987
2004 13,117 13,856 15,631
2005 15,032 14,535 16,037
2006 15,859 16,832 16,646
2007 21,965 17,758 17,845
CGM MUTUAL FUND
PORTFOLIO MANAGER
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G. Kenneth Heebner has managed CGM Mutual Fund since 1981. In 1990, Mr. Heebner
founded Capital Growth Management Limited Partnership with Robert L. Kemp.
Prior to establishing the new company, Mr. Heebner was at Loomis, Sayles and
Company where he managed the Fund, then known as Loomis-Sayles Mutual Fund. In
addition to CGM Mutual Fund, Mr. Heebner currently manages CGM Capital
Development Fund, CGM Realty Fund and CGM Focus Fund.
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See the Schedule of Investments on pages 3 and 4 for the percentage of net
assets of the Fund invested in particular industries or securities as of
December 31, 2007.
INVESTMENT PERFORMANCE
(unaudited)
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Cumulative Total Return for Periods Ended
December 31, 2007
CGM
MUTUAL FUND
-----------
10 Years ....................................................... +119.8%
5 Years ....................................................... +159.6
1 Year ........................................................ + 38.5
3 Months ...................................................... + 6.4
The performance data contained in the report represent past performance, which
is no guarantee of future results. The graph and table above do not reflect the
deduction of taxes a shareholder would pay on Fund distributions or the
redemption of Fund shares and assume the reinvestment of all Fund
distributions. The investment return and the principal value of an investment
in the Fund will fluctuate so that investors' shares, when redeemed, may be
worth more or less than their original cost. Current performance may be lower
or higher than the performance data quoted. Commencing July 1, 2003 and ending
June 30, 2004, Capital Growth Management agreed to voluntarily waive a portion
of the management fee, lowering the annual rate to 0.72% of the Fund's average
daily net assets. Otherwise, the cumulative total return and the average annual
total return for the 10- and 5-year periods ended December 31, 2007 would have
been lower.
CGM MUTUAL FUND
- ----------------------------------------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 2007
COMMON STOCKS -- 71.4% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
BANKS - MONEY CENTER -- 6.9%
Banco Itau Holding Financeira S.A. ADR (b)(c) ................................ 1,070,000 $ 27,670,200
Wells Fargo & Company ........................................................ 570,000 17,208,300
------------
44,878,500
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BUSINESS SERVICES -- 3.1%
Research In Motion Limited (d) ............................................... 177,000 20,071,800
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FOOD - AGRIBUSINESS -- 3.9%
Bunge Limited ................................................................ 215,000 25,028,150
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HEAVY CAPITAL GOODS -- 5.4%
Cummins Inc. ................................................................. 275,000 35,026,750
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MACHINERY -- 10.9%
CNH Global N.V. .............................................................. 555,000 36,530,100
Deere & Company .............................................................. 360,000 33,523,200
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70,053,300
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METALS AND MINING -- 6.5%
Barrick Gold Corporation ..................................................... 445,000 18,712,250
Newmont Mining Corporation ................................................... 480,000 23,438,400
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42,150,650
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MISCELLANEOUS -- 2.7%
MEMC Electronic Materials, Inc. (d) .......................................... 200,000 17,698,000
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OIL - INDEPENDENT PRODUCTION -- 9.2%
Petroleo Brasileiro S.A. - Petrobras ADR (b)(c) .............................. 520,000 59,924,800
------------
OIL REFINING -- 3.6%
Hess Corporation ............................................................. 230,000 23,197,800
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OIL SERVICE -- 10.0%
FMC Technologies, Inc. (d) ................................................... 395,000 22,396,500
Schlumberger Limited ......................................................... 430,000 42,299,100
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64,695,600
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STEEL -- 4.9%
Companhia Siderurgica Nacional ADR (b)(c) .................................... 355,000 31,797,350
------------
TELEPHONE -- 4.3%
Mobile Telesystems OJSC ADR (b) .............................................. 275,000 27,992,250
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TOTAL COMMON STOCKS (Identified cost $370,365,615) ............................. 462,514,950
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BILLS -- 27.6% OF TOTAL NET ASSETS
FACE
AMOUNT
------
UNITED STATES TREASURY -- 27.6%
United States Treasury Bills, 2.914%, 02/28/08 ............................... $ 39,400,000 39,212,741
United States Treasury Bills, 3.009%, 03/13/08 ............................... 113,500,000 112,811,622
United States Treasury Bills, 3.130%, 03/27/08 ............................... 10,000,000 9,924,920
United States Treasury Bills, 3.440%, 02/07/08 ............................... 17,000,000 16,938,498
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TOTAL BILLS (Identified cost $178,929,666) ..................................... 178,887,781
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SHORT-TERM INVESTMENT -- 1.0% OF TOTAL NET ASSETS
American Express Credit Corporation, 3.80%, 01/02/08 (Cost $6,405,000) ....... 6,405,000 6,405,000
------------
TOTAL INVESTMENTS -- 100.0% (Identified cost $555,700,281) ..................................... 647,807,731
Cash and receivables ......................................................................... 2,275,799
Liabilities .................................................................................. (1,961,089)
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TOTAL NET ASSETS -- 100.0% ..................................................................... $648,122,441
============
(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 18% of its net assets at December 31, 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
December 31, 2007
ASSETS
Investments at value (Identified cost -- $555,700,281) ........ $647,807,731
Cash .......................................................... 183
Receivable for:
Shares of the Fund sold ....................... $ 863,564
Dividends and interest ........................ 1,412,052 2,275,616
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Total assets ............................................ 650,083,530
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LIABILITIES
Payable for:
Shares of the Fund redeemed ................... 1,217,246
Tax withholding liability ..................... 109,411
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1,326,657
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Accrued expenses:
Management fees ............................... 476,625
Trustees' fees ................................ 11,008
Accounting, administration and compliance
expenses ..................................... 9,164
Transfer agent fees ........................... 80,243
Other expenses ................................ 57,392 634,432
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Total liabilities ....................................... 1,961,089
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NET ASSETS .................................................... $648,122,441
============
Net Assets consist of:
Capital paid-in ............................................. $559,822,114
Accumulated net realized losses on investments .............. (3,807,123)
Net unrealized appreciation on investments .................. 92,107,450
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NET ASSETS .................................................... $648,122,441
============
Shares of beneficial interest outstanding, no par value ....... 20,384,345
============
Net asset value per share* .................................... $31.80
======
* Shares of the Fund are sold and redeemed at net asset value
($648,122,441 / 20,384,345).
See accompanying notes to financial statements.
CGM MUTUAL FUND
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STATEMENT OF OPERATIONS
Year Ended December 31, 2007
INVESTMENT INCOME
Income:
Dividends (net of withholding tax of $286,038) ............ $ 4,915,540
Interest .................................................. 6,551,731
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11,467,271
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Expenses:
Management fees ........................................... 4,897,343
Trustees' fees ............................................ 44,688
Accounting, administration and compliance expenses ........ 109,969
Custodian fees and expenses ............................... 104,690
Transfer agent fees ....................................... 474,097
Audit and tax services .................................... 38,300
Legal ..................................................... 15,828
Printing .................................................. 68,474
Registration fees ......................................... 35,919
Miscellaneous expenses .................................... 1,466
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5,790,774
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Net investment income ....................................... 5,676,497
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gains on investments ......................... 105,202,070
Net unrealized appreciation ............................... 72,232,962
------------
Net realized and unrealized gains on investments .......... 177,435,032
------------
CHANGE IN NET ASSETS FROM OPERATIONS ........................ $183,111,529
============
See accompanying notes to financial statements.
CGM MUTUAL FUND
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STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
------------------------------
2007 2006
------------- ------------
FROM OPERATIONS
Net investment income ........................................................... $ 5,676,497 $ 8,095,574
Net realized gains on investments ............................................... 105,202,070 21,496,524
Net unrealized appreciation (depreciation) ...................................... 72,232,962 (1,483,721)
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Change in net assets from operations .......................................... 183,111,529 28,108,377
------------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ........................................................... (5,654,129) (7,978,514)
Net short-term realized capital gains on investments ............................ (107,051,605) (20,947,527)
Net long-term realized capital gains on investments ............................. (1,480,849) --
------------- ------------
(114,186,583) (28,926,041)
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FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares .................................................... 35,748,635 15,755,750
Net asset value of shares issued in connection with reinvestment of:
Dividends from net investment income .......................................... 5,009,085 7,057,743
Distributions from net short-term realized capital gains on investments ....... 97,226,898 19,051,989
Distributions from net long-term realized capital gains on investments ........ 1,345,083 --
------------- ------------
139,329,701 41,865,482
Cost of shares redeemed ......................................................... (64,706,440) (51,085,253)
------------- ------------
Change in net assets derived from capital share transactions .................. 74,623,261 (9,219,771)
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Total change in net assets ...................................................... 143,548,207 (10,037,435)
NET ASSETS
Beginning of period ............................................................. 504,574,234 514,611,669
------------- ------------
End of period ................................................................... $ 648,122,441 $504,574,234
============= ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ...................................................... 1,056,385 540,144
Issued in connection with reinvestment of:
Dividends from net investment income .......................................... 155,722 243,191
Distributions from net short-term realized capital gains on investments ....... 3,055,528 682,622
Distributions from net long-term realized capital gains on investments ........ 42,272 --
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4,309,907 1,465,957
Redeemed ........................................................................ (2,088,140) (1,752,991)
------------- ------------
Net change ...................................................................... 2,221,767 (287,034)
============= ============
See accompanying notes to financial statements.
CGM MUTUAL FUND
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FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2007 2006 2005 2004 2003
For a share of the Fund outstanding throughout each period:
Net asset value at the beginning of period ................ $27.78 $27.89 $25.33 $23.00 $16.65
------- ------- ------- ------- -------
Net investment income(a)(b) ............................... 0.32 0.45 0.30 0.16 0.23
Net realized and unrealized gain on investments and
foreign currency transactions ........................... 10.33 1.09 3.40 2.33 6.35
------- ------- ------- ------- -------
Total from investment operations .......................... 10.65 1.54 3.70 2.49 6.58
------- ------- ------- ------- -------
Dividends from net investment income ...................... (0.33) (0.45) (0.31) (0.16) (0.23)
Distribution from net short-term realized gains ........... (6.22) (1.20) -- -- --
Distribution from net long-term realized gains ............ (0.08) -- (0.83) -- --
------- ------- ------- ------- -------
Total distributions ....................................... (6.63) (1.65) (1.14) (0.16) (0.23)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value ................ 4.02 (0.11) 2.56 2.33 6.35
------- ------- ------- ------- -------
Net asset value at end of period .......................... $31.80 $27.78 $27.89 $25.33 $23.00
======= ======= ======= ======= =======
Total return (%) .......................................... 38.5 5.5 14.6 10.9(c) 39.7(c)
Ratios:
Operating expenses to average net assets (%) .............. 1.05 1.07 1.09 1.02 1.07
Operating expenses to average net assets before
management fee waiver (%) ............................... N/A N/A N/A 1.11 1.17
Net investment income to average net assets (%) ........... 1.03 1.55 1.09 0.68 1.23
Portfolio turnover (%) .................................... 444 504 336 314 260
Net assets at end of period (in thousands) ($)............. 648,122 504,574 514,612 481,443 477,147
(a) Net of management fee waiver which amounted to ($) .... N/A N/A N/A 0.02 0.02
(b) Per share net investment income has been calculated using the average shares outstanding during the period.
(c) The total return would have been lower had the management fee not been reduced during the period.
See accompanying notes to financial statements.
CGM MUTUAL FUND
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NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2007
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 Massachusetts business 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, 2007, there were no capital loss carryovers available to
offset future realized gains.
As of December 31, 2007, the components of distributable earnings on a tax
basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED LONG-TERM NET UNREALIZED
ORDINARY INCOME CAPITAL GAINS APPRECIATION/(DEPRECIATION)
--------------- ----------------------- ---------------------------
$-- $-- $88,300,327
The identified cost of investments in securities owned by the Fund for
federal income tax purposes, and their respective gross unrealized
appreciation and depreciation at December 31, 2007 was as follows:
GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED
IDENTIFIED COST APPRECIATION DEPRECIATION APPRECIATION
--------------- ---------------- ---------------- --------------
$559,507,404 $94,639,138 $(6,338,811) $88,300,327
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. 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 years ended December 31,
2007 and 2006, were as follows:
LONG-TERM
YEAR ORDINARY INCOME CAPITAL GAINS TOTAL
---- --------------- ------------- -----
2007 $112,705,734 $1,480,849 $114,186,583
2006 $ 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 foreign securities markets are less liquid and
at times more volatile than securities of comparable U.S. companies and U.S.
securities markets.
3. DIVERSIFICATION -- The Fund, although diversified, takes a focused
approach to investing within a single industry, sector of the economy or fewer
individual holdings than more diversified funds. Therefore, the Fund may be
subject to greater price volatility or be adversely affected by the
performance of particular industries, sectors, or individual holdings compared
to the performance of a more diversified fund.
4. PURCHASES AND SALES OF SECURITIES -- For the period ended December 31,
2007, purchases and sales of securities other than United States government
obligations and short-term investments aggregated $1,805,108,478 and
$1,886,497,561, respectively. There were no purchases or sales of long-term
United States government obligations.
5. A. MANAGEMENT FEES -- During the period ended December 31, 2007, the Fund
incurred management fees of $4,897,343, 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 with the Investment Company Act of
1940 and the Sarbanes Oxley Act of 2002. The accounting,
administration and compliance expense of $109,969, for the period
ended December 31, 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, $84,666 represented reimbursements by the
Fund to CGM for a portion of the salaries of CGM employees who are
officers of the Fund.
C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to any trustees who are directors, officers or employees of
CGM, or any affiliate of CGM (other than registered investment
companies). For the period ended December 31, 2007, each disinterested
trustee was compensated by the CGM Funds with an annual fee of $50,000
plus travel expenses for each meeting attended. The disinterested
trustees are responsible for the audit committee functions of the CGM
Funds and have designated a chairman to oversee those functions who
receives an additional $30,000 annually. Of these amounts, each of the
CGM Funds is responsible for $7,000 per trustee annually, plus an
annual variable fee calculated based on the proportion of each of the
CGM Funds' average net assets relative to the aggregate average net
assets of the CGM Funds.
6. NEW ACCOUNTING PRONOUNCEMENTS -- The Fund adopted the provisions of FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement 109 ("FIN 48"), on January 1, 2007. FIN 48
prescribes a minimum threshold for financial statement recognition of the
benefit of a tax position taken or expected to be taken in a tax return. The
implementation of FIN 48 did not result in any unrecognized tax benefits in
the accompanying financial statements. Each of the Trust's federal tax returns
for the prior three fiscal years remains subject to examination by the
Internal Revenue Service.
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
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of CGM Trust and Shareholders of CGM Mutual Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CGM Mutual Fund (the "Fund", a
series of CGM Trust) at December 31, 2007, the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 2007 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 15, 2008
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 1-800-345-3048. The
policies also appear in the Fund's Statement of Additional Information, which
can be found on the SEC's website, http://www.sec.gov. The voting records can
also be found on the SEC's website on the N-PX filing.
PORTFOLIO HOLDINGS:
The Fund files its complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms
N-Q are available on the SEC's website at http://www.sec.gov and may be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
CGM MUTUAL FUND
- -------------------------------------------------------------------------------
FUND EXPENSES
As a shareholder of CGM Mutual Fund, you incur two types of costs: (1)
transaction costs, which could include, among other charges, wire fees and
custodial maintenance fees for certain types of accounts and (2) ongoing
costs, including management fees and other Fund expenses. This Example is
intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period July 1, 2007 to December 31, 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 custodial maintenance fees that may be payable. Therefore, the second
line of the table is useful in comparing ongoing costs only, and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
- -------------------------------------------------------------------------------
Beginning Ending Expenses Paid
Account Value Account Value During Period*
7/01/07 12/31/07 7/01/07 - 12/31/07
- -------------------------------------------------------------------------------
Actual $1,000.00 $1,205.00 $5.72
- -------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000.00 $1,020.01 $5.24
- -------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.03%,
multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
CGM MUTUAL FUND
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
25 YEAR INVESTMENT RECORD
DECEMBER 31, 1982 -- DECEMBER 31, 2007 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1982
- -----------------------------------------------------------------------------------------------------------------------------------
-- 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 1982 = 100.0
- -----------------------------------------------------------------------------------------------------------------------------------
1982 $18.16 100.0
1983 18.81 -- $1.09 $ 19.96 + 9.9% 109.9
1984 17.01 $ 1.86 0.95 21.22 + 6.3 116.8
1985 21.53 -- 1.08 28.54 + 34.5 157.1
1986 22.86 2.75 0.94 35.70 + 25.1 196.5
1987 20.40 4.52 1.06 40.59 + 13.7 223.4
1988 19.94 -- 1.10 41.89 + 3.2 230.5
1989 22.34 0.95 0.93 50.98 + 21.7 280.5
1990 21.64 -- 0.93* 51.54 + 1.1 283.6
1991 26.80 2.64 0.97 72.62 + 40.9 399.6
1992 26.02 1.42 0.93 77.05 + 6.1 424.0
1993 28.88 1.93 0.86 93.85 + 21.8 516.4
1994 25.05 -- 1.04 84.75 - 9.7 466.3
1995 29.43 0.89 0.77 105.34 + 24.3 579.6
1996 31.42 4.15 0.74 130.31 + 23.7 717.0
1997 25.52 7.81 0.67 141.00 + 8.2 775.8
1998 26.36 0.25 0.98 152.56 + 8.2 839.4
1999 27.28 3.54 0.84 183.83 + 20.5 1011.5
2000 23.38 -- 0.73 162.51 - 11.6 894.2
2001 20.47 -- 0.20 143.66 - 11.6 790.5
2002 16.65 -- 0.41 119.38 - 16.9 656.9
2003 23.00 -- 0.23 166.77 + 39.7 917.7
2004 25.33 -- 0.16 184.95 + 10.9 1017.7
2005 27.89 0.83 0.31 211.95 + 14.6 1166.3
2006 27.78 1.20 0.45 223.61 + 5.5 1230.4
2007 31.80 6.30 0.33 309.70 + 38.5 1704.1
------ ------ -------
Totals $41.04 $18.70 +1604.1
- -----------------------------------------------------------------------------------------------------------------------------------
* 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 fluctuate so that investors' shares, when redeemed,
may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted. The
advisor waived $0.02 and $0.02 per share of management fee in 2003 and 2004, respectively. Otherwise, the annual total return for
2003 and 2004 and cumulative 25-year return would have been lower.
CGM MUTUAL FUND
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/2007
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements. For the year
ended December 31, 2007, the Fund designated $1,488,317 as long-term capital
dividends.
TRUSTEES AND OFFICERS
The Fund is supervised by the board of trustees (the "Board") of the Trust.
The Board is responsible for the general oversight of the Fund, including
general supervision and review of the Fund's investment activities. The Board,
in turn, elects the officers who are responsible for administering the Fund's
day-to-day operations. An asterisk in the table below identifies those
trustees and officers who are "interested persons" of the Trust as defined in
the Investment Company Act of 1940. Each trustee and officer of the Trust
noted as an interested person is interested by virtue of that individual's
position with Capital Growth Management Limited Partnership ("CGM"), the
Fund's investment adviser, as described in the table below. Each trustee
serves during the continued lifetime of the Trust or until he earlier dies,
resigns or is removed, or if sooner, until the election and qualification of
his successor. Each officer serves until his or her successor is elected or
qualified or until the officer sooner dies, resigns, or is removed or becomes
disqualified.
The trustees and officers of the Trust, their ages, their principal
occupations during the past five years, the number of CGM Funds they oversee,
and other directorships they hold are set forth below. Unless other-
wise noted below, the address of each interested trustee and officer is One
International Place, Boston, Massachusetts 02110. Correspondence intended for
the trustees who are not "interested persons" of the Trust may be sent c/o
Capital Growth Management, One International Place, Boston, Massachusetts
02110.
The Statement of Additional Information for the Fund includes additional
information about Fund trustees and is available, without charge, upon request
by calling the CGM Marketing Department, toll free, at
800-345-4048.
NUMBER OF
FUNDS IN THE
PRINCIPAL OCCUPATION DURING CGM FUNDS
POSITION HELD AND PAST 5 YEARS AND COMPLEX
NAME, ADDRESS AND AGE LENGTH OF TIME SERVED OTHER DIRECTORSHIPS HELD OVERSEEN
- --------------------- --------------------- --------------------------- ------------
INTERESTED TRUSTEES
G. Kenneth Heebner* Trustee since 1993 Co-founder and Employee, CGM; 4
age 67 Controlling Owner, Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* Trustee since 1990 Co-founder and Employee, CGM; Non- voting 4
age 75 Owner, Kenbob, Inc. (general partner of CGM)
DISINTERESTED TRUSTEES
Peter O. Brown Trustee since 1993 Counsel (formerly, Partner), Harter, 4
age 67 Secrest & Emery LLP (law firm); formerly
Executive Vice President and Chief
Operating Officer, The Glenmeade Trust
Company (from 1990 to 1993); formerly
Senior Vice President, J.P. Morgan Chase
Bank (from 1981 to 1990); Trustee, TT
International U.S.A. Master and Feeder
Trusts (four mutual funds) from
2000- 2005
Mark W. Holland Trustee since 2004 President, Wellesley Financial Advisors, 4
age 58 LLC; formerly Vice President and Chief
Operating Officer, Fixed Income Management,
Loomis, Sayles & Company, L.P.; formerly
Director, Loomis, Sayles & Company, L.P.
James Van Dyke Quereau, Jr. Trustee since 1993 Managing Partner and Director, Stratton 4
age 59 Management Company (investment
management); Director and Vice
President, Semper Trust Co. until 2006
J. Baur Whittlesey Trustee since 1990 Member, Ledgewood, P.C. (law firm) 4
age 61
OFFICERS
G. Kenneth Heebner* Vice President since 1990 Co-founder and Employee, CGM; 4
age 67 Controlling Owner, Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* President since 1990 Co-founder and Employee, CGM; Non- voting 4
age 75 Owner, Kenbob, Inc. (general partner of CGM)
David C. Fietze* Chief Compliance Officer Employee - Legal counsel, CGM; 4
age 38 since 2004 formerly counsel, Bartlett Hackett
address: Feinberg, P.C.
38 Newbury Street
Boston, Massachusetts
02116
Kathleen S. Haughton* Vice President since 1992 Employee - Investor Services Division, CGM 4
age 47 and Anti-Money
address: Laundering Compliance
38 Newbury Street Officer since 2002
Boston, Massachusetts
02116
Jem A. Hudgins* Treasurer since 2004 Employee - CGM 4
age 44
Leslie A. Lake* Vice President and Employee - Office Administrator, CGM 4
age 62 Secretary since 1992
Martha I. Maguire* Vice President since 1994 Employee - Funds Marketing, CGM 4
age 52
Mary L. Stone* Assistant Vice President Employee - Portfolio Transactions, CGM 4
age 63 since 1990
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
TRANSFER AND DIVIDEND PAYING
AGENT AND CUSTODIAN OF ASSETS
STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts 02111
SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY
BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 8511
Boston, Massachusetts 02266-8511
- -------------------------------------------------------
TELEPHONE NUMBERS
For information about:
[ ] Account Procedures and Status
[ ] Redemptions
[ ] Exchanges
Call 800-343-5678
[ ] New Account Procedures
[ ] Prospectuses
[ ] Performance
[ ] Proxy Voting Policies and Voting Records
[ ] Complete Schedule of Portfolio Holdings
for the 1st & 3rd Quarters (as filed on Form N-Q)
Call 800-345-4048
- -------------------------------------------------------
MAILING ADDRESSES
CGM Shareholder Services
c/o Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511
- -------------------------------------------------------
This report has been prepared for the shareholders of the Fund
and is not authorized for distribution to current or prospective
investors in the Fund unless it is accompanied or preceded by
a prospectus.
MAR 07 Printed in U.S.A.
CGM
REALTY FUND
14th Annual Report
December 31, 2007
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Realty Fund increased 5.6% during the fourth quarter of 2007 compared to
the unmanaged Standard and Poor's 500 Index which returned -3.3% and the FTSE
NAREIT U.S. Real Estate Equity REIT Index which returned -12.7%. For the year
just ended, CGM Realty Fund returned 34.4%, the S&P 500 Index, 5.5% and the
FTSE NAREIT U.S. Real Estate Equity REIT Index, -15.7%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
November marked the sixth anniversary of the U.S. economic expansion. Indeed,
the longevity of the current economic cycle as well as the bull market in
common stocks is testing historical records. Now, however, there are signs of
slowdown on the business horizon as damage precipitated by past excesses in
the housing market along with years of easy credit availability is corrected.
Cheap money rates and the marketing of subprime mortgage loans mixed in with
high-grade paper (packaged and sold as prime credits) have led to payment
defaults on the consumer level and huge institutional losses. Home buyers were
wooed with mortgages they couldn't afford, wrong-headedly assuming that rising
home prices would bail them out. Instead home prices declined, loans went
south and the financial institutions and investors who purchased mortgage-
backed securities took the hit. Billions in assets have been and continue to
be written off as worthless while many banks and other financial entities
scramble to raise capital to shore up balance sheets. Well-publicized losses
have already cost top jobs at both Citigroup and Merrill Lynch and still the
full extent of the devastation is unclear since no one really knows the value
of many of these esoteric packages of now delinquent mortgages. The Federal
Reserve Board has taken several steps to encourage borrowing and inject
liquidity into the market which we hope will stabilize the credit markets. For
the moment though, the uncertainty has spawned a flight to quality in the bond
market driving yields on the 10-year government bond from 5.04% in June to
4.03% at year end.
In addition to the credit crisis, a second troubling sign emerged today with
the release of the Institute for Supply Management's index of manufacturing
which dropped to 47.7 in December from 50.8 the month before, thereby
confirming a slowdown. And, yet another uncertainty in the economic landscape
is the enormous rise in the price of crude oil. The year began with crude at
$50 a barrel and ended with it at $98. In the past, rising oil prices have
acted like a large tax resulting in a pull back in consumer spending. This time
around, the consumer appears to be a bit more resilient and so far, despite
some spending cuts, the dire consequences of past predictions have yet to
materialize.
The credit crisis is serious and has wreaked havoc on many financial
institutions. Manufacturing may well be slowing and the price of oil remains
high. However, there are many sectors of the economy prospering at the same
time. The annual GDP growth rate in the third quarter of 2007 was a hefty
4.9%. Businesses that supply global markets, rapidly developing countries like
China, Brazil, Russia and India in particular, are faring well. The U.S.
agricultural sector is booming and heavy capital industries, including
aerospace and defense, are strong. The unemployment rate remains low, the S&P
500 Index closed the year off just 6% from its all-time high in October
despite ongoing credit travails and the Fed continues to reduce short-term
interest rates. We are hopeful the economy can weather current turbulence and
resume a more measured growth pattern later in the new year.
PORTFOLIO STRATEGY
CGM Realty Fund began the year 2007 with more than 80% of the portfolio in
Real Estate Investment Trusts. These stocks reached what we regarded as
excessive valuations during the first quarter of the year when the Blackstone
Group purchased Equity Office Properties. We reduced our REIT position to
approximately 25% of the Fund during the first quarter and maintained it at
that level through September 30, 2007. The prices of Real Estate Investment
Trusts declined substantially during the year and we have significantly
increased our REIT holdings since the end of the third quarter.
We have focused the non-REIT portion of the Fund in companies that mine
copper, iron ore, coal and nickel and produce fertilizer.
The Fund experienced losses in almost all its Real Estate Investment Trust
positions in 2007 but more than offset these with major gains in its mining
company investments. The largest gains occurred in fertilizer producers The
Mosaic Company and Potash Corporation of Saskatchewan Inc., Brazilian iron ore
and nickel producer Companhia Vale do Rio Doce ADR and diversified miner Rio
Tinto plc ADR.
At year-end, CGM Realty Fund was approximately 55% invested in REITs. The
Fund's portfolio was approximately 20% invested in office and industrial
REITs, 22% in retail REITs and 12% invested in health care, mortgage and
miscellaneous REITs. On December 31, 2007, the Fund's three largest holdings
were The Mosaic Company, Potash Corporation of Saskatchewan Inc. and Companhia
Vale do Rio Doce ADR.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 2, 2008
COMPARISONS OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CGM REALTY FUND, THE
UNMANAGED S&P 500 INDEX, AND THE FTSE NAREIT U.S. REAL ESTATE EQUITY REIT INDEX
assuming reinvestment of dividends and capital gains
- ----------------------------
CGM REALTY FUND
Average Annual Total Returns
through 12/31/07
- ----------------------------
1 year 5 year 10 year
34.4% 41.4% 20.5%
- ----------------------------
Past performance is no
indication of future results
- ----------------------------
Unmanaged FTSE NAREIT U.S.
CGM S&P 500 Real Estate
Realty Fund Index Equity REIT Index
-----------------------------------------------------------
Start $10,000 $10,000 $10,000
1998 7,880 12,860 8,250
1999 8,085 15,561 7,871
2000 10,446 14,145 9,949
2001 10,979 12,462 11,332
2002 11,363 9,708 11,763
2003 21,556 12,494 16,127
2004 29,208 13,856 21,223
2005 37,094 14,535 23,812
2006 47,851 16,832 32,170
2007 64,312 17,758 27,119
CGM REALTY FUND
PORTFOLIO MANAGER
- -------------------------------------------------------------------------------
G. Kenneth Heebner has managed CGM Realty Fund since its inception on May 13,
1994. In 1990, Mr. Heebner founded Capital Growth Management Limited
Partnership with Robert L. Kemp. Prior to establishing the new company, Mr.
Heebner managed mutual funds at Loomis, Sayles and Company. In addition to CGM
Realty Fund, he currently manages CGM Capital Development Fund, CGM Mutual
Fund and CGM Focus Fund.
- -------------------------------------------------------------------------------
See the Schedule of Investments on pages 4 and 5 for the percentage of net
assets of the Fund invested in particular industries or securities as of
December 31, 2007.
INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Cumulative Total Return for Periods
Ended December 31, 2007
CGM
REALTY FUND
-----------
10 Years ....................................................... +543.9%
5 Years ....................................................... +466.2
1 Year ........................................................ + 34.4
3 Months ...................................................... + 5.6
The performance data contained in the report represent past performance, which
is no guarantee of future results. The graph and table above do not reflect
the deduction of taxes a shareholder would pay on Fund distributions or the
redemption of Fund shares and assume the reinvestment of all Fund
distributions. The investment return and the principal value of an investment
in the Fund will fluctuate so that investors' shares, when redeemed, may be
worth more or less than their original cost. Current performance may be lower
or higher than the performance data quoted.
CGM REALTY FUND
- ------------------------------------------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 2007
COMMON STOCKS -- 99.2% OF TOTAL NET ASSETS
REAL ESTATE INVESTMENT TRUSTS -- 55.2%
SHARES VALUE(a)
------ --------
HEALTHCARE - 4.6%
Ventas, Inc. ................................................................. 2,045,000 $ 92,536,250
--------------
MISCELLANEOUS -- 1.8%
Entertainment Properties Trust ............................................... 775,000 36,425,000
--------------
MORTGAGE -- 6.0%
Annaly Capital Management, Inc. .............................................. 6,600,000 119,988,000
--------------
OFFICE AND INDUSTRIAL -- 20.4%
Alexandria Real Estate Equities, Inc. ........................................ 405,000 41,176,350
AMB Property Corporation ..................................................... 1,760,000 101,305,600
Digital Realty Trust, Inc. ................................................... 2,635,000 101,104,950
Douglas Emmett, Inc. ......................................................... 2,590,000 58,559,900
ProLogis ..................................................................... 1,650,000 104,577,000
--------------
406,723,800
--------------
RETAIL -- 22.4%
Federal Realty Investment Trust .............................................. 1,105,000 90,775,750
Simon Property Group, Inc. ................................................... 1,150,000 99,889,000
Tanger Factory Outlet Centers, Inc. (b) ...................................... 1,880,000 70,894,800
Taubman Centers, Inc. ........................................................ 1,910,000 93,952,900
The Macerich Company ......................................................... 1,290,000 91,667,400
--------------
447,179,850
--------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Identified cost $1,140,221,365) ........... 1,102,852,900
--------------
OTHER COMMON STOCKS -- 44.0%
COPPER -- 3.9%
Freeport-McMoRan Copper & Gold Inc. .......................................... 770,000 78,878,800
--------------
FERTILIZER -- 25.0%
Potash Corporation of Saskatchewan Inc. (c) .................................. 1,555,800 223,972,968
The Mosaic Company (d) ....................................................... 2,920,000 275,472,800
--------------
499,445,768
--------------
METALS AND MINING -- 15.1%
Companhia Vale do Rio Doce ADR (e) ........................................... 5,024,800 164,160,216
Rio Tinto plc ADR (e) ........................................................ 325,000 136,467,500
--------------
300,627,716
--------------
TOTAL OTHER COMMON STOCKS (Identified cost $371,039,498) ....................... 878,952,284
--------------
TOTAL COMMON STOCKS (Identified cost $1,511,260,863) ........................... 1,981,805,184
--------------
SHORT-TERM INVESTMENT -- 0.9% OF TOTAL NET ASSETS
FACE
AMOUNT
------
American Express Credit Corporation, 3.80%, 01/02/08 (Cost $18,245,000) ...... $18,245,000 18,245,000
--------------
TOTAL INVESTMENTS -- 100.1% (Identified cost $1,529,505,863) ................... 2,000,050,184
Cash and receivables ......................................................... 20,938,912
Liabilities .................................................................. (22,528,322)
--------------
TOTAL NET ASSETS -- 100.0% ..................................................... $1,998,460,774
==============
(a) See Note 1A.
(b) Non-controlled affiliate (See Note 7).
(c) The Fund has approximately 11% of its assets at December 31, 2007 invested in companies incorporated in Canada.
(d) Non-income producing security.
(e) An American Depositary Receipt (ADR) is a certificate issued by a U.S. bank representing the right to receive
securities of the foreign issuer described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
CGM REALTY FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2007
ASSETS
Investments at value:
Unaffiliated issuers
(Identified cost - $1,450,431,562) ....... $1,929,155,384
Non-controlled affiliates
(Identified cost - $79,074,301) .......... 70,894,800 $2,000,050,184
--------------
Cash ....................................................... 3,243
Receivable for:
Securities sold ......................... $1,195,599
Shares of the Fund sold ................. 13,057,644
Dividends and interest .................. 6,682,426 20,935,669
-------------- --------------
Total assets ........................................... 2,020,989,096
--------------
LIABILITIES
Payable for:
Securities purchased .................... 15,649,873
Shares of the Fund redeemed ............. 5,340,389
Distributions declared .................. 216 20,990,478
-------------- --------------
Accrued expenses:
Management fees ......................... 1,324,566
Trustees' fees .......................... 17,086
Accounting, administration and
compliance expenses .................... 21,162
Transfer agent fees ..................... 79,306
Other expenses .......................... 95,724 1,537,844
-------------- --------------
Total liabilities ...................................... 22,528,322
--------------
NET ASSETS .................................................. $1,998,460,774
==============
Net Assets consist of:
Capital paid-in ............................................ $1,527,916,453
Net unrealized appreciation on investments ................. 470,544,321
--------------
NET ASSETS ................................................... $1,998,460,774
==============
Shares of beneficial interest
outstanding, no par value ................................ 63,546,079
==============
Net asset value per share* ................................. $31.45
==============
* Shares of the Fund are sold and redeemed at net asset value
($1,998,460,774 / 63,546,079).
See accompanying notes to financial statements.
CGM REALTY FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 2007
INVESTMENT INCOME
Income:
Dividends (net of withholding tax of $391,990) .............. $ 29,015,720
Interest .................................................... 768,020
Other ....................................................... 238,777
------------
30,022,517
------------
Expenses:
Management fees ............................................. 13,614,381
Trustees' fees .............................................. 69,000
Accounting, administration and compliance expenses .......... 253,945
Custodian fees and expenses ................................. 222,868
Transfer agent fees ......................................... 503,366
Audit and tax services ...................................... 38,300
Legal ....................................................... 51,370
Printing .................................................... 89,714
Registration fees ........................................... 94,453
Line of credit commitment fee ............................... 20,278
Miscellaneous expenses ...................................... 2,159
------------
14,959,834
------------
Net investment income ....................................... 15,062,683
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gains on investments ........................... 269,987,939
Net unrealized appreciation ................................. 216,018,781
------------
Net realized and unrealized gains on investments ............ 486,006,720
------------
CHANGE IN NET ASSETS FROM OPERATIONS .......................... $501,069,403
============
See accompanying notes to financial statements.
CGM REALTY FUND
- -------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
---------------------------------
2007 2006
-------------- --------------
FROM OPERATIONS
Net investment income .................................. $ 15,062,683 $ 19,562,020
Net realized gains on investments ...................... 269,987,939 342,376,727
Net unrealized appreciation (depreciation) ............. 216,018,781 (35,849,776)
-------------- --------------
Change in net assets from operations ................. 501,069,403 326,088,971
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................................. (13,939,899) (19,562,020)
Net short-term realized capital gains on investments ... (117,024,618) (18,539,617)
Net long-term realized capital gains on investments .... (147,041,038) (317,224,877)
-------------- --------------
(278,005,555) (355,326,514)
-------------- --------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ........................... 574,783,411 457,184,132
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ................. 11,065,084 17,159,267
Distributions from net short-term realized capital
gains on investments ................................ 94,353,620 13,157,171
Distributions from net long-term realized capital
gains on investments ................................ 118,556,947 251,776,661
-------------- --------------
798,759,062 739,277,231
Cost of shares redeemed ................................ (498,107,852) (267,260,344)
-------------- --------------
Change in net assets derived from capital share
transactions ........................................ 300,651,210 472,016,887
-------------- --------------
Total change in net assets ............................. 523,715,058 442,779,344
NET ASSETS
Beginning of period .................................... 1,474,745,716 1,031,966,372
-------------- --------------
End of period .......................................... $1,998,460,774 $1,474,745,716
============== ==============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................. 18,339,803 14,825,477
Issued in connection with reinvestment of:
Dividends from net investment income ................. 345,179 539,589
Distributions from net short-term realized capital
gains on investments ................................ 2,981,157 487,664
Distributions from net long-term realized capital
gains on investments ................................ 3,745,875 9,331,664
-------------- --------------
25,412,014 25,184,394
Redeemed ............................................... (16,365,379) (8,644,393)
-------------- --------------
Net Change ............................................. 9,046,635 16,540,001
============== ==============
See accompanying notes to financial statements.
CGM REALTY FUND
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2007 2006 2005 2004 2003
For a share of the Fund outstanding throughout each period:
Net asset value at the beginning of period ............... $27.06 $27.19 $29.56 $24.75 $13.39
------ ------ ------ ------ ------
Net investment income (a) ................................ 0.27 0.45 0.43 0.19 0.03
Net realized and unrealized gains on investments ......... 9.06 7.37 7.51 8.55 11.93
------ ------ ------ ------ ------
Total from investment operations ......................... 9.33 7.82 7.94 8.74 11.96
------ ------ ------ ------ ------
Dividends from net investment income ..................... (0.25) (0.45) (0.43) (0.18) (0.04)
Distribution from net short-term realized gains .......... (2.08) (0.42) -- (0.16) --
Distribution from net long-term realized gains ........... (2.61) (7.08) (9.88) (3.59) (0.56)
------ ------ ------ ------ ------
Total Distributions ...................................... (4.94) (7.95) (10.31) (3.93) (0.60)
------ ------ ------ ------ ------
Net increase (decrease) in net asset value ............... 4.39 (0.13) (2.37) 4.81 11.36
------ ------ ------ ------ ------
Net asset value at end of period ......................... $31.45 $27.06 $27.19 $29.56 $24.75
====== ====== ====== ====== ======
Total return (%) ......................................... 34.4 29.0 27.0 35.5 89.7
Ratios:
Operating expenses to average net assets (%) ............. 0.86 0.88 0.92 0.96 1.02
Net investment income to average net assets (%) .......... 0.86 1.49 1.34 0.73 0.16
Portfolio turnover (%) ................................... 200 160 136 43 68
Net assets at end of period (in thousands) ($) ........... 1,998,461 1,474,746 1,031,966 785,399 644,420
(a) Per share net investment income has been calculated using the average shares outstanding during the period.
See accompanying notes to financial statements.
CGM REALTY FUND
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2007
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 Massachusetts business trust,
there are four CGM Funds. The Fund commenced operations on May 13, 1994. The
Fund's investment objective is to provide a combination of income and long-
term growth of capital. The Fund intends to pursue its objective by investing
primarily in equity securities of companies in the real estate industry,
including real estate investment trusts.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION -- Equity securities are valued on the basis of
valuations furnished by a pricing service authorized by the Board of
Trustees. The pricing service provides the last reported sale price for
securities listed on a national securities exchange or in the case of the
NASDAQ national market system, the NASDAQ official closing price. For
securities with no sale reported and in the case of over-the-counter
securities not so listed, the last reported bid price is used. Short-term
investments having a maturity of sixty days or less are stated at amortized
cost, which approximates value. Other assets and securities which are not
readily marketable will be valued in good faith at fair value using methods
determined by the Board of Trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed) and dividend income is recorded on the ex-dividend date
net of applicable foreign taxes, a portion of which may be recoverable.
The Fund will accrue such taxes and recoveries as applicable based upon
its current interpretations of the tax rules and regulations that exist in
the markets in which it invests. Interest income is recorded on the
accrual basis and includes amortization of premium and discount. Net gain
or loss on securities sold is determined on the identified cost basis.
Dividend payments received by the Fund from its investment in REITs may
consist of ordinary income, capital gains and return of capital and as
such are recorded as dividend income, capital gains or a reduction to
security cost, as appropriate. Non-cash dividend payments, if any, are
recorded at the fair market value of the securities received.
C. FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies, and to distribute to its shareholders all of its
taxable income and net realized capital gains, within the prescribed time
period. Accordingly, no provision for federal income tax has been made. At
December 31, 2007 there were no capital loss carryovers available to offset
future realized gains.
As of December 31, 2007, the components of distributable earnings on a tax
basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED LONG-TERM NET UNREALIZED
ORDINARY INCOME CAPITAL GAINS APPRECIATION/(DEPRECIATION)
--------------- ----------------------- ----------------------------
$-- $-- $470,544,321
The identified cost of investments in securities owned by the Fund for
federal income tax purposes, and their respective gross unrealized
appreciation and depreciation at December 31, 2007 was as follows:
GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED
IDENTIFIED COST APPRECIATION DEPRECIATION APPRECIATION
--------------- ---------------- ---------------- --------------
$1,529,505,863 $541,838,600 $(71,294,279) $470,544,321
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 years ended December
31, 2007 and 2006, were as follows:
LONG-TERM
YEAR ORDINARY INCOME CAPITAL GAINS TOTAL
---- --------------- ------------- -----
2007 $130,964,517 $147,041,038 $278,005,555
2006 $ 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 foreign securities markets are less liquid and
at times more volatile than securities of comparable U.S. companies and U.S.
securities markets.
3. DIVERSIFICATION -- The Fund, although diversified, takes a focused
approach to investing within a single industry, sector of the economy or fewer
individual holdings than more diversified funds. Therefore, the Fund may be
subject to greater price volatility or be adversely affected by the
performance of particular industries, sectors, or individual holdings compared
to the performance of a more diversified fund.
4. PURCHASES AND SALES OF SECURITIES -- For the period ended December 31,
2007, purchases and sales of securities other than United States government
obligations and short-term investments aggregated $3,527,697,915 and
$3,477,901,361, respectively. There were no purchases or sales of long-term
United States government obligations.
5. A. MANAGEMENT FEES -- During the period ended December 31, 2007, the Fund
incurred management fees of $13,614,381, 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 with the Investment Company Act of
1940 and the Sarbanes Oxley Act of 2002. The accounting,
administration and compliance expense of $253,945, for the period
ended December 31, 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, $180,048 represented reimbursements by
the Fund to CGM for a portion of the salaries of CGM employees who are
officers of the Fund.
C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to any trustees who are directors, officers or employees of
CGM, or any affiliate of CGM (other than registered investment
companies). For the period ended December 31, 2007, each disinterested
trustee was compensated by the CGM Funds with an annual fee of $50,000
plus travel expenses for each meeting attended. The disinterested
trustees are responsible for the audit committee functions of the CGM
Funds and have designated a chairman to oversee those functions who
receives an additional $30,000 annually. Of these amounts, each of the
CGM Funds is responsible for $7,000 per trustee annually, plus an
annual variable fee calculated based on the proportion of each of the
CGM Funds' average net assets relative to the aggregate average net
assets of the CGM Funds.
6. 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 are
charged interest at 0.75% over the current Overnight Federal Funds Rate. The
Fund incurred a commitment fee of 0.10% per annum on the unused portion of the
line of credit, payable quarterly for the year 2007. There were no borrowings
under the line of credit during the period ended December 31, 2007.
7. AFFILIATED ISSUERS -- Affiliated issuers, as defined under the Investment
Company Act of 1940, are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer. The
following summarizes transactions with affiliates of the Fund during the
period ended December 31, 2007:
NUMBER OF NUMBER OF
SHARES HELD GROSS GROSS SHARES HELD DIVIDEND MARKET VALUE
NAME OF ISSUER DECEMBER 31, 2006 PURCHASES SALES DECEMBER 31, 2007 INCOME DECEMBER 31, 2007
- -------------- ----------------- --------- ----- ----------------- -------- -----------------
Tanger Factory Outlet
Centers, Inc. ............ 891,500 2,120,000 (1,131,500) 1,880,000 $ -- $70,894,800
==== ==========
8. NEW ACCOUNTING PRONOUNCEMENTS -- The Fund adopted the provisions of FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement 109 ("FIN 48"), on January 1, 2007. FIN 48
prescribes a minimum threshold for financial statement recognition of the
benefit of a tax position taken or expected to be taken in a tax return. The
implementation of FIN 48 did not result in any unrecognized tax benefits in
the accompanying financial statements. Each of the Trust's federal tax returns
for the prior three fiscal years remains subject to examination by the
Internal Revenue Service.
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
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of CGM Trust and Shareholders of CGM Realty Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of CGM Realty Fund
(the "Fund", a series of CGM Trust) at December 31, 2007, the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2007 by correspondence with the
custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 15, 2008
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 1-800-345-3048. The
policies also appear in the Fund's Statement of Additional Information, which
can be found on the SEC's website, http://www.sec.gov. The voting records can
also be found on the SEC's website on the N-PX filing.
PORTFOLIO HOLDINGS:
The Fund files its complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms
N-Q are available on the SEC's website at http://www.sec.gov and may be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
CGM REALTY FUND
- -------------------------------------------------------------------------------
FUND EXPENSES
As a shareholder of CGM Realty Fund, you incur two types of costs: (1)
transaction costs, which could include, among other charges, wire fees and
custodial maintenance fees for certain types of accounts and (2) ongoing
costs, including management fees and other Fund expenses. This Example is
intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period July 1, 2007 to December 31, 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 custodial maintenance fees that may be payable. Therefore, the second
line of the table is useful in comparing ongoing costs only, and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
- --------------------------------------------------------------------------------
Beginning Ending Expenses Paid
Account Value Account Value During Period*
7/01/07 12/31/07 7/01/07 - 12/31/07
- --------------------------------------------------------------------------------
Actual $1,000.00 $1,172.20 $4.65
- --------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000.00 $1,020.92 $4.33
- --------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 0.85%,
multiplied by the average account value over the period, multiplied by 184/
365 (to reflect the one-half year period).
CGM REALTY FUND
- -------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/2007
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements. For the year
ended December 31, 2007, the Fund designated $150,412,132 as long-term
capital dividends.
TRUSTEES AND OFFICERS
The Fund is supervised by the board of trustees (the "Board") of the Trust.
The Board is responsible for the general oversight of the Fund, including
general supervision and review of the Fund's investment activities. The Board,
in turn, elects the officers who are responsible for administering the Fund's
day-to-day operations. An asterisk in the table below identifies those
trustees and officers who are "interested persons" of the Trust as defined in
the Investment Company Act of 1940. Each trustee and officer of the Trust
noted as an interested person is interested by virtue of that individual's
position with Capital Growth Management Limited Partnership ("CGM"), the
Fund's investment adviser, as described in the table below. Each trustee
serves during the continued lifetime of the Trust or until he earlier dies,
resigns or is removed, or if sooner, until the election and qualification of
his successor. Each officer serves until his or her successor is elected or
qualified or until the officer sooner dies, resigns, or is removed or becomes
disqualified.
The trustees and officers of the Trust, their ages, their principal occupations
during the past five years, the number of CGM Funds they oversee, and other
directorships they hold are set forth below. Unless otherwise noted below, the
address of each interested trustee and officer is One International Place,
Boston, Massachusetts 02110. Correspondence intended for the trustees who are
not "interested persons" of the Trust may be sent c/o Capital Growth
Management, One International Place, Boston, Massachusetts 02110. The Statement
of Additional Information for the Fund includes additional information about
Fund trustees and is available, without charge, upon request by calling the CGM
Marketing Department, toll free, at 800-345-4048.
PRINCIPAL NUMBER OF
OCCUPATION FUNDS IN THE
DURING PAST CGM FUNDS
POSITION HELD AND 5 YEARS AND OTHER COMPLEX
NAME, ADDRESS AND AGE LENGTH OF TIME SERVED DIRECTORSHIPS HELD OVERSEEN
- --------------------- --------------------- ------------------ ------------
INTERESTED TRUSTEES
G. Kenneth Heebner* Trustee since 1993 Co-founder and Employee, 4
age 67 CGM; Controlling Owner,
Kenbob,Inc. (general
partner of CGM)
Robert L. Kemp* Trustee since 1990 Co-founder and Employee, 4
age 75 CGM; Non-voting Owner,
Kenbob, Inc. (general
partner of CGM)
DISINTERESTED TRUSTEES
Peter O. Brown Trustee since 1993 Counsel (formerly, 4
age 67 Partner), Harter, Secrest
& Emery LLP (law firm);
formerly Executive Vice
President and Chief
Operating Officer, The
Glenmeade Trust Company
(from 1990 to 1993);
formerly Senior Vice
President, J.P. Morgan
Chase Bank (from 1981-
1990); Trustee, TT
International U.S.A.
Master and Feeder Trusts
(four mutual funds)
from 2000-2005
Mark W. Holland Trustee since 2004 President, Wellesley 4
age 58 Financial Advisors, LLC;
formerly Vice President
and Chief Operating
Officer, Fixed Income
Management, Loomis,
Sayles & Company, L.P.;
formerly Director,
Loomis, Sayles & Company,
L.P.
James Van Dyke Quereau, Jr. Trustee since 1993 Managing Partner and 4
age 59 Director, Stratton
Management Company
(investment management);
Director and Vice
President, Semper Trust
Co. until 2006
J. Baur Whittlesey Trustee since 1990 Member, Ledgewood, P.C. 4
age 61 (law firm)
OFFICERS
G. Kenneth Heebner* Vice President since 1990 Co-founder and Employee, 4
age 67 CGM; Controlling Owner,
Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* President since 1990 Co-founder and Employee, 4
age 75 CGM; Non-voting Owner,
Kenbob, Inc. (general
partner of CGM)
David C. Fietze* Chief Compliance Officer Employee - Legal counsel, 4
age 38 since 2004 CGM; formerly counsel,
address: Bartlett Hackett
38 Newbury Street Feinberg, P.C.
Boston, Massachusetts
02116
Kathleen S. Haughton* Vice President since 1992 Employee - Investor 4
age 47 and Anti-Money Laundering Services Division, CGM
address: Compliance Officer since 2002
38 Newbury Street
Boston, Massachusetts
02116
Jem A. Hudgins* Treasurer since 2004 Employee - CGM 4
age 44
Leslie A. Lake* Vice President and Secretary Employee - Office 4
age 62 since 1992 Administrator, CGM
Martha I. Maguire* Vice President since 1994 Employee - Funds 4
age 52 Marketing, CGM
Mary L. Stone* Assistant Vice President Employee - Portfolio 4
age 63 since 1990 Transactions, CGM
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
TRANSFER AND DIVIDEND PAYING
AGENT AND CUSTODIAN OF ASSETS
STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts 02111
SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY
BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 8511
Boston, Massachusetts 02266-8511
- --------------------------------------------------
TELEPHONE NUMBERS
For information about:
[ ] Account Procedures and Status
[ ] Redemptions
[ ] Exchanges
Call 800-343-5678
[ ] New Account Procedures
[ ] Prospectuses
[ ] Performance
[ ] Proxy Voting Policies and Voting Records
[ ] Complete Schedule of Portfolio Holdings for the
1st & 3rd Quarters (as filed on Form N-Q)
Call 800-345-4048
- --------------------------------------------------
MAILING ADDRESS
CGM Shareholder Services
c/o Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511
- --------------------------------------------------
This report has been prepared for the shareholders of the Fund and is not
authorized for distribution to current or prospective investors in the Fund
unless it is accompanied or preceded by a prospectus.
RAR 07 Printed in U.S.A.
CGM
FOCUS FUND
11th Annual Report
December 31, 2007
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Focus Fund returned 12.0% during the fourth quarter of 2007 compared to the
unmanaged Standard and Poor's 500 Index which returned -3.3% over the same
period. For the year just ended, CGM Focus Fund returned 80.0% and the S&P 500
Index, 5.5%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
November marked the sixth anniversary of the U.S. economic expansion. Indeed,
the longevity of the current economic cycle as well as the bull market in
common stocks is testing historical records. Now, however, there are signs of
slowdown on the business horizon as damage precipitated by past excesses in the
housing market along with years of easy credit availability is corrected. Cheap
money rates and the marketing of subprime mortgage loans mixed in with
high-grade paper (packaged and sold as prime credits) have led to payment
defaults on the consumer level and huge institutional losses. Home buyers were
wooed with mortgages they couldn't afford, wrong-headedly assuming that rising
home prices would bail them out. Instead home prices declined, loans went south
and the financial institutions and investors who purchased mortgage- backed
securities took the hit. Billions in assets have been and continue to be
written off as worthless while many banks and other financial entities scramble
to raise capital to shore up balance sheets. Well-publicized losses have
already cost top jobs at both Citigroup and Merrill Lynch and still the full
extent of the devastation is unclear since no one really knows the value of
many of these esoteric packages of now delinquent mortgages. The Federal
Reserve Board has taken several steps to encourage borrowing and inject
liquidity into the market which we hope will stabilize the credit markets. For
the moment though, the uncertainty has spawned a flight to quality in the bond
market driving yields on the 10-year government bond from 5.04% in June to
4.03% at year end.
In addition to the credit crisis, a second troubling sign emerged today with
the release of the Institute for Supply Management's index of manufacturing
which dropped to 47.7 in December from 50.8 the month before, thereby
confirming a slowdown. And, yet another uncertainty in the economic landscape
is the enormous rise in the price of crude oil. The year began with crude at
$50 a barrel and ended with it at $98. In the past, rising oil prices have
acted like a large tax resulting in a pull back in consumer spending. This time
around, the consumer appears to be a bit more resilient and so far, despite
some spending cuts, the dire consequences of past predictions have yet to
materialize.
The credit crisis is serious and has wreaked havoc on many financial
institutions. Manufacturing may well be slowing and the price of oil remains
high. However, there are many sectors of the economy prospering at the same
time. The annual GDP growth rate in the third quarter of 2007 was a hefty 4.9%.
Businesses that supply global markets, rapidly developing countries like China,
Brazil, Russia and India in particular, are faring well. The U.S. agricultural
sector is booming and heavy capital industries, including aerospace and
defense, are strong. The unemployment rate remains low, the S&P 500 Index
closed the year off just 6% from its all-time high in October despite ongoing
credit travails and the Fed continues to reduce short-term interest rates. We
are hopeful the economy can weather current turbulence and resume a more
measured growth pattern later in the new year.
PORTFOLIO STRATEGY
CGM Focus Fund was fully invested throughout the year, reflecting our belief in
continued global economic growth. The Fund focused on industries that profited
from the increasing consumption of commodities in emerging economies including
China, India, Brazil, and the Middle Eastern countries.
The Fund's largest sector positions were energy, industrial raw materials and
fertilizer, which benefited from rising grain prices. An initial substantial
position in investment banks was eliminated in the first half of the year when
their prospects were diminished by the developing financial crisis in
mortgage-related securities.
Five security holdings experienced well over 100% appreciation during the year
and were major contributors to 2007 performance: fertilizer producers The
Mosaic Company and Potash Corporation of Saskatchewan Inc., Brazilian nickel
and iron ore producer Companhia Vale do Rio Doce ADR, Brazilian oil and gas
company Petroleo Brasileiro S.A. - Petrobras ADR, and Russian cellular phone
company Open Joint Stock Company "Vimpel-Communications" ADR. The Fund
experienced losses in energy drink producer Hansen Natural Corporation and oil
and gas producer PetroChina Company Limited ADR. Short selling contributed to
the Fund's gains with significant profits earned in short sales of mortgage
originators and a realized loss in an Amazon.com, Inc. short sale.
2007 results benefited from unusually large increases in oil and fertilizer
prices which we believe are unlikely to recur in 2008.
At the end of the year, CGM Focus Fund held significant long positions in the
steel, fertilizer and telephone industries. The Fund's three largest long
holdings were The Mosaic Company, Petroleo Brasileiro S.A.- Petrobras ADR and
Open Joint Stock Company "Vimpel-Communications" ADR. Approximately 8% of the
Fund's total net assets were invested in securities sold short on December 31,
2007.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 2, 2008
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CGM FOCUS FUND AND THE UNMANAGED S&P 500 INDEX
assuming reinvestment of dividends and capital gains
- --------------------------------
CGM FOCUS FUND
Average Annual Total Returns
through 12/31/07
- --------------------------------
1 year 5 year 10 year
80.0% 37.1% 26.1%
- --------------------------------
Past performance is no
indication of future results
- --------------------------------
Unmanaged
CGM S&P 500
Focus Fund Index
-----------------------------------------------------
Start $ 10,000 $10,000
1998 10,350 12,860
1999 11,230 15,561
2000 17,283 14,145
2001 25,527 12,462
2002 20,983 9,708
2003 34,937 12,494
2004 39,269 13,856
2005 49,165 14,535
2006 56,540 16,832
2007 101,772 17,758
CGM FOCUS FUND
PORTFOLIO MANAGER
- -------------------------------------------------------------------------------
G. Kenneth Heebner has managed CGM Focus Fund since its inception on September
3, 1997. In 1990, Mr. Heebner founded Capital Growth Management Limited
Partnership with Robert L. Kemp. Prior to establishing the new company, Mr.
Heebner managed mutual funds at Loomis, Sayles and Company. In addition to CGM
Focus Fund, he currently manages CGM Capital Development Fund, CGM Mutual Fund
and CGM Realty Fund.
- -------------------------------------------------------------------------------
See the Schedule of Investments on pages 4 and 5 for the percentage of net
assets of the Fund invested in particular industries or securities as of
December 31, 2007.
INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Cumulative Total Return for Periods Ended
December 31, 2007
CGM FOCUS
FUND
---------
10 Years ...................................................... +917.1%
5 Years ....................................................... +384.9
1 Year ........................................................ + 80.0
3 Months ...................................................... + 12.0
The performance data contained in the report represent past performance, which
is no guarantee of future results. The graph and table above do not reflect the
deduction of taxes a shareholder would pay on Fund distributions or the
redemption of Fund shares and assume the reinvestment of all Fund
distributions. The investment return and the principal value of an investment
in the Fund will fluctuate so that investors' shares, when redeemed, may be
worth more or less than their original cost. Current performance may be lower
or higher than the performance data quoted. 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 cumulative total return and average annual total return for the ten
year period would have been lower.
CGM FOCUS FUND
- -----------------------------------------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 2007
COMMON STOCKS -- 94.0% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
BANKS - MONEY CENTER -- 4.9%
Banco Itau Holding Financeira S.A. ADR (b)(c) ................................ 10,560,000 $ 273,081,600
--------------
COPPER -- 5.0%
Freeport-McMoRan Copper & Gold Inc. .......................................... 2,700,000 276,588,000
--------------
ENGINEERING -- 4.3%
Foster Wheeler Ltd. (d) ...................................................... 1,539,000 238,575,780
--------------
FERTILIZER -- 11.4%
Potash Corporation of Saskatchewan Inc. ...................................... 1,890,000 272,084,400
The Mosaic Company (d) ....................................................... 3,860,000 364,152,400
--------------
636,236,800
--------------
FINANCIAL SERVICES -- 3.5%
Banco Bradesco S.A. ADR (b)(c) ............................................... 6,030,000 192,960,000
--------------
FOOD - AGRIBUSINESS -- 3.5%
Monsanto Company ............................................................. 1,725,000 192,665,250
--------------
MACHINERY -- 5.3%
Deere & Company .............................................................. 3,150,000 293,328,000
--------------
METALS AND MINING -- 0.6%
Mechel OAO ADR (b)(e) ........................................................ 320,000 31,084,800
--------------
MISCELLANEOUS -- 4.6%
MEMC Electronic Materials, Inc. (d) .......................................... 2,850,000 252,196,500
--------------
OFFSHORE DRILLING -- 5.1%
Transocean Inc. (d) .......................................................... 1,953,440 279,634,936
--------------
OIL - INDEPENDENT PRODUCTION -- 6.5%
Petroleo Brasileiro S.A. - Petrobras ADR (b)(c)(f) ........................... 3,140,000 361,853,600
--------------
OIL REFINING -- 5.7%
Hess Corporation ............................................................. 3,000,000 302,580,000
Suncor Energy Inc. ........................................................... 100,000 10,873,000
--------------
313,453,000
--------------
OIL SERVICE -- 7.1%
Schlumberger Limited (f) ..................................................... 3,020,000 297,077,400
Weatherford International Ltd. (d) ........................................... 1,400,000 96,040,000
--------------
393,117,400
--------------
STEEL -- 16.0%
ArcelorMittal ................................................................ 3,750,000 290,062,500
Nucor Corporation ............................................................ 4,630,000 274,188,600
United States Steel Corporation (f) .......................................... 2,680,000 324,038,800
--------------
888,289,900
--------------
TECHNOLOGY -- 1.2%
Turkcell Iletisim Hizmetleri A.S. ADR (b) .................................... 2,410,000 66,443,700
--------------
TELEPHONE -- 9.3%
Mobile Telesystems OJSC ADR (b)(e) ........................................... 1,570,000 159,810,300
Open Joint Stock Company "Vimpel-Communications" ADR (b)(e)(f) ............... 8,500,000 353,600,000
--------------
513,410,300
--------------
TOTAL COMMON STOCKS (Identified cost $3,981,734,151) ........................... 5,202,919,566
--------------
SHORT-TERM INVESTMENT -- 1.4% OF TOTAL NET ASSETS
FACE
AMOUNT
------
American Express Credit Corporation, 3.80%, 01/02/08 (Cost $75,910,000) ........ $75,910,000 75,910,000
--------------
TOTAL INVESTMENTS - 95.4% (Identified cost $4,057,644,151) ..................... 5,278,829,566
Cash and receivables ......................................................... 812,376,200
Liabilities .................................................................. (555,092,200)
--------------
TOTAL NET ASSETS -- 100.0% ..................................................... $5,536,113,566
==============
(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 had approximately 15% of its net assets at December 31, 2007 invested in companies
incorporated in Brazil.
(d) Non-income producing security.
(e) The Fund had approximately 10% of its net assets at December 31, 2007 invested in companies
incorporated in Russia.
(f) A portion of this security had been segregated as collateral in connection with short sale
investments. (See Note 1E.)
SECURITIES SOLD SHORT (PROCEEDS $666,272,355)
SHARES VALUE
------ -----
Ambac Financial Group, Inc. ................................................ 2,225,000 $ 57,338,250
Countrywide Financial Corporation .......................................... 30,000,000 268,200,000
Federal Home Loan Mortgage Corporation ..................................... 3,000,000 102,210,000
--------------
$ 427,748,250
==============
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2007
ASSETS
Investments at value (Identified cost -- $4,057,644,151) .... $5,278,829,566
Cash ........................................................ 2,472
Deposits with brokers for short sales ....................... 676,992,747
Receivable for:
Securities sold .......................... $ 22,385,965
Shares of the Fund sold .................. 105,290,615
Dividends and interest ................... 7,704,401 135,380,981
------------- --------------
Total assets ............................................ 6,091,205,766
--------------
LIABILITIES
Securities sold short at current market value (Proceeds
$666,272,355) .............................................. 427,748,250
Payable for:
Securities purchased ..................... 108,475,219
Shares of the Fund redeemed .............. 13,090,013
Short dividends .......................... 750,000
Tax withholding liability ................ 492,458 122,807,690
-------------
Accrued expenses:
Management fees .......................... 4,059,729
Trustees' fees ........................... 22,111
Accounting, administration and
compliance expenses ..................... 31,087
Transfer agent fees ...................... 111,948
Other expenses ........................... 311,385 4,536,260
------------- --------------
Total liabilities ....................................... 555,092,200
--------------
NET ASSETS .................................................. $5,536,113,566
==============
Net Assets consist of:
Capital paid-in ........................................... $4,125,490,672
Accumulated net realized losses on investments ............ (49,086,626)
Net unrealized appreciation on investments:
Long positions .......................................... 1,221,185,415
Short positions ......................................... 238,524,105
--------------
NET ASSETS .................................................. $5,536,113,566
==============
Shares of beneficial interest outstanding, no par value ..... 105,471,028
===========
Net asset value per share* .................................. $52.49
======
* Shares of the Fund are sold and redeemed at net asset value
($5,536,113,566 / 105,471,028).
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 2007
INVESTMENT INCOME
Income:
Dividends (net of withholding tax of $2,187,626) ........ $ 30,616,201
Interest on restricted cash ............................. 15,175,134
Interest ................................................ 1,641,447
--------------
47,432,782
--------------
Expenses:
Management fees ......................................... 31,205,411
Trustees' fees .......................................... 89,101
Accounting, administration and compliance expenses ...... 373,040
Custodian fees and expenses ............................. 397,610
Transfer agent fees ..................................... 783,170
Audit and tax services .................................. 38,500
Legal ................................................... 87,199
Printing ................................................ 127,781
Registration fees ....................................... 340,814
Line of credit commitment fee ........................... 40,556
Dividends on short sales ................................ 9,368,000
Miscellaneous expenses .................................. 2,763
--------------
42,853,945
--------------
Net investment income ..................................... 4,578,837
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments:
Long transactions ....................................... 855,115,039
Short transactions ...................................... 6,832,803
Net unrealized appreciation on investments:
Long transactions ....................................... 914,016,881
Short transactions ...................................... 282,985,309
--------------
Net realized and unrealized gains on investments .......... 2,058,950,032
--------------
CHANGE IN NET ASSETS FROM OPERATIONS ........................ $2,063,528,869
==============
See accompanying notes to financial statements.
CGM FOCUS FUND
- ----------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
--------------------------------
2007 2006
-------------- --------------
FROM OPERATIONS
Net investment income .................................................... $ 4,578,837 $ 49,456,211
Net realized gains from investments ...................................... 861,947,842 173,863,900
Net unrealized appreciation .............................................. 1,197,002,190 24,273,033
-------------- --------------
Change in net assets from operations ................................... 2,063,528,869 247,593,144
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................................................... (4,608,973) (48,763,442)
Net short-term realized capital gains on investments ..................... (727,774,379) --
Net long-term realized capital gains on investments ...................... (150,234,755) (175,789,197)
-------------- --------------
(882,618,107) (224,552,639)
-------------- --------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................................. 2,144,201,168 997,758,557
Net asset value of shares issued in connection with reinvestment of:
Dividends from net investment income ................................... 3,733,219 40,066,125
Distributions from net short-term realized capital
gains on investments .................................................. 610,369,415 --
Distributions from net long-term realized capital
gains on investments .................................................. 126,003,069 148,382,402
-------------- --------------
2,884,306,871 1,186,207,084
Cost of shares redeemed .................................................. (801,142,829) (578,351,879)
-------------- --------------
Change in net assets derived from capital share transactions ........... 2,083,164,042 607,855,205
-------------- --------------
Total change in net assets ............................................... 3,264,074,804 630,895,710
NET ASSETS
Beginning of period ...................................................... 2,272,038,762 1,641,143,052
-------------- --------------
End of period ............................................................ $5,536,113,566 $2,272,038,762
============== ==============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................................... 43,255,062 26,593,050
Issued in connection with reinvestment of:
Dividends from net investment income ................................... 70,845 1,150,667
Distributions from net short-term realized capital
gains on investments .................................................. 11,588,559 --
Distributions from net long-term realized capital
gains on investments .................................................. 2,392,312 4,261,150
-------------- --------------
57,306,778 32,004,867
Redeemed ................................................................. (17,341,601) (15,631,438)
-------------- --------------
Net change ............................................................... 39,965,177 16,373,429
============== ==============
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
Year Ended December 31, 2007
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Change in net assets resulting from operations .......... $ 2,063,528,869
Adjustments to reconcile change in net assets resulting
from operations to net cash provided by
operating activities:
Purchase of investment securities ..................... (13,970,052,519)
Buy to cover investment securities held short ......... (999,559,363)
Proceeds from disposition of investment securities .... 12,819,850,470
Proceeds from short sales of investment securities .... 1,348,874,725
Sale of short-term investment securities, net ......... (56,245,000)
Increase in deposits with brokers for short sales ..... (332,810,380)
Increase in dividends and interest receivable ......... (4,904,849)
Decrease in receivables for securities sold ........... 27,165,220
Increase in tax withholding liability ................. 407,201
Increase in payable for short dividends ............... 750,000
Increase in payable for securities purchased .......... 57,837,675
Increase in accrued expenses .......................... 2,356,041
Mark to market on receivable and liabilities .......... 105
Unrealized appreciation on securities ................. (1,197,002,190)
Net realized gain from investments .................... (861,947,842)
----------------
Net cash used in operating activities ................... (1,101,751,837)
----------------
Cash flows from financing activities:
Proceeds from shares sold ............................... 2,044,327,698
Payment on shares redeemed .............................. (800,058,747)
Cash distributions paid ................................. (142,517,718)
----------------
Net cash provided by financing activities ............... 1,101,751,233
----------------
Net decrease in cash ...................................... (604)
Cash:
Beginning balance ....................................... 3,076
----------------
Ending balance .......................................... $ 2,472
================
Supplemental disclosure of cash flow information:
Non-cash financing activities not included herein consist of reinvestment of
dividends and distributions of $740,105,703.
See accompanying notes to financial statements.
CGM FOCUS FUND
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
2007 2006 2005 2004 2003
------------ ------------ ---------- ---------- ----------
For a share of the Fund outstanding
throughout each period:
Net asset value at the beginning of
period ................................ $34.68 $33.40 $29.51 $29.93 $17.98
------ ------ ------ ------ ------
Net investment income (loss) (a) ........ 0.06(b) 0.82(b) 0.52(b) 0.04(b) (0.21)
Net realized and unrealized gains on
investments and foreign currency
transactions .......................... 27.71 4.19 6.93 3.65 12.16
------ ------ ------ ------ ------
Total from investment operations ........ 27.77 5.01 7.45 3.69 11.95
------ ------ ------ ------ ------
Dividends from net investment income .... (0.05) (0.81) (0.44) (0.04) --
Distribution from net short-term
realized gains ........................ (8.21) -- (1.80) -- --
Distribution from net long-term
realized gains ........................ (1.70) (2.92) (1.32) (4.07) --
------ ------ ------ ------ ------
Total distributions ..................... (9.96) (3.73) (3.56) (4.11) --
------ ------ ------ ------ ------
Net increase (decrease) in net asset
value ................................. 17.81 1.28 3.89 (0.42) 11.95
------ ------ ------ ------ ------
Net asset value at end of period ........ $52.49 $34.68 $33.40 $29.51 $29.93
====== ====== ====== ====== ======
Total return (%) ........................ 80.0 15.0(c) 25.2 12.4 66.5
Ratios:
Operating expenses to average net
assets (%) ............................ 0.99 1.02 1.07 1.12 1.18
Dividends and interest on short
positions to
average net assets (%) ................ 0.28 0.18 0.15 0.09 --
------ ------ ------ ------ ------
Total expenses to average net assets (%) 1.27 1.20 1.22 1.21 1.18
====== ====== ====== ====== ======
Net investment income (loss) to average
net assets (%) ........................ 0.14 2.23 1.55 0.14 (0.92)
Portfolio turnover (%) .................. 384 333 282 327 204
Net assets at end of period (in
thousands) ($) ........................ 5,536,114 2,272,039 1,641,143 918,837 775,499
(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, for the period ended December 31, 2006 was $0.36 and for the
period ended December 31, 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.
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2007
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 Massachusetts business 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, 2007, there were no capital loss carryovers available to
offset future realized gains.
As of December 31, 2007, the components of distributable earnings on a tax
basis were as follows:
UNDISTRIBUTED NET UNREALIZED
UNDISTRIBUTED LONG-TERM APPRECIATION/
ORDINARY INCOME CAPITAL GAINS (DEPRECIATION)
--------------- ------------- --------------
$ -- $ -- $1,410,622,895
The identified cost of investments in securities, held long, owned by the
Fund for federal income tax purposes, and their respective gross
unrealized appreciation and depreciation at December 31, 2007 was as
follows:
GROSS GROSS
UNREALIZED UNREALIZED NET UNREALIZED
IDENTIFIED COST APPRECIATION DEPRECIATION APPRECIATION
--------------- ------------ ------------ --------------
$4,088,546,900 $1,197,052,171 $(6,769,505) $1,190,282,666
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. 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 years ended December 31,
2007 and 2006, were as follows:
LONG-TERM
YEAR ORDINARY INCOME CAPITAL GAINS TOTAL
---- --------------- ------------- -----
2007 $732,383,352 $150,234,755 $882,618,107
2006 $ 48,763,442 $175,789,197 $224,552,639
E. SHORT SALES -- The Fund may sell securities short. A short sale is a
transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. When the
Fund makes a short sale, it must borrow the security sold short to make
delivery to the buyer. The Fund then is obligated to replace the security
borrowed by purchasing the security at the market price at the time of
replacement. The Fund is liable for any dividends or interest paid on
securities sold short. While the short sale is outstanding, the Fund is
required to collateralize its obligations, which has the practical effect
of limiting the extent to which the Fund may engage in short sales. The
market value of securities held in a segregated account at December 31,
2007 was $695,974,000 and the value of cash held in a segregated account
was $676,992,747, a portion of which may have been restricted at December
31, 2007.
F. INDEMNITIES -- In the normal course of business, CGM Focus Fund may enter
into contracts that provide indemnities to third parties for various
potential losses and claims. CGM Focus Fund's maximum exposure under these
arrangements is unknown as this would depend on future claims that may be
made against CGM Focus Fund. The risk of material loss from such claims is
considered remote.
G. STATEMENT OF CASH FLOWS -- Information on the Fund's financial transactions
which have been settled through the receipt and disbursement of cash is
presented in the financial statement entitled Statement of Cash Flows. The
cash amount shown in the Statement of Cash Flows at December 31, 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 foreign securities markets are less liquid and
at times more volatile than securities of comparable U.S. companies and U.S.
securities markets.
3. DIVERSIFICATION -- The Fund is non-diversified, meaning it may invest a
significant portion of its investments within a single industry, sector of the
economy or fewer individual holdings than a diversified fund. Therefore, the
Fund may be subject to greater price volatility or be adversely affected by
the performance of particular industries, sectors, or individual holdings
compared to the performance of a diversified fund.
4. PURCHASES AND SALES OF SECURITIES -- For the period ended December 31,
2007, purchases and sales of securities other than United States government
obligations and short-term investments aggregated $13,970,052,519 and
$12,819,805,591, respectively. There were no purchases or sales of long-term
United States government obligations for the period ended December 31, 2007.
5. A. MANAGEMENT FEES -- During the period ended December 31, 2007, the Fund
incurred management fees of $31,205,411, 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 with the
Investment Company Act of 1940 and to Sarbanes Oxley Act of 2002. The
accounting, administration and compliance expense of $373,040, for the
period ended December 31, 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, $258,948 represented reimbursements by
the Fund to CGM for a portion of the salaries of CGM employees who are
officers of the Fund.
C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to any trustees who are directors, officers or employees of
CGM, or any affiliate of CGM (other than registered investment
companies). For the period ended December 31, 2007, each disinterested
trustee was compensated by the CGM Funds with an annual fee of $50,000
plus travel expenses for each meeting attended. The disinterested
trustees are responsible for the audit committee functions of the CGM
Funds and have designated a chairman to oversee those functions who
receives an additional $30,000 annually. Of these amounts, each of the
CGM Funds is responsible for $7,000 per trustee annually, plus an
annual variable fee calculated based on the proportion of each of the
CGM Funds' average net assets relative to the aggregate average net
assets of the CGM Funds.
6. 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 are
charged interest at 0.75% over the current Overnight Federal Funds Rate. The
Fund incurred a commitment fee of 0.1% per annum on the unused portion of the
line of credit, payable quarterly for the year 2007. There were no borrowings
under the line of credit during the period ended December 31, 2007.
7. NEW ACCOUNTING PRONOUNCEMENTS -- The Fund adopted the provisions of FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement 109 ("FIN 48"), on January 1, 2007. FIN 48
prescribes a minimum threshold for financial statement recognition of the
benefit of a tax position taken or expected to be taken in a tax return. The
implementation of FIN 48 did not result in any unrecognized tax benefits in
the accompanying financial statements. Each of the Trust's federal tax returns
for the prior three fiscal years remains subject to examination by the
Internal Revenue Service.
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.
8. SUBSEQUENT EVENT -- On January 31, 2008, the Trustees of CGM Trust, on
behalf of its CGM Focus Fund series, approved an agreement and plan of
reorganization pursuant to which all of the assets and liabilities of CGM
Capital Development Fund will be acquired by CGM Focus Fund as part of a tax-
free reorganization. This transaction is subject to approval by the
shareholders of CGM Capital Development Fund.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of CGM Trust and Shareholders of CGM Focus Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of
changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of CGM Focus Fund (the
"Fund", a series of CGM Trust) at December 31, 2007, the results of its
operations, the changes in its net assets, its cash flows and the financial
highlights for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2007 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 15, 2008
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 1-800-345-3048. The
policies also appear in the Fund's Statement of Additional Information, which
can be found on the SEC's website, http://www.sec.gov. The voting records can
also be found on the SEC's website on the N-PX filing.
PORTFOLIO HOLDINGS:
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at http://www.sec.gov and may be reviewed
and copied at the SEC's Public Reference Room in Washington, D.C. Information
on the operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
FUND EXPENSES
As a shareholder of CGM Focus Fund, you incur two types of costs: (1)
transaction costs, which could include, among other charges, wire fees and
custodial maintenance fees for certain types of accounts and (2) ongoing costs,
including management fees and other Fund expenses. This Example is intended to
help you understand your ongoing costs (in dollars) of investing in the Fund
and to compare these costs with the ongoing costs of investing in other mutual
funds.
The Example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period July 1, 2007 to December 31, 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 custodial maintenance fees that may be payable. Therefore, the second
line of the table is useful in comparing ongoing costs only, and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
- --------------------------------------------------------------------------------
Beginning Ending Expenses Paid
Account Value Account Value During Period*
7/01/07 12/31/07 7/01/07 - 12/31/07
- --------------------------------------------------------------------------------
Actual $1,000.00 $1,457.90 $7.68
- --------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000.00 $1,018.95 $6.31
- --------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.24%, which
includes expenses related to short sales activity, multiplied by the average
account value over the period, multiplied by 184/365 (to reflect the one-
half year period)
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/2007
We are providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
For the year ended December 31, 2007, the Fund designated $152,215,238 as long-
term capital dividends.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
The Fund is supervised by the board of trustees (the "Board") of the Trust. The
Board is responsible for the general oversight of the Fund, including general
supervision and review of the Fund's investment activities. The Board, in turn,
elects the officers who are responsible for administering the Fund's day-to-day
operations.
An asterisk in the table below identifies those trustees and officers who are
"interested persons" of the Trust as defined in the Investment Company Act of
1940. Each trustee and officer of the Trust noted as an interested person is
interested by virtue of that individual's position with Capital Growth
Management Limited Partnership ("CGM"), the Fund's investment adviser, as
described in the table below. Each trustee serves during the continued lifetime
of the Trust or until he earlier dies, resigns or is removed, or if sooner,
until the election and qualification of his successor. Each officer serves
until his or her successor is elected or qualified or until the officer sooner
dies, resigns, or is removed or becomes disqualified.
The trustees and officers of the Trust, their ages, their principal occupations
during the past five years, the number of CGM Funds they oversee, and other
directorships they hold are set forth below. Unless otherwise noted below, the
address of each interested trustee and officer is One International Place,
Boston, Massachusetts 02110. Correspondence intended for the trustees who are
not "interested persons" of the Trust may be sent c/o Capital Growth
Management, One International Place, Boston, Massachusetts 02110. The Statement
of Additional Information for the Fund includes additional information about
Fund trustees and is available, without charge, upon request by calling the CGM
Marketing Department, toll free, at 800-345-4048.
NUMBER OF
FUNDS IN THE
PRINCIPAL OCCUPATION DURING CGM FUNDS
POSITION HELD AND PAST 5 YEARS AND COMPLEX
NAME, ADDRESS AND AGE LENGTH OF TIME SERVED OTHER DIRECTORSHIPS HELD OVERSEEN
- --------------------- --------------------- ------------------------ --------
INTERESTED TRUSTEES
G. Kenneth Heebner* Trustee since 1993 Co-founder and Employee, CGM; Controlling 4
age 67 Owner, Kenbob, Inc. (general partner of
CGM)
Robert L. Kemp* Trustee since 1990 Co-founder and Employee, CGM; Non-voting 4
age 75 Owner, Kenbob, Inc. (general partner of
CGM)
DISINTERESTED TRUSTEES
Peter O. Brown Trustee since 1993 Counsel (formerly, Partner), Harter, 4
age 67 Secrest & Emery LLP (law firm); formerly
Executive Vice President and Chief
Operating Officer, The Glenmeade Trust
Company (from 1990 to 1993); formerly
Senior Vice President, J.P. Morgan Chase
Bank (from 1981 to 1990); Trustee, TT
International U.S.A. Master and Feeder
Trusts (four mutual funds) from 2000-2005
Mark W. Holland Trustee since 2004 President, Wellesley Financial Advisors, 4
age 58 LLC; formerly Vice President and Chief
Operating Officer, Fixed Income
Management, Loomis, Sayles & Company,
L.P.; formerly Director, Loomis, Sayles
& Company, L.P.
James Van Dyke Quereau, Jr. Trustee since 1993 Managing Partner and Director, Stratton 4
age 59 Management Company (investment management);
Director and Vice President, Semper Trust
Co. until 2006
J. Baur Whittlesey Trustee since 1990 Member, Ledgewood, P.C. (law firm) 4
age 61
OFFICERS
G. Kenneth Heebner* Vice President since 1990 Co-founder and Employee, CGM; Controlling 4
age 67 Owner, Kenbob, Inc. (general partner of
CGM)
Robert L. Kemp* President since 1990 Co-founder and Employee, CGM; Non-voting 4
age 75 Owner, Kenbob, Inc. (general partner of
CGM)
David C. Fietze* Chief Compliance Officer Employee - Legal counsel, CGM; formerly 4
age 38 since 2004 counsel, Bartlett Hackett Feinberg, P.C.
address:
38 Newbury Street
Boston, Massachusetts
02116
Kathleen S. Haughton* Vice President since 1992 Employee - Investor Services Division, CGM 4
age 47 and Anti-Money Laundering
address: Compliance Officer since 2002
38 Newbury Street
Boston, Massachusetts
02116
Jem A. Hudgins* Treasurer since 2004 Employee - CGM 4
age 44
Leslie A. Lake* Vice President and Secretary Employee - Office Administrator, CGM 4
age 62 since 1992
Martha I. Maguire* Vice President since 1994 Employee - Funds Marketing, CGM 4
age 52
Mary L. Stone* Assistant Vice President Employee - Portfolio Transactions, CGM 4
age 63 since 1990
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
TRANSFER AND DIVIDEND PAYING
AGENT AND CUSTODIAN OF ASSETS
STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts 02111
SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY
BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 8511
Boston, Massachusetts 02266-8511
- --------------------------------------------------
TELEPHONE NUMBERS
For information about:
[ ] Account Procedures and Status
[ ] Redemptions
[ ] Exchanges
Call 800-343-5678
[ ] New Account Procedures
[ ] Prospectuses
[ ] Performance
[ ] Proxy Voting Policies and Voting Records
[ ] Complete Schedule of Portfolio Holdings for the
1st & 3rd Quarters (as filed on Form N-Q)
Call 800-345-4048
- --------------------------------------------------
MAILING ADDRESS
CGM Shareholder Services
c/o Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511
- --------------------------------------------------
This report has been prepared for the shareholders of the Fund and is not
authorized for distribution to current or prospective investors in the Fund
unless it is accompanied or preceded by a prospectus.
FFAR 07 Printed in U.S.A.
ITEM 2. CODE OF ETHICS.
CGM Trust has adopted a code of ethics that applies to the registrant's
principal executive officer and principal financial officer (the "Code"). The
Code is filed herewith as Exhibit 99.CODE ETH. There were no amendments to the
Code required to be disclosed in response to this Item 2 during the fiscal year
ended December 31, 2007. There were no waivers or implicit waivers from the
Code granted by the registrant during the fiscal year ended December 31, 2007.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Trust's Board of Trustees has determined that it has at least one audit
committee financial expert serving on its audit committee. The name of the
audit committee financial expert is James Van Dyke Quereau, Jr. James Van Dyke
Quereau, Jr. is "independent" as defined in Item 3(a)(2) of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fee: The aggregate fees billed for each of the last two
fiscal years for professional services rendered by the principal
accountant for the audit of CGM Trust's annual financial statements
or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements are
the following: 2006 - $91,800 and 2007 - $96,000.
(b) Audit-Related Fees: The aggregate fees billed in each of the last
two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance
of the audit of CGM Trust's financial statements and are not
reported under paragraph (a) of this Item are the following: 2006 -
$0 and 2007 - $0.
(c) Tax Fees: The aggregate fees billed in each of the last two fiscal
years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning are the
following: 2006 - $12,500 and 2007 - $13,300. The nature of the
services comprising the fees disclosed under this category is tax
compliance services related to the preparation and review of
federal income and excise tax returns and review of excise tax
distribution requirements.
(d) All Other Fees: The aggregate fees billed in each of the last two
fiscal years for products and services provided by the principal
accountant, other than the services reported in paragraphs (a)
through (c) of this Item are the following: 2006 - $0 and 2007 -
$0.
(e) (1) The Trustees Committees of the Boards of Trustees of the CGM
Trust and CGM Capital Development Fund (the "Trustees
Committees")are required to pre-approve (i)all audit services,
tax services and permitted non-audit services provided by
PricewaterhouseCoopers LLP or any other independent public
accountant engaged by the CGM Trust and the CGM Capital
Development Fund(the "Trusts") and (ii)any engagement of
PricewaterhouseCoopers LLP to provide non-audit services to (a)
Capital Growth Management Limited Partnership ("CGM"), and (b)
any entity controlling, controlled by, or under common control
with CGM that provides ongoing services to the Trusts if the
engagement relates directly to the operations and financial
reporting of the Trusts. The Trustees Committees generally
review each necessary pre-approval on a case by base basis.
However, the Trustees Committees have authorized the President
or Treasurer of each of the CGM Trust, on behalf of its series,
and the CGM Capital Development Fund (collectively with the
series of the CGM Trust, the "Funds") to incur additional fees
totaling in the aggregate not more than $7,500.00 for services
relating to the audit of the Funds for the fiscal year ended
December 31, 2007, the close-out of the 2007 accounts,
calculation of year-end dividends, and/or related tax or
accounting matters.
(2) 0% of services described in each of paragraphs (b) through (d)
of this Item were approved by the audit committee pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) The aggregate non-audit fees billed by CGM Trust's accountant for
services rendered to (i)CGM Trust, (ii)CGM, and (iii)any entity
controlling, controlled by, or under common control with CGM that
provides ongoing services to the CGM Trust for each of the last two
fiscal years of the CGM Trust are the following: 2006 - $12,500 and
2007 - $13,300.
(h) There were no non-audit services that were rendered to the CGM or
any entity controlling, controlled by, or under common control with
CGM that provides ongoing services to the CGM Trust that were not
pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X, thus no consideration by the Trustees Committees
was necessary to determine if services were compatible with
maintaining the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable. Investments in securities of unaffiliated issuers as
of December 31, 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 last fiscal quarter of the period covered by this report.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics described in Item 2 is attached hereto as EX-99.CODE ETH.
(a)(2) Certifications for each principal executive officer and principal
financial officer of the registrant as required by Rule 30a-2(a) under the
Investment Company Act of 1940 are attached hereto as EX-99.CERT.
(b) Certifications for each principal executive officer and principal financial
officer of the registrant as required by Rule 30a-2(b) under the Investment
Company Act of 1940 are attached hereto as EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CGM Trust
By: /S/Robert L. Kemp
Robert L. Kemp
President
Principal Executive Officer
Date: February 22, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /S/ Robert L. Kemp
Robert L. Kemp
President
Principal Executive Officer
Date: February 22, 2008
By: /S/ Jem A. Hudgins
Jem A. Hudgins
CFO & Treasurer
Principal Financial Officer
Date: February 22, 2008