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
---------
CGM TRUST
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
One International Place, Boston, Massachusetts 02110
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
T. John Holton, Esq.
Bingham McCutchen LLP
One Federal Street
Boston, MA 02110
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-737-3225
--------------
Date of fiscal year end: December 31, 2008
-----------------
Date of reporting period: December 31, 2008
-----------------
ITEM 1. REPORTS TO STOCKHOLDERS.
CGM
MUTUAL FUND
79th Annual Report
December 31, 2008
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Mutual Fund declined -17.6% during the fourth quarter of 2008 compared to
the unmanaged Standard and Poor's 500 Index which fell -21.9% and the Merrill
Lynch U.S. Corporate, Government and Mortgage Bond Index which returned 5.1%.
For the year just ended, CGM Mutual Fund returned -28.2%, the S&P 500 Index,
- -37.0% and the Merrill Lynch U.S. Corporate, Government and Mortgage Bond
Index, 6.2%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
In December, the National Bureau of Economic Research announced the U.S.
economy had, in fact, entered a recession twelve months earlier in December of
2007. To anyone in the homebuilding, banking, retail or investment banking
businesses, this came as no surprise ...
In the first quarter of 2008, Bear Stearns became the first victim of what was
to become a rapidly unfolding financial meltdown. J.P. Morgan purchased the
venerable investment house for a mere $10 per share and the government absorbed
some $29 billion of its mortgage backed securities. Although the Federal
Reserve Board had locked its sights on the housing market as early as August of
2007 when it began reducing the Federal Discount rate, in early 2008 the
government ratcheted up its efforts to counter plummeting home prices and
slowing consumer sales by proposing a $150 billion stimulus program which was
disbursed in May, June and July. By mid-year, the economy's prognosis was
improving as promising trends in trade, agriculture, energy and commodities
combined with fairly aggressive monetary policy and fiscal incentives pointed
to recovery. But, in a case of too much of a good thing, the price of crude oil
then skyrocketed to $147 per barrel, up from $70 one year earlier. Still, it
looked as though the government stimulus package was helping consumers absorb
the resulting $4.00 per gallon cost of gasoline and though the Fed continued to
mention inflation as an ongoing risk, the unemployment rate remained a
relatively low 5.5% in June. July's durable goods orders were up 1.3% and the
Consumer Confidence Index which had taken a hit the month before rebounded to
56.9 in August from 51.9 in July. September, however, was an altogether
different story.
On September 7, the federal government seized Freddie Mac and Fannie Mae, the
primary buyers of mortgages in the U.S. On September 10, Lehman Brothers
announced a $3.9 billion loss for the previous quarter. One week later, the
government agreed to loan American International Group $85 billion (later
increased to $150 billion) claiming AIG was "too big to fail." Lehman was left
to fend for itself and unable to find a buyer, fell victim to the crisis. Other
financial institutions sought assistance and the few remaining large
independent brokerage firms either merged with commercial banks or registered
as bank holding companies. Grudgingly, Congress approved the Troubled Asset
Relief Program (TARP) to the tune of $700 billion dollars, the first $350
billion of which largely went to shore up balance sheets throughout the banking
system. In early November, General Motors announced sales figures for October
were a full 45% lower than those of October 2007. GM principally blamed frozen
credit markets and its CEO along with the head of the UAW and leaders of the
other two major U.S. automobile firms took their case to Congress pleading for
billions of dollars in government loans. Congress excoriated the CEOs for
arriving from Detroit on separate private jets and seemed more interested in
executive compensation than in company overhead and labor costs versus the
competition. As the high drama was unfolding in Washington, the S&P 500
declined to 752.44 on November 20, 2008, down 52% from its all-time high
reached a little more than a year earlier in October 2007. The auto executives
were sent home empty-handed and told to return (via other transport) with
detailed plans for survival in a new, leaner environment. Two weeks later,
Detroit's CEOs made the return trip to the Capitol with plans in hand, but to
no avail: Congress did not approve their loans. Then, on December 19, the White
House intervened and allocated $17 billion in TARP funds to Chrysler and
General Motors in an effort to avert their bankruptcy. As a condition of the
loans, the companies must demonstrate financial viability by March 31, 2009.
Widespread doubt that loans to the auto companies will do anything more than
just kick the problem further down the road along with other factors weighed
heavily on the Consumer Confidence Index pushing it to 38 in December, the
lowest point in its 41-year history (and down from 90 just one year ago).
The year 2008 will figure prominently in economic history books as a year of
dramatic easing of monetary policy, starting with a Federal Funds rate of 4.25%
on January 1 (down from 5.25% in August 2007) to a low of 0% announced on
December 16, 2008 (described as a range of 0% to .25% given the difficulty of
managing a zero cost of money). Announcement of the latest cut promptly sank
the 10-year government bond to 2.12%, its lowest yield since 1951. Add to the
Fed's efforts the recent plunge in the price of oil to $40 per barrel which
translates into gasoline at less than $2.00 per gallon and money should make
its way back into the consumer's pocket.
For nearly sixteen months, the Fed, the Treasury Department and Congress have
done yeoman's duty in an effort to restore confidence, increase liquidity in
the financial system and rejuvenate the economy. We believe we are headed in
the right direction though it will take some time--possibly the better part of
2009 or longer--to squeeze remaining toxic debt out of the system.
PORTFOLIO STRATEGY
CGM Mutual Fund entered 2008 with substantial investments in companies
benefiting from strong commodity prices driven by growth in emerging economies.
The Fund had major holdings in agricultural, steel, oil service, oil and gas,
and mining stocks. These stocks were sold as the global economy dove into
recession during the second half of the year and proceeds were invested in
financial and economically defensive companies, including biotech, medical
supplies and consumer staples. We established a large position in bank stocks
which we sold when better opportunities appeared elsewhere.
Almost all our holdings declined in price in 2008. The largest losses occurred
in energy, agricultural, bank and automotive stocks.
The fixed income section of the portfolio, which averaged 26% of the Fund's
assets throughout the year, was 100% invested in Treasury Bills during the
first nine months of the year. In October, we moved all of the fixed income
section into investment grade corporate bonds and most experienced significant
appreciation over the remainder of the year.
On December 31, 2008, CGM Mutual Fund remained approximately 26% invested in
corporate bonds. In the equity portion of the portfolio, the three largest
positions at year end were in the drug, hospital supply and metals and mining
industries. The Fund's three largest stock holdings were Agnico-Eagle Mines
Limited, Teva Pharmaceutical Industries Limited ADR and C.R. Bard, Inc.
(hospital supply).
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 2, 2009
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 12/31/08
- ----------------------------
1 year 5 year 10 year
- -28.2% 5.9% 3.8%
- ----------------------------
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
--------------------------------------------------------------------
1998 $10,000 $10,000 $10,000
1999 12,050 12,100 9,900
2000 10,652 10,999 11,058
2001 9,416 9,690 11,976
2002 7,825 7,549 13,222
2003 10,932 9,716 13,764
2004 12,124 10,775 14,356
2005 13,894 11,303 14,729
2006 14,658 13,089 15,289
2007 20,301 13,809 16,390
2008 14,576 8,700 17,406
CGM MUTUAL FUND
PORTFOLIO MANAGER
- -------------------------------------------------------------------------------
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 Realty 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 as of December 31, 2008.
INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Cumulative Total Return for Periods Ended
December 31, 2008
CGM
MUTUAL FUND
-----------
10 Years ....................................................... +45.8%
5 Years ....................................................... +33.3
1 Year ........................................................ -28.2
3 Months ...................................................... -17.6
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.
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, 2008 would have been lower.
CGM MUTUAL FUND
- ----------------------------------------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 2008
COMMON STOCKS -- 72.3% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
BANKS - MONEY CENTER -- 3.9%
Morgan Stanley ............................................................... 1,200,000 $ 19,248,000
------------
BEVERAGES AND TOBACCO -- 4.9%
Philip Morris International Inc. ............................................. 550,000 23,930,500
------------
BIOTECHNOLOGY -- 5.1%
Biogen Idec Inc. (b) ......................................................... 520,000 24,767,600
------------
CONSUMER STAPLES -- 4.7%
CVS Caremark Corporation ..................................................... 800,000 22,992,000
------------
DRUGS -- 18.2%
Abbott Laboratories .......................................................... 480,000 25,617,600
Cephalon, Inc. (b) ........................................................... 330,000 25,423,200
Genzyme Corporation (b) ...................................................... 170,000 11,282,900
Teva Pharmaceutical Industries Limited ADR (c) ............................... 633,600 26,972,352
------------
89,296,052
------------
HOME PRODUCTS AND COSMETIC -- 4.8%
Colgate-Palmolive Company .................................................... 340,000 23,303,600
------------
HOSPITAL SUPPLY -- 15.0%
Baxter International Inc. .................................................... 450,000 24,115,500
Becton, Dickinson and Company ................................................ 340,000 23,252,600
C.R. Bard, Inc. .............................................................. 310,000 26,120,600
------------
73,488,700
------------
HOTELS AND RESTAURANTS -- 5.3%
McDonald's Corporation ....................................................... 420,000 26,119,800
------------
METALS AND MINING -- 10.4%
Agnico-Eagle Mines Limited (d) ............................................... 540,000 27,718,200
Goldcorp Inc. (d) ............................................................ 740,000 23,332,200
------------
51,050,400
------------
TOTAL COMMON STOCKS (Identified cost $366,035,023) ............................................. 354,196,652
------------
BONDS -- 26.0% OF TOTAL NET ASSETS
FACE
AMOUNT
------
DIVERSIFIED FINANCIAL SERVICES -- 5.4%
General Electric Company, 6.75%, 03/15/2032 .................................. $ 25,000,000 26,580,650
------------
HEALTHCARE - SERVICES -- 0.4%
UnitedHealth Group Incorporated, 6.875%, 02/15/2038 .......................... 2,000,000 1,751,220
------------
MEDIA -- 4.3%
AOL Time Warner Inc., 7.700%, 5/01/2032 ...................................... 10,000,000 10,012,330
Comcast Corporation, 5.700%, 05/15/2018 ...................................... 10,000,000 9,378,080
Viacom Inc., 7.875%, 07/30/2030 .............................................. 3,000,000 1,880,529
------------
21,270,939
------------
OIL REFINING -- 3.0%
Valero Energy Corporation, 6.625%, 06/15/2037 ................................ 20,000,000 14,710,060
------------
PHARMACEUTICALS -- 6.6%
Bristol-Myers Squibb Company, 6.125%, 05/01/2038 ............................. 9,000,000 9,883,431
GlaxoSmithKline plc, 6.375%, 05/15/2038 ...................................... 20,000,000 22,596,700
------------
32,480,131
------------
RETAIL -- 1.9%
Target Corporation, 7.00%, 01/15/2038 ........................................ 10,000,000 9,267,950
------------
TELECOMMUNICATIONS -- 4.4%
AT&T Corp., 6.400%, 05/15/2038 ............................................... 20,000,000 21,423,620
------------
TOTAL BONDS (Identified cost $104,148,759) ..................................... 127,484,570
------------
SHORT-TERM INVESTMENT -- 1.2% OF TOTAL NET ASSETS
American Express Credit Corporation, 0.01%, 01/02/09 (Cost $5,925,000) ....... 5,925,000 5,925,000
------------
TOTAL INVESTMENTS -- 99.5% (Identified cost $476,108,782) ...................................... 487,606,222
Cash and receivables ......................................................................... 12,111,298
Liabilities .................................................................................. (9,830,165)
------------
TOTAL NET ASSETS -- 100.0% ..................................................................... $489,887,355
============
(a) See notes 1A and 5.
(b) Non-income producing security.
(c) An American Depositary Receipt (ADR) is a certificate issued by a U.S. bank representing the right to
receive securities of the foreign issuer described. The values of ADRs are significantly influenced by
trading on exchanges not located in the United States or Canada.
(d) The Fund has approximately 10.4% of its net assets at December 31, 2008 invested in companies incorporated
in Canada.
See accompanying notes to financial statements.
CGM MUTUAL FUND
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2008
ASSETS
Investments at value (Identified cost -- $476,108,782) ........ $487,606,222
Cash .......................................................... 4,623
Receivable for:
Securities sold ............................... $ 7,585,977
Shares of the Fund sold ....................... 1,785,701
Dividends and interest ........................ 2,734,997 12,106,675
----------- ------------
Total assets ............................................ 499,717,520
------------
LIABILITIES
Payable for:
Securities purchased .......................... 7,471,263
Shares of the Fund redeemed ................... 1,419,268
Tax withholding liability ..................... 104,530
Distributions declared ........................ 301,390 9,296,451
-----------
Accrued expenses:
Management fees ............................... 355,873
Trustees' fees ................................ 13,610
Accounting, administration and compliance
expenses ..................................... 9,019
Transfer agent fees ........................... 90,058
Other expenses ................................ 65,154 533,714
----------- ------------
Total liabilities ....................................... 9,830,165
------------
NET ASSETS .................................................... $489,887,355
============
Net Assets consist of:
Capital paid-in ............................................. $604,031,753
Accumulated net realized losses on investments .............. (125,641,838)
Net unrealized appreciation on investments .................. 11,497,440
------------
NET ASSETS .................................................... $489,887,355
============
Shares of beneficial interest outstanding, no par value ....... 21,715,457
============
Net asset value per share* .................................... $22.56
======
* Shares of the Fund are sold and redeemed at net asset value
($489,887,355 / 21,715,457).
See accompanying notes to financial statements.
CGM MUTUAL FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 2008
INVESTMENT INCOME
Income:
Dividends (net of withholding tax of $390,753) ............ $ 8,155,282
Interest .................................................. 4,705,562
-------------
12,860,844
-------------
Expenses:
Management fees ........................................... 5,348,189
Trustees' fees ............................................ 55,780
Accounting, administration and compliance expenses ........ 108,231
Custodian fees and expenses ............................... 120,690
Transfer agent fees ....................................... 520,744
Audit and tax services .................................... 41,150
Legal ..................................................... 18,191
Printing .................................................. 79,374
Registration fees ......................................... 47,836
Miscellaneous expenses .................................... 2,279
-------------
6,342,464
-------------
Net investment income ....................................... 6,518,380
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized losses on investments and foreign
currency transactions .................................... (121,834,635)
Net unrealized depreciation ............................... (80,610,010)
-------------
Net realized and unrealized losses on investments
and foreign currency transactions ........................ (202,444,645)
-------------
CHANGE IN NET ASSETS FROM OPERATIONS ........................ $(195,926,265)
=============
See accompanying notes to financial statements.
CGM MUTUAL FUND
- ---------------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
------------------------------
2008 2007
------------- ------------
FROM OPERATIONS
Net investment income ........................................................... $ 6,518,380 $ 5,676,497
Net realized gains (losses) on investments and foreign currency transactions .... (121,834,635) 105,202,070
Net unrealized appreciation (depreciation) ...................................... (80,610,010) 72,232,962
------------- ------------
Change in net assets from operations .......................................... (195,926,265) 183,111,529
------------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ........................................................... (6,501,796) (5,654,129)
Net short-term realized capital gains on investments ............................ -- (107,051,605)
Net long-term realized capital gains on investments ............................. -- (1,480,849)
------------- ------------
(6,501,796) (114,186,583)
------------- ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares .................................................... 130,222,450 35,748,635
Net asset value of shares issued in connection with reinvestment of:
Dividends from net investment income .......................................... 5,749,772 5,009,085
Distributions from net short-term realized capital gains on investments ....... -- 97,226,898
Distributions from net long-term realized capital gains on investments ........ -- 1,345,083
------------- ------------
135,972,222 139,329,701
Cost of shares redeemed ......................................................... (91,779,247) (64,706,440)
------------- ------------
Change in net assets derived from capital share transactions .................. 44,192,975 74,623,261
------------- ------------
Total change in net assets ...................................................... (158,235,086) 143,548,207
NET ASSETS
Beginning of period ............................................................. 648,122,441 504,574,234
------------- ------------
End of period ................................................................... $ 489,887,355 $648,122,441
============= ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ...................................................... 4,444,761 1,056,385
Issued in connection with reinvestment of:
Dividends from net investment income .......................................... 223,864 155,722
Distributions from net short-term realized capital gains on investments ....... -- 3,055,528
Distributions from net long-term realized capital gains on investments ........ -- 42,272
------------- ------------
4,668,625 4,309,907
Redeemed ........................................................................ (3,337,513) (2,088,140)
------------- ------------
Net change ...................................................................... 1,331,112 2,221,767
============= ============
See accompanying notes to financial statements.
CGM MUTUAL FUND
- ----------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2008 2007 2006 2005 2004
For a share of the Fund outstanding throughout each period:
Net asset value at the beginning of period ................ $31.80 $27.78 $27.89 $25.33 $23.00
------- ------- ------- ------- -------
Net investment income (a)(b) .............................. 0.31 0.32 0.45 0.30 0.16
Net realized and unrealized gains (losses) on investments
and foreign currency transactions ....................... (9.25) 10.33 1.09 3.40 2.33
------- ------- ------- ------- -------
Total from investment operations .......................... (8.94) 10.65 1.54 3.70 2.49
------- ------- ------- ------- -------
Dividends from net investment income ...................... (0.30) (0.33) (0.45) (0.31) (0.16)
Distribution from net short-term realized gains ........... 0.00 (6.22) (1.20) -- --
Distribution from net long-term realized gains ............ 0.00 (0.08) -- (0.83) --
------- ------- ------- ------- -------
Total distributions ....................................... (0.30) (6.63) (1.65) (1.14) (0.16)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value ................ (9.24) 4.02 (0.11) 2.56 2.33
------- ------- ------- ------- -------
Net asset value at end of period .......................... $22.56 $31.80 $27.78 $27.89 $25.33
======= ======= ======= ======= =======
Total return (%) .......................................... (28.2) 38.5 5.5 14.6 10.9(c)
Ratios:
Operating expenses to average net assets (%) .............. 1.05 1.05 1.07 1.09 1.02
Operating expenses to average net assets before
management fee waiver (%) ............................... N/A N/A N/A N/A 1.11
Net investment income to average net assets (%) ........... 1.07 1.03 1.55 1.09 0.68
Portfolio turnover (%) .................................... 466 444 504 336 314
Net assets at end of period (in thousands) ($) ............ 489,887 648,122 504,574 514,612 481,443
(a) Net of management fee waiver which amounted to ($)..... N/A N/A N/A N/A 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
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2008
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. 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. Equity securities listed or regularly traded on a securities
exchange or in the over-the-counter (OTC) market are valued at the last
quoted sale price or, for certain markets, the official closing price at
the time the valuations are made. A security that is listed or traded on
more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security. For securities with
no sale reported, 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. The
Fund adopted the provisions of the Financial Accounting Standards Board
("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, which included a review of the Fund's
tax return of each of the three open tax years, did not result in any
unrecognized tax benefits in the accompanying financial statements.
Management's conclusion regarding FIN 48 may be subject to review and
adjustment at a later date based on factors including, ongoing analysis of
tax laws, regulations and interpretations thereof.
At December 31, 2008, the Fund had available for tax purposes, capital loss
carry overs of $124,560,675 expiring December 31, 2016.
As of December 31, 2008, the components of distributable earnings on a tax
basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED LONG-TERM NET UNREALIZED
ORDINARY INCOME CAPITAL GAINS APPRECIATION/(DEPRECIATION)
--------------- ----------------------- ---------------------------
$-- $-- $10,416,277
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, 2008 was as follows:
GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED
IDENTIFIED COST APPRECIATION DEPRECIATION APPRECIATION
--------------- ---------------- ---------------- --------------
$477,189,945 $34,558,278 $(24,142,001) $10,416,277
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
foreign exchange gains/losses. The Fund also utilized earnings and profits
distributed to shareholders on redemption of shares as a part of the
dividend deduction for income tax purposes. Undistributed net investment
income or accumulated net investment loss may include temporary book and
tax differences such as tax deferral of losses on wash sales, which will
reverse in a subsequent period. Any taxable income or gain remaining at
fiscal year end is distributed in the following year.
The tax character of distributions paid during the periods ended December
31, 2008 and 2007, were as follows:
LONG-TERM
YEAR ORDINARY INCOME CAPITAL GAINS TOTAL
---- --------------- ------------- -----
2008 $ 6,501,796 $ -- $ 6,501,796
2007 $112,705,734 $1,480,849 $114,186,583
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, the Fund may enter into
contracts that provide indemnities to third parties for various potential
losses and claims. The Fund's maximum exposure under these arrangements is
unknown as this would depend on future claims that may be made against the
Fund. The risk of material loss from such claims is considered remote.
2. RISKS AND UNCERTAINTIES
A. RISKS ASSOCIATED WITH FOCUSED INVESTING -- The Fund, although
diversified, may take a focused approach to investing within particular
industries or sectors of the economy or in a relatively small number of
individual holdings. Therefore, the Fund may be subject to greater
price volatility and may be more adversely affected by the performance
of particular industries, sectors, or individual holdings than would a
more diversified fund. In addition, funds that invest more heavily in
certain industries, sectors or individual holdings are particularly
susceptible to the impact of market, economic, regulatory and other
factors affecting those investments.
B. RISKS ASSOCIATED WITH FOREIGN INVESTMENTS -- The Fund may invest in
securities issued by institutions, corporations and governments
established by or located in foreign countries, which may be developed
or undeveloped countries. Investing in foreign securities may involve
significant risks. For example, there is generally less publicly
available information about foreign companies, particularly those not
subject to the disclosure and reporting requirements of the U.S.
securities laws. Foreign issuers are generally not bound by uniform
accounting, auditing, and financial reporting requirements and
standards of practice comparable to those applicable to domestic
issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of
the Fund or other assets of the Fund, political or financial
instability or diplomatic and other developments which could affect
such investments. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers (particularly those
located in developing countries) may be less liquid and more volatile
than securities of comparable U.S. companies. In general, there is less
overall governmental supervision and regulation of foreign securities
markets, broker-dealers and issuers than in the United States.
Additionally, because some foreign securities the Fund may acquire are
purchased with and payable in foreign currencies, the value of these
assets as measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency rates and exchange control
regulations.
The Fund's Prospectus and Statement of Additional Information contain
additional information on other risks and uncertainties relating to the Fund's
investments.
3. PURCHASES AND SALES OF SECURITIES -- For the period ended December 31, 2008,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $2,407,833,478 and
$2,185,940,428 respectively. There were no purchases or sales of long-term
United States government obligations.
4. A. MANAGEMENT FEES -- During the period ended December 31, 2008, the Fund
incurred management fees of $5,348,189, paid or payable to the Fund's
investment adviser, Capital Growth Management Limited Partnership
("CGM"), certain officers and employees of which are also officers and
trustees of the Fund. The management agreement provides for a fee at
the annual rate of 0.90% on the first $500 million of the Fund's
average daily net assets, 0.80% of the next $500 million and 0.75% of
such assets in excess of $1 billion.
B. OTHER EXPENSES -- CGM performs certain administrative, accounting,
compliance and other services for the Fund. The expenses of those
services, which were paid to CGM by the Fund, include the following:
(i) expenses for personnel performing bookkeeping, accounting and
financial reporting functions and clerical functions relating to the
Fund; (ii) expenses for services required in connection with the
preparation of registration statements and prospectuses, shareholder
reports and notices, proxy solicitation material furnished to
shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance; (iii) registration, filing and other
fees in connection with requirements of regulatory authorities and (iv)
compliance in connection to the Investment Company Act of 1940 and the
Sarbanes Oxley Act of 2002. The accounting, administration and
compliance expense of $108,231, for the period ended December 31, 2008,
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, including $86,868 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 officers or employees of CGM, or any
affiliate of CGM (other than registered investment companies). For the
period ended December 31, 2008, each disinterested trustee was compen-
sated by the Trust with an annual fee of $70,000 plus travel expenses
for each meeting attended. The disinterested trustees are responsible
for the audit committee functions of the Trust's Board and have
designated a chairman to oversee those functions who receives an
additional $30,000 annually. Of these amounts, the Fund is responsible
for $9,000 per trustee annually, plus an annual variable fee calculated
based on the proportion of the Fund's average net assets relative to
the aggregate average net assets of the Trust.
5. FASB 157 -- In September 2006, FASB issued Statement of Financial Accounting
Standards No. 157, (FAS 157) "Fair Value Measurements", effective for fiscal
years beginning after November 15, 2007. The Fund adopted the provisions of FAS
157 on January 1, 2008. 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.
In accordance with FAS 157, the Fund may use valuation techniques consistent
with the market, income, and cost approach to measure fair value. The market
approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities. The
income approach uses valuation techniques to convert future amounts (cash
flows, earnings) to a single present amount. The cost approach is based on the
amount that currently would be required to replace the service capacity of an
asset. To increase consistency and comparability in fair value measurements and
related disclosures, the Fund utilizes a fair value hierarchy which prioritizes
the various inputs to valuation techniques used to measure fair value into
three broad levels:
o Level 1 - Prices determined using: quoted prices in active markets for
identical securities
o Level 2 - Prices determined using: other significant observable inputs
(including quoted prices for similar securities, interest rates,
prepayment spreads, credit risk, etc.)
o Level 3 - Prices determined using: significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable
(for example, when there is little or no market activity for an
investment at the end of the period), unobservable inputs may be used.
Unobservable inputs reflect the Fund's management's assumptions about
the factors market participants would use in pricing an investment, and
would be based on the best information available in the circumstances.
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. The
following is a summary of the inputs used to value CGM Mutual Fund's
investments as of December 31, 2008:
INVESTMENT IN OTHER FINANCIAL
VALUATION INPUTS SECURITIES INSTRUMENTS
------------- ---------------
Level 1 - Quoted Prices........................ $354,196,652 N/A
Level 2 - Other Significant Observable Inputs.. 133,409,570 N/A
Level 3 - Significant Unobservable Inputs...... none N/A
------------ -------
TOTAL $487,606,222 N/A
============ =======
When current market prices or quotations are not readily available or do not
accurately reflect fair value, valuations may be determined in accordance with
procedures adopted by the Board of Trustees. For example, when developments
occur between the close of a market and the close of the NYSE that may
materially affect the value of some or all the securities, or when trading in a
security is halted, these procedures may be used. The frequency with which
these procedures are used is unpredictable. The valuation procedures may result
in a change to a particular security's assigned level within the fair value
hierarchy described above. The value of securities used for NAV calculation
under these procedures may differ from published prices for the same
securities.
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, 2008, 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, 2008 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2009
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,
2008 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, 2008 to December 31, 2008.
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*
7/01/08 12/31/08 7/01/08 - 12/31/08
- -------------------------------------------------------------------------------
Actual $1,000.00 $ 685.70 $4.49
- -------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000.00 $1,019.81 $5.38
- -------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.06%,
multiplied by the average account value over the period, multiplied by
184/366 (to reflect the one-half year period).
CGM MUTUAL FUND
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
25 YEAR INVESTMENT RECORD
DECEMBER 31, 1983 -- DECEMBER 31, 2008 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1983
- -----------------------------------------------------------------------------------------------------------------------------------
-- 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 1983 = 100.0
- -----------------------------------------------------------------------------------------------------------------------------------
1983 $18.81 100.0
1984 17.01 $ 1.86 $ 0.95 $20.00 + 6.3% 106.3
1985 21.53 -- 1.08 26.90 + 34.5 143.0
1986 22.86 2.75 0.94 33.65 + 25.1 178.9
1987 20.40 4.52 1.06 38.26 + 13.7 203.4
1988 19.94 -- 1.10 39.48 + 3.2 209.9
1989 22.34 0.95 0.93 48.05 + 21.7 255.4
1990 21.64 -- 0.93* 48.58 + 1.1 258.2
1991 26.80 2.64 0.97 68.45 + 40.9 363.8
1992 26.02 1.42 0.93 72.63 + 6.1 386.0
1993 28.88 1.93 0.86 88.46 + 21.8 470.1
1994 25.05 -- 1.04 79.88 - 9.7 424.5
1995 29.43 0.89 0.77 99.29 + 24.3 527.7
1996 31.42 4.15 0.74 122.82 + 23.7 652.8
1997 25.52 7.81 0.67 132.89 + 8.2 706.3
1998 26.36 0.25 0.98 143.79 + 8.2 764.2
1999 27.28 3.54 0.84 173.27 + 20.5 920.9
2000 23.38 -- 0.73 153.17 - 11.6 814.1
2001 20.47 -- 0.20 135.40 - 11.6 719.7
2002 16.65 -- 0.41 112.52 - 16.9 598.1
2003 23.00 -- 0.23 157.19 + 39.7 835.5
2004 25.33 -- 0.16 174.32 + 10.9 926.6
2005 27.89 0.83 0.31 199.77 + 14.6 1061.9
2006 27.78 1.20 0.45 210.76 + 5.5 1120.3
2007 31.80 6.30 0.33 291.90 + 38.5 1551.6
2008 22.56 -- 0.30 209.58 - 28.2 1114.0
------ ------ -------
Totals $41.04 $17.91 +1014.0
- -----------------------------------------------------------------------------------------------------------------------------------
* 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 12/31/2008
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, 2008, the Fund designated $0 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
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; 3
age 68 Controlling Owner, Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* Trustee since 1990 Co-founder and Employee, CGM; Non-voting 3
age 76 Owner, Kenbob, Inc. (general partner of CGM)
DISINTERESTED TRUSTEES
Peter O. Brown Trustee since 1993 Counsel (formerly, Partner), Harter, 3
age 68 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, 3
age 59 LLC; formerly Vice President and Chief
Operating Officer, Fixed Income Management,
Loomis, Sayles & Company, L.P.; formerly
Director, Loomis, Sayles & Company, L.P.
(from 1999 to 2002)
James Van Dyke Quereau, Jr. Trustee since 1993 Managing Partner and Director, Stratton 3
age 60 Management Company (investment
management); Director and Vice
President, Semper Trust Co.
J. Baur Whittlesey Trustee since 1990 Member, Ledgewood, P.C. (law firm) 3
age 62
OFFICERS
G. Kenneth Heebner* Vice President since 1990 Co-founder and Employee, CGM; 3
age 68 Controlling Owner, Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* President since 1990 Co-founder and Employee, CGM; Non-voting 3
age 76 Owner, Kenbob, Inc. (general partner of CGM)
David C. Fietze* Chief Compliance Officer Employee - Legal counsel, CGM; 3
age 39 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 3
age 48 and Anti-Money
address: Laundering Compliance
38 Newbury Street Officer since 2002
Boston, Massachusetts
02116
Jem A. Hudgins* Treasurer since 2004 Employee - CGM 3
age 45
Leslie A. Lake* Vice President and Employee - Office Administrator, CGM 3
age 63 Secretary since 1992
Martha I. Maguire* Vice President since 1994 Employee - Funds Marketing, CGM 3
age 53
Mary L. Stone* Assistant Vice President Employee - Portfolio Transactions, CGM 3
age 64 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
- -------------------------------------------------------
- -------------------------------------------------------
WEBSITE
http://www.cgmfunds.com
- -------------------------------------------------------
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 08 Printed in U.S.A.
CGM
REALTY FUND
15th Annual Report
December 31, 2008
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Realty Fund declined -41.5% during the fourth quarter of 2008 compared to
the unmanaged Standard and Poor's 500 Index which fell -21.9% and the FTSE
NAREIT Equity REITs Index which fell -38.8%. For the year just ended, CGM
Realty Fund returned -46.9%, the S&P 500 Index, -37.0% and the FTSE NAREIT
Equity REITs Index, -37.7%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
In December, the National Bureau of Economic Research announced the U.S.
economy had, in fact, entered a recession twelve months earlier in December of
2007. To anyone in the homebuilding, banking, retail or investment banking
businesses, this came as no surprise ...
In the first quarter of 2008, Bear Stearns became the first victim of what was
to become a rapidly unfolding financial meltdown. J.P. Morgan purchased the
venerable investment house for a mere $10 per share and the government absorbed
some $29 billion of its mortgage backed securities. Although the Federal
Reserve Board had locked its sights on the housing market as early as August of
2007 when it began reducing the Federal Discount rate, in early 2008 the
government ratcheted up its efforts to counter plummeting home prices and
slowing consumer sales by proposing a $150 billion stimulus program which was
disbursed in May, June and July. By mid-year, the economy's prognosis was
improving as promising trends in trade, agriculture, energy and commodities
combined with fairly aggressive monetary policy and fiscal incentives pointed
to recovery. But, in a case of too much of a good thing, the price of crude oil
then skyrocketed to $147 per barrel, up from $70 one year earlier. Still, it
looked as though the government stimulus package was helping consumers absorb
the resulting $4.00 per gallon cost of gasoline and though the Fed continued to
mention inflation as an ongoing risk, the unemployment rate remained a
relatively low 5.5% in June. July's durable goods orders were up 1.3% and the
Consumer Confidence Index which had taken a hit the month before rebounded to
56.9 in August from 51.9 in July. September, however, was an altogether
different story.
On September 7, the federal government seized Freddie Mac and Fannie Mae, the
primary buyers of mortgages in the U.S. On September 10, Lehman Brothers
announced a $3.9 billion loss for the previous quarter. One week later, the
government agreed to loan American International Group $85 billion (later
increased to $150 billion) claiming AIG was "too big to fail." Lehman was left
to fend for itself and unable to find a buyer, fell victim to the crisis. Other
financial institutions sought assistance and the few remaining large
independent brokerage firms either merged with commercial banks or registered
as bank holding companies. Grudgingly, Congress approved the Troubled Asset
Relief Program (TARP) to the tune of $700 billion dollars, the first $350
billion of which largely went to shore up balance sheets throughout the banking
system. In early November, General Motors announced sales figures for October
were a full 45% lower than those of October 2007. GM principally blamed frozen
credit markets and its CEO along with the head of the UAW and leaders of the
other two major U.S. automobile firms took their case to Congress pleading for
billions of dollars in government loans. Congress excoriated the CEOs for
arriving from Detroit on separate private jets and seemed more interested in
executive compensation than in company overhead and labor costs versus the
competition. As the high drama was unfolding in Washington, the S&P 500
declined to 752.44 on November 20, 2008, down 52% from its all-time high
reached a little more than a year earlier in October 2007. The auto executives
were sent home empty-handed and told to return (via other transport) with
detailed plans for survival in a new, leaner environment. Two weeks later,
Detroit's CEOs made the return trip to the Capitol with plans in hand, but to
no avail: Congress did not approve their loans. Then, on December 19, the White
House intervened and allocated $17 billion in TARP funds to Chrysler and
General Motors in an effort to avert their bankruptcy. As a condition of the
loans, the companies must demonstrate financial viability by March 31, 2009.
Widespread doubt that loans to the auto companies will do anything more than
just kick the problem further down the road along with other factors weighed
heavily on the Consumer Confidence Index pushing it to 38 in December, the
lowest point in its 41-year history (and down from 90 just one year ago).
The year 2008 will figure prominently in economic history books as a year of
dramatic easing of monetary policy, starting with a Federal Funds rate of 4.25%
on January 1 (down from 5.25% in August 2007) to a low of 0% announced on
December 16, 2008 (described as a range of 0% to .25% given the difficulty of
managing a zero cost of money). Announcement of the latest cut promptly sank
the 10-year government bond to 2.12%, its lowest yield since 1951. Add to the
Fed's efforts the recent plunge in the price of oil to $40 per barrel which
translates into gasoline at less than $2.00 per gallon and money should make
its way back into the consumer's pocket.
For nearly sixteen months, the Fed, the Treasury Department and Congress have
done yeoman's duty in an effort to restore confidence, increase liquidity in
the financial system and rejuvenate the economy. We believe we are headed in
the right direction though it will take some time--possibly the better part of
2009 or longer--to squeeze remaining toxic debt out of the system.
PORTFOLIO STRATEGY
During the first half of 2008, the CGM Realty Fund portfolio included
substantial holdings in office and industrial REITs, mall (retail) REITs and
mining companies. Mining stocks were eliminated in the second half of the year
as the global economy weakened and proceeds were reinvested in apartment and
mortgage REITs.
Almost all the Fund's REIT holdings experienced major declines. The largest
loss occurred in General Growth Properties which was severely punished because
of difficulty refinancing its debt as credit markets seized up in the latter
half of the year. Only the mortgage REITs held their value in this hostile
environment.
Although the mining stocks performed well before June 30, REIT losses in the
final two quarters of the year more than offset those gains.
At year-end, CGM Realty Fund was approximately 34% invested in retail REITs,
23% in office and industrial REITs, 15% each in mortgage and apartment REITs
and 9% in health care and miscellaneous REITs. On December 31, 2008, the Fund's
three largest holdings were in the following REITs: Annaly Capital Management,
Inc. (mortgage), Federal Realty Investment Trust (retail) and ProLogis (office
and industrial).
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 2, 2009
COMPARISONS OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CGM REALTY FUND, THE
UNMANAGED S&P 500 INDEX, AND THE FTSE NAREIT EQUITY REITS INDEX
assuming reinvestment of dividends and capital gains
- ----------------------------
CGM REALTY FUND
Average Annual Total Returns
through 12/31/08
- ----------------------------
1 year 5 year 10 year
- -46.9% 9.7% 15.8%
- ----------------------------
Past performance is no
indication of future results
- ----------------------------
Unmanaged
CGM S&P 500 FTSE NAREIT
Realty Fund Index Equity REITS Index
-----------------------------------------------------------
1998 $10,000 $10,000 $10,000
1999 10,260 12,100 9,540
2000 13,256 10,999 12,059
2001 13,932 9,690 13,735
2002 14,420 7,549 14,257
2003 27,355 9,716 19,546
2004 37,066 10,775 25,723
2005 47,074 11,303 28,861
2006 60,725 13,089 38,991
2007 81,614 13,809 32,869
2008 43,337 8,700 20,477
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 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 as of December 31, 2008.
INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Cumulative Total Return for Periods
Ended December 31, 2008
CGM
REALTY FUND
-----------
10 Years ....................................................... +334.0%
5 Years ....................................................... + 58.6
1 Year ........................................................ - 46.9
3 Months ...................................................... - 41.5
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, 2008
REAL ESTATE INVESTMENT TRUSTS -- 97.2% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
APARTMENTS -- 15.3%
BRE Properties, Inc. ......................................................... 350,000 $ 9,793,000
Essex Property Trust, Inc. ................................................... 636,600 48,859,050
Home Properties, Inc. (b) .................................................... 1,800,000 73,080,000
UDR, Inc. .................................................................... 2,000,000 27,580,000
--------------
159,312,050
--------------
HEALTHCARE -- 4.5%
Ventas, Inc. ................................................................. 1,395,000 46,830,150
--------------
MISCELLANEOUS -- 4.5%
Entertainment Properties Trust ............................................... 1,600,000 47,680,000
--------------
MORTGAGE -- 15.5%
Annaly Capital Management, Inc. .............................................. 8,320,000 132,038,400
Chimera Investment Corporation ............................................... 8,500,000 29,325,000
--------------
161,363,400
--------------
OFFICE AND INDUSTRIAL -- 23.2%
Alexandria Real Estate Equities, Inc. ........................................ 1,087,400 65,613,716
Digital Realty Trust, Inc. ................................................... 1,885,400 61,935,390
Douglas Emmett, Inc. ......................................................... 1,100,000 14,366,000
ProLogis ..................................................................... 5,793,000 80,464,770
SL Green Realty Corp. ........................................................ 750,000 19,425,000
--------------
241,804,876
--------------
RETAIL -- 34.2%
Developers Diversified Realty Corporation (b) ................................ 10,200,000 49,776,000
Federal Realty Investment Trust .............................................. 1,505,000 93,430,400
Simon Property Group, Inc. ................................................... 1,310,000 69,600,300
Tanger Factory Outlet Centers, Inc. .......................................... 305,000 11,474,100
Taubman Centers, Inc. ........................................................ 2,420,000 61,613,200
The Macerich Company (b) ..................................................... 3,873,900 70,350,024
--------------
356,244,024
--------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Identified cost $1,382,681,093) ........................... 1,013,234,500
--------------
SHORT-TERM INVESTMENT -- 1.5% OF TOTAL NET ASSETS
FACE
AMOUNT
------
American Express Credit Corporation, 0.01%, 01/02/09 (Cost $15,220,000) ...... $15,220,000 15,220,000
--------------
TOTAL INVESTMENTS -- 98.7% (Identified cost $1,397,901,093) ................................... 1,028,454,500
Cash and receivables ........................................................................ 28,167,804
Liabilities ................................................................................. (14,559,731)
--------------
TOTAL NET ASSETS -- 100.0% .................................................................... $1,042,062,573
==============
(a) See notes 1A and 6.
(b) Non-controlled affiliate (See Note 7).
See accompanying notes to financial statements.
CGM REALTY FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2008
ASSETS
Investments at value:
Unaffiliated issuers
(Identified cost -- $1,079,374,413) ...... $835,248,476
Non-controlled affiliates
(Identified cost -- $318,526,680) ........ 193,206,024 $1,028,454,500
------------
Cash ....................................................... 510
Receivable for:
Securities sold ......................... 13,572,068
Shares of the Fund sold ................. 1,588,163
Dividends and interest .................. 13,007,063 28,167,294
------------ --------------
Total assets ........................................... 1,056,622,304
--------------
LIABILITIES
Payable for:
Securities purchased .................... 7,781,403
Shares of the Fund redeemed ............. 2,582,839
Tax withholding liability ............... 1,050
Distributions declared .................. 3,277,814 13,643,106
------------
Accrued expenses:
Management fees ......................... 654,506
Trustees' fees .......................... 20,071
Accounting, administration and
compliance expenses .................... 20,522
Transfer agent fees ..................... 124,787
Other expenses .......................... 96,739 916,625
------------ --------------
Total liabilities ...................................... 14,559,731
--------------
NET ASSETS ................................................... $1,042,062,573
==============
Net Assets consist of:
Capital paid-in ............................................ $1,704,555,209
Accumulated net realized losses on investments ............. (293,046,043)
Net unrealized depreciation on investments ................. (369,446,593)
--------------
NET ASSETS ................................................... $1,042,062,573
==============
Shares of beneficial interest
outstanding, no par value ................................. 64,230,727
==============
Net asset value per share* ................................. $16.22
==============
* Shares of the Fund are sold and redeemed at net asset value
($1,042,062,573 / 64,230,727).
See accompanying notes to financial statements.
CGM REALTY FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 2008
INVESTMENT INCOME
Income:
Dividends (net of withholding tax of $220,443
and includes $1,768,860 from non-controlled
affiliated issuers) ..................................... $ 65,475,639
Interest ................................................. 823,086
---------------
66,298,725
---------------
Expenses:
Management fees .......................................... 14,799,499
Trustees' fees ........................................... 81,623
Accounting, administration and compliance expenses ....... 246,255
Custodian fees and expenses .............................. 240,643
Transfer agent fees ...................................... 685,111
Audit and tax services ................................... 41,150
Legal .................................................... 56,335
Printing ................................................. 121,510
Registration fees ........................................ 122,426
Line of credit commitment fee ............................ 20,335
Miscellaneous expenses ................................... 6,030
---------------
16,420,917
---------------
Net investment income .................................... 49,877,808
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized losses on investments (including net
realized loss of $19,272,965 on sales of investments
in non-controlled affiliated issuers) ................... (293,046,043)
Net unrealized depreciation (including unrealized
depreciation of $117,141,155 in non-controlled
affiliated issuers) ..................................... (839,990,914)
---------------
Net realized and unrealized losses on investments ........ (1,133,036,957)
---------------
CHANGE IN NET ASSETS FROM OPERATIONS ....................... $(1,083,159,149)
===============
See accompanying notes to financial statements.
CGM REALTY FUND
- -------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
---------------------------------
2008 2007
-------------- --------------
FROM OPERATIONS
Net investment income .................................. $ 49,877,808 $ 15,062,683
Net realized gains (losses) on investments ............. (293,046,043) 269,987,939
Net unrealized appreciation (depreciation) ............. (839,990,914) 216,018,781
-------------- --------------
Change in net assets from operations ................... (1,083,159,149) 501,069,403
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................................. (41,077,152) (13,939,899)
Net short-term realized capital gains on investments ... -- (117,024,618)
Net long-term realized capital gains on investments .... -- (147,041,038)
-------------- --------------
(41,077,152) (278,005,555)
-------------- --------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ........................... 794,360,696 574,783,411
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ................. 31,630,494 11,065,084
Distributions from net short-term realized capital
gains on investments ................................ -- 94,353,620
Distributions from net long-term realized capital
gains on investments ................................ -- 118,556,947
-------------- --------------
825,991,190 798,759,062
Cost of shares redeemed ................................ (658,153,090) (498,107,852)
-------------- --------------
Change in net assets derived from capital share
transactions ........................................ 167,838,100 300,651,210
-------------- --------------
Total change in net assets ............................. (956,398,201) 523,715,058
NET ASSETS
Beginning of period .................................... 1,998,460,774 1,474,745,716
-------------- --------------
End of period .......................................... $1,042,062,573 $1,998,460,774
============== ==============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................. 26,769,377 18,339,803
Issued in connection with reinvestment of:
Dividends from net investment income ................. 1,544,773 345,179
Distributions from net short-term realized capital
gains on investments ................................ -- 2,981,157
Distributions from net long-term realized capital
gains on investments ................................ -- 3,745,875
-------------- --------------
28,314,150 25,412,014
Redeemed ............................................... (27,629,502) (16,365,379)
-------------- --------------
Net change ............................................. 684,648 9,046,635
============== ==============
See accompanying notes to financial statements.
CGM REALTY FUND
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2008 2007 2006 2005 2004
For a share of the Fund outstanding throughout each period:
Net asset value at the beginning of period .................. $31.45 $27.06 $27.19 $29.56 $24.75
------ ------ ------ ------ ------
Net investment income (a) ................................... 0.72 0.27 0.45 0.43 0.19
Net realized and unrealized gains (losses) on investments ... (15.34) 9.06 7.37 7.51 8.55
------ ------ ------ ------ ------
Total from investment operations ............................ (14.62) 9.33 7.82 7.94 8.74
------ ------ ------ ------ ------
Dividends from net investment income ........................ (0.61) (0.25) (0.45) (0.43) (0.18)
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)
------ ------ ------ ------ ------
Total distributions ......................................... (0.61) (4.94) (7.95) (10.31) (3.93)
------ ------ ------ ------ ------
Net increase (decrease) in net asset value .................. (15.23) 4.39 (0.13) (2.37) 4.81
------ ------ ------ ------ ------
Net asset value at end of period ............................ $16.22 $31.45 $27.06 $27.19 $29.56
====== ====== ====== ====== ======
Total return (%) ............................................ (46.9) 34.4 29.0 27.0 35.5
Ratios:
Operating expenses to average net assets (%) ................ 0.86 0.86 0.88 0.92 0.96
Net investment income to average net assets (%) ............. 2.62 0.86 1.49 1.34 0.73
Portfolio turnover (%) ...................................... 218 200 160 136 43
Net assets at end of period (in thousands) ($) .............. 1,042,063 1,998,461 1,474,746 1,031,966 785,399
(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, 2008
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. 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. Equity securities listed or regularly traded on a securities
exchange or in the over-the-counter (OTC) market are valued at the last
quoted sale price or, for certain markets, the official closing price at
the time the valuations are made. A security that is listed or traded on
more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security. For securities with
no sale reported, 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, 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.
The Fund adopted the provisions of the Financial Accounting Standards
Board ("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, which included review of the
Fund's tax return of each of the three open tax years, did not result in
any unrecognized tax benefits in the accompanying financial statements.
Management's conclusion regarding FIN 48 may be subject to review and
adjustment at a later date based on factors including, ongoing analysis of
tax laws, regulations and interpretations thereof.
At December 31, 2008, the Fund had available for tax purposes, capital loss
carryovers of $287,181,102 expiring December 31, 2016.
As of December 31, 2008, the components of distributable earnings on a tax
basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED LONG-TERM NET UNREALIZED
ORDINARY INCOME CAPITAL GAINS APPRECIATION/(DEPRECIATION)
--------------- ----------------------- ----------------------------
$-- $-- $(375,311,534)
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, 2008 was as follows:
GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED
IDENTIFIED COST APPRECIATION DEPRECIATION DEPRECIATION
--------------- ---------------- ---------------- --------------
$1,403,766,034 $41,374,262 $(416,685,796) $(375,311,534)
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions
are recorded by the Fund on the ex-dividend date. The classification of
income and capital gains distributions is determined in accordance with
income tax regulations. Distributions from net investment income and
short-term capital gains are treated as ordinary income for income tax
purposes. Permanent book and tax differences relating to shareholder
distributions may result in reclassifications to paid-in capital or
accumulated realized gain/loss. The Fund also utilized earnings and
profits distributed to shareholders on redemption of shares as a part of
the dividend deduction for income tax purposes. Undistributed net
investment income or accumulated net investment loss may include temporary
book and tax differences such as tax deferral of losses on wash sales,
which will reverse in a subsequent period. Any taxable income or gain
remaining at fiscal year end is distributed in the following year.
The tax character of distributions paid during the period ended December
31, 2008 and 2007 were as follows:
LONG-TERM
YEAR ORDINARY INCOME CAPITAL GAINS TOTAL
---- --------------- ------------- -----
2008 $ 41,077,152 $ -- $ 41,077,152
2007 $130,964,517 $147,041,038 $278,005,555
E. INDEMNITIES -- In the normal course of business, the Fund may enter into
contracts that provide indemnities to third parties for various potential
losses and claims. The Fund's maximum exposure under these arrangements is
unknown as this would depend on future claims that may be made against the
Fund. The risk of material loss from such claims is considered remote.
2. RISKS AND UNCERTAINTIES
A. RISKS ASSOCIATED WITH FOCUSED INVESTING -- The Fund, although
diversified, takes a focused approach to investing within particular
industries or sectors of the economy and may invest in a relatively
small number of individual holdings. Therefore, the Fund may be subject
to greater price volatility and may be more adversely affected by the
performance of particular industries, sectors, or individual holdings
than would a more diversified fund. In addition, the Fund invests
primarily in companies in the real estate industry, including REITs.
Funds with a concentration are particularly susceptible to the impact
of market, economic, regulatory and other factors affecting the
specific concentration.
B. RISKS ASSOCIATED WITH FOREIGN INVESTMENTS -- The Fund may invest in
securities issued by institutions, corporations and governments
established by or located in foreign countries, which may be developed
or undeveloped countries. Investing in foreign securities may involve
significant risks. For example, there is generally less publicly
available information about foreign companies, particularly those not
subject to the disclosure and reporting requirements of the U.S.
securities laws. Foreign issuers are generally not bound by uniform
accounting, auditing, and financial reporting requirements and
standards of practice comparable to those applicable to domestic
issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of
the Fund or other assets of the Fund, political or financial
instability or diplomatic and other developments which could affect
such investments. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers (particularly those
located in developing countries) may be less liquid and more volatile
than securities of comparable U.S. companies. In general, there is less
overall governmental supervision and regulation of foreign securities
markets, broker-dealers and issuers than in the United States.
Additionally, because some foreign securities the Fund may acquire are
purchased with and payable in foreign currencies, the value of these
assets as measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency rates and exchange control
regulations.
The Fund's Prospectus and Statement of Additional Information contain
additional information on other risks and uncertainties relating to the Fund's
investments.
3. PURCHASES AND SALES OF SECURITIES -- For the period ended December 31, 2008,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $4,283,561,143 and
$4,105,833,505, respectively. There were no purchases or sales of long-term
United States government obligations.
4. A. MANAGEMENT FEES -- During the period ended December 31, 2008, the Fund
incurred management fees of $14,799,499, paid or payable to the Fund's
investment adviser, Capital Growth Management Limited Partnership
(CGM), certain officers and employees of which are also officers and
trustees of the Fund. The management agreement provides for a fee at
the annual rate of 0.85% on the first $500 million of the Fund's
average daily net assets and 0.75% on amounts in excess of $500
million.
B. OTHER EXPENSES -- CGM performs certain administrative, accounting,
compliance and other services for the Fund. The expenses of those
services, which are paid to CGM by the Fund, include the following: (i)
expenses for personnel performing bookkeeping, accounting and financial
reporting functions and clerical functions relating to the Fund; (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses, shareholder reports and
notices, proxy solicitation material furnished to shareholders of the
Fund or regulatory authorities and reports and questionnaires for SEC
compliance; (iii) registration, filing and other fees in connection
with requirements of regulatory authorities; and (iv) compliance in
connection to the Investment Company Act of 1940 and the Sarbanes Oxley
Act of 2002. The accounting, administration and compliance expense of
$246,255, for the period ended December 31, 2008, 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, including $180,597 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 officers or employees of CGM, or any
affiliate of CGM (other than registered investment companies). For the
period ended December 31, 2008, each disinterested trustee was compen-
sated by the Trust with an annual fee of $70,000 plus travel expenses
for each meeting attended. The disinterested trustees are responsible
for the audit committee functions of the Trust's Board and have
designated a chairman to oversee those functions who receives an
additional $30,000 annually. Of these amounts, the Fund is responsible
for $9,000 per trustee annually, plus an annual variable fee calculated
based on the proportion of the Fund's average net assets relative to
the aggregate average net assets of the Trust.
5. LINE OF CREDIT -- The Fund had a $20,000,000 committed unsecured line of
credit with State Street Bank and Trust Company. Borrowings under the line will
be charged interest at 0.75% over the current Overnight Federal Funds Rate. The
Fund incurs a commitment fee of 0.10% per annum on the unused portion of the
line of credit, payable quarterly, through June 17, 2009. There were no
borrowings under the line of credit during the period ended December 31, 2008.
6. FASB 157 -- In September 2006, FASB issued Statement of Financial Accounting
Standards No. 157, (FAS 157) "Fair Value Measurements", effective for fiscal
years beginning after November 15, 2007. The Fund adopted the provisions of FAS
157 on January 1, 2008. 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.
In accordance with FAS 157, the Fund may use valuation techniques consistent
with the market, income, and cost approach to measure fair value. The market
approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities. The
income approach uses valuation techniques to convert future amounts (cash
flows, earnings) to a single present amount. The cost approach is based on the
amount that currently would be required to replace the service capacity of an
asset. To increase consistency and comparability in fair value measurements and
related disclosure, the Fund utilizes a fair value hierarchy which prioritizes
the various inputs to valuation techniques used to measure fair value into
three broad levels:
o Level 1 -- Prices determined using: quoted prices in active markets for
identical securities
o Level 2 -- Prices determined using: other significant observable inputs
(including quoted prices for similar securities, interest rates,
prepayment spreads, credit risk, etc.)
o Level 3 -- Prices determined using: significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable,
(for example, when there is little or no market activity for an
investment at the end of the period), unobservable inputs may be used.
Unobservable inputs reflect the Fund's management's own assumptions
about the factors market participants would use in pricing an
investment, and would be based on the best information available in the
circumstances.
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. The
following is a summary of the inputs used to value CGM Realty Fund's
investments as of December 31, 2008:
INVESTMENTS OTHER FINANCIAL
VALUATION INPUTS IN SECURITIES INSTRUMENTS
------------- ---------------
Level 1 - Quoted Prices ............................ $1,013,234,500 N/A
Level 2 - Other Significant Observable Inputs ...... 15,220,000 N/A
Level 3 - Significant Unobservable Inputs .......... none N/A
-------------- ---------
TOTAL $1,028,454,500 N/A
============== ---------
When current market prices or quotations are not readily available or do not
accurately reflect fair value, valuations may be determined in accordance with
procedures adopted by the Board of Trustees. For example, when developments
occur between the close of a market and the close of the NYSE that may
materially affect the value of some or all the securities, or when trading in a
security is halted, these procedures may be used. The frequency with which
these procedures are used is unpredictable. These valuation procedures may
result in a change to a particular security's assigned level within the fair
value hierarchy described above. The value of securities used for NAV
calculation under these procedures may differ from published prices for the
same securities.
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, 2008:
NUMBER OF NUMBER OF
SHARES HELD GROSS GROSS SHARES HELD DIVIDEND MARKET VALUE
NAME OF ISSUER DECEMBER 31, 2007 PURCHASES SALES DECEMBER 31, 2008 INCOME DECEMBER 31, 2008
- -------------- ----------------- --------- ----- ----------------- -------- -----------------
Developers Diversified
Realty Corporation .... -- 10,200,000 -- 10,200,000 $ -- $ 49,776,000
General Growth
Properties, Inc.* ..... -- 17,950,000 17,950,000 -- -- --
Home Properties, Inc. ... -- 1,800,000 -- 1,800,000 616,487 73,080,000
Tanger Factory Outlet
Centers, Inc.** ....... 1,880,000 555,000 2,130,000 305,000 1,152,373 --
The Macerich Company .... 1,290,000 3,873,900 1,290,000 3,873,900 -- 70,350,024
---------- ------------
Total $1,768,860 $193,206,024
========== ============
* Position in issuer liquidated during the preceding twelve months.
** As of May 23, 2008 this security is no longer considered an affiliated issuer.
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, 2008, 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, 2008 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2009
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,
2008 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, 2008 to December 31, 2008.
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*
7/01/08 12/31/08 7/01/08 - 12/31/08
- --------------------------------------------------------------------------------
Actual $1,000.00 $ 509.50 $3.34
- --------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000.00 $1,020.71 $4.47
- --------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 0.88%,
multiplied by the average account value over the period, multiplied by
184/366 (to reflect the one-half year period).
CGM REALTY FUND
- -------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/2008
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, 2008, the Fund designated $0 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
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, 3
age 68 CGM; Controlling Owner,
Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* Trustee since 1990 Co-founder and Employee, 3
age 76 CGM; Non-voting Owner,
Kenbob, Inc. (general
partner of CGM)
DISINTERESTED TRUSTEES
Peter O. Brown Trustee since 1993 Counsel (formerly, 3
age 68 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 3
age 59 Financial Advisors, LLC;
(since 2003); formerly Vice
President and Chief
Operating Officer, Fixed
Income Management, Loomis,
Sayles & Company, L.P.;
formerly Director, Loomis,
Sayles & Company, L.P.
(from 1999 to 2002)
James Van Dyke Quereau, Jr. Trustee since 1993 Managing Partner and 3
age 60 Director, Stratton
Management Company
(investment management);
Director and Vice
President, Semper Trust
Co.
J. Baur Whittlesey Trustee since 1990 Member, Ledgewood, P.C. 3
age 62 (law firm)
OFFICERS
G. Kenneth Heebner* Vice President since 1990 Co-founder and Employee, 3
age 68 CGM; Controlling Owner,
Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* President since 1990 Co-founder and Employee, 3
age 76 CGM; Non-voting Owner,
Kenbob, Inc. (general
partner of CGM)
David C. Fietze* Chief Compliance Officer Employee - Legal counsel, 3
age 39 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 3
age 48 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 3
age 45
Leslie A. Lake* Vice President and Secretary Employee - Office 3
age 63 since 1992 Administrator, CGM
Martha I. Maguire* Vice President since 1994 Employee - Funds 3
age 53 Marketing, CGM
Mary L. Stone* Assistant Vice President Employee - Portfolio 3
age 64 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
- --------------------------------------------------
- --------------------------------------------------
WEBSITE
http://www.cgmfunds.com
- --------------------------------------------------
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 08 Printed in U.S.A.
CGM
FOCUS FUND
12th Annual Report
December 31, 2008
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Focus Fund decreased -37.4% during the fourth quarter of 2008 compared to
the unmanaged Standard and Poor's 500 Index which fell -21.9% over the same
period. For the year just ended, CGM Focus Fund returned -48.2% and the S&P 500
Index, -37.0%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
In December, the National Bureau of Economic Research announced the U.S.
economy had, in fact, entered a recession twelve months earlier in December of
2007. To anyone in the homebuilding, banking, retail or investment banking
businesses, this came as no surprise ...
In the first quarter of 2008, Bear Stearns became the first victim of what was
to become a rapidly unfolding financial meltdown. J.P. Morgan purchased the
venerable investment house for a mere $10 per share and the government absorbed
some $29 billion of its mortgage backed securities. Although the Federal
Reserve Board had locked its sights on the housing market as early as August of
2007 when it began reducing the Federal Discount rate, in early 2008 the
government ratcheted up its efforts to counter plummeting home prices and
slowing consumer sales by proposing a $150 billion stimulus program which was
disbursed in May, June and July. By mid-year, the economy's prognosis was
improving as promising trends in trade, agriculture, energy and commodities
combined with fairly aggressive monetary policy and fiscal incentives pointed
to recovery. But, in a case of too much of a good thing, the price of crude oil
then skyrocketed to $147 per barrel, up from $70 one year earlier. Still, it
looked as though the government stimulus package was helping consumers absorb
the resulting $4.00 per gallon cost of gasoline and though the Fed continued to
mention inflation as an ongoing risk, the unemployment rate remained a
relatively low 5.5% in June. July's durable goods orders were up 1.3% and the
Consumer Confidence Index which had taken a hit the month before rebounded to
56.9 in August from 51.9 in July. September, however, was an altogether
different story.
On September 7, the federal government seized Freddie Mac and Fannie Mae, the
primary buyers of mortgages in the U.S. On September 10, Lehman Brothers
announced a $3.9 billion loss for the previous quarter. One week later, the
government agreed to loan American International Group $85 billion (later
increased to $150 billion) claiming AIG was "too big to fail." Lehman was left
to fend for itself and unable to find a buyer, fell victim to the crisis. Other
financial institutions sought assistance and the few remaining large
independent brokerage firms either merged with commercial banks or registered
as bank holding companies. Grudgingly, Congress approved the Troubled Asset
Relief Program (TARP) to the tune of $700 billion dollars, the first $350
billion of which largely went to shore up balance sheets throughout the banking
system. In early November, General Motors announced sales figures for October
were a full 45% lower than those of October 2007. GM principally blamed frozen
credit markets and its CEO along with the head of the UAW and leaders of the
other two major U.S. automobile firms took their case to Congress pleading for
billions of dollars in government loans. Congress excoriated the CEOs for
arriving from Detroit on separate private jets and seemed more interested in
executive compensation than in company overhead and labor costs versus the
competition. As the high drama was unfolding in Washington, the S&P 500
declined to 752.44 on November 20, 2008, down 52% from its all-time high
reached a little more than a year earlier in October 2007. The auto executives
were sent home empty-handed and told to return (via other transport) with
detailed plans for survival in a new, leaner environment. Two weeks later,
Detroit's CEOs made the return trip to the Capitol with plans in hand, but to
no avail: Congress did not approve their loans. Then, on December 19, the White
House intervened and allocated $17 billion in TARP funds to Chrysler and
General Motors in an effort to avert their bankruptcy. As a condition of the
loans, the companies must demonstrate financial viability by March 31, 2009.
Widespread doubt that loans to the auto companies will do anything more than
just kick the problem further down the road along with other factors weighed
heavily on the Consumer Confidence Index pushing it to 38 in December, the
lowest point in its 41-year history (and down from 90 just one year ago).
The year 2008 will figure prominently in economic history books as a year of
dramatic easing of monetary policy, starting with a Federal Funds rate of 4.25%
on January 1 (down from 5.25% in August 2007) to a low of 0% announced on
December 16, 2008 (described as a range of 0% to .25% given the difficulty of
managing a zero cost of money). Announcement of the latest cut promptly sank
the 10-year government bond to 2.12%, its lowest yield since 1951. Add to the
Fed's efforts the recent plunge in the price of oil to $40 per barrel which
translates into gasoline at less than $2.00 per gallon and money should make
its way back into the consumer's pocket.
For nearly sixteen months, the Fed, the Treasury Department and Congress have
done yeoman's duty in an effort to restore confidence, increase liquidity in
the financial system and rejuvenate the economy. We believe we are headed in
the right direction though it will take some time--possibly the better part
of 2009 or longer--to squeeze remaining toxic debt out of the system.
PORTFOLIO STRATEGY
CGM Focus Fund entered 2008 with substantial positions in energy, metals and
agricultural stocks with a more modest investment in Russian and Latin American
companies. We believed these securities would benefit from continued growth in
developing economies despite the emerging slowdown in the U.S. and Europe. The
stocks performed well through June 30.
The developing economies slowed in the summer of 2008 and joined more developed
countries as the decline accelerated in the fall of the year. We sold most of
our commodity-related stocks in the third quarter, but experienced major losses
before positions were eliminated or reduced. Proceeds from the sales were
reinvested in financial stocks and less economically sensitive companies, but
the escalating financial crisis took its toll on these issues during the fall
causing large losses in a number of our financial holdings. The Fund
experienced its most significant losses during 2008 in energy, emerging market
securities and Ford Motor Company though several financial companies also had
substantial declines. The only meaningful gain was realized from the short sale
of Washington Mutual.
At the end of the year, CGM Focus Fund held significant long positions in the
insurance, drug and metals and mining industries. The Fund's three largest long
holdings were Abbott Laboratories, MetLife, Inc. and Wal-Mart Stores, Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 2, 2009
COMPARISONS OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CGM FOCUS FUND, THE
UNMANAGED S&P 500 INDEX AND assuming reinvestment of dividends and capital
gains
- ----------------------------
CGM FOCUS FUND
Average Annual Total Returns
through 12/31/08
- ----------------------------
1 year 5 year 10 year
- -48.2% 8.6% 17.7%
- ----------------------------
Past performance is no
indication of future results
- ----------------------------
Unmanaged
CGM S&P 500
Focus Fund Index
------------------------------------
1998 $10,000 $10,000
1999 10,850 12,100
2000 16,698 10,999
2001 24,663 9,690
2002 20,273 7,549
2003 33,755 9,716
2004 37,941 10,775
2005 47,502 11,303
2006 54,627 13,089
2007 98,329 13,809
2008 50,934 8,700
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 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 as of December 31, 2008.
INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Cumulative Total Return for Periods Ended
December 31, 2008
CGM
FOCUS FUND
----------
10 Years ....................................................... +408.8%
5 Years ....................................................... + 50.8
1 Year ........................................................ - 48.2
3 Months ...................................................... - 37.4
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.
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, 2008
COMMON STOCKS -- 99.0% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
AUTO AND RELATED -- 3.4%
Ford Motor Company (b) ....................................................... 61,764,000 $ 141,439,560
--------------
BANKS - MONEY CENTER -- 4.5%
Banco Bradesco S.A. ADR (c) .................................................. 6,000,000 59,220,000
Banco Itau Holding Financeira S.A. ADR (c) ................................... 11,000,000 127,600,000
--------------
186,820,000
--------------
BIOTECHNOLOGY -- 7.4%
Celgene Corporation (b) ...................................................... 1,900,000 105,032,000
Gilead Sciences, Inc. (b) .................................................... 4,000,000 204,560,000
--------------
309,592,000
--------------
BUSINESS SERVICES -- 4.9%
Research In Motion Limited (b) ............................................... 5,000,000 202,900,000
--------------
DRUGS -- 10.1%
Abbott Laboratories .......................................................... 7,900,000 421,623,000
--------------
EDUCATION -- 5.9%
Apollo Group, Inc. (b) ....................................................... 3,200,000 245,184,000
-------------
HOSPITAL SUPPLY -- 5.6%
Baxter International Inc. .................................................... 4,400,000 235,796,000
--------------
HOTELS AND RESTAURANTS -- 5.6%
McDonald's Corporation ....................................................... 3,783,500 235,295,865
--------------
INSURANCE -- 28.2%
Aflac Incorporated ........................................................... 5,200,000 238,368,000
MetLife, Inc. ................................................................ 11,000,000 383,460,000
Prudential Financial, Inc. ................................................... 10,359,000 313,463,340
The Hartford Financial Services Group, Inc. .................................. 15,000,000 246,300,000
--------------
1,181,591,340
--------------
INSURANCE BROKERS -- 2.2%
Aon Corporation .............................................................. 2,010,000 91,816,800
--------------
METALS AND MINING -- 9.8%
Barrick Gold Corporation ..................................................... 5,750,000 211,427,500
Newmont Mining Corporation ................................................... 4,850,000 197,395,000
--------------
408,822,500
--------------
MISCELLANEOUS -- 3.0%
Berkshire Hathaway Inc. -- Class A (b) ....................................... 1,300 125,580,000
--------------
RETAIL -- 8.4%
Wal-Mart Stores, Inc. ........................................................ 6,250,000 350,375,000
--------------
TOTAL COMMON STOCKS (Identified cost $4,408,557,566) ........................................... 4,136,836,065
--------------
FACE
AMOUNT
------
SHORT-TERM INVESTMENT -- 0.2% OF TOTAL NET ASSETS
American Express Credit Corporation, 0.01%, 01/02/09 (Cost $7,795,000) ....... $ 7,795,000 7,795,000
--------------
TOTAL INVESTMENTS -- 99.2% (Identified cost $4,416,352,566) .................................... 4,144,631,065
Cash and receivables ......................................................................... 208,026,674
Liabilities .................................................................................. (173,758,364)
--------------
TOTAL NET ASSETS -- 100.0% ..................................................................... $4,178,899,375
==============
(a) See notes 1A and 6.
(b) Non-income producing security.
(c) An American Depositary Receipt (ADR) is a certificate issued by a U.S. bank representing the right to
receive securities of the foreign issuer described. The values of ADRs are significantly influenced by
trading on exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2008
ASSETS
Investments at value
(Identified cost -- $4,416,352,566) .......................... $4,144,631,065
Cash .......................................................... 2,662
Receivable for:
Securities sold ............................... $183,420,563
Shares of the Fund sold ....................... 8,157,722
Dividends and interest......................... 16,445,727 208,024,012
------------ --------------
Total assets ............................................ 4,352,657,739
--------------
LIABILITIES
Payable for:
Securities purchased .......................... 148,766,025
Shares of the Fund redeemed ................... 11,424,880
Distributions declared ........................ 7,599,624
Tax withholding liability ..................... 2,042,401 169,832,930
------------
Accrued expenses:
Management fees ............................... 3,284,344
Trustees' fees ................................ 48,319
Accounting, administration and compliance
expenses ..................................... 58,284
Transfer agent fees ........................... 250,865
Other expenses ................................ 283,622 3,925,434
------------ --------------
Total liabilities ......................... 173,758,364
--------------
NET ASSETS .................................................... $4,178,899,375
==============
Net Assets consist of:
Capital paid-in ............................................. $7,304,026,117
Accumulated net realized losses on investments .............. (2,853,405,241)
Net unrealized depreciation on investments .................. (271,721,501)
--------------
NET ASSETS .................................................... $4,178,899,375
==============
Shares of beneficial interest outstanding, no par value ....... 155,027,684
==============
Net asset value per share* .................................... $26.96
======
* Shares of the Fund are sold and redeemed at net asset value
($4,178,899,375 / 155,027,684).
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 2008
INVESTMENT INCOME
Income:
Dividends (net of withholding tax of $4,949,228) ......... $ 110,736,700
Interest on restricted cash .............................. 7,621,002
Interest ................................................. 2,069,216
---------------
120,426,918
---------------
Expenses:
Management fees .......................................... 61,082,103
Trustees' fees ........................................... 171,461
Accounting, administration and compliance expenses ....... 651,031
Custodian fees and expenses .............................. 754,708
Transfer agent fees ...................................... 1,531,277
Audit and tax services ................................... 41,150
Legal .................................................... 188,691
Printing ................................................. 257,470
Registration fees ........................................ 323,212
Line of credit commitment fee ............................ 41,464
Dividends on short sales ................................. 5,969,500
Interest expense on short sales .......................... 19,901,420
Miscellaneous expenses ................................... 10,018
---------------
90,923,505
---------------
Net investment income ...................................... 29,503,413
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gains (losses) on investments and foreign
currency transactions:
Long transactions ...................................... (3,889,772,547)
Short transactions ..................................... 1,090,092,047
Net unrealized depreciation on investments:
Long transactions ...................................... (1,525,654,671)
Short transactions ..................................... (238,524,105)
---------------
Net realized and unrealized losses on investments
and foreign currency transactions ....................... (4,563,859,276)
---------------
CHANGE IN NET ASSETS FROM OPERATIONS ....................... $(4,534,355,863)
===============
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
----------------------------------
2008 2007
--------------- --------------
FROM OPERATIONS
Net investment income ........................................................... $ 29,503,413 $ 4,578,837
Net realized gains (losses) on investments and foreign currency transactions .... (2,799,680,500) 861,947,842
Net unrealized appreciation (depreciation) ...................................... (1,764,178,776) 1,197,002,190
--------------- --------------
Change in net assets from operations .......................................... (4,534,355,863) 2,063,528,869
--------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ........................................................... (33,932,273) (4,608,973)
Net short-term realized capital gains on investments ............................ -- (727,774,379)
Net long-term realized capital gains on investments ............................. -- (150,234,755)
--------------- --------------
(33,932,273) (882,618,107)
--------------- --------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares .................................................... 5,691,991,908 2,144,201,168
Net asset value of shares issued in connection with the acquisition of assets
from CGM Capital Development Fund (Note 7) ..................................... 531,703,625 --
Net asset value of shares issued in connection with reinvestment of:
Dividends from net investment income .......................................... 25,544,420 3,733,219
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
--------------- --------------
6,249,239,953 2,884,306,871
Cost of shares redeemed ......................................................... (3,038,166,008) (801,142,829)
--------------- --------------
Change in net assets derived from capital share transactions .................. 3,211,073,945 2,083,164,042
--------------- --------------
Total change in net assets ...................................................... (1,357,214,191) 3,264,074,804
NET ASSETS
Beginning of period ............................................................. 5,536,113,566 2,272,038,762
--------------- --------------
End of period ................................................................... $ 4,178,899,375 $5,536,113,566
=============== ==============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ...................................................... 115,498,465 43,255,062
Issued in connection with the acquisition of assets from CGM Capital
Development Fund (Note 7) ...................................................... 8,723,604 --
Issued in connection with reinvestment of:
Dividends from net investment income .......................................... 960,799 70,845
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
--------------- --------------
125,182,868 57,306,778
Redeemed ........................................................................ (75,626,212) (17,341,601)
--------------- --------------
Net change ...................................................................... 49,556,656 39,965,177
=============== ==============
See accompanying notes to financial statements.
CGM FOCUS FUND
- --------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2008 2007 2006 2005 2004
---- ---- ---- ---- ----
For a share of the Fund outstanding throughout each period:
Net asset value at the beginning of period ................ $52.49 $34.68 $33.40 $29.51 $29.93
------ ------ ------ ------ ------
Net investment income (a)(b) .............................. 0.20 0.06 0.82 0.52 0.04
Net realized and unrealized gains (losses) on investments
and foreign currency transactions ........................ (25.51) 27.71 4.19 6.93 3.65
------ ------ ------ ------ ------
Total from investment operations .......................... (25.31) 27.77 5.01 7.45 3.69
------ ------ ------ ------ ------
Dividends from net investment income ...................... (0.22) (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 ....................................... (0.22) (9.96) (3.73) (3.56) (4.11)
------ ------ ------ ------ ------
Net increase (decrease) in net asset value ................ (25.53) 17.81 1.28 3.89 (0.42)
------ ------ ------ ------ ------
Net asset value at end of period .......................... $26.96 $52.49 $34.68 $33.40 $29.51
====== ====== ====== ====== ======
Total return (%) .......................................... (48.2) 80.0 15.0(c) 25.2 12.4
Ratios:
Operating expenses to average net assets (%) .............. 0.97 0.99 1.02 1.07 1.12
Dividends and interest on short positions to
average net assets (%) ................................... 0.39 0.28 0.18 0.15 0.09
------ ------ ------ ------ ------
Total expenses to average net assets (%) .................. 1.36 1.27 1.20 1.22 1.21
====== ====== ====== ====== ======
Net investment income to average net assets (%) ........... 0.44 0.14 2.23 1.55 0.14
Portfolio turnover (%) .................................... 504(d) 384 333 282 327
Net assets at end of period (in thousands) ($) ............ 4,178,899 5,536,114 2,272,039 1,641,143 918,837
(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, for
the period ended December 31, 2007 was ($0.02) and for the period ended December 31, 2008 was $0.32.
(c) In 2006, the Fund's total return includes a voluntary reimbursement by the adviser for a realized investment loss. Excluding
this item, the total return would have been 0.01% less.
(d) Portfolio turnover excludes the impact of assets resulting from a merger with another fund. (See Note 7 of Notes to the
Financial Statements.)
See accompanying notes to financial statements.
CGM FOCUS FUND
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2008
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. 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. Equity securities listed or regularly traded on a securities
exchange or in the over-the-counter (OTC) market are valued at the last
quoted sale price or, for certain markets, the official closing price at
the time the valuations are made. A security that is listed or traded on
more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security. For securities with
no sale reported, 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.
The Fund adopted the provisions of the Financial Accounting Standards
Board ("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, which included a
review of the Fund's tax return of each of the three open tax years, did
not result in any unrecognized tax benefits in the accompanying financial
statements. Management's conclusion regarding FIN 48 may be subject to
review and adjustment at a later date based on factors including, but not
limited to, ongoing analysis of tax laws, regulations and interpretations
thereof.
At December 31, 2008, the Fund had available for tax purposes, capital loss
carryovers of $2,023,250,733 expiring December 31, 2016.
As of December 31, 2008, the components of distributable earnings on a tax
basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED LONG-TERM NET UNREALIZED
ORDINARY INCOME CAPITAL GAINS APPRECIATION/(DEPRECIATION)
--------------- ----------------------- ---------------------------
$-- $-- $(1,101,876,010)
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, 2008 was as follows:
GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED
IDENTIFIED COST APPRECIATION DEPRECIATION DEPRECIATION
--------------- ---------------- ---------------- --------------
$5,246,507,075 $98,970,442 $(1,200,846,452) $(1,101,876,010)
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions
are recorded by the Fund on the ex-dividend date. The classification of
income and capital gains distributions is determined in accordance with
income tax regulations. Distributions from net investment income and
short-term capital gains are treated as ordinary income for income tax
purposes. Permanent book and tax differences relating to shareholder
distributions may result in reclassifications to paid-in capital or
accumulated realized gain/loss. These differences are primarily related to
dividends on short positions which were held less than forty-five days and
foreign currency gains/losses. The Fund also utilized earnings and profits
distributed to shareholders on redemption of shares as a part of the
dividend deduction for income tax purposes. Undistributed net investment
income or accumulated net investment loss may include temporary book and
tax differences such as tax deferral of losses on wash sales, which will
reverse in a subsequent period. Any taxable income or gain remaining at
fiscal year end is distributed in the following year. The tax character
of distributions paid during the period ended December 31, 2008 and 2007,
were as follows:
LONG-TERM
YEAR ORDINARY INCOME CAPITAL GAINS TOTAL
---- --------------- ------------- -----
2008 $ 33,932,273 $ -- $ 33,932,273
2007 $732,383,352 $150,234,755 $882,618,107
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. Under
certain market conditions, short sales can increase the volatility of the
Fund and may lower the Fund's return or result in losses, which potentially
may be unlimited.
F. INDEMNITIES -- In the normal course of business, the Fund may enter into
contracts that provide indemnities to third parties for various potential
losses and claims. The Fund's maximum exposure under these arrangements is
unknown as this would depend on future claims that may be made against the
Fund. The risk of material loss from such claims is considered remote.
G. 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. RISKS AND UNCERTAINTIES
A. NON-DIVERSIFICATION RISK -- The Fund is non-diversified, meaning it may
invest a significant portion of its investments within a single
industry or sector of the economy or in fewer individual holdings than
a diversified fund. Therefore, the Fund may be subject to greater price
volatility and may be more adversely affected by the performance of
particular industries, sectors, or individual holdings than would a
diversified fund. In addition, under certain circumstances the Fund may
invest up to 70% of its assets in the crude petroleum and natural gas
industry and the petroleum refining industry. Funds with a
concentration are particularly susceptible to the impact of market,
economic, regulatory and other factors affecting the specific
concentration.
B. RISKS ASSOCIATED WITH FOREIGN INVESTMENTS -- The Fund may invest in
securities issued by institutions, corporations and governments
established by or located in foreign countries, which may be developed
or undeveloped countries. Investing in foreign securities may involve
significant risks. For example, there is generally less publicly
available information about foreign companies, particularly those not
subject to the disclosure and reporting requirements of the U.S.
securities laws. Foreign issuers are generally not bound by uniform
accounting, auditing, and financial reporting requirements and
standards of practice comparable to those applicable to domestic
issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of
the Fund or other assets of the Fund, political or financial
instability or diplomatic and other developments which could affect
such investments. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers (particularly those
located in developing countries) may be less liquid and more volatile
than securities of comparable U.S. companies. In general, there is less
overall governmental supervision and regulation of foreign securities
markets, broker-dealers and issuers than in the United States.
Additionally, because some foreign securities the Fund may acquire are
purchased with and payable in foreign currencies, the value of these
assets as measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency rates and exchange control
regulations.
The Fund's Prospectus and Statement of Additional Information contain
additional information on other risks and uncertainties relating to the Fund's
investments.
3. PURCHASES AND SALES OF SECURITIES -- For the period ended December 31, 2008,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $37,343,261,566 and
$33,486,830,412, respectively, which excludes securities resulting from a
merger with another fund. (See Note 7.) There were no purchases or sales of
long-term United States government obligations for the period ended December
31, 2008.
4. A. MANAGEMENT FEES -- During the period ended December 31, 2008, the Fund
incurred management fees of $61,082,103, paid or payable to the Fund's
investment adviser, Capital Growth Management Limited Partnership
("CGM"), certain officers and employees of which are also officers and
trustees of the Fund. The management agreement provides for a fee at
the annual rate of 1.00% on the first $500 million of the Fund's
average daily net assets, 0.95% of the next $500 million and 0.90% on
amounts in excess of $1 billion.
B. OTHER EXPENSES -- CGM performs certain administrative, accounting,
compliance and other services for the Fund. The expenses of those
services, which are paid to CGM by the Fund, include the following: (i)
expenses for personnel performing bookkeeping, accounting and financial
reporting functions and clerical functions relating to the Fund; (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses, shareholder reports and
notices, proxy questionnaires for SEC compliance; (iii) registration,
filing and other fees in connection with requirements of regulatory
authorities; and (iv) compliance in connection to the Investment
Company Act of 1940 and the Sarbanes Oxley Act of 2002. The accounting,
administration and compliance expense of $651,031, for the period ended
December 31, 2008, is shown separately in the financial statements.
These expenses include the reimbursement of a portion of the compensa-
tion expenses incurred by CGM for its employees who provide these
administrative, accounting, compliance, and other services to the Fund,
including $462,156 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 officers or employees of CGM, or any
affiliate of CGM (other than registered investment companies). For the
period ended December 31, 2008, each disinterested trustee was compen-
sated by the Trust with an annual fee of $70,000 plus travel expenses
for each meeting attended. The disinterested trustees are responsible
for the audit committee functions of the Trust's Board and have
designated a chairman to oversee those functions who receives an
additional $30,000 annually. Of these amounts, the Fund is responsible
for $18,000 per trustee annually, plus an annual variable fee
calculated based on the proportion of the Fund's average net assets
relative to the aggregate average net assets of the Trust.
5. LINE OF CREDIT -- The Fund has a $40,000,000 committed, secured line of
credit with State Street Bank and Trust Company. Borrowings under the line will
be charged interest at 0.75% over the current Overnight Federal Funds Rate. The
Fund incurred a commitment fee of 0.10% per annum through October 20, 2008 and
then incurs a commitment fee at 0.11% per annum on the unused portion of the
line of credit, payable quarterly, through October 19, 2009. There were no
borrowings under the line of credit during the period ended December 31, 2008.
6. FASB 157 -- In September 2006, FASB issued Statement of Financial Accounting
Standards No. 157, (FAS 157) "Fair Value Measurements", effective for fiscal
years beginning after November 15, 2007. The Fund adopted the provisions of FAS
157 on January 1, 2008. 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.
In accordance with FAS 157, the Fund may use valuation techniques consistent
with the market, income, and cost approach to measure fair value. The market
approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities. The
income approach uses valuation techniques to convert future amounts (cash
flows, earnings) to a single present amount. The cost approach is based on the
amount that currently would be required to replace the service capacity of an
asset. To increase consistency and comparability in fair value measurements and
related disclosure, the Fund utilizes a fair value hierarchy which prioritizes
the various inputs to valuation techniques used to measure fair value into
three broad levels:
o Level 1 -- Prices determined using: quoted prices in active markets for
identical securities
o Level 2 -- Prices determined using: other significant observable inputs
(including quoted prices for similar securities, interest rates,
prepayment spreads, credit risk, etc.)
o Level 3 -- Prices determined using: significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable
(for example, when there is little or no market activity for an
investment at the end of the period), unobservable inputs may be used.
Unobservable inputs reflect the Fund's management's own assumptions
about the factors market participants would use in pricing an
investment, and would be based on the best information available in the
circumstances.
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. The
following is a summary of the inputs used to value CGM Focus Fund's investments
and securities sold short as of December 31, 2008:
ASSETS -- LIABILITIES --
INVESTMENTS SECURITIES OTHER FINANCIAL
VALUATION INPUTS IN SECURITIES SOLD SHORT INSTRUMENTS
------------- -------------- ---------------
Level 1 - Quoted Prices............................ $4,136,836,065 none N/A
Level 2 - Other Significant Observable Inputs...... 7,795,000 none N/A
Level 3 - Significant Unobservable Inputs.......... none none N/A
-------------- -------- -------
TOTAL $4,144,631,065 none N/A
============== ======== =======
When current market prices or quotations are not readily available or do not
accurately reflect fair value, valuations may be determined in accordance with
procedures adopted by the Board of Trustees. For example, when developments
occur between the close of a market and the close of the NYSE that may
materially affect the value of some or all the securities, or when trading in a
security is halted, these procedures may be used. The frequency with which
these procedures are used is unpredictable. These valuation procedures may
result in a change to a particular security's assigned level within the fair
value hierarchy described above. The value of securities used for NAV
calculation under these procedures may differ from published prices for the
same securities.
7. ACQUISITION OF FUND -- On June 27, 2008, CGM Focus Fund acquired all the net
assets of CGM Capital Development Fund pursuant to a Plan of Reorganization
approved by CGM Capital Development Fund shareholders on June 20, 2008. The
acquisition was accomplished by a tax-free exchange of 8,723,604 shares of CGM
Focus Fund (valued at $60.95 per share) for the 20,485,043 shares of CGM
Capital Development Fund outstanding on June 27, 2008 (an exchange ratio of
0.42585234). CGM Capital Development Fund's net assets at that date
($531,703,625), including $32,747,755 of unrealized appreciation, were combined
with those of CGM Focus Fund. The aggregate net assets of CGM Focus Fund
immediately before the acquisition were $9,656,099,353. The combined net assets
of CGM Focus Fund immediately following the acquisition were $10,187,802,978.
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, and of
changes in net assets 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, 2008, 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, 2008 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2009
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,
2008 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, 2008 to December 31, 2008.
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*
7/01/08 12/31/08 7/01/08 - 12/31/08
- -------------------------------------------------------------------------------
Actual $1,000.00 $ 442.30 $5.55
- -------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000.00 $1,017.44 $7.76
- -------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.53%,
multiplied by the average account value over the multiplied by 184/366 (to
reflect the one-half year period).
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/2008
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, 2008, the Fund designated $0 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 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; 3
age 68 Controlling Owner, Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* Trustee since 1990 Co-founder and Employee, CGM; Non-voting 3
age 76 Owner, Kenbob, Inc. (general partner of CGM)
DISINTERESTED TRUSTEES
Peter O. Brown Trustee since 1993 Counsel (formerly, Partner), Harter, 3
age 68 Secrest & Emery LLP (law firm); formerly
Executive Vice President and Chief
Operating Officer, The Glenmeade Trust
Company (from 1990 to 1993); formerly
Senior Vice President, J.P. Morgan Chase
Bank (from 1981-1990); Trustee, TT
International U.S.A. Master and Feeder
Trusts (four mutual funds) from
2000-2005
Mark W. Holland Trustee since 2004 President, Wellesley Financial Advisors, 3
age 59 LLC; (since 2003); formerly Vice President
and Chief Operating Officer, Fixed Income
Management, Loomis, Sayles & Company,
L.P.; formerly Director, Loomis, Sayles &
Company, L.P. (from 1999 to 2002)
James Van Dyke Quereau, Jr. Trustee since 1993 Managing Partner and Director, Stratton 3
age 60 Management Company (investment
management); Director and Vice President,
Semper Trust Co.
J. Baur Whittlesey Trustee since 1990 Member, Ledgewood, P.C. (law firm) 3
age 62
OFFICERS
G. Kenneth Heebner* Vice President since 1990 Co-founder and Employee, CGM; 3
age 68 Controlling Owner, Kenbob, Inc. (general
partner of CGM)
Robert L. Kemp* President since 1990 Co-founder and Employee, CGM; Non-voting 3
age 76 Owner, Kenbob, Inc. (general partner of CGM)
David C. Fietze* Chief Compliance Officer Employee - Legal counsel, CGM; 3
age 39 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 3
age 48 and Anti-Money
address: Laundering Compliance
38 Newbury Street Officer since 2002
Boston, Massachusetts
02116
Jem A. Hudgins* Treasurer since 2004 Employee - CGM 3
age 45
Leslie A. Lake* Vice President and Employee - Office Administrator, CGM 3
age 63 Secretary since 1992
Martha I. Maguire* Vice President since 1994 Employee - Funds Marketing, CGM 3
age 53
Mary L. Stone* Assistant Vice President Employee - Portfolio Transactions, CGM 3
age 64 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
- -------------------------------------------------------
- -------------------------------------------------------
WEBSITE
http://www.cgmfunds.com
- -------------------------------------------------------
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 08 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, 2008. There were no waivers or implicit waivers from the
Code granted by the registrant during the fiscal year ended December 31, 2008.
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: 2007 - $96,000 and 2008 - $115,600.
(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: 2007 -
$0 and 2008 - $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: 2007 - $13,300 and 2008 - $14,850. 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: 2007 - $0 and 2008 -
$0.
(e) (1) The Trustees Committee of the Board of Trustees of the CGM
Trust is 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 (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 Trust if the
engagement relates directly to the operations and financial
reporting of the Trust. The Trustees Committees generally
review each necessary pre-approval on a case by base basis.
However, the Trustees Committee have authorized the President
or Treasurer of the CGM Trust, on behalf of its series (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, 2008, the
close-out of the 2008 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: 2007 - $13,300 and
2008 - $14,850.
(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, 2008, 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 26, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /S/ Robert L. Kemp
Robert L. Kemp
President
Principal Executive Officer
Date: February 26, 2009
By: /S/ Jem A. Hudgins
Jem A. Hudgins
CFO & Treasurer
Principal Financial Officer
Date: February 26, 2009