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CGM Funds to liquidate

edited October 16 in Fund Discussions

497 1 form497.htm

(each, a “Fund”)

DATED MAY 1, 2022

Capital Growth Management Limited Partnership, the Funds’ investment adviser, has determined to cease operations. Accordingly, the Funds’ Board of Trustees has approved a proposal to terminate and liquidate each of the Funds.
The Funds are expected to cease operations on or about November 30, 2022 (the “Liquidation Date”). Before that date, each Fund’s assets will be liquidated at the discretion of the investment adviser and the Fund will cease to pursue its investment objective.
The Funds will be closed to new purchases as of the close of market on the date of this supplement, except for the reinvestment of dividends and distributions, if any.

Shareholders who elect to redeem their shares prior to the Liquidation Date will receive in the ordinary course redemption proceeds equal to the net asset value per share of the Fund as of the redemption date.

Shareholders who remain in a Fund until the Liquidation Date will receive promptly following the Liquidation Date a liquidation distribution equal to the net asset value of the shares of the Fund that such shareholder then holds.

The liquidation of the Funds may result in one or more taxable events for shareholders subject to federal income tax. The redemption of shares prior to the Liquidation Date will generally cause a redeeming shareholder to realize a capital gain or loss depending on the shareholder’s tax basis in the shares. Similarly, liquidation proceeds paid to a shareholder as of (or prior to) the Liquidation Date will generally give rise to capital gain or loss depending on the shareholder’s tax basis in the shares. In addition, on or prior to the Liquidation Date, a Fund may declare taxable distributions attributable to its net investment income and net short- and/or long-term capital gain (including capital gains, if any, from the liquidation of the Fund’s assets) in advance of the Fund’s regular distribution schedule. All or a portion of any such distributions may be taxable as ordinary income.

Shareholders should consult a personal tax adviser with respect to the effects of the liquidation and of any associated distributions.

Shareholders who hold their shares through an IRA should consult their tax advisers concerning the tax implications of a distribution, their eligibility to roll over a distribution and the procedures applicable to such rollovers. Caution: If you hold shares through an IRA and do not reinvest liquidation or redemption proceeds through your IRA (i.e., if you cash a check representing those proceeds or deposit or reinvest them in a different account), such proceeds may be subject to a 10% penalty and taxed as ordinary income in the year of receipt. Additional information relevant to shareholders who, to the knowledge of the Funds, hold shares through IRAs or other tax-advantaged accounts will be sent separately.
If you have any questions, please contact CGM Shareholder Services at 800-345-4048 between the hours of 8:30 a.m. and 6:00 p.m. ET.

Please retain this supplement for future reference.

From CGM's website:


  • End of an era.

    LOMMX is among the oldest allocation/balanced funds with inception 11/6/1929. Very ironic that Barron's cover story this week mentions that after historic selloff due to simultaneous stock and bond bear markets, the allocation/balanced funds may be ready to bounce.

    CGM funds have been led in recent decades by Ken Heebner, the original "Boston Bomber" (now the term has another sad meaning). Heebner got that nickname because if he didn't like a stocks, he would sell millions of shares all at once; the opposite if he liked something.

    Heebner has a very volatile record with CGMFX. Most bear markets ended when CGM funds started to perk up. I suppose that Heebner (about 80 now) just got tired of it all.

    I am surprised that the operations are being ceased and no buyer was found to merge the funds.
  • Im happy this site posted this!! Ill have to consult a brainy tax advisor as I, sadly, own a CGM fund in my IRA-which I heartily regret
  • 82 a few days ago
  • @BennyB If your CGM fund is in your IRA, you do not need to talk to a tax advisor as the IRA is sheltered from taxes. You could just let it liquidate or sell now inside the IRA.
  • Unless Benny holds his IRA at CGM, then the liquidation / distribution could have tax consequences.
  • Ah, then it would be wise to transfer the IRA to a broker. It still wouldn't have tax consequences when liquidated then.
  • edited October 1
    Ken Heebner has managed CGM Realty Fund (CGMRX) since its inception in 1994 and CGM Focus Fund (CGMFX) since its 1997 inception. Both funds have above-average/high expense ratios and above-average/high risk according to M* (CGMRX may be miscategorized).
    CGMFX has considerably lagged the S&P 500 for the 5 yr. and 10 yr. periods ending on 12/31/21.
    CGMRX lagged the S&P U.S. REIT Index significantly for the 1 yr., 5 yr., and 10 yr. periods ending on 12/31/21.
    The environment for active fund managers will continue to be challenging.
    Many investors will not tolerate paying high expenses to receive lower returns when passive funds are available.
  • Lewis- thats what Ill do- sell it-held it for too long anyway- By the way, I think it stinks the way CGM is doing this
  • I am old enough to remember that company and manager were a big deal at one time. Like Nicholas Fund, Acorn, Michael Price at Mutual Shares,,,,,Sogen international,,, Royce Funds. Think about the great ones who either retire early or just fade away …..manager risk is real.
  • edited October 1
    I remember Ken Heebner back in his heyday.
    He was quite the gunslinger!
    IIRC, CGMFX short-term performance was frequently either near the top or bottom of its category.
    Also, I was invested in a Mutual Series fund (Beacon?) in the mid 90s when Michael Price managed it.

    You're absolutely correct that manager risk is real.
    I was invested in RCTIX (multisector bond fund) from late 2021 to early 2022.
    I was aware of key-man risk but nevertheless invested in the fund since it was only ~4.5% of my portfolio
    and the risk/reward profile was favorable.
    George Jikovski, RCTIX manager since inception, left unexpectedly in March 2022.
    Mr. Jikovski was in his early/mid 40s.
    There wasn't a good succession plan in place.

  • Never invested with Heebner; too volatile from one year to another. Micheal price, however, made considerable gain for us (Mutual Beacon and Discovery). We moved on elsewhere after he sold his firm to Franklins back in the 90’s.

    Investing in active managed funds requires work to keep track of their performance and what are being invested. Some managers take the time to share their thinking on the annual reports; many simply don’t care. That is why many investors move to index funds and ETFs.
  • If you compare it w FXAIX from Oct '97 to date, it all comes out about the same, Heebner slightly ahead. A 6-bagger for each, plus or minus, over a quarter-century. With enormous ups and downs for CGMFX. I went in earlyish and sold during one big runup, the only lucky moves I have ever had investing.
  • I made a good chunk off of CGMFX during Ken's last banner year. Then he went all in on shorting treasuries, and I got out. I think overall I did okay throughout my holding period (beat S&P500).

    Had an unsimilar experience with FAIRX. My round-trip experience with Bruce was less fortunate, and by the time I liquidated, I would have made the same holding a decent bond fund as I did holding FAIRX.

    Both experiences did quite a bit to educate me on the risks of one-man-shows. Berkowitz in particular had a number of bizarre staffing / personal / ego issues going on.
  • Sven- you are absolutely right about moving to index funds and ETFs!!!
  • @BennyB, the main reasons we made the change were two folds. First, there were no managers quite like Micheal Price (solid return with lower risk). Donald Yacktman came the close. The other was the capital gain tax incurred when we had them in taxable account. Indexing small caps does not work well and we still use active managed funds.
  • I remember when CGM Focus was advertised like crazy on CNBC during the late 00s. Remember the fencing duo?
  • edited October 4
    Auriana and Heebner were the small cap axe for a while.
    Auriana's KAUFX used to have a $3 NAV so daily % changes were interesting back in the day.
    Had money with him for a long time.
  • I echo all of the above statements. Michael Price ran the first mutual fund I bought (Mutual Shares) in 1989. I hung on to it and Mutual Discovery until David Winter left. The capital gains were a problem, but not unlike other long term positions in individual stocks. But with the latter if you pick correctly, it is unlikely they will go out of business (ie BRK.B)

    I was fortunate enough to somehow avoid Bruce, and while I bought the hometown boy Nicholas ( we lived in Milwaukee then) I left when Al turned it over to his son. Nepotism in investment management is never good.

    It is too bad that funds that liquidate can't just transfer the positions to the sharehoders.
  • >> Nepotism in investment management is never good.

    Have not Yacktman-family funds been okay?
  • It is too bad that funds that liquidate can't just transfer the positions to the sharehoders.

    They can, unless they have promised not to (see below). While redemption in kind works for Authorized Participants who arbitrage huge slugs of equities, do retail investors really want to be handed dribs and drabs of many securities? The CGM funds are very concentrated, but they still hold over a score of securities that investors would have to deal with.

    CGM Mutual Fund (LOMMX): 19 stocks, 5 Treasury bonds
    CGM Focus Fund (CGMFX): 25 stocks
    CGM Realty (CGMRX): 42 stocks
    see also Adoption of (1) Rule18f-1 Under the Investment Company Act of 1940 to Permit Registered Open-End Investment Companies Which Have the Right to Redeem In Kind to Elect to Make Only Cash Redemptions and (2) Form-N-18F-1, Investment Company Act Release No. 6561 (June 14, 1971) [36 FR 11919 (June 23, 1971)] (“Rule 18f-1 and Form N-18F-1 Adopting Release”) (stating that the definition of “redeemable security” in section 2(a)(32) of the Investment Company Act “has traditionally been interpreted as giving the issuer the option of redeeming its securities in cash or in kind.”).
  • Holy cow. I recall the CONSTANT tv commercial with the guys in the middle of a fencing match. Ken Heebner. Gone, all gone now.
  • Current AUMs from M*:
    LOMMX $282.4 million
    CGMFX $341.9 million
    CGMRX $347.8 million

    Total for 3 CGM funds $972.1 million

    And nobody wanted to buy them?

    I think that there is some story or strategy behind this.
  • The CGM website leaves something to be desired.
  • Crash-and dummy me fell for it!!! LOL
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