UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-00933
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CGM CAPITAL DEVELOPMENT FUND
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(Exact name of registrant as specified in charter)
One International Place, Boston, Massachusetts 02110
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(Address of principal executive offices) (Zip code)
Jeremiah J. Bresnahan, Jr., Esq.
Bingham McCutchen LLP
150 Federal Street
Boston, MA 02110
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-737-3225
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Date of fiscal year end: December 31, 2003
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Date of reporting period: June 30, 2003
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ITEM 1. REPORTS TO STOCKHOLDERS.
CGM
CAPITAL
DEVELOPMENT
FUND
168th Quarterly Report
June 30, 2003
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS
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CGM Capital Development Fund increased 14.4% during the second quarter of 2003
compared to the unmanaged Standard and Poor's 500 Index which increased 15.4%
over the same period. For the first six months of the year, CGM Capital
Development Fund returned 14.8% while the unmanaged S&P 500 Index increased
11.8%.
The long awaited recovery remained elusive during the second quarter of 2003.
Many economic indicators barely budged over the three-month period, and
business activity remained sluggish. Major manufacturers are currently
operating at only 72% capacity and many of them have been discouraged from new
capital spending. Without a stronger economy, unemployment levels show no signs
of abating. The favorable resolution of the Iraqi war failed to bolster
consumer confidence to any great degree though the consumer does keep chugging
along, lured by incentives to spend money on houses and automobiles and thereby
keeping the economy growing, though only at a meager 1%-2% annual rate.
The remedy may, however, be on the way. We anticipate a strengthening economy
during the second half of the year as significant monetary and fiscal policies
are implemented which should help to stimulate spending. First, on June 25, the
Federal Reserve Board again shaved 25 basis points from the Federal Funds rate
to achieve a new 45-year low. The ten-year Treasury bond is currently yielding
only 3.63% and the three-month Treasury bill, a mere 87 basis points. Secondly,
on the fiscal front, a front-end-loaded tax cut replete with lower dividend
taxes is being implemented and, we believe, will put more money in the
consumer's pocket. Finally, the federal government continues to spend at a good
clip which, when combined with a weakening dollar that ought to boost foreign
exports, should nudge the economy out of neutral and into a forward gear.
Ahead of the curve, investors anticipated the significance of these factors and
bid the S&P 500 Index up 15% during the second quarter. Frequently, the stock
market becomes an accurate leading indicator in and of itself. In this
instance, we believe the market is signaling better times for the economy. That
said, the fact remains that the stock market is still expensive, with the S&P
500 Index selling at 18-19 times next year's earnings. We do believe there are
opportunities in a few sectors and in individual companies where growth
prospects look good to us relative to market prices, and we are concentrating
on just such situations.
CGM Capital Development Fund held large positions in the housing and building
materials, health-care services, and energy industries on June 30, 2003. The
Fund's three largest holdings at quarter-end were the Ryland Group, Inc., the
Lennar Corporation and D.R. Horton, Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
July 1, 2003
CGM CAPITAL DEVELOPMENT FUND
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INVESTMENT PERFORMANCE
(unaudited)
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Total Return for Periods Ended June 30, 2003
CGM CAPITAL
DEVELOPMENT THE FUND'S AVERAGE
FUND ANNUAL TOTAL RETURN
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10 Years ............................. +58.7% +4.7%
5 Years ............................. -26.9 -6.1
1 Year .............................. -11.1 -11.1
3 Months ............................ +14.4 --
The percentage figures for the Fund are based upon the beginning net asset
values of $30.04, $28.86, $19.66 and $15.27, respectively, and the June 30,
2003 net asset value of $17.47 per share assuming the reinvestment of income
dividends and capital gains during such respective periods. These percentage
figures do not reflect the deduction of taxes that a shareholder would pay on
Fund distributions or the redemption of Fund shares.
The performance data contained in this report represent past performance,
which is no guarantee of future results. 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.
CGM CAPITAL DEVELOPMENT FUND
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BOARD OF TRUSTEES
PETER O. BROWN
G. KENNETH HEEBNER
ROBERT L. KEMP
ROBERT B. KITTREDGE
LAURENS MACLURE
JAMES VAN DYKE QUEREAU, JR.
J. BAUR WHITTLESEY
OFFICERS
ROBERT L. KEMP, President
G. KENNETH HEEBNER, Vice President
LESLIE A. LAKE, Vice President and Secretary
KATHLEEN S. HAUGHTON, Vice President
MARTHA I. MAGUIRE, Vice President
W. DUGAL THOMAS, Vice President
MARY L. STONE, Assistant Vice President
FRANK N. STRAUSS, Treasurer
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 02102
SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY
BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 8511
Boston, Massachusetts 02266-8511
CGM CAPITAL DEVELOPMENT FUND
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The Fund is supervised by the board of trustees. The trustees and officers of
the Fund, 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 trustee and
officer is One International Place, Boston, Massachusetts 02110.
An asterisk in the table below identifies those trustees and officers who are
"interested persons" of the Fund as defined in the Investment Company Act of
1940, as amended. Each trustee and officer of the Fund noted as an interested
person is interested by virtue of that individual's position with Capital
Growth Management Limited Partnership ("CGM"), the Fund's investment manager,
as described in the table below.
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 Employee, CGM; Part Owner, Kenbob, Inc. 4
age 62 (Managing Partner of CGM)
Robert L. Kemp* Trustee since 1990 Employee, CGM; Part Owner, Kenbob, Inc. 4
age 71 (Managing Partner of CGM)
DISINTERESTED TRUSTEES
Peter O. Brown Trustee since 1993 Counsel (formerly, Partner), Harter, 4
age 62 Secrest & Emery LLP (law firm); Trustee,
TT International U.S.A. Master and Feeder
Trusts (four mutual funds)
Robert B. Kittredge Trustee since 1990 Retired; formerly Trustee, New England 4
age 82 Zenith Fund
Laurens MacLure Trustee since 1990 Retired; formerly President and Chief 4
age 78 Executive Officer, New England Deaconess
Hospital; formerly Trustee, New England
Zenith Fund; formerly Director,
Massachusetts Blue Cross/Blue Shield
James Van Dyke Quereau, Jr. Trustee since 1993 Managing Partner and Director, Stratton 4
age 54 Management Company (Investment
Management); Director and Vice President,
Semper Trust Co.
J. Baur Whittlesey Trustee since 1990 Member, Ledgewood Law Firm, P.C. 4
age 56
OFFICERS
G. Kenneth Heebner* Vice President since 1990 Employee, CGM; Part Owner, Kenbob, Inc. 4
age 62 (Managing Partner of CGM)
Robert L. Kemp* President since 1990 Employee, CGM; Part Owner, Kenbob, Inc. 4
age 71 (Managing Partner of CGM)
Kathleen S. Haughton* Vice President since 1992 and Employee - Investor Services Division, CGM 4
age 43 Anti-Money Laundering Compliance
address: Officer since 2002
222 Berkeley Street,
Boston, Massachusetts
02116
Leslie A. Lake* Vice President and Secretary Employee - Office Administrator, CGM 4
age 58 since 1990
Martha I. Maguire* Vice President since 1994 Employee - Funds Marketing, CGM 4
age 47
Mary L. Stone* Assistant Vice President since Employee - Portfolio Transactions, CGM 4
age 58 1990
Frank N. Strauss* Treasurer since 1992 Employee - Chief Financial Officer, CGM 4
age 42 Funds
address:
222 Berkeley Street,
Boston, Massachusetts
02116
W. Dugal Thomas* Vice President since 1992 Employee - Director of Marketing, CGM 4
age 66
CGM CAPITAL DEVELOPMENT FUND
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25-YEAR INVESTMENT RECORD
DECEMBER 31, 1977 -- JUNE 30, 2003 (UNAUDITED)
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IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1977
- ------------------------------------------------------------------------------------------------------------------------------
-- 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 Dividends Year End Total Return December 31,
31 Have Been of of Would Have Been of 1977 = 100.0
- ------------------------------------------------------------------------------------------------------------------------------
1977 $10.74 100.0
1978 13.05 -- $0.27 $ 13.41 + 24.9% 124.9
1979 16.20 -- 0.35 17.08 + 27.4 159.1
1980 20.50 $ 1.65* 0.36 24.41 + 42.9 227.4
1981 17.34 3.38 0.36 25.51 + 4.5 237.6
1982 24.88 2.88 0.41 45.64 + 78.9 425.1
1983 25.21 2.50 0.47 52.76 + 15.6 491.4
1984 17.28 6.15 0.11 48.43 - 8.2 451.1
1985 25.02 -- 0.18 70.80 + 46.2 659.5
1986 23.12 7.46 0.16 90.91 + 28.4 846.8
1987 16.56 10.09 0.14 105.36 + 15.9 981.4
1988 15.87 0.02 0.62 105.04 - 0.3 978.5
1989 18.37 -- 0.34 123.84 + 17.9 1153.7
1990 18.53 -- 0.10 125.57 + 1.4 1169.9
1991 25.80 11.07* 0.06 250.01 + 99.1 2329.3
1992 27.43 2.68* 0.20 293.76 + 17.5 2736.9
1993 27.71 7.51 0.07 378.07 + 28.7 3522.4
1994 20.58 0.71 0.07 291.49 - 22.9 2715.8
1995 27.33 1.68 0.02 411.29 + 41.1 3832.0
1996 29.08 5.87 0.07 526.86 + 28.1 4908.8
1997 26.96 9.08 -- 652.78 + 23.9 6082.0
1998 24.95 4.19 0.11 708.27 + 8.5 6599.0
1999 26.20 0.56 0.11 762.81 + 7.7 7107.1
2000 25.12 -- 0.10 733.82 - 3.8 6837.0
2001 19.21 -- -- 561.37 - 23.5 5230.3
2002 15.22 -- -- 444.61 - 20.8 4142.4
2003 (6/30) 17.47 -- -- 510.41 + 14.8 4755.5
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Totals $77.48 $4.68 + 4655.5
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* Includes $0.09, $0.02 and $0.02 per share distributed from paid-in capital.
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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 and the principal value of an investment in the Fund will fluctuate so that investors' shares,
when redeemed, may be worth more or less than the original cost.
CGM CAPITAL DEVELOPMENT FUND
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INVESTMENTS as of June 30, 2003
(unaudited)
COMMON STOCKS -- 99.8% OF TOTAL NET ASSETS
Shares Value(a)
------ --------
AIRLINES -- 2.2%
AMR Corporation (b) .............................. 575,000 $ 6,325,000
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AUTO AND RELATED -- 4.5%
Group 1 Automotive, Inc. (b) ..................... 400,000 12,964,000
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BEVERAGE AND TOBACCO -- 5.2%
Altria Group, Inc. ............................... 330,000 14,995,200
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DRUGS -- 9.5%
Barr Laboratories, Inc. (b) ...................... 97,000 6,353,500
Medicis Pharmaceutical Corporation ............... 150,000 8,505,000
Teva Pharmaceutical Industries Limited (c) ....... 215,000 12,239,950
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27,098,450
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ENERGY -- 10.2%
Chesapeake Energy Corporation .................... 1,460,000 14,746,000
XTO Energy, Inc. ................................. 720,000 14,479,200
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29,225,200
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FINANCIAL SERVICES -- 3.6%
Countrywide Financial Corporation ................ 147,300 10,247,661
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HEALTH-CARE SERVICES -- 14.5%
AdvancePCS (b) ................................... 390,000 14,909,700
Amerisourcebergen Corporation .................... 185,000 12,829,750
Pacificare Health Systems (b) .................... 280,000 13,812,400
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41,551,850
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HEAVY CAPITAL GOODS -- 5.1%
PACCAR, Inc. ..................................... 215,000 14,525,400
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HOUSING AND BUILDING MATERIALS -- 28.4%
D.R. Horton, Inc. ................................ 644,900 18,121,690
Hovnanian Enterprises, Inc. (b) .................. 120,000 7,074,000
Lennar Corporation; Class A ...................... 280,000 20,020,000
Lennar Corporation; Class B ...................... 28,000 1,923,600
NVR, Inc. (b) .................................... 26,000 10,686,000
Ryland Group, Inc. ............................... 337,000 23,387,800
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81,213,090
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MACHINERY -- 2.5%
AGCO Corporation (b) ............................. 420,000 7,173,600
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PERIPHERALS -- 4.7%
Western Digital Corporation (b) .................. 1,300,000 13,390,000
------------
RETAIL -- 5.3%
Tractor Supply Company (b) ....................... 320,000 15,280,000
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TEXTILE AND APPAREL -- 4.1%
Timberland Company (b) ........................... 222,800 11,777,208
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TOTAL COMMON STOCKS (Identified Cost $230,331,822) ........... 285,766,659
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SHORT-TERM INVESTMENT-- 0.3% Face Amount
-----------
American Express Credit Corporation, 1.20%, 7/01/03
(Cost $775,000) ............................... $775,000 775,000
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TOTAL INVESTMENTS-- 100.1% (Identified Cost $231,106,822)(d) . 286,541,659
Cash and Receivables ....................................... 14,511,036
Liabilities ................................................ (14,824,632)
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TOTAL NET ASSETS-- 100.0% .................................... $286,228,063
============
(a) See Note 1A.
(b) Non-income producing security.
(c) An American Depository 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) Federal Tax Information: At June 30, 2003 the net unrealized appreciation
on investments based on cost of $231,106,822 for Federal income tax
purposes was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ........ $ 59,287,003
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........ (3,852,166)
------------
Net unrealized appreciation ................................. $ 55,434,837
============
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
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STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003
(unaudited)
ASSETS
Investments at value
(Identified cost-- $231,106,822) .................... $286,541,659
Cash .................................................. 2,859
Receivable for:
Securities sold .................... $14,417,580
Shares of the Fund sold ............ 12,521
Dividends and interest ............. 78,076 14,508,177
----------- ------------
301,052,695
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LIABILITIES
Payable for:
Securities purchased ................. 14,173,502
Shares of the Fund redeemed .......... 373,913 14,547,415
-----------
Accrued expenses:
Management fees ...................... 242,323
Trustees' fees ....................... 10,684
Accounting and Administration fees ... 4,000
Transfer agent fees .................. 4,953
Other expenses ....................... 15,257 277,217
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14,824,632
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NET ASSETS .............................................. $286,228,063
============
Net Assets consist of:
Capital paid-in ..................................... $385,579,365
Undistributed net investment loss ................... (938,270)
Accumulated net realized loss ....................... (153,847,869)
Unrealized appreciation on investments-- net ........ 55,434,837
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NET ASSETS .............................................. $286,228,063
============
Shares of beneficial interest outstanding, no par value 16,382,601
============
Net asset value per share* ............................ $17.47
============
* Shares of the Fund are sold and redeemed at net asset value
($286,228,063 / 16,382,601).
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
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STATEMENT OF OPERATIONS
Six Months Ended June 30, 2003
(unaudited)
INVESTMENT INCOME
Income
Dividends (net of withholding tax of $6,121) ............. $ 599,821
Interest ................................................. 6,512
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606,333
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Expenses
Management fees .......................................... 1,318,661
Trustees' fees ........................................... 23,679
Accounting and Administration ............................ 24,000
Custodian ................................................ 37,892
Transfer agent ........................................... 63,021
Audit and tax services ................................... 15,125
Legal .................................................... 39,306
Printing ................................................. 12,473
Registration ............................................. 9,501
Miscellaneous ............................................ 945
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1,544,603
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Net investment loss .......................................... (938,270)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments-- net ......................... 4,500,765
Unrealized appreciation-- net .............................. 33,678,274
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Net gain on investments .................................... 38,179,039
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NET CHANGE IN ASSETS FROM OPERATIONS ......................... $37,240,769
===========
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
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STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31,
(UNAUDITED) 2002
FROM OPERATIONS
Net investment loss ...................................... $ (938,270) $ (2,214,544)
Net realized gain (loss) from investments ................ 4,500,765 (50,935,197)
Unrealized appreciation (depreciation) ................... 33,678,274 (15,892,293)
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Change in net assets from operations ................... 37,240,769 (69,042,034)
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FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................. 1,057,438 4,955,793
Cost of shares redeemed .................................. (11,888,344) (29,460,558)
------------- -------------
Change in net assets derived from capital share
transactions ......................................... (10,830,906) (24,504,765)
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Total change in net assets ............................... 26,409,863 (93,546,799)
NET ASSETS
Beginning of period ...................................... 259,818,200 353,364,999
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End of period (including net investment loss of
$938,270 and $0, respectively) ......................... $ 286,228,063 $ 259,818,200
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NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................... 67,531 272,374
Redeemed ............................................... (754,903) (1,593,362)
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Net change ............................................. (687,372) (1,320,988)
============= =============
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
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FINANCIAL HIGHLIGHTS
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2003 ----------------------------------------------------
(UNAUDITED) 2002 2001 2000 1999 1998
----------- ---- ---- ---- ---- ----
For a share of the Fund outstanding throughout each period:
Net asset value at the beginning of period .................. $15.22 $19.21 $25.12 $26.20 $24.95 $26.96
------ ------ ------ ------ ------ ------
Net investment income (loss) ................................ (0.06)(a) (0.12)(a) (0.08)(b) 0.12(a) 0.12 0.11
Dividends from net investment income ........................ -- -- -- (0.10) (0.11) (0.11)
Net realized and unrealized gain (loss) on investments ...... 2.31 (3.87) (5.83) (1.10) 1.80 2.18
Distribution from net realized gain ......................... -- -- -- -- (0.56) (4.19)
------ ------ ------ ------ ------ ------
Net increase (decrease) in net asset value .................. 2.25 (3.99) (5.91) (1.08) 1.25 (2.01)
------ ------ ------ ------ ------ ------
Net asset value at end of period ............................ $17.47 $15.22 $19.21 $25.12 $26.20 $24.95
====== ====== ====== ====== ====== ======
Total Return (%) ............................................ 14.8 (20.8) (23.5) (3.8) 7.7 8.5
Ratios:
Operating expenses to average net assets (%) ................ 1.17* 1.15 1.12 1.10 1.08 1.07
Net investment income (loss) to average net assets (%) ...... (0.71)* (0.67) (0.38) 0.46 0.46 0.39
Portfolio turnover (%) ...................................... 318* 209 283 334 335 335
Net assets at end of period (in thousands) ($) 286,228 259,818 353,365 523,854 632,537 703,418
(a) Per share net investment income/(loss) has been calculated using the average shares outstanding during the period.
(b) Per share net investment loss does not reflect the year's reclassification of permanent differences between book and tax basis
net investment loss. See Note 1D.
* Computed on an annualized basis.
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
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NOTES TO FINANCIAL STATEMENTS -- June 30, 2003
(unaudited)
1. The Fund is organized as a Massachusetts business trust under the laws of
Massachusetts pursuant to an Agreement and Declaration of Trust. The Fund is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. Along with three other funds in a separate
Trust, there are four CGM Funds. The Fund's objective is long-term capital
appreciation. The Fund seeks to attain its objective by investing in the equity
securities of a relatively small but diverse group of companies and industries.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION -- Equity securities are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees. The pricing service provides the last reported sale price for
securities listed on a national securities exchange or, in the case of the
NASDAQ national market system, the NASDAQ official closing price. For
securities with no sale reported and in the case of over-the-counter
securities not so listed, the last reported bid price is used. Short-term
investments having a maturity of sixty days or less are stated at amortized
cost, which approximates value. Other assets and securities which are not
readily marketable will be valued in good faith at fair value using methods
determined by the Board of Trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed) and dividend income is recorded on the ex-dividend date
net of applicable foreign taxes. Interest income is recorded on the accrual
basis. Net gain or loss on securities sold is determined on the identified
cost basis.
C. FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies, and to distribute to its shareholders all of its
taxable income and net realized capital gains, within the prescribed time
period. Accordingly, no provision for federal income tax has been made. At
December 31, 2002, there were capital loss carryovers available to offset
future realized gains of $4,310,582 expiring in year 2008, $102,772,100
expiring in year 2009 and $50,926,623 expiring in year 2010.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions
are recorded by the Fund on the ex-dividend date. The classification of
income and capital gains distributions is determined in accordance with
income tax regulations. Distributions from net investment income and
short-term capital gains are treated as ordinary income for income tax
purposes. Permanent book and tax differences relating to shareholder
distributions may result in reclassifications to paid-in capital. These
differences are primarily related to net investment loss write off.
Undistributed net investment income or accumulated net investment loss may
include temporary book and tax differences which will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year end
is distributed in the following year.
E. INVESTMENT RISK -- There are certain additional risks involved in investing
in foreign securities that are not inherent in investments in domestic
securities. These risks may involve adverse political and economic
developments and the possible imposition of currency exchange blockages or
other foreign governmental laws or restrictions. In addition, the
securities of some foreign companies and securities markets are less liquid
and at times more volatile than securities of comparable U.S. companies and
U.S. securities markets.
2. PURCHASES AND SALES OF SECURITIES -- For the period ended June 30, 2003,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $418,738,329 and
$430,613,791, respectively. There were no purchases or sales of United States
government obligations.
3. A. MANAGEMENT FEES -- During the period ended June 30, 2003, the Fund
incurred management fees of $1,318,661 paid or payable to the Fund's
investment adviser, Capital Growth Management Limited Partnership
(CGM), certain officers and directors of which are also officers and
trustees of the Fund. The management agreement provides for a fee at
the annual rate of 1.00% on the first $500 million of the Fund's
average daily net assets, 0.95% of the next $500 million and 0.80% of
such assets in excess of $1 billion.
B. OTHER EXPENSES -- CGM performs certain administrative, accounting 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; and (iii) registration, filing and other fees in connection
with requirements of regulatory authorities. The Accounting and
Administration expense of $24,000, for the period ended June 30, 2003,
is shown separately in the financial statements.
C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to its officers or to any trustees who are directors, officers
or employees of CGM, or any affiliate of CGM (other than registered
investment companies). For the period ended June 30, 2003 each other
trustee was compensated by the CGM Funds with an annual fee of $37,000
plus travel expenses for each meeting attended. Of this amount, each
fund was responsible for $4,500 per trustee, plus an annual variable
fee calculated based on the proportion of each fund's average net
assets relative to the aggregate average net assets of the CGM Funds,
which for the period ended June 30, 2003 was $1,886 per trustee for the
Fund.
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
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TELEPHONE NUMBERS
For information about:
[ ] Account Procedures and Status
[ ] Redemptions
[ ] Exchanges
Call 800-343-5678
[ ] New Account Procedures
[ ] Prospectuses
[ ] Performance
Call 800-345-4048
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MAILING ADDRESSES
FOR EXISTING ACCOUNTS
CGM Shareholder Services
c/o Boston Financial Data Services
P.O. Box 8511 Boston, MA 02266-8511
FOR NEW ACCOUNT APPLICATIONS ONLY
The CGM Funds
P.O. Box 449
Boston, MA 02117-0449
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This report has been prepared for the shareholders of the Fund and is not
authorized for distribution to current or prospective investors in the Fund
unless it is accompanied or preceded by a prospectus.
CQR2 03 Printed in U.S.A.
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the CGM Capital Development Fund's disclosure
controls and procedures within 90 days of the filing of this Form N-CSR, the
principal executive officer and principal financial officer have concluded that
the CGM Capital Development Fund's disclosure controls and procedures are
effective to provide reasonable assurance that material information required to
be disclosed by the CGM Capital Development Fund on this report 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 Capital Development Fund's internal
control over financial reporting (as defined in Rule 30a-3(d) under the Act)
that occurred during the registrant's last fiscal half-year (the registrant's
second fiscal half-year in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the CGM Capital
Development Fund's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2 under
the Investment Company Act of 1940: attached hereto as EX-99.CERT.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14 under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for the purposes of
Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the
liability of that section. Such certification will not be deemed to be
incorporated by reference into any filing under the Securities Act of 1933 or
the Exchange Act, except to the extent that the registrant specifically
incorporates it by reference: 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 Capital Development Fund
By: /S/Robert L. Kemp
Robert L. Kemp
President
Principal Executive Officer
Date: September 2, 2003
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: September 2, 2003
By: /S/ Frank N. Strauss
Frank N. Strauss
CFO & Treasurer
Principal Financial Officer
Date: September 2, 2003