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
--------------------------
Date of reporting period: December 31, 2003
--------------------------
ITEM 1. REPORTS TO STOCKHOLDERS.
CGM
CAPITAL
DEVELOPMENT
FUND
43rd Annual Report
December 31, 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 26.7% during the fourth quarter of 2003
while the unmanaged Standard and Poor's 500 Index grew 12.2%. For the year just
ended, CGM Capital Development Fund increased 55.1% and the unmanaged S&P 500
Index returned 28.7%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
The economy recovered much of its footing in 2003 though not without some twists
and turns along the way. Corporate spending was sluggish in the first quarter
leaving the consumer to carry the day. The first three months of the year
witnessed a 2% gain in real Gross Domestic Product (GDP) at the same time the
equity market gradually declined. The second quarter of the year brought more of
the same but with one exception: investors began to anticipate a turnaround and
optimism sent the S&P 500 Index rocketing up 15%. Primed by passage of the
President's tax cut, continuing low interest rates, a weak dollar and robust
government spending, the economy kicked back into motion. Investors had every
reason to feel smug when the third quarter 2003 real GDP came in at a whopping
8.2% annual gain. At long last, business joined the party with corporate profits
rebounding nicely and encouraging an increase in business spending. The consumer
continued to contribute by spending at a moderate pace and for the first time in
a long time, the farming sector showed up on the economic radar at the receiving
end of higher grain and livestock prices. Though the news remained largely
positive, there were some mixed signals toward the end of the year when on one
hand, the Confidence Index and sales of Durable Goods slowed from the third
quarter's hectic pace, and on the other, an index of manufacturing activity
soared to a twenty year high in December.
We see little reason to believe the recovery shouldn't continue in 2004: there
are few excesses in the economy, interest rates remain low and stimulative, and
foreign economies have joined ours in the uptrend. We hope the employment
picture will continue to brighten as 2004 progresses while the inflation rate
remains below 2%. Currently, short term Treasury bills yield 91 basis points and
the ten-year government bond yields about 4.25%, both low by historical
standards. These rates offer little in the way of competition to equity prices
which might allow the generous price-earnings relationships currently in place
in the market to persist a while longer. Should this be the case, stocks could
track corporate profits for a time leading to a nice gain from current levels.
However, the market typically is fraught with risks and surprises to trip unwary
investors. We believe the largest threat is the prospect of higher interest
rates triggered by the strengthening economy or lifted by the Federal Reserve
Board in an effort to bolster a weaker dollar. The other great unknown is
terrorism. Acts of terror here or abroad could injure confidence and, at the
very least, rattle the markets.
PORTFOLIO STRATEGY
CGM Capital Development Fund remained fully invested throughout 2003 in
expectation of a strong economic recovery. We entered the year with 29% of the
Fund invested in homebuilding stocks and gradually reduced the position to 23%
of the portfolio at year end by selling these holdings as they appreciated. We
started the year with approximately 20% of the Fund invested in health care
services and 15% in insurance companies. These positions were gradually reduced
throughout the year and replaced with metal stocks and other cyclicals as the
evidence of strong economic growth continued to develop.
Most of the Fund's holdings appreciated during the year and three of our
homebuilding stocks rose over 100% in value. Other significant gains included
United States Steel Corporation (+84%), PACCAR, Inc. (+64%) and Monaco Coach
Corporation (+60%). Our three health care companies were notable exceptions to
this otherwise upbeat pattern suffering losses of 15%-20% during their 2003
holding period. On December 31, 2003, CGM Capital Development Fund's three
largest holdings were United States Steel Corporation, Lennar Corporation, and
D.R. Horton, Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 2, 2004
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CGM CAPITAL DEVELOPMENT
FUND AND THE UNMANAGED S&P 500 INDEX
assuming reinvestment of dividends and capital gains
CGM Capital Development Fund
Average Annual Total Returns
- ---------------------------------
1 year 5 year 10 year
55.1% -0.5% 6.2%
- ---------------------------------
Past performance is no indication
of future results
CGM Capital Unmanaged
Development Fund S&P 500 Index
- ---------------------------------------------------
$10,000.00 $10,000.00
1994 7,710.00 10,130.00
1995 10,879.00 13,929.00
1996 13,936.00 17,132.00
1997 17,266.00 22,855.00
1998 18,734.00 29,391.00
1999 20,177.00 35,563.00
2000 19,410.00 32,327.00
2001 14,849.00 28,480.00
2002 11,760.00 22,186.00
2003 18,240.00 28,553.00
CGM CAPITAL DEVELOPMENT FUND
PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
G. Kenneth Heebner has managed CGM Capital Development Fund since 1976. 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 Capital
Development Fund. In addition to CGM Capital Development Fund, Mr. Heebner
currently manages CGM Mutual Fund, CGM Realty Fund and CGM Focus Fund.
INVESTMENT PERFORMANCE
(unaudited)
- --------------------------------------------------------------------------------
Cumulative Total Return for Periods Ended
December 31, 2003
CGM CAPITAL
DEVELOPMENT
FUND
--------------------
10 Years ................................................. +82.5%
5 Years ................................................. - 2.6
1 Year .................................................. +55.1
3 Months ................................................ +26.7
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 that a shareholder would pay on Fund distributions or the
redemption of Fund shares and assumes the reinvestment of all Fund
distributions. The investment return and the principal value of an investment in
the Fund will fluctuate so that investors' shares, when redeemed, may be worth
more or less than their original cost. Current performance may be lower or
higher than the performance data quoted.
The Fund is supervised by a 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.
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 adviser, as
described in the table 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 Employee, CGM; Part Owner, 4
age 63 Kenbob, Inc. (managing
partner of CGM)
Robert L. Kemp* Trustee since 1990 Employee, CGM; Part Owner, 4
age 71 Kenbob, Inc. (managing
partner of CGM)
DISINTERESTED TRUSTEES
Peter O. Brown Trustee since 1993 Counsel (formerly, Partner), 4
age 63 Harter, Secrest & Emery LLP
(law firm); Trustee, TT
International U.S.A. Master
and Feeder Trusts (four
mutual funds)
Robert B. Kittredge Trustee from 1990 to January Retired; formerly Trustee, New 4
age 83 2004+ England Zenith Fund
Laurens MacLure Trustee since 1990 Retired; formerly President and 4
age 78 Chief 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, 4
age 55 Stratton 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 57
OFFICERS
G. Kenneth Heebner* Vice President since 1990 Employee, CGM; Part Owner, 4
age 63 Kenbob, Inc. (managing partner
of CGM)
Robert L. Kemp* President since 1990 Employee, CGM; Part Owner, 4
age 71 Kenbob, Inc. (managing partner
of CGM)
Kathleen S. Haughton* Vice President since 1992 Employee - Investor Services Division, 4
age 43 and Anti-Money Laundering CGM
address: Compliance Officer
222 Berkeley Street, since 2002
Boston, Massachusetts
02116
Leslie A. Lake* Vice President and Secretary Employee - Office Administrator, 4
age 58 since 1990 CGM
Martha I. Maguire* Vice President since 1994 Employee - Funds Marketing, CGM 4
age 48
Mary L. Stone* Assistant Vice President Employee - Portfolio Transactions, 4
age 59 since 1990 CGM
Frank N. Strauss* Treasurer since 1992 Employee - Chief Financial Officer, 4
age 42 CGM Funds
address:
222 Berkeley Street,
Boston, Massachusetts
02116
W. Dugal Thomas* Vice President since 1992 Employee - Director of Marketing, 4
age 66 CGM
+Mr. Kittredge passed away in January 2004.
CGM CAPITAL DEVELOPMENT FUND
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25 YEAR INVESTMENT RECORD
DECEMBER 31, 1978 -- DECEMBER 31, 2003 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1978
- -----------------------------------------------------------------------------------------------------------------------------------
-- 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 Share Would Distributions Distributions Year End Total Return December 31,
31 Have Been of of Would Have Been of 1978 = 100.0
- -----------------------------------------------------------------------------------------------------------------------------------
1978 $13.05 100.0
1979 16.20 -- $0.35 $ 16.63 + 27.4% 127.4
1980 20.50 $ 1.65* 0.36 23.76 + 42.9 182.1
1981 17.34 3.38 0.36 24.83 + 4.5 190.3
1982 24.88 2.88 0.41 44.42 + 78.9 340.4
1983 25.21 2.50 0.47 51.35 + 15.6 393.5
1984 17.28 6.15 0.11 47.14 - 8.2 361.2
1985 25.02 -- 0.18 68.92 + 46.2 528.1
1986 23.12 7.46 0.16 88.49 + 28.4 678.1
1987 16.56 10.09 0.14 102.56 + 15.9 785.9
1988 15.87 0.02 0.62 102.25 - 0.3 783.5
1989 18.37 -- 0.34 120.55 + 17.9 923.7
1990 18.53 -- 0.10 122.24 + 1.4 936.6
1991 25.80 11.07* 0.06 243.38 + 99.1 1864.8
1992 27.43 2.68* 0.20 285.97 + 17.5 2191.1
1993 27.71 7.51 0.07 368.04 + 28.7 2819.9
1994 20.58 0.71 0.07 283.76 - 22.9 2174.1
1995 27.33 1.68 0.02 400.39 + 41.1 3067.7
1996 29.08 5.87 0.07 512.90 + 28.1 3929.7
1997 26.96 9.08 -- 635.48 + 23.9 4868.9
1998 24.95 4.19 0.11 689.50 + 8.5 5282.8
1999 26.20 0.56 0.11 742.59 + 7.7 5689.6
2000 25.12 -- 0.10 714.37 - 3.8 5473.4
2001 19.21 -- -- 546.49 - 23.5 4187.2
2002 15.22 -- -- 432.82 - 20.8 3316.3
2003 23.60 -- -- 671.30 + 55.1 5143.6
------ ----- --------
Totals $77.48 $4.41 + 5043.6
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*Includes $0.09, $0.02 and $0.02 per share distributed from paid-in capital.
- ----------------------------------------------------------------------------------------------------------------------------------
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 and
assumes the reinvestment of all Fund distributions. The investment return and the principal value of an investment in the Fund
will fluctuate so that investors' shares, when redeemed, may be worth more or less than the original cost. Current performance may
be lower or higher than the performance data quoted.
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
PETER O. BROWN
G. KENNETH HEEBNER
ROBERT L. KEMP
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
- --------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 2003
COMMON STOCKS -- 99.8% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
CONSUMER DURABLES -- 4.7%
Monaco Coach Corporation(b) .............. 726,100 $17,281,180
------------
ELECTRONIC COMPONENTS -- 5.6%
Harman International Industries, Inc. .... 280,600 20,758,788
------------
ENERGY -- 3.1%
Chesapeake Energy Corporation ............ 440,000 5,975,200
XTO Energy, Inc. ......................... 190,000 5,377,000
------------
11,352,200
------------
FINANCIAL SERVICES -- 2.5%
Fremont General Corporation .............. 545,000 9,215,950
------------
FOOD - PACKAGING AND MISCELLANEOUS -- 5.8%
John B. Sanfilippo & Son, Inc.(b) ........ 420,000 21,436,800
------------
HEAVY CAPITAL GOODS -- 5.1%
Navistar International Corporation(b) .... 395,000 18,916,550
------------
HOUSING AND BUILDING MATERIALS -- 23.4%
D.R. Horton, Inc. ........................ 644,900 27,898,374
Hovnanian Enterprises, Inc.(b) ........... 120,000 10,447,200
Lennar Corporation; Class A .............. 280,000 26,880,000
Lennar Corporation; Class B .............. 28,000 2,559,200
Ryland Group, Inc. ....................... 207,000 18,348,480
------------
86,133,254
------------
LEISURE -- 2.6%
Polaris Industries, Inc. ................. 110,000 9,743,800
------------
MACHINERY -- 3.4%
Deere & Company .......................... 195,000 12,684,750
------------
METALS AND MINING -- 15.9%
Companhia Vale do Rio Doce ADR(c) ........ 310,700 18,175,950
Inco Limited(b)(d) ....................... 530,000 21,104,600
Phelps Dodge Corporation(b) .............. 256,000 19,479,040
------------
58,759,590
------------
OIL - INDEPENDENT PRODUCTION -- 7.1%
Canadian Natural Resources Limited(d) .... 105,000 5,296,200
Devon Energy Corporation ................. 170,000 9,734,200
PetroKazakhstan, Inc.(b)(d) .............. 495,000 11,142,450
------------
26,172,850
------------
STEEL -- 13.7%
Cleveland-Cliffs Inc.(b) ................. 358,500 18,265,575
Companhia Siderurgica Nacional ADR (c) ... 45,000 2,412,000
United States Steel Corporation .......... 850,000 29,767,000
------------
50,444,575
------------
TRANSPORTATION -- 6.9%
Frontline Ltd. ........................... 482,000 12,276,540
OMI Corporation(b) ....................... 150,000 1,339,500
Teekay Shipping Corporation .............. 205,000 11,691,150
------------
25,307,190
------------
TOTAL COMMON STOCKS (Identified Cost $257,853,171) ........ 368,207,477
------------
FACE
AMOUNT
------
SHORT-TERM INVESTMENT -- 0.3%
American Express Credit Corporation, 0.7%,
1/02/04 (Cost $1,180,000) .............. $1,180,000 1,180,000
------------
TOTAL INVESTMENTS -- 100.1%
(Identified Cost $259,033,171) (e) ..................... 369,387,477
Cash and receivables ................................... 6,737,189
Liabilities ............................................ (7,103,741)
------------
TOTAL NET ASSETS -- 100.0% ................................ $369,020,925
============
(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) The Fund has approximately 10% of its assets at December 31, 2003 invested
in companies incorporated in Canada.
(e) Federal Tax Information: At December 31, 2003 the net unrealized
appreciation on investments based on cost of $259,033,171 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 ....................................... $110,817,581
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value ..................................... (463,275)
------------
Net unrealized appreciation ........................... $110,354,306
============
For tax purposes, as of December 31, 2003, there was no undistributed
ordinary income or capital gains except for the unrealized
appreciation/(depreciation).
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
December 31, 2003
ASSETS
Investments at value (Identified cost -- $259,033,171) ..... $369,387,477
Cash ....................................................... 262
Receivable for:
Securities sold ........................... $6,628,554
Shares of the Fund sold ................... 20,900
Dividends and interest .................... 87,473 6,736,927
---------- ------------
376,124,666
------------
LIABILITIES
Payable for:
Securities purchased ...................... 6,063,851
Shares of the Fund redeemed ............... 643,056 6,706,907
----------
Accrued expenses:
Management fees ........................... 304,175
Trustees' fees ............................ 11,441
Accounting and Administration fees ........ 4,000
Transfer agent fees ....................... 22,886
Other expenses ............................ 54,332 396,834
---------- ------------
7,103,741
------------
NET ASSETS .................................................. $369,020,925
============
Net Assets consist of:
Capital paid-in ........................................... $368,954,453
Accumulated net realized loss ............................. (110,287,834)
Unrealized appreciation on investments -- net ............. 110,354,306
------------
NET ASSETS .................................................. $369,020,925
============
Shares of beneficial interest outstanding, no par value .... 15,635,718
============
Net asset value per share* ................................. $23.60
======
* Shares of the Fund are sold and redeemed at net asset value
($369,020,925 / 15,635,718).
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
STATEMENT OF
OPERATIONS
Year Ended December 31, 2003
INVESTMENT INCOME
Income
Dividends (net of withholding tax of $7,048) ........ $ 1,760,092
Interest ............................................ 11,162
------------
1,771,254
------------
Expenses
Management fees ..................................... 2,917,477
Trustees' fees ...................................... 47,042
Accounting and Administration ....................... 48,000
Custodian ........................................... 89,238
Transfer agent ...................................... 147,931
Audit and tax services .............................. 30,250
Legal ............................................... 79,382
Printing ............................................ 33,253
Registration ........................................ 21,138
Miscellaneous ....................................... 1,814
------------
3,415,525
------------
Net investment loss .................................. (1,644,271)
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized gain on investments -- net .................. 48,060,800
Unrealized appreciation -- net ....................... 88,597,743
------------
Net gain on investments .............................. 136,658,543
------------
NET CHANGE IN ASSETS FROM OPERATIONS .................. $135,014,272
============
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
-----------------------------------
2003 2002
---------------- ----------------
FROM OPERATIONS
Net investment loss..................................... $ (1,644,271) $ (2,214,544)
Net realized gain (loss) from investments .............. 48,060,800 (50,935,197)
Unrealized appreciation (depreciation) ................. 88,597,743 (15,892,293)
------------ ------------
Change in net assets from operations ................. 135,014,272 (69,042,034)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ........................... 2,561,863 4,955,793
Cost of shares redeemed ................................ (28,373,410) (29,460,558)
------------ ------------
Change in net assets derived from capital share
transactions ......................................... (25,811,547) (24,504,765)
------------ ------------
Total change in net assets ............................. 109,202,725 (93,546,799)
NET ASSETS
Beginning of period .................................... 259,818,200 353,364,999
------------ ------------
End of period .......................................... $369,020,925 $259,818,200
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................. 140,277 272,374
Redeemed ............................................... (1,574,532) (1,593,362)
------------ ------------
Net change ............................................. (1,434,255) (1,320,988)
============ ============
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
2003 2002 2001 2000 1999
For a share of the Fund outstanding throughout each year:
Net asset value at the beginning of year ... $15.22 $19.21 $25.12 $26.20 $24.95
------ ------ ------ ------ ------
Net investment income (loss) ............... (0.10)(a) (0.12)(a) (0.08)(b) 0.12(a) 0.12
Dividends from net investment income ....... -- -- -- (0.10) (0.11)
Net realized and unrealized gain (loss)
on investments ........................... 8.48 (3.87) (5.83) (1.10) 1.80
Distribution from net realized gain ........ -- -- -- -- (0.56)
------ ------ ------ ------ ------
Net increase (decrease) in net asset
value .................................... 8.38 (3.99) (5.91) (1.08) 1.25
------ ------ ------ ------ ------
Net asset value at end of year ............. $23.60 $15.22 $19.21 $25.12 $26.20
====== ====== ====== ====== ======
Total Return (%) ........................... 55.1 (20.8) (23.5) (3.8) 7.7
Ratios:
Operating expenses to average net assets (%) 1.17 1.15 1.12 1.10 1.08
Net investment income (loss) to average
net assets (%) ........................... (0.56) (0.67) (0.38) 0.46 0.46
Portfolio turnover (%) ..................... 305 209 283 334 335
Net assets at end of year (in thousands) ($) 369,021 259,818 353,365 523,854 632,537
(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.
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2003
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, 2003, there were capital loss carryovers available to offset future
realized gains of $59,361,211 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 year ended December 31, 2003,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $889,153,182 and $917,067,330,
respectively. There were no purchases or sales of United States government
obligations.
3. A. MANAGEMENT FEES -- During the year ended December 31, 2003, the Fund
incurred management fees of $2,917,477 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 $48,000, for the year ended December 31, 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 year ended December 31, 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 year ended December 31, 2003 was $3,773 per trustee for the Fund.
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of CGM Capital Development 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 Capital Development Fund (the
"Fund") at December 31, 2003, and 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 auditing standards generally accepted in the United States of
America, which 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, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 9, 2004
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
- ------------------------------------------------
TELEPHONE NUMBERS
For information about:
[ ] Account Procedures and Status
[ ] Redemptions
[ ] Exchanges
Call 800-343-5678
[ ] New Account Procedures
[ ] Prospectuses
[ ] Performance
[ ] Proxy Voting Policies
Call 800-345-4048
- ------------------------------------------------
MAILING ADDRESS
CGM Shareholder Services
c/o Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511
- ------------------------------------------------
This report has been prepared for the shareholders of the Fund and is not
authorized for distribution to current or prospective investors in the Fund
unless it is accompanied or preceded by a prospectus.
CAR03 Printed in U.S.A.
ITEM 2. CODE OF ETHICS.
CGM Capital Development Fund, as of the end of the period covered by this
report, 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
during the fiscal year ended December 31, 2003. There were no waivers or
implicit waivers from the Code granted by the registrant during the fiscal year
ended December 31, 2003.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
CGM Capital Development Fund'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 Capital Development Fund'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: 2002 - $26,750 and 2003 - $26,750.
(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 Capital Development Fund's financial statements and are not
reported under paragraph (a) of this Item are the following: 2002 - $0
and 2003 - $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:
2002 - $3,500 and 2003 - $3,500. The nature of the services comprising
the fees disclosed under this category is tax compliance related to
the preparation and review of annual income and excise tax returns.
(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: 2002 - $0 and 2003 - $0.
(e) (1) The audit committee's pre-approval policies and procedures is to
review on a case by case basis before entering into a non-audit service
provided by the principal accountant. (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 Capital Development Fund's
accountant for services rendered to CGM Capital Development Fund, and
rendered to CGM Capital Development Fund's investment adviser, and any
entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant for each of the
last two fiscal years of CGM Capital Development Fund are the following:
2002 - $3,500 and 2003 - $3,500.
(h) There were no non-audit services that were rendered to the CGM Capital
Development Fund's investment adviser, and any entity controlling,
controlled by, or under common control with the investment adviser that
provides ongoing services to CGM Capital Development Fund, thus no
consideration by CGM Capital Development Fund's audit committee of the
board of directors 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. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 10. 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 of CGM Capital
Development Fund have concluded that the CGM Capital Development Fund's
disclosure controls and procedures are effective to provide reasonable assurance
that 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 11. 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 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 pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 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 Capital Development Fund
By: /S/Robert L. Kemp
Robert L. Kemp
President
Principal Executive Officer
Date: February 25, 2004
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 25, 2004
By: /S/ Frank N. Strauss
Frank N. Strauss
CFO & Treasurer
Principal Financial Officer
Date: February 25, 2004