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 811-00933
CGM CAPITAL DEVELOPMENT FUND
----------------------------
(Exact name of registrant as specified in charter)
One International Place, Boston, Massachusetts 02110
----------------------------------------------------
(Address of principal executive offices) (Zip code)
Jeremiah J. Bresnahan, Jr., Esq.
Bingham McCutchen LLP
150 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, 2004
-----------------
Date of reporting period: June 30, 2004
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ITEM 1. REPORTS TO STOCKHOLDERS.
CGM
CAPITAL
DEVELOPMENT
FUND
172nd Quarterly Report
June 30, 2004
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS
- -------------------------------------------------------------------------------
CGM Capital Development Fund declined -7.8% during the second quarter of 2004
while the unmanaged Standard and Poor's 500 Index rose 1.7%. For the first six
months of the year, CGM Capital Development Fund returned 0.5% compared to the
unmanaged S&P 500 Index which rose 3.4%.
A check of vital signs confirms an economic expansion is well under way with new
gains in employment numbers in the lead. Payrolls have added approximately
210,000 new jobs each month since January 1 for a total of 1.3 million jobs
through June 2004--a far cry from the media's so-called "jobless recovery" of
late last year. Gross Domestic Product increased 3.9% during the first quarter
of 2004 and it looks as though the expansion rate for the second quarter will be
about the same. Consumer spending--the early leader in this recovery-- continues
to increase though it is no longer considered robust. June spending levels fell
off, we suspect, because consumers were discouraged by the daily drumbeat of
Iraqi war news and reports of terrorism around the world. And, election year
rhetoric is likely taking its toll on the consumer psyche as well. On a more
positive note, the flip side of the economy--capital spending by
corporations--is on an upswing, fueling optimism for a continuing recovery.
Consumers are not alone in their worries about events overseas. The general
uncertainty associated with developments in Iraq weighs heavily on investor
confidence as well. However, the biggest questions facing investors these days
have to do with inflation: How much and how fast? So far, inflation has kicked
in this year at a higher rate than we expected, largely as a result of a jump in
commodities prices driven by demand from China and the Pacific Rim. Though
recent numbers suggest that business may be slowing in these countries, what if
the economy continues to expand from current levels? The Federal Reserve Board's
June 30 move to boost its target on the Federal Funds rate one quarter of one
percent was so widely anticipated, the stock market barely took notice of the
event and the bond market actually rose in response. For now, interest rates,
while up from their lows, are still accommodating. At June 30, long term
(10-year) bond yields were up to 4.6%, 30-year mortgage rates were 6.25% and
three-month treasury bills were yielding 1.32%.
Stock market behavior has been somewhat puzzling so far this year. Corporate
profits since the beginning of the year have been impressive with estimates of
year-to-year gains of more than 25% in the first quarter of this year. Yet the
equity market as measured by the S&P 500 Index is up only 3.4% in 2004 through
June 30. We are inclined to think equities may be marking time for valuations to
become even more attractive as earnings move higher. And, we believe investors
may need to see more of the recovery accompanied by only modest inflation before
stock prices react. In anticipation of stronger capital spending, we are
invested in companies poised to benefit from that sector of the economy.
CGM Capital Development Fund's three largest equity positions are in the housing
and building materials, oil refining and telephone industries. The Fund's three
largest holdings are D.R. Horton, Inc., Lennar Corporation and Valero Energy
Corporation.
/s/ Robert L. Kemp
Robert L. Kemp
President
July 2, 2004
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
- --------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 2004
CGM CAPITAL
DEVELOPMENT THE FUND'S AVERAGE
FUND ANNUAL TOTAL RETURN
------------- -----------------------
10 Years ............................... +116.1% +8.0%
5 Years ............................... -2.0 -0.4
1 Year ................................ +35.7 +35.7
3 Months .............................. -7.8 --
The percentage figures for the Fund are based upon the beginning net asset
values of $23.51, $24.93, $17.47 and $25.72, respectively, and the June 30,
2004 net asset value of $23.71 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 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.
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
MARK W. HOLLAND
ROBERT L. KEMP
LAURENS MACLURE
JAMES VAN DYKE QUEREAU, JR.
J. BAUR WHITTLESEY
OFFICERS
ROBERT L. KEMP, President
G. KENNETH HEEBNER, Vice President
DAVID C. FIETZE, Chief Compliance Officer
KATHLEEN S. HAUGHTON, Vice President
JEM A. HUDGINS, Treasurer
LESLIE A. LAKE, Vice President and Secretary
MARTHA I. MAGUIRE, Vice President
MARY L. STONE, Assistant Vice President
W. DUGAL THOMAS, Vice President
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
- --------------------------------------------------------------------------------
The Fund is supervised by the board of trustees (the "Board") of the Trust. The
Board is responsible for the general oversight of the Fund, including general
supervision and review of the Fund's investment activities. The Board, in turn,
elects the officers who are responsible for administering the Fund's day-to-day
operations.
An asterisk in the table below identifies those trustees and officers who are
"interested persons" of the Trust as defined in the Investment Company Act of
1940. Each trustee and officer of the Trust noted as an interested person is
interested by virtue of that individual's position with Capital Growth
Management Limited Partnership ("CGM"), the Fund's investment adviser, as
described in the table below. Each trustee serves during the continued lifetime
of the Trust or until he earlier dies, resigns or is removed, or if sooner,
until the election and qualification of his successor. Each officer serves
until his or her successor is elected or qualified or until the officer sooner
dies, resigns, or is removed or becomes disqualified.
The trustees and officers of the Trust, their ages, their principal occupations
during the past five years, the number of CGM Funds they oversee, and other
directorships they hold are set forth below. Unless otherwise noted below, the
address of each interested trustee and officer is One International Place,
Boston, Massachusetts 02110. Correspondence intended for the trustees who are
not "interested persons" of the Trust may be sent c/o Capital Growth
Management, One International Place, Boston, Massachusetts 02110.
The Statement of Additional Information for the Fund includes additional
information about Fund trustees and is available, without charge, upon request
by calling the CGM Marketing Department, toll free, at 800-345-4048.
NUMBER OF
FUNDS IN THE
PRINCIPAL OCCUPATION DURING CGM FUNDS
POSITION HELD AND PAST FIVE 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 72 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)
Mark W. Holland Trustee since 2004 President, Wellesley Financial 4
age 54 Advisors, LLC; formerly Vice
President and Chief Operating
Officer, Fixed Income
Management, Loomis, Sayles &
Company L.P.; formerly
Director, Loomis, Sayles &
Company L.P.
Laurens MacLure Trustee since 1990 Retired; formerly President 4
age 79 and 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 72 Kenbob, Inc. (managing partner
of CGM)
David C. Fietze* Chief Compliance Officer Employee - Legal counsel, CGM; 4
age 35 since 2004 formerly counsel, Bartlett
address: Hackett Feinberg, P.C.;
222 Berkeley Street, formerly counsel, McLane,
Boston, Massachusetts Graf, Raulerson & Middleton
02116
Kathleen S. Haughton* Vice President since 1992 Employee - Investor Services 4
age 44 and Anti-Money Laundering Division, CGM
address: Compliance Officer since 2002
222 Berkeley Street,
Boston, Massachusetts
02116
Jem A. Hudgins* Treasurer since 2004 Employee - CGM; formerly Vice 4
age 41 President - Tax and Treasury,
AEW Capital Management L.P.
Leslie A. Lake* Vice President and Secretary Employee - Office 4
age 59 since 1992 Administrator, CGM
Martha I. Maguire* Vice President since 1994 Employee - Funds Marketing, 4
age 48 CGM
Mary L. Stone* Assistant Vice President Employee - Portfolio 4
age 59 since 1990 Transactions, CGM
W. Dugal Thomas* Vice President since 1992 Employee - Director of 4
age 67 Marketing, CGM
CGM CAPITAL DEVELOPMENT FUND
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
25 YEAR INVESTMENT RECORD
DECEMBER 31, 1978 -- JUNE 30, 2004 (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
2004 (6/30) 23.71 -- -- 674.66 + 0.5 5169.3
------ ----- --------
Totals $77.48 $4.41 + 5069.3
--------------------------------------------------------------------------------------------------------------------------------
*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. 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
- ----------------------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 2004
(unaudited)
COMMON STOCKS -- 99.7% OF TOTAL NET ASSETS
SHARES VALUE(a)
AUTO AND RELATED -- 4.8%
Toyota Motor Corporation ADR(b) ......................... 210,000 $ 17,140,200
-------------
CONSUMER DURABLES -- 5.2%
Thor Industries, Inc. ................................... 400,000 13,384,000
Winnebago Industries, Inc. .............................. 130,000 4,846,400
-------------
18,230,400
-------------
ELECTRONIC COMPONENTS -- 7.4%
AU Optronics Corporation ADR(b) ......................... 900,750 14,718,255
Harman International Industries, Inc. ................... 125,600 11,429,600
-------------
26,147,855
-------------
ENGINEERING AND SCIENTIFIC COMPUTERS -- 0.7%
Fluor Corporation ....................................... 50,000 2,383,500
-------------
HOME PRODUCTS AND COSMETICS -- 5.3%
Helen of Troy Limited(c) ................................ 505,000 18,619,350
-------------
HOUSING AND BUILDING MATERIALS -- 18.9%
D.R. Horton, Inc. ....................................... 907,350 25,768,740
Hovnanian Enterprises, Inc.(c) .......................... 90,000 3,123,900
Lennar Corporation; Class A ............................. 490,000 21,912,800
Lennar Corporation; Class B ............................. 36,000 1,491,480
M.D.C. Holdings, Inc. ................................... 68,700 4,370,007
Toll Brothers, Inc.(c) .................................. 150,000 6,348,000
WCI Communities, Inc.(c) ................................ 175,000 3,904,250
-------------
66,919,177
-------------
LEISURE -- 3.3%
Station Casinos, Inc. ................................... 242,000 11,712,800
-------------
MISCELLANEOUS -- 1.8%
Champion Enterprises, Inc.(c) ........................... 700,000 6,426,000
-------------
OIL - INDEPENDENT PRODUCTION -- 3.8%
Canadian Natural Resources Limited ...................... 249,000 7,445,100
PetroKazakhstan, Inc. ................................... 220,000 5,988,400
-------------
13,433,500
-------------
OIL REFINING -- 16.9%
Amerada Hess Corporation ................................ 234,000 18,530,460
Tesoro Petroleum Corporation(c) ......................... 685,000 18,906,000
Valero Energy Corporation ............................... 300,000 22,128,000
-------------
59,564,460
-------------
RETAIL -- 5.4%
Urban Outfitters, Inc.(c) ............................... 312,000 $ 19,003,920
-------------
STEEL -- 9.7%
Commercial Metals Company ............................... 270,000 8,761,500
Nucor Corporation ....................................... 96,000 7,368,960
United States Steel Corporation ......................... 520,000 18,262,400
-------------
34,392,860
-------------
TELEPHONE -- 16.5%
America Movil S.A. de C.V. ADR(b) ....................... 490,000 17,821,300
Mobile TeleSystems OJSC ADR(b)(d) ....................... 170,000 20,740,000
Open Joint Stock Company "Vimpel-Communications"
ADR(b)(c)(d) ............................................ 204,000 19,675,800
-------------
58,237,100
-------------
TOTAL COMMON STOCKS (Identified Cost $299,540,698) ...................... 352,211,122
-------------
SHORT-TERM INVESTMENT -- 0.5%
FACE AMOUNT
-----------
American Express Credit Corporation, 1.3%, 7/01/04
(Cost $1,710,000) ................................... $1,710,000 1,710,000
-------------
TOTAL INVESTMENTS -- 100.2% (Identified Cost $301,250,698) (e).. 353,921,122
Cash and receivables .................................................... 24,575,905
Liabilities ............................................................. (25,150,794)
-------------
TOTAL NET ASSETS -- 100.0% ................................................. $353,346,233
============
(a) See Note 1A.
(b) 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.
(c) Non-income producing security. (d) The Fund has approximately 11% of its assets at June
30, 2004 invested in companies incorporated in the Russian Federation.
(e) Federal Tax Information: At June 30, 2004 the net unrealized appreciation on investments
based on cost of $301,250,698 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 .................... $ 59,485,533
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value .................... (6,815,109)
-------------
Net unrealized appreciation ............................................ $ 52,670,424
============
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
June 30, 2004
(unaudited)
ASSETS
Investments at value (Identified
cost -- $301,250,698) ..................................... $353,921,122
Cash ....................................................... 4,050
Receivable for:
Securities sold .......................... $23,871,765
Shares of the Fund sold 939
Dividends and interest.................... 699,151 24,571,855
--------------- ------------
378,497,027
------------
LIABILITIES
Payable for:
Securities purchased ..................... 24,229,876
Shares of the Fund
redeemed ................................ 441,650
Withholding tax .......................... 131,827 24,803,353
---------------
Accrued expenses:
Management fees .......................... 281,822
Trustees' fees ........................... 16,247
Accounting and
Administration fees ..................... 3,500
Transfer agent fees ...................... 19,642
Other expenses ........................... 26,230 347,441
--------------- ------------
25,150,794
------------
NET ASSETS .................................................. $353,346,233
============
Net Assets consist of:
Capital paid-in ........................................... $351,335,692
Undistributed net investment income........................ 435,915
Accumulated net realized loss on investments and foreign
currency -- net ......................................... (51,096,243)
Unrealized appreciation on
investments -- net ....................................... 52,670,869
------------
NET ASSETS .................................................. $353,346,233
============
Shares of beneficial interest
outstanding, no par value ................................. 14,905,758
============
Net asset value per share* ................................. $23.71
======
* Shares of the Fund are sold and redeemed at net asset value
($353,346,233 / 14,905,758).
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2004
(unaudited)
INVESTMENT INCOME
Income
Dividends (net of withholding tax
of $199,971) ................................................ $ 2,470,450
Interest ..................................................... 7,387
------------
2,477,837
------------
Expenses
Management fees .............................................. 1,792,510
Trustees' fees ............................................... 29,577
Accounting and Administration ................................ 21,000
Custodian .................................................... 46,264
Transfer agent ............................................... 68,345
Audit and tax services ....................................... 19,000
Legal ........................................................ 35,888
Printing ..................................................... 17,746
Registration ................................................. 10,657
Miscellaneous ................................................ 935
------------
2,041,922
------------
Net investment income ......................................... 435,915
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Realized gain on investments and foreign currency
transactions -- net ......................................... 59,191,591
Unrealized depreciation -- net ................................ (57,683,437)
------------
Net gain on investments and foreign
currency transactions ........................................ 1,508,154
------------
NET CHANGE IN ASSETS FROM
OPERATIONS .................................................... $ 1,944,069
============
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- -----------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31,
(UNAUDITED) 2003
---------------- ----------------
FROM OPERATIONS
Net investment income (loss) ........................... $ 435,915 $ (1,644,271)
Net realized gain from investments and foreign currency
transactions ......................................... 59,191,591 48,060,800
Unrealized appreciation (depreciation) ................. (57,683,437) 88,597,743
------------ ------------
Change in net assets from operations ................. 1,944,069 135,014,272
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ........................... 3,795,514 2,561,863
Cost of shares redeemed ................................ (21,414,275) (28,373,410)
------------ ------------
Change in net assets derived from capital share
transactions ....................................... (17,618,761) (25,811,547)
------------ ------------
Total change in net assets ............................. (15,674,692) 109,202,725
NET ASSETS
Beginning of period .................................... 369,020,925 259,818,200
------------ ------------
End of period (including undistributed net investment
income of $435,915 and $0, respectively) ............. $353,346,233 $369,020,925
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................. 156,923 140,277
Redeemed ............................................... (886,883) (1,574,532)
------------ ------------
Net change ............................................. (729,960) (1,434,255)
============ ============
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2004 ---------------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
For a share of the Fund outstanding
throughout each period:
Net asset value at the beginning
of period ...................... $23.60 $15.22 $19.21 $25.12 $26.20 $24.95
------ ------ ------ ------ ------ ------
Net investment income (loss) ..... 0.03(a) (0.10)(a) (0.12)(a) (0.08)(b) 0.12(a) 0.12
Dividends from net investment income -- -- -- -- (0.10) (0.11)
Distribution from net realized gain -- -- -- -- -- (0.56)
------ ------ ------ ------ ------ ------
Total Distributions .............. -- -- -- -- (0.10) (0.67)
------ ------ ------ ------ ------ ------
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions 0.08 8.48 (3.87) (5.83) (1.10) 1.80
------ ------ ------ ------ ------ ------
Net increase (decrease) in net
asset value .................... 0.11 8.38 (3.99) (5.91) (1.08) 1.25
------ ------ ------ ------ ------ ------
Net asset value at end of period . $23.71 $23.60 $15.22 $19.21 $25.12 $26.20
====== ====== ====== ====== ====== ======
Total Return (%) ................. 0.5 55.1 (20.8) (23.5) (3.8) 7.7
Ratios:
Operating expenses to average net
assets (%) ..................... 1.14* 1.17 1.15 1.12 1.10 1.08
Net investment income (loss) to
average net assets (%) ......... 0.24* (0.56) (0.67) (0.38) 0.46 0.46
Portfolio turnover (%) ........... 290* 305 209 283 334 335
Net assets at end of period (in
thousands) ($) ................. 353,346 369,021 259,818 353,365 523,854 632,537
(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.
* Computed on an annualized basis.
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2004
(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, 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 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. For
tax purposes, for the year ended December 31, 2003, there was no
undistributed ordinary income or capital gains except for unrealized
appreciation of $110,354,306.
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. 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, 2004,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $516,411,835 and
$533,236,331, respectively. There were no purchases or sales of United States
government obligations.
3. A. MANAGEMENT FEES -- During the period ended June 30, 2004, the Fund
incurred management fees of $1,792,510 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
$21,000, for the period ended June 30, 2004, 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, 2004 each other
trustee was compensated by the CGM Funds with an annual fee of $50,000
(the financial expert receives an additional $30,000 annually) plus
travel expenses for each meeting attended. Of this amount, each fund was
responsible for $7,000 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, 2004 was $2,164 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
[ ] Proxy Voting Policies
Call 800-345-4048
Proxy voting policies are available without charge, upon request. These policies
also appear in the Fund's Statement of Additional Information, which can be
found on the SEC's website, http://www.sec.gov.
- -------------------------------------------------------------------------------
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.
CQR2 04 Printed in U.S.A.
ITEM 2. CODE OF ETHICS.
A code of ethics, as defined in Item 2 of Form N-CSR, applicable to
its principal executive officer and principal financial officer is filed as an
exhibit to the registrant's annual Form N-CSR. There were no amendments to the
Code during the registrant's most recent fiscal half-year ended June 30, 2004.
There were no waivers or implicit waivers from the Code granted by the
registrant during the most recent fiscal half-year ended June 30, 2004. A copy
of the Code is available without charge, upon request by calling Capital Growth
Management at 1-800-345-4048.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable at this time. [Applicable for periods ending on or after July
9,2004 (beginning with Form N-CSRs filed at the end of September, 2004 for July
31, 2004 reporting period.)]
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) Not applicable.
ITEM 11. EXHIBITS.
(a)(1) Not applicable.
(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.
(a)(3) Not applicable.
(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: September 3, 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: September 3, 2004
By: /S/ Jem A. Hudgins
Jem A. Hudgins
CFO & Treasurer
Principal Financial Officer
Date: September 3, 2004