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
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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, 2004
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Date of reporting period: December 31, 2004
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ITEM 1. REPORTS TO STOCKHOLDERS.
CGM
CAPITAL
DEVELOPMENT
FUND
44th Annual Report
December 31, 2004
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS
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CGM Capital Development Fund's total return during the fourth quarter of 2004
was 9.6% compared to the unmanaged Standard and Poor's 500 Index which returned
9.2% over the same period. For the year just ended, CGM Capital Development Fund
returned 18.2% and the unmanaged S&P 500 Index returned 10.9%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
The economy continued to grow stronger in 2004. Quarterly growth in Gross
Domestic Product ranged between 3.0% and 4.0% each quarter in real terms and
corporate profits, capital spending and business productivity all reported
advances at year-end. New housing construction continued to be reasonably strong
throughout the year as mortgage rates remained attractive despite the Federal
Reserve Board's five quarter-point hikes in the Federal Funds rate in 2004. And,
though the recovery has spawned new jobs, the numbers were not enough to
substantially reduce the unemployment rate, which was 5.4% at year-end.
Perhaps most appealing about this particular moment in the recovery is the
absence of imbalances. We neither have a fully employed economy with inflation
nor are we in recession. The consumer is still in a spending mood, but
moderately so. Retail sales are up relative to year-earlier periods and the
Consumer Confidence Index bounced nicely from 92.6 in November to 102.3 at
year-end. In the midst of all this, the biggest surprise of 2004 has been the
trend of long-term interest rates--despite a business expansion, rising oil
prices and a weak US dollar, long-term interest rates have remained mostly
steady or a little down over the past year.
Up to this point, foreign countries have continued to buy dollar-denominated
assets despite their dwindling purchasing power. The question is how long will
this buying continue. Short term, a weaker dollar bolsters exports and corporate
profits, but over a longer horizon may prove to be inflationary and a precursor
to higher interest rates.
The equity market as measured by the Standard and Poor's 500 Index was largely
stagnant for the first nine months of the year. Signs of life appeared in the
fourth quarter when the S&P rose 9.2% lifting leading averages to reflect an
improved outlook for corporate profits. We believe the greatest market values
lie in the more cyclical areas of the economy and the greatest risks lie in the
declining dollar, higher oil prices and increasing interest rates.
PORTFOLIO STRATEGY
CGM Capital Development Fund remained fully invested throughout 2004 in
expectation of continued economic growth. Housing and building materials stocks,
the largest industry concentration at the beginning of the year, were eliminated
to make room for other opportunities. The Fund maintained a large concentration
of metal producing stocks during the year and increased the position of steel
producing and processing securities within this category as the year progressed.
The Fund started the year with a modest investment in energy and oil-related
securities which was increased to more than 28% of the portfolio at year end to
become the Fund's largest sector concentration.
The Fund's largest sector gains were in steel and related companies. Other
significant profit contributors were investments in Urban Outfitters, Inc., a
small specialty retailer, and GOL Linhas Aereas Inteligentas SA ADR, a small but
growing Brazilian airline. The Fund's largest losses during the year were in
John B. Sanfilippo & Son, Inc. (food processing) and AU Optronics Corporation
ADR (manufacturer of flat panel displays for televisions and computers). These
securities are no longer held in the portfolio.
On December 31, 2004, CGM Capital Development Fund's three largest industry
positions were in the steel and telephone industries and in independent oil
production. The Fund's three largest holdings were GOL Linhas Aereas
Inteligentas S.A. ADR, Commercial Metals Company and Mobile TeleSystems OJSC
ADR.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 3, 2005
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
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CGM Capital Development Fund
Average Annual Total Returns
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1 year 5 year 10 year
18.2% 1.3% 10.8%
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Past performance is no
indication of future results
- ----------------------------
CGM S&P
$10,000 $10,000
1995 14,110 13,750
1996 18,075 16,913
1997 22,395 22,561
1998 24,298 29,014
1999 26,169 35,107
2000 25,175 31,912
2001 19,259 28,114
2002 15,253 21,901
2003 23,657 28,187
2004 27,963 31,259
CGM CAPITAL DEVELOPMENT FUND
PORTFOLIO MANAGER
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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.
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See the Schedule of Investments on page 5 for the percentage of net assets of
the Fund invested in particular industries or securities.
INVESTMENT PERFORMANCE
(unaudited)
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Cumulative Total Return for Periods Ended
December 31, 2004
CGM CAPITAL
DEVELOPMENT
FUND
-----------------
10 Years .................................................. +179.7%
5 Years .................................................. + 6.9
1 Year ................................................... + 18.2
3 Months ................................................. + 9.6
The performance data contained in the report represent past performance, which
is no guarantee of future results. The graph and table above do not reflect the
deduction of taxes a shareholder would pay on Fund distributions or the
redemption of Fund shares and 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.
CGM CAPITAL DEVELOPMENT FUND
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FUND EXPENSES
As a shareholder of the Capital Development Fund, you incur two types of
costs: (1) transaction costs, which could include, among other charges, wire
fees and exchange fees for certain types of accounts and (2) ongoing costs,
including management fees and other Fund expenses. This Example is intended to
help you understand your ongoing costs (in dollars) of investing in the Fund
and to compare these costs with the ongoing costs of investing in other mutual
funds.
The Example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period July 1, 2004 to December 31, 2004.
ACTUAL RETURN AND EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is
not the Fund's actual return. The hypothetical account values and expenses may
not be used to estimate the actual ending account balance or expenses you paid
for the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs. Therefore, the
second line of the table is useful in comparing ongoing costs only, and will
not help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have
been higher.
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Beginning Ending Expenses Paid
Account Value Account Value During Period*
7/01/04 12/31/04 7/01/04 - 12/31/04
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Actual $1,000.00 $1,176.00 $6.18
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Hypothetical
(5% return before expenses) $1,000.00 $1,019.46 $5.74
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* Expenses are equal to the Fund's annualized expense ratio of 1.13%,
multiplied by the average account value over the period, multiplied by 184/
366 (to reflect the one-half year period).
CGM CAPITAL DEVELOPMENT FUND
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25 YEAR INVESTMENT RECORD
DECEMBER 31, 1979 -- DECEMBER 31, 2004 (UNAUDITED)
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IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1979
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-- 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 1979 = 100.0
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1979 $16.20 100.0
1980 20.50 $ 1.65* $0.36 $ 23.15 + 42.9% 142.9
1981 17.34 3.38 0.36 24.19 + 4.5 149.3
1982 24.88 2.88 0.41 43.28 + 78.9 267.1
1983 25.21 2.50 0.47 50.03 + 15.6 308.8
1984 17.28 6.15 0.11 45.93 - 8.2 283.5
1985 25.02 -- 0.18 67.15 + 46.2 414.5
1986 23.12 7.46 0.16 86.22 + 28.4 532.2
1987 16.56 10.09 0.14 99.93 + 15.9 616.8
1988 15.87 0.02 0.62 99.63 - 0.3 614.9
1989 18.37 -- 0.34 117.46 + 17.9 725.0
1990 18.53 -- 0.10 119.10 + 1.4 735.2
1991 25.80 11.07* 0.06 237.13 + 99.1 1463.8
1992 27.43 2.68* 0.20 278.63 + 17.5 1720.0
1993 27.71 7.51 0.07 358.60 + 28.7 2213.6
1994 20.58 0.71 0.07 276.48 - 22.9 1706.7
1995 27.33 1.68 0.02 390.11 + 41.1 2408.2
1996 29.08 5.87 0.07 499.73 + 28.1 3084.9
1997 26.96 9.08 -- 619.17 + 23.9 3822.2
1998 24.95 4.19 0.11 671.80 + 8.5 4147.1
1999 26.20 0.56 0.11 723.53 + 7.7 4466.4
2000 25.12 -- 0.10 696.04 - 3.8 4296.7
2001 19.21 -- -- 532.47 - 23.5 3287.0
2002 15.22 -- -- 421.72 - 20.8 2603.3
2003 23.60 -- -- 654.09 + 55.1 4037.7
2004 27.89 -- -- 773.13 + 18.2 4772.6
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Totals $77.48 $4.06 +4672.6
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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. Current performance may be lower or higher than the performance
data quoted.
CGM CAPITAL DEVELOPMENT FUND
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INVESTMENTS AS OF DECEMBER 31, 2004
COMMON STOCKS -- 99.7% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
AIRLINES -- 7.0%
GOL Linhas Aereas Inteligentas S.A. ADR(b)(c) ................................................. 885,000 $ 28,213,800
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CHEMICALS -- 4.8%
Olin Corporation .............................................................................. 875,000 19,267,500
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CONSUMER DURABLES -- 8.7%
Thor Industries, Inc. ......................................................................... 605,000 22,415,250
Winnebago Industries, Inc. .................................................................... 320,000 12,499,200
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34,914,450
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ENERGY -- 4.8%
Peabody Energy Corporation .................................................................... 240,000 19,418,400
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HEAVY CAPITAL GOODS -- 1.7%
Oshkosh Truck Corporation ..................................................................... 100,000 6,838,000
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HOUSING AND BUILDING MATERIALS -- 4.3%
Hughes Supply, Inc. ........................................................................... 530,000 17,145,500
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METALS AND MINING -- 5.0%
Southern Peru Copper Corporation .............................................................. 420,000 19,828,200
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MISCELLANEOUS -- 4.8%
Sotheby Holdings, Inc.(c) ..................................................................... 1,060,000 19,249,600
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OIL - INDEPENDENT PRODUCTION -- 9.4%
Berry Petroleum Company ....................................................................... 285,000 13,594,500
Canadian Natural Resources Limited ............................................................ 249,000 10,649,730
Newfield Exploration Company(c) ............................................................... 225,000 13,286,250
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37,530,480
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OIL - MAJOR INTEGRATED -- 4.7%
Murphy Oil Corporation ........................................................................ 232,000 18,664,400
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OIL SERVICE -- 4.4%
Cal Dive International, Inc.(c) ............................................................... 430,000 17,522,500
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OIL REFINING -- 4.6%
Amerada Hess Corporation ...................................................................... 224,000 18,453,120
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RETAIL -- 2.9%
Children's Place Retail Stores, Inc.(c) ....................................................... 315,000 11,664,450
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STEEL -- 21.2%
Cleveland-Cliffs, Inc. ........................................................................ 190,000 19,733,400
Commercial Metals Company ..................................................................... 475,000 24,016,000
Mittal Steel Company N.V.(c) .................................................................. 595,000 22,996,750
Schnitzer Steel Industries, Inc. .............................................................. 535,000 18,152,550
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84,898,700
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TELEPHONE -- 11.4%
Mobile TeleSystems OJSC ADR(b)(d) ............................................................. 170,000 23,546,700
Open Joint Stock Company "Vimpel-Communications" ADR(b)(c)(d) ................................. 608,000 21,973,120
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45,519,820
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TOTAL COMMON STOCKS (Identified Cost $333,632,789) ......................................................... 399,128,920
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FACE
AMOUNT
------
SHORT-TERM INVESTMENT -- 0.5%
American Express Credit Corporation, 1.9%, 1/03/05 (Cost $2,200,000) ...................... $ 2,200,000 2,200,000
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TOTAL INVESTMENTS -- 100.2% (Identified Cost $335,832,789)(e) ................................................. 401,328,920
Cash and receivables ....................................................................................... 1,466,434
Liabilities ................................................................................................ (2,446,599)
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TOTAL NET ASSETS -- 100.0% .................................................................................... $ 400,348,755
=============
(a) See Note 1A.
(b) An American Depositary Receipt (ADR) is a certificate issued by a U.S. bank representing the right to
receive securities of the foreign issuer described. The values of ADRs are significantly influenced by
trading on exchanges not located in the United States or Canada.
(c) Non-income producing security.
(d) The Fund has approximately 11% of its net assets at December 31, 2004 invested in companies incorporated
in the Russian Federation.
(e) Federal Tax Information: At December 31, 2004 the net unrealized appreciation on investments based on
cost of $336,533,358 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 .................................................................................................... $65,392,903
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost
over value .................................................................................................. (597,341)
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Net unrealized appreciation ................................................................................... $64,795,562
=============
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
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STATEMENT OF
ASSETS AND LIABILITIES
December 31, 2004
ASSETS
Investments at value (Identified
cost -- $335,832,789) ........................... $401,328,920
Cash .............................................. 1,033
Receivable for:
Securities sold ............... $1,222,042
Shares of the Fund
sold ........................ 510
Dividends and interest 242,849 1,465,401
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Total assets .................................. 402,795,354
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LIABILITIES
Payable for:
Securities purchased .......... 1,486,897
Shares of the Fund
redeemed .................... 525,628
Tax withholding liability 3,421 2,015,946
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Accrued expenses:
Management fees ............... 332,846
Trustees' fees ................ 15,229
Accounting and
Administration .............. 6,824
Transfer agent fees ........... 19,919
Other expenses ................ 55,835 430,653
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Total liabilities ............................. 2,446,599
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NET ASSETS .......................................... $400,348,755
============
Net Assets consist of:
Capital paid-in ................................. $337,091,365
Accumulated net realized loss
on investments ................................ (2,239,067)
Net unrealized appreciation on
investments and foreign currency
transactions .................................. 65,496,457
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NET ASSETS .......................................... $400,348,755
============
Shares of beneficial interest
outstanding, no par value ...................... 14,353,591
============
Net asset value per share* ........................ $27.89
======
*Shares of the Fund are sold and redeemed at net asset value
($400,348,755 / 14,353,591).
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
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STATEMENT OF
OPERATIONS
Year Ended December 31, 2004
INVESTMENT INCOME
Income
Dividends (net of withholding tax
of $211,592) ............................... $3,877,730
Interest .................................... 21,077
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3,898,807
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Expenses
Management fees ............................. 3,623,397
Trustees' fees .............................. 58,580
Accounting and Administration ............... 58,618
Custodian ................................... 93,838
Transfer agent .............................. 129,632
Audit and tax services ...................... 38,000
Legal ....................................... 56,111
Printing .................................... 37,459
Registration ................................ 21,790
Miscellaneous ............................... 2,232
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4,119,657
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Net investment loss .......................... (220,850)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investments and
foreign currency transactions ............... 108,049,158
Net unrealized depreciation on
investments and foreign currency
transactions ................................ (44,857,849)
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Net gain on investments and foreign
currency transactions ....................... 63,191,309
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NET CHANGE IN ASSETS FROM
OPERATIONS ................................... $62,970,459
===========
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
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STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
-----------------------------
2004 2003
------------- -------------
FROM OPERATIONS
Net investment loss ........................................................ $ (220,850) $ (1,644,271)
Net realized gain from investments and foreign currency transactions ....... 108,049,158 48,060,800
Unrealized appreciation (depreciation) ..................................... (44,857,849) 88,597,743
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Change in net assets from operations ..................................... 62,970,459 135,014,272
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............................................... 4,782,667 2,561,863
Cost of shares redeemed .................................................... (36,425,296) (28,373,410)
------------- -------------
Change in net assets derived from capital share transactions ............... (31,642,629) (25,811,547)
------------- -------------
Total change in net assets ................................................. 31,327,830 109,202,725
NET ASSETS
Beginning of period ........................................................ 369,020,925 259,818,200
------------- -------------
End of period (including undistributed net investment income of $0 and $0 at
December 31, 2004 and December 31, 2003, respectively) ................... $ 400,348,755 $ 369,020,925
============= =============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ................................................. 195,724 140,277
Redeemed ................................................................... (1,477,851) (1,574,532)
------------- -------------
Net change ................................................................. (1,282,127) (1,434,255)
============= =============
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
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
------ ------ ------ ------ ------
Net investment income (loss) ............................... (0.01)(a) (0.10)(a) (0.12)(a) (0.08)(b) 0.12(a)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions ............................ 4.30 8.48 (3.87) (5.83) (1.10)
------ ------ ------ ------ ------
Total from investment operations ........................... 4.29 8.38 (3.99) (5.91) (0.98)
------ ------ ------ ------ ------
Dividends from net investment income ....................... -- -- -- -- (0.10)
------ ------ ------ ------ ------
Net increase (decrease) in net asset value ................. 4.29 8.38 (3.99) (5.91) (1.08)
------ ------ ------ ------ ------
Net asset value at end of period ........................... $27.89 $23.60 $15.22 $19.21 $25.12
====== ====== ====== ====== ======
Total Return (%) ........................................... 18.2 55.1 (20.8) (23.5) (3.8)
Ratios:
Operating expenses to average net assets (%) ............... 1.14 1.17 1.15 1.12 1.10
Net investment income (loss) to average net assets (%) ..... (0.06) (0.56) (0.67) (0.38) 0.46
Portfolio turnover (%) ..................................... 263 305 209 283 334
Net assets at end of period (in thousands) ($).............. 400,349 369,021 259,818 353,365 523,854
(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.
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2004
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, 2004, there were capital loss carryovers available to offset
future realized gains of $1,538,498 expiring in year 2010. During the year
2004 the Fund utilized $108,749,336 of capital loss carryovers.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions
are recorded by the Fund on the ex-dividend date. The classification of
income and capital gains distributions is determined in accordance with
income tax regulations. Distributions from net investment income and
short-term capital gains are treated as ordinary income for income tax
purposes. Permanent book and tax differences relating to shareholder
distributions may result in reclassifications to paid-in capital or
accumulated realized gain/loss. These differences are primarily related to
net investment loss write off and foreign exchange gains/losses.
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.
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.
2. 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.
3. PURCHASES AND SALES OF SECURITIES -- For the period ended December 31,
2004, purchases and sales of securities other than United States government
obligations and short-term investments aggregated $954,892,244 and
$986,481,989, respectively. There were no purchases or sales of United States
government obligations.
4. A. MANAGEMENT FEES -- During the period ended December 31, 2004, the Fund
incurred management fees of $3,623,397 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,
compliance and other services for the Fund. The expenses of those
services, which are paid to CGM by the Fund, include the following:
(i) expenses for personnel performing bookkeeping, accounting, and
financial reporting functions and clerical functions relating to the
Fund; (ii) expenses for services required in connection with the
preparation of registration statements and prospectuses, shareholder
reports and notices, proxy solicitation material furnished to
shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance; (iii) registration, filing and
other fees in connection with requirements of regulatory authorities;
and (iv) compliance in connection with the Sarbanes Oxley Act of 2002.
The Accounting and Administration expense of $58,618, for the period
ended December 31, 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 December 31,
2004, each disinterested trustee was compensated by the CGM Funds with
an annual fee of $50,000 plus travel expenses for each meeting
attended. The trustees are responsible for the audit committee
functions of the Funds and have designated a chairman to oversee these
functions who receives an additional $30,000 annually. Of these
amounts, each fund is responsible for $7,000 per trustee annually,
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.
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 presents fairly, in all
material respects, the financial position of CGM Capital Development Fund (the
"Fund") at December 31, 2004, the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 16, 2005
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
RESULTS OF SPECIAL MEETING OF SHAREHOLDERS (UNAUDITED)
On November 19, 2004, a special meeting of the shareholders of the Fund was
held for the purpose of asking shareholders to consider the following
proposals, which are more fully described in the Proxy Statement dated
September 27, 2004:
PROPOSAL 1: To elect Mark W. Holland a Trustee of the Fund.
Number of Shares
----------------
For Withheld
--- --------
7,710,365.7770 405,203.6020
PROPOSAL 2: To authorize the Trustees of the Fund to adopt an Amendment to the
Declaration of Trust of the Fund.
Number of Shares
----------------
For Against Abstain
--- ------- -------
7,585,918.6230 270,771.6150 258,879.1410
PROPOSAL 3: To approve a new Advisory Agreement between Capital Growth
Management Limited Partnership and the Fund.
Number of Shares
----------------
For Against Abstain
--- ------- -------
7,420,650.6550 402,907.3880 273,520.6840
Mark W. Holland was elected a trustee of the Fund at the special meeting on
November 19, 2004. The other trustees of the Fund whose terms of office as
trustees continued after the special meeting are G. Kenneth Heebner, Robert L.
Kemp, Peter O. Brown, Laurens MacLure, James Van Dyke Quereau, Jr., and J.
Baur Whittlesey.
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 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 64 (managing partner of CGM)
Robert L. Kemp* Trustee since 1990 Employee, CGM; Part Owner, Kenbob, Inc. 4
age 72 (managing partner of CGM)
DISINTERESTED TRUSTEES
Peter O. Brown Trustee since 1993 Counsel (formerly, Partner), Harter, 4
age 64 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 Advisors, 4
age 55 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 and Chief 4
age 79 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 56 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 58
OFFICERS
G. Kenneth Heebner* Vice President since 1990 Employee, CGM; Part Owner, Kenbob, Inc. 4
age 64 (managing partner of CGM)
Robert L. Kemp* President since 1990 Employee, CGM; Part Owner, Kenbob, Inc. 4
age 72 (managing partner of CGM)
David C. Fietze* Chief Compliance Officer since Employee - Legal counsel, CGM; formerly 4
age 35 2004 counsel, Bartlett Hackett Feinberg, P.C.;
address: formerly counsel, McLane, Graf, Raulerson
222 Berkeley Street, & Middleton
Boston, Massachusetts
02116
Kathleen S. Haughton* Vice President since 1992 Employee - Investor Services Division, CGM 4
age 44 and Anti-Money Laundering
address: Compliance Officer since 2002
222 Berkeley Street,
Boston, Massachusetts
02116
Jem A. Hudgins* Treasurer since 2004 Employee - CGM; formerly Vice President - 4
age 41 Tax and Treasury, AEW Capital Management
L.P.
Leslie A. Lake* Vice President and Secretary Employee - Office Administrator, CGM 4
age 59 since 1992
Martha I. Maguire* Vice President since 1994 Employee - Funds Marketing, CGM 4
age 49
Mary L. Stone* Assistant Vice President since Employee - Portfolio Transactions, CGM 4
age 60 1990
W. Dugal Thomas* Vice President since 1992 Employee - Director of Marketing, CGM 4
age 67
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
- -------------------------------------------------------------------------------
TELEPHONE NUMBERS
For information about:
[ ] Account Procedures and Status
[ ] Redemptions
[ ] Exchanges
Call 800-343-5678
[ ] New Account Procedures
[ ] Prospectuses
[ ] Performance
[ ] Proxy Voting Policies and Voting Records
[ ] Complete Schedule of Portfolio Holdings for the 1st & 3rd Quarters
Call 800-345-4048
Proxy voting policies and information regarding how the Fund voted proxies
relating to portfolio securities during the twelve month period ended June 30,
2004 are available without charge, upon request. The policies also appear in the
Fund's Statement of Additional Information, which can be found on the SEC's
website, http://www.sec.gov. The voting records can also be found on the SEC's
website on the N- PX filing.
The Fund files its complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The Fund's
Forms N-Q are available on the SEC's website at http://www.sec.gov and may be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
- -------------------------------------------------------------------------------
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.
CAR 04 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, 2004. There were no waivers or
implicit waivers from the Code granted by the registrant during the fiscal year
ended December 31, 2004.
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: 2003 - $26,750 and 2004 - $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: 2003 - $0 and 2004 - $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: 2003 - $3,500 and 2004 - $3,500. The nature of the
services comprising the fees disclosed under this category is tax
compliance related to the preparation and review of 2003 and 2004
federal income and excise tax returns and review of excise tax
distribution requirements.
(d) All Other Fees: The aggregate fees billed in each of the last two
fiscal years for products and services provided by the principal
accountant, other than the services reported in paragraphs (a)
through (c) of this Item are the following: 2003 - $0 and 2004 -
$0.
(e) (1) The audit committee's pre-approval policies and procedures: The
Trustees Committees of the Boards of Trustees of the Capital
Development Fund and the CGM Trust (the "Trustees Committees") are
required to pre-approve (i) all audit services, tax services and
permitted non-audit services provided by PricewaterhouseCoopers LLP
or any other independent public accountant engaged by the CGM
Capital Development Fund and CGM Trust (together, the "Trusts") and
(ii) any engagement of PricewaterhouseCoopers LLP to provide
non-audit services to (a) Capital Growth Management Limited
Partnership ("CGM"), and (b) any entity controlling, controlled by,
or under common control with CGM that provides ongoing services to
the CGM Capital Development Fund or the CGM Trust (together, the
"Trusts") if the engagement relates directly to the operations and
financial reporting of the Trusts. The Trustees Committees review
each necessary pre-approval on a case by base basis and have not
adopted any pre-approval policies and procedures in accordance with
paragraph (c)(7) of Regulation S-X.
(2) 0% of services described in each of paragraphs (b)through(d) of
this Item were approved by the Trustees Committees 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 (i) CGM Capital Development Fund,
(ii) CGM, and any entity controlling, controlled by, or under common
control with CGM that provides ongoing services to the CGM Capital
Development Fund for each of the last two fiscal years of the CGM
Capital Development Fund are the following: 2003 - $3,500 and 2004 -
$3,500.
(h) There were no non-audit services that were rendered to CGM or any
entity controlling, controlled by, or under common control with CGM
that provides ongoing services to CGM Capital Development Fund that
were not pre-approved pursuant to paragraph (c)(7)(ii) or Rule 2-01 of
Regulation S-X, thus no consideration by the Trustees Committees was
necessary to determine if services were compatible with maintaining the
principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable. Investments in securities of unaffiliated issuers as
of December 31, 2004, as set forth in 210.12-12 of Regulation S-X,is included
as part of the report to shareholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
As described in the CGM Capital Development Fund's most recent proxy statement
on Schedule 14A filed on September 24, 2004, the CGM Capital Development Fund
does not have a formal policy for considering any trustee candidates
recommended by shareholders.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the CGM 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 Form N-CSR and Form N-Q is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms.
(b) There were no changes in CGM Capital Development Fund's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the CGM Capital Development Fund's second fiscal quarter of the
period covered by this report.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics described in Item 2 is attached hereto as EX-99.CODE ETH.
(a)(2) Certifications for each principal executive officer and principal
financial officer of the registrant as required by Rule 30a-2(a) under the
Investment Company Act of 1940 are attached hereto as EX-99.CERT.
(b) Certifications for each principal executive officer and principal financial
officer of the registrant as required by Rule 30a-2(b) under the Investment
Company Act of 1940 are attached hereto as EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CGM Capital Development Fund
By: /S/Robert L. Kemp
Robert L. Kemp
President
Principal Executive Officer
Date: February 23, 2005
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 23, 2005
By: /S/ Jem A. Hudgins
Jem A. Hudgins
CFO & Treasurer
Principal Financial Officer
Date: February 23, 2005