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)
T. John Holton, 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, 2006
-----------------
Date of reporting period: June 30, 2006
-------------
ITEM 1. REPORTS TO STOCKHOLDERS.
CGM
CAPITAL
DEVELOPMENT
FUND
180th Quarterly Report
June 30, 2006
A No-Load Fund
[logo] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Capital Development Fund returned 2.2% during the second quarter of 2006
compared to the unmanaged Standard and Poor's 500 Index which declined -1.4%
over the same period. Year-to-date, CGM Capital Development Fund returned
11.4% and the unmanaged S&P 500 returned 2.7% as of June 30, 2006.
The market, as measured by the S&P 500, enjoyed a nice three year run until
May of this year when investors began to suspect that inflation was
accelerating at a more rapid pace than the newly-minted Fed chairman had
suggested would be acceptable. In January, just about the time outgoing
Chairman Greenspan passed the baton to new Chairman Bernanke, the core
inflation rate (ex food and fuel) as measured by the Consumer Price Index
(CPI) began to rise. Just a few months earlier, many investors expected the
Fed would pause in its regular interest rate hikes at its June 2006 meeting
and possibly put an end to the seemingly relentless increases in the Federal
Funds rate. But, the CPI clocked in at a rising 3.8% rate (annualized) for the
three months ended May 31 and on June 29, the Fed hiked the Federal Funds rate
yet another quarter percent to 5.25% in an effort to flex its inflation
fighting muscles. Investors are back to pondering when and at what level the
rate increases will end.
As the economy expanded over the past few years, debate centered on and around
oil and whether rising energy prices would slow the economy or fuel inflation.
Despite some softening in the retail sector and a dramatic drop off in housing
sales, we believe inflation is the prevailing bogeyman. Corporate profits and
margins are high and companies that produce capital goods for other businesses
are thriving as productivity rises and the manufacturing sector booms. Despite
ever higher prices at the pump, the consumer appetite for gasoline is proving
insatiable and global business is robust with, for example, China announcing
in May a nearly 18% increase in industrial production over 2005
notwithstanding efforts by its government to slow its economy.
Despite the steady and continuing rise in the Federal Funds rate from 1% to
5.25% over the past two years, long term bond rates have barely risen: the 10-
year U.S. Government bond yield was 4.6% at the end of June '04 versus 5.1% at
the end of June '06 and the 30-year bond now yields just 5.3% regardless of a
climbing nominal CPI (food and fuel included), up 4.2% over the past year.
To say the prospect of much higher interest rates is unsettling to the market
right now is an understatement. However, should consumer spending continue to
slow and were inflationary forces to moderate, we believe the equity market
could regain its footing based upon the strong gains in corporate earnings
currently underway. On June 30, our emphasis in the portfolio was in the heavy
goods sectors of the economy and in energy.
CGM Capital Development Fund held important positions in the steel,
independent oil production and oil refining industries at quarter end. The
Fund's largest holdings were Hansen Natural Corporation, Holly Corporation and
Helix Energy Solutions Group, Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
July 1, 2006
CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 2006
THE FUND'S
CUMULATIVE THE FUND'S AVERAGE
TOTAL RETURN ANNUAL TOTAL RETURN
------------ -------------------
10 Years .............................. +137.0% + 9.0%
5 Years .............................. + 85.8 +13.2
1 Year ............................... + 27.8 +27.8
3 Months ............................. + 2.2 --
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 a shareholder would pay on Fund distributions or the
redemption of Fund shares and assumes the reinvestment of all Fund
distributions during such respective periods. 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.
- -------------------------------------------------------------------------------
See the Schedule of Investments beginning on the next page for the percentage
of net assets of the Fund invested in particular industries or securities.
CGM CAPITAL DEVELOPMENT FUND
- ----------------------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 2006
(unaudited)
COMMON STOCKS -- 99.2% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
AIRLINES -- 3.8%
US Airways Group, Inc.(b) .................................. 375,000 $ 18,952,500
------------
BEVERAGES AND TOBACCO -- 7.6%
Hansen Natural Corporation(b) .............................. 199,000 37,883,630
------------
COPPER -- 0.5%
Peru Copper Inc.(b)(d) ..................................... 430,000 2,218,800
------------
HOUSING AND BUILDING MATERIAL -- 3.1%
Desarrolladora Homex, S.A. de C.V. ADR(b)(c) ............... 475,000 15,584,750
------------
METALS AND MINING -- 4.6%
Agnico-Eagle Mines Limited(d) .............................. 690,000 22,825,200
------------
MISCELLANEOUS -- 4.9%
Sotheby's Holdings, Inc.(b) ................................ 935,000 24,543,750
------------
OIL - INDEPENDENT PRODUCTION -- 14.2%
Berry Petroleum Company .................................... 810,000 26,851,500
Newfield Exploration Company(b) ............................ 398,000 19,478,120
Whiting Petroleum Corporation(b) ........................... 580,000 24,284,600
------------
70,614,220
------------
OIL REFINING -- 12.4%
Holly Corporation .......................................... 690,000 33,258,000
Tesoro Petroleum Corporation ............................... 381,000 28,331,160
------------
61,589,160
------------
OIL - SERVICE -- 9.6%
Cameron International Corporation(b) ....................... 340,000 16,241,800
Helix Energy Solutions Group, Inc.(b) ...................... 780,000 31,480,800
------------
47,722,600
------------
RETAIL -- 7.3%
The Pantry, Inc.(b) ........................................ 445,000 25,605,300
The Wet Seal, Inc.(b) ...................................... 2,140,000 10,443,200
------------
36,048,500
------------
SERVICES -- 2.8%
NutriSystem, Inc.(b) ....................................... 225,000 13,979,250
------------
STEEL -- 26.4%
Carpenter Technology Corporation ........................... 205,000 23,677,500
Chaparral Steel Company(b) ................................. 290,000 20,885,800
Commercial Metals Company .................................. 934,000 24,003,800
Gerdau Ameristeel Corporation(d) ........................... 1,275,000 12,801,000
IPSCO Inc.(d) .............................................. 235,000 22,487,150
Steel Dynamics, Inc. ....................................... 410,000 26,953,400
------------
130,808,650
------------
TEXTILE AND APPAREL -- 2.0%
Hartmarx Corporation(b) .................................... 1,618,800 9,712,800
------------
TOTAL COMMON STOCKS (Identified Cost $425,454,173) .......................... 492,483,810
------------
FACE
AMOUNT
------
SHORT-TERM INVESTMENT -- 0.8% OF TOTAL NET ASSETS
American Express Credit Corporation, 5.10%, 7/03/06 (Cost
$3,685,000) ............................................. $3,685,000 3,685,000
------------
TOTAL INVESTMENTS -- 100.0% (Identified Cost $429,139,173)(e) ............... 496,168,810
Cash and receivables ..................................................... 7,796,255
Liabilities .............................................................. (7,620,896)
------------
TOTAL NET ASSETS -- 100.0% .................................................. $496,344,169
============
(a) See Note 1A.
(b) Non-income producing security.
(c) 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.
(d) The Fund has approximately 12% of its net assets at June 30, 2006 invested in companies
incorporated in Canada.
(e) Federal Tax Information: At June 30, 2006 the net unrealized appreciation on investments
based on cost of $431,070,466 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 ............................. $ 78,192,273
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ............................. (13,093,929)
------------
$ 65,098,344
============
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- ------------------------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
June 30, 2006
(unaudited)
ASSETS
Investments at value (identified cost -- $429,139,173) ...................... $496,168,810
Cash ........................................................................ 38,295
Receivable for:
Securities sold ............................................ $7,614,238
Dividends and interest...................................... 143,722 7,757,960
---------- ------------
503,965,065
------------
LIABILITIES
Payable for:
Securities purchased ....................................... 6,445,053
Shares of the Fund redeemed ................................ 728,753 7,173,806
----------
Accrued expenses:
Management fees ............................................ 372,904
Trustees' fees ............................................. 13,796
Accounting, Administration and Compliance .................. 7,051
Transfer agent fees ........................................ 3,967
Other expenses ............................................. 49,372 447,090
---------- ------------
7,620,896
------------
NET ASSETS ................................................................... $496,344,169
============
Net Assets consist of:
Capital paid-in ............................................................ $370,852,287
Undistributed net investment loss .......................................... (1,762,423)
Accumulated net realized gain on investments ............................... 60,224,779
Unrealized appreciation on investments -- net .............................. 67,029,526
------------
NET ASSETS ................................................................... $496,344,169
============
Shares of beneficial interest
outstanding, no par value .................................................. 15,631,911
============
Net asset value per share* .................................................. $31.75
======
* Shares of the Fund are sold and redeemed at net asset value ($496,344,169 / 15,631,911).
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------
STATEMENT OF
OPERATIONS
Six Months Ended June 30, 2006
(unaudited)
INVESTMENT INCOME
Income
Dividends (net of withholding tax of $20,227) ............ $ 794,925
Interest ................................................. 100,408
------------
895,333
------------
Expenses
Management fees .......................................... 2,404,133
Trustees' fees ........................................... 28,964
Accounting, Administration and Compliance ................ 42,303
Custodian ................................................ 54,140
Transfer agent ........................................... 57,676
Audit and tax services ................................... 17,450
Legal .................................................... 18,332
Printing ................................................. 19,820
Registration ............................................. 13,713
Miscellaneous ............................................ 1,225
------------
2,657,756
------------
Net investment loss ........................................ (1,762,423)
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investments (including net realized
loss of $840,836 on sales of investments in
non-controlled affiliated issuers) ..................... 60,224,779
Net unrealized depreciation ................................ (6,573,159)
------------
Net gain on investments and foreign currency transactions .. 53,651,620
------------
NET CHANGE IN ASSETS FROM OPERATIONS ......................... $ 51,889,197
============
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- ---------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
------------- ------------
FROM OPERATIONS
Net investment loss ................................... $ (1,762,423) $ (2,270,485)
Net realized gain from investments .................... 60,224,779 92,382,493
Unrealized appreciation (depreciation) ................ (6,573,159) 8,106,228
------------- -------------
Change in net assets from operations ................ 51,889,197 98,218,236
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
Net realized short-term capital gain on investments ... -- (57,886,555)
Net realized long-term capital gain on investments .... -- (29,553,609)
------------- -------------
-- (87,440,164)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares .......................... 2,416,330 2,803,858
Net asset value of shares issued in connection with
reinvestment of:
Distributions from net short-term realized capital
gain .............................................. -- 49,431,710
Distributions from net long-term realized capital
gain .............................................. -- 25,237,888
------------- -------------
2,416,330 77,473,456
Cost of shares redeemed ............................... (18,788,159) (27,773,482)
------------- -------------
Change in net assets derived from capital share
transactions ...................................... (16,371,829) 49,699,974
------------- -------------
Total change in net assets ............................ 35,517,368 60,478,046
NET ASSETS
Beginning of period ................................... 460,826,801 400,348,755
------------- -------------
End of period (including undistributed net investment
loss of $1,762,423 and $0 at June 30, 2006 and
December 31, 2005, respectively) .................... $ 496,344,169 $ 460,826,801
============= =============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................ 78,993 90,624
Issued in connection with reinvestment of:
Distributions from net short-term realized capital
gain .............................................. -- 1,729,591
Distributions from net long-term realized capital
gain .............................................. -- 883,061
------------- -------------
78,993 2,703,276
Redeemed .............................................. (609,173) (894,776)
------------- -------------
Net change ............................................ (530,180) 1,808,500
============= =============
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2006 ---------------------------------------------------------------------
(UNAUDITED) 2005 2004 2003 2002 2001
----------- ---- ---- ---- ---- ----
For a share of the Fund outstanding
throughout each period:
Net asset value at the beginning
of period ...................... $28.51 $27.89 $23.60 $15.22 $19.21 $25.12
------ ------ ------ ------ ------ ------
Net investment loss .............. (0.11)(a) (0.16)(a) (0.01)(a) (0.10)(a) (0.12)(a) (0.08)(b)
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions .. 3.35 7.23 4.30 8.48 (3.87) (5.83)
------ ------ ------ ------ ------ ------
Total from investment operations . 3.24 7.07 4.29 8.38 (3.99) (5.91)
------ ------ ------ ------ ------ ------
Distribution from net short-term
realized gain .................. -- (4.27) -- -- -- --
Distribution from net long-term
realized gain .................. -- (2.18) -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions .............. -- (6.45) -- -- -- --
------ ------ ------ ------ ------ ------
Net increase (decrease) in net
asset value .................... 3.24 0.62 4.29 8.38 (3.99) (5.91)
------ ------ ------ ------ ------ ------
Net asset value at end of period . $31.75 $28.51 $27.89 $23.60 $15.22 $19.21
====== ====== ====== ====== ====== ======
Total Return (%) ................. 11.4 25.3 18.2 55.1 (20.8) (23.5)
Ratios:
Operating expenses to average net
assets (%) ..................... 1.11* 1.12 1.14 1.17 1.15 1.12
Net investment loss to average net
assets (%) ..................... (0.73)* (0.52) (0.06) (0.56) (0.67) (0.38)
Portfolio turnover (%) ........... 234* 211 263 305 209 283
Net assets at end of period (in
thousands) ($) ................. 496,344 460,827 400,349 369,021 259,818 353,365
(a) Per share net investment 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, 2006
(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 commenced operations on August 14,
1961. 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, 2005, there were no capital loss carryovers available to offset future
realized gains. During the year 2005 the Fund utilized $1,538,498 of capital
loss carryovers.
As of December 31, 2005, the components of distributable earnings on a tax
basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED NET UNREALIZED
ORDINARY LONG-TERM APPRECIATION/
INCOME CAPITAL GAINS DEPRECIATION
------------- ------------- ---------------
$-- $-- $73,602,685
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
foreign exchange gains/losses and netting net operating loss with net
short-term gains. The Fund also utilized earnings and profits distributed to
shareholders on redemption of shares as a part of the dividend deduction for
income tax purposes. 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.
The tax character of distributions paid during the fiscal year ended December
31, 2005, were as follows:
ORDINARY LONG-TERM
INCOME CAPITAL GAINS TOTAL
-------- ------------- ----
$57,886,555 $29,553,609 $87,440,164
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. INDEMNITIES -- In the normal course of business, CGM Capital Development
Fund may enter into contracts that provide indemnities to third parties for
various potential losses and claims. CGM Capital Development Fund's maximum
exposure under these arrangements is unknown as this would depend on future
claims that may be made against CGM Capital Development Fund. The risk of
material loss from such claims is considered remote.
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 June 30, 2006,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $561,806,998 and
$582,286,656, respectively. There were no purchases or sales of United States
government obligations.
4. A. MANAGEMENT FEES -- During the period ended June 30, 2006, the Fund
incurred management fees of $2,404,133 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
to the Investment Company Act of 1940 and the Sarbanes Oxley Act of 2002.
The Accounting, Administration and Compliance expense of $42,303, for the
period ended June 30, 2006, is shown separately in the financial
statements. These expenses include the reimbursement of a portion of the
compensation expenses incurred by CGM for its employees who provide these
administrative, accounting, compliance, and other services to the Fund,
some of whom are officers of the Fund. Of the total expense
reimbursement, $32,945 represented reimbursements by the Fund to CGM for
a portion of the salaries of CGM employees who are officers of the Fund.
C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to any trustees who are directors, officers or employees of CGM,
or any affiliate of CGM (other than registered investment companies). For
the period ending December 31, 2006, each disinterested trustee is
compensated by the CGM Funds with an annual fee of $50,000 plus travel
expenses for each meeting attended. The disinterested trustees are
responsible for the audit committee functions of the CGM Funds and have
designated a chairman to oversee these functions who receives an
additional $30,000 annually. Of these amounts, each of the CGM Funds is
responsible for $7,000 per trustee annually, plus an annual variable fee
calculated based on the proportion of each of the CGM Funds' average net
assets relative to the aggregate average net assets of the CGM Funds.
5. AFFILIATED ISSUERS -- Affiliated issuers, as defined under the Investment
Company Act of 1940, are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer. The
following summarizes transactions with affiliates of the Fund during the
period ended June 30, 2006:
NUMBER OF NUMBER OF
SHARES HELD GROSS GROSS SHARES HELD DIVIDEND MARKET VALUE
NAME OF ISSUER DECEMBER 31, 2005 PURCHASES SALES JUNE 30, 2006 INCOME JUNE 30, 2006
- -------------- ----------------- --------- ----- ------------- ------ -------------
Hartmarx Corporation+* ....... 2,098,800 100,000 580,000 1,618,800 $0 $9,712,800
== ==========
- ------------
+ Non-income producing security.
* No longer considered an affiliated issuer.
CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------
FUND EXPENSES
As a shareholder of CGM Capital Development Fund, you incur two types of
costs: (1) transaction costs, which could include, among other charges, wire
fees and custodial maintenance 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 January 1, 2006 to June 30, 2006.
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 such as any
wire fees or custodial maintenance fees that may be
payable. 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.
- -------------------------------------------------------------------------------
Beginning Ending Expenses Paid
Account Value Account Value During Period*
1/01/06 6/30/06 1/01/06 - 6/30/06
- -------------------------------------------------------------------------------
Actual $1,000.00 $1,113.64 $5.82
- -------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000.00 $1,019.29 $5.56
- -------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.11%,
multiplied by the average account value over the period, multiplied by
181/365 (to reflect the one-half year period).
CGM CAPITAL DEVELOPMENT FUND
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
25 YEAR INVESTMENT RECORD
DECEMBER 31, 1980 -- JUNE 30, 2006 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------------
IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1980
--------------------------------------------------------------------------------------------------------------------------------
-- 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 1980 = 100.0
- --------------------------------------------------------------------------------------------------------------------------------
1980 $20.50 100.0
1981 17.34 $ 3.38 $0.36 $ 21.42 + 4.5% 104.5
1982 24.88 2.88 0.41 38.32 + 78.9 187.0
1983 25.21 2.50 0.47 44.30 + 15.6 216.2
1984 17.28 6.15 0.11 40.67 - 8.2 198.5
1985 25.02 -- 0.18 59.46 + 46.2 290.2
1986 23.12 7.46 0.16 76.35 + 28.4 372.6
1987 16.56 10.09 0.14 88.49 + 15.9 431.8
1988 15.87 0.02 0.62 88.22 - 0.3 430.5
1989 18.37 -- 0.34 104.01 + 17.9 507.6
1990 18.53 -- 0.10 105.47 + 1.4 514.7
1991 25.80 11.07* 0.06 209.99 + 99.1 1024.8
1992 27.43 2.68* 0.20 246.74 + 17.5 1204.1
1993 27.71 7.51 0.07 317.55 + 28.7 1549.7
1994 20.58 0.71 0.07 244.83 - 22.9 1194.8
1995 27.33 1.68 0.02 345.46 + 41.1 1685.9
1996 29.08 5.87 0.07 442.53 + 28.1 2159.6
1997 26.96 9.08 -- 548.29 + 23.9 2675.7
1998 24.95 4.19 0.11 594.89 + 8.5 2903.1
1999 26.20 0.56 0.11 640.70 + 7.7 3126.6
2000 25.12 -- 0.10 616.35 - 3.8 3007.8
2001 19.21 -- -- 471.51 - 23.5 2301.0
2002 15.22 -- -- 373.44 - 20.8 1822.4
2003 23.60 -- -- 579.21 + 55.1 2826.5
2004 27.89 -- -- 684.63 + 18.2 3340.9
2005 28.51 6.45 -- 857.84 + 25.3 4186.1
2006(6/30) 31.75 -- -- 955.63 + 11.4 4663.3
------ ----- --------
Totals $82.28 $3.70 + 4563.3
- --------------------------------------------------------------------------------------------------------------------------
* Includes $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 on, 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
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION
(unaudited)
AVAILABILITY OF PROXY VOTING INFORMATION:
Proxy voting policies and information regarding how the Fund voted proxies
relating to portfolio securities during the twelve month period ended June 30,
2006 are available without charge, upon request by calling 1-800-345-4048. 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 Fund's Form N-PX filing.
PORTFOLIO HOLDINGS:
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.
ADVISORY AGREEMENT APPROVAL:
In considering renewal of the advisory agreement, during meetings held in
March and April, 2006, the Board of Trustees of the Fund (the "Board")
considered the following factors and came to the following conclusions:
1. The Board considered the nature, extent, quality and scope of the
investment advisory and administrative services provided by CGM to the Fund.
The Board agreed that the nature, extent, quality and scope of the CGM
professional team working on the Fund was very high, and was satisfied with
the quality of CGM's advisory and administrative services.
2. The Board considered the investment performance of the Fund and CGM and
determined that the Fund's performance compared favorably with other growth
funds for the one-, three-, five- and ten-year periods ended December 31,
2005. The Board agreed that this performance reflected in large measure the
focus of CGM on long-term performance rather than pursuing short-term market
movements. The Board acknowledged that, while for some periods this focus on
long-term performance might cause the Fund to lag other comparable mutual
funds with a more short-term focus, over the longer term CGM's approach had
proven its worth.
3. The Board discussed the costs of the services provided and profits
realized by CGM from the relationship with the mutual funds advised by CGM and
each of the separate accounts managed by CGM, and found that the profit
margins were reasonable and not excessive.
4. The Board discussed with CGM whether economies of scale might be realized
with growth in the Fund. Given the relatively small size of the Fund and CGM's
investment style, the Board determined that it would not be advisable to seek
incremental adjustments to the Fund's advisory fee.
5. The Board received and considered information comparing the advisory fees
paid by the Fund and the overall expenses borne by the Fund with those of funds
in the relevant expense universe as selected and provided by Lipper, Inc., an
independent provider of investment company data. The Board noted that the
overall expense ratio of the Fund was competitive compared to the expense ratios
of other mutual funds included in the Lipper reports. The Board also reviewed
information regarding fees charged by CGM to its other clients, including its
separate account clients. CGM reviewed with the Board the significant
differences in scope of services provided to the Fund and to those other
clients, noting that the Fund required a greater allocation of management's time
as a result of its differing investment mandate. The Board discussed the fee
comparisons in light of the differences required to manage these different types
of accounts. Based on these comparisons, the Board concluded that the advisory
fees paid by the Fund and the overall expenses borne by the Fund were fair and
reasonable.
In addition to the foregoing, in light of the fact that CGM could potentially
benefit from soft dollar arrangements of the Fund, the Board of Trustees
reviewed the brokerage commissions of the Fund and concluded that the
brokerage commissions were reasonable, particularly given the Fund's
relatively small size and focus on best execution.
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
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
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
- ------------------------------------------------
TELEPHONE NUMBERS
For information about:
[ ] Account Procedures and Status
[ ] Redemptions
[ ] Exchanges
Call 800-343-5678
[ ] New Account Procedures
[ ] Prospectuses
[ ] Performance
[ ] Proxy Voting Policies and Voting Records
[ ] Complete Schedule of Portfolio Holdings for
the 1st & 3rd Quarters (as filed on Form N- Q)
Call 800-345-4048
- --------------------------------------------------
MAILING ADDRESS
CGM Shareholder Services
c/o Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511
- ------------------------------------------------
This report has been prepared for the
shareholders of the Fund and is not authorized
for distribution to current or prospective
investors in the Fund unless it is accompanied
or preceded by a prospectus.
CQR2 06 Printed in U.S.A.
ITEM 2. CODE OF ETHICS.
Not applicable for semi-annual reports.
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. Investments in securities of unaffiliated issuers as of June 30,
2006, 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) 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 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: August 24, 2006
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: August 24, 2006
By: /S/ Jem A. Hudgins
Jem A. Hudgins
CFO & Treasurer
Principal Financial Officer
Date: August 24, 2006