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, 2007
-----------------
Date of reporting period: June 30, 2007
-------------
ITEM 1. REPORTS TO STOCKHOLDERS.
CGM
CAPITAL
DEVELOPMENT
FUND
184th Quarterly Report
June 30, 2007
A No-Load Fund
[Graphic Omitted] Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Capital Development Fund increased 12.1% during the second quarter of 2007
compared to the unmanaged Standard and Poor's 500 Index which returned 6.3%.
For the first six months of the year, CGM Capital Development Fund rose 25.0%
while the S&P 500 Index returned 7.0%.
Against the backdrop of a slow growth economy, US business activity perked up
over the past three months. The Federal Reserve Board's Beige Book indicated
growth in manufacturing and jobs for all twelve regions of the country in April
and May. Indeed, the economy grew at a faster clip in the second quarter of
this year than in the first, which is good news. Manufacturing companies that
produce capital goods for other businesses are thriving and those sectors of
the economy that derive profits in global markets are faring exceptionally well
which is significant given estimates that suggest nearly 50% of revenues of S&P
500 companies comes from outside the US.
The 800 pound gorilla in the US economy right now is the housing sector which
is experiencing one of its largest downturns in years. New housing starts in
May were off 24.2% from May of 2006 and the National Association of Home
Builders' market index for sale of new single family houses declined from 30 in
April to 28 in May which is its lowest level in 16 years (50 and above
indicates expansion). Housing-related businesses are affected and there is some
slowing in retail activity as well.
On the bright side, the Fed seems to have achieved its goal of warding off
inflation -- at least for the time being -- by raising short term interest
rates from 1% to 5.25% between June 2004 and June of last year. The core
inflation rate (ex food and energy) for the 12 months ended May 31 is down to a
relatively benign 1.9%. On one hand, major domestic corporations with overseas
exposure seem to have been unaffected by the rate hikes. On the other, we
believe the resulting lower inflation is just what bond investors need in order
for long term interest rates on Treasury issues to remain in the 5.0%-5.5%
range which is up from the extreme lows of fairly recently, but still
relatively cheap. However, we believe the inflation fight is anything but over
as volatile sectors like food and energy heat up, the dollar experiences
continued weakness and commodity prices rise.
The Fed has held the Federal Funds rate steady at 5.25% for one year now and,
at its meeting last week, again took no action. The long term Treasury bond
(10-year maturity) yielded 5.10% at this time last year and is now 5.04%.
Relative to short term interest levels, these rates are surprisingly low.
Looking ahead, inflation is one risk affecting long-term bond rates and another
traces back to the housing market: huge amounts of complex investment
instruments owned by institutions and hedge funds are backed by sub prime
mortgages. We believe the housing swoon puts the value of many of these
securities in jeopardy and in fact, a few hedge funds have already suffered
major losses. Should additional losses surface, this topic will warrant closer
scrutiny.
At quarter end, CGM Capital Development Fund held major positions in the oil
service, airlines and electronic and communications equipment industries. The
Fund's three largest holdings were Lan Airlines S.A. ADR, CommScope, Inc.
(communications equipment) and Anixter International Inc. (business services).
/s/ Robert L. Kemp
Robert L. Kemp
President
July 2, 2007
CGM CAPITAL DEVELOPMENT FUND
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INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Total Return for Periods Ended June 30, 2007
THE FUND'S
CUMULATIVE THE FUND'S AVERAGE
TOTAL RETURN ANNUAL TOTAL RETURN
------------ -------------------
10 Years .................... +117.2% + 8.1%
5 Years .................... +136.1 +18.7
1 Year ..................... + 19.3 +19.3
3 Months ................... + 12.1 --
The performance data contained in the 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. 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 as of
June 30, 2007.
CGM CAPITAL DEVELOPMENT FUND
- -----------------------------------------------------------------------------------------------
INVESTMENTS AS OF JUNE 30, 2007
(unaudited)
COMMON STOCKS -- 99.6% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
AIRLINES -- 13.7%
Copa Holdings, S.A ....................................... 470,000 $ 31,602,800
Lan Airlines S.A. ADR (b) ................................ 519,000 43,673,850
------------
75,276,650
------------
BUSINESS SERVICES -- 6.0%
Anixter International Inc. (c) ........................... 434,800 32,701,308
------------
ELECTRONIC AND COMMUNICATION EQUIPMENT -- 10.8%
CommScope, Inc. (c) ...................................... 590,000 34,426,500
General Cable Corporation (c) ............................ 330,000 24,997,500
------------
59,424,000
------------
FINANCIAL SERVICES -- 2.3%
AmeriCredit Corp. (c) .................................... 480,000 12,744,000
------------
FOOD - PACKAGE AND MISCELLANEOUS -- 4.2%
Wimm-Bill-Dann Foods OJSC ADR (b) ........................ 218,300 22,705,383
------------
HOME BUILDING PRODUCTS -- 4.5%
NCI Building Systems, Inc. (c) ........................... 498,800 24,605,804
------------
METALS AND MINING -- 2.3%
Pan American Silver Corp. (c) ............................ 480,000 12,638,400
------------
MISCELLANEOUS -- 4.5%
Sotheby's ................................................ 540,000 24,850,800
------------
OFFSHORE DRILLING -- 4.7%
Atwood Oceanics, Inc. (c) ................................ 375,000 25,732,500
------------
OIL REFINING -- 4.6%
Frontier Oil Corporation ................................. 575,000 25,167,750
------------
OIL SERVICE -- 19.5%
Cameron International Corporation (c) .................... 410,000 29,302,700
Core Laboratories N.V. (c) ............................... 315,000 32,032,350
Dril-Quip, Inc. (c) ...................................... 535,000 24,048,250
Oceaneering International, Inc. (c) ...................... 405,000 21,319,200
------------
106,702,500
------------
RETAIL -- 9.0%
Guess?, Inc. ............................................. 670,000 32,186,800
Jos. A. Bank Clothiers, Inc. (c) ......................... 415,000 17,210,050
------------
49,396,850
------------
STEEL -- 9.1%
Carpenter Technology Corporation ......................... 195,000 25,410,450
Chaparral Steel Company .................................. 340,000 24,435,800
------------
49,846,250
------------
TEXTILE AND APPAREL -- 4.4%
Deckers Outdoor Corporation (c) .......................... 240,000 24,216,000
------------
TOTAL COMMON STOCKS (Identified cost $445,166,022) ......................... 546,008,195
------------
SHORT-TERM INVESTMENT -- 0.9% OF TOTAL NET ASSETS
FACE
AMOUNT
------
American Express Credit Corporation, 5.23%, 07/02/07
(Cost $5,125,000) ........................................ $ 5,125,000 5,125,000
------------
TOTAL INVESTMENTS -- 100.5% (Identified cost $450,291,022) ................. 551,133,195
Cash and receivables ..................................................... 9,010,468
Liabilities .............................................................. (11,802,127)
------------
TOTAL NET ASSETS -- 100.0% ................................................ $548,341,536
============
(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.
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
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STATEMENT OF ASSETS AND LIABILITIES
June 30, 2007
(unaudited)
ASSETS
Investments at value (Identified cost --
$450,291,022) ........................................... $551,133,195
Cash ...................................................... 4,285
Receivable for:
Securities sold ............................. $ 8,919,768
Shares of the Fund sold ..................... 50
Dividends and interest ...................... 86,365 9,006,183
----------- ------------
Total assets .............................................. 560,143,663
------------
LIABILITIES
Payable for:
Securities purchased ........................ 11,116,043
Shares of the Fund redeemed ................. 133,488
Tax withholding liability ................... 2,314 11,251,845
-----------
Accrued expenses:
Management fees ............................. 443,779
Trustees' fees .............................. 10,473
Accounting, Adminstration and Compliance
expenses .................................. 8,536
Transfer Agent fees ......................... 30,925
Other expenses .............................. 56,569 550,282
----------- ------------
Total liabilities ......................................... 11,802,127
------------
NET ASSETS .................................................. $548,341,536
============
Net Assets consist of:
Capital paid-in ......................................... $399,274,360
Undistributed net investment loss ....................... (1,208,733)
Accumulated net realized gains on investments ........... 49,433,736
Net unrealized appreciation on investments .............. 100,842,173
------------
NET ASSETS .................................................. $548,341,536
============
Shares of beneficial interest outstanding,
no par value ............................................ 16,813,960
============
Net asset value per share* ................................ $32.61
======
* Shares of the Fund are sold and redeemed at net asset value
($548,341,536 / 16,813,960).
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
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STATEMENT OF
OPERATIONS
Six Months Ended June 30, 2007
(unaudited)
INVESTMENT INCOME
Income:
Dividends (net of withholding tax of $356,021) .......... $ 1,453,820
Interest ................................................ 105,215
------------
1,559,035
------------
Expenses:
Management fees ......................................... 2,509,661
Trustees' fees .......................................... 21,761
Accounting, Adminstration and Compliance expenses ....... 51,216
Custodian fees and expenses ............................. 53,562
Transfer agent fees ..................................... 66,265
Audit and tax services .................................. 18,300
Legal ................................................... 12,735
Printing ................................................ 20,158
Registration fees ....................................... 13,363
Miscellaneous expenses .................................. 747
------------
2,767,768
------------
Net investment loss ....................................... (1,208,733)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gains on investments ......................... 50,819,514
Net unrealized appreciation ............................... 62,122,206
------------
Net realized and unrealized gains on investments .......... 112,941,720
------------
CHANGE IN NET ASSETS FROM OPERATIONS ........................ $111,732,987
============
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
(UNAUDITED) 2006
-------------- ------------
FROM OPERATIONS
Net investment loss ................................................ $ (1,208,733) $ (3,081,298)
Net realized gains from investments and foreign currency
transactions ..................................................... 50,819,514 67,208,466
Unrealized appreciation (depreciation) ............................. 62,122,206 (34,882,718)
------------ ------------
Change in net assets from operations ............................. 111,732,987 29,244,450
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net short-term realized capital gains on investments ............... -- (51,867,597)
Net long-term realized capital gains on investments ................ -- (13,096,951)
------------ ------------
-- (64,964,548)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ....................................... 2,843,850 3,675,833
Net asset value of shares issued in connection with reinvestment of:
Distributions from net short-term realized capital gains
on investments ................................................. -- 44,224,486
Distributions from net long-term realized capital gains
on investments ................................................. -- 11,167,178
------------ ------------
2,843,850 59,067,497
Cost of shares redeemed ............................................ (19,750,583) (30,658,918)
------------ ------------
Change in net assets derived from capital share transactions ..... (16,906,733) 28,408,579
------------ ------------
Total change in net assets ......................................... 94,826,254 (7,311,519)
NET ASSETS
Beginning of period ................................................ 453,515,282 460,826,801
------------ ------------
End of period (including undistributed net investment loss of
$1,208,733 and $0 at June 30, 2007 and December 31, 2006,
respectively) .................................................... $548,341,536 $453,515,282
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ......................................... 97,204 120,293
Issued in connection with reinvestment of:
Distributions from net short-term realized capital gains
on investments ................................................. -- 1,681,551
Distributions from net long-term realized capital gains
on investments ................................................. -- 424,614
------------ ------------
97,204 2,226,458
Redeemed ........................................................... (665,485) (1,006,308)
------------ ------------
Net change ......................................................... (568,281) 1,220,150
============ ============
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2007 ---------------------------------------------------------------
(UNAUDITED) 2006 2005 2004 2003 2002
------------- ---- ---- ---- ---- ----
For a share of the Fund outstanding
throughout each period:
Net asset value at beginning of
period .......................... $26.09 $28.51 $27.89 $23.60 $15.22 $19.21
------ ------ ------ ------ ------ ------
Net investment loss (a) ........... (0.07) (0.19) (0.16) (0.01) (0.10) (0.12)
Net realized and unrealized gains
(losses) on investments and
foreign currency transactions ... 6.59 2.02 7.23 4.30 8.48 (3.87)
------ ------ ------ ------ ------ ------
Total from investment operations .. 6.52 1.83 7.07 4.29 8.38 (3.99)
------ ------ ------ ------ ------ ------
Distribution from net short-term
realized gains .................. -- (3.39) (4.27) -- -- --
Distribution from net long-term
realized gains .................. -- (0.86) (2.18) -- -- --
------ ------ ------ ------ ------ ------
Total Distributions ............... -- (4.25) (6.45) -- -- --
------ ------ ------ ------ ------ ------
Net increase (decrease) in net
asset value ..................... 6.52 (2.42) 0.62 4.29 8.38 (3.99)
------ ------ ------ ------ ------ ------
Net asset value at end of period .. $32.61 $26.09 $28.51 $27.89 $23.60 $15.22
====== ====== ====== ====== ====== ======
Total Return (%) .................. 25.0 6.3 25.3 18.2 55.1 (20.8)
Ratios:
Operating expenses to average net
assets (%) ...................... 1.10* 1.11 1.12 1.14 1.17 1.15
Net investment loss to average net
assets (%) ...................... (0.48)* (0.65) (0.52) (0.06) (0.56) (0.67)
Portfolio turnover (%) ............ 207* 300 211 263 305 209
Net assets at end of period (in
thousands) ($) .................. 548,342 453,515 460,827 400,349 369,021 259,818
(a) Per share net investment loss has been calculated using the average shares outstanding during the period.
* Computed on an annualized basis.
See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND
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NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2007
(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, 2006, there were no capital loss carryovers available to
offset future realized gains.
As of December 31, 2006, the components of distributable earnings on a tax
basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED NET UNREALIZED
ORDINARY LONG-TERM APPRECIATION/
INCOME CAPITAL GAINS (DEPRECIATION)
------------- ------------- --------------
$ -- $ -- $37,334,189
The identified cost of investments in securities owned by the Fund for
federal income tax purposes, and their respective gross unrealized
appreciation and depreciation at June 30, 2007 were as follows:
GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED
IDENTIFIED COST APPRECIATION DEPRECIATION APPRECIATION
--------------- ---------------- ---------------- --------------
$453,966,119 $100,673,323 $(3,506,247) $97,167,076
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 period ended December
31, 2006, were as follows:
LONG-TERM
ORDINARY INCOME CAPITAL GAINS TOTAL
--------------- ------------- -----
$51,867,597 $13,096,951 $64,964,548
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. FOREIGN 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, 2007,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $516,184,499 and
$533,446,626, respectively. There were no purchases or sales of United States
government obligations.
4. A. MANAGEMENT FEES -- During the period ended June 30, 2007, the Fund
incurred management fees of $2,509,661 paid or payable to the Fund's
investment adviser, Capital Growth Management Limited Partnership (CGM),
certain officers and directors of which are also officers and trustees
of the Fund. The management agreement provides for a fee at the annual
rate of 1.00% on the first $500 million of the Fund's average daily net
assets, 0.95% of the next $500 million and 0.80% of such assets in
excess of $1 billion.
B. OTHER EXPENSES -- CGM performs certain administrative, accounting,
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
$51,216 for the period ended June 30, 2007, 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, $39,836 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, 2007, each disinterested
trustee will be 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. NEW ACCOUNTING PRONOUNCEMENTS -- In June 2006, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109, "Accounting for Income Taxes". FIN 48 establishes financial
reporting rules regarding recognition and measurement of tax positions taken
or expected to be taken on a tax return. Adoption of FIN 48 is required for
the first financial statement reporting period after June 29, 2007 and is to
be applied to all open years as of the effective date. Based on management's
analysis, FIN 48 does not have a material impact on the Fund's financial
statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, (FAS 157) "Fair Value Measurements". FAS 157 defines fair value,
establishes a framework for measuring fair value in accordance with generally
accepted accounting principles and expands disclosure about fair value
measurements. FAS 157 is effective for fiscal years beginning after November
15, 2007. Management is currently evaluating the impact of adopting FAS 157.
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, account fees
(for certain retirement accounts) and wire fees 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, 2007 to June 30, 2007.
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 account 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*
1/01/07 6/30/07 1/01/07 - 6/30/07
- -------------------------------------------------------------------------------
Actual $1,000.00 $1,249.90 $6.14
- -------------------------------------------------------------------------------
Hypothetical
(5% return
before expenses) $1,000.00 $1,019.34 $5.51
- -------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.10%,
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, 1981 -- JUNE 30, 2007 (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1981
- -----------------------------------------------------------------------------------------------------------------------------------
-- AND HAD TAKEN ALL DIVIDENDS OR -- HAD REINVESTED ALL DIVIDENDS AND CAPITAL
AND DISTRIBUTIONS IN CASH GAINS DISTRIBUTIONS IN ADDITIONAL SHARES
------------------------------------------------------------------------------------------------------------
During the Year
You Would Have Received Which Would Represent
------------------------------- --------------------------------
The Value of A Cumulative
The Net Your Original Change
Asset Value Per Share Per Share Investment An Expressed
On of Your Capital Gains Income At Each Annual As An Index With
December Shares Would Distributions Distributions Year End Total Return December 31,
31 Have Been of of Would Have Been of 1981 = 100.0
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
1981 $17.34 100.0
1982 24.88 $ 2.88 $0.41 $ 31.02 + 78.9% 178.9
1983 25.21 2.50 0.47 35.86 + 15.6 206.8
1984 17.28 6.15 0.11 32.92 - 8.2 189.8
1985 25.02 -- 0.18 48.13 + 46.2 277.5
1986 23.12 7.46 0.16 61.80 + 28.4 356.3
1987 16.56 10.09 0.14 71.63 + 15.9 413.0
1988 15.87 0.02 0.62 71.42 - 0.3 411.8
1989 18.37 -- 0.34 84.20 + 17.9 485.5
1990 18.53 -- 0.10 85.38 + 1.4 492.3
1991 25.80 11.07* 0.06 169.99 + 99.1 980.2
1992 27.43 2.68* 0.20 199.74 + 17.5 1151.7
1993 27.71 7.51 0.07 257.07 + 28.7 1482.2
1994 20.58 0.71 0.07 198.20 - 22.9 1142.8
1995 27.33 1.68 0.02 279.66 + 41.1 1612.5
1996 29.08 5.87 0.07 358.24 + 28.1 2065.6
1997 26.96 9.08 -- 443.86 + 23.9 2559.3
1998 24.95 4.19 0.11 481.59 + 8.5 2776.8
1999 26.20 0.56 0.11 518.67 + 7.7 2990.6
2000 25.12 -- 0.10 498.96 - 3.8 2877.0
2001 19.21 -- -- 381.70 - 23.5 2200.9
2002 15.22 -- -- 302.31 - 20.8 1743.1
2003 23.60 -- -- 468.88 + 55.1 2703.5
2004 27.89 -- -- 554.22 + 18.2 3195.5
2005 28.51 6.45 -- 694.44 + 25.3 4004.0
2006 26.09 4.25 -- 738.19 + 6.3 4256.3
2007(6/30) 32.61 -- -- 922.74 + 25.0 5320.4
------ ----- ------
Totals $83.15 $3.34 + 5220.4
---------------------------------------------------------------------------------------------------------------------------------
* 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,
2007 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 2007, 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
reviewed information regarding the performance of the Fund as compared to a
peer group of other growth funds selected and provided by Lipper, Inc., an
independent provider of investment company data. The Board determined that the
Fund's performance was above the mean compared to other mutual funds included
in the Lipper reports for the three-, five- and ten-year periods ended
December 31, 2006, although performance was below the median performance of
such funds for the one-year period ended December 31, 2006. The Board agreed
that this performance reflected in large measure the focus of CGM on long-term
performance in managing the Fund's assets, 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 at this
time to seek to make adjustments to the break point structure of the advisory
fees paid by the Fund.
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. The Board noted that the overall expense ratio of the Fund was below the
average of 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 and the fact that it is a publicly offered investment vehicle. 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
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 02111
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 07 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, 2007, as set forth in Section 210.12-12 of Regulation S-X, are 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 23, 2007
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 23, 2007
By: /S/ Jem A. Hudgins
Jem A. Hudgins
CFO & Treasurer
Principal Financial Officer
Date: August 23, 2007