-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jd55Tmud3gMDs7WIWKVQCBlFnb9Ayw0G93EV0oKka8Xe7LfIfBbjzId8EFq1Sa63 7CmGl0xXVTFvZQCpE+++UA== 0000950156-05-000090.txt : 20050225 0000950156-05-000090.hdr.sgml : 20050225 20050225105228 ACCESSION NUMBER: 0000950156-05-000090 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050225 DATE AS OF CHANGE: 20050225 EFFECTIVENESS DATE: 20050225 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CGM CAPITAL DEVELOPMENT FUND CENTRAL INDEX KEY: 0000060332 IRS NUMBER: 046014026 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-00933 FILM NUMBER: 05639399 BUSINESS ADDRESS: STREET 1: ONE INTERNATIONAL PLACE CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 617-737-3225 MAIL ADDRESS: STREET 1: ONE INTERNATIONAL PLACE CITY: BOSTON STATE: MA ZIP: 02110 FORMER COMPANY: FORMER CONFORMED NAME: LOOMIS SAYLES CAPITAL DEVELOPMENT FUND INC DATE OF NAME CHANGE: 19900302 N-CSR 1 d62058.txt CGM CAPITAL DEVELOPMENT FUND UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-00933 ----------- CGM CAPITAL DEVELOPMENT FUND - ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) One International Place, Boston, Massachusetts 02110 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Jeremiah J. Bresnahan, Jr., Esq. Bingham McCutchen LLP 150 Federal Street Boston, MA 02110 - ------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 1-617-737-3225 -------------- Date of fiscal year end: December 31, 2004 ----------------- Date of reporting period: December 31, 2004 ----------------- ITEM 1. REPORTS TO STOCKHOLDERS. CGM CAPITAL DEVELOPMENT FUND 44th Annual Report December 31, 2004 A No-Load Fund [logo] Investment Adviser CAPITAL GROWTH MANAGEMENT Limited Partnership TO OUR SHAREHOLDERS - ------------------------------------------------------------------------------- CGM Capital Development Fund's total return during the fourth quarter of 2004 was 9.6% compared to the unmanaged Standard and Poor's 500 Index which returned 9.2% over the same period. For the year just ended, CGM Capital Development Fund returned 18.2% and the unmanaged S&P 500 Index returned 10.9%. THE YEAR IN REVIEW AND ECONOMIC OUTLOOK The economy continued to grow stronger in 2004. Quarterly growth in Gross Domestic Product ranged between 3.0% and 4.0% each quarter in real terms and corporate profits, capital spending and business productivity all reported advances at year-end. New housing construction continued to be reasonably strong throughout the year as mortgage rates remained attractive despite the Federal Reserve Board's five quarter-point hikes in the Federal Funds rate in 2004. And, though the recovery has spawned new jobs, the numbers were not enough to substantially reduce the unemployment rate, which was 5.4% at year-end. Perhaps most appealing about this particular moment in the recovery is the absence of imbalances. We neither have a fully employed economy with inflation nor are we in recession. The consumer is still in a spending mood, but moderately so. Retail sales are up relative to year-earlier periods and the Consumer Confidence Index bounced nicely from 92.6 in November to 102.3 at year-end. In the midst of all this, the biggest surprise of 2004 has been the trend of long-term interest rates--despite a business expansion, rising oil prices and a weak US dollar, long-term interest rates have remained mostly steady or a little down over the past year. Up to this point, foreign countries have continued to buy dollar-denominated assets despite their dwindling purchasing power. The question is how long will this buying continue. Short term, a weaker dollar bolsters exports and corporate profits, but over a longer horizon may prove to be inflationary and a precursor to higher interest rates. The equity market as measured by the Standard and Poor's 500 Index was largely stagnant for the first nine months of the year. Signs of life appeared in the fourth quarter when the S&P rose 9.2% lifting leading averages to reflect an improved outlook for corporate profits. We believe the greatest market values lie in the more cyclical areas of the economy and the greatest risks lie in the declining dollar, higher oil prices and increasing interest rates. PORTFOLIO STRATEGY CGM Capital Development Fund remained fully invested throughout 2004 in expectation of continued economic growth. Housing and building materials stocks, the largest industry concentration at the beginning of the year, were eliminated to make room for other opportunities. The Fund maintained a large concentration of metal producing stocks during the year and increased the position of steel producing and processing securities within this category as the year progressed. The Fund started the year with a modest investment in energy and oil-related securities which was increased to more than 28% of the portfolio at year end to become the Fund's largest sector concentration. The Fund's largest sector gains were in steel and related companies. Other significant profit contributors were investments in Urban Outfitters, Inc., a small specialty retailer, and GOL Linhas Aereas Inteligentas SA ADR, a small but growing Brazilian airline. The Fund's largest losses during the year were in John B. Sanfilippo & Son, Inc. (food processing) and AU Optronics Corporation ADR (manufacturer of flat panel displays for televisions and computers). These securities are no longer held in the portfolio. On December 31, 2004, CGM Capital Development Fund's three largest industry positions were in the steel and telephone industries and in independent oil production. The Fund's three largest holdings were GOL Linhas Aereas Inteligentas S.A. ADR, Commercial Metals Company and Mobile TeleSystems OJSC ADR. /s/ Robert L. Kemp Robert L. Kemp President /s/ G. Kenneth Heebner G. Kenneth Heebner Portfolio Manager January 3, 2005 COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CGM CAPITAL DEVELOPMENT FUND AND THE UNMANAGED S&P 500 INDEX assuming reinvestment of dividends and capital gains - ---------------------------- CGM Capital Development Fund Average Annual Total Returns - ---------------------------- 1 year 5 year 10 year 18.2% 1.3% 10.8% - ---------------------------- Past performance is no indication of future results - ---------------------------- CGM S&P $10,000 $10,000 1995 14,110 13,750 1996 18,075 16,913 1997 22,395 22,561 1998 24,298 29,014 1999 26,169 35,107 2000 25,175 31,912 2001 19,259 28,114 2002 15,253 21,901 2003 23,657 28,187 2004 27,963 31,259 CGM CAPITAL DEVELOPMENT FUND PORTFOLIO MANAGER - -------------------------------------------------------------------------------- G. Kenneth Heebner has managed CGM Capital Development Fund since 1976. In 1990, Mr. Heebner founded Capital Growth Management Limited Partnership with Robert L. Kemp. Prior to establishing the new company, Mr. Heebner was at Loomis, Sayles and Company where he managed the Fund, then known as Loomis- Sayles Capital Development Fund. In addition to CGM Capital Development Fund, Mr. Heebner currently manages CGM Mutual Fund, CGM Realty Fund and CGM Focus Fund. - -------------------------------------------------------------------------------- See the Schedule of Investments on page 5 for the percentage of net assets of the Fund invested in particular industries or securities. INVESTMENT PERFORMANCE (unaudited) - -------------------------------------------------------------------------------- Cumulative Total Return for Periods Ended December 31, 2004 CGM CAPITAL DEVELOPMENT FUND ----------------- 10 Years .................................................. +179.7% 5 Years .................................................. + 6.9 1 Year ................................................... + 18.2 3 Months ................................................. + 9.6 The performance data contained in the report represent past performance, which is no guarantee of future results. The graph and table above do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares and assumes the reinvestment of all Fund distributions. The investment return and the principal value of an investment in the Fund will fluctuate so that investors' shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. CGM CAPITAL DEVELOPMENT FUND - -------------------------------------------------------------------------------- FUND EXPENSES As a shareholder of the Capital Development Fund, you incur two types of costs: (1) transaction costs, which could include, among other charges, wire fees and exchange fees for certain types of accounts and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2004 to December 31, 2004. ACTUAL RETURN AND EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------------------------------------------------------------------------ Beginning Ending Expenses Paid Account Value Account Value During Period* 7/01/04 12/31/04 7/01/04 - 12/31/04 - ------------------------------------------------------------------------ Actual $1,000.00 $1,176.00 $6.18 - ------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,019.46 $5.74 - ------------------------------------------------------------------------ * Expenses are equal to the Fund's annualized expense ratio of 1.13%, multiplied by the average account value over the period, multiplied by 184/ 366 (to reflect the one-half year period). CGM CAPITAL DEVELOPMENT FUND - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 25 YEAR INVESTMENT RECORD DECEMBER 31, 1979 -- DECEMBER 31, 2004 (UNAUDITED) - -------------------------------------------------------------------------------------------------------------------------------- IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1979 - -------------------------------------------------------------------------------------------------------------------------------- -- AND HAD TAKEN ALL DIVIDENDS OR -- HAD REINVESTED ALL DIVIDENDS AND CAPITAL AND DISTRIBUTIONS IN CASH GAINS DISTRIBUTIONS IN ADDITIONAL SHARES ------------------------------------------------------------------------------------------------------------------ During the Year You Would Have Received Which Would Represent ---------------------------------- ------------------------------------
The Value of A Cumulative The Net Your Original Change Asset Value Per Share Per Share Investment An Expressed On of Your Capital Gains Income At Each Annual As An Index With December Share Would Distributions Distributions Year End Total Return December 31, 31 Have Been of of Would Have Been of 1979 = 100.0 - -------------------------------------------------------------------------------------------------------------------------------- 1979 $16.20 100.0 1980 20.50 $ 1.65* $0.36 $ 23.15 + 42.9% 142.9 1981 17.34 3.38 0.36 24.19 + 4.5 149.3 1982 24.88 2.88 0.41 43.28 + 78.9 267.1 1983 25.21 2.50 0.47 50.03 + 15.6 308.8 1984 17.28 6.15 0.11 45.93 - 8.2 283.5 1985 25.02 -- 0.18 67.15 + 46.2 414.5 1986 23.12 7.46 0.16 86.22 + 28.4 532.2 1987 16.56 10.09 0.14 99.93 + 15.9 616.8 1988 15.87 0.02 0.62 99.63 - 0.3 614.9 1989 18.37 -- 0.34 117.46 + 17.9 725.0 1990 18.53 -- 0.10 119.10 + 1.4 735.2 1991 25.80 11.07* 0.06 237.13 + 99.1 1463.8 1992 27.43 2.68* 0.20 278.63 + 17.5 1720.0 1993 27.71 7.51 0.07 358.60 + 28.7 2213.6 1994 20.58 0.71 0.07 276.48 - 22.9 1706.7 1995 27.33 1.68 0.02 390.11 + 41.1 2408.2 1996 29.08 5.87 0.07 499.73 + 28.1 3084.9 1997 26.96 9.08 -- 619.17 + 23.9 3822.2 1998 24.95 4.19 0.11 671.80 + 8.5 4147.1 1999 26.20 0.56 0.11 723.53 + 7.7 4466.4 2000 25.12 -- 0.10 696.04 - 3.8 4296.7 2001 19.21 -- -- 532.47 - 23.5 3287.0 2002 15.22 -- -- 421.72 - 20.8 2603.3 2003 23.60 -- -- 654.09 + 55.1 4037.7 2004 27.89 -- -- 773.13 + 18.2 4772.6 ------ ----- ------- Totals $77.48 $4.06 +4672.6 - -------------------------------------------------------------------------------------------------------------------------------- * Includes $0.09, $0.02 and $0.02 per share distributed from paid-in capital. - -------------------------------------------------------------------------------------------------------------------------------- The performance data contained in this report represent past performance, which is no guarantee of future results. The table above does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The investment return and the principal value of an investment in the Fund will fluctuate so that investors' shares, when redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance data quoted.
CGM CAPITAL DEVELOPMENT FUND - -------------------------------------------------------------------------------------------------------------------------------- INVESTMENTS AS OF DECEMBER 31, 2004 COMMON STOCKS -- 99.7% OF TOTAL NET ASSETS
SHARES VALUE(a) ------ -------- AIRLINES -- 7.0% GOL Linhas Aereas Inteligentas S.A. ADR(b)(c) ................................................. 885,000 $ 28,213,800 ------------- CHEMICALS -- 4.8% Olin Corporation .............................................................................. 875,000 19,267,500 ------------- CONSUMER DURABLES -- 8.7% Thor Industries, Inc. ......................................................................... 605,000 22,415,250 Winnebago Industries, Inc. .................................................................... 320,000 12,499,200 ------------- 34,914,450 ------------- ENERGY -- 4.8% Peabody Energy Corporation .................................................................... 240,000 19,418,400 ------------- HEAVY CAPITAL GOODS -- 1.7% Oshkosh Truck Corporation ..................................................................... 100,000 6,838,000 ------------- HOUSING AND BUILDING MATERIALS -- 4.3% Hughes Supply, Inc. ........................................................................... 530,000 17,145,500 ------------- METALS AND MINING -- 5.0% Southern Peru Copper Corporation .............................................................. 420,000 19,828,200 ------------- MISCELLANEOUS -- 4.8% Sotheby Holdings, Inc.(c) ..................................................................... 1,060,000 19,249,600 ------------- OIL - INDEPENDENT PRODUCTION -- 9.4% Berry Petroleum Company ....................................................................... 285,000 13,594,500 Canadian Natural Resources Limited ............................................................ 249,000 10,649,730 Newfield Exploration Company(c) ............................................................... 225,000 13,286,250 ------------- 37,530,480 ------------- OIL - MAJOR INTEGRATED -- 4.7% Murphy Oil Corporation ........................................................................ 232,000 18,664,400 ------------- OIL SERVICE -- 4.4% Cal Dive International, Inc.(c) ............................................................... 430,000 17,522,500 ------------- OIL REFINING -- 4.6% Amerada Hess Corporation ...................................................................... 224,000 18,453,120 ------------- RETAIL -- 2.9% Children's Place Retail Stores, Inc.(c) ....................................................... 315,000 11,664,450 ------------- STEEL -- 21.2% Cleveland-Cliffs, Inc. ........................................................................ 190,000 19,733,400 Commercial Metals Company ..................................................................... 475,000 24,016,000 Mittal Steel Company N.V.(c) .................................................................. 595,000 22,996,750 Schnitzer Steel Industries, Inc. .............................................................. 535,000 18,152,550 ------------- 84,898,700 ------------- TELEPHONE -- 11.4% Mobile TeleSystems OJSC ADR(b)(d) ............................................................. 170,000 23,546,700 Open Joint Stock Company "Vimpel-Communications" ADR(b)(c)(d) ................................. 608,000 21,973,120 ------------- 45,519,820 ------------- TOTAL COMMON STOCKS (Identified Cost $333,632,789) ......................................................... 399,128,920 ------------- FACE AMOUNT ------ SHORT-TERM INVESTMENT -- 0.5% American Express Credit Corporation, 1.9%, 1/03/05 (Cost $2,200,000) ...................... $ 2,200,000 2,200,000 ------------- TOTAL INVESTMENTS -- 100.2% (Identified Cost $335,832,789)(e) ................................................. 401,328,920 Cash and receivables ....................................................................................... 1,466,434 Liabilities ................................................................................................ (2,446,599) ------------- TOTAL NET ASSETS -- 100.0% .................................................................................... $ 400,348,755 ============= (a) See Note 1A. (b) An American Depositary Receipt (ADR) is a certificate issued by a U.S. bank representing the right to receive securities of the foreign issuer described. The values of ADRs are significantly influenced by trading on exchanges not located in the United States or Canada. (c) Non-income producing security. (d) The Fund has approximately 11% of its net assets at December 31, 2004 invested in companies incorporated in the Russian Federation. (e) Federal Tax Information: At December 31, 2004 the net unrealized appreciation on investments based on cost of $336,533,358 for Federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost .................................................................................................... $65,392,903 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value .................................................................................................. (597,341) ------------- Net unrealized appreciation ................................................................................... $64,795,562 ============= See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES December 31, 2004 ASSETS Investments at value (Identified cost -- $335,832,789) ........................... $401,328,920 Cash .............................................. 1,033 Receivable for: Securities sold ............... $1,222,042 Shares of the Fund sold ........................ 510 Dividends and interest 242,849 1,465,401 ---------- ------------ Total assets .................................. 402,795,354 ------------ LIABILITIES Payable for: Securities purchased .......... 1,486,897 Shares of the Fund redeemed .................... 525,628 Tax withholding liability 3,421 2,015,946 ---------- Accrued expenses: Management fees ............... 332,846 Trustees' fees ................ 15,229 Accounting and Administration .............. 6,824 Transfer agent fees ........... 19,919 Other expenses ................ 55,835 430,653 ---------- ------------ Total liabilities ............................. 2,446,599 ------------ NET ASSETS .......................................... $400,348,755 ============ Net Assets consist of: Capital paid-in ................................. $337,091,365 Accumulated net realized loss on investments ................................ (2,239,067) Net unrealized appreciation on investments and foreign currency transactions .................................. 65,496,457 ------------ NET ASSETS .......................................... $400,348,755 ============ Shares of beneficial interest outstanding, no par value ...................... 14,353,591 ============ Net asset value per share* ........................ $27.89 ====== *Shares of the Fund are sold and redeemed at net asset value ($400,348,755 / 14,353,591). See accompanying notes to financial statements. CGM CAPITAL DEVELOPMENT FUND - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS Year Ended December 31, 2004 INVESTMENT INCOME Income Dividends (net of withholding tax of $211,592) ............................... $3,877,730 Interest .................................... 21,077 ----------- 3,898,807 ----------- Expenses Management fees ............................. 3,623,397 Trustees' fees .............................. 58,580 Accounting and Administration ............... 58,618 Custodian ................................... 93,838 Transfer agent .............................. 129,632 Audit and tax services ...................... 38,000 Legal ....................................... 56,111 Printing .................................... 37,459 Registration ................................ 21,790 Miscellaneous ............................... 2,232 ----------- 4,119,657 ----------- Net investment loss .......................... (220,850) ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Net realized gain on investments and foreign currency transactions ............... 108,049,158 Net unrealized depreciation on investments and foreign currency transactions ................................ (44,857,849) ----------- Net gain on investments and foreign currency transactions ....................... 63,191,309 ----------- NET CHANGE IN ASSETS FROM OPERATIONS ................................... $62,970,459 =========== See accompanying notes to financial statements. CGM CAPITAL DEVELOPMENT FUND - ------------------------------------------------------------------------------------------------------------ STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, ----------------------------- 2004 2003 ------------- ------------- FROM OPERATIONS Net investment loss ........................................................ $ (220,850) $ (1,644,271) Net realized gain from investments and foreign currency transactions ....... 108,049,158 48,060,800 Unrealized appreciation (depreciation) ..................................... (44,857,849) 88,597,743 ------------- ------------- Change in net assets from operations ..................................... 62,970,459 135,014,272 ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from sale of shares ............................................... 4,782,667 2,561,863 Cost of shares redeemed .................................................... (36,425,296) (28,373,410) ------------- ------------- Change in net assets derived from capital share transactions ............... (31,642,629) (25,811,547) ------------- ------------- Total change in net assets ................................................. 31,327,830 109,202,725 NET ASSETS Beginning of period ........................................................ 369,020,925 259,818,200 ------------- ------------- End of period (including undistributed net investment income of $0 and $0 at December 31, 2004 and December 31, 2003, respectively) ................... $ 400,348,755 $ 369,020,925 ============= ============= NUMBER OF SHARES OF THE FUND: Issued from sale of shares ................................................. 195,724 140,277 Redeemed ................................................................... (1,477,851) (1,574,532) ------------- ------------- Net change ................................................................. (1,282,127) (1,434,255) ============= ============= See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND - ------------------------------------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 2004 2003 2002 2001 2000 For a share of the Fund outstanding throughout each period: Net asset value at the beginning of period ................. $23.60 $15.22 $19.21 $25.12 $26.20 ------ ------ ------ ------ ------ Net investment income (loss) ............................... (0.01)(a) (0.10)(a) (0.12)(a) (0.08)(b) 0.12(a) Net realized and unrealized gain (loss) on investments and foreign currency transactions ............................ 4.30 8.48 (3.87) (5.83) (1.10) ------ ------ ------ ------ ------ Total from investment operations ........................... 4.29 8.38 (3.99) (5.91) (0.98) ------ ------ ------ ------ ------ Dividends from net investment income ....................... -- -- -- -- (0.10) ------ ------ ------ ------ ------ Net increase (decrease) in net asset value ................. 4.29 8.38 (3.99) (5.91) (1.08) ------ ------ ------ ------ ------ Net asset value at end of period ........................... $27.89 $23.60 $15.22 $19.21 $25.12 ====== ====== ====== ====== ====== Total Return (%) ........................................... 18.2 55.1 (20.8) (23.5) (3.8) Ratios: Operating expenses to average net assets (%) ............... 1.14 1.17 1.15 1.12 1.10 Net investment income (loss) to average net assets (%) ..... (0.06) (0.56) (0.67) (0.38) 0.46 Portfolio turnover (%) ..................................... 263 305 209 283 334 Net assets at end of period (in thousands) ($).............. 400,349 369,021 259,818 353,365 523,854 (a) Per share net investment income (loss) has been calculated using the average shares outstanding during the period. (b) Per share net investment loss does not reflect the year's reclassification of permanent differences between book and tax basis net investment loss. See Note 1D. See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2004 1. The Fund is organized as a Massachusetts business trust under the laws of Massachusetts pursuant to an Agreement and Declaration of Trust. The Fund is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. Along with three other funds in a separate Trust, there are four CGM Funds. The Fund's objective is long-term capital appreciation. The Fund seeks to attain its objective by investing in the equity securities of a relatively small but diverse group of companies and industries. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. SECURITY VALUATION -- Equity securities are valued on the basis of valuations furnished by a pricing service, authorized by the Board of Trustees. The pricing service provides the last reported sale price for securities listed on a national securities exchange or, in the case of the NASDAQ national market system, the NASDAQ official closing price. For securities with no sale reported and in the case of over-the-counter securities not so listed, the last reported bid price is used. Short-term investments having a maturity of sixty days or less are stated at amortized cost, which approximates value. Other assets and securities which are not readily marketable will be valued in good faith at fair value using methods determined by the Board of Trustees. B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date net of applicable foreign taxes. Interest income is recorded on the accrual basis. Net gain or loss on securities sold is determined on the identified cost basis. C. FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute to its shareholders all of its taxable income and net realized capital gains, within the prescribed time period. Accordingly, no provision for federal income tax has been made. At December 31, 2004, there were capital loss carryovers available to offset future realized gains of $1,538,498 expiring in year 2010. During the year 2004 the Fund utilized $108,749,336 of capital loss carryovers. D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions are recorded by the Fund on the ex-dividend date. The classification of income and capital gains distributions is determined in accordance with income tax regulations. Distributions from net investment income and short-term capital gains are treated as ordinary income for income tax purposes. Permanent book and tax differences relating to shareholder distributions may result in reclassifications to paid-in capital or accumulated realized gain/loss. These differences are primarily related to net investment loss write off and foreign exchange gains/losses. Undistributed net investment income or accumulated net investment loss may include temporary book and tax differences such as tax deferral of losses on wash sales, which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. E. FOREIGN CURRENCY TRANSLATION -- All assets and liabilities initially expressed in terms of foreign currencies are translated into U.S. dollars. Transactions affecting statement of operations accounts and net realized gain/(loss) on investments are translated at the rates prevailing at the dates of the transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Reported net realized foreign exchange gains or losses arise from sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities at the end of the period, resulting from changes in the exchange rate. 2. INVESTMENT RISK -- There are certain additional risks involved in investing in foreign securities that are not inherent in investments in domestic securities. These risks may involve adverse political and economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times more volatile than securities of comparable U.S. companies and U.S. securities markets. 3. PURCHASES AND SALES OF SECURITIES -- For the period ended December 31, 2004, purchases and sales of securities other than United States government obligations and short-term investments aggregated $954,892,244 and $986,481,989, respectively. There were no purchases or sales of United States government obligations. 4. A. MANAGEMENT FEES -- During the period ended December 31, 2004, the Fund incurred management fees of $3,623,397 paid or payable to the Fund's investment adviser, Capital Growth Management Limited Partnership (CGM), certain officers and directors of which are also officers and trustees of the Fund. The management agreement provides for a fee at the annual rate of 1.00% on the first $500 million of the Fund's average daily net assets, 0.95% of the next $500 million and 0.80% of such assets in excess of $1 billion. B. OTHER EXPENSES -- CGM performs certain administrative, accounting, compliance and other services for the Fund. The expenses of those services, which are paid to CGM by the Fund, include the following: (i) expenses for personnel performing bookkeeping, accounting, and financial reporting functions and clerical functions relating to the Fund; (ii) expenses for services required in connection with the preparation of registration statements and prospectuses, shareholder reports and notices, proxy solicitation material furnished to shareholders of the Fund or regulatory authorities and reports and questionnaires for SEC compliance; (iii) registration, filing and other fees in connection with requirements of regulatory authorities; and (iv) compliance in connection with the Sarbanes Oxley Act of 2002. The Accounting and Administration expense of $58,618, for the period ended December 31, 2004, is shown separately in the financial statements. C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation directly to its officers or to any trustees who are directors, officers or employees of CGM, or any affiliate of CGM (other than registered investment companies). For the period ended December 31, 2004, each disinterested trustee was compensated by the CGM Funds with an annual fee of $50,000 plus travel expenses for each meeting attended. The trustees are responsible for the audit committee functions of the Funds and have designated a chairman to oversee these functions who receives an additional $30,000 annually. Of these amounts, each fund is responsible for $7,000 per trustee annually, plus an annual variable fee calculated based on the proportion of each fund's average net assets relative to the aggregate average net assets of the CGM Funds. CGM CAPITAL DEVELOPMENT FUND - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders of CGM Capital Development Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights presents fairly, in all material respects, the financial position of CGM Capital Development Fund (the "Fund") at December 31, 2004, the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts February 16, 2005 CGM CAPITAL DEVELOPMENT FUND - -------------------------------------------------------------------------------- RESULTS OF SPECIAL MEETING OF SHAREHOLDERS (UNAUDITED) On November 19, 2004, a special meeting of the shareholders of the Fund was held for the purpose of asking shareholders to consider the following proposals, which are more fully described in the Proxy Statement dated September 27, 2004: PROPOSAL 1: To elect Mark W. Holland a Trustee of the Fund. Number of Shares ---------------- For Withheld --- -------- 7,710,365.7770 405,203.6020 PROPOSAL 2: To authorize the Trustees of the Fund to adopt an Amendment to the Declaration of Trust of the Fund. Number of Shares ---------------- For Against Abstain --- ------- ------- 7,585,918.6230 270,771.6150 258,879.1410 PROPOSAL 3: To approve a new Advisory Agreement between Capital Growth Management Limited Partnership and the Fund. Number of Shares ---------------- For Against Abstain --- ------- ------- 7,420,650.6550 402,907.3880 273,520.6840 Mark W. Holland was elected a trustee of the Fund at the special meeting on November 19, 2004. The other trustees of the Fund whose terms of office as trustees continued after the special meeting are G. Kenneth Heebner, Robert L. Kemp, Peter O. Brown, Laurens MacLure, James Van Dyke Quereau, Jr., and J. Baur Whittlesey. CGM CAPITAL DEVELOPMENT FUND - ----------------------------------------------------------------------------------------------------------------------------------- The Fund is supervised by the board of trustees (the "Board") of the Trust. The Board is responsible for the general oversight of the Fund, including general supervision and review of the Fund's investment activities. The Board, in turn, elects the officers who are responsible for administering the Fund's day-to-day operations. An asterisk in the table below identifies those trustees and officers who are "interested persons" of the Trust as defined in the Investment Company Act of 1940. Each trustee and officer of the Trust noted as an interested person is interested by virtue of that individual's position with Capital Growth Management Limited Partnership ("CGM"), the Fund's investment adviser, as described in the table below. Each trustee serves during the continued lifetime of the Trust or until he earlier dies, resigns or is removed, or if sooner, until the election and qualification of his successor. Each officer serves until his or her successor is elected or qualified or until the officer sooner dies, resigns, or is removed or becomes disqualified. The trustees and officers of the Trust, their ages, their principal occupations during the past five years, the number of CGM Funds they oversee, and other directorships they hold are set forth below. Unless otherwise noted below, the address of each interested trustee and officer is One International Place, Boston, Massachusetts 02110. Correspondence intended for the trustees who are not "interested persons" of the Trust may be sent c/o Capital Growth Management, One International Place, Boston, Massachusetts 02110. The Statement of Additional Information for the Fund includes additional information about Fund trustees and is available, without charge, upon request by calling the CGM Marketing Department, toll free, at 800-345-4048.
NUMBER OF FUNDS IN THE PRINCIPAL OCCUPATION DURING CGM FUNDS POSITION HELD AND PAST 5 YEARS AND COMPLEX NAME, ADDRESS AND AGE LENGTH OF TIME SERVED OTHER DIRECTORSHIPS HELD OVERSEEN - --------------------- --------------------- ------------------------ -------- INTERESTED TRUSTEES G. Kenneth Heebner* Trustee since 1993 Employee, CGM; Part Owner, Kenbob, Inc. 4 age 64 (managing partner of CGM) Robert L. Kemp* Trustee since 1990 Employee, CGM; Part Owner, Kenbob, Inc. 4 age 72 (managing partner of CGM) DISINTERESTED TRUSTEES Peter O. Brown Trustee since 1993 Counsel (formerly, Partner), Harter, 4 age 64 Secrest & Emery LLP (law firm); Trustee, TT International U.S.A. Master and Feeder Trusts (four mutual funds) Mark W. Holland Trustee since 2004 President, Wellesley Financial Advisors, 4 age 55 LLC; formerly Vice President and Chief Operating Officer, Fixed Income Management, Loomis, Sayles & Company L.P.; formerly Director, Loomis, Sayles & Company L.P. Laurens MacLure Trustee since 1990 Retired; formerly President and Chief 4 age 79 Executive Officer, New England Deaconess Hospital; formerly Trustee, New England Zenith Fund; formerly Director, Massachusetts Blue Cross/Blue Shield James Van Dyke Quereau, Jr. Trustee since 1993 Managing Partner and Director, Stratton 4 age 56 Management Company (investment management); Director and Vice President, Semper Trust Co. J. Baur Whittlesey Trustee since 1990 Member, Ledgewood Law Firm, P.C. 4 age 58 OFFICERS G. Kenneth Heebner* Vice President since 1990 Employee, CGM; Part Owner, Kenbob, Inc. 4 age 64 (managing partner of CGM) Robert L. Kemp* President since 1990 Employee, CGM; Part Owner, Kenbob, Inc. 4 age 72 (managing partner of CGM) David C. Fietze* Chief Compliance Officer since Employee - Legal counsel, CGM; formerly 4 age 35 2004 counsel, Bartlett Hackett Feinberg, P.C.; address: formerly counsel, McLane, Graf, Raulerson 222 Berkeley Street, & Middleton Boston, Massachusetts 02116 Kathleen S. Haughton* Vice President since 1992 Employee - Investor Services Division, CGM 4 age 44 and Anti-Money Laundering address: Compliance Officer since 2002 222 Berkeley Street, Boston, Massachusetts 02116 Jem A. Hudgins* Treasurer since 2004 Employee - CGM; formerly Vice President - 4 age 41 Tax and Treasury, AEW Capital Management L.P. Leslie A. Lake* Vice President and Secretary Employee - Office Administrator, CGM 4 age 59 since 1992 Martha I. Maguire* Vice President since 1994 Employee - Funds Marketing, CGM 4 age 49 Mary L. Stone* Assistant Vice President since Employee - Portfolio Transactions, CGM 4 age 60 1990 W. Dugal Thomas* Vice President since 1992 Employee - Director of Marketing, CGM 4 age 67
INVESTMENT ADVISER CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP Boston, Massachusetts 02110 TRANSFER AND DIVIDEND PAYING AGENT AND CUSTODIAN OF ASSETS STATE STREET BANK AND TRUST COMPANY Boston, Massachusetts 02102 SHAREHOLDER SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY BOSTON FINANCIAL DATA SERVICES, INC. P.O. Box 8511 Boston, Massachusetts 02266-8511 - ------------------------------------------------------------------------------- TELEPHONE NUMBERS For information about: [ ] Account Procedures and Status [ ] Redemptions [ ] Exchanges Call 800-343-5678 [ ] New Account Procedures [ ] Prospectuses [ ] Performance [ ] Proxy Voting Policies and Voting Records [ ] Complete Schedule of Portfolio Holdings for the 1st & 3rd Quarters Call 800-345-4048 Proxy voting policies and information regarding how the Fund voted proxies relating to portfolio securities during the twelve month period ended June 30, 2004 are available without charge, upon request. The policies also appear in the Fund's Statement of Additional Information, which can be found on the SEC's website, http://www.sec.gov. The voting records can also be found on the SEC's website on the N- PX filing. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. - ------------------------------------------------------------------------------- MAILING ADDRESS CGM Shareholder Services c/o Boston Financial Data Services P.O. Box 8511 Boston, MA 02266-8511 - ------------------------------------------------------------------------------- This report has been prepared for the shareholders of the Fund and is not authorized for distribution to current or prospective investors in the Fund unless it is accompanied or preceded by a prospectus. CAR 04 Printed in U.S.A. ITEM 2. CODE OF ETHICS. CGM Capital Development Fund, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant's principal executive officer and principal financial officer (the "Code"). The Code is filed herewith as Exhibit 99.CODE ETH. There were no amendments to the Code during the fiscal year ended December 31, 2004. There were no waivers or implicit waivers from the Code granted by the registrant during the fiscal year ended December 31, 2004. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. CGM Capital Development Fund's Board of Trustees has determined that it has at least one audit committee financial expert serving on its audit committee. The name of the audit committee financial expert is James Van Dyke Quereau, Jr. James Van Dyke Quereau, Jr. is "independent" as defined in Item 3(a)(2) of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fee: The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of CGM Capital Development Fund's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements are the following: 2003 - $26,750 and 2004 - $26,750. (b) Audit-Related Fees: The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of CGM Capital Development Fund's financial statements and are not reported under paragraph (a) of this Item are the following: 2003 - $0 and 2004 - $0. (c) Tax Fees: The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are the following: 2003 - $3,500 and 2004 - $3,500. The nature of the services comprising the fees disclosed under this category is tax compliance related to the preparation and review of 2003 and 2004 federal income and excise tax returns and review of excise tax distribution requirements. (d) All Other Fees: The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are the following: 2003 - $0 and 2004 - $0. (e) (1) The audit committee's pre-approval policies and procedures: The Trustees Committees of the Boards of Trustees of the Capital Development Fund and the CGM Trust (the "Trustees Committees") are required to pre-approve (i) all audit services, tax services and permitted non-audit services provided by PricewaterhouseCoopers LLP or any other independent public accountant engaged by the CGM Capital Development Fund and CGM Trust (together, the "Trusts") and (ii) any engagement of PricewaterhouseCoopers LLP to provide non-audit services to (a) Capital Growth Management Limited Partnership ("CGM"), and (b) any entity controlling, controlled by, or under common control with CGM that provides ongoing services to the CGM Capital Development Fund or the CGM Trust (together, the "Trusts") if the engagement relates directly to the operations and financial reporting of the Trusts. The Trustees Committees review each necessary pre-approval on a case by base basis and have not adopted any pre-approval policies and procedures in accordance with paragraph (c)(7) of Regulation S-X. (2) 0% of services described in each of paragraphs (b)through(d) of this Item were approved by the Trustees Committees pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) Not applicable. (g) The aggregate non-audit fees billed by CGM Capital Development Fund's accountant for services rendered to (i) CGM Capital Development Fund, (ii) CGM, and any entity controlling, controlled by, or under common control with CGM that provides ongoing services to the CGM Capital Development Fund for each of the last two fiscal years of the CGM Capital Development Fund are the following: 2003 - $3,500 and 2004 - $3,500. (h) There were no non-audit services that were rendered to CGM or any entity controlling, controlled by, or under common control with CGM that provides ongoing services to CGM Capital Development Fund that were not pre-approved pursuant to paragraph (c)(7)(ii) or Rule 2-01 of Regulation S-X, thus no consideration by the Trustees Committees was necessary to determine if services were compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Not applicable. Investments in securities of unaffiliated issuers as of December 31, 2004, as set forth in 210.12-12 of Regulation S-X,is included as part of the report to shareholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. As described in the CGM Capital Development Fund's most recent proxy statement on Schedule 14A filed on September 24, 2004, the CGM Capital Development Fund does not have a formal policy for considering any trustee candidates recommended by shareholders. ITEM 11. CONTROLS AND PROCEDURES. (a) Based on their evaluation of the CGM Capital Development Fund's disclosure controls and procedures within 90 days of the filing of this Form N-CSR, the principal executive officer and principal financial officer of CGM Capital Development Fund have concluded that the CGM Capital Development Fund's disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the CGM Capital Development Fund on Form N-CSR and Form N-Q is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. (b) There were no changes in CGM Capital Development Fund's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the CGM Capital Development Fund's second fiscal quarter of the period covered by this report. ITEM 12. EXHIBITS. (a)(1) Code of ethics described in Item 2 is attached hereto as EX-99.CODE ETH. (a)(2) Certifications for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940 are attached hereto as EX-99.CERT. (b) Certifications for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(b) under the Investment Company Act of 1940 are attached hereto as EX-99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CGM Capital Development Fund By: /S/Robert L. Kemp Robert L. Kemp President Principal Executive Officer Date: February 23, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /S/ Robert L. Kemp Robert L. Kemp President Principal Executive Officer Date: February 23, 2005 By: /S/ Jem A. Hudgins Jem A. Hudgins CFO & Treasurer Principal Financial Officer Date: February 23, 2005 EX-99.CERT 2 ex99_cert-62058.txt CERTIFICATION EX-99.CERT Registrant Name: CGM Capital Development Fund File Number: 811-00933 Registrant CIK Number: 0000060332 Certifications: I, Robert L. Kemp, certify that: 1. I have reviewed this report on Form N-CSR of CGM Capital Development Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 23, 2005 /s/ Robert L. Kemp Robert L. Kemp President Principal Executive Officer I, Jem A. Hudgins, certify that: 1. I have reviewed this report on Form N-CSR of CGM Capital Development Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 23, 2005 /s/ Jem A. Hudgins Jem A. Hudgins CFO & Treasurer Principal Financial Officer EX-99.906 CERT 3 ex99_906cert-62058.txt 906 CERTIFICATION EX-99.906CERT Registrant Name: CGM Capital Development Fund File Number: 811-00933 Registrant CIK Number: 0000060332 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned officers of the CGM Capital Development Fund (the "Registrant "), with respect to the Registrant's Form N-CSR for the six-month period ended December 31, 2004 as filed with the Securities and Exchange Commission, each hereby certify that, to the best of such officer's knowledge: 1. the Registrant's Form N-CSR fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in such Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: February 23, 2005 /s/ Robert L. Kemp Robert L. Kemp President Principal Executive Officer Date: February 23, 2005 /s/ Jem A. Hudgins Jem A. Hudgins CFO & Treasurer Principal Financial Officer This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. 1350 and is not being filed as part of the Form N-CSR filed with the Commission. EX-99.CODE ETH 4 ex99_ethics-62058.txt CODE OF ETHICS EX-99.CODE ETH CGM FOCUS FUND CGM REALTY FUND CGM MUTUAL FUND CGM CAPITAL DEVELOPMENT FUND (Each a "Fund," collectively the "Funds") CODE OF ETHICS UNDER THE SARBANES-OXLEY ACT I. INTRODUCTION The Board of Trustees of the Funds has established this Code of Ethics (the "Code") in accordance with the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. This Code does not supersede or otherwise affect the separate codes of ethics that the Funds and the investment adviser of the Funds have adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended (the "1940 Act"). This Code is designed to deter wrongdoing and promote: (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate, timely, and understandable disclosure in reports and documents that the Funds file with, or submit to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Funds; (iii) compliance with applicable governmental laws, rules, and regulations; (iv) the prompt internal reporting of violations of the Code to an appropriate person or persons; and (v) accountability for adherence to the Code. The Code applies to the Funds' principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Funds or a third party (collectively, "Covered Officers," each of whom is set forth in Exhibit A). For the purposes of this Code, the Review Officer is David Fietze. II. PRINCIPLES OF HONEST AND ETHICAL CONDUCT A. General Objectives The Funds expect their Covered Officers to adhere to the highest possible standards of honest and ethical conduct. All Covered Officers are expected to handle actual or apparent conflicts of interest between personal and professional relationships in a manner that is above reproach, and to place the interests of the Funds above their own personal interests. B. Conflicts of Interest All Covered Officers should be scrupulous in avoiding a conflict of interest with regard to the Funds' interests. A conflict of interest occurs when an individual's private interest interferes in any way -- or even appears to interfere -- with the interests of a Fund. A conflict situation can arise when a Covered Officer takes actions or has interests that may make it difficult to perform his or her work for a Fund objectively and effectively. Conflicts of interest also arise when a Covered Officer, or a member of his or her family, receives improper benefits as a result of his or her position with the Funds, whether such benefits are received from the Funds or a third party. ANY CONFLICT OF INTEREST THAT ARISES IN A SPECIFIC SITUATION OR TRANSACTION MUST BE DISCLOSED BY THE COVERED OFFICER TO THE REVIEW OFFICER AND RESOLVED BEFORE TAKING ANY ACTION. Conflicts of interest may not always be evident, and Covered Officers should consult with the Review Officer or the Funds' legal counsel if they are uncertain about any situation. Examples of possible conflicts of interest include: 1. Outside Employment or Activities Covered Officers may not engage in any outside employment or activity that interferes with their performance or responsibilities to the Funds or is otherwise in conflict with or prejudicial to the Funds. A Covered Officer must disclose to the Review Officer any outside employment or activity that may constitute a conflict of interest and obtain the Review Officer's approval before engaging in any such employment or activity. 2. Gifts Covered Officers may not accept gifts or other items of more than $250. value annually from any person or entity that does business with or on behalf of the Funds. 3. Other Situations Because other conflicts of interest may arise, it would be impractical to attempt to list all possible situations in this Code. If a proposed transaction or situation raises any questions or doubts, a Covered Officer should consult with the Review Officer or the Funds' counsel before engaging in the transaction or activity. C. Corporate Opportunities Covered Officers may not exploit for their own personal gain, or for the personal gain of their family members or relatives, opportunities that are discovered through the use of Fund property, information, or position, unless the opportunity is first disclosed fully in writing to the Board of Trustees and the Board of Trustees declines to pursue such opportunity. III. FULL, FAIR, ACCURATE, TIMELY, AND UNDERSTANDABLE DISCLOSURE IN FUND DISCLOSURE AND REPORTING DOCUMENTS As a registered investment company, it is of critical importance that each Fund's public communications, reports, and SEC filings contain full, fair, accurate, timely, and understandable disclosure. Accordingly, the Funds' Covered Officers are expected to consider it central to their roles as officers of the Funds to promote full, fair, accurate, timely, and understandable disclosure in the Funds' public communications and reports, and in the documents that the Funds file with, or submit to, the SEC. Depending on his or her position with the Funds, a Covered Officer may be called upon to provide necessary information to make the Funds' public reports, communications, and SEC filings and submissions complete, fair, and understandable. The Funds expect their Covered Officers to take this responsibility very seriously and to provide prompt and accurate answers to inquiries related to the Funds' public disclosure requirements. Covered Officers may be asked to certify the accuracy of all responses and information provided for inclusion in the Funds' public reports, communications, and SEC filings and submissions. IV. COMPLIANCE WITH APPLICABLE GOVERNMENTAL RULES AND REGULATIONS As a registered investment company, each Fund is subject to regulation by the SEC and must comply with Federal securities laws and regulations, as well as other applicable laws. The Funds insist on strict compliance with the spirit and the letter of these laws and regulations. Each Covered Officer shall cooperate with the Funds' counsel, the Funds' independent accountants, and the Funds' other service providers with the goal of maintaining the Funds' material compliance with applicable governmental rules and regulations. The Funds expect their Covered Officers to comply with all laws, rules, and regulations applicable to the Funds' operations and business. Covered Officers should seek guidance whenever they are in doubt as to the applicability of any law, rule, or regulation, or regarding any contemplated course of action. Covered Officers should also make use of the various guidelines which the Funds and their service providers have prepared on specific laws and regulations. IF IN DOUBT ON A COURSE OF ACTION, A GOOD GUIDELINE IS "ALWAYS ASK FIRST, ACT LATER" -- IF YOU ARE UNSURE OF WHAT TO DO IN ANY SITUATION, SEEK GUIDANCE BEFORE YOU ACT. Upon obtaining knowledge of any material violation of any applicable law, rule, or regulation by a Fund or a person acting with or on behalf of a Fund, a Covered Officer shall report such violation to the Review Officer, the Funds' counsel, or both. (See Section VI of the Code for a discussion of reporting Code violations.) Each Covered Officer shall cooperate or take such steps as may be necessary or appropriate to remedy any such material violation. V. CONFIDENTIALITY The Funds' Covered Officers must maintain the confidentiality of information entrusted to them by the Funds, except when disclosure is authorized by the Funds' counsel or required by laws or regulations. Whenever possible, Covered Officers should consult with the Funds' counsel if they believe they have a legal obligation to disclose confidential information. Confidential information includes all non-public information that might be of use to competitors or harmful to the Funds or their shareholders if disclosed. The obligation to preserve confidential information continues even after employment as a Covered Officer ends. VI. PROMPT INTERNAL REPORTING OF VIOLATIONS OF THE CODE; EVALUATION OF POSSIBLE VIOLATIONS; DETERMINATION OF SANCTIONS A. Reporting to Review Officer. The Funds' Covered Officers shall promptly report knowledge of, or information concerning, any material violation of this Code to the Review Officer. Any such report shall be in writing, and shall describe in reasonable detail the conduct that such Covered Officer believes to have violated this Code. The Review Officer shall also have the authority to draft a report of a suspected material violation of the Code, if no written report is made by a Covered Officer. B. Evaluation of Reports. The Review Officer shall then consult with the Funds' counsel to the extent necessary to determine whether the reported conduct actually violates the Code. If it is determined that there has been a violation of the Code, the Review Officer will determine (in consultation with the Funds' counsel) whether the violation has had or may have, in the reasonable judgment of the Review Officer, a material adverse impact upon a Fund. 1. No Material Adverse Impact on a Fund. If the Review Officer determines that the violation has not caused a material adverse impact upon a Fund, the Review Officer shall determine what sanctions, if any, may be appropriate for the violation. (See Section VIII of the Code for a discussion of possible sanctions.) 2. Material Adverse Impact on a Fund. If the Review Officer determines that the violation has caused a material adverse impact upon a Fund, the Review Officer shall promptly notify the Board of such violation. The Board shall be entitled to consult with independent legal counsel to determine whether the violation actually has had a material adverse impact upon a Fund; to formulate sanctions, if any, appropriate for the violation; or for any other purpose that the Board, in its business judgment, determines to be necessary or advisable. (See Section VIII of the Code for a discussion of possible sanctions.) C. Periodic Reports by Review Officer to Board of Trustees. The Review Officer shall report to the Board at each regularly scheduled Board meeting all violations of this Code with respect to the Funds (whether or not they caused a material adverse impact upon a Fund) and all sanctions imposed. VII. WAIVERS OF PROVISIONS OF THE CODE A. Waivers. A Covered Officer may request a waiver of a provision of this Code if there is a reasonable likelihood that a contemplated action would be a material departure from a provision of the Code. Waivers will not be granted except under extraordinary or special circumstances. The process of requesting a waiver shall consist of the following steps: a. The Covered Officer shall set forth a request for waiver in writing and submit such request to the Review Officer. The request shall describe the conduct, activity, or transaction for which the Covered Officer seeks a waiver, and shall briefly explain the reason for engaging in the conduct, activity, or transaction. b. The determination with respect to the waiver shall be made in a timely fashion by the Review Officer, in consultation with Funds' counsel, and submitted to the Board for ratification. c. The decision with respect to the waiver request shall be documented and kept in the Funds' records for the appropriate period mandated by applicable law or regulation. B. Disclosure of Waivers. To the extent required by applicable law, waivers (including "implicit waivers") shall be publicly disclosed on a timely basis. An "implicit waiver" is defined as the Funds' failure to take action within a reasonable period of time regarding a material departure from a provision of the Code that has been made known to an "executive officer" of the Funds. For this purpose, an "executive officer" is the Funds' President or Chief Executive Officer, Vice President (who is in charge of a principal policymaking function), or any other person who performs similar policymaking functions for the Funds. For the purpose of determining whether an "implicit waiver" has occurred, if a material departure from a provision of the Code is known only by the Covered Officer who has caused the material departure, the material departure will not be considered to have been made known to an executive officer of the Funds. VIII. ACCOUNTABILITY FOR ADHERENCE TO THE CODE The matters covered in this Code are of the utmost importance to the Funds and their shareholders, and are essential to the Funds' ability to conduct their business in accordance with their stated values. The Funds' Covered Officers are expected to adhere to these rules in carrying out their duties for the Funds. The Funds will, if appropriate, take action against any of their Covered Officers whose actions are found to violate this Code. Sanctions for violations of the Code may include, among other things, a requirement that the violator undergo training related to the violation, a letter of sanction, the imposition of a monetary penalty, and/or suspension or termination of the employment of the violator. Where a Fund has suffered a loss because of violations of this Code or applicable laws, regulations, or rules, it may pursue its remedies against the individuals or entities responsible. IX. RECORDKEEPING A. General. Each Fund requires accurate recording and reporting of information in order to make responsible business decisions. Each Fund's books, records, accounts and financial statements must be maintained in reasonable detail, must appropriately reflect the Fund's transactions, and must conform both to applicable legal requirements and to the Fund's system of internal controls. B. Code of Ethics Records. A copy of this Code, any amendments hereto, and any reports or other records created in relation to waivers of or amendments to provisions of this Code shall be kept as records of the Funds for six years from the end of the fiscal year in which such document was created. Such records shall be furnished to the SEC or its staff upon request. X. AMENDMENTS TO THE CODE The Covered Officers and the Review Officer are encouraged to recommend improvements to this Code to the Board of Trustees. The Funds' Board may amend the Code in its discretion with respect to the Funds. In connection with any amendment to the Code, the Review Officer shall prepare a brief description of the amendment, in order that this description may be disclosed in accordance with applicable law and regulations. Any amendment requires the approval of a majority of the independent members of the Board as well as a majority of the overall Board. DATED: September 29, 2004 EXHIBIT A COVERED OFFICERS Principal Executive Officer Robert L. Kemp (President) - --------------------------- Principal Financial Officer Jem Hudgins (Treasurer) - --------------------------- -----END PRIVACY-ENHANCED MESSAGE-----