-----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, B53mIDuCGUZmCzTsCbJYQoyWNknyGSnFrYsu/GBp6vE7oRZZThi1TEqaciPINrXz Tma6ho9txMjiXX8MATkoOw== 0000950156-08-000076.txt : 20080222 0000950156-08-000076.hdr.sgml : 20080222 20080222092413 ACCESSION NUMBER: 0000950156-08-000076 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20071231 FILED AS OF DATE: 20080222 DATE AS OF CHANGE: 20080222 EFFECTIVENESS DATE: 20080222 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: 08634738 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 0000060332 S000000890 CGM CAPITAL DEVELOPMENT FUND C000002532 CGM CAPITAL DEVELOPMENT FUND LOMCX N-CSR 1 d69077.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) 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: December 31, 2007 ----------------- ITEM 1. REPORTS TO STOCKHOLDERS. CGM CAPITAL DEVELOPMENT FUND 47th Annual Report December 31, 2007 A No-Load Fund [Graphic Omitted] Investment Adviser CAPITAL GROWTH MANAGEMENT Limited Partnership TO OUR SHAREHOLDERS: - ------------------------------------------------------------------------------- CGM Capital Development Fund returned -2.8% during the fourth quarter of 2007 compared to the unmanaged Standard and Poor's 500 Index which returned -3.3% over the same period. For the year just ended, CGM Capital Development Fund returned 28.3% and the S&P 500 Index, 5.5%. THE YEAR IN REVIEW AND ECONOMIC OUTLOOK November marked the sixth anniversary of the U.S. economic expansion. Indeed, the longevity of the current economic cycle as well as the bull market in common stocks is testing historical records. Now, however, there are signs of slowdown on the business horizon as damage precipitated by past excesses in the housing market along with years of easy credit availability is corrected. Cheap money rates and the marketing of subprime mortgage loans mixed in with high-grade paper (packaged and sold as prime credits) have led to payment defaults on the consumer level and huge institutional losses. Home buyers were wooed with mortgages they couldn't afford, wrong-headedly assuming that rising home prices would bail them out. Instead home prices declined, loans went south and the financial institutions and investors who purchased mortgage- backed securities took the hit. Billions in assets have been and continue to be written off as worthless while many banks and other financial entities scramble to raise capital to shore up balance sheets. Well-publicized losses have already cost top jobs at both Citigroup and Merrill Lynch and still the full extent of the devastation is unclear since no one really knows the value of many of these esoteric packages of now delinquent mortgages. The Federal Reserve Board has taken several steps to encourage borrowing and inject liquidity into the market which we hope will stabilize the credit markets. For the moment though, the uncertainty has spawned a flight to quality in the bond market driving yields on the 10-year government bond from 5.04% in June to 4.03% at year end. In addition to the credit crisis, a second troubling sign emerged today with the release of the Institute for Supply Management's index of manufacturing which dropped to 47.7 in December from 50.8 the month before, thereby confirming a slowdown. And, yet another uncertainty in the economic landscape is the enormous rise in the price of crude oil. The year began with crude at $50 a barrel and ended with it at $98. In the past, rising oil prices have acted like a large tax resulting in a pull back in consumer spending. This time around, the consumer appears to be a bit more resilient and so far, despite some spending cuts, the dire consequences of past predictions have yet to materialize. The credit crisis is serious and has wreaked havoc on many financial institutions. Manufacturing may well be slowing and the price of oil remains high. However, there are many sectors of the economy prospering at the same time. The annual GDP growth rate in the third quarter of 2007 was a hefty 4.9%. Businesses that supply global markets, rapidly developing countries like China, Brazil, Russia and India in particular, are faring well. The U.S. agricultural sector is booming and heavy capital industries, including aerospace and defense, are strong. The unemployment rate remains low, the S&P 500 Index closed the year off just 6% from its all-time high in October despite ongoing credit travails and the Fed continues to reduce short-term interest rates. We are hopeful the economy can weather current turbulence and resume a more measured growth pattern later in the new year. PORTFOLIO STRATEGY CGM Capital Development Fund remained fully invested throughout 2007 reflecting our expectation of continued global economic growth. The most significant industry position in the Fund's portfolio was energy which we increased during the year from 11% of the portfolio on December 31, 2006 to 24% of the portfolio at year end 2007. The Fund owned a selection of foreign and domestic small and mid-cap companies which benefited from the strength in the global economy. The Fund's three largest gains occurred in Cameron International Corporation, a manufacturer of equipment for offshore oil producing, Deckers Outdoor Corporation, a producer of UGG brand footwear, and Priceline.com Incorporated, a leading provider of online travel services. The portfolio's two largest price declines were experienced by the Men's Wearhouse, Inc., a men's clothing retailer, and IHOP Corp., the owner of the International House of Pancakes restaurant chain. On December 31, 2007, CGM Capital Development Fund held important positions in the oil service, metals and mining, and housing and building materials industries. The Fund's three largest stock holdings at year end were Cameron International Corporation, Deckers Outdoor Corporation and Priceline.com Incorporated. /s/ Robert L. Kemp Robert L. Kemp President /s/ G. Kenneth Heebner G. Kenneth Heebner Portfolio Manager January 2, 2008 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 through 12/31/07 - ------------------------------- 1 year 5 year 10 year 28.3% 25.6% 7.9% - ------------------------------- Past performance is no indication of future results - ------------------------------- Unmanaged CGM Capital S&P 500 Development Fund Index ------------------------------------------------- Start $10,000 $10,000 1998 10,850 12,860 1999 11,685 15,561 2000 11,241 14,145 2001 8,599 12,462 2002 6,810 9,708 2003 10,562 12,494 2004 12,484 13,856 2005 15,642 14,535 2006 16,627 16,832 2007 21,332 17,758 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 pages 3 and 4 for the percentage of net assets of the Fund invested in particular industries or securities as of December 31, 2007. INVESTMENT PERFORMANCE (unaudited) - ------------------------------------------------------------------------------- Cumulative Total Return for Periods Ended December 31, 2007 CGM CAPITAL DEVELOPMENT FUND ----------- 10 Years ................................................... +113.3% 5 Years ................................................... +213.0 1 Year .................................................... + 28.3 3 Months .................................................. - 2.8 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 assume 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 - ----------------------------------------------------------------------------------------------- INVESTMENTS AS OF DECEMBER 31, 2007 COMMON STOCKS -- 98.9% OF TOTAL NET ASSETS
SHARES VALUE(a) ------ -------- FOOD - PACKAGE AND MISCELLANEOUS -- 6.0% Wimm-Bill-Dann Foods OJSC ADR (b) ........................ 245,300 $ 32,144,112 ------------ HOUSING AND BUILDING MATERIALS -- 11.3% Desarrolladora Homex, S.A.B. de C.V. ADR (b)(c) .......... 550,000 27,197,500 NVR, Inc. (c) ............................................ 64,000 33,536,000 ------------ 60,733,500 ------------ LIGHT CAPITAL GOODS -- 5.4% The Middleby Corporation (c) ............................. 375,000 28,732,500 ------------ METALS AND MINING -- 16.9% Alpha Natural Resources, Inc. (c) ........................ 520,000 16,889,600 Foundation Coal Holdings, Inc. ........................... 575,000 30,187,500 Massey Energy Company .................................... 500,000 17,875,000 Patriot Coal Corporation (c) ............................. 620,000 25,878,800 ------------ 90,830,900 ------------ MISCELLANEOUS -- 4.9% Sotheby's ................................................ 690,000 26,289,000 ------------ OFFSHORE DRILLING -- 2.1% Atwood Oceanics, Inc. (c) ................................ 110,000 11,026,400 ------------ OIL - INDEPENDENT PRODUCTION -- 3.4% Berry Petroleum Company .................................. 415,000 18,446,750 ------------ OIL SERVICE -- 18.5% Cameron International Corporation (c) .................... 820,000 39,466,600 Dril-Quip, Inc. (c) ...................................... 485,000 26,995,100 Oceaneering International, Inc. (c) ...................... 490,000 33,001,500 ------------ 99,463,200 ------------ ON-LINE SERVICES -- 7.1% Priceline.com Incorporated (c) ........................... 330,000 37,903,800 ------------ PERIPHERALS -- 5.6% Western Digital Corporation (c) .......................... 1,000,000 30,210,000 ------------ RETAIL -- 5.4% The Pantry, Inc. (c) ..................................... 1,100,000 28,743,000 ------------ STEEL -- 5.1% Commercial Metals Company ................................ 920,000 27,094,000 ------------ TEXTILE AND APPAREL -- 7.2% Deckers Outdoor Corporation (c) .......................... 250,000 38,765,000 ------------ TOTAL COMMON STOCKS (Identified cost $454,928,969) ........................... 530,382,162 ------------ FACE AMOUNT ------ SHORT-TERM INVESTMENT -- 2.2% OF TOTAL NET ASSETS American Express Credit Corporation, 3.80%, 01/02/08 (Cost $11,595,000) ........................................... $11,595,000 11,595,000 ------------ TOTAL INVESTMENTS -- 101.1% (Identified cost $466,523,969) ................... 541,977,162 Cash and receivables ...................................................... 3,750,868 Liabilities ............................................................... (9,624,199) ------------ TOTAL NET ASSETS -- 100.0% ................................................... $536,103,831 ============ (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 - ----------------------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES December 31, 2007 ASSETS Investments at value (Identified cost -- $466,523,969) ..... $541,977,162 Cash ....................................................... 3,956 Receivable for: Securities sold ............................................ $3,674,087 Shares of the Fund sold .................................. 25,401 Dividends and interest ................................... 47,424 3,746,912 ---------- ------------ Total assets ........................................................... 545,728,030 ------------ LIABILITIES Payable for: Securities purchased ..................................... 8,635,874 Shares of the Fund redeemed .............................. 444,578 9,080,452 ---------- Accrued expenses: Management fees .......................................... 466,254 Trustees' fees ........................................... 10,694 Accounting, administration and compliance expenses ....... 8,536 Transfer agent fees ...................................... 18,444 Other expenses ........................................... 39,819 543,747 ---------- ------------ Total liabilities ...................................................... 9,624,199 ------------ NET ASSETS ................................................................... $536,103,831 ============ Net Assets consist of: Capital paid-in ............................................................ $460,715,579 Accumulated net realized losses on investments ............................. (64,941) Net unrealized appreciation on investments ................................. 75,453,193 ------------ NET ASSETS ................................................................... $536,103,831 ============ Shares of beneficial interest outstanding, no par value ...................... 19,022,637 ============ Net asset value per share* ................................................... $28.18 ====== * Shares of the Fund are sold and redeemed at net asset value ($536,103,831 / 19,022,637). See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND - ------------------------------------------------------------------------------- STATEMENT OF OPERATIONS Year Ended December 31, 2007 INVESTMENT INCOME Income: Dividends (net of withholding tax of $602,706) ............ $ 2,875,021 Interest .................................................. 244,131 ------------ 3,119,152 ------------ Expenses: Management fees ........................................... 5,307,240 Trustees' fees ............................................ 43,435 Accounting, administration and compliance expenses ........ 102,432 Custodian fees and expenses ............................... 106,910 Transfer agent fees ....................................... 125,931 Audit and tax services .................................... 38,300 Legal ..................................................... 15,557 Printing .................................................. 37,028 Registration fees ......................................... 26,331 Miscellaneous expenses .................................... 1,512 ------------ 5,804,676 ------------ Net investment loss ....................................... (2,685,524) ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gains on investments (including net realized loss of $12,908 on sales of investments in non-controlled affiliated issuers) ...................... 92,358,558 Net unrealized appreciation ............................... 36,733,226 ------------ Net realized and unrealized gains on investments .......... 129,091,784 ------------ CHANGE IN NET ASSETS FROM OPERATIONS ........................ $126,406,260 ============ See accompanying notes to financial statements. CGM CAPITAL DEVELOPMENT FUND - --------------------------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, ----------------------------------- 2007 2006 ------------ ------------ FROM OPERATIONS Net investment loss ...................................... $ (2,685,524) $ (3,081,298) Net realized gains from investments ...................... 92,358,558 67,208,466 Unrealized appreciation (depreciation) ................... 36,733,226 (34,882,718) ------------ ------------ Change in net assets from operations ................... 126,406,260 29,244,450 ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net short-term realized capital gains on investments ..... (64,853,777) (51,867,597) Net long-term realized capital gains on investments ...... (23,069,672) (13,096,951) ------------ ------------ (87,923,449) (64,964,548) ------------ ------------ FROM CAPITAL SHARE TRANSACTIONS Proceeds from sale of shares ............................. 6,820,907 3,675,833 Net asset value of shares issued in connection with reinvestment of: Distributions from net short-term realized capital gains on investments ................................. 56,416,804 44,224,486 Distributions from net long-term realized capital gains on investments ................................. 20,070,906 11,167,178 ------------ ------------ 83,308,617 59,067,497 Cost of shares redeemed .................................. (39,202,879) (30,658,918) ------------ ------------ Change in net assets derived from capital share transactions ......................................... 44,105,738 28,408,579 ------------ ------------ Total change in net assets ............................... 82,588,549 (7,311,519) NET ASSETS Beginning of period ...................................... 453,515,282 460,826,801 ------------ ------------ End of period ............................................ $536,103,831 $453,515,282 ============ ============ NUMBER OF SHARES OF THE FUND: Issued from sale of shares ............................... 218,643 120,293 Issued in connection with reinvestment of: Distributions from net short-term realized capital gains on investments ................................. 1,969,173 1,681,551 Distributions from net long-term realized capital gains on investments ................................. 700,555 424,614 ------------ ------------ 2,888,371 2,226,458 Redeemed ................................................. (1,247,975) (1,006,308) ------------ ------------ Net change ............................................... 1,640,396 1,220,150 ============ ============ See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND - ------------------------------------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------------- 2007 2006 2005 2004 2003 ------ ------ ------ ------ ------ 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 ------ ------ ------ ------ ------ Net investment loss (a) ....................... (0.16) (0.19) (0.16) (0.01) (0.10) Net realized and unrealized gains on investments and foreign currency transactions ................................ 7.62 2.02 7.23 4.30 8.48 ------ ------ ------ ------ ------ Total from investment operations .............. 7.46 1.83 7.07 4.29 8.38 ------ ------ ------ ------ ------ Distribution from net short-term realized gains ....................................... (3.96) (3.39) (4.27) -- -- Distribution from net long-term realized gains ....................................... (1.41) (0.86) (2.18) -- -- ------ ------ ------ ------ ------ Total distributions ........................... (5.37) (4.25) (6.45) -- -- ------ ------ ------ ------ ------ Net increase (decrease) in net asset value .... 2.09 (2.42) 0.62 4.29 8.38 ------ ------ ------ ------ ------ Net asset value at end of period .............. $28.18 $26.09 $28.51 $27.89 $23.60 ====== ====== ====== ====== ====== Total return (%) .............................. 28.3 6.3 25.3 18.2 55.1 Ratios: Operating expenses to average net assets (%) .. 1.09 1.11 1.12 1.14 1.17 Net investment loss to average net assets (%) . (0.50) (0.65) (0.52) (0.06) (0.56) Portfolio turnover (%) ........................ 232 300 211 263 305 Net assets at end of period (in thousands) ($) 536,104 453,515 460,827 400,349 369,021 (a) Per share net investment loss has been calculated using the average shares outstanding during the period. See accompanying notes to financial statements.
CGM CAPITAL DEVELOPMENT FUND - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2007 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 Massachusetts business 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, 2007, there were no capital loss carryovers available to offset future realized gains. As of December 31, 2007, the components of distributable earnings on a tax basis were as follows: UNDISTRIBUTED UNDISTRIBUTED LONG-TERM NET UNREALIZED ORDINARY INCOME CAPITAL GAINS APPRECIATION/(DEPRECIATION) --------------- ----------------------- --------------------------- $ -- $ -- $75,388,252 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 December 31, 2007 was as follows: GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED IDENTIFIED COST APPRECIATION DEPRECIATION APPRECIATION --------------- ---------------- ---------------- -------------- $466,588,910 $80,231,246 $(4,842,994) $75,388,252 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 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 years ended December 31, 2007 and 2006, were as follows: LONG-TERM YEAR ORDINARY INCOME CAPITAL GAINS TOTAL ---- --------------- ------------- ----- 2007 $64,853,777 $23,069,672 $87,923,449 2006 $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 foreign securities markets are less liquid and at times more volatile than securities of comparable U.S. companies and U.S. securities markets. 3. DIVERSIFICATION -- The Fund, although diversified, takes a focused approach to investing within a single industry, sector of the economy or fewer individual holdings than more diversified funds. Therefore, the Fund may be subject to greater price volatility or be adversely affected by the performance of particular industries, sectors, or individual holdings compared to the performance of a more diversified fund. 4. PURCHASES AND SALES OF SECURITIES -- For the period ended December 31, 2007, purchases and sales of securities other than United States government obligations and short-term investments aggregated $1,222,303,762 and $1,271,341,802, respectively. There were no purchases or sales of United States government obligations. 5. A. MANAGEMENT FEES -- During the period ended December 31, 2007, the Fund incurred management fees of $5,307,240, 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 Investment Company Act of 1940 and the Sarbanes Oxley Act of 2002. The accounting, administration and compliance expense of $102,432, for the period ended December 31, 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, $79,672 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 ended December 31, 2007, each disinterested trustee was 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. 6. AFFILIATED ISSUERS -- Affiliated issuers, as defined under the Investment Company Act of 1940, are those in which the Fund's holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. The following summarizes transactions with affiliates of the Fund during the period ended December 31, 2007
NUMBER OF NUMBER OF SHARES HELD GROSS GROSS SHARES HELD DIVIDEND MARKET VALUE NAME OF ISSUER DECEMBER 31, 2006 PURCHASES SALES DECEMBER 31, 2007 INCOME DECEMBER 31, 2007 - -------------- ----------------- --------- ----- ----------------- -------- ----------------- The Pantry, Inc.+* -- 1,150,000 (50,000) 1,100,000 $ -- $28,743,000 ==== =========== - ------------ + Non-income producing security. * No longer considered an affiliated issuer.
7. NEW ACCOUNTING PRONOUNCEMENTS -- The Fund adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109 ("FIN 48"), on January 1, 2007. FIN 48 prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The implementation of FIN 48 did not result in any unrecognized tax benefits in the accompanying financial statements. The Fund's federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. 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. 8. SUBSEQUENT EVENT -- On January 31, 2008, the Trustees of CGM Capital Development Fund approved an agreement and plan of reorganization pursuant to which all of the assets and liabilities of CGM Capital Development Fund will be acquired by CGM Focus Fund as part of a tax-free reorganization. This transaction is subject to CGM Capital Development Fund shareholder approval. Proxy materials regarding the reorganization of CGM Capital Development Fund into CGM Focus Fund will be distributed to CGM Capital Development shareholders in mid March 2008. 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 present fairly, in all material respects, the financial position of CGM Capital Development Fund (the "Fund") at December 31, 2007, 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, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. As noted in Note 8, the Board of Trustees have approved an agreement and plan of reorganization pursuant to which all of the assets and liabilities of the Fund will be acquired by CGM Focus Fund, subject to the Fund's shareholder approval. PricewaterhouseCoopers LLP Boston, Massachusetts February 15, 2008 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 1-800-345-3048. 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. 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. CGM CAPITAL DEVELOPMENT FUND - ------------------------------------------------------------------------------- FUND EXPENSES As a shareholder of CGM Capital Development Fund, you incur two types of costs: (1) transaction costs, which could include, among other charges, wire fees and custodial maintenance fees for certain types of accounts and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2007 to December 31, 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 custodial maintenance fees that may be payable. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------------------------------------------------------------------------------- Beginning Ending Expenses Paid Account Value Account Value During Period* 7/01/07 12/31/07 7/01/07 - 12/31/07 - ------------------------------------------------------------------------------- Actual $1,000.00 $1,026.10 $5.52 - ------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000.00 $1,019.76 $5.50 - ------------------------------------------------------------------------------- * Expenses are equal to the Fund's annualized expense ratio of 1.08%, multiplied by the average account value over the period, multiplied by 184/ 365 (to reflect the one-half year period). CGM CAPITAL DEVELOPMENT FUND - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 25 YEAR INVESTMENT RECORD DECEMBER 31, 1982 -- DECEMBER 31, 2007 (unaudited) - ----------------------------------------------------------------------------------------------------------------------------------- IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1982 - -----------------------------------------------------------------------------------------------------------------------------------
-- 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 1982 = 100.0 --------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------- 1982 $24.88 100.0 1983 25.21 $ 2.50 $0.47 $ 28.76 + 15.6% 115.6 1984 17.28 6.15 0.11 26.40 - 8.2 106.1 1985 25.02 -- 0.18 38.60 + 46.2 155.1 1986 23.12 7.46 0.16 49.56 + 28.4 199.1 1987 16.56 10.09 0.14 57.44 + 15.9 230.8 1988 15.87 0.02 0.62 57.27 - 0.3 230.1 1989 18.37 -- 0.34 67.52 + 17.9 271.3 1990 18.53 -- 0.10 68.47 + 1.4 275.1 1991 25.80 11.07* 0.06 136.32 + 99.1 547.7 1992 27.43 2.68* 0.20 160.18 + 17.5 643.5 1993 27.71 7.51 0.07 206.15 + 28.7 828.2 1994 20.58 0.71 0.07 158.94 - 22.9 638.5 1995 27.33 1.68 0.02 224.26 + 41.1 900.9 1996 29.08 5.87 0.07 287.28 + 28.1 1154.1 1997 26.96 9.08 -- 355.94 + 23.9 1429.9 1998 24.95 4.19 0.11 386.19 + 8.5 1551.4 1999 26.20 0.56 0.11 415.93 + 7.7 1670.9 2000 25.12 -- 0.10 400.12 - 3.8 1607.4 2001 19.21 -- -- 306.09 - 23.5 1229.7 2002 15.22 -- -- 242.42 - 20.8 973.9 2003 23.60 -- -- 375.99 + 55.1 1510.5 2004 27.89 -- -- 444.42 + 18.2 1785.4 2005 28.51 6.45 -- 556.86 + 25.3 2237.1 2006 26.09 4.25 -- 591.94 + 6.3 2378.0 2007 28.18 5.37 -- 759.46 + 28.3 3051.0 ------ ----- -------- Totals $85.64 $2.93 + 2951.0 --------------------------------------------------------------------------------------------------------------------------------- * 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 - ------------------------------------------------------------------------------- TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/2007 We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those elsewhere in this report because of differences between tax and financial reporting requirements. For the year ended December 31, 2007, the Fund designated $23,180,470 as long- term capital dividends. TRUSTEES AND OFFICERS 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 NAME, ADDRESS AND AGE POSITION HELD AND PAST 5 YEARS AND COMPLEX INTERESTED TRUSTEES LENGTH OF TIME SERVED OTHER DIRECTORSHIPS HELD OVERSEEN - ------------------- --------------------- --------------------------- ------------ G. Kenneth Heebner* Trustee since 1993 Co-founder and Employee, CGM; 4 age 67 Controlling Owner, Kenbob, Inc. (general partner of CGM) Robert L. Kemp* Trustee since 1990 Co-founder and Employee, CGM; 4 age 75 Non-voting Owner, Kenbob, Inc. (general partner of CGM) DISINTERESTED TRUSTEES Peter O. Brown Trustee since 1993 Counsel (formerly, Partner), 4 age 67 Harter, Secrest & Emery LLP (law firm); formerly Executive Vice President and Chief Operating Officer, The Glenmeade Trust Company (from 1990 to 1993); formerly Senior Vice President, J.P. Morgan Chase Bank (from 1981 to 1990); Trustee, TT International U.S.A. Master and Feeder Trusts (four mutual funds) from 2000- 2005 Mark W. Holland Trustee since 2004 President, Wellesley Financial 4 age 58 Advisors, LLC; formerly Vice President and Chief Operating Officer, Fixed Income Management, Loomis, Sayles & Company, L.P.; formerly Director, Loomis, Sayles & Company, L.P. James Van Dyke Quereau, Jr. Trustee since 1993 Managing Partner and Director, 4 age 59 Stratton Management Company (investment management); Director and Vice President, Semper Trust Co. until 2006 J. Baur Whittlesey Trustee since 1990 Member, Ledgewood, P.C. 4 age 61 (law firm) OFFICERS G. Kenneth Heebner* Vice President since 1990 Co-founder and Employee, CGM; 4 age 67 Controlling Owner, Kenbob, Inc. (general partner of CGM) Robert L. Kemp* President since 1990 Co-founder and Employee, CGM; 4 age 75 Non- voting Owner, Kenbob, Inc. (general partner of CGM) David C. Fietze* Chief Compliance Officer Employee - Legal counsel, CGM; 4 age 38 since 2004 formerly counsel, Bartlett address: Hackett Feinberg, P.C. 38 Newbury Street Boston, Massachusetts 02116 Kathleen S. Haughton* Vice President since 1992 Employee - Investor Services 4 age 47 and Anti-Money Division, CGM address: Laundering Compliance Officer 38 Newbury Street since 2002 Boston, Massachusetts 02116 Jem A. Hudgins* Treasurer since 2004 Employee - CGM 4 age 44 Leslie A. Lake* Vice President and Secretary Employee - Office Administrator, 4 age 62 since 1992 CGM Martha I. Maguire* Vice President since 1994 Employee - Funds Marketing, CGM 4 age 52 Mary L. Stone* Assistant Vice President Employee - Portfolio Transactions, 4 age 63 since 1990 CGM
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 - ------------------------------------------------------ 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. CAR 07 Printed in U.S.A. ITEM 2. CODE OF ETHICS. CGM Capital Development Fund 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 required to be disclosed in response to this Item 2 during the fiscal year ended December 31, 2007. There were no waivers or implicit waivers from the Code granted by the registrant during the fiscal year ended December 31, 2007. 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: 2006 - $30,600 and 2007 - $32,000. (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: 2006 - $0 and 2007 - $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: 2006 - $4,100 and 2007 - $4,300. The nature of the services comprising the fees disclosed under this category is tax compliance related to the preparation and review of 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: 2006 - $0 and 2007 - $0. (e) (1) The Trustees Committees of the Boards of Trustees of the apital 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 Trusts if the engagement relates directly to the operations and financial reporting of the Trusts. The Trustees Committees generally review each necessary pre-approval on a case by case basis. However, the Trustees Committees have authorized the President or Treasurer of each of the CGM Capital Development Fund and the CGM Trust, on behalf of its series (such series collectively with the Capital Development Fund, the "Funds"), to incur additional fees totaling in the aggregate not more than $7,500.00 for services relating to the audit of the Funds for the fiscal year ended December 31, 2007, the close-out of the 2007 accounts, calculation of year-end dividends, and/or related tax or accounting matters. (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 (iii)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: 2006 - $4,100 and 2007 - $4,300. (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) of 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, 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 last 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 22, 2008 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 22, 2008 By: /S/ Jem A. Hudgins Jem A. Hudgins CFO & Treasurer Principal Financial Officer Date: February 22, 2008 EX-99.CERT 2 ex99_cert-69077.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 last 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 22, 2008 /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 last 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 22, 2008 /s/ Jem A. Hudgins Jem A. Hudgins CFO & Treasurer Principal Financial Officer EX-99.906 CERT 3 ex99_906cert-69077.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 year ended December 31, 2007 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 22, 2008 /s/ Robert L. Kemp Robert L. Kemp President Principal Executive Officer Date: February 22, 2008 /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-69077.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, and Rule 204A-1 under the Investment Advisers Act of 1940, as amended. 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: October 27, 2005. EXHIBIT A COVERED OFFICERS Principal Executive Officer Robert L. Kemp (President) - --------------------------- Principal Financial Officer Jem Hudgins (Treasurer) - --------------------------- -----END PRIVACY-ENHANCED MESSAGE-----