<PAGE>
File Nos. 2-16252
811-933
As filed with the Securities and Exchange Commission on April 30, 1999
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 65 [X]
and
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 33 [X]
CGM CAPITAL DEVELOPMENT FUND
(Exact Name of Registrant as Specified in Charter)
One International Place, Boston, Massachusetts 02110
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 737-3225
Jeremiah J. Bresnahan, Jr., Esq.
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
(Name and Address of Agent for Service)
It is proposed that this filing will become effective on May 1, 1999,
pursuant to paragraph (b) of Rule 485.
<PAGE>
CGM
CAPITAL
DEVELOPMENT
FUND
A No-Load Fund
[LOGO] The Fund's
investment objective
is long-term capital
appreciation.
PROSPECTUS & APPLICATION o MAY 1, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
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TABLE OF CONTENTS
FUND SUMMARY ________________________________________________ 1
Investment Objective _______________________________________ 1
Summary of Principal Investment Strategies _________________ 1
Summary of Principal Risks _________________________________ 2
PAST PERFORMANCE ____________________________________________ 2
EXPENSES ____________________________________________________ 3
ADDITIONAL FUND INFORMATION _________________________________ 4
Principal Investment Strategies ____________________________ 4
Principal Risks ____________________________________________ 4
MANAGEMENT __________________________________________________ 5
WHO CAN PURCHASE SHARES _____________________________________ 6
HOW TO PURCHASE SHARES ______________________________________ 6
SHAREHOLDER SERVICES ________________________________________ 7
HOW TO sell SHARES __________________________________________ 8
TELEPHONE TRANSACTIONS ______________________________________ 11
DIVIDENDS, CAPITAL GAINS AND TAXES __________________________ 11
PRICING OF SHARES ___________________________________________ 13
YEAR 2000 ___________________________________________________ 13
FINANCIAL HIGHLIGHTS ________________________________________ 14
CONTACT INFORMATION _________________________________________ Back Cover
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[LOGO] FUND SUMMARY
INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital appreciation.
SUMMARY OF PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to attain its objective by investing in the equity securities of
a relatively small but diverse group of companies and industries. Under normal
circumstances the Fund invests substantially all of its assets in common stocks
and securities convertible into common stocks of domestic companies and in
depository receipts (receipts representing the right to receive the securities
of foreign issuers deposited in a U.S. bank or a local branch of a foreign
bank).
The Fund may invest in many types of companies. In general, these companies
include:
o companies with records of above-average growth and promise of maintaining
their industry leadership positions;
o companies likely to benefit from internal revitalization or innovations,
changes in consumer demand, or basic economic forces; and
o smaller companies with good management.
The Fund may invest in companies of all sizes, but primarily invests in
companies with market capitalizations of over $100 million.
In making an investment decision, the investment manager analyzes:
o the overall economic factors that may affect a potential investment, and
o certain industries and companies, evaluating the fundamentals of each on a
case-by-case basis and focusing on companies that it determines are
attractively valued.
The investment manager will sell a security if it determines that:
o its investment expectations are not being met,
o better opportunities are identified, or
o its price objective has been attained.
SUMMARY OF PRINCIPAL RISKS
Like all mutual funds, you may lose money if you invest in the Fund. Because the
Fund invests primarily in stocks, the Fund is subject to MARKET RISKS. This
means that you may lose money on your investment due to a fall in prices of
stocks or periods of below-average performance in the stock market. In addition,
the Fund is also subject to other principal risks:
o Although diversified, the Fund's focused approach means that its RELATIVELY
SMALL NUMBER OF HOLDINGS may result in greater share price fluctuations than a
portfolio holding more securities.
o Investments in SMALL AND MEDIUM-SIZED COMPANIES involve greater risk than is
customarily associated with more established companies because these stocks
may be more volatile and have returns that vary significantly from the overall
market.
o Because the Fund may invest in debt and fixed-income securities, it is subject
to CREDIT RISK (the risk that the obligor will default in the payment of
principal and/or interest) and to INTEREST RATE RISK (the risk that the market
value of the securities will decline as a result of increases in market rates
of interest).
o CONVERTIBLE SECURITIES are subject to the market risk of stocks, and, like
other debt securities, are also subject to interest rate risk and the credit
risk of their issuers.
o The FOREIGN ISSUERS the fund may invest in through depository receipts are
subject to risks of possible adverse political and economic developments.
[LOGO] PAST PERFORMANCE
The bar chart and table below show the Fund's annual returns and its long-term
performance, and provide some indication of the risks of investing in the Fund.
The bar chart shows how the Fund's performance has varied from year to year. The
table compares the Fund's performance over time for the periods indicated to
that of the Standard and Poor's 500 Composite Index, a widely recognized
unmanaged index of common stock prices.
Both the bar chart and the table assume reinvestment of dividends and
distributions. The Fund's past performance does not necessarily indicate how the
Fund will perform in the future.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
1989 17.9%
1990 1.4%
1991 99.1%
1992 17.5%
1993 28.7%
1994 -22.9%
1995 41.1%
1996 28.1%
1997 23.9%
1998 8.5%
During the ten-year period shown in the bar chart, the highest quarterly return
was 34.1% (for the quarter ended 3/31/91 and the lowest quarterly return was
- -23.2% (for the quarter ended 9/30/90).
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year 5 Years 10 Years
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Fund 8.5% 13.4% 21.0%
S&P 500 Index 28.6% 24.1% 19.2%
<PAGE>
[LOGO] EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
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SCHEDULE OF FEES
Shareholder Transaction Expenses (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases __________________ None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends _______ None
Redemption Fees* __________________________________________________ None
Exchange Fees _____________________________________________________ None
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets) (as a percentage of average net assets, based on expenses for
year ended 12/31/98)
Management Fees __________________________________________________ 0.99%
Distribution (12b-1) Fees _________________________________________ None
Other Expenses ___________________________________________________ 0.08%
Total Fund Operating Expenses ____________________________________ 1.07%
* A wire fee (currently $5.00) will be deducted from proceeds if a shareholder
elects to transfer redemption proceeds by wire.
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EXAMPLE
The following example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The example assumes
that:
o you invest $10,000 in the Fund for the time periods indicated;
o you redeem your shares at the end of each period;
o your investment has a 5% return each year (the assumption of a 5% return is
required by the SEC and is not a prediction of the Fund's future
performance); and
o the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
Number of years 1 3 5 10
- ---- ---- ---- ---- ------
Cost $109 $340 $590 $1,306
<PAGE>
[LOGO] ADDITIONAL FUND INFORMATION
The Fund's objective and principal investment strategies, and the main risks of
investing in the Fund, are summarized at the beginning of this prospectus. More
information on investment strategies, investments and risks appears in this
section. These are the strategies that, in the opinion of the Fund's investment
manager, are most likely to be important in trying to achieve the Fund's
investment objective. There can, of course, be no assurance that the Fund will
achieve its investment objective. The Fund's objective may be changed without
shareholder approval.
The Fund may also use strategies and invest in securities that are not described
below but which are described in the Statement of Additional Information
("SAI"). Of course, the Fund's investment manager may decide, as a matter of
investment strategy, not to use the investments and investment techniques
described below and in the SAI at any particular time.
The Fund may also depart from its principal investment strategies by taking
temporary defensive positions in response to adverse market, economic or
political conditions. When doing so, the Fund may hold a substantial portion of
its assets in cash or investment grade fixed-income securities and may not be
pursuing its investment objective.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to attain its objective by investing in the equity securities of
a relatively small but diverse group of companies and industries. Under normal
circumstances, the Fund invests substantially all of its assets in common stocks
and securities convertible into common stocks of domestic companies and in
depository receipts.
The Fund may invest in many types of companies. In general, these companies
include:
o companies with records of above-average growth and promise of maintaining
their industry leadership positions;
o companies likely to benefit from internal revitalization or innovations,
changes in consumer demand, or basic economic forces; and
o smaller companies with good management.
MANAGEMENT STYLE. Rather than following a particular style, the Fund's
investment manager employs a flexible approach and seeks to take advantage of
opportunities as they arise. In making an investment decision, the Fund's
investment manager will generally employ the following method:
o It uses a top-down approach, meaning that it first analyzes the overall
economic factors that may affect a potential investment.
o It then conducts a thorough analysis of certain industries and companies,
evaluating the funda-mentals of each on a case-by-case basis and focusing on
companies that it determines are attractively valued.
o The investment manager will sell a security if it determines that its
investment expectations are not being met, if better opportunities are
identified, or if its price objective has been attained.
PORTFOLIO TURNOVER. Although the Fund's invest-ment objective is long-term
capital appreciation, it frequently sells securities to respond to changes in
market, industry or individual company conditions or outlook, even though it may
only have held those securities for a short period. Frequent trading involves
higher securities transaction costs which may adversely affect the Fund's
performance. To the extent that this policy results in the realization of gains
on investments, the Fund will make distributions to its shareholders. These
distributions will generally be subject to taxes.
PRINCIPAL RISKS
Investing in a mutual fund involves risk. Before investing, you should consider
the risks you will assume. Some of these risks are described on the next page.
More information about risks appears in the Fund's SAI. Remember that you may
receive little or no return on your investment in the Fund. You may lose money
if you invest in the Fund.
MARKET RISK. This is the risk that the prices of securities will rise or fall
due to changing economic, political or market conditions, or due to a company's
individual situation. The value of the Fund's shares will change daily as the
value of its underlying securities change. This means that your Fund shares may
be worth more or less when you sell them than when you bought them.
Historically, equity securities have been more volatile than debt or
fixed-income securities.
SMALL AND MEDIUM CAPITALIZATION COMPANIES. The securities of small and medium
capitalization companies may have more risks than those of larger, more seasoned
companies. They may be particularly susceptible to market downturns because of
limited product lines, markets, distribution channels or financial and
management resources. Also, there may be less publicly available information
about small and medium cap companies. Investments in small and medium cap
companies may be in anticipation of future products or services to be provided
by the companies. If those products or services are delayed, the prices of the
securities of the companies may drop. Sometimes, the prices of the securities of
small and medium cap companies rise and fall based on investor perception rather
than economics. Securities of small and medium cap companies may be thinly
traded, making their disposition more difficult. For all these reasons, the
prices of the securities of small and medium cap companies may be more volatile,
causing the Fund's share price to be volatile. Funds that invest a higher
percentage of their assets in small and medium cap stocks are generally more
volatile than funds investing a higher percentage of their assets in larger,
more established companies.
LESS DIVERSIFICATION. The Fund generally takes larger positions in a smaller
number of companies than a more diversified fund. Therefore, when the value of
one of the Fund's holdings changes, this is likely to have a greater effect on
the Fund's overall performance than on the performance of a more diversified
fund.
DEBT AND FIXED-INCOME SECURITIES. While the Fund expects to invest primarily in
equity securities, the Fund may also invest in debt and fixed-income securities.
Debt and fixed-income securities are subject to credit risk (the risk that the
obligor will default in the payment of principal and/or interest) and to
interest rate risk (the risk that the market value of the securities will
decline as a result of increases in market rates of interest). These securities
are also subject to the risk that interest rate changes may affect prepayment
rates and their effective maturity. Increases in interest rates may lead to a
slower than expected rate of principal prepayments, effectively lengthening the
maturity of the affected securities. Conversely, declines in interest rates may
lead to an accelerated rate of principal prepayments. The Fund may not be able
to reinvest that principal at attractive rates.
SPECIAL CHARACTERISTICS OF CONVERTIBLE SECURITIES. Convertible securities, which
are debt securities that may be converted into stock, are subject to the market
risk of stocks, and, like other debt securities, are also subject to interest
rate risk and the credit risk of their issuers. Call provisions may allow the
issuer to repay the debt before it matures.
FOREIGN ISSUERS. The Fund may invest a portion of its assets in foreign
issuers. Investing in foreign issuers involves risks in addition to those of
investing in U.S. securities, including risks relating to political, social
and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject.
[LOGO] MANAGEMENT
THE INVESTMENT MANAGER
The Fund's investment manager is Capital Growth Management Limited Partnership
("CGM"), One International Place, Boston, Massachusetts, 02110. CGM, an
investment advisory firm founded in 1990, manages the Fund's daily investment
and business affairs subject to the policies established by the Fund's Board of
Trustees. CGM manages nine mutual fund portfolios and advisory accounts for
other clients.
In 1998, the Fund paid 0.99% of its average annual net assets in management fees
to CGM.
THE PORTFOLIO MANAGER
G. Kenneth Heebner has been the portfolio manager of the Fund or its predecessor
since 1976. In 1990, Mr. Heebner founded CGM with Robert L. Kemp. Prior to
establishing the new company, Mr. Heebner managed mutual fund portfolios at
Loomis, Sayles & Company, Incorporated. In addition to the Fund, he currently
manages CGM Mutual Fund, CGM Realty Fund, CGM Focus Fund and, with Janice H.
Saul, co-manages CGM Fixed Income Fund.
[LOGO] WHO CAN PURCHASE SHARES
Only shareholders of the Fund as of September 24, 1993, who have remained
shareholders continuously since that date, may purchase additional shares of the
Fund. The Fund reserves the right to reject any purchase order. This policy
supersedes all previous eligibility requirements.
Fund shares are not generally available to other persons except in special
circumstances that have been approved by, or under the authority of, the Board
of Trustees of the Fund. The special circumstances currently approved by the
Board of Trustees of the Fund are limited to the offer and sale of shares of the
Fund to the following additional persons: trustees of the Fund, employees of
CGM, and counsel to the Fund and CGM.
Shares of the Fund are freely transferable to new owners. However, new owners
will not be permitted to purchase additional shares.
[LOGO] HOW TO PURCHASE SHARES
The Fund sells its shares directly to investors without any sales load.
NEW ACCOUNTS
If you are eligible to purchase Fund shares (see "Who Can Purchase Shares"), you
may make a purchase of Fund shares in a new regular account or retirement plan
account by submitting a completed application form and check, made payable to
CGM Capital Development Fund, to:
The CGM Funds
P.O. Box 449
Boston, Massachusetts 02117-0449
The minimum initial investment is $2,500 for regular accounts and $1,000 for
retirement plans (see "Shareholder Services - Retirement Plans") and accounts
set up under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors
Act.
EXISTING ACCOUNTS
After your account has been established, if you are eligible to purchase Fund
shares (see "Who Can Purchase Shares") you may send subsequent investments at
any time directly to the shareholder servicing agent at:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, Massachusetts 02266-8511
You must include either the Additional Investment Stub detached from an account
statement or a note containing sufficient information to identify the account
(i.e. the Fund name, your account number, your name and social security number).
Subsequent investments must be at least $50.
PAYMENT BY CHECK
If you pay for Fund shares by check, your check should be in U.S. dollars and
made payable to CGM Capital Development Fund. Third party checks (i.e. checks
not payable to CGM Capital Development Fund) are generally not accepted and
checks drawn on credit card accounts are not accepted.
PAYMENT BY WIRE
You may also make subsequent investments by federal funds wire. Instruct your
bank to wire federal funds to State Street Bank and Trust Company, ABA
#011000028. The text of the wire should read as follows: "DDA99046336, $ Amount,
STATE ST BOS ATTN Mutual Funds. Credit CGM Capital Development Fund, Shareholder
Name, Shareholder Account Number." Your bank may charge you a fee for
transmitting funds by wire.
ADDITIONAL INFORMATION
If you wish transactions in your account to be effected by another person under
a power of attorney from you, special rules apply. Please contact the Fund or
CGM Shareholder Services for details.
An investor will not receive any certificates for shares unless the investor
requests them in writing from CGM Shareholder Services. The Fund's system for
recording investments eliminates the problems of handling and safekeeping
certificates.
The price you pay will be the per share net asset value next calculated after
your proper investment order is received by the Fund (in the case of your
initial investment) or by CGM Shareholder Services (in the case of subsequent
investments).
The Fund may reject any purchase order and may suspend, change or withdraw the
offering of its shares.
[LOGO] SHAREHOLDER SERVICES
The Fund offers the following shareholder services as more fully described in
the Fund's SAI. Explanations and forms are available from the Fund.
EXCHANGE PRIVILEGE
You may exchange your shares of CGM Capital Development Fund for shares of CGM
Mutual Fund, CGM Fixed Income Fund, CGM American Tax Free Fund, CGM Realty Fund
and CGM Focus Fund. You may also exchange your shares for shares of money market
funds distributed by New England Funds, L.P.
All exchanges are free of charge. You may make an exchange by written
instruction or, if a written authorization for telephone exchanges is on file
with CGM Shareholder Services, you may call 800-343-5678. See "Telephone
Transactions" on page 11. Exchange requests cannot be revoked once they have
been received in good order. Under certain circumstances, before an exchange can
be made, additional documents may be required to verify the authority or legal
capacity of the person seeking the exchange.
Exchanges must be for amounts of at least $1,000. If you wish to make an
exchange into a new account, the exchange must satisfy the applicable minimum
initial investment requirement.
You should not view the exchange privilege as a means for taking advantage of
short-term swings in the market, and the Fund limits the number of exchanges you
can make to four exchanges per account (or two round trips) per calendar year.
Monthly automatic exchanges from money market funds distributed by New England
Funds, L.P. to the Fund are not subject to this restriction. The Fund also
reserves the right to prohibit exchanges during the first 15 days following an
investment in the Fund.
For federal income tax purposes, an exchange constitutes a sale of shares, which
may result in a capital gain or loss.
The Fund may terminate or change the terms of the exchange privilege.
SYSTEMATIC WITHDRAWAL PLAN ("SWP")
If the value of your account is at least $10,000, you may have periodic cash
withdrawals automatically paid to you or any person you designate. If checks are
returned to the Fund as "undeliverable" or remain uncashed for more than six
months, the plan will be cancelled. Undeliverable or uncashed checks will be
cancelled and the amounts will be reinvested in the Fund at the per share net
asset value determined as of the date of cancellation of the checks. No interest
will accrue on amounts represented by uncashed distribution or redemption
checks. The Fund may terminate or modify the SWP at any time. Additional
information about this Plan is set forth in the SAI.
AUTOMATIC INVESTMENT PLAN ("AIP")
Once your account has been established, voluntary monthly investments of at
least $50 may be made automatically by pre-authorized withdrawals from your
checking account. Please contact CGM Shareholder Services at 800-343-5678 to
determine the requirements associated with debits from savings banks and credit
unions. Debits from money market accounts are not acceptable.
You may terminate your participation in the AIP by sending written notice to CGM
Shareholder Services or by calling 800-343-5678 more than 14 days prior to the
next scheduled debit date. The Fund may terminate your participation in the AIP
immediately in the event that any item is unpaid by your financial institution.
The Fund may terminate or modify the AIP at any time. Additional information
about this Plan is set forth in the SAI.
RETIREMENT PLANS
The Fund's shares may be purchased by tax-deferred retirement plans. CGM makes
available retirement plan forms and plan documents for Traditional and Roth
IRAs, SEP-IRAs, 403(b)(7) Custodial Accounts, and Money Purchase Pension and
Profit Sharing Plans ("CGM Retirement Plans").
CONFIRMATION STATEMENTS
Shareholders will receive statements confirming all purchases, redemptions and
changes of address. You may call CGM Shareholder Services and request a
duplicate statement for the current year without charge. A fee will be charged
for any duplicate information requested for prior years.
SHAREHOLDER REPORTS
Shareholders will receive the Fund's financial statements and a summary of the
Fund's investments at least semiannually. The Fund intends to consolidate
mailings of annual, semiannual and quarterly reports to households having
multiple accounts with the same address of record and to furnish a single copy
of each report to that address. Mailings of prospectuses and proxy statements
will not be consolidated and if a report is included in such mailings each
shareholder will receive a separate copy. You may request additional reports by
notifying the Fund in writing, or by calling the Fund at 800-345-4048.
[LOGO] HOW TO SELL SHARES
You can sell (redeem) all or part of your shares in the Fund in three different
ways:
o by sending a written request for a check or wire representing the
redemption proceeds,
o except for CGM Retirement Plans, by making a telephone request for redemption
by check (provided that the amount to be redeemed is not more than $25,000 and
the check is being sent to you at your record address, which has not changed
in the prior three months), or
o except for CGM Retirement Plans, by making a telephone request for redemption
proceeds to be wired to a bank account that you have predesignated.
The redemption price will always be the net asset value per share next
determined after the redemp-tion request is received by CGM Shareholder Services
in good order (including any necessary documentation). Necessary documentation
may include, in certain circumstances, documents verifying the authority or
legal capacity of the person seeking to redeem shares. Redemption requests
cannot be revoked once they have been received in good order.
WRITTEN REDEMPTION REQUESTS
If you elect to redeem shares in writing, send your written request to:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, Massachusetts 02266-8511
The written request must include the name of the Fund, your account number, the
exact name(s) in which your shares are registered, the number of shares or the
dollar amount to be redeemed and mailing or wire instructions. All owners of
shares must sign the request in the exact name(s) in which the shares are
registered (which appear(s) on your confirmation statement) and should indicate
any special capacity in which they are signing (such as trustee or custodian or
on behalf of a partnership, corporation or other entity). If you are signing in
a special capacity, you may wish to contact CGM Shareholder Services in advance
to determine whether additional documentation will be required before you send a
redemption request. Redemptions from CGM Retirement Plans for which State Street
Bank is the custodian or trustee must contain additional information. Please
contact CGM Shareholder Services for instructions and forms. Complete
information, including tax withholding instructions, must be included in your
redemption request.
Redemptions from CGM Retirement Plans for which State Street Bank is the
custodian or trustee must contain additional information. Please contact CGM
Shareholder Services for instructions and forms. Complete information, including
tax withholding instructions, must be included in your redemption request.
If you are redeeming shares worth more than $25,000, requesting that the
proceeds check be made payable to someone other than the registered owner(s) or
be sent to an address other than your record address (or sent to your record
address if such address has been changed within the previous three months), or
requesting that the proceeds be wired to a bank account that you have not
predesignated, you must have your signature guaranteed by an "eligible guarantor
institution" as defined in the rules under the Securities Exchange Act of 1934
(including a bank, broker, dealer, credit union, national securities exchange,
registered securities association, clearing agency or savings association, but
not a notary public).
If you hold certificates representing your investment, you must enclose the
certificates and a properly completed redemption form or stock power. You bear
the risk of loss of such certificates; consequently, you may wish to send your
certificates by registered mail.
TELEPHONE REDEMPTION REQUESTS
If you elect to redeem shares by telephone, call CGM Shareholder Services
directly at 800-343-5678. See "Telephone Transactions" on page 11. Telephone
redemptions are not available for CGM Retirement Plans. When you make a
redemption request by telephone, you may choose to receive redemption proceeds
either by having a check mailed to the address of record on the account
(provided the address has not changed for three months and you are redeeming
$25,000 or less) or by having a wire sent to a bank account you have previously
designated.
Telephone redemptions by check are available to all shareholders of the Fund
automatically unless this option is declined in the application or otherwise in
writing. You may select the telephone redemption wire service when you fill out
your initial application or you may select it later by completing the Service
Options Form (with a signature guarantee), available from the Fund or CGM
Shareholder Services.
A telephone redemption request must be received by CGM Shareholder Services
prior to the close of the New York Stock Exchange. If you telephone your request
to CGM Shareholder Services after the Exchange closes or on a day when the
Exchange is not open for business, the Fund cannot accept your request and a new
one will be necessary.
Wire redemptions by telephone may be made only if your bank is a member of the
Federal Reserve System or has a correspondent bank that is a member of such
System. If your account is with a savings bank, it must have only one
correspondent bank that is a member of the Federal Reserve System. A wire fee
(currently $5) will be deducted from the proceeds. If you decide to change the
bank account to which proceeds are to be wired, you must send in this change on
the Service Options Form with a signature guarantee.
REDEMPTION PROCEEDS
Proceeds resulting from a written or regular telephone redemption request will
normally be mailed to you within seven days after receipt of your request in
good order. Telephone wire redemption proceeds will normally be wired to your
bank within seven days following receipt of a proper redemption request.
If you purchased your Fund shares by check (or through an automatic investment
plan) and elect to redeem shares within 15 days of the purchase, you may
experience delays in receiving redemption proceeds. The Fund will generally
postpone sending your redemption proceeds from an investment until the Fund can
verify that your check (or automatic investment plan investment) has been or
will be collected. There will be no such delay for redemptions following
investments paid for by federal funds wire or by bank cashier's check, certified
check or treasurer's check.
If checks representing redemption proceeds are returned "undeliverable" or
remain uncashed for six months, the checks will be cancelled and the proceeds
will be reinvested in the Fund at the per share net asset value determined as of
the date of cancellation of the checks. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
POSTPONEMENT OF REDEMPTION PROCEEDS OR SUSPENSION OF REDEMPTION RIGHT
The Fund may postpone payment of redemption proceeds for up to seven days. The
Fund may not postpone payment for more than seven days or suspend the right of
redemption, except: if you purchased your Fund shares by check (or through an
automatic investment plan) and redeem shares within 15 days of the purchase as
described in the preceding section, when the New York Stock Exchange is closed
for other than weekends or holidays, when trading on the Exchange is restricted,
during an emergency (as determined by the SEC) which makes it impracticable for
the Fund to dispose of its securities or to determine fairly the value of its
net assets, or during any other period permitted by the SEC for the protection
of investors.
REDEMPTION IN KIND
The Fund will normally redeem shares for cash; however, the Fund reserves the
right to pay the redemption price wholly in kind or partly in kind and partly in
cash if the Board of Trustees of the Fund determines it to be advisable in the
interests of the remaining shareholders. If portfolio securi-ties are
distributed in lieu of cash, the shareholder will normally incur brokerage
commissions upon subsequent disposition of any such securities.
MINIMUM ACCOUNT BALANCE AND AUTOMATIC REDEMPTION
Because the expense of maintaining small accounts is disproportionately high,
the Fund may close accounts with 20 shares or less, and mail the pro-ceeds to
the shareholder. Shareholders who are affected by this policy will be notified
of the Fund's intention to close the account and will have 60 days immediately
following the notice in which to acquire the requisite number of shares. The
mini-mum does not apply to CGM Retirement Plans or accounts set up under the
Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act.
[LOGO] TELEPHONE TRANSACTIONS
You may initiate three types of transactions by telephone:
o telephone exchanges;
o telephone redemptions by wire; and
o telephone redemptions by check.
The terms and provisions for each of these services are explained fully in the
preceding sections. Once a telephone transaction request has been placed, it
cannot be revoked.
You must select the telephone exchange privilege and/or telephone redemption by
wire privilege when you fill out your initial application or you may select
either option later by completing the Service Options Form (with a signature
guarantee) available from the Fund or CGM Shareholder Services. The telephone
redemptions by check privilege is available automatically unless you decline
this option in the application or otherwise in writing.
The telephone redemption privileges are not available for Traditional or Roth
IRAs, SEP-IRAs, 403(b)(7) Custodial Accounts or for Money Purchase Pension and
Profit Sharing accounts under a CGM Retirement Plan for which State Street Bank
is the custodian or trustee.
The Fund will employ reasonable procedures to confirm that instructions received
by telephone (including instructions with respect to changes in addresses) are
genuine, such as requesting personal identification information that appears on
your account application and recording the telephone conversation. You will bear
the risk of loss due to unauthorized or fraudulent instructions regarding your
account, although the Fund may be liable if reasonable procedures are not
employed.
During periods of unusual market activity, severe weather or other abnormal
circumstances, it may be difficult for you to reach a representative of the Fund
or CGM Shareholder Services by telephone. In this case, please consider sending
written instructions.
[LOGO] DIVIDENDS, CAPITAL GAINS AND TAXES
DIVIDENDS AND CAPITAL GAINS
Any income dividends and capital gains distributions are normally made annually
in December but may be made more frequently as deemed advisable by the Board of
Trustees. Certain restrictions may apply to participants in CGM Retirement
Plans.
You may elect to receive income dividends or capital gains distributions, or
both, in additional shares of the Fund or in cash. However, if you elect to
receive capital gains in cash, your income dividends must also be received in
cash. Certain restrictions may apply to participants in CGM Retirement Plans.
You can elect to receive payments of cash dividends and capital gains
distributions either by check or by direct deposit to a bank account that you
have predesignated. These elections may be made at the time your account is
opened and may be changed at any time by submitting a written request to CGM
Shareholder Services or by calling 800-343-5678. However, changes in bank
account information for direct deposits of cash dividends and capital gains
distributions must be made through a Service Options Form. In order for a change
to be effective for any dividend or distribution, it must be received by CGM
Shareholder Services on or before the record date for such dividend or
distribution.
If you elect to receive distributions in cash and checks are returned
"undeliverable" or remain uncashed for six months, your cash election will be
changed automatically and your future dividend and capital gains distributions
will be reinvested in the Fund at the per share net asset value determined as of
the date of payment of the distribution. In addition, following the six-month
period, any undeliverable or uncashed checks will be cancelled and the amounts
will be reinvested in the Fund at the per share net asset value determined as of
the date of cancellation of the checks. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
TAXES
TAXATION OF DISTRIBUTIONS. Dividends paid by the Fund from net investment income
(including dividends and interest) and net short-term capital gains will be
taxable to you as ordinary income. If a portion of the Fund's income consists of
dividends paid by U.S. corporations, a portion of the dividends paid by the Fund
may be eligible for the corporate dividends-received deduction. Distributions of
net capital gains (the excess of net long-term capital gains over net short-term
capital losses) are taxable to you as long-term capital gains, regardless of how
long you have owned your shares in the Fund. To the extent that the Fund makes a
distribution in excess of its current and accumulated earnings and profits, the
distribution will be treated first as a tax-free return of capital, reducing
your tax basis in your shares, and then, to the extent the distribution exceeds
such basis, as a taxable gain from the sale of your shares. Dividends and
distributions are taxable to you in the same manner whether received in cash or
reinvested in additional shares.
A distribution will be treated as paid by the Fund and received by you on
December 31 of the current calendar year if it is declared by the Fund in
October, November or December of that year with a record date in such a month
and paid by the Fund in January of the subsequent year.
Any dividends or distributions paid shortly after a purchase of shares will have
the effect of reducing the per share net asset value of the shares by the amount
of the dividends or distributions. Although in effect a return of capital, these
distributions are subject to taxes, even if their effect is to reduce the per
share net asset value below a shareholder's cost. The Fund will notify you
annually as to the tax status of dividend and capital gains distributions paid
by the Fund.
FOREIGN TAXES. If the Fund invests in foreign issuers, it may be subject to
foreign withholding taxes on income earned on those securities and may be unable
to pass through to you foreign tax credits and deductions with respect to those
taxes.
DISPOSITION OF SHARES. The sale or other disposition of shares of the Fund,
including a redemption of shares or an exchange of shares into another fund, is
a taxable event and may result in a capital gain or loss which will be long-term
or short-term, generally depending upon how long you held your shares.
BACKUP WITHHOLDING. The Fund is required to withhold a portion of taxable
dividends, capital gains distributions, and redemptions paid to individuals and
certain other classes of shareholders if they fail to furnish the Fund with
their correct taxpayer identification number and certain certifications
regarding their tax status, or if they are otherwise subject to backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against a shareholder's normal federal income tax liability.
GENERAL INFORMATION. The shareholder servicing agent will send you and the
Internal Revenue Service an annual statement detailing federal tax information,
including information about dividends and distributions paid to you during the
preceding year. If you redeem or exchange shares in any year, following the end
of the year, you will receive a statement providing the cost basis and gain or
loss of each share lot that you sold during such year. In limited circumstances,
your actual cost basis may differ from your CGM account cost basis. Your CGM
account cost basis will be calculated using the "single category average cost
method," which is one of the four calculation methods allowed by the IRS.
Shareholders of the Fund generally will receive these cost basis statements but
only for accounts opened after January 1, 1991. Some restrictions apply; for
more information, please call 800-343-5678. Be sure to keep these statements as
permanent records. A fee may be charged for any duplicate information that you
request.
Dividend distributions, capital gains distributions and capital gains or losses
from redemptions and exchanges may also be subject to state, local and foreign
taxes. In certain states, a portion of the Fund's income derived from certain
direct U.S. Government obligations may be exempt from state and local taxes.
Each year the Fund will indicate the portion of the Fund's income, if any, which
is derived from such obligations.
The tax discussion set forth here is included for general information only. You
should consult your own tax adviser concerning the tax consequences of an
investment in the Fund.
[LOGO] PRICING OF SHARES
The share price or "net asset value" per share of the Fund is computed daily by
dividing the total value of the investments and other assets of the Fund, less
any liabilities, by the total outstanding shares of the Fund. The net asset
value per share of the Fund is determined as of the close of the regular trading
session of the New York Stock Exchange (normally 4 p.m. Eastern time) on each
day the Exchange is open for trading. Portfolio securities are generally valued
at their market value. In certain cases, market value may be determined on the
basis of information provided by a pricing service approved by the Board of
Trustees. Instruments with maturities of 60 days or less are valued at amortized
cost, which approximates market 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. The valuation of portfolio securities is
more fully described in the SAI.
Trading may take place in foreign issuers held by the Fund on days when the Fund
is not open for business. As a result, the Fund's net asset value may change on
days on which it is not possible to purchase or sell shares of the Fund.
[LOGO] YEAR 2000
Like other mutual funds and other organizations around the world, the Fund could
be adversely affected if the computer systems used by the Fund or its service
providers do not properly process and calculate date-related information from
and after January 1, 2000. This is commonly known as the "Y2K Problem." Failure
to successfully address the Y2K Problem could result in interruptions to and
other material adverse effects on the Fund's business and operations, such as
problems calculating net asset value and difficulties in implementing the Fund's
purchase and redemption procedures. CGM has taken steps that it believes are
reasonably designed to address any potential Y2K Problem for computer programs
used by the Fund or CGM. Each of the Fund's and CGM's service providers are
taking steps that they believe are reasonably designed to address the Y2K
Problem with respect to computer systems that they use. At this time, however,
there can be no assurance that these steps being taken by third party service
providers will be sufficient to avoid any adverse impact to the Fund. In
addition, there can be no assurances that the Y2K Problem will not have an
adverse effect on the issuers whose securities are held by the Fund or on the
market or the economy in general.
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following Financial Highlights table is intended to help you understand the Fund's financial performance for
the past five years. Certain information reflects financial results for a single Fund share. The total returns
in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information has been examined by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with the Fund's financial statements,
is included in the Fund's Annual Report, which may be obtained from the Fund free of charge.
<CAPTION>
CGM CAPITAL DEVELOPMENT FUND YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
For a share of the Fund outstanding
throughout each period:
Net asset value at beginning of
period .......................... $26.96 $29.08 $27.33 $20.58 $27.71
------ ------ ------ ------ ------
Net investment income (loss) ...... (0.08)
0.11 (a) 0.07 0.02 0.07
Dividends from net investment
income .......................... (0.11) -- (0.07) (0.02) (0.07)
Net realized and unrealized gain
(loss) on
investments ..................... 2.18 7.04 7.62 8.43 (6.42)
Distribution from net realized gain (4.12) (9.08) (5.84) (1.68) (0.69)
Distribution in excess of net
realized gain on investments .... (0.07) -- (0.03) -- (0.02)
------ ------ ------ ------ ------
Net increase (decrease) in net
asset value ..................... (2.01) (2.12) 1.75 6.75 (7.13)
------ ------ ------ ------ ------
Net asset value at end of period .. $24.95 $26.96 $29.08 $27.33 $20.58
====== ====== ====== ====== ======
Total Return (%) .................. 8.5 23.9 28.1 41.1 -22.9
Ratios:
Operating expenses to average net
assets (%) ...................... 1.07 1.07 0.82 0.85 0.84
Net investment income (loss) to
average net assets (%) .......... 0.39 -0.29 0.23 0.07 0.25
Portfolio turnover (%) ............ 335 230 178 271 146
Net assets at end of period
(in thousands) ($) .............. 703,418 722,673 631,260 521,248 401,676
(a) Per share net investment loss does not reflect the period's reclassification of permanent differences
between book and tax basis net investment loss.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONTACT INFORMATION
CGM CAPITAL DEVELOPMENT FUND
c/o The CGM Funds
P.O. Box 449
Boston, MA 02117
SHAREHOLDER SERVICING AGENT
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, MA 02266
INVESTMENT MANAGER
Capital Growth Management
Limited Partnership
One International Place
Boston, MA 02110
TRANSFER AND DIVIDEND PAYING AGENT
AND CUSTODIAN OF ASSETS
State Street Bank and Trust Company
Boston, MA 02102
- --------------------------------------------------------------------------------
More information about this Fund is available free by calling 800-345-4048,
including the following:
ANNUAL/QUARTERLY REPORTS
Additional information about the Fund's investments is available in the Fund's
annual and quarterly reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the Fund and is incorporated
into this prospectus by reference (i.e. is legally considered part of it).
For additional information about:
o Account procedures/status o Prospectuses
o Redemptions o SAI
o Exchanges o Annual/Quarterly Reports
o New account procedures o Performance
Call CGM Shareholder Call CGM Marketing
Services at 800-343-5678 Department at 800-345-4048
- --------------------------------------------------------------------------------
Information about the Fund (including the SAI) is also available from the
Securities and Exchange Commission. You can find it on the SEC's Internet site
at http://www.sec.gov. You can receive copies of Fund information by sending
your request and a duplicating fee to the SEC's Public Reference Section,
Washington, DC 20549-6009. Information can also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. You can get information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
CFP99 SEC File No. 811-933
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
This Statement of Additional Information (the "Statement" or "SAI") provides
further information concerning the activities and operations of CGM Capital
Development Fund. This Statement is not a prospectus and should be read in
conjunction with the CGM Capital Development Fund Prospectus dated May 1, 1999
(the "Prospectus"). Certain information which is included in the Prospectus is
incorporated by reference into this Statement. A copy of the Prospectus may be
obtained from CGM Capital Development Fund by writing to: c/o The CGM Funds
Investor Services Division, P.O. Box 449, Boston, Massachusetts 02117, or by
calling 800-345-4048.
Certain financial information which is included in the Fund's Annual Report to
Shareholders dated December 31, 1998 is incorporated by reference into this
Statement. A copy of the Annual Report accompanies this Statement.
CSAI99
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION.............................................................. 1
ADDITIONAL INFORMATION REGARDING STRATEGIES AND RISKS..................... 1
FUNDAMENTAL INVESTMENT RESTRICTIONS....................................... 4
PORTFOLIO TURNOVER........................................................ 5
MANAGEMENT OF THE FUND.................................................... 6
INVESTMENT ADVISORY AND OTHER SERVICES.................................... 8
Advisory Agreement.................................................. 8
Custodial Arrangements.............................................. 9
Independent Accountants............................................. 10
Other Arrangements.................................................. 10
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 10
DESCRIPTION OF THE FUND................................................... 11
Shareholder Rights.................................................. 12
Shareholder and Trustee Liability................................... 13
ADVERTISING AND PERFORMANCE INFORMATION................................... 14
Calculation of Total Return......................................... 14
Performance Comparisons............................................. 15
NET ASSET VALUE AND PUBLIC OFFERING PRICE................................. 16
HOW TO PURCHASE SHARES.................................................... 17
SHAREHOLDER SERVICES...................................................... 17
Open Accounts....................................................... 17
Systematic Withdrawal Plans ("SWP")................................. 18
Exchange Privilege.................................................. 19
Automatic Investment Plans ("AIP").................................. 20
Retirement Plans.................................................... 20
Address Changes..................................................... 21
REDEMPTIONS............................................................... 21
Redeeming by Telephone.............................................. 22
Check Sent to the Record Address.................................... 22
Proceeds Wired to a Predesignated Bank.............................. 22
All Redemptions..................................................... 23
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS.............. 24
FINANCIAL STATEMENTS...................................................... 28
<PAGE>
INTRODUCTION
CGM Capital Development Fund (the "Fund") is registered with the Securities and
Exchange Commission ("SEC") as a diversified open-end management investment
company. The Fund was established as a Massachusetts business trust under the
laws of Massachusetts in 1986. The Fund is a successor in interest to
Loomis-Sayles Capital Development Fund, which was organized in 1960. On March 1,
1990, the Fund's name was changed from "Loomis-Sayles Capital Development Fund"
to "CGM Capital Development Fund" to reflect the assumption by Capital Growth
Management Limited Partnership ("CGM" or the "Investment Manager") of investment
advisory responsibilities with respect to the Fund.
Descriptions in the Prospectus and in this Statement of a particular investment
practice or technique in which the Fund may engage or a financial instrument
which the Fund may purchase are meant to describe the spectrum of investments
that CGM, in its discretion, might, but is not required to, use in managing the
Fund's portfolio assets. CGM may, in its discretion, at any time employ such
practice, technique or instrument for one or more funds but not for all funds
advised by it. Furthermore, it is possible that certain types of financial
instruments or investment techniques described herein may not be available,
permissible, economically feasible or effective for their intended purposes in
all markets. Certain practices, techniques, or instruments may not be principal
activities of the Fund but, to the extent employed, could from time to time have
a material impact on the Fund's performance.
ADDITIONAL INFORMATION REGARDING STRATEGIES AND RISKS
THE FOLLOWING SUPPLEMENTS THE DISCUSSION IN THE PROSPECTUS OF THE VARIOUS
INVESTMENT STRATEGIES AND TECHNIQUES THAT MAY BE EMPLOYED BY THE FUND AND
CERTAIN ASSOCIATED RISKS.
REPURCHASE AGREEMENTS. Repurchase agreements in which the Fund may invest are
agreements by which the Fund purchases a security and obtains a simultaneous
commitment from the seller (a bank or, to the extent permitted by the Investment
Company Act of 1940, as amended (the "1940 Act"), a recognized securities
dealer) to repurchase the security at an agreed-upon price and date (usually
seven days or less from the date of original purchase). The resale price is in
excess of the purchase price and reflects an agreed upon market rate unrelated
to the coupon rate on the purchased security. Such transactions afford the Fund
the opportunity to earn a return on temporarily available cash at minimal market
risk. While the underlying security may be a bill, certificate of indebtedness,
note or bond issued by an agency, authority or instrumentality of the U.S.
Government, the obligation of the seller is not guaranteed by the U.S.
Government and there is a risk that the seller may fail to repurchase the
underlying security. In such event, the Fund would attempt to exercise rights
with respect to the underlying security, including possible disposition in the
market. However, the Fund may be subject to various delays and risks of loss,
including (1) possible declines in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (2) possible
reduced levels of income and lack of access to income during this period, and
(3) inability to enforce rights and the expenses involved in attempted
enforcement.
ILLIQUID SECURITIES. The Fund may invest up to 10% of its net assets in illiquid
securities. Securities that may be resold without registration pursuant to Rule
144A under the Securities Act of 1933, as amended, may be treated as liquid for
these purposes, subject to the supervision and oversight of the Board of
Trustees, in accordance with guidelines established by the Board of Trustees to
determine whether there is a readily available market for such securities. The
foregoing investment practice could have the effect of increasing the level of
illiquidity in the Fund to the extent that qualified institutional buyers become
uninterested in purchasing the securities.
FOREIGN SECURITIES. The Fund may invest in securities issued by institutions,
corporations and governments established by or in one or more foreign countries,
which may be developed or undeveloped countries. Such foreign securities will
otherwise satisfy the limitations and restrictions applicable to the Fund. In
making foreign investments, the Fund will also give appropriate consideration to
the following factors, among others:
o In addition to the risks associated with investing in foreign issuers, as
described in the Prospectus, because some foreign securities the Fund may
acquire are purchased with and payable in currency of foreign countries,
the value of these assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and exchange control
regulations. Certain currency exchange expenses may be incurred when the
Fund changes investments from one country to another. The Fund also may be
affected by the conversion of the currency of several European countries
to the "Euro" currency.
o Foreign securities markets generally are not as developed or efficient as
those in the United States. Securities of some foreign issuers are less
liquid and more volatile than securities of comparable U.S. issuers.
Similarly, volume and liquidity in most foreign securities markets are
less than in U.S. markets and, at times, volatility of prices can be
greater than in the United States. There may be less government
supervision and regulation of securities exchanges, brokers and listed
companies. The issuers of some of these securities, such as foreign bank
obligations, may be subject to less stringent or different regulations
than those governing U.S. issuers. In addition, there may be less publicly
available information about a foreign issuer, and foreign issuers are not
subject to uniform accounting and financial reporting standards, practices
and requirements comparable to those applicable to U.S. issuers. Further,
it may be more difficult to obtain current information about corporate
actions by foreign issuers of portfolio securities that affect the prices
of such securities.
o Foreign securities are also subject to additional risks of possible
adverse political and economic developments, possible seizure or
nationalization of foreign deposits and possible adoption of governmental
restrictions, which might adversely affect the payment of principal and
interest on the foreign securities or might restrict the payment of
principal and interest to investors located outside the country of the
issuer, whether from currency blockage or otherwise. The Fund's ability
and decisions to purchase and sell portfolio securities may be affected by
laws or regulations relating to the convertibility and repatriation of
assets.
o Some foreign securities may be subject to transfer taxes levied by foreign
governments, and the income received by the Fund from sources within
foreign countries may be reduced by withholding and other taxes imposed by
such countries. The Fund will also incur higher custody costs in
connection with foreign securities.
DEPOSITORY RECEIPTS. The Fund may invest in securities of non-U.S. issuers
through investments in depository receipts. American Depository Receipts
("ADRs") and other forms of depository receipts for securities of non-U.S.
issuers provide an alternative method for the Fund to make non-U.S.
investments. These securities are not usually denominated in the same
currency as the securities into which they may be converted. Generally,
ADRs, in registered form, are designed for use in U.S. securities markets.
ADRs are receipts typically issued by a U.S. bank or trust company evidencing
ownership of the underlying securities.
ADRs may be issued pursuant to sponsored or unsponsored programs. In sponsored
programs, an issuer has made arrangements to have its securities traded in the
form of depository receipts. In unsponsored programs, the issuer may not be
directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information from an
issuer that has participated in the creation of a sponsored program.
Accordingly, there may be less information available regarding issuers of
securities underlying unsponsored programs and there may not be a correlation
between such information and the market value of the depository receipts.
TEMPORARY DEFENSIVE POSITIONS. The Fund may depart from its principal investment
strategies by taking temporary defensive positions in response to adverse
market, economic or political conditions. When doing so, the Fund may hold a
substantial portion of its assets in cash or investment grade fixed-income
securities and may not be pursuing its investment objective.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund may not:
(1) Issue any senior securities, except as it may be permitted by the terms of
any exemptive order or similar rule issued by the Securities and Exchange
Commission (the "SEC") relating to multiple classes of shares of beneficial
interest of the Fund, and provided further that collateral arrangements with
respect to forward contracts, futures contracts, short sales or options,
including deposits of initial and variation margin, shall not be considered to
be the issuance of a senior security for the purposes of this restriction;
(2) Underwrite the distribution of securities issued by others;
(3) Invest in oil, gas or other mineral leases, rights or royalty contracts or
in real estate, commodities or commodity contracts;
(4) Make loans to other persons, except by the purchase of bonds or other
obligations constituting part of an issue and short term obligations which are
well protected (i.e., creditworthy) in the opinion of management. (For purposes
of this investment restriction, neither (i) entering into repurchase agreements
nor (ii) the purchase of bonds, debentures, commercial paper, corporate notes
and similar evidences of indebtedness, which are part of an issue to the public,
is considered the making of a loan;
(5) With respect to 75% of its total assets, purchase more than 10% of the
outstanding voting securities of any one issuer or invest more than 5% of the
value of its total assets in the securities of one issuer, except the U.S.
Government, its agencies and instrumentalities; or
(6) Borrow money in excess of 10% of its total assets (taken at cost) or 5% of
its total assets (taken at current value), whichever is lower, nor borrow any
money except as a temporary measure for extraordinary or emergency purposes.
If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in such percentage resulting from a change in the values of
assets will not constitute a violation of such restriction.
The investment restrictions above have been adopted by the Fund as fundamental
policies. Under the 1940 Act, a fundamental policy may not be changed without
the vote of a majority of the outstanding voting securities of the Fund, as
defined under the 1940 Act. "Majority" means the lesser of (1) 67% or more of
the shares present at a meeting of shareholders of the Fund, if the holders of
more than 50% of the outstanding shares of the Fund are present or represented
by proxy, or (2) more than 50% of the outstanding shares of the Fund.
Non-fundamental investment restrictions may be changed at any time by vote of a
majority of the Fund's Board of Trustees.
In addition to the fundamental restrictions set forth above, it is the
fundamental policy of the Fund not to purchase any security (other than U.S.
Government obligations) if, as a result, more than 25% of the Fund's total
assets (taken at current value) would then be invested in any one industry.
PORTFOLIO TURNOVER
Although the Fund's investment objective is long-term capital appreciation, it
frequently sells securities to respond to changes in market, industry or
individual company conditions or outlook, even though it may only have held
those securities for a short period. Frequent trading involves higher securities
transaction costs which may adversely affect the Fund's performance. To the
extent that this policy results in the realization of gains on investments, the
Fund will make distributions to its shareholders, which may accelerate
shareholders' tax liabilities.
The Fund's portfolio turnover rate for each of the last five years is set forth
in the Prospectus under the table entitled "Financial Highlights." The Fund's
portfolio turnover rate has varied significantly from year to year in the recent
past due to the volatility of economic and market conditions, and the Fund
anticipates similar variations in the future.
MANAGEMENT OF THE FUND
The Fund's Board of Trustees (the "Board") is responsible for the overall
management 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.
The affiliations of the officers and Board members and their principal
occupations for the past five years are shown below.
PETER O. BROWN (Age 58) -- Trustee
30 Douglas Road, Rochester, NY; Partner, Harter, Secrest & Emery; formerly
Executive Vice President and Chief Operating Officer, The Glenmede Trust
Company; formerly Senior Vice President, Chase Lincoln First Bank, N.A.
G. KENNETH HEEBNER (Age 58)* -- Trustee and Vice President
Employee, CGM; formerly Vice President and Director, Loomis-Sayles and
Company, Incorporated ("Loomis-Sayles").
ROBERT L. KEMP (Age 66)* -- Trustee and President
Employee, CGM; formerly President and Director, Loomis-Sayles.
ROBERT B. KITTREDGE (Age 78) -- Trustee
21 Sturdivant Street, Cumberland Foreside, ME; Retired; formerly Vice
President, General Counsel and Director, Loomis-Sayles.
LAURENS MACLURE (Age 73) -- Trustee
183 Sohier Street, Cohasset, MA; Retired; formerly President and Chief
Executive Officer, New England Deaconess Hospital.
JAMES VAN DYKE QUEREAU, JR. (Age 50) -- Trustee
59 Annewood Lane, Wayne, PA; Managing Partner, Stratton Management
Company; formerly Institutional Managing Partner, Loomis-Sayles.
J. BAUR WHITTLESEY (Age 52) -- Trustee 1521 Locust Street, Philadelphia, PA;
Attorney.
KATHLEEN S. HAUGHTON (Age 38) -- Vice President
222 Berkeley Street, Boston, MA 02116; Employee -- Investor Services
Division, CGM; formerly Vice President, Boston Financial Data Services,
Inc.
LESLIE A. LAKE (Age 54) -- Vice President and Secretary
Employee -- Office Administrator, CGM; formerly Office Administrator,
Capital Growth Management Division of Loomis-Sayles.
MARTHA I. MAGUIRE (Age 43) -- Vice President
Employee -- Funds Marketing, CGM; formerly marketing communications
consultant (self-employed); formerly Sales Promotion Consultant, The New
England.
MARY L. STONE (Age 54) -- Assistant Vice President
Employee -- Coordinator, Mutual Fund Recordkeeping, CGM; formerly
Coordinator, Mutual Fund Recordkeeping, Loomis-Sayles.
FRANK N. STRAUSS (Age 37) -- Treasurer
Employee -- Chief Financial Officer, CGM; formerly Vice President of
Fund Accounting, Freedom Capital Management Corporation and Assistant
Vice President, The Boston Company, Inc.
W. DUGAL THOMAS (Age 61) -- Vice President
Employee -- Director of Marketing, CGM; formerly Director of Marketing,
Loomis-Sayles.
*Trustee deemed to be an "interested person" of the Fund, as defined by the
1940 Act.
Each of the Fund's trustees is also a trustee of one or more other investment
companies for which CGM acts as investment manager. Except as indicated above,
the address of each trustee and officer of the Fund affiliated with CGM is One
International Place, Boston, Massachusetts 02110 or 222 Berkeley
Street, Boston, Massachusetts 02116.
As of April 5, 1999, the trustees and officers of the Fund owned beneficially
less than 1% of the outstanding shares of the Fund.
The Fund pays no compensation to its officers or to the trustees listed above
who are interested persons of the Fund. Trustees and officers receive no pension
or retirement benefits paid from Fund expenses. The following table sets forth
the compensation paid by the Fund to its trustees for the year ended December
31, 1998:
<PAGE>
PENSION OR
RETIREMENT
BENEFITS ESTIMATED
AGGREGATE ACCRUED AS ANNUAL COMPENSATION
NAME OF TRUSTEE COMPENSATION PART OF BENEFITS FROM THE FUND AND
FROM FUND FUND UPON FUND COMPLEX PAID
EXPENSES RETIREMENT TO TRUSTEES (A)
PETER O. BROWN $8,602 None None $37,000
NICHOLAS J. GRANT (B) $10,102 None None $44,000
G. KENNETH HEEBNER None None None None
ROBERT L. KEMP None None None None
ROBERT B. KITTREDGE $8,602 None None $37,000
LAURENS MACLURE $8,602 None None $37,000
JAMES VAN DYKE
QUEREAU, JR. $8,602 None None $37,000
J. BAUR WHITTLESEY $8,602 None None $37,000
(a) The Fund Complex is comprised of two Trusts with a total of six funds.
(b) Nicholas Grant retired as of February 4, 1999.
INVESTMENT ADVISORY AND OTHER SERVICES
ADVISORY AGREEMENT
CGM serves as investment manager of the Fund under an advisory agreement
approved by the shareholders of the Fund at a special meeting held on December
12, 1996 and effective as of December 13, 1996. CGM has served as investment
manager of the Fund since March 1, 1990. Prior to March 1, 1990, the Fund was
managed by Loomis-Sayles, whose Capital Growth Management Division was
reorganized into CGM on that date. The Fund has been continuously managed since
1976 by G. Kenneth Heebner.
Under the advisory agreement, CGM manages the investment and reinvestment of
assets of the Fund and generally administers its affairs, subject to supervision
by the Board of Trustees of the Fund. CGM furnishes, at its own expense, all
necessary office supplies, facilities and equipment, services of executive and
other personnel of the Fund and certain administrative services. For these
services, CGM is compensated at the annual percentage rate of 1.00% of the first
$500 million of the Fund's average daily net asset value, 0.95% of the next $500
million of such value and 0.80% of such value in excess of $1 billion. While
this rate is higher than that paid by most other investment companies, it is
comparable to the fees paid by many investment companies having investment
objectives and policies similar to those of the Fund. For the fiscal years ended
December 31, 1996, 1997 and 1998, the advisory fee paid to CGM in respect of
services rendered to the Fund amounted to $4,263,484, $7,210,245 and $6,997,004
respectively.
The Fund pays the compensation of its trustees who are not partners, directors,
officers or employees of CGM or its affiliates (other than registered investment
companies); registration, filing, and other fees in connection with requirements
of regulatory authorities; all charges and expenses of its custodian and
transfer agent; the charges and expenses of its independent accountants; all
brokerage commissions and transfer taxes in connection with portfolio
transactions; all taxes and fees payable to governmental agencies; the cost of
any certificates representing shares of the Fund; the expenses of meetings of
the shareholders and trustees of the Fund; the charges and expenses of the
Fund's legal counsel; interest, including on any borrowings by the Fund; the
cost of services, including services of counsel, required in connection with the
preparation of, and the costs of printing registration statements and
prospectuses relating to the Fund, including amendments and revisions thereto,
annual, semiannual, and other periodic reports of the Fund, and notices and
proxy solicitation material furnished to shareholders of the Fund or regulatory
authorities, to the extent that any such materials relate to the Fund or its
shareholders; and the Fund's expenses of bookkeeping, accounting, auditing and
financial reporting, including related clerical expenses.
CGM also acts as investment adviser to CGM Mutual Fund, CGM Fixed Income Fund,
CGM American Tax Free Fund, CGM Realty Fund and CGM Focus Fund and three other
mutual fund portfolios. CGM also provides investment advice to other
institutional clients.
Certain officers and trustees of the Fund also serve as officers, directors or
trustees of other investment companies advised by CGM. The other investment
companies and clients served by CGM sometimes invest in securities in which the
Fund also invests. If the Fund and such other investment companies or clients
advised by CGM desire to buy or sell the same portfolio securities at the same
time, purchases and sales will be allocated to the extent practicable on a pro
rata basis in proportion to the amounts desired to be purchased or sold for
each. It is recognized that in some cases the practices described in this
paragraph could have a detrimental effect on the price or amount of the
securities which the Fund purchases or sells. In other cases, however, it is
believed that these practices may benefit the Fund. It is the opinion of the
trustees that the desirability of retaining CGM as adviser for the Fund
outweighs the disadvantages, if any, which might result from these practices.
CUSTODIAL ARRANGEMENTS
State Street Bank and Trust Company ("State Street Bank"), Boston, Massachusetts
02102, is the Fund's custodian. As such, State Street Bank holds in safekeeping
certificated securities and cash belonging to the Fund and, in such capacity, is
the registered owner of securities held in book entry form belonging to the
Fund. Upon instruction, State Street Bank receives and delivers cash and
securities of the Fund in connection with Fund transactions and collects all
dividends and other distributions made with respect to Fund portfolio
securities. State Street Bank also maintains certain accounts and records of the
Fund and calculates the total net asset value, total net income, and net asset
value per share of the Fund on each business day.
INDEPENDENT ACCOUNTANTS
The Fund's independent accountants are PricewaterhouseCoopers LLP, 160 Federal
Street, Boston, Massachusetts 02110. PricewaterhouseCoopers LLP conducts an
annual audit of the Fund's financial statements, assists in the preparation of
the Fund's federal and state income tax returns and consults with the Fund as to
matters of accounting and federal and state income taxation. The information
concerning financial highlights in the Prospectus, and the financial statements
incorporated by reference into this Statement, have been so included in reliance
on the reports of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
OTHER ARRANGEMENTS
Certain office space, facilities, equipment and administrative services for the
Fund and other mutual funds under the investment management of the CGM
organization are furnished by CGM. In addition, CGM provides bookkeeping,
accounting, auditing, financial recordkeeping and related clerical services for
which it is reimbursed by the Fund based on the cost of providing these
services. For the services rendered to the Fund for the fiscal years ended
December 31, 1996, 1997 and 1998, CGM was reimbursed in the amounts of $58,000,
$60,000 and $53,000 respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In placing orders for the purchase and sale of portfolio securities for the
Fund, CGM always seeks the best price and execution. Transactions in unlisted
securities will be carried out through broker-dealers who make the primary
market for such securities unless, in the judgment of CGM, a more favorable
price can be obtained by carrying out such transactions through other brokers.
CGM selects only brokers it believes are financially responsible, will provide
efficient and effective services in executing, clearing and settling an order
and will charge commission rates which, when combined with the quality of the
foregoing services, will produce the best price and execution for the
transaction. This does not necessarily mean that the lowest available brokerage
commission will be paid. However, the commissions are believed to be competitive
with generally prevailing rates. CGM will use its best efforts to obtain
information as to the general level of commission rates being charged by the
brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by the
broker in connection with the order, are taken into account. The Fund will not
pay a broker a commission at a higher rate than is otherwise available for the
same transaction in recognition of the value of research services provided by
the broker or in recognition of the value of any other services provided by the
broker which do not contribute to the best price and execution of the
transaction.
Receipt of research services from brokers may sometimes be a factor in selecting
a broker which CGM believes will provide the best price and execution for a
transaction. These research services include not only a wide variety of reports
on such matters as economic and political developments, industries, companies,
securities, portfolio strategy, account performance, daily prices of securities,
stock and bond market conditions and projections, asset allocation and portfolio
structure, but also meetings with management representatives of issuers and with
other analysts and specialists. Although it is not possible to assign an exact
dollar value to these services, they may, to the extent used, tend to reduce
CGM's expenses. Such services may be used by CGM in servicing other client
accounts and in some cases may not be used with respect to the Fund. Receipt of
services or products other than research from brokers is not a factor in the
selection of brokers.
In 1998, brokerage transactions of the Fund aggregating $4,036,470,788 were
allocated to brokers providing research services and $5,713,763 in commissions
were paid on these transactions. During 1996, 1997 and 1998, the Fund paid total
brokerage fees of $3,432,939, $3,635,840 and $5,776,713, respectively.
DESCRIPTION OF THE FUND
The Declaration of Trust of the Fund currently permits the trustees to issue an
unlimited number of shares of beneficial interest of separate series thereof.
Interests in the portfolio described in the Prospectus and in this Statement are
represented by shares of a single series, which is the only series authorized as
of the date of this Statement (the "Original Series"). Each share of the
Original Series represents an interest in such series which is equal to and
proportionate with the interest represented by each other share. The shares of
the Original Series do not have any preemptive rights. Upon liquidation of the
portfolio, shareholders of the Original Series are entitled to share pro rata in
the net assets of such portfolio available for distribution to shareholders. The
Declaration of Trust also permits the trustees to charge shareholders directly
for custodial, transfer agency and servicing expenses. The trustees have no
present intention of making such direct charges.
The Declaration of Trust also permits the trustees, without shareholder
approval, to create one or more additional series or classes of shares or to
reclassify any or all outstanding shares as shares of particular series or
classes, with such preferences and rights and eligibility requirements as the
trustees may designate. While the trustees have no current intention to exercise
the power to establish separate classes of the existing series of the Fund, it
is intended to allow them to provide for an equitable allocation of the impact
of any future regulatory requirements, which might affect various classes of
shareholders differently. The trustees may also, without shareholder approval,
merge two or more existing series.
SHAREHOLDER RIGHTS
Shareholders are entitled to one vote for each full share held (with fractional
votes for fractional shares held) and may vote (to the extent provided herein)
on the election of trustees of the Fund and the termination of the Fund and on
other matters submitted to the vote of shareholders. There will normally be no
meetings of shareholders for the purpose of electing trustees, except that in
accordance with the 1940 Act (i) the Fund will hold a shareholders' meeting for
the election of trustees at such time as less than a majority of the trustees
holding office have been elected by shareholders, and (ii) if the appointment of
a trustee to fill a vacancy in the Board of Trustees would result in less than
two-thirds of the trustees having been elected by the shareholders, that vacancy
may only be filled by a vote of the shareholders. In addition, trustees may be
removed from office by a written consent signed by the holders of two-thirds of
the outstanding shares and filed with the Fund's custodian or by a vote of the
holders of two-thirds of the outstanding shares at a meeting duly called for the
purpose, which meeting shall be held upon the written request of the holders of
not less than 10% of the outstanding shares. Upon written request by ten or more
shareholders of record who have been such for at least six months and who hold
in the aggregate shares equal to at least the lesser of (i) $25,000 in net asset
value or (ii) 1% of the outstanding shares, stating that shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, the
Fund will either provide access to a list of shareholders or disseminate
appropriate materials (at the expense of the requesting shareholders). Except as
set forth above, the trustees shall continue to hold office and may appoint
successor trustees. Voting rights are not cumulative.
Shares of the Fund are freely transferable to new owners. However, new owners
will not be permitted to purchase additional shares.
No amendment may be made to the Declaration of Trust without the affirmative
vote of a majority of the holders of the outstanding shares of the Fund except
(i) to change the Fund's name or to cure technical problems in the Declaration
of Trust and (ii) to establish, designate or modify new and existing series or
subseries of Fund shares or other provisions relating to Fund shares in response
to applicable laws or regulations. If one or more new series is established and
designated by the trustees, the shareholders of the Original Series shall not be
entitled to vote on matters exclusively affecting such new series, such matters
including, without limitation, the adoption of or change in the investment
objectives, policies or restrictions of the new series and the approval of the
investment advisory contracts of the new series. Similarly, the shareholders of
the new series shall not be entitled to vote on any such matters exclusively
affecting the Original Series. In particular, the phrase "majority of the
outstanding voting securities of the Fund" as used in this Statement shall refer
only to the shares of the Original Series.
On March 31, 1999, there were 26,665,432.983 shares of the Fund outstanding. On
that date State Street Bank, acting as trustee for various retirement plans and
individual retirement accounts, owned 8,688,849.685 shares -- about 32.59% of
the total. In almost all cases, State Street Bank does not have the power to
vote or to dispose of the shares except at the direction of the beneficial
owner.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Fund; however, the Declaration
of Trust disclaims shareholder liability for acts or obligations of the Fund and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Fund or trustees. The Declaration
of Trust provides for indemnification out of Fund property for all losses and
expenses of any shareholder held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is considered remote since it is limited to circumstances
in which the disclaimer is inoperative and the Fund itself would be unable to
meet its obligations.
The Declaration of Trust further provides that the trustees will not be liable
for errors of judgment or mistakes of fact or law. However, nothing in the
Declaration of Trust protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The By-Laws of the Fund provide for indemnification by the Fund of
the trustees and officers of the Fund except with respect to any matter as to
which any such person did not act in good faith in the reasonable belief that
such action was in or not opposed to the best interests of the Fund. No officer
or trustee may be indemnified against any liability to the Fund or the Fund's
shareholders to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
ADVERTISING AND PERFORMANCE INFORMATION
CALCULATION OF TOTAL RETURN
The Fund may include total return information in advertisements or written sales
material. Total return is a measure of the change in value of an investment in
the Fund over the period covered, which assumes that any dividends or capital
gains distributions are automatically reinvested in the Fund rather than paid to
the investor in cash. The formula for total return used by the Fund includes
three steps:
(1) adding to the total number of shares purchased by a hypothetical $1,000
investment in the Fund all additional shares that would have been purchased if
all dividends and distributions paid or distributed during the period had been
automatically reinvested;
(2) calculating the value of the hypothetical initial investment as of the end
of the period by multiplying the total number of shares owned at the end of the
period by the net asset value per share on the last trading day of the period;
and
(3) dividing this account value for the hypothetical investor by the amount of
the initial investment, and annualizing the result for periods of less than one
year.
For the one, five and ten year periods ended December 31, 1998, the Fund's
average annual total return was 8.5%, 13.4% and 21.0%, respectively. For the
one, five and ten year periods ended December 31, 1998, the total return on a
hypothetical $1,000 investment in the Fund on an aggregate basis was 8.5%, 87.3%
and 574.3%, respectively.
In computing performance information for the Fund, no adjustment is made for a
shareholder's tax liability on taxable dividends and capital gains
distributions.
PERFORMANCE COMPARISONS
Total return may be used to compare the performance of the Fund against certain
widely acknowledged standards or indexes for stock and bond market performance
or against the U.S. Bureau of Labor Statistics' Consumer Price Index.
The Standard & Poor's 500 Composite Index (the "S&P 500") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 stocks relative to the base period 1941-43. The S&P 500 is composed
almost entirely of common stocks of companies listed on the New York Stock
Exchange, although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included. The 500 companies
represented include 400 industrial, 60 transportation and 40 financial services
concerns.
The Dow Jones Industrial Average is a market value-weighted and unmanaged index
of 30 large industrial stocks traded on the New York Stock Exchange.
No brokerage commissions or other fees are factored into the values of the S&P
500 and the Dow Jones Industrial Average.
The Consumer Price Index, published by the U.S. Bureau of Labor Statistics, is a
statistical measure of change, over time, in the prices of goods and services in
major expenditure groups.
Lipper Analytical Services, Inc., an independent service that monitors the
performance of over 11,332 mutual funds, calculates total return for those funds
grouped by investment objective. From time to time, the Fund may include its
ranking among mutual funds tracked by Lipper in advertisements or sales
literature.
Morningstar, Inc. ("Morningstar") is an independent mutual fund ranking service.
Morningstar proprietary ratings reflect historical risk-adjusted performance and
are subject to change every month. Funds with at least three years of
performance history are assigned ratings from one star (lowest) to five stars
(highest). Morningstar ratings are calculated from the funds' three-, five-, and
ten-year average annual returns (when available) and a risk factor that reflects
the fund performance relative to three-month Treasury bill monthly returns.
Funds' returns are adjusted for fees and sales loads. Ten percent of the funds
in an investment category receive five stars, 22.5% receive four stars, 35%
receive three stars, 22.5% receive two stars, and the bottom 10% receive one
star. From time to time, the Fund may include its ranking among mutual funds
tracked by Morningstar in advertisements or sales literature.
Value Line, Inc. ("Value Line"), an independent mutual fund ranking service
reviews the performance of 7,976 mutual funds. In ranking mutual funds, Value
Line uses two indicators: a Risk Rank to show the total level of risk a fund has
assumed and an Overall Rank measuring various performance criteria taking risk
into account. Funds are ranked from 1 to 5, with 1 the highest Overall Rank (the
best risk-adjusted performance) and the best Risk Rank (the least risky). From
time to time, the Fund may include ranking information provided by Value Line in
advertisements and sales literature.
From time to time, programs and articles about the Fund regarding performance,
rankings and other characteristics of the Fund and information about persons
responsible for its portfolio management may appear on television and in
national publications and major metropolitan newspapers including, but not
limited to, CNBC, PBC, CNN-fn, The Wall Street Journal, The Boston Globe, The
New York Times and Barron's, Forbes, Fortune, Money, Worth, Kiplinger's Personal
Finance, Mutual Funds, Individual Investor, Bloomberg Personal and Business Week
magazines. In particular, some or all of these media may publish their own
rankings or performance reviews of mutual funds, including the Fund. References
to or reprints of, or quotations from, such articles may be used in the Fund's
promotional literature. The Fund may also include in its advertising and sales
literature information concerning the experience of Mr. Heebner, the Fund's
portfolio manager, in managing other mutual funds and private accounts,
including ranking and rating information about such funds.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price and net asset value per
share is summarized in the Prospectus under "Pricing of Shares."
The net asset value of a share of the Fund is determined by dividing the Fund's
total net assets (the excess of its assets over its liabilities) by the total
number of shares outstanding and rounding to the nearest cent. Such
determination is made as of the close of normal trading on the New York Stock
Exchange on each day on which the Exchange is open for unrestricted trading, and
no less frequently than once daily on each day during which there is sufficient
trading in the Fund's portfolio securities that the value of the Fund's shares
might be materially affected. During the 12 months following the date of this
Statement, the New York Stock Exchange is currently expected to be closed on the
following holidays: Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
Christmas Day, New Year's Day, Martin Luther King, Jr. Day, Presidents' Day and
Good Friday.
Securities which are traded over-the-counter or on a stock exchange will be
valued according to the broadest and most representative market based on the
last reported sale price for securities listed on a national securities exchange
(or on the NASDAQ National Market System) or, if no sale was reported and in the
case of over-the-counter securities not so listed, the last reported bid price.
U.S. government securities are valued at the most recent quoted price on the
date of valuation.
For equity securities, it is expected that the broadest and most representative
market will ordinarily be either (i) a national securities exchange, such as the
New York Stock Exchange or American Stock Exchange, or (ii) the NASDAQ National
Market System. For corporate bonds, notes, debentures and other fixed-income
securities, it is expected that the broadest and most representative market will
ordinarily be the over-the-counter market. Fixed-income securities may, however,
be valued on the basis of prices provided by a pricing service approved by the
Board of Trustees when such prices are believed to reflect the fair market value
of such securities. The prices provided by the pricing service may be determined
based on valuations for normal, institutional-size trading units of such
securities using market information, transactions for comparable securities and
various relationships between securities which are generally recognized by
institutional traders. Instruments with maturities of sixty days or less are
valued at amortized cost, which approximates market 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.
HOW TO PURCHASE SHARES
The eligibility requirements and procedures for purchasing shares of the Fund
are summarized in the Prospectus under "Who Can Purchase Shares" and "How to
Purchase Shares."
SHAREHOLDER SERVICES
OPEN ACCOUNTS
A shareholder's investment is credited to an open account maintained for the
shareholder by the CGM Shareholder Services Department ("CGM Shareholder
Services") of Boston Financial Data Services, Inc. ("BFDS"), the shareholder
servicing agent for State Street Bank. The address is: CGM Shareholder Services,
c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
Certificates representing shares are issued only upon written request to CGM
Shareholder Services but are not issued for fractional shares. Following each
transaction in the account, a shareholder will receive an account statement
disclosing the current balance of shares owned and the details of recent
transactions that have taken place during the year. After the close of each
fiscal year, CGM Shareholder Services will send each shareholder a statement
providing federal tax information on dividends and distributions paid to the
shareholder during the year. The year-end statement should be retained as a
permanent record. Shareholders will be charged a fee for duplicate information.
The open account system permits the purchase of full and fractional shares and,
by making the issuance and delivery of certificates representing shares
unnecessary, eliminates problems of handling and safekeeping, and the cost and
inconvenience of replacing lost, stolen, mutilated or destroyed certificates.
The costs of maintaining the open account system are borne by the Fund, and no
direct charges are made to shareholders. Although the Fund has no present
intention of making such direct charges to shareholders, it reserves the right
to do so. Shareholders will receive prior notice before any such charges are
made.
SYSTEMATIC WITHDRAWAL PLANS ("SWP")
A Systematic Withdrawal Plan, referred to in the Prospectus under "Shareholder
Services -- Systematic Withdrawal Plan," provides for monthly, quarterly,
semiannual or annual withdrawal payments of $50 or more from the account of a
shareholder provided that the account has a value of at least $10,000 at the
time the plan is established. A shareholder may establish a SWP by completing
the Service Options Form.
Payments will be made either to the shareholder or to any other person or entity
designated by the shareholder. If payments are issued to an individual other
than the registered owner(s) and/or mailed to an address other than the address
of record, a signature guarantee will be required on the Service Options Form.
Shares to be included in a Systematic Withdrawal Plan must be held in an Open
Account rather than certificated form. Income dividends and capital gain
distributions will be reinvested at the net asset value determined as of the
close of the New York Stock Exchange on the record date for the dividend or
distribution. If withdrawal checks are returned to the Fund as "undeliverable"
or remain uncashed for more than six months, the shareholder's Systematic
Withdrawal Plan will be cancelled, such undeliverable or uncashed checks will be
cancelled and such amounts reinvested in the Fund at the per share net asset
value determined as of the date of cancellation of the checks.
Since withdrawal payments represent in whole or in part proceeds from the
liquidation of shares, the shareholder should recognize that withdrawals may
reduce and possibly exhaust the value of the account, particularly in the event
of a decline in net asset value. Accordingly, the shareholder should consider
whether a Systematic Withdrawal Plan and the specified amounts to be withdrawn
are appropriate in the circumstances. The Fund makes no recommendations or
representations in this regard. It may be appropriate for the shareholder to
consult a tax adviser before establishing such a plan. See "Redemptions" and
"Income Dividends, Capital Gain Distributions and Tax Status" below for certain
information as to federal income taxes.
EXCHANGE PRIVILEGE
A shareholder may exchange shares of the Fund for shares of CGM Mutual Fund, CGM
Fixed Income Fund, CGM American Tax Free Fund, CGM Realty Fund, CGM Focus Fund,
New England Cash Management Trust or New England Tax Exempt Money Market Trust.
The value of shares exchanged must be at least $1,000 and all exchanges are
subject to the minimum investment requirements of the fund into which the
exchange is being made. This option is summarized in the Prospectus under
"Shareholder Services -- Exchange Privilege." The Fund reserves the right to
terminate or limit the privilege of a shareholder who makes more than four
exchanges (or two round trips) per year and to prohibit exchanges during the
first 15 days following an investment in the Fund. A shareholder may exercise
the exchange privilege only when the fund into which shares will be exchanged is
registered or qualified in the state in which such shareholder resides. If a
shareholder exchanges all shares from the Fund, he will be unable to reopen an
account in the Fund (unless he is currently the registered owner of another
account in the Fund).
Exchanges may be effected by (i) a telephone request to CGM Shareholder Services
at 800-343-5678, provided a special authorization form is on file with the Fund,
or (ii) a written exchange request or Service Options Form to CGM Shareholder
Services. Exchange requests cannot be revoked once they have been received in
good order. The Fund reserves the right to modify this exchange privilege
without prior notice, except as otherwise required by law or regulation.
For federal income tax purposes, an exchange constitutes a sale of shares, which
may result in a capital gain or loss.
AUTOMATIC INVESTMENT PLANS ("AIP")
Once initial investment minimums have been satisfied (see "How to Purchase
Shares" in the Prospectus), a shareholder may participate in an Automatic
Investment Plan, pursuant to which the Fund debits $50.00 or more on or about
the same date each month from a shareholder's checking account and transfers the
proceeds into the shareholder's Fund account. To participate, a shareholder must
authorize the Fund and its agents to initiate Automated Clearing House ("ACH")
debits against the shareholder's designated checking account at a bank or other
financial institution. Please contact CGM Shareholder Services at 800-343-5678
to determine the requirements associated with debits from savings banks and
credit unions. Debits from money market accounts are not acceptable.
Shareholders receive a confirmation of each purchase of Fund shares under the
AIP. If a shareholder elects to redeem shares of the Fund purchased under the
AIP within 15 days of such purchase, the shareholder may experience delays in
receiving redemption proceeds. See "All Redemptions."
Once a shareholder enrolls in the AIP, the Fund and its agents are authorized to
initiate ACH debits against the shareholder's account payable to the order of
The CGM Funds. Such authority remains in effect until revoked by the
shareholder, and, until the Fund actually receives such notice of revocation,
the Fund is fully protected in initiating such debits. Participation in the AIP
may be terminated by sending written notice to CGM Shareholder Services, c/o
BFDS, P.O. Box 8511, Boston, MA 02266-8511, or by calling 800-343-5678 more than
14 days prior to the next scheduled debit date. The Fund may terminate a
shareholder's participation in the AIP immediately in the event that any item is
unpaid by the shareholder's financial institution. The Fund may terminate or
modify the AIP at any time.
RETIREMENT PLANS
Under "Shareholder Services -- Retirement Plans" the Prospectus refers to
several retirement plans. These include tax deferred money purchase pension or
profit sharing plans, as well as SEP-IRAs, Traditional and Roth IRAs and
403(b)(7) custodial accounts established under retirement plans sponsored by
CGM. These plans may be funded with shares of the Fund.
For participants under age 59 1/2, generally, all income dividends and capital
gain distributions of plan participants must be reinvested. Plan documents and
further information can be obtained from the Fund by writing or calling the Fund
as indicated on the cover of this Statement.
Check with your financial or tax adviser as to the suitability of Fund shares
for your retirement plan.
ADDRESS CHANGES
Shareholders can request to change their record address either by telephone or
in writing (by mail or delivery service, but not by facsimile) in accordance
with the policies and procedures of the Fund. After an address change is made,
no telephone or written redemption requests will be honored for three months
unless the registered owner's signature is guaranteed on the request. Written
requests for a change of address may be mailed to: CGM Shareholder Services, c/o
BFDS, P.O. Box 8511, Boston, MA 02266-8511.
If a statement or check sent to a shareholder is returned three times, mailings
to the shareholder may be discontinued until the shareholder contacts CGM
Shareholder Services with correct address information.
REDEMPTIONS
The procedures for redemption of Fund shares are summarized in the Prospectus
under "How to Sell Shares."
Except as noted below, signatures on redemption requests must be guaranteed by
an eligible guarantor institution in accordance with procedures established by
the Fund. Signature guarantees by notaries public are not acceptable.
The procedures established by the Fund provide that an "eligible guarantor
institution" means any of the following: banks (as defined in ss. 3(a) of the
Federal Deposit Insurance Act, as amended (the "FDIA") [12 U.S.C. ss. 1813(a)]);
brokers, dealers, municipal securities brokers, government securities dealers
and government securities brokers, as those terms are defined under the
Securities Exchange Act of 1934, as amended (the "1934 Act"); credit unions (as
defined in ss. 19(b)(1)(A) of the Federal Reserve Act, as amended [12 U.S.C. ss.
461(b)]); national securities exchanges, registered securities associations and
clearing agencies, as those terms are defined under the 1934 Act and savings
associations (as defined in ss. 3(b) of the FDIA [12 U.S.C. ss. 1813(b)]).
However, as noted in the Prospectus, a signature guarantee will not be required
if the proceeds of the redemption do not exceed $25,000, and the proceeds check
is made payable to the registered owner(s) and mailed to the record address,
which has not changed in the prior three months. If the record address has
changed within the prior three months, a signature guarantee will be required.
This policy applies to both written and telephone redemption requests.
REDEEMING BY TELEPHONE
There are two ways to redeem by telephone. In either case, a shareholder should
call 800-343-5678 prior to 4:00 p.m. (Eastern time). Requests made after that
time or on a day when the New York Stock Exchange is not open for business
cannot be accepted. Telephone redemptions are not available for Traditional or
Roth IRAs, SEP-IRAs, 403(b)(7) custodial accounts or money purchase pension and
profit sharing plans under a CGM retirement plan where State Street Bank is the
custodian or trustee.
CHECK SENT TO THE RECORD ADDRESS
A shareholder may request that a check be sent to the record address on the
account, provided that the address has not changed for the last three months and
the shareholder is redeeming $25,000 or less. Except in the case of a CGM
retirement plan, the service option of telephone redemption by check is
available to shareholders automatically unless this option is declined in the
application or in writing. The check will be made payable to the registered
owner(s) of the account.
If checks representing redemption proceeds are returned "undeliverable" or
remain uncashed for six months, such checks shall be cancelled and such proceeds
shall be reinvested in the Fund at the per share net asset value determined as
of the date of cancellation of such checks.
PROCEEDS WIRED TO A PREDESIGNATED BANK
A shareholder may request that the redemption proceeds be wired to the bank
selected on the Fund application or subsequently on the Service Options Form
(with a signature guarantee) available from the Fund or CGM Shareholder
Services. A nominal wire fee, currently $5.00, is deducted from the proceeds.
When selecting the service, a shareholder must designate a bank account to which
the redemption proceeds should be wired. Any change in the bank account so
designated may be made by furnishing CGM Shareholder Services a completed
Service Options Form with a signature guarantee. Whenever the Service Options
Form is used, the shareholder's signature must be guaranteed as described above.
Telephone redemptions may only be made if an investor's bank is a member of the
Federal Reserve System or has a correspondent bank that is a member of the
System. If the account is with a savings bank, it must have only one
correspondent bank that is a member of the System.
ALL REDEMPTIONS
The redemption price will be the net asset value per share next determined after
the redemption request is received by CGM Shareholder Services in good order
(including any necessary documentation). Redemption requests cannot be revoked
once they have been received in good order. Proceeds resulting from a written
redemption request will normally be mailed or wired to you within seven days
after receipt of your request in good order. Telephone redemption proceeds will
normally be mailed or wired within seven days following receipt of a proper
redemption request. If you purchased your Fund shares by check (or through your
AIP) and elect to redeem shares within 15 days of such purchase, you may
experience delays in receiving redemption proceeds. The Fund will process your
redemption request upon receipt of a request in good order. However, the Fund
will generally postpone sending your redemption proceeds from such investment
until it can verify that your check (or AIP investment) has been or will be
collected. Under ordinary circumstances, the Fund cannot verify collection of
individual checks (or AIP investments) and may therefore automatically hold
proceeds from redemptions requested during the 15 day period following such
investment for a total of up to seven days. There will be no such automatic
delay following investments paid for by federal funds wire or by bank cashier's
check, certified check or treasurer's check although the Fund may in any case
postpone payment of redemption proceeds for up to seven days.
The Fund will normally redeem shares for cash; however, the Fund reserves the
right to pay the redemption price wholly in kind or partly in kind and partly in
cash if the Board of Trustees of the Fund determines it to be advisable in the
interest of the remaining shareholders. If portfolio securities are distributed
in lieu of cash, the shareholder will normally incur brokerage commissions upon
subsequent disposition of any such securities. However, CGM Capital Development
Fund has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which the Fund is obligated to redeem shares solely in cash for any shareholder
during any 90-day period up to the lesser of $250,000 or 1% of the total net
asset value of the Fund at the beginning of such period.
A redemption constitutes a sale of the shares for federal income tax purposes on
which the investor may realize a long-term or short-term capital gain or loss.
See "Income Dividends, Capital Gains Distributions and Tax Status."
Because the expense of maintaining small accounts is disproportionately high,
the Fund may close accounts with 20 shares or less and mail the proceeds to the
shareholder. Shareholders who are affected by this policy will be notified of
the Fund's intention to close the account, and will have 60 days immediately
following the notice in which to acquire the requisite number of shares. The
minimum does not apply to retirement and Uniform Gifts to Minors Act or Uniform
Transfers to Minors Act accounts.
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
As described in the Prospectus under "Dividends, Capital Gains and Taxes" it is
the policy of the Fund to pay annually, as dividends, substantially all net
investment income and to distribute annually all net realized capital gains, if
any, after offsetting any capital loss carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the Fund based upon the net asset value determined as of
the close of the New York Stock Exchange on the record date for such dividend or
distribution. Shareholders, however, may elect to receive their income dividends
or capital gain distributions, or both, in cash. However, if a shareholder
elects to receive capital gains in cash, his or her income dividends must also
be received in cash. Shareholders can elect to receive payments of cash
dividends and capital gains distributions either by check or by direct deposit
to a bank account that they have predesignated. These elections can be made at
the time the account is opened and may be changed by the shareholder at any time
by submitting a written request directly to CGM Shareholder Services or by
calling 800-343-5678. However, changes in bank account information for direct
deposits of cash dividends and capital gains distributions must be made through
a Service Options Form. In order for a change to be effective for any dividend
or distribution, it must be received by CGM Shareholder Services on or before
the record date for such dividend or distribution. If a shareholder elects to
receive distributions in cash and checks are returned "undeliverable" or remain
uncashed for six months, such shareholder's cash election will be changed
automatically and the shareholder's future dividend and capital gains
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, following
such six month period, any undeliverable or uncashed checks will be cancelled
and such amounts reinvested in the Fund at the per share net asset value
determined as of the date of cancellation of such checks.
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Code, by meeting all
applicable requirements of Subchapter M, including requirements as to the nature
of the Fund's gross income, the amount of Fund distributions, and the
composition of the Fund's portfolio assets.
As a regulated investment company, the Fund generally will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to shareholders. The Fund intends to
distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the
excise tax, the Fund must distribute during each calendar year an amount equal
to the sum of (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses, as prescribed by the Code) for the one-year period ending on October 31
of the calendar year, and (3) any ordinary income and capital gains for previous
years that was not distributed during those years. A distribution will be
treated as paid on December 31 of the current calendar year if it is declared by
the Fund in October, November or December with a record date in such a month and
paid by the Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received. To prevent application of the excise tax, the Fund
intends to make its distributions in accordance with the calendar year
distribution requirement.
Dividends paid by the Fund from net investment income (including dividends and
interest) and net short-term capital gains will be taxable to shareholders as
ordinary income for federal income tax purposes. A portion of the dividends paid
by the Fund may be eligible for the corporate dividends-received deduction if
the recipient otherwise qualifies for that deduction with respect to its holding
of Fund shares. Availability of the deduction for particular corporate
shareholders is subject to certain limitations, and deducted amounts may be
subject to the alternative minimum tax and may result in certain basis
adjustments. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) which are designated by the
Fund as capital gains dividends are taxable as long-term capital gains for
federal income tax purposes, regardless of the length of time shareholders have
owned shares in the Fund. To the extent that the Fund makes a distribution in
excess of its current and accumulated earnings and profits, the distribution
will be treated first as a tax-free return of capital, reducing the tax basis in
a shareholder's shares, and then, to the extent the distribution exceeds such
basis, as a taxable gain from the sale of such shares. Dividends and
distributions are taxable to shareholders in the same manner whether received in
cash or reinvested in additional shares of the Fund.
Any Fund distribution will have the effect of reducing the per share net asset
value of shares in the Fund by the amount of the distribution. Shareholders
purchasing shares shortly before the record date of a distribution may thus pay
the full price for the shares and then effectively receive a portion of the
purchase price back as a taxable distribution.
Upon the sale or other disposition of shares of the Fund, a shareholder may
realize a capital gain or loss which will be long-term or short-term, generally
depending upon the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced (including shares acquired pursuant to a dividend
reinvestment plan) within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the Fund accrues receivables or liabilities
denominated in a foreign currency, and the time the Fund actually collects such
receivables or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency, gains or losses attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
or losses, referred to under the Code as "section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.
If the Fund invests in stock of certain "passive foreign investment companies,"
the Fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of the Fund, other than the taxable
year of the excess distribution or disposition, would be taxed to the Fund at
the highest ordinary income tax rate in effect for such year, and the tax would
be further increased by an interest charge to reflect the value of the tax
deferral deemed to have resulted from the ownership of the foreign company's
stock. Any amount of distribution or gain allocated to the taxable year of the
distribution or disposition would be included in the Fund's investment company
taxable income and, accordingly, would not be taxable to the Fund to the extent
distributed by the Fund as a dividend to its shareholders.
The Fund may elect to mark to market its passive foreign investment company
stock, resulting in the stock being treated as sold at fair market value on the
last business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the stock would be reported as ordinary loss to the extent of any net gains
reported in prior years. Alternatively, the Fund may be able to make an
election, in lieu of being taxable in the manner described above, to include
annually in income its pro rata share of the ordinary earnings and net capital
gain of the foreign investment company, regardless of whether it actually
received any distributions from the foreign company. These amounts would be
included in the Fund's investment company taxable income and net capital gain
which, to the extent distributed by the Fund as ordinary or capital gain
dividends, as the case may be, would not be taxable to the Fund. In order to
make this election, the Fund would be required to obtain certain annual
information from the foreign investment companies in which it invests, which in
many cases may be difficult to obtain. Either of the foregoing elections may
cause the Fund to recognize income prior to the receipt of cash payments with
respect to its investments; in order to distribute this income and avoid a tax
on the Fund, the Fund may be required to liquidate portfolio securities that it
might otherwise have continued to hold.
Income received by the Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries.
A shareholder may be subject to backup withholding at the rate of 31% of any
taxable distributions unless such shareholder (a) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact, or (b) provides a taxpayer identification number, certifies that the
shareholder is not subject to backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A shareholder who does
not provide the Fund with his correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
will be creditable against the shareholder's income tax liability so long as a
return is timely filed.
As required by federal law, detailed federal tax information is furnished to
each shareholder for each calendar year on or before January 31 of the
succeeding year.
Investors should consult their tax advisors regarding the application of the
above-described general federal taxation rules to their own circumstances and
the state, local, or foreign tax consequences to them of any investment in the
Fund.
FINANCIAL STATEMENTS
The financial statements and Report of Independent Accountants for the year
ended December 31, 1998, included in the Fund's Annual Report to Shareholders
for the year ended December 31, 1998, are incorporated herein by reference.
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) Amended and Restated Agreement and Declaration of Trust of
the Registrant.(1)
(b) By-laws of the Registrant.(1)
(c) Form of share certificate of the Registrant.(1)
(d) Advisory Agreement of the Registrant.(1)
(e) None.
(f) None.
(g) Custodian Agreement of the Registrant.(1)
(h) Transfer Agency Agreement of the Registrant.(2)
(i) Opinion and consent of counsel filed herewith.
(j) Consent of PricewaterhouseCoopers LLP filed herewith.
(k) None.
(l) None.
(m) None.
(n) Financial data schedule filed herewith.
(o) None.
(p) Powers of attorney.2
(1) Filed as an exhibit to Post-Effective Amendment No. 62 to the
Registrant's Registration Statement on Form N-1A (File No.
2-16252) filed February 27, 1997 and incorporated herein by
reference.
(2) Filed as an exhibit to Post-Effective Amendment No. 64 to the
Registrant's Registration Statement on Form N-1A (File No.
2-16252) filed March 1, 1999 and incorporated herein by
reference.
Item 24. Persons Controlled by or Under Common Control With Registrant
Information pertaining to persons controlled by or under common
control with the Registrant is hereby incorporated by reference to
the section captioned "The Investment Manager" in the Prospectus and
the section captioned "Investment Advisory and Other Services -
Advisory Agreement" in the Statement of Additional Information.
Item 25. Indemnification
See Article 4 of the Trust's By-laws which is incorporated by
reference herein to Post-Effective Amendment No. 62 to the
Registrant's Registration Statement on Form N-1A (File No. 2-16252)
filed February 27, 1997. In addition, the Trust maintains a trustees
and officers liability insurance policy with maximum coverage of $5
million under which the Trust and its trustees and officers will be
named insureds.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the Trust's
By-laws, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final
adjudication of such issue.
Item 26. Business and Other Connections of the Investment Adviser
Capital Growth Management Limited Partnership ("CGM"), the
Registrant's investment manager, provides investment advice to a
number of other registered investment companies and to other
organizations and individuals.
CGM is owned by KenBob, Inc., which is in turn owned by Robert L.
Kemp and G. Kenneth Heebner. Both Mr. Kemp and Mr. Heebner are
trustees and officers of the Registrant and of the CGM Trust,
another registered investment company, each of the series of
which is managed by CGM.
Item 27. Principal Underwriters
Not applicable.
Item 28. Location of Accounts and Records
The following companies maintain possession of the documents
required by the specified rules:
(a) Registrant
Rule 31a-1(a)(4); Rule 31a-1(d)
Rule 31a-2(a); Rule 31a-2(c)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Rule 31a-1(a)
Rule 31a-1(b)(1), (2), (3), (5), (6), (7), (8)
Rule 31a-2(a)
(c) Capital Growth Management Limited Partnership
One International Place
Boston, Massachusetts 02110
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(a); 31a-2(e)
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this
Post-Effective Amendment to its Registration Statement on Form N-1A meets all
the requirements for effectiveness pursuant to Rule 485(b) under the Securities
Act of 1933 and that the Registrant has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Boston, and the Commonwealth of Massachusetts,
on the 28th day of April, 1999.
CGM CAPITAL DEVELOPMENT FUND
By: /s/ Robert L. Kemp
----------------------------
Robert L. Kemp
President
Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment to this Registration Statement has been signed below by
the following persons on April 28, 1999 in the capacities indicated.
Signature Title
--------- -----
President
(Principal
/s/ Robert L. Kemp Executive Officer)
- ------------------------------- and Trustee
Robert L. Kemp
Treasurer
(Principal
/s/ Frank N. Strauss Financial and
- ------------------------------- Accounting Officer)
Frank N. Strauss
*Peter O. Brown Trustee
- -------------------------------
Peter O. Brown
/s/ G. Kenneth Heebner Trustee
- -------------------------------
G. Kenneth Heebner
*Robert B. Kittredge Trustee
- -------------------------------
Robert B. Kittredge
*Laurens MacLure Trustee
- -------------------------------
Laurens MacLure
*James Van Dyke Quereau, Jr. Trustee
- -------------------------------
James Van Dyke Quereau, Jr.
*J. Baur Whittlesey Trustee
- -------------------------------
J. Baur Whittlesey
*By: /s/ Robert L. Kemp
- -------------------------------
Robert L. Kemp
Attorney-In-Fact pursuant to powers of attorney previously filed.
<PAGE>
EXHIBIT INDEX
(i) Opinion and consent of counsel.
(j) Consent of PricewaterhouseCoopers LLP.
(n) Financial data schedule.
<PAGE>
Exhibit (i)
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
April 30, 1999
CGM Capital Development Fund
One International Place
Boston, Massachusetts 02110
Ladies and Gentlemen:
We have acted as counsel to CGM Capital Development Fund, a Massachusetts
business trust (the "Trust"), in connection with Post-Effective Amendment Number
65 to the Trust's Registration Statement filed with the Securities and Exchange
Commission on April 30, 1999 (the "Amendment").
In connection with this opinion, we have examined the following described
documents:
(a) the Amendment;
(b) a certificate of the Secretary of State of the Commonwealth of
Massachusetts as to the existence of the Trust;
(c) copies, certified by the Secretary of State of the Commonwealth of
Massachusetts, of the Trust's Declaration of Trust and of all amendments thereto
on file in the office of the Secretary of State; and
(d) a certificate executed by the President of the Trust, certifying as
to, and attaching copies of, the Trust's By-Laws and certain votes of the
Trustees of the Trust authorizing the issuance of shares of the Trust.
In such examination, we have assumed the genuineness of all signatures,
the conformity to the originals of all of the documents reviewed by us as
copies, the authenticity and completeness of all documents reviewed by us in
original or copy form and the legal competence of each individual executing any
document.
This opinion is based entirely on our review of the documents listed
above. We have made no other review or investigation of any kind whatsoever, and
we have assumed, without independent inquiry, the accuracy of the information
set forth in such documents.
This opinion is limited solely to the laws of the Commonwealth of
Massachusetts (other than the Massachusetts Uniform Securities Act, as to which
we express no opinion) as applied by courts in such Commonwealth, to the extent
such laws may apply to or govern the matters covered by this opinion.
We understand that all of the foregoing assumptions and limitations are
acceptable to you.
Based upon and subject to the foregoing, please be advised that it is our
opinion that the shares of the Trust, when issued and sold in accordance with
the Amendment and the Trust's Declaration of Trust and By-Laws, will be legally
issued, fully paid and non-assessable, except that, as set forth in the
Amendment, shareholders of the Trust may under certain circumstances be held
personally liable for the Trust's obligations.
We hereby consent to the filing of this opinion as an exhibit to the
Amendment.
Very truly yours,
Bingham Dana LLP
BINGHAM DANA LLP
<PAGE>
Exhibit (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 65 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 8, 1999, relating to the financial
statements and financial highlights appearing in the December 31, 1998 Annual
Report to Shareholders of CGM Capital Development Fund, which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the Prospectus
and under the heading "Independent Accountants" in the Statement of Additional
Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 28, 1999
[ARTICLE] 6
[CIK] 0000060332
[NAME] CGM CAPITAL DEVELOPMENT FUND
[SERIES]
[NUMBER] 1
[NAME] CGM CAPITAL DEVELOPMENT FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-END] DEC-31-1998
[INVESTMENTS-AT-COST] 660799503
[INVESTMENTS-AT-VALUE] 712471774
[RECEIVABLES] 17768066
[ASSETS-OTHER] 4616
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 730244456
[PAYABLE-FOR-SECURITIES] 8508453
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 18318039
[TOTAL-LIABILITIES] 26826492
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 654175184
[SHARES-COMMON-STOCK] 28197266
[SHARES-COMMON-PRIOR] 26808321
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (2429491)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 51672271
[NET-ASSETS] 703417964
[DIVIDEND-INCOME] 10233802
[INTEREST-INCOME] 140860
[OTHER-INCOME] 0
[EXPENSES-NET] 7621378
[NET-INVESTMENT-INCOME] 2753284
[REALIZED-GAINS-CURRENT] 100982649
[APPREC-INCREASE-CURRENT] (46707964)
[NET-CHANGE-FROM-OPS] 57027969
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 2753284
[DISTRIBUTIONS-OF-GAINS] 100982649
[DISTRIBUTIONS-OTHER] 1692581
[NUMBER-OF-SHARES-SOLD] 1202694
[NUMBER-OF-SHARES-REDEEMED] 3544824
[SHARES-REINVESTED] 3731075
[NET-CHANGE-IN-ASSETS] (19254940)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (120457)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 6997004
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 7621378
[AVERAGE-NET-ASSETS] 710212842
[PER-SHARE-NAV-BEGIN] 26.96
[PER-SHARE-NII] 0.11
[PER-SHARE-GAIN-APPREC] 2.18
[PER-SHARE-DIVIDEND] 0.11
[PER-SHARE-DISTRIBUTIONS] 4.19
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 24.95
[EXPENSE-RATIO] 1.07
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
