<PAGE>
File Nos. 2-16252
811-933
As filed with the Securities and Exchange Commission on April 25, 2000
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. 66 /X/
and
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 34 /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 April 28, 2000,
pursuant to paragraph (b) of Rule 485.
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CGM
CAPITAL
DEVELOPMENT
FUND
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A No-Load Fund
PROSPECTUS & APPLICATION o MAY 1, 2000
[logo] The Fund's investment objective is long-term capital appreciation.
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.
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TABLE OF CONTENTS
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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
FINANCIAL HIGHLIGHTS --------------------------------------------- 14
CONTACT INFORMATION ------------------------------------------- Back Cover
[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 directly or indirectly 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 reinvest-ment of dividends and
distributions. The Fund's past performance does not necessarily indicate how the
Fund will perform in the future.
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YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
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%
1999 7.7%
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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 12/31/99)
1 Year 5 Years 10 Years
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Fund 7.7% 21.2% 19.9%
S&P 500 Index 21.0% 28.5% 18.2%
[logo] EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
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 Fee* None
Exchange Fee 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
12/31/99)
Management Fees 0.99%
Distribution (12b-1) Fees None
Other Expenses 0.09%
Total Fund Operating Expenses 1.08%
* A wire fee (currently $5.00) will be deducted from proceeds if a shareholder
elects to transfer redemption proceeds by wire.
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 $110 $343 $595 $1,317
[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 1999, 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 Nvest Funds Distributor, L.P.
All exchanges are free of charge, except exchanges of all shares from a CGM
Retirement Plan account, which will incur an account close out fee. You may make
an exchange by written instruction or, if a written authorization for telephone
exchange 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 Nvest Funds
Distributor, 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 at any
time.
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. For federal
income tax purposes, a withdrawal under the SWP constitutes a sale of shares,
which may result in a capital gain or loss. If checks are returned to the Fund
as "undeliverable" or remain uncashed for more than six months, the plan will be
cancelled. Any undeliverable or uncashed check(s) will be cancelled and the
amount(s) will be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation of the check(s). No interest will
accrue on amounts represented by uncashed distribution or redemption checks. The
Fund may terminate or modify the SWP at any time.
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.
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 address of record, 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.
For federal income tax purposes, a redemption is a taxable event and may result
in a capital gain or loss.
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 at
800-343-5678 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.
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 address of record (or sent to your address
of record 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 within the previous 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
(except CGM Retirement Plans) 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 a 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
a 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 five business days after receipt of your
request in good order. Telephone wire redemption proceeds will normally be wired
to your bank within five business 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
from the date of the redemption. 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 a 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.
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 at least five days 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. As long as the Fund qualifies for treatment as a
regulated investment company (which it has in the past and intends to do in the
future), it pays no federal income tax on the earnings it distributes to
shareholders. You will normally have to pay federal income taxes, and any state
or local taxes, on the distributions you receive from the Fund, whether you take
the distributions in cash or reinvest them in additional shares. Distributions
designated as capital gain dividends are taxable as long-term capital gains,
regardless of how long you have owned your shares in the Fund. Other
distributions are generally taxable 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. 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 your tax basis, as a taxable
gain from the sale of your 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.
Fund distributions will reduce the Fund's net asset value per share. Therefore,
if you buy shares shortly before the record date of a distribution, you may pay
the full price for the shares and then effectively receive a portion of the
purchase price back as a taxable distribution. The Fund will notify you annually
as to the tax status of all distributions made by the Fund.
FOREIGN TAXES. If the Fund invests in foreign issuers, it may be subject to
foreign taxes on income earned on those securities and most likely will not be
eligible to elect to "pass through" such foreign income taxes to you. Therefore,
you should not expect to be able to claim a foreign tax credit or deduction 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
generally 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.
You are responsible for any tax liabilities generated by your transactions.
BACKUP WITHHOLDING. The Fund is required, in certain circumstances, to withhold
at a rate of 31% on 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 may receive a statement providing the cost basis and gain or
loss of each share lot that you sold during such year. Some restrictions apply.
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.
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. 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.
<PAGE>
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.
<TABLE>
<CAPTION>
CGM CAPITAL DEVELOPMENT FUND YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
For a share of the Fund outstanding
throughout each year:
Net asset value at beginning of
year ............................ $24.95 $26.96 $29.08 $27.33 $20.58
------ ------ ------ ------ ------
Net investment income (loss) ...... 0.12 0.11 (0.08)(a) 0.07 0.02
Dividends from net investment
income .......................... (0.11) (0.11) -- (0.07) (0.02)
Net realized and unrealized gain on
investments ..................... 1.80 2.18 7.04 7.62 8.43
Distribution from net realized gain (0.49) (4.12) (9.08) (5.84) (1.68)
Distribution in excess of net
realized gain on investments .... (0.07) (0.07) -- (0.03) --
------ ------ ------ ------ ------
Net increase (decrease) in net
asset value 1.25 (2.01) (2.12) 1.75 6.75
------ ------ ------ ------ ------
Net asset value at end of year .... $26.20 $24.95 $26.96 $29.08 $27.33
====== ====== ====== ====== ======
Total Return (%) .................. 7.7 8.5 23.9 28.1 41.1
Ratios:
Operating expenses to average net
assets (%) ...................... 1.08 1.07 1.07 0.82 0.85
Net investment income (loss) to
average net assets (%) .......... 0.46 0.39 (0.29) 0.23 0.07
Portfolio turnover (%) ............ 335 335 230 178 271
Net assets at end of year
(in thousands) ($) .............. 632,537 703,418 722,673 631,260 521,248
(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 upon payment
of a duplicating fee by electronic request at the following e-mail address:
[email protected], or 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 by calling the
SEC at 1-202-942-8090.
CFP00 SEC File No. 811-933
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
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, 2000
(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, 1999 is incorporated by reference into this
Statement. A copy of the Annual Report accompanies this Statement.
CSAI00
<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
Codes of Ethics................................................. 10
PORTFOLIO TRANSACTIONS AND BROKERAGE..................................... 10
DESCRIPTION OF THE FUND.................................................. 12
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 Address of Record............................. 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
directly and 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.
SECURITIES HELD IN MANDATORY SECURITIES DEPOSITORIES. The Fund will not purchase
or acquire any securities that are required to be held in a "mandatory
securities depository" for which State Street Bank and Trust Company ("State
Street Bank"), the Fund's custodian, will not act as foreign custody manager
under its Custodian Contract with the Fund. This policy does not apply to any
securities that are delivered to the Fund without any investment decision or
action on behalf of the Fund. For purposes of this policy, the term "mandatory
securities depository" shall have the meaning assigned to it in the Custodian
Contract for the Fund with State Street Bank. This investment policy is not a
fundamental policy of the Fund.
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 59) -- 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 59)* -- Trustee and Vice President
Employee, CGM; formerly Vice President and Director, Loomis-Sayles and
Company, Incorporated ("Loomis-Sayles").
ROBERT L. KEMP (Age 67)* -- Trustee and President
Employee, CGM; formerly President and Director, Loomis-Sayles.
ROBERT B. KITTREDGE (Age 79) -- Trustee
21 Sturdivant Street, Cumberland Foreside, ME; Retired; formerly Vice
President, General Counsel and Director, Loomis-Sayles; formerly Trustee,
New England Zenith Fund.
LAURENS MACLURE (Age 74) -- Trustee
183 Sohier Street, Cohasset, MA; Retired; formerly President and Chief
Executive Officer, New England Deaconess Hospital; formerly Trustee, New
England Zenith Fund; formerly Director Massachusetts Blue Cross/Blue
Shield.
JAMES VAN DYKE QUEREAU, JR. (Age 51) -- Trustee
59 Annewood Lane, Wayne, PA; Managing Partner, Stratton Management
Company; Director, Semper Trust Co.; formerly Institutional Managing
Partner, Loomis-Sayles.
J. BAUR WHITTLESEY (Age 53) -- Trustee
1521 Locust Street, Philadelphia, PA; Member, Ledgewood Law Firm, P.C.
KATHLEEN S. HAUGHTON (Age 39) -- Vice President
Employee -- Vice President, Investor Services Division, CGM; formerly Vice
President, Boston Financial Data Services, Inc.
LESLIE A. LAKE (Age 55) -- Vice President and Secretary
Employee -- Office Administrator, CGM; formerly Office Administrator,
Capital Growth Management Division of Loomis-Sayles.
MARTHA I. MAGUIRE (Age 44) -- Vice President
Employee -- Funds Marketing, CGM; formerly marketing communications
consultant (self-employed); formerly Sales Promotion Consultant, The New
England.
MARY L. STONE (Age 55) -- Assistant Vice President
Employee -- Assistant Vice President, Portfolio Transactions, CGM;
formerly Coordinator, Mutual Fund Recordkeeping, Loomis-Sayles.
FRANK N. STRAUSS (Age 38) -- 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 62) -- 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, 2000, 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, 1999:
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS ESTIMATED
AGGREGATE ACCRUED AS ANNUAL COMPENSATION
COMPENSATION PART OF FUND BENEFITS UPON FROM THE FUND AND FUND
NAME OF TRUSTEE FROM FUND EXPENSES RETIREMENT COMPLEX PAID TO TRUSTEES (A)
- --------------------------------------- --------------- ---------------- --------------- -----------------------------
<S> <C> <C> <C> <C>
PETER O. BROWN $8,554 None None $37,000
G. KENNETH HEEBNER None None None None
ROBERT L. KEMP None None None None
ROBERT B. KITTREDGE $8,554 None None $37,000
LAURENS MACLURE $8,554 None None $37,000
JAMES VAN DYKE QUEREAU, JR. $8,554 None None $37,000
J. BAUR WHITTLESEY $8,554 None None $37,000
(a) The Fund Complex is comprised of two Trusts with a total of six funds.
</TABLE>
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, 1997, 1998 and 1999, the advisory fee paid to CGM in respect of
services rendered to the Fund amounted to $7,210,245, $6,997,004 and $6,128,531,
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, 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, 1997, 1998 and 1999, CGM was reimbursed in the amounts of $60,000,
$53,000 and $57,000, respectively.
CODES OF ETHICS
The Fund and CGM each have adopted a Code of Ethics pursuant to Rule 17j-1 under
the 1940 Act. These Codes of Ethics permit personnel of the Fund and CGM, under
certain circumstances, to invest in securities, including securities that may be
purchased or held by the Fund.
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.
The Fund's Trustees (together with the Trustees of certain other CGM funds) have
directed CGM to allocate a total of $26,481 of brokerage commissions from
certain CGM funds (including the Fund) to Instanet (formerly known as Lipper
Inc.) for the purpose of obtaining certain publications provided by Instanet
(which provides information useful to the Trustees in reviewing the relationship
between the Fund and CGM).
In 1999, brokerage transactions of the Fund aggregating $3,384,426,934 were
allocated to brokers providing research services and $5,423,047 in commissions
were paid on these transactions. During 1997, 1998 and 1999, the Fund paid total
brokerage fees of $3,635,840, $5,776,713 and $5,530,102, 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, 2000, there were 22,849,441 shares of the Fund outstanding. On that
date State Street Bank, acting as trustee for various retirement plans and
individual retirement accounts, owned 7,165,963 shares -- about 31.4% 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, 1999, the Fund's
average annual total return was 7.7%, 21.2% and 19.9%, respectively. For the
one, five and ten year periods ended December 31, 1999, the total return on a
hypothetical $1,000 investment in the Fund on an aggregate basis was 7.7%,
161.8% and 516.2%, 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. As of January 31, 2000,
the 500 companies represented include 378 industrial, 40 utilities, 11
transportation and 71 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 Inc. (formerly, Lipper Analytical Services, Inc.) is an independent
service that tracks the performance of approximately 32,000 mutual funds
worldwide. 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 10,278 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 a
Service Options Form or the appropriate retirement plan distribution 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 appropriate 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. Special rules
apply to fiduciary accounts. Please call 800-343-5678 for information.
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,
Nvest Cash Management Trust Money Market Series, or Nvest 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 that their address of record be changed 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 address of record,
which has not changed in the prior three months. If the address of record 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 ADDRESS OF RECORD
A shareholder may request that a check be sent to the address of record 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 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. Special rules apply to fiduciary
accounts. Please call 800-343-5678 for information.
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 a 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 a 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 five business
days after receipt of your request in good order. Telephone redemption proceeds
will normally be mailed or wired within five business 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 at least five
days 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 is treated as a separate entity for federal income tax purposes under
the Internal Revenue Code of 1986, as amended (the "Code"). 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 or excise 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 in accordance with
the timing requirements imposed by the Code. If the Fund failed to qualify as a
"regulated investment company" in any year, it would incur a regular federal
corporate income tax on all of its taxable income, whether or not distributed,
and Fund distributions would generally be taxable as ordinary dividend income to
the 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. To prevent application of the excise tax, the
Fund intends to make its distributions in accordance with the calendar year
distribution requirement.
As long as it qualifies as a "regulated investment company" under the Code, the
Fund will not be required to pay Massachusetts income or excise taxes.
Shareholders of the Fund normally will have to pay federal income tax, and any
state or local income taxes, on the dividends and capital gain distributions
they receive from the Fund. Distributions paid by the Fund from ordinary income
(including dividends and interest) and net short-term capital gains will be
taxable to shareholders as ordinary income for federal income tax purposes. If
the Fund receives dividend income from U.S. corporations, 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
tax 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 Fund shares by a shareholder that holds
such shares as a capital asset, 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. If a shareholder realizes a loss from the
disposition of shares (a) that he or she has held for six months or less and (b)
on which he or she received a capital gain distribution, all or a portion of
that shareholder's loss will be treated as a long-term capital loss. Generally,
the amount of such loss that is treated as a long-term capital loss will not
exceed the amount of net capital gain distributions received by the shareholder
with respect to such shares.
Dividends paid by the Fund that are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but generally
not distributions of capital gains realized upon the disposition of such
obligations) may be exempt from state and local income taxes. The Fund generally
intends to advise shareholders of the extent, if any, to which its dividends
consist of such interest.
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.
The Fund may invest in foreign entities that may be treated as "passive foreign
investment companies" for U.S. federal income tax purposes. If the Fund does
invest in passive foreign investment companies, it may be required to pay
additional tax (and interest) in respect of distributions from, and gains
attributable to the sale or other disposition of the stock of, such entities. If
the Fund is eligible to make and makes either a "qualified electing fund"
election or a "mark to market" election with respect to an investment in a
passive foreign investment company, then the Fund may have taxable income from
such investment regardless of whether or not the Fund receives any actual
distributions of cash from such passive foreign investment company in any given
year. 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 have otherwise
continued to hold, potentially resulting in additional taxable gain or loss to
the Fund.
Investment income received by the Fund and gains with respect to foreign
securities may be subject to foreign taxes, including foreign taxes withheld at
the source. The United States has entered into tax treaties with many foreign
countries that may entitle the Fund to a reduced rate of tax or an exemption
from tax on such income; the Fund intends to qualify for treaty reduced rates
where available.
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. CGM Shareholder Services, 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 a year, you may also receive a statement providing the cost
basis and gain or loss of each share lot that you sold in each year. 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. 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 and local taxes. A
portion of the Fund's income derived from certain direct U.S. Government
obligations (but generally not distributions of capital gains realized upon the
disposition of such obligations) may be exempt from state and local taxes. Each
year, the Fund will indicate the portion of its income, if any, that is derived
from such obligations.
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, 1999, included in the Fund's Annual Report to Shareholders
for the year ended December 31, 1999, 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) (1) Custodian Contract of the Registrant.(1)
(2) Amendment dated April 29, 1999 to the Custodian Contract
of the Registrant filed herewith.
(h) (1) Transfer Agency Agreement of the Registrant.(2)
(2) Amendment dated August 11, 1999 to the Transfer Agency
Agreement of the Registrant filed herewith.
(i) Opinion and consent of counsel.(3)
(j) Consent of PricewaterhouseCoopers LLP filed herewith.
(k) None.
(l) None.
(m) None.
(n) None.
(p) (1) Code of Ethics of the Registrant filed herewith.
(2) Code of Ethics of Capital Growth Management Limited
Partnership filed herewith.
(q) 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.
(3) Filed as an exhibit to Post-Effective Amendment No. 65 to the
Registrant's Registration Statement on Form N-1A (File No.
2-16252) filed April 30, 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 24th day of April, 2000.
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 24, 2000 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
(g) (2) Amendment dated April 29, 1999 to the Custodian Contract of the
Registrant.
(h) (2) Amendment dated August 11, 1999 to the Transfer Agency Agreement
of the Registrant.
(j) Consent of PricewaterhouseCoopers LLP.
(p) (1) Code of Ethics of the Registrant.
(2) Code of Ethics of Capital Growth Management Limited Partnership.
<PAGE>
Exhibit g(2)
AMENDMENT TO CUSTODIAN CONTRACT
This Amendment to the Custodian Contract is made as of April 29, 1999, by
and between CGM Capital Development Fund (formerly known as Loomis-Sayles
Capital Development Fund, the "Fund") and State Street Bank and Trust Company
(the "Custodian"). Capitalized terms used in this Amendment without definition
shall have the respective meanings given to such terms in the Custodian Contract
referred to below.
WHEREAS, the Fund and the Custodian entered into a Custodian Contract
dated as of April 30, 1986 (as amended and in effect from time to time, the
"Contract"); and
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets (each such series, together with all other series subsequently
established by the Fund and made subject to the Contract in accordance with the
terms thereof, shall be referred to as a "Series", and, collectively, the
"Series"); and
WHEREAS, the Fund and the Custodian desire to amend certain provisions of
the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5") promulgated under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund and the Custodian desire to amend and restate certain
other provisions of the Contract relating to the custody of assets of the Series
held outside of the United States.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter contained, the parties hereby agree to amend the
Contract, pursuant to the terms thereof, as follows:
I. Articles 3 through 13 of the Contract are hereby renumbered, as of the
effective date of this Amendment, as Articles 5 through 15, respectively.
II. New Articles 3 and 4 of the Contract are hereby added, as of the effective
date of this Amendment, as set forth below.
3. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.
3.1. DEFINITIONS.
Capitalized terms in this Article 3 shall have the following meanings:
"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure
(including any Mandatory Securities Depositories operating in the country);
prevailing or developing custody and settlement practices; and laws and
regulations applicable to the safekeeping and recovery of Foreign Assets held in
custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule
17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as
defined in Rule 17f-5), a bank holding company meeting the requirements of an
Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate
action of the U.S. Securities and Exchange Commission (the "SEC")), or a foreign
branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the
requirements of a custodian under Section 17(f) of the 1940 Act, except that the
term does not include Mandatory Securities Depositories.
"Foreign Assets" means any of the Series' investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Series'
transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(2) of Rule
17f-5.
"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund, on the Series' behalf, determines to place Foreign Assets in a country
outside the United States (i) because required by law or regulation; (ii)
because securities cannot be withdrawn from such foreign securities depository
or clearing agency; or (iii) because maintaining or effecting trades in
securities outside the foreign securities depository or clearing agency is not
consistent with prevailing or developing custodial or market practices.
3.2. DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.
The Fund, by resolution adopted by its Board of Trustees (the "Board"), hereby
delegates to the Custodian, with respect to the Series, subject to Section (b)
of Rule 17f-5, the responsibilities set forth in this Article 3 with respect to
Foreign Assets of the Series held outside the United States, and the Custodian
hereby accepts such delegation, as Foreign Custody Manager with respect to the
Series.
3.3. COUNTRIES COVERED.
The Foreign Custody Manager shall be responsible for performing the delegated
responsibilities defined below only with respect to the countries and custody
arrangements for each such country listed on Schedule A to this Contract, which
list of countries may be amended from time to time by the Fund with the
agreement of the Foreign Custody Manager. The Foreign Custody Manager shall list
on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody
Manager to maintain the assets of the Series which list of Eligible Foreign
Custodians may be amended from time to time in the sole discretion of the
Foreign Custody Manager. Mandatory Securities Depositories are listed on
Schedule B to this Contract, which Schedule B may be amended from time to time
by the Foreign Custody Manager. The Foreign Custody Manager will provide amended
versions of Schedules A and B in accordance with Section 3.7 of this Article 3.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to open
an account or to place or maintain Foreign Assets in a country listed on
Schedule A, and the fulfillment by the Fund on behalf of the Series of the
applicable account opening requirements for such country, the Foreign Custody
Manager shall be deemed to have been delegated by the Board on behalf of the
Series responsibility as Foreign Custody Manager with respect to that country
and to have accepted such delegation. Execution of this Amendment by the Fund
shall be deemed to be a Proper Instruction to open an account, or to place or
maintain Foreign Assets, in each country listed on Schedule A in which the
Custodian has previously placed or currently maintains Foreign Assets pursuant
to the terms of the Contract. Following the receipt of Proper Instructions
directing the Foreign Custody Manager to close the account of the Series with
the Eligible Foreign Custodian selected by the Foreign Custody Manager in a
designated country, the delegation by the Board on behalf of the Series to the
Custodian as Foreign Custody Manager for that country shall be deemed to have
been withdrawn and the Custodian shall immediately cease to be the Foreign
Custody Manager of the Series with respect to that country.
The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to the
Fund. Ninety days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to the Fund with respect to
the country as to which the Custodian's acceptance of delegation is withdrawn.
3.4. SCOPE OF DELEGATED RESPONSIBILITIES.
3.4.1. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS.
Subject to the provisions of this Article 3, the requirements of Rule 17f-5 and
any other applicable law, the Series' Foreign Custody Manager may place and
maintain the Foreign Assets in the care of the Eligible Foreign Custodian
selected by the Foreign Custody Manager in each country listed on Schedule A, as
amended from time to time.
In performing its delegated responsibilities as Foreign Custody Manager to place
or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign
Custody Manager shall determine that the Foreign Assets will be subject to
reasonable care, based on the standards applicable to custodians in the relevant
market, after considering all factors relevant to the safekeeping of such
assets, including, without limitation, the factors specified in Rule
17f-5(c)(1).
3.4.2. CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS.
The Foreign Custody Manager shall determine that the contract (or the rules or
established practices or procedures in the case of an Eligible Foreign Custodian
that is a foreign securities depository or clearing agency) governing the
foreign custody arrangements with each Eligible Foreign Custodian selected by
the Foreign Custody Manager satisfies the requirements of Rule 17f-5(c)(2).
3.4.3. MONITORING.
In each case in which the Foreign Custody Manager maintains Foreign Assets with
an Eligible Foreign Custodian selected by the Foreign Custody Manager, the
Foreign Custody Manager shall comply with Rule 17f-5(c)(3). In the event the
Foreign Custody Manager determines that the custody arrangements with an
Eligible Foreign Custodian it has selected are no longer appropriate, the
Foreign Custody Manager shall notify the Board in accordance with Section 3.7
hereunder.
3.5. GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY.
For purposes of this Article 3, as between the Board and the Custodian only, the
Board shall be deemed to have considered and determined to accept such Country
Risk as is incurred by placing and maintaining the Foreign Assets in each
country for which the Custodian is serving as Foreign Custody Manager of the
Series. The Board shall be deemed to be monitoring on a continuing basis such
Country Risk to the extent that the Board considers necessary or appropriate.
The Fund and the Custodian each expressly acknowledge that the Foreign Custody
Manager shall not be delegated any responsibilities under this Article 3 with
respect to Mandatory Securities Depositories. Nothing in this section shall
limit the Board's ability to delegate any responsibility with respect to Country
Risk or Mandatory Securities Depositories to the Fund's investment adviser or
any other third party.
3.6. STANDARD OF CARE AS FOREIGN CUSTODY MANAGER.
In performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the 1940 Act would exercise.
3.7. REPORTING REQUIREMENTS.
The Foreign Custody Manager shall report the withdrawal of the Foreign Assets
from an Eligible Foreign Custodian and the placement of such Foreign Assets with
another Eligible Foreign Custodian by providing to the Board amended Schedules A
or B at the end of the calendar quarter in which an amendment to either Schedule
has occurred. The Foreign Custody Manager shall make written reports notifying
the Board of any other material change in the foreign custody arrangements of
the Series described in this Article 3 promptly after the occurrence of the
material change.
Upon request of the Fund, the Foreign Custody Manager shall provide an annual
certification to the Board that the foreign custody arrangements delegated by
the Board to the Foreign Custody Manager are in compliance with Rule 17f-5.
3.8. REPRESENTATIONS WITH RESPECT TO RULE 17F-5.
The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as
defined in section (a)(7) of Rule 17f-5.
The Fund represents to the Custodian that the Board has determined that it is
reasonable for the Board to rely on the Custodian to perform the
responsibilities delegated pursuant to this Contract to the Custodian as the
Foreign Custody Manager of the Series. This representation shall not limit the
responsibility of the Custodian in its capacity as Foreign Custody Manager.
3.9. EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY
MANAGER.
The Board's delegation to the Custodian as Foreign Custody Manager of the Series
shall be effective as of the date hereof and shall remain in effect until
terminated at any time, without penalty, by written notice from the terminating
party to the non-terminating party. Termination will become effective ninety
(90) days after receipt by the non-terminating party of such notice. The
provisions of Section 3.3 hereof shall govern the delegation to and termination
of the Custodian as Foreign Custody Manager of the Series with respect to
designated countries.
4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE SERIES HELD
OUTSIDE THE UNITED STATES.
4.1 DEFINITIONS.
Capitalized terms in this Article 4 shall have the following meanings:
"Foreign Securities System" means either a clearing agency or a securities
depository listed on Schedule A hereto or a Mandatory Securities Depository
listed on Schedule B hereto.
"Foreign Sub-Custodian" means a foreign banking institution serving as an
Eligible Foreign Custodian.
4.2. HOLDING SECURITIES.
The Custodian shall identify on its books as belonging to the Series the foreign
securities held by each Foreign Sub-Custodian or Foreign Securities System. The
Custodian may hold foreign securities for all of its customers, including the
Series, with any Foreign Sub-Custodian in an account that is identified as
belonging to the Custodian for the benefit of its customers, provided however,
that (i) the records of the Custodian with respect to foreign securities of the
Series which are maintained in such account shall identify those securities as
belonging to the Series and (ii), to the extent permitted and customary in the
market in which the account is maintained, the Custodian shall require that
securities so held by the Foreign Sub-Custodian be held separately from any
assets of such Foreign Sub-Custodian or of other customers of such Foreign
Sub-Custodian.
4.3. FOREIGN SECURITIES SYSTEMS.
Foreign securities shall be maintained in a Foreign Securities System in a
designated country only through arrangements implemented by the Foreign
Sub-Custodian in such country pursuant to the terms of this Contract. Except for
those Foreign Securities Systems which are Mandatory Securities Depositories,
the Custodian shall confirm that each such Foreign Securities System is an
Eligible Foreign Custodian.
4.4. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
4.4.1. DELIVERY OF FOREIGN SECURITIES.
The Custodian or a Foreign Sub-Custodian shall release and deliver foreign
securities of the Series held by such Foreign Sub-Custodian, or in a Foreign
Securities System account, only upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, and only in
the following cases:
(i) upon the sale of such foreign securities for the Series in
accordance with commercially reasonable market practice in the
country where such foreign securities are held or traded, including,
without limitation: (A) delivery against expectation of receiving
later payment; or (B) in the case of a sale effected through a
Foreign Securities System, in accordance with the rules governing
the operation of the Foreign Securities System;
(ii) in connection with any repurchase agreement related to foreign
securities;
(iii) to the depository agent in connection with tender or other similar
offers for foreign securities of the Series;
(iv) to the issuer thereof or its agent when such foreign securities are
called, redeemed, retired or otherwise become payable;
(v) to the issuer thereof, or its agent, for transfer into the name of
the Custodian (or the name of the respective Foreign Sub-Custodian
or of any nominee of the Custodian or such Foreign Sub-Custodian) or
for exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units;
(vi) to brokers, clearing banks or other clearing agents for examination
or trade execution in accordance with market custom; provided that
in any such case the Foreign Sub-Custodian shall have no
responsibility or liability for any loss arising from the delivery
of such securities prior to receiving payment for such securities
except as may arise from the Foreign Sub-Custodian's own negligence
or willful misconduct;
(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement, provided that in any such case the new
securities and cash are to be delivered to the Custodian or a
Foreign Sub-Custodian;
(viii) in the case of warrants, rights or similar foreign securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or temporary
securities for definitive securities, provided that in any such case
the new securities and cash are to be delivered to the Custodian or
a Foreign Sub-Custodian;
(ix) for delivery as security in connection with any borrowing by the
Series requiring a pledge of assets by the Series;
(x) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other proper purpose, but only upon receipt of Proper
Instructions specifying the foreign securities to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper trust purpose, and naming the
person or persons to whom delivery of such securities shall be made.
4.4.2. PAYMENT OF SERIES MONIES.
Upon receipt of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out, or direct the
respective Foreign Sub-Custodian or the respective Foreign Securities System to
pay out, monies of the Series in the following cases only:
(i) upon the purchase of foreign securities for the Series, unless
otherwise directed by Proper Instructions, by (A) delivering
money to the seller thereof or to a dealer therefor (or an agent
for such seller or dealer) against expectation of receiving later
delivery of such foreign securities in accordance with customary
established securities trading or processing practices and
procedures in the jurisdiction or market in which the transaction
occurs; or (B) in the case of a purchase effected through a
Foreign Securities System, in accordance with the rules governing
the operation of such Foreign Securities System;
(ii) in connection with the conversion, exchange or surrender of foreign
securities of the Series;
(iii) for the payment of any expense or liability of the Series, including
but not limited to the following payments: interest, taxes,
investment advisory fees, transfer agency fees, fees under this
Contract, legal fees, accounting fees, and other operating expenses;
(iv) for the purchase or sale of foreign exchange or foreign exchange
contracts for the Series, including transactions executed with or
through the Custodian or its Foreign Sub-Custodians;
(v) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(vi) for payment of part or all of the dividends received in respect of
securities sold short;
(vii) in connection with the borrowing or lending of foreign securities;
and
(viii) for any other proper purpose, but only upon receipt of Proper
Instructions specifying the amount of such payment, setting forth
the purpose for which such payment is to be made, declaring such
purpose to be a proper trust purpose, and naming the person or
persons to whom such payment is to be made.
4.4.3. MARKET CONDITIONS; MARKET INFORMATION.
Notwithstanding any provision of this Contract to the contrary, settlement and
payment for Foreign Assets received for the account of the Series and delivery
of Foreign Assets maintained for the account of the Series may be effected in
accordance with the customary established securities trading or processing
practices and procedures in the country or market in which the transaction
occurs, including, without limitation, delivering Foreign Assets to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) with the expectation of receiving later payment for such Foreign Assets
from such purchaser or dealer.
The Custodian shall provide to the Board the information with respect to custody
and settlement practices in countries in which the Custodian employs a Foreign
Sub-Custodian, including without limitation information relating to Foreign
Securities Systems, described on Schedule C hereto at the time or times set
forth on such Schedule. The Custodian may revise Schedule C from time to time,
provided that no such revision shall result in the Board being provided with
substantively less information than had been previously provided hereunder.
4.5. REGISTRATION OF FOREIGN SECURITIES.
The foreign securities maintained in the custody of a Foreign Sub-Custodian
(other than bearer securities) shall be registered in the name of the Series or
in the name of the Custodian or in the name of any Foreign Sub-Custodian or in
the name of any nominee of the foregoing, and the Fund on behalf of the Series
agrees to hold any such nominee harmless from any liability solely as a holder
of record of such foreign securities. The Custodian or a Foreign Sub-Custodian
shall not be obligated to accept securities on behalf of the Series under the
terms of this Contract unless the form of such securities and the manner in
which they are delivered are in accordance with reasonable market practice.
4.6. BANK ACCOUNTS.
The Custodian shall identify on its books as belonging to the Fund cash
(including cash denominated in foreign currencies) deposited with the Custodian.
Where the Custodian is unable to maintain, or market practice does not
facilitate the maintenance of, cash on the books of the Custodian, a bank
account or bank accounts opened and maintained outside the United States on
behalf of the Series with a Foreign Sub-Custodian shall be subject only to draft
or order by the Custodian or such Foreign Sub-Custodian, acting pursuant to the
terms of this Contract to hold cash received by or from or for the account of
the Series.
4.7. COLLECTION OF INCOME.
The Custodian shall use reasonable commercial efforts to collect all income and
other payments with respect to the Foreign Assets held hereunder to which the
Series shall be entitled and shall credit such income, as collected, to the
Series In the event that extraordinary measures are required to collect such
income, the Fund and the Custodian shall consult as to such measures and as to
the compensation and expenses of the Custodian relating to such measures.
4.8. SHAREHOLDER RIGHTS.
With respect to the foreign securities held pursuant to this Article 4, the
Custodian will facilitate the exercise of voting and other shareholder rights,
subject always to the laws, regulations and practical constraints that may exist
in the country where such securities are issued. The Fund acknowledges that
local conditions, including lack of regulation, onerous procedural obligations,
lack of notice and other factors may have the effect of severely limiting the
ability of the Fund to exercise shareholder rights.
4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES.
The Custodian shall transmit promptly to the Fund written information
(including, without limitation, pendency of calls and maturities of foreign
securities and expirations of rights in connection therewith) received by the
Custodian via the Foreign Sub-Custodians from issuers of the foreign securities
being held for the account of the Series. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund written information so
received by the Custodian from issuers of the foreign securities whose tender or
exchange is sought or from the party (or its agents) making the tender or
exchange offer. The Custodian shall not be liable for any untimely exercise of
any tender, exchange or other right or power in connection with foreign
securities or other property of the Series at any time held by it unless the
Custodian has failed to perform its obligations under the first two sentences of
this Section or unless (i) the Custodian or the respective Foreign Sub-Custodian
is in actual possession of such foreign securities or property and (ii) the
Custodian receives Proper Instructions with regard to the exercise of any such
right or power, and both (i) and (ii) occur at least three business days prior
to the date on which the Custodian is to take action to exercise such right or
power.
4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES SYSTEMS.
Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian
shall, to the extent possible, require the Foreign Sub-Custodian to exercise
reasonable care in the performance of its duties and, to the extent possible, to
indemnify, and hold harmless, the Custodian and the Fund from and against any
loss, damage, cost, expense, liability or claim arising out of or in connection
with the Foreign Sub-Custodian's performance of such obligations. At the Fund's
election, the Fund shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a Foreign Sub-Custodian as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that the Series have not been made whole for any such loss,
damage, cost, expense, liability or claim.
4.11. TAX LAW.
The Custodian shall have no responsibility or liability for any obligations now
or hereafter imposed on the Fund, the Series or the Custodian as custodian of
the Series by the tax law of the United States or of any state or political
subdivision thereof. It shall be the responsibility of the Fund to notify the
Custodian of the obligations imposed on the Fund with respect to the Series or
the Custodian as custodian of the Series by the tax law of countries other than
those mentioned in the above sentence, including responsibility for withholding
and other taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with regard to
such tax law shall be to use reasonable efforts to assist the Fund with respect
to any claim for exemption or refund under the tax law of countries for which
the Fund has provided such information.
4.12. ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND.
To the extent account structure and local law allow and upon request of the
Fund, the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
Foreign Sub-Custodian insofar as such books and records relate to the
performance of such Foreign Sub-Custodian under its agreement with the
Custodian.
4.13. LIABILITY OF CUSTODIAN.
Except as may arise from the Custodian's own negligence, bad faith or willful
misconduct or the negligence, bad faith or willful misconduct of a
Sub-Custodian, the Custodian shall be without liability to the Fund for any
loss, liability, claim or expense resulting from or caused by anything which is
(A) part of Country Risk or (B) part of the "prevailing country risk" of the
Fund and the Series, as such term is used in SEC Release Nos. IC-22658; IS-1080
(May 12, 1997).
The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian to the same extent as set forth with respect to sub-custodians
generally in the Contract and, regardless of whether assets are maintained in
the custody of a Foreign Sub-Custodian or a Foreign Securities Depository, the
Custodian shall not be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism, or any other loss where the Sub-Custodian has
otherwise acted with reasonable care.
4.14. LIMITATION ON LIABILITY OF TRUSTEES.
The Amended and Restated Agreement and Declaration of Trust of the Fund is on
file with the Secretary of The Commonwealth of Massachusetts.
This Amendment is executed on behalf of the Fund and not on behalf of the
Trustees or officers of the Fund or individually, and the obligations of this
Amendment are not binding upon any of such Trustees, such officers, or the
Shareholders of the Fund individually but are binding only upon the assets and
property of the Series.
III. Except as specifically superseded or modified herein, the terms and
provisions of the Contract shall continue to apply with full force and
effect. In the event of any conflict between the terms of the Contract
prior to this Amendment and this Amendment, the terms of this Amendment
shall prevail. If the Custodian is delegated the responsibilities of
Foreign Custody Manager pursuant to the terms of Article 3 hereof, in
the event of any conflict between the provisions of Articles 3 and 4
hereof, the provisions of Article 3 shall prevail.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed in its name and behalf by its duly authorized representative as of the
date first above written.
WITNESSED BY: STATE STREET BANK AND TRUST COMPANY
Marc L. Parsons
- ------------------------
Marc L. Parsons By: Ronald E. Logue
Associate Counsel ---------------------------------
Name: Ronald E. Logue
Title: Executive Vice President
WITNESSED BY: CGM CAPITAL DEVELOPMENT FUND
Leslie A. Lake
- ------------------------
Name: Leslie A. Lake By: Robert L. Kemp
Title: Vice President & ---------------------------------
Secretary Name: Robert L. Kemp
Title: President
<PAGE>
Exhibit h(2)
1999 AMENDMENT
Dated: August 11, 1999
To Transfer Agency and Service Agreement
Between
CGM Capital Development Fund
(f.k.a. Loomis-Sayles Capital Development Fund)
and
State Street Bank and Trust Company
1. General Background.
In accordance with the Amendment provision in Section 9 of the Transfer Agency
and Service Agreement between CGM Capital Development Fund (f.k.a. Loomis-Sayles
Capital Development Fund) (the "Fund") and State Street Bank and Trust Company
(the "Bank") dated June 1, 1987 (the "Agreement"), the parties desire to amend
the Agreement to set forth the terms and conditions under which State Street
agrees to serve as Custodian of the retirement accounts established using the
retirement account materials developed by the Fund.
1.1 The Bank pursuant to the Agreement is the transfer agent for the Fund.
1.2 The Fund has developed certain retirement account materials (hereinafter
collectively called the "Fund Prototypes") that may be used by an
individual ("Participant") who desires to establish a Traditional IRA,
Roth IRA, SEP IRA or 403(b)(7)-retirement account (collectively,
"Retirement Account(s)").
1.3 The Fund desires to appoint the Bank as Custodian of any Retirement
Account established using the Fund Prototypes and the Bank desires to
accept such appointment.
1.4 All defined terms and definitions and other terms and conditions in the
Agreement shall be the same in this amendment (the "1999 Amendment") and
shall continue in full force and effect, except as specifically revised by
the 1999 Amendment.
1.5 In consideration of the mutual covenants herein contained, the parties
agree as follows:
2. Terms of Appointment and Duties
2.1 As Custodian of the Retirement Accounts, the Bank will be designated as
the owner, on the records of the Fund.
2.2 Records of the Custodian's ownership of Shares of the Fund will be
maintained by the transfer agent for such Shares in the name of the Bank
as Custodian (or its nominee) and no physical Shares will be issued.
2.3 Under the terms of each Fund Prototype, the Bank as Custodian has no
investment responsibility for the selection of investments for a
Retirement Account and the Bank will have no liability for any investments
made for a Retirement Account other than to maintain custody of the
investments subject to the terms of this Amendment and the Agreement. The
Fund will not state or make any representations to the contrary hereof.
2.4 The Bank will not serve as trustee or plan administrator of any Retirement
Account, or in any other administrative or other capacity except as
Custodian thereof. The Bank will not keep records of Retirement Accounts
or maintain any other records except those that are necessary to serve as
Custodian or as transfer agent pursuant to the Agreement. The Fund will
not state or make any representations to the contrary hereof.
2.5 The Fund will upon reasonable advance notice make available access to its
facilities and access to or copies of such records to the Bank as the Bank
may request in order that the Bank may determine that the Fund is properly
performing its duties and obligations hereunder. The Bank's right of
access under this provision will include access to any service provider or
service bureau performing any of the Fund's duties and obligations under
this Agreement on behalf of the Fund.
3. Review and Maintenance of Fund Prototypes
3.1 The Fund agrees that the Fund Prototypes will comply with applicable
sections of the Internal Revenue Code of 1986 (the "Code") and Regulations
promulgated pursuant to the Code in effect at the time. The Fund will be
responsible for establishing, maintaining and updating the Fund Prototypes
in compliance with the Code and all other applicable Federal or state law
or regulations, when changes in the law require such updating.
3.2 The Fund agrees that the Fund Prototypes are the responsibility of the
Fund and further agrees that it will indemnify, defend and hold harmless
the Bank, its successors, representatives and assigns from and against any
and all losses, damages, costs, charges, expenses including reasonable
fees for counsel, taxes, penalties and liability (collectively, "Losses")
arising out of or attributable to the use of the Fund Prototypes by the
Fund, its agents, employees, representatives or any other person acting on
the Fund's behalf, except to the extent that such Losses arise out of or
are attributable to the negligence, bad faith or willful misconduct of the
Bank (or its agents, affiliates, successors or assigns), unless such
negligence is a result of complying with the Fund Prototypes. This
indemnification obligation will survive termination of this 1999 Amendment
or the Agreement. Procedures for notification of claims under Section 3.2
hereof shall be pursuant to the terms of the Agreement.
3.3 The Fund agrees that any modifications made by the Fund to the Fund
Prototypes without the Bank's written consent shall not increase the
liabilities or responsibilities of the Bank as Custodian or limit the
Bank's ability to resign as Custodian as provided under Section 4 below.
The Fund will furnish the Bank with a copy of the Fund Prototypes. The
Bank shall not be required to review, comment or advise on such Fund
Prototypes.
4. Resignation or Removal of Custodian
4.1 If either party chooses to terminate the Agreement pursuant to Section 10
of the Agreement the Bank may thereupon resign as Custodian in respect to
any or all of the Retirement Accounts upon thirty (30) days' prior written
notice to the Fund. In such an event, the Fund will promptly distribute
the notice of the Custodian's resignation to such persons and in such
manner as are called for under the applicable provisions of the Retirement
Account and in form and content satisfactory to and signed by the Bank.
The Fund shall be responsible to obtain a successor custodian for all
Retirement Accounts.
4.2 If the Fund chooses to discontinue performing any of its duties and
obligations described in or contemplated by this 1999 Amendment or the
Fund Prototypes, either of a general nature or in respect to any or all
Retirement Accounts, it will give the Bank at least one hundred twenty
(120) days' written notice prior to such discontinuance. The Bank may
thereupon resign as Custodian in respect to any or all Retirement Accounts
by providing (30) days' prior written notice to the Fund. In such an
event, the Fund shall be responsible to obtain a successor custodian for
the Retirement Accounts. Upon written acceptance by the successor
custodian, the Fund will promptly distribute the notice of the Custodian's
resignation to such persons and in such manner as are called for under the
applicable provisions of the Retirement Account and in form and content
satisfactory to and signed by the Bank.
4.3 If at any time the Fund chooses to terminate the services requested under
this 1999 Amendment, it will give the Bank at least one hundred and twenty
(120) days' written notice prior to such termination. Such notice, to be
effective, shall designate a successor custodian and shall be accompanied
by the successor custodian's written acceptance. The Fund shall be
responsible to obtain a successor custodian for all Retirement Accounts.
Upon written acceptance by the successor custodian, the Fund will promptly
distribute the notice of the Custodian's resignation to such persons and
in such manner as are called for under the applicable provisions of the
Retirement Account and in form and content satisfactory to and signed by
the Bank.
4.4 If at any time and for any reason the Bank chooses to resign as Custodian
of any or all Retirement Accounts, it will give the Fund at least thirty
(30) days' prior written notice. In connection with its resignation
hereunder or pursuant to Sections 4.1, 4.2 or 4.3, the Custodian may, but
is not required to, designate a successor custodian by written notice to
the Fund, and the Fund will be deemed to have consented to such successor
unless the Fund designates a different successor custodian and provides
written notice thereof together with such a different successor's written
acceptance by such date as the Custodian specifies in its original notice
to the Fund provided that the Fund will have a minimum of thirty (30) days
to designate a different successor. The Fund will promptly distribute the
notice of the Custodian's resignation to such persons and in such manner
as are called for under the applicable provisions of the Retirement
Account and in form and content satisfactory to and signed by the Bank.
4.5 If within thirty (30) days (or such longer time as the Custodian may agree
to in writing) after resignation by the Custodian pursuant to Sections
4.1, 4.2 or 4.4 or removal of the Custodian under Section 4.3, the Fund or
the Custodian has not appointed a successor custodian who has accepted
such appointment in writing, the Fund shall within a further period of
thirty (30) days apply to a court of competent jurisdiction for
appointment of a successor custodian, provided that if (i) the Fund shall
have failed to have made such application within such period or (ii) the
court shall have dismissed such application without having made such
appointment, and (iii) no successor custodian shall have then accepted
appointment , then (iv) termination of the Custodian's responsibilities
shall be effected by distributing all assets of the Retirement Account in
a single payment in cash or in kind to each Participant, subject to the
Custodian's right to reserve such funds as it may deem advisable for
payment of all its fees, compensation, costs and expenses or for payment
of any other liabilities constituting a charge on or against the assets of
Retirement Accounts or on or against the Custodian. Any amounts remaining
after payment of such costs shall be delivered to the successor custodian,
if any.
4.6 Upon appointment of and acceptance by a successor custodian under this
Section 4, the Custodian shall transfer all assets in book entry form
relating to the Retirement Accounts to the successor custodian.
5. Applications and Correspondence
The Bank will execute any instruments and documents in regard to the
Retirement Accounts (including correspondence with various persons such as
employers, Participants and beneficiaries) which the Fund submits to the
Bank for that purpose. In no event will the Fund sign the Bank's name on
any application or other document without the Bank's prior written
approval.
6. Fees and Expenses
In consideration for the Bank's services as Custodian hereunder, the Bank
will receive such compensation specified in Section 2 and Schedule C of
the Agreement which may be amended from time to time subject to mutual
written agreement among the parties.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed.
CGM CAPITAL DEVELOPMENT FUND STATE STREET BANK AND TRUST COMPANY
BY Robert L. Kemp BY: Ronald E. Logue
- ------------------- ----------------------
<PAGE>
Exhibit j
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our report dated February 8, 2000, relating to the
financial statements and financial highlights which appears in the December 31,
1999 Annual Report to Shareholders of the 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 24, 2000
<PAGE>
Exhibit p(1)
CGM CAPITAL DEVELOPMENT FUND AND CGM TRUST
CODE OF ETHICS
In order to insure that all acts, practices and course of business
engaged in by personnel of the above Funds reflect high standards and comply
with the requirements of Section 17(j) of the Investment Company Act of 1940, as
amended, and Rule 17j-1 thereunder, the Board, including a majority of
Disinterested Directors (as defined below), of each Fund has determined that the
Fund shall adopt this Code of Ethics. The reporting requirements of this Code
are intended to assist each Fund in confirming that its personnel adhere to
these high standards and to the requirements of the Investment Company Act and
other applicable laws.
I. Definitions.
(A) "The Fund" means each of CGM Capital Development Fund, CGM Trust and
each series thereof.
(B) "Access Person" means any director, officer, general partner,
trustee or Advisory Person of the Fund or the Adviser.
(C) "Adviser" means Capital Growth Management Limited Partnership.
(D) "Adviser Personnel" means any officer, director, trustee or Advisory
Person of the Fund who is an officer, director, partner, or employee
of the Adviser.
(E) "Advisory Person" means (i) any employee of the Fund or Adviser
(or of any company in a control relationship to the Fund or
Adviser), who, in connection with his regular functions or
duties, makes, participates in, or obtains information regarding
the purchase or sale of a Security by the Fund, or whose
functions relate to the making of any recommendations with
respect to such purchases or sales; and (ii) any natural person
in a control relationship to the Fund or Adviser who obtains
information concerning recommendations made to the Fund with
regard to the purchase or sale of a Security by the Fund.
(F) A security is "being considered for purchase or sale" when any
individual who makes the final investment decision for the Fund is
giving serious consideration to purchase or sale of the security.
(G) A security is "being purchased or sold" by the Fund from the time
when a purchase or sale program has been communicated to the person
who places the buy and sell orders for the Fund until the time when
such program has been fully completed or terminated.
(H) "Beneficial Ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934 and
the rules and regulations thereunder, except that the determination
of direct or indirect beneficial ownership shall apply to all
securities which an Access Person has or acquires.
(I) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Investment Company Act. Section 2(a)(9) provides that
"control" means the power to exercise a controlling influence over
the management policies of a company, unless such power is solely
the result of an official position with such company.
(J) "Director" means any trustee or director of the Fund.
(K) "Disinterested Director" means a Director of the Fund who is not an
"interested person" of the Fund within the meaning of Section
2(a)(19) of the Investment Company Act. "Interested person" as so
defined includes any person who is an affiliated person of a broker
or dealer.
(L) "Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting
requirements of Sections 13 or 15(d) of the Securities Exchange Act
of 1934.
(M) "Investment Company Act" means the Investment Company Act of 1940,
as amended.
(N) "Investment Personnel" means (a) any employee of the Fund or
Adviser (or of any company in a control relationship to the Fund
or Adviser) who, in connection with his or her regular functions
or duties, make or participates in making recommendations
regarding the purchase or sale of securities by the Fund; and (b)
any natural person who controls the Fund or Adviser and who
obtains information concerning recommendations made to the Fund
regarding the purchase or sale of securities by the Fund.
(O) "Limited Offering" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Sections
4(2) or 4(6) of that Act, Regulation A under the Act, or Rules 504,
505 or 506 under the Act.
(P) "Security" shall have the meaning set forth in Section 2(a)(36)
of the Investment Company Act, except that it shall not include
direct obligations of the Government of the United States,
bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements, and shares of registered open-end
investment companies, or such other securities as may be excepted
under the provisions of Rule 17j-1. The purchase or sale of a
Security includes, among other things, the writing of an option
to purchase or sell a Security.
(Q) "Security Held or to be Acquired by a Fund" means (a) any Security
which, within the most recent 15 days (i) is or has been held by the
Fund, or (ii) is being or has been considered by the Fund or Adviser
for purchase by the Fund; and (b) any option to purchase or sell,
and any security convertible into or exchangeable for, a Security
described in (a) above.
II. Rules Applicable to Adviser Personnel.
This Section II shall apply to Adviser Personnel. This Section II shall
not apply to Disinterested Directors and other Access Persons who are not
Adviser Personnel.
(A) Incorporation of Codes.
The Adviser imposes reporting requirements and restrictions on the
personal securities transactions of its personnel. Copies of the
Code of Ethics of the Adviser have been furnished to the Directors.
The Directors, including a majority of Disinterested Directors, have
approved the Code of Ethics of the Adviser pursuant to paragraph
(c)(1)(ii) of Rule 17j-1 under the Investment Company Act, and have
determined that the Code of Ethics established by the Adviser may be
appropriately applied by the Fund to Adviser Personnel.
The provisions of the Code of Ethics of the Adviser are incorporated
in this Code of Ethics as the provisions applicable to Adviser
Personnel. A violation of the Code of Ethics of the Adviser by any
Adviser Personnel covered by that Code with respect to transactions
involving the Fund shall constitute a violation of this Code.
(B) Reports.
(1) Adviser Personnel shall file the reports required under the
Adviser's Code of Ethics with the officer (the "Review
Officer") designated thereunder to receive such reports. Such
reports shall at all times be subject to inspection by the
Secretary of the Fund.
(2) The Review Officer shall submit confidential monthly reports
with respect to his personal securities transactions to a
person designated in accordance with the applicable Code to
receive his reports ("Alternate Review Officer"), who shall
act in all respects in the manner prescribed herein for the
Review Officer.
(3) A report filed with the Review Officer (or in the case of a
report of the Review Officer, with the Alternate Review
Officer) shall be deemed to be filed with each of the Funds of
which the reporting individual is an officer, director or
trustee.
(4) Any reports filed as provided in this Section II(B) shall be
subject to inspection by the Directors.
(C) Review.
(1) The Review Officer shall compare the reported personal
securities transactions with portfolio transactions of the
Fund to determine whether a violation of this Code may have
occurred. Before making any determination that a violation has
been committed by any person, the Review Officer shall give
such person an opportunity to supply additional explanatory
material.
(2) If the Review Officer determines that a violation of this Code
has or may have occurred, he shall promptly submit his written
determination, together with the report in question, any
additional explanatory material provided by the individual in
question, and report of the sanctions if any, imposed upon the
individual by the applicable organization to the Secretary and
the President of the Fund, who shall review the determination
of whether a violation has occurred.
(D) Enforcement of Codes.
(1) If the Secretary and the President of the Fund find that a
violation has or may have occurred they shall promptly report
the instance and any sanction imposed by the Adviser to the
Directors of the Fund.
(2) No person shall participate in a determination of whether he
has committed a violation of any Code incorporated herein or
of the imposition of any sanction against himself. If a
securities transaction of the Secretary or President of the
Fund is under consideration, a Director of the Fund not
affiliated with the Adviser and designated for the purpose by
the Directors of the Fund shall act in all respects in the
manner prescribed herein for the Secretary or the President,
as the case may be.
III. Rules Applicable to Persons Other Than Adviser Personnel.
This Section III shall apply to Access Persons who are not Adviser
Personnel, including the Disinterested Directors. This Section III
shall not apply to Adviser Personnel.
(A) Reporting.
(1) Initial Holdings Report.
(a) Every Access Person subject to this Section, other
than a Disinterested Director who would be required
to make a report solely by reason of being a
Director, shall file with the Secretary of the Fund a
report containing the information described in
Section III(A)(1)(b) of this Code; provided, however,
that such Access Person shall not be required to make
a report with respect to Securities held in any
account over which such person does not have any
direct or indirect influence or control.
(b) The report shall be made not later than 10 days after
the reporting person becomes an Access Person, and shall
contain the following information:
(i) the title, number of shares and principal amount
of each Security in which the Access Person had
direct or indirect beneficial ownership when the
person became an Access Person;
(ii) the name of any broker, dealer or bank with whom
the Access Person maintained an account holding
Securities for the direct or indirect benefit of
the Access Person as of the date the person became
an Access Person; and
(iii) the date the report is submitted by the Access
Person.
(2) Quarterly Transaction Report.
(a) Every Access Person subject to this Section shall
file with the Secretary of the Fund a quarterly
transaction report containing the information
described in Section III(A)(2)(c) of this Code with
respect to transactions in any Security in which such
Access Person has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership
in the Security; provided, however, that such Access
Person shall not be required to make a report with
respect to transactions effected for any account over
which such person does not have any direct or
indirect influence or control.
(b) A Disinterested Director of the Fund need only file a
quarterly transaction report for a quarter to report
a transaction if such Director knew or, in the
ordinary course of fulfilling his official duties as
a Director of the Fund, should have known that,
during the 15-day period immediately before or after
the Director's transaction in a Security the Fund
purchased or sold the Security, or the Fund or its
Adviser considered purchasing or selling the Security.
(c) Every report shall be made not later than 10 days after
the end of the calendar quarter to which the report
relates, and shall contain the following information
with respect to each transaction required to be reported
therein:
(i) the date of the transaction, the title, the
interest rate and maturity date (if applicable),
the number of shares, and the principal amount of
each Security involved;
(ii) the nature of the transaction (i.e., purchase,
sale or any other type of acquisition or
disposition);
(iii) the price of the Security at which the transaction
was effected;
(iv) the name of the broker, dealer or bank with or
through whom the transaction was effected; and
(v) the date the report is submitted by the Access
Person.
(3) Annual Holdings Report.
(a) Every Access Person subject to this Section, other
than a Disinterested Director who would be required
to make a report solely by reason of being a
Director, shall file with the Secretary of the Fund a
report containing the information described in
Section III(A)(3)(b) of this Code; provided, however,
that such Access Person shall not be required to make
a report with respect to Securities held in any
account over which such person does not have any
direct or indirect influence or control.
(b) The information submitted in the report must be current
as of a date no more than 30 days before the report is
submitted. The report shall be made not later than 20
days after each December 31st, and shall contain the
following information:
(i) the title, number of shares and principal amount
of each Security in which the Access Person had
any direct or indirect beneficial ownership;
(ii) the name of any broker, dealer or bank with whom
the Access Person maintains an account in which
any Securities are held for the direct or indirect
benefit of the Access Person; and
(iii) the date the report is submitted by the Access
Person.
(4) Any report made pursuant to this Section (B) may contain a
statement that the report shall not be construed as an
admission by the person making such report that he has any
direct or indirect beneficial ownership in the Security to
which the report relates, and the existence of any report
shall not by itself be construed as an admission that any
event reported constitutes a violation of this Code.
(5) The President of the Fund must identify all Access Persons who
are required to make reports pursuant to this Section (A) and
must inform those Access Persons of their reporting
obligations. The Fund shall confirm that it has fulfilled this
obligation in each written report submitted to the Directors
under Section IV(B) of this Code.
(B) Review.
(1) The Secretary of the Fund or his delegate shall compare the
reported personal securities transactions with portfolio
transactions of the Fund to determine whether any transaction
which may violate any provision of this Code ("Reviewable
Transaction") may have occurred.
(2) If the Secretary of the Fund or his delegate determines that a
Reviewable Transaction may have occurred, he shall then
determine whether a violation of this Code may have occurred.
Before making any determination that a violation has been
committed by an individual, the Secretary shall give such
person an opportunity to supply additional information
regarding the transaction in question.
(C) Initial Public Offerings and Limited Offerings.
No Investment Personnel of the Fund may participate as a purchaser
or acquire beneficial ownership of any security in an Initial Public
Offering or Limited Offering.
(D) Enforcement.
If the Secretary determines that a violation of this Code has or may
have occurred, he shall promptly review that determination with the
President of the Fund. If the President determines that a violation
of this Code has or may have occurred, he shall promptly report the
instance to the Directors of the Fund. The Directors, with the
exception of any person whose transaction is under consideration,
shall take such actions as they consider appropriate, including
imposition of any sanctions that they consider appropriate.
IV. Miscellaneous.
(A) Amendments to Codes of Ethics.
The Board of Directors of the Fund, including a majority of
Disinterested Directors, must approve any changes to this Code. In
addition, the Board of Directors of the Fund must approve any
material change to the Code of Ethics of the Adviser no later than
six months after adoption of the material change.
(B) Administration of the Code.
No less frequently than annually, the Adviser and the President of
the Fund must furnish to the Directors, and the Directors must
consider, a written report that:
(1) describes any issues arising under the Fund's or Adviser's
Code of Ethics, as applicable, or procedures of such entity
since the last report to the Directors, including, but not
limited to, information about material violations of its Code
of Ethics or procedures and sanctions imposed in response to
the material violations;
(2) certifies that the Fund or Adviser, as applicable, has adopted
procedures reasonably necessary to prevent its Access Persons
from violating its Code of Ethics; and
(3) certifies that the Fund has identified the Access Persons
(other than the Disinterested Directors) who are subject to
Section III of this Code and informed them of their reporting
obligations as required in Section III(A)(5) of this Code.
(C) Records.
The Fund shall maintain at its principal place of business records
in the manner and to the extent set forth below, which records may
be maintained on microfilm under the conditions described in Rule
32a-2(f)(1) under the Investment Company Act and shall be available
for examination by the Directors or representatives of the
Securities and Exchange Commission.
(1) A copy of this Code and any other code which is, or at any
time within the past five years has been, in effect shall be
preserved in an easily accessible place.
(2) A record of any violation of this Code and of any action taken
as a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs.
(3) A copy of each report made pursuant to this Code by any Access
Person subject to Section III of this Code shall be preserved
for a period of not less than five years from the end of the
fiscal year in which it is made, the first two years in an
easily accessible place. It is understood that the Adviser
shall preserve in the same manner copies of all reports made
under its Code of Ethics by Access Persons of the Fund.
(4) A list of all persons who are, or within the past five years
have been, required to make reports pursuant to this Code or
who are, or within the past five years have been, responsible
for reviewing these reports shall be maintained in an easily
accessible place.
(5) A copy of each report furnished to the Board of Directors of
the Fund under Section IV(B) of this Code shall be maintained
for at least five years after the end of the fiscal year in
which it is made, the first two years in an easily accessible
place.
(6) A record of any decisions, and the reasons supporting the
decisions, to approve the acquisition by Investment Personnel
of securities under Section III(C) of this Code shall be
maintained for at least five years after the end of the fiscal
year in which the approval is granted.
(D) Confidentiality.
All reports of securities transactions and any other information
filed with the Fund pursuant to this Code shall be treated as
confidential, provided any such reports and information may be made
available to the Directors, the Securities and Exchange Commission
and other government agencies.
(E) Interpretation of Provisions.
The Directors may from time to time adopt such interpretations of
this Code as they deem appropriate.
(F) Consultation with Fund Counsel.
Whenever the President or Secretary consider it desirable, they
shall consult with Fund Counsel concerning any matter arising under
the Code.
<PAGE>
Exhibit p(2)
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
CODE
(As revised March 1, 2000)
PART I - BUSINESS PRACTICES
Understanding as to Clients' Accounts, Company Records, etc.
Clients' accounts are the property of Capital Growth Management and not of
any individual member of the firm. This applies to all clients for whom the firm
acts as investment counsel or adviser, regardless of how or through whom the
client relationship originated and regardless of who may be the individual
consultant on a particular client's affairs.
You agree that, upon the termination of your employment, you will not take
with you any of our records, correspondence, files, forms, documents or data of
any nature whatsoever pertaining to our clients, procedures, or research
activities, and that you will not prepare or take with you any copies of the
same, and that you will not, before or after termination of your employment,
make any of such records or other information or data available to any other
person or firm.
All information in our files pertaining to the clients of the firm or our
forms, procedures, research or counseling activities is confidential property of
the firm.
Client Information
Our relationship with clients is entirely confidential and no disclosure
of the name or of any detail of the personal circumstances of a client shall be
made to anyone not a member of the firm without the specific permission of the
client.
Outside Affiliations
No member of the firm shall become an officer, trustee or director of any
company whose shares are publicly traded (except an investment company managed
by Capital Growth Management or a Capital Growth Management affiliate) without
the advance approval of the Chairman or President of the General Partner of
Capital Growth Management. Capital Growth Management cannot be in the position
of receiving or being able to receive inside information. Therefore, exceptions
will be made only in extremely unusual situations.
No member of the firm shall accept an appointment as an executor,
administrator, trustee, guardian or conservator (other than in family
situations) without approval by the Chairman or President of the General Partner
of Capital Growth Management.
Gifts from Third Parties
In order to avoid a conflict of interest, the impairment of the impartial
discharge of your responsibilities to our clients, or any other difficulty or
embarrassment, you shall not accept any gift presented on your own behalf, on
the firm's behalf, or on behalf of any member of your family or any other person
designated by you from any person with whom the firm does business, including
brokers, securities salesmen, clients, or vendors of any kind. The only
exception to this restriction shall be for occasional small gifts of de minimis
value which present no possibility of influencing your judgment.
Publishing Articles and Books
You shall not publish any book or article bearing on investments or
finance or allied subjects except with the specific approval of the Chairman or
President of the General Partner of Capital Growth Management. This also applies
to public talks or interviews.
Use of Inside Information
You agree to adhere to the firm's Statement of Policy on Inside
Information which should be read in conjunction with this Code.
<PAGE>
PART II - PERSONAL SECURITIES TRANSACTIONS
The primary purpose of the Capital Growth Management Code is to protect
the interests of all our clients. Our Code is very important to each member of
the firm in maintaining the high standards and reputation of Capital Growth
Management and guarding against an inadvertent violation of the securities laws
which might jeopardize your future in the investment business.
There are two points in particular that should be constantly kept in mind.
1. Capital Growth Management holds itself out as a professional
investment counsel firm which provides unbiased advice - that is,
advice based solely on the merits of the individual investment
and undiluted by any conflicts of interest which could prejudice
the investment decision in any way. Thus, the very nature of our
business requires that the main thrust of our Code be the
elimination of any conflicts that could jeopardize our unbiased
investment approach.
2. The second point we stress is the fiduciary nature of the
relationship with our clients. This fiduciary relationship has been
stressed by the SEC and state and federal courts, including the U.S.
Supreme Court, and is highlighted in ERISA. Capital Growth
Management is considered to be a fiduciary with respect to all its
investment counsel clients, including both ERISA and non-ERISA
accounts.
This means that the same standards that are uniformly applied to trustees,
guardians and other fiduciaries are applied to Capital Growth Management
in its client relationships. These standards oblige Capital Growth
Management to act honestly and fairly in all respects in our dealings with
clients and to serve their interests with undivided loyalty.
You are obliged to put the interests of the Capital Growth Management
clients before your own personal interests. This is an obligation we all assume
as members of an investment counsel firm.
This rule has particular significance with reference to the flow of
investment information our personnel receive from brokers. Such brokerage
information is the property of Capital Growth Management and is to be used for
the benefit of the Capital Growth Management clientele. It should not be used
for the personal advantage of the individual member of the firm who receives
such information if such use conflicts with the interests of Capital Growth
Management clients. This is a clear principle of law resulting from the
fiduciary nature of our client relationship and our obligation to serve clients
with undivided loyalty.
I. Basic Philosophy
Capital Growth Management recognizes the fundamental value to its clients
in developing an organization of sound, experienced and practical investment
people. The actual experience of investing one's own capital, whether it be
small or large, is a valuable means of learning firsthand the opportunities,
risks and characteristics of the investment markets. Therefore, Capital Growth
Management encourages sound, personal investment by members of the firm.
On the other hand, Capital Growth Management as a firm must make certain
that there is no abuse of our responsibilities to clients or to the reputation
and professional standing of our organization or any of its members.
In formulating the Capital Growth Management Code, we have made every
effort to produce a framework which will adequately protect the interests of our
clients and our firm, while at the same time permitting as much freedom as we
believe reasonable and permissible for the firm's individual members in carrying
out their own personal investments.
II. Securities Transactions Covered by the Code
1. Employees of Capital Growth Management
The restrictions of the Capital Growth Management Code are applicable to
the securities transactions of all employees of Capital Growth Management.
The restrictions of the Capital Growth Management Code also apply to
directors, officers and general partners of Capital Growth Management and its
General Partner, and all individuals in a control relationship to Capital Growth
Management who obtain information concerning investment recommendations to the
CGM Funds or any other registered investment company advised by Capital Growth
Management. References in this Code to CGM employees include all other persons
to whom this Code applies.
Capital Growth Management will identify and inform all persons subject to
the reporting requirements under this Code.
2. Employee Accounts
The Code applies to securities transactions for all accounts in which you
have a "beneficial interest", except any such account where you have no
influence or control over investments.
Whether you have a "beneficial interest" in an account will be determined
pursuant to Rule 16a-1(a)(2) of the Securities Exchange Act of 1934 and
interpretative releases of the Securities and Exchange Commission. Under these
rules a beneficial interest in securities exists whenever you derive any
economic benefit from the income from the securities or whenever you can
exercise a controlling influence over the purchase, sale or voting of the
securities. You may also have a beneficial interest in securities if you have
the opportunity to indirectly participate in profits from the securities
through, among other things, trusts, partnerships, or immediate family members.
Accordingly, you are normally considered to have a beneficial interest in:
a. Securities owned by you, whether or not registered in your name.
b. Securities held in a trust, estate or other account in which you,
your spouse, minor children or other relatives who share the same
home with you have a (direct or indirect) present or future interest
in the income or principal.
c. Securities owned by your spouse or minor children.
d. Securities owed by other relatives who share the same home with you.
e. Securities in the name of another person where you can obtain title
to the securities at once or at some future time.
3. Fund Trustees
The Code does not apply to trustees of the mutual funds managed by Capital
Growth Management who are not employees of our firm. The restrictions on the
securities transactions of the outside Fund trustees and the requirements for
filing reports of their transactions are governed by the Codes of Ethics of the
Funds.
III. The Rule of Reason, Conscience and Integrity
The primary rule of the Capital Growth Management Code is the Rule of
Reason, Conscience and Integrity. You have the responsibility of carrying out
your own personal transactions to ensure that you are not benefiting in your
personal investments at the expense of any Capital Growth Management client and
that you are not in any way taking advantage of or "trading" on the knowledge
you may have of the market impact of transactions carried out by Capital Growth
Management for any of its clients.
Using your own conscience as a person of integrity, you should be the best
judge in regard to compliance with this basic approach to personal investing.
This rule imposes a stricter standard upon members of Capital Growth
Management than the general standard of federal and state laws, which prohibit
any act, practice or course of business which would operate as a fraud or deceit
upon clients.
IV. Specific Restrictions on all Purchase and Sale Transactions
In addition to the Rule of Reason, Conscience and Integrity, the following
specific restrictions in this Section IV applies to all securities transactions
for accounts subject to the Code, except the exempt transactions which follow
the rule:
NO EMPLOYEE OF CAPITAL GROWTH MANAGEMENT MAY PURCHASE A SECURITY IF
SECURITIES OF THE SAME ISSUER ARE HELD IN ANY OF THE FIRM'S CLIENT ACCOUNTS. The
Employee is required to determine whether or not securities of the same issuer
are held in any client account or whether there is a pending "buy" order prior
to engaging in any trading for his or her own account. For employees located at
the 222 Berkeley Street offices, this determination shall take the form of
written verification from Leslie Lake. If the employee already holds a security
at the time that securities of the same issuer are purchased for a client
account, he or she may not sell such security for his or her own account until
either (i) at least seven days after all securities of the same issuer are
purchased for any client account (i.e., seven days after all pending "buy"
orders of securities of the same issuer for all client accounts have been
completed), or (ii) client accounts no longer hold any securities of the same
issuer.
Because it is important for Capital Growth Management to avoid even the
appearance of impropriety, the preceding restriction applies to all employees,
whether or not they are actively involved in portfolio management, securities
analysis or trading on behalf of clients.
ADDITIONAL RESTRICTION FOR PORTFOLIO MANAGERS: A Portfolio Manager may not
buy or sell a security within seven calendar days before or after any Fund which
he or she manages trades in the security.
This Section IV applies to all types of securities transactions, provided
the following securities or transactions are exempted from this general rule:
o Purchases or sales of direct obligations of the Government of the United
States, shares of registered open-end investment companies, bankers'
acceptances, bank certificates of deposit or commercial paper;
o Purchases which are part of an automatic dividend reinvestment plan;
o Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer; and
o Purchases and sales of publicly traded securities of any issuers whose
total market capitalization is less than $100 million (which issuers
are, as a class, considered to be inappropriate investments for the
funds managed by the firm).
Any prohibition against purchase or sale of a security in this Section IV
includes a prohibition against the short sale of the security, the purchase or
sale of a bond or preferred stock which is convertible into that security or the
purchase or sale of an option, warrant, or other right to purchase or sell that
security.
V. Additional Restrictions
The following additional restrictions have been adopted for specific types
of transactions for the reasons indicated below. These prohibitions apply to
direct investments, short sales and options trading in such securities.
1. No employee may purchase securities issued by any company the principal
business of which is brokerage, underwriting or investment banking except for
companies on the following list (which shall be updated from time to time):
Bear Stearns Merrill Lynch
Donaldson, Lufkin & Jenrette Morgan Stanley Dean Witter
Edwards, A.G. Paine Webber
Jefferies Group Schwab, Charles
Lehman Brothers Solomon-Smith Barney
Reason: To avoid investments which might influence the selection of
brokers for client transactions. The companies listed above are those whose
capitalizations are sufficiently high and whose brokerage or underwriting
activities are sufficiently large so as to mitigate concerns about improper
influence.
2. No employee may participate as a purchaser or acquire beneficial ownership
of any security in an initial public offering of securities. For this purpose
"initial public offering" means an offering of securities registered under the
Securities Act of 1933, the issuer of which, immediately before the
registration, was not subject to the reporting requirements of Sections 13 or
15(d) of the Securities Exchange Act of 1934.
Reason: to avoid use or the appearance of the use of brokerage
business for our clients to obtain favorable treatment from brokers
distributing new issues.
3. No employee may participate as a purchaser or acquire beneficial ownership
of any security in any private offering of securities. Where the employee
already has a holding of such securities, he or she need not divest such
holdings, but shall play no role in any further consideration by Capital Growth
Management of any investment in such issuer. For this purpose "private offering"
means an offering that is exempt from registration under the Securities Act of
1933 pursuant to Section 4(2) or 4(6) of the Act, Regulation A under the Act, or
Rule 504, 505 or 506 under the Act.
Reason: to avoid a conflict of interest between the employee entering into
or holding such investment and clients of Capital Growth Management both at the
time that the investment is made available to the employee and at the time that
an investment in the same issuer is being considered for client accounts.
4. No employee may participate in any investment club, hedge fund, limited
partnership, or other private investment pool, unless such employee: (i)
receives the advance approval of the Chairman or President of the General
Partner of Capital Growth Management, and (ii) verifies in writing that such
employee does not provide investment advice to such investment pool or its
participants, or that such investment pool has agreed to become subject to all
of the requirements of this Code.
Reason: the same restrictions which apply to your personal trading
must apply to the investment pool, unless your involvement is entirely
passive.
5. No employee may invest in either a public or private real estate
investment trust ("REIT") unless such employee receives the written approval of
the Chairman and President of the General Partner of Capital Growth Management
in advance of such investment. The President and the Chairman of Capital Growth
Management may not invest in REIT's without the other's written approval in
advance of such investment. The Review Officer shall report to the Board of
Trustees of each of CGM Trust and CGM Capital Development Fund at least
quarterly concerning all purchases and sales of REIT's by employees of Capital
Growth Management during the prior year.
Reason: A substantial portion of CGM Realty Fund's portfolio is invested
in REIT's; this restriction is designed to minimize the possibility of a
conflict of interest with the investment strategy of this fund.
All profits realized in violation of any restriction in this Code shall be
immediately paid over to Capital Growth Management, which shall, in its
discretion, allocate such profits among its clients, or contribute them to
charity. Any such profits shall be calculated net of any federal, state, local,
or foreign taxes paid or payable on the profits.
VI. Disclosure Requirements and Reports
Each employee must comply with the reporting requirements described below.
For purposes of this Section VI, the term "security" includes stocks, bonds,
notes, partnership interests, options, warrants, debentures, puts and calls on
securities, mining interests, ADRs, and any other interest or instrument
commonly known as a "security." However, the term "security" does not include:
o direct obligations of the Government of the United States,
o bankers' acceptances,
o bank certificates of deposit,
o commercial paper,
o high quality short-term debt instruments,
o repurchase agreements, and
o shares of registered open-end investment companies, i.e. mutual funds.
Any report made pursuant to this Section VI may contain a statement that
the report shall not be construed as an admission that you have any direct or
indirect beneficial ownership in a security to which the report relates and no
report shall be considered as an admission that any transaction reported
constitutes a violation of the Code. Reports need not be made with respect to
accounts where you have no direct or indirect influence or control over
investments.
1. Initial Reports
All new employees shall supply the Review Officer with a list of all
brokerage and banking accounts in which any securities are held for the
employee's direct or indirect beneficial interest and the securities held in
each such account (including the names of the brokerage firms or banks and the
title, number of shares and principal amount of each security beneficially
owned). In addition, new employees shall affirm that they have no affiliations
or positions with a public company not permitted by this Code.
This initial report shall be submitted by each employee no later than ten
days after becoming an employee and shall contain the date the report is
submitted by the employee.
2. Monthly Reports
Within ten days following the end of each month, you must file a signed
securities transaction form with the Review Officer. On that form you must
report the security transactions carried out during the month for all accounts
in which you have a "beneficial interest", except accounts where you have no
direct or indirect influence or control over investments. The monthly reports
shall contain (a) the date of the transaction, (b) the title, interest rate and
maturity date (if applicable), number of shares and principal amount of each
security, (c) the nature of the transaction (i.e., purchase, sale, other), (d)
the price of the security at which the transaction was effected and (e) the name
of the brokerage firm or bank through which the transaction was effected.
The monthly report also must contain, with respect to any account you
established in which securities were held during the month for your direct or
indirect benefit, the (a) name of the brokerage firm or bank with which you
established the account and (b) the date the account was established.
These monthly reports must be submitted by every employee of Capital
Growth Management and must contain the date the report is submitted by the
employee.
Monthly reports must be filed whether or not any security transactions
have been carried out. In instances where there have been no transactions, that
fact should be so noted.
Employees shall keep copies of all broker confirmations and statements for
all accounts in which they have a beneficial interest, and shall be prepared to
supply them to the Review Officer upon request.
3. Annual Report
On an annual basis, no later than 20 days after each December 31st, each
employee shall supply the Review Officer with an annual report containing: (a)
the title, number of shares and principal amount of each security in which the
employee has any direct or indirect beneficial ownership and (b) the name of any
brokerage firm or bank with which the employee maintains an account in which any
securities are held for the direct or indirect benefit of the employee. In the
annual report each employee shall either certify that he or she has fully
complied with this Code or shall fully disclose any and all failures to do so.
The information contained in the annual report must be current as of a date no
more than 30 days before the report is submitted and must contain the date the
report is submitted by the employee.
VII. Review and Enforcement
Mr. Kemp serves as the Review Officer for this Code. Mr. Heebner shall
serve as Alternate Review Officer for Mr. Kemp.
It will be the responsibility of the Review Officer to review these
transactions promptly with the objective of catching at an early date any
conflict with the specific rules or general principles and philosophy of this
Code. It will be the Review Officer's responsibility to use common sense and
judgment in regard to the character and nature of individual securities
transactions as reported, to point out at once any apparent violation to the
individual, and to take appropriate action.
You cannot participate in a determination of whether you have committed a
violation of this Code or of the imposition of any resulting sanction. If a
contemplated securities transaction may apparently conflict with the provisions
of this Code, you should contact the Review Officer prior to going ahead with
the transaction. Information submitted in the initial, monthly, and annual
reports will be treated as confidential by the Review Officer, provided it may
be made available to the Securities and Exchange Commission and other government
agencies.
An employee shall report to the Review Officer any failure on his or her
part to comply with this Code immediately upon occurrence.
If you believe that adherence to any of the restrictions in Sections IV or
V of the Code will cause you a serious and undue hardship because of unusual
personal circumstances (e.g., the need to raise cash to pay an extraordinary
medical expense) you may submit a request for an exemption in writing to the
Review Officer. The Review Officer's determination will be final. Such relief
from the requirements of the Code will be granted only rarely.
VIII. Maintenance of Records
Capital Growth Management will maintain the following records at its
principal place of business, to the extent and in the manner set forth below,
and will make such records available to the Securities and Exchange Commission
or any representative thereof at any time and from time to time for reasonable
periodic, special or other examination:
1. A copy of each Capital Growth Management Code which is, or any time
within the past five years has been, in effect shall be preserved in
an easily accessible place.
2. A record of any violation of such Code, and of any action taken as a
result of such violation, shall be preserved in an easily accessible
place for a period of not less than five years following the end of
the fiscal year in which the violation occurs.
3. A copy of each report made under this Code shall be preserved for a
period of not less than five years from the end of the fiscal year
in which it is made, the first two years in an easily accessible
place.
4. A list of all persons who are, or within the past five years have
been, required to make reports pursuant to this Code or who are or
were responsible for reviewing these reports shall be maintained in
an easily accessible place.
5. A copy of each report concerning this Code furnished by Capital
Growth Management to the Board of any Fund pursuant to the
Investment Company Act shall be maintained for at least five years
after the end of the fiscal year in which it is made, the first two
years in an easily accessible place.
6. A record of any decisions, and the reasons supporting the decisions,
to approve the acquisition of securities under Section VII of this
Code shall be maintained for at least five years after the end of
the fiscal year in which the approval is granted.
IX. Amendments and Reporting to Funds
Any material change to this Code of Ethics must be approved by the Boards
of Trustees of the CGM Funds and any other registered investment company advised
by Capital Growth Management, including a majority of trustees who are not
interested persons of Capital Growth Management, no later than six months after
adoption of the material change.
No less frequently than annually, Capital Growth Management must furnish
to the Boards of Trustees of the CGM Funds and any other registered investment
company advised by Capital Growth Management a report that:
1. describes any issues arising under this Code of Ethics or procedures
of Capital Growth Management since the last report to the Board,
including, but not limited to, information about material violations
of this Code of Ethics or procedures and sanctions imposed in
response to the material violations; and
2. certifies that Capital Growth Management has adopted procedures
reasonably necessary to prevent its employees from violating this
Code of Ethics.
