<PAGE>
TO OUR SHAREHOLDERS:
- ------------------------------------------------------------------------------
We are pleased to report CGM Capital Development Fund increased 11.9% during
the first quarter of 1996 outperforming the Standard and Poor's 500 Index
which returned 5.4% for the same period.
Heading into the first quarter, evidence began to surface of a slowing in
business activity, which prompted the Federal Reserve Board to lower interest
rates twice. The "Blizzard of '96" exacerbated the slowdown, spooking some
investors into believing recession was on its way. Fears, however, were
abruptly extinguished on March 8th when February employment numbers were
released indicating an increase of 705,000 new jobs. Since then, other
indicators have followed suit to confirm strength in the economy. While a few
signals to the contrary remain, we expect the trend to be one of continuing
slow growth.
The combination of relatively low inflation, full employment, and an expanding
economy is optimal and, we believe, here to stay for a while longer.
Nonetheless, commodity prices are beginning to stir. Grain, metal, and oil
prices are up, not yet at levels which would stimulate immediate inflation,
but enough to warrant attention.
Mixed signals are to be expected in a "slow-growth" environment. The personal
computer industry, in particular, is already reeling from supply and demand
imbalances. Supply has so overpowered demand that even lower product prices
have been ineffectual in restoring balance. We do not interpret this as a sign
of economic weakness so much as just an incidence of capacity far exceeding
demand and one that will be corrected in time.
Bond investors appear to be sensitive to recent changes in the economic
climate; long-term rates reversed direction in January and jumped from 5.97%
to 6.75% by the end of the quarter. In the equities market, we believe the
robust employment numbers along with other strong economic data will give rise
to opportunities in individual companies that are the result of higher-than-
expected earnings rather than rising price-to-earnings ratios.
CGM Capital Development Fund holds major positions in airlines, retail and
money center banks. The Fund's three largest company holdings are Northwest
Airlines Corporation, UAL Corporation and Continental Airlines, Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
April 8, 1996
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INVESTMENT PERFORMANCE
(unaudited)
Total Return for Periods Ended March 31, 1996
CGM CAPITAL
DEVELOPMENT S&P 500 THE FUND'S AVERAGE
FUND INDEX ANNUAL TOTAL RETURN
----------- ------- -------------------
10 Years .... +415.4% 269.0% +17.8%
5 Years ..... +173.4 98.0 +22.3
1 Year ...... + 52.6 32.1 +52.6
3 Months .... + 11.9 5.4 --
The percentage figures for the Fund are based upon the beginning net asset
values of $24.23, $24.84, $21.29 and $27.33, respectively, and the March 31,
1996 net asset value of $30.58 per share assuming the reinvestment of income
dividends, capital gains and paid-in capital distributions during such
respective periods. The S&P 500 Index has also been adjusted for the
reinvestment of income dividends during these periods. Although the S&P 500
Index and the Fund are not directly comparable, the index is shown because it
is widely used by investors to measure unmanaged stock market performance.
When viewing the Fund's performance, one should keep in mind the Fund's
investment objective and policies, the characteristics and quality of its
portfolio securities, and the periods selected.
The performance data contained in the report represent past performance, which
is no guarantee of future results. The investment return on, and the principal
value of, an investment in the Fund will fluctuate so that investors' shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
INVESTMENTS AS OF MARCH 31, 1996
(unaudited)
COMMON STOCKS -- 99.9% OF TOTAL NET ASSETS
SHARES VALUE(A)
------ --------
AEROSPACE -- 5.2%
Boeing Company....... 345,000 $ 29,885,625
------------
AIRLINES -- 26.4%
Continental Airlines,
Inc................ 703,600 39,665,450
Northwest Airlines
Corporation........ 805,000 41,256,250
Trans World Airlines,
Inc................ 1,185,000 23,700,000
UAL Corporation...... 231,800 48,330,300
------------
152,952,000
------------
BANKS -- MONEY CENTER -- 12.1%
Chemical Banking
Corporation........ 462,000 32,571,000
Citicorp............. 471,000 37,680,000
------------
70,251,000
------------
BASIC MATERIALS -- 11.3%
AK Steel Holding
Corporation........ 500,000 19,937,500
Medusa Corporation... 351,500 10,764,688
National Steel
Corporation........ 870,000 12,180,000
Southdown, Inc....... 865,000 20,435,625
Texas Industries,
Inc................ 30,000 1,908,750
------------
65,226,563
------------
CHEMICALS -- MAJOR -- 1.6%
Rexene Corporation... 705,000 9,429,375
------------
FOOD -- RETAILERS/WHOLESALERS -- 4.6%
Philip Morris
Companies, Inc..... 305,000 26,763,750
------------
HOUSING AND BUILDING MATERIALS -- 0.2%
D.R. Horton, Inc..... 125,000 1,343,750
------------
MISCELLANEOUS -- 6.4%
NCI Building Systems,
Inc................ 266,000 9,110,500
NIKE, Inc............ 340,000 27,625,000
------------
36,735,500
------------
OFFICE EQUIPMENT AND SUPPLIES -- 4.6%
International
Business Machines . 240,500 26,725,562
------------
<PAGE>
INVESTMENTS AS OF MARCH 31, 1996 (CONTINUED)
(unaudited)
COMMON STOCKS -- (CONTINUED)
SHARES VALUE(A)
------ --------
OFFSHORE DRILLING -- 9.9%
Diamond Offshore
Drilling........... 669,000 $ 28,683,375
Reading & Bates
Corporation........ 1,460,000 28,835,000
------------
57,518,375
------------
RETAIL -- 17.3%
Claire's Stores, Inc. 1,010,000 18,306,250
Consolidated Stores
Corporation........ 435,000 14,572,500
Fila Holdings ADR.... 590,000 37,686,250
Kohls Corporation.... 471,000 29,849,625
------------
100,414,625
------------
TEXTILE AND APPAREL -- 0.3%
Jones Apparel Group,
Inc................ 35,000 1,697,500
------------
TOTAL COMMON STOCKS
(Identified Cost
$440,547,210) ......... 578,943,625
------------
FACE
AMOUNT
SHORT-TERM INVESTMENT -- 0.2% ------
American Express Credit
Corp., 5.40%, 4/01/96 (Cost
$1,090,000) ............ $1,090,000 1,090,000
------------
TOTAL INVESTMENTS -- 100.1% (Identified Cost
$441,637,210) .......................... 580,033,625
Cash and Receivables ....... 9,430,217
Liabilities ................ (9,938,603)
------------
TOTAL NET ASSETS -- 100% ............... $579,525,239
============
(a) Security valuation--Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
provides 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. Short-term notes having a maturity of less than
sixty days are stated at amortized cost, which approximates value.
<PAGE>
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TELEPHONE NUMBERS
---------------------------------------------------------------------------
For information about:
[] Account Procedures and Status [] New Account Procedures
[] Redemptions [] Prospectuses
[] Exchanges [] Performance
Call 800-343-5678 Call 800-345-4048
------------------------------------
MAILING ADDRESSES
------------------------------------
FOR EXISTING ACCOUNTS FOR NEW ACCOUNT APPLICATIONS ONLY
CGM Shareholder Services The CGM Funds
c/o Boston Financial Data Services P.O. Box 449
P.O. Box 8511 Boston, MA 02117-0449
Boston, MA 02266-8511
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
25 YEAR INVESTMENT RECORD
DECEMBER 31, 1970 -- MARCH 31, 1996 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------
IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1970
- ------------------------------------------------------------------------------------------------------------
--AND HAD TAKEN ALL DIVIDENDS OR -- HAD REINVESTED ALL DIVIDENDS AND CAPITAL
AND DISTRIBUTIONS IN CASH GAINS DISTRIBUTIONS IN ADDITIONAL SHARES
-------------------------------------------------------------------------------------------
During the Year
You Would Have Received Which Would Represent
------------------------ ------------------------------
The Value A
of Cumulative
Your Change
Original Expressed
The Net Per Share Investment As An
Asset Value Capital Per Share At Each An Index With
On of Your Gains Income Year End Annual December
December Share Would Distributions Dividends Would Have Total Return 31,
31 Have Been of of Been of 1970 = 100.0
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1970 10.45 100.0
1971 12.55 -- 0.20 12.79 + 22.4 122.4
1972 14.63 -- 0.08 15.03 + 17.5 143.8
1973 12.69 -- 0.08 13.09 - 12.9 125.2
1974 7.78 0.37* 0.14 8.38 - 36.0 80.1
1975 9.35 -- 0.15 10.27 + 22.5 98.1
1976 10.98 -- 0.13 12.23 + 19.1 116.8
1977 10.74 -- 0.18 12.16 - 0.6 116.1
1978 13.05 -- 0.27 15.19 + 24.9 145.0
1979 16.20 -- 0.35 19.35 + 27.4 184.7
1980 20.50 1.65* 0.36 27.65 + 42.9 263.9
1981 17.34 3.38 0.36 28.89 + 4.5 275.8
1982 24.88 2.88 0.41 51.68 + 78.9 493.4
1983 25.21 2.50 0.47 59.74 + 15.6 570.4
1984 17.28 6.15 0.11 54.84 - 8.2 523.6
1985 25.02 -- 0.18 80.18 + 46.2 765.5
1986 23.12 7.46 0.16 102.95 + 28.4 982.9
1987 16.56 10.09 0.14 119.32 + 15.9 1139.2
1988 15.87 0.02 0.62 118.96 - 0.3 1135.8
1989 18.37 -- 0.34 140.25 + 17.9 1339.1
1990 18.53 -- 0.10 142.21 + 1.4 1357.8
1991 25.80 11.07* 0.06 283.14 + 99.1 2703.4
1992 27.43 2.68* 0.20 332.69 + 17.5 3176.5
1993 27.71 7.51 0.07 428.17 + 28.7 4088.2
1994 20.58 0.71 0.07 330.12 - 22.9 3152.0
1995 27.33 1.68 0.02 465.80 + 41.1 4447.5
1996(3/31) 30.58 -- -- 521.23 + 11.9** 4976.8
------ ----- -------
Totals $58.15 $5.25 +4876.8
- ------------------------------------------------------------------------------------------------------------
<FN>
* Includes $0.15, $0.09, $0.02 and $0.02 per share distributed from paid-in capital.
** Total return for the three months ended March 31, 1996.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The performance data contained in this report represent past performance,
which is no guarantee of future results. The investment return on, and the
principal value of, an investment in the Fund will fluctuate so that
investors' shares, when redeemed, may be worth more or less than their
original cost.
<PAGE>
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
TRANSFER AND DIVIDEND PAYING
AGENT AND CUSTODIAN OF ASSETS
STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts 02102
SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY
BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 8511
Boston, Massachusetts 02266
This report has been prepared for the shareholders of the Fund and is not
authorized for distribution to current or prospective investors in the Fund
unless it is accompanied or preceded by a prospectus.
CQR1 Printed in U.S.A.
CGM
CAPITAL
DEVELOPMENT
FUND
139th Quarterly Report
March 31, 1996
A No-Load Fund
[FENCER LOGO]
Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
