<PAGE>
TO OUR SHAREHOLDERS:
- --------------------------------------------------------------------------------
CGM Capital Development Fund increased 9.5% during the fourth quarter of 1996
compared to the unmanaged Standard and Poor's 500 Index which rose 8.3% over the
same period. For the year just ended, the Fund posted a total return of 28.1%
while the S&P 500 returned 23.0%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
In 1996, the U.S. economy was extraordinary as it completed another year of
growth with only moderate inflation. Rarely does benign inflation follow six
years of business expansion. We experienced strong growth in jobs, increased
productivity and higher corporate profits, and an increase of 2.9% in the
inflation rate as measured by the Consumer Price Index. The prolonged expansion
has placed us at high levels of capacity utilization and low levels of
unemployment which, with added economic fuel, could easily lead to higher rates
of inflation.
The equity markets have taken their cue from the continuing business expansion
and have priced future prospects generously. The chairman of the Federal Reserve
Board recently cautioned against "irrational exuberance" and while the phrase
may aptly describe the recent wave of initial public offerings and some sectors
of the market such as technology and telecommunications, it may not be
symptomatic of the stock market as a whole.
The bond market is particularly sensitive to signs of continuing strength in the
economy. Recent data on the sale of new homes and consumer confidence levels as
well as a report from the National Association of Purchasing Managers all
indicated greater-than-expected strength which sent interest rates up and
triggered a short-lived decline in equity prices.
Looking ahead, further gains in the market will be more difficult to achieve on
account of high valuations and will be heavily dependent on how inflation trends
affect interest rates in 1997. We hope to see pricing excesses wrung from the
market without compromising investor confidence. Our focus continues to be on
growth at a reasonable price.
PORTFOLIO STRATEGY
CGM Capital Development Fund remained fully invested during 1996 in anticipation
of modest, non-inflationary growth. The Fund entered the year with a large
concentration of consumer stocks, most of which was liquidated as the year
progressed. Offshore drilling and oil service stocks were accumulated during the
year and represented the two largest sector weightings at year-end. Performance
was enhanced by substantial gains in bank, cement and offshore drilling holdings
as well as in selected technology stocks.
CGM Capital Development Fund holds important positions in offshore drilling
companies, oil service companies and money center banks. The Fund's three
largest holdings are Citicorp, Intel Corporation and Chase Manhattan
Corporation.
/s/ ROBERT L. KEMP
------------------
Robert L. Kemp
President
/s/ G. KENNETH HEEBNER
------------------
G. Kenneth Heebner
Portfolio Manager
January 10, 1997
<PAGE>
- ------------------------------------------------------------
COMPARISONS OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CGM CAPITAL DEVELOPMENT FUND AND THE UNMANAGED S&P 500
assuming reinvestment of dividends and capital gains
- ---------------------------------------
Average Annual Total Return
- ---------------------------------------
1 year 5 year 10 year
28.1% 16.1% 19.2%
- ---------------------------------------
Past performance is no indication
of future results
- ---------------------------------------
CGM S&P
10,000.0 10,000.0
1987 11,589.0 10,525.0
1988 11,554.0 12,268.0
1989 13,621.0 16,149.0
1990 13,825.0 15,647.0
1991 27,254.0 20,403.0
1992 32,333.0 21,956.0
1993 41,600.0 24,164.0
1994 32,067.0 24,481.0
1995 45,231.0 33,670.0
1996 57,949.0 41,414.0
- ------------------------------------------------------------
CGM CAPITAL DEVELOPMENT FUND
PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
G. Kenneth Heebner has managed CGM Capital Development Fund since 1976. In
1989, Mr. Heebner founded Capital Growth Management Limited Partnership with
Robert L. Kemp. Prior to establishing the new company, Mr. Heebner was at
Loomis, Sayles and Company where he managed the Fund, then known as Loomis-
Sayles Capital Development Fund. In addition to CGM Capital Development Fund,
Mr. Heebner currently manages CGM Mutual Fund and CGM Realty Fund as well as
two other mutual funds. He also co-manages CGM Fixed Income Fund with Janice
Saul.
INVESTMENT PERFORMANCE
(unaudited)
- --------------------------------------------------------------------------------
Total Return for Periods Ended December 31, 1996
CGM CAPITAL
DEVELOPMENT
FUND
-----------------
10 Years ................................................. +479.5%
5 Years ................................................. +110.6%
1 Year .................................................. + 28.1%
3 Months ................................................ + 9.5%
The performance data contained in the report represent past performance. The
investment return and the principal value of an investment in the Fund will
fluctuate so that investors' shares, when redeemed, may be worth more or less
than their original cost.
<PAGE>
<TABLE>
<CAPTION>
CGM CAPITAL DEVELOPMENT FUND
------------------------------------------------------------------------------------------------------------------------------
25 YEAR INVESTMENT RECORD
DECEMBER 31, 1971 -- DECEMBER 30, 1996 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------
IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1971
------------------------------------------------------------------------------------------------------------------------------
--AND HAD TAKEN ALL DIVIDENDS OR -- HAD REINVESTED ALL DIVIDENDS AND CAPITAL
AND DISTRIBUTIONS IN CASH GAINS DISTRIBUTIONS IN ADDITIONAL SHARES
-------------------------------------------------- -------------------------------------------------------------
During the Year
You Would Have Received Which Would Represent
--------------------------- ----------------------------------------
The Value of A Cumulative
The Net Your Original Change
Asset Value Per Share Per Share Investment An Expressed
On of Your Capital Gains Income At Each Annual As An Index With
December Share Would Distributions Dividends Year End Total Return December 31,
31 Have Been of of Would Have Been of 1970 = 100.0
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1971 12.55 100.0
1972 14.63 -- 0.08 14.75 + 17.5 117.5
1973 12.69 -- 0.08 12.85 - 12.9 102.3
1974 7.78 0.37* 0.14 8.22 - 36.0 65.5
1975 9.35 -- 0.15 10.07 + 22.5 80.2
1976 10.98 -- 0.13 11.99 + 19.1 95.5
1977 10.74 -- 0.18 11.92 - 0.6 94.9
1978 13.05 -- 0.27 14.89 + 24.9 118.5
1979 16.20 -- 0.35 18.97 + 27.4 151.0
1980 20.50 1.65* 0.36 27.11 + 42.9 215.8
1981 17.34 3.38 0.36 28.33 + 4.5 225.5
1982 24.88 2.88 0.41 50.68 + 78.9 403.4
1983 25.21 2.50 0.47 58.59 + 15.6 466.3
1984 17.28 6.15 0.11 53.79 - 8.2 428.1
1985 25.02 -- 0.18 78.64 + 46.2 625.9
1986 23.12 7.46 0.16 100.97 + 28.4 803.7
1987 16.56 10.09 0.14 117.02 + 15.9 931.5
1988 15.87 0.02 0.62 116.67 - 0.3 928.7
1989 18.37 -- 0.34 137.55 + 17.9 1094.9
1990 18.53 -- 0.10 139.48 + 1.4 1110.2
1991 25.80 11.07* 0.06 277.70 + 99.1 2210.4
1992 27.43 2.68* 0.20 326.30 + 17.5 2597.2
1993 27.71 7.51 0.07 419.95 + 28.7 3342.6
1994 20.58 0.71 0.07 323.78 - 22.9 2577.1
1995 27.33 1.68 0.02 456.85 + 41.1 3636.3
1996 29.08 5.87 0.07 585.22 + 28.1 4658.1
------ ----- ------
Totals $64.02 $5.12 +4558.1
- -------------------------------------------------------------------------------------------------------------------------------
*Includes $0.15, $0.09, $0.02 and $0.02 per share distributed from paid-in capital.
- -------------------------------------------------------------------------------------------------------------------------------
</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 the original cost.
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1996
COMMON STOCKS -- 95.1% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
AIRLINES -- 4.5%
Continental Airlines, Inc.(b) .................... 1,015,000 $ 28,673,750
------------
BANKS -- MONEY CENTER -- 12.7%
Chase Manhattan Corporation ...................... 437,000 39,002,250
Citicorp ......................................... 400,000 41,200,000
------------
80,202,250
------------
BASIC MATERIALS -- 10.9%
Lone Star Industries, Inc. ....................... 465,000 17,146,875
Medusa Corporation ............................... 381,500 13,114,063
Southdown, Inc. .................................. 1,232,000 38,346,000
------------
68,606,938
------------
COMPUTER SOFTWARE AND SERVICES -- 2.2%
Dell Computer Corporation(b) ..................... 257,000 13,653,125
------------
ELECTRONIC COMPONENTS -- 6.3%
Intel Corporation ................................ 302,000 39,543,125
------------
FINANCIAL SERVICES -- 1.0%
RAC Financial Group, Inc.(b) ..................... 296,000 6,253,000
------------
FOOD -- RETAILERS/WHOLESALERS -- 6.1%
Philip Morris Companies, Inc. .................... 340,000 38,292,500
------------
HEAVY CAPITAL GOODS -- 1.6%
Paccar, Inc. ..................................... 150,000 10,200,000
------------
MISCELLANEOUS -- 5.2%
CB Commercial Real Estate Services Group(b) ...... 70,000 1,400,000
Tubos de Acero de Mexico ADR(b)(c) ............... 1,970,000 31,273,750
------------
32,673,750
------------
OFFSHORE DRILLING -- 16.1%
Atwood Oceanics, Inc.(b) ......................... 267,000 16,954,500
Diamond Offshore Drilling(b) ..................... 469,000 26,733,000
Reading & Bates Corporation(b) ................... 1,300,000 34,450,000
Transocean Offshore, Inc. ........................ 378,000 23,672,250
------------
101,809,750
------------
OIL -- INDEPENDENT PRODUCTS -- 0.3%
Basic Petroleum International Limited(b) ......... 52,000 1,716,000
------------
See accompanying notes to financial statements
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED)
COMMON STOCKS -- (CONTINUED)
SHARES VALUE(a)
------ --------
OIL -- SERVICE -- 13.9%
Halliburton Company .............................. 603,000 $ 36,330,750
Nabors Industries, Inc.(b) ....................... 300,000 5,775,000
National Oilwell, Inc.(b) ........................ 250,000 7,687,500
Schlumberger Limited ............................. 382,600 38,212,175
------------
88,005,425
------------
PERIPHERALS -- 6.9%
Hutchinson Technology, Inc.(b) ................... 160,000 12,160,000
Seagate Technology(b) ............................ 800,000 31,600,000
------------
43,760,000
------------
RETAIL -- 5.2%
Consolidated Stores Corporation(b) ............... 1,018,750 32,727,344
------------
TEXTILE AND APPAREL -- 2.2%
Jones Apparel Group, Inc.(b) .................... 376,300 14,064,212
------------
TOTAL COMMON STOCKS (Identified Cost $463,086,778) ......... 600,181,169
------------
FACE
AMOUNT
SHORT-TERM INVESTMENTS -- 6.0% ------
American Express Credit Corp., 6.55%, 1/02/97 $25,000,000 25,000,000
Ford Motor Credit Co., 6.00%, 1/02/97 ......... 13,220,000 13,220,000
------------
TOTAL SHORT-TERM INVESTMENTS (Identified
Cost $38,220,000) ........................................... 38,220,000
------------
TOTAL INVESTMENTS -- 101.1% (Identified Cost
$501,306,778)(d) ............................................ 638,401,169
Cash and Receivables ....................................... 9,531,900
Liabilities ................................................ (16,672,997)
------------
TOTAL NET ASSETS -- 100.0% .................................... $631,260,072
============
(a) See Note 1A.
(b) Non-income producing security.
(c) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank
representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
(d) Federal Tax Information: At December 31, 1996 the net unrealized
appreciation on investments based on cost of $501,762,637 for Federal income
tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ...... $ 141,480,202
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ...... (4,841,670)
-------------
Net unrealized appreciation ............................... $ 136,638,532
=============
See accompanying notes to financial statements
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
December 31, 1996
ASSETS
Investments at value (Identified
cost -- $501,306,778) ................................... $638,401,169
Cash ..................................................... 3,719
Receivable for:
Securities sold .......................... $ 8,569,458
Shares of the Fund sold 220,859
Dividends and interest.................... 737,864 9,528,181
----------- ------------
647,933,069
------------
LIABILITIES
Payable for:
Securities purchased ..................... $ 2,761,070
Shares of the Fund
redeemed ................................ 843,015
Distributions declared ................... 12,462,098 16,066,183
-----------
Accrued expenses:
Management fees .......................... 479,511
Trustees' fees ........................... 14,389
Accounting and
Administration .......................... 4,833
Other expenses ........................... 108,081 606,814
----------- ------------
16,672,997
------------
NET ASSETS ................................................ $631,260,072
============
Net Assets consist of:
Capital paid-in ......................................... $494,621,540
Accumulated net realized loss ........................... (455,859)
Unrealized appreciation on
investments -- net ..................................... 137,094,391
------------
NET ASSETS ................................................ $631,260,072
============
Shares of beneficial interest
outstanding, no par value ............................... 21,709,510
============
Net asset value per share* ............................... $29.08
============
*Shares of the Fund are sold and redeemed at net asset value
($631,260,072 / 21,709,510).
<PAGE>
STATEMENT OF
OPERATIONS
Year Ended December 31, 1996
INVESTMENT INCOME
Income
Dividends (net of withholding tax of
$24,013) ................................... $ 5,900,734
Interest .................................... 270,726
------------
6,171,460
------------
Expenses
Management fees ............................. 4,263,484
Trustees' fees .............................. 58,320
Accounting and Administration ............... 58,000
Custodian ................................... 120,000
Transfer agent .............................. 202,500
Audit and tax services ...................... 33,000
Legal ....................................... 22,000
Printing .................................... 38,500
Registration ................................ 25,705
Miscellaneous ............................... 10,491
------------
4,832,000
------------
Net investment income ........................ 1,339,460
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized gain on investments -- net .......... 107,431,801
Unrealized appreciation -- net ............... 35,915,614
------------
Net gain on investments ...................... 143,347,415
------------
NET INCREASE IN ASSETS FROM
OPERATIONS ................................... $144,686,875
============
See accompanying notes to financial statements
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995
------------ ------------
FROM OPERATIONS
Net investment income .................... $ 1,339,460 $ 332,275
Net realized gain from investments ....... 107,431,801 30,780,337
Unrealized appreciation .................. 35,915,614 127,281,953
------------ ------------
Increase in net assets from operations . 144,686,875 158,394,565
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................... (1,288,272) (325,671)
Net realized gain on investments ......... (107,431,801) (30,395,964)
In excess of net realized gain on
investments ............................ (507,030) --
------------ ------------
(109,227,103) (30,721,635)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ............. 27,721,248 24,146,671
Net asset value of shares issued in
connection with reinvestment of:
Dividends from net investment income ... 1,125,517 284,834
Distributions from net realized gain ... 95,194,271 27,239,616
Distributions in excess of net realized
gain on investments .................. 449,274 --
------------ ------------
124,490,310 51,671,121
Cost of shares redeemed .................. (49,937,780) (59,772,451)
------------ ------------
Net increase (decrease) in assets from
capital share transactions ........... 74,552,530 (8,101,330)
------------ ------------
Total increase in net assets ............. 110,012,302 119,571,600
NET ASSETS
Beginning of period ...................... 521,247,770 401,676,170
------------ ------------
End of period ............................ $631,260,072 $521,247,770
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............... 905,100 1,007,187
Issued in connection with reinvestment of:
Dividends from net investment income ... 38,642 10,461
Distributions from net realized gain ... 3,273,530 996,693
Distributions in excess of net realized
gain on investments .................. 15,450 --
------------ ------------
4,232,722 2,014,341
Redeemed ............................... (1,597,130) (2,458,372)
------------ ------------
Net change ............................. 2,635,592 (444,031)
============ ============
See accompanying notes to financial statements
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
For a share of the Fund outstanding throughout each period:
<S> <C> <C> <C> <C> <C>
Net asset value at the beginning of period .... $27.33 $20.58 $27.71 $27.43 $25.80
------ ------ ------ ------ ------
Net investment income ......................... 0.07 0.02 0.07 0.07 0.19
Dividends from net investment income .......... (0.07) (0.02) (0.07) (0.07) (0.20)
Net realized and unrealized gain (loss) on
investments ................................. 7.62 8.43 (6.42) 7.79 4.32
Distribution from net realized gain ........... (5.84) (1.68) (0.69) (7.51) (2.66)
Distribution in excess of net realized gain on
investments ................................. (0.03) -- (0.02) -- --
Distribution from paid-in capital ............. -- -- -- -- (0.02)
------ ------ ------ ------ ------
Net increase (decrease) in net asset value .... 1.75 6.75 (7.13) 0.28 1.63
------ ------ ------ ------ ------
Net asset value at end of period .............. $29.08 $27.33 $20.58 $27.71 $27.43
====== ====== ====== ====== ======
Total Return (%) .............................. 28.1 41.1 -22.9 28.7 17.5
Ratios:
Operating expenses to average net assets (%) .. 0.82 0.85 0.84 0.85 0.86
Net investment income to average net assets (%) 0.23 0.07 0.25 0.23 0.79
Portfolio turnover (%) ........................ 178 271 146 143 163
Average commission rate* ...................... $0.0669 -- -- -- --
Net assets at end of period (in thousands) ($) 631,260 521,248 401,676 523,775 394,530
<FN>
*SEC regulations require portfolios to disclose the average commission rate paid on trades for which commissions were
charged for fiscal years beginning on or after September 1, 1995.
</FN>
</TABLE>
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1996
1. The Fund is organized as a Massachusetts business trust under the laws of
Massachusetts pursuant to an Agreement and Declaration of Trust. The Fund is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund's objective is long-term capital
appreciation. The Fund seeks to attain its objective by investing in the equity
securities of a diverse group of companies and industries.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
A. SECURITY VALUATION -- Equity securities are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees, 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
investments having a maturity of sixty days or less are stated at amortized
cost, which approximates value.
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed) and dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. Net gain or loss on
securities sold is determined on the identified cost basis.
C. FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies, and to distribute to its shareholders all of its
taxable income and net realized capital gains, within the prescribed time
period. Accordingly, no provision for federal income tax has been made.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions
are recorded by the Fund on the ex-dividend date. The classification of
income and capital gains distributions is determined in accordance with
income tax regulations. Permanent book and tax differences relating to
shareholder distributions may result in reclassifications to paid-in
capital. Undistributed net investment income, accumulated net investment
loss, or distributions in excess of net investment income may include
temporary book and tax differences which will reverse in a subsequent
period. Any taxable income or gain remaining at fiscal year end is
distributed in the following year.
2. PURCHASES AND SALES OF SECURITIES -- For the year ended December 31, 1996,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $1,030,778,597 and
$1,093,399,187, respectively. There were no purchases or sales of United States
government obligations.
3. A. MANAGEMENT FEES -- During the year ended December 31, 1996, the Fund
incurred management fees of $4,263,484 paid or payable to the Fund's
investment adviser, Capital Growth Management Limited Partnership
(CGM), certain officers and directors of which are also officers and
trustees of the Fund. On December 12, 1996, the Fund had a Special
Meeting of its Shareholders. At that meeting, Shareholders approved an
Advisory Agreement between the Fund and CGM, effective December 13,
1996, providing for a fee at the annual rate of 1.00% on the first
$500 million of the Fund's average daily net assets, 0.95% of the next
$500 million and 0.80% of such assets in excess of $1 billion. Prior
to December 13, 1996, the advisory fee had been at the annual rate of
0.75% on the first $200 million of the Fund's average daily net
assets, 0.70% of the next $300 million and 0.65% of such assets in
excess of $500 million.
B. OTHER EXPENSES -- CGM performs certain administrative, accounting and
other services for the Fund. The expenses of those services, which are
paid to CGM by the Fund, include the following:
(i) expenses for personnel performing bookkeeping, accounting,
internal auditing and financial reporting functions and clerical
functions relating to the Fund; (ii) expenses for services required in
connection with the preparation of registration statements and
prospectuses, shareholder reports and notices, proxy solicitation
material furnished to shareholders of the Fund or regulatory
authorities and reports and questionnaires for SEC compliance; and
(iii) registration, filing and other fees in connection with
requirements of regulatory authorities. The Accounting and
Administration expense of $58,000 is shown separately in the financial
statements.
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to its officers or to any trustees who are directors,
officers or employees of CGM, or any affiliate of CGM, (other than
registered investment companies). Each other trustee is compensated by
the Fund with an annual base fee of $3,000 plus travel expenses for
each meeting attended and an annual variable fee calculated based on
the proportion of the Fund's average net assets to the aggregate
average net assets of the CGM Funds, which for 1996 was $6,093. In
addition, the Chairman of the Independent Trustees Committee receives
an annual retainer of $1,500.
- ------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of CGM Capital Development Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of CGM Capital
Development Fund at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and the financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1996 by correspondence with
the custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 7, 1997
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING -- DECEMBER 12, 1996
(unaudited)
On December 12, 1996 the Fund had a Special Meeting of its Shareholders. At
that meeting, Shareholders approved an Advisory Agreement between the Fund and
Capital Growth Management Limited Partnership that changed the advisory fee
(see Note 3a) paid by the Fund to CGM (by a share vote of 7,706,093.193 in
favor, 2,903,261.137 against and 381,618.500 abstentions) and ratified the
selection of Price Waterhouse LLP as the Fund's independent accountants for
the year ending December 31, 1996 (by a share vote of 10,528,564.96 in favor,
217,078.864 against and 245,329.006 abstentions).
<TABLE>
- --------------------------------------------------------------------------------
<C> <C>
BOARD OF TRUSTEES INVESTMENT ADVISER
PETER O. BROWN CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
NICHOLAS J. GRANT Boston, Massachusetts 02110
G. KENNETH HEEBNER
ROBERT L. KEMP TRANSFER AND DIVIDEND PAYING
ROBERT B. KITTREDGE AGENT AND CUSTODIAN OF ASSETS
LAURENS MACLURE
JAMES VAN DYKE QUEREAU, JR. STATE STREET BANK AND TRUST COMPANY
J. BAUR WHITTLESEY Boston, Massachusetts 02102
OFFICERS SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
ROBERT L. KEMP, President TRUST COMPANY
G. KENNETH HEEBNER, Vice President
LESLIE A. LAKE, Vice President and Secretary BOSTON FINANCIAL DATA SERVICES, INC.
KATHLEEN S. HAUGHTON, Vice President P.O. Box 8511
MARTHA I. MAGUIRE, Vice President Boston, Massachusetts 02266-8511
W. DUGAL THOMAS, Vice President
MARY L. STONE, Assistant Vice President
FRANK N. STRAUSS, Treasurer
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INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
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TELEPHONE NUMBERS
For information about:
[] Account Procedures and Status
[] Redemptions
[] Exchanges
Call 800-343-5678
[] New Account Procedures
[] Prospectuses
[] Performance
Call 800-345-4048
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MAILING ADDRESSES
FOR EXISTING ACCOUNTS
Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511
FOR NEW ACCOUNT APPLICATIONS ONLY
The CGM Funds
P.O. Box 449
Boston, MA 02117-0449
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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.
CAR96 Printed in U.S.A.
CGM
CAPITAL
DEVELOPMENT
FUND
36th Annual Report
December 31, 1996
A No-Load Fund
[FENCER LOGO]
Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
