<PAGE>
Rule 497(c)
1933 Act File No. 2-16252
1940 Act File No. 811-933
CGM CAPITAL DEVELOPMENT FUND
CGM Capital Development Fund (the "Fund") is a diversified mutual fund and a
registered open-end, no-load 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 Fund's investment manager is Capital Growth Management Limited
Partnership ("CGM" or the "Investment Manager").
The Fund is generally closed to new investors. See "Who Can Purchase
Shares."
PROSPECTUS
May 1, 1997
This prospectus sets forth information you should know before investing in
the Fund. It should be retained for future reference. A Statement of Additional
Information about the Fund dated May 1, 1997 (the "Statement") has been filed
with the Securities and Exchange Commission (the "SEC") and is available free of
charge. Write to the Fund, c/o CGM Investor Services, 222 Berkeley Street,
Boston, MA 02116 or call the telephone number listed below to obtain a
Statement. The Statement contains more detailed information about the Fund and,
as amended or supplemented from time to time, is incorporated into this
prospectus by reference.
- -------------------------------------------------------------------------------
For additional information about:
[] Account procedures and status [] New account procedures
[] Redemptions [] Prospectuses
[] Exchanges [] Performance
Call 800-343-5678 Call 800-345-4048
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Schedule of Fees ................................................... 2
Financial Highlights ............................................... 3
Investment Objective and Policies .................................. 4
The Fund's Investment Manager ...................................... 4
The Portfolio Manager .............................................. 4
Who Can Purchase Shares ............................................ 5
How to Purchase Shares ............................................. 5
Shareholder Services ............................................... 6
How to Redeem Shares ............................................... 7
Telephone Transactions ............................................. 9
Dividends, Capital Gains and Taxes ................................. 9
Pricing of Shares .................................................. 11
Performance Information ............................................ 11
Additional Facts About the Fund .................................... 11
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
SCHEDULE OF FEES
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) ............................... None
Redemption Fees* .................................................. None
Exchange Fees ..................................................... None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees ................................................... 0.99%
12b-1 Fees ........................................................ None
Other Expenses .................................................... 0.10%
-----
Total Fund Operating Expenses ..................................... 1.09%
- ----------
*A wire fee (currently $5.00) will be deducted from proceeds if a shareholder
elects to transfer redemption proceeds by wire.
The purpose of this fee schedule is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly if you
invest in the Fund. This fee schedule has been adjusted to give effect to the
revised management fee that became effective on December 13, 1996. For
additional information about the Fund's fees and expenses, please see "The
Fund's Investment Manager" and the Statement.
The following example illustrates the approximate expenses that you would
incur on a $1,000 investment over the following periods, assuming a 5% annual
rate of return and redemption at the end of each period.
CUMULATIVE
------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- -------- -------- --------
$11 $35 $60 $133
Please keep in mind that the example shown above is hypothetical. The
information above should not be considered a representation of past or future
return or expenses; the actual return and expenses may be more or less.
<PAGE>
- --------------------------------------------------------------------------------
CGM CAPITAL DEVELOPMENT FUND
FINANCIAL HIGHLIGHTS
(For a share of the Fund outstanding throughout the indicated years)
These financial highlights have been examined by Price Waterhouse LLP,
independent accountants. The table below should be read in conjunction with the
financial statements and the notes thereto, which, together with the Report of
Independent Accountants thereon, are included in the Fund's Annual Report and
incorporated by reference into the Statement. In addition to the highlights set
forth below, further information about the performance of the Fund is contained
in the Annual Report and the Statement, which may be obtained from the Fund free
of charge.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990* 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of year ...... $27.33 $20.58 $27.71 $27.43 $25.80 $18.53 $18.37 $15.87 $16.56 $23.12
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income ..................... 0.07 0.02 0.07 0.07 0.19 0.03 0.09 0.28 0.70 0.13
Dividends from net investment income ...... (0.07) (0.02) (0.07) (0.07) (0.20) (0.06) (0.10) (0.34) (0.62) (0.14)
Net realized and unrealized gain
(loss) on investments ................... 7.62 8.43 (6.42) 7.79 4.32 18.37 0.17 2.56 (0.75) 3.54
Distributions from net realized gain
on investments .......................... (5.84) (1.68) (0.69) (7.51) (2.66) (11.05) -- -- (0.02) (10.09)
Distributions in excess of net
realized gain ............................ (0.03) -- (0.02) -- -- -- -- -- -- --
Distributions from paid-in capital ........ -- -- -- -- (0.02) (0.02) -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net increase (decrease) in net asset value 1.75 6.75 (7.13) 0.28 1.63 7.27 0.16 2.50 (0.69) (6.56)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value at end of year ............ $29.08 $27.33 $20.58 $27.71 $27.43 $25.80 $18.53 $18.37 $15.87 $16.56
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return(%) ........................... 28.1 41.1 -22.9 28.7 17.5 99.1 1.4 17.9 -0.3 15.9
Ratios:
Operating expenses to average net assets (%) 0.82 0.85 0.84 0.85 0.86 0.88 0.94 0.92 0.92 0.82
Net income to average net assets (% ) ..... 0.23 0.07 0.25 0.23 0.79 0.21 0.40 1.26 3.89 0.70
Portfolio turnover (%) .................... 178 271 146 143 163 272 226 254 301 187
Average commission rate** ................. $0.0669 -- -- -- -- -- -- -- -- --
Net assets at end of year
(in thousands) ($) ...................... 631,260 521,248 401,676 523,775 394,530 325,965 175,717 189,932 194,209 231,792
- ----------
*On March 1, 1990, the Capital Growth Management Division of Loomis, Sayles & Company, Incorporated was reorganized into CGM,
which assumed management of the Fund.
**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.
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund has as its investment objective long-term capital appreciation.
There are no assurances that the Fund will attain its objective.
The Fund seeks to attain its objective by investing substantially all of its
assets in common stocks and securities convertible into common stocks. Under
some market conditions, however, the Fund may, for temporary defensive purposes,
hold a substantial portion of its assets in cash or investment grade
fixed-income investments (bonds, notes and money market instruments, including
repurchase agreements). No estimate can be made as to when or for how long the
Fund will employ such defensive strategies. The Fund's investments, including
bonds purchased for defensive purposes which may fluctuate in value with
interest rate movements, are subject to the market risks inherent in all
securities.
The Fund may invest in many types of companies. These companies include:
well established companies with records of above average growth and with promise
of maintaining their leadership positions in their industries; companies likely
to benefit from internal revitalization or innovations, changes in consumer
demand or basic economic forces; and smaller companies with good management and
attractive prospects. Investments in small and medium-size companies involve
greater risk than is customarily associated with more established companies.
The Fund may not, with respect to 75% of its total assets, invest more than
5% of its assets in the securities of any one issuer. In accordance with this
restriction, however, the Fund may, with respect to 75% of its total assets,
hold securities of a single issuer which, when acquired, were valued at 5% or
less of the total assets of the Fund, but which, as a result of fluctuations in
the value of the securities or the value of the Fund, have a value in excess of
5% of the Fund's total assets. In such circumstances, the conditions and outlook
of such issuers may be expected to have a more significant impact on the
performance of the Fund.
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. This policy may result in higher brokerage
fees.
THE FUND'S INVESTMENT MANAGER
The Fund's investment manager is Capital Growth Management Limited
Partnership, One International Place, Boston, Massachusetts 02110. CGM, an
investment advisory firm founded in 1989, manages eight mutual fund portfolios
and advisory accounts for other clients. The general partner of CGM is a
corporation controlled equally by Robert L. Kemp and G. Kenneth Heebner, who are
trustees and officers of the Fund.
In addition to selecting and reviewing the Fund's investments, CGM provides
executive and other personnel for the management of the Fund. The Fund's Board
of Trustees supervises CGM's conduct of the affairs of the Fund. In 1996, the
Fund paid 0.72% of its average annual net assets in management fees to CGM.
The advisory agreement between CGM Capital Development Fund and CGM provides
for a management fee at an annual percentage rate of 1.00% of the first $500
million of CGM Capital Development 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.
THE PORTFOLIO MANAGER
Since 1976, the Fund's investment portfolio has been managed by G. Kenneth
Heebner, an officer of the Fund's Investment Manager. Mr. Heebner, who is a vice
president and trustee of the Fund, also co-manages the investment portfolio of
CGM Fixed Income Fund and manages the investment portfolios of CGM Mutual Fund
and CGM Realty Fund. Prior to March 1, 1990, Mr. Heebner managed the Fund in his
capacity as vice president and director of Loomis, Sayles & Company,
Incorporated.
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 the
Investment Manager and counsel to the Fund and the Investment Manager.
HOW TO PURCHASE SHARES
The Fund sells its shares directly to investors without any sales load. If
you are currently a shareholder in the Fund, you may make a purchase of Fund
shares in a new regular account or retirement plan account by submitting a
completed application form and payment 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 ("UGMA") or the Uniform Transfers
to Minors Act ("UTMA"). Subsequent investments must be at least $50. See
"Shareholder Services" below for further information about minimum investments
in certain other circumstances.
All investments made by 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 will not be accepted.
After accepting an order, the Fund forwards the application and payment to
the CGM Shareholder Services Department ("CGM Shareholder Services") of Boston
Financial Data Services, Inc. ("BFDS"), which is the shareholder servicing agent
for State Street Bank and Trust Company ("State Street Bank"). CGM Shareholder
Services then opens an account, applies the payment to the purchase of full and
fractional shares, and mails a statement of the account confirming the
transaction.
After your account has been established, you may send subsequent investments
at any time directly to the shareholder servicing agent at the following
address:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, Massachusetts 02266-8511
The remittance for any subsequent investment must be accompanied by either the
Additional Investment Stub detached from a statement of account 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 may also be made 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: "DDA 99046336, $ 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.
The Fund reserves the right to reject any purchase order, including orders
in connection with exchanges, for any reason the Fund in its sole discretion
deems appropriate. Although the Fund does not anticipate that it will do so, the
Fund reserves the right to suspend, change or withdraw the offering of shares of
the Fund.
The price you pay will be the per share net asset value next calculated
after a 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).
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 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.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services as more fully described
in the Statement. Explanations and forms are available from the Fund.
EXCHANGE PRIVILEGE
Shares may be exchanged for shares of money market funds currently
distributed by New England Funds, L.P. ("Money Market Funds"). You may also
exchange shares for shares of CGM Mutual Fund, CGM Fixed Income Fund, CGM
American Tax Free Fund and CGM Realty Fund.
All exchanges may be made without charge. If you exchange all of your shares
of the Fund for shares of such other funds, you will no longer be a shareholder
and will no longer be eligible to purchase additional shares of the Fund. You
may make an exchange by written instruction or, if a written authorization for
telephone exchanges is on file with CGM Shareholder Services, you may call
800-343-5678. See "Telephone Transactions." 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
requirements. Exchange requests cannot be revoked once they have been received
in good order.
Investors 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 each shareholder may make to four exchanges per account (or two round
trips) per calendar year. Monthly automatic exchanges from the Money Market
Funds to the Fund are exempt from this restriction. The Fund also reserves the
right to prohibit exchanges during the first 15 days following an investment in
the Fund. The Fund may terminate or change the terms of the exchange privilege.
In general, shareholders will receive notice of any material change to the
exchange privilege at least 60 days prior to the change. For federal income tax
purposes, an exchange constitutes a sale of shares, which may result in a
capital gain or loss.
SYSTEMATIC WITHDRAWAL PLAN
If the value of your account is at least $10,000, you may have periodic cash
withdrawals automatically paid to you or any person you designate. If checks are
returned to the Fund as "undeliverable" or remain uncashed for more than six
months, the plan will be cancelled. Undeliverable or uncashed checks shall be
cancelled and such amounts shall be reinvested in the Fund at the per share net
asset value determined as of the date of cancellation of such checks.
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, c/o Boston Financial Data Services, Inc., P.O. Box 8511, Boston,
Massachusetts 02266-8511 or by calling 800-343-5678 more than 14 days prior to
the next scheduled debit date. The Fund may terminate your participation in the
AIP immediately in the event that any item is unpaid by your financial
institution. The Fund may terminate or modify the AIP at any time. Additional
information about this Plan is set forth in the Statement.
RETIREMENT PLANS
The Fund's shares may be purchased by tax-deferred retirement plans. CGM
makes available retirement plan forms and plan documents for IRAs, SEP-IRAs,
403(b)(7) custodial accounts, and money purchase pension and profit sharing
plans ("CGM Retirement Plans").
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.
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.
HOW TO REDEEM SHARES
You can redeem all or part of your shares in the Fund in three different
ways: by sending a written request for a check or wire representing the
redemption proceeds, by making a telephone request for redemption by check
(provided that the amount to be redeemed is not more than $25,000 and the check
is being sent to you at your record address, which has not changed in the prior
three months) or by making a telephone request for redemption proceeds to be
wired to a bank that you have predesignated. The redemption price will always 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). 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.
If you elect to redeem shares in writing, send your written request to:
CGM Shareholder Services
c/o Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, Massachusetts 02266-8511
The written request must include the name of the Fund, your account number, the
exact name(s) in which your shares are registered, the number of shares or the
dollar amount to be redeemed and mailing or wire instructions. All owners of
shares must sign the request in the exact name(s) in which the shares are
registered (which appear(s) on your confirmation statement) and should indicate
any special capacity in which they are signing (such as trustee or custodian or
on behalf of a partnership, corporation or other entity). If you are signing in
a special capacity, you may wish to contact CGM Shareholder Services in advance
to determine whether additional documentation will be required before you send a
redemption request.
Redemptions from CGM Retirement Plans for which State Street Bank is the
custodian or trustee must contain additional information. Please contact CGM
Shareholder Services for instructions and forms. Complete information, including
tax withholding instructions, must be included in your redemption request.
If you are redeeming shares worth more than $25,000 or requesting that the
proceeds check be made payable to someone other than the registered owner(s) or
be sent to an address other than your record address (or sent to your record
address if such address has been changed within the previous three months), 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.
If you elect to redeem shares by telephone, call CGM Shareholder Services
directly at 800-343-5678. See "Telephone Transactions." Telephone redemptions
are not available for CGM Retirement Plans. When you make a redemption request
by telephone, you may choose to receive redemption proceeds either by having a
check mailed to the address of record on the account, provided the address has
not changed for three months and you are redeeming $25,000 or less, or by having
a wire sent to a bank account you have previously designated.
Telephone redemptions by check are available to all shareholders of the Fund
automatically unless this option is declined in the application or in writing.
You may select the telephone redemption wire service when you fill out your
initial application or you may select it later by completing the Account Update
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 (the "Exchange"). If you
telephone your request to CGM Shareholder Services after the Exchange closes or
on a day when the Exchange is not open for business, the Fund cannot accept your
request and a new one will be necessary.
Wire redemptions by telephone may be made only if your bank is a member of
the Federal Reserve System or has a correspondent bank that is a member of such
System. If your account is with a savings bank, it must have only one
correspondent bank that is a member of the Federal Reserve System. A wire fee
(currently $5) will be deducted from the proceeds. If you decide to change the
bank account to which proceeds are to be wired, you must send in this change on
the Account Update Form with a signature guarantee.
Proceeds resulting from a written or regular telephone redemption request
will normally be mailed to you within seven days after receipt of your request
in good order. Telephone wire redemption proceeds will normally be wired to your
bank within seven days following receipt of a proper redemption request. If you
purchased your Fund shares by check (or through your AIP) and elect to redeem
shares within 15 days of such purchase, you may experience delays in receiving
redemption proceeds. The Fund will generally postpone sending your redemption
proceeds from such investment until the Trust can verify that your check (or AIP
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, 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.
The Fund may not suspend the right of redemption, or postpone payment for
more than seven days, except when the Exchange is closed for other than weekends
or holidays, when trading on the Exchange is restricted, during an emergency (as
determined by the SEC) that 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.
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 CGM Retirement Plans and UGMA/UTMA
accounts.
TELEPHONE TRANSACTIONS
You may initiate three types of transactions by telephone:
[] Telephone Exchange
[] Telephone Redemptions By Wire
[] Telephone Redemptions By Check
The terms and provisions for each of those services are explained fully in the
preceding sections. Once a telephone transaction request has been placed, it
cannot be revoked.
The Telephone Exchange privilege and/or Telephone Redemptions By Wire
privilege must be elected by you when you fill out your initial application or
you may select either option later by completing the Account Update Form (with a
signature guarantee) available from the Fund or CGM Shareholder Services. The
Telephone Redemptions By Check privilege is available to shareholders of the
Fund automatically, unless this option is declined in the application or in
writing.
The telephone redemption privileges are not available for IRAs, SEP-IRAs,
403(b)(7) custodial accounts or for money purchase pension and profit sharing
accounts under a CGM Retirement Plan (in 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.
DIVIDENDS, CAPITAL GAINS AND TAXES
The Fund pays out substantially all of its net investment income to
hareholders as dividends and also distributes its net capital gains realized
from the sale of portfolio securities. Income dividends and any capital gain
distributions (after applying any available capital loss carryovers) are
normally made annually in December but may be made more frequently as deemed
advisable by the Board of Trustees. The Fund's dividend and capital gains
distributions may be reinvested in additional shares or received in cash.
Certain restrictions may apply to participants in CGM Retirement Plans. You may
elect to receive income dividends or capital gains distributions, or both, in
cash. However, if you elect to receive capital gains in cash, your income
dividends must also be received in cash. 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 an
Account Update Form. In order for a change to be effective for any dividend or
distribution, it must be received by CGM Shareholder Services on or before the
record date for such dividend or distribution.
If you elect to receive distributions in cash and checks are returned
"undeliverable" to the Fund 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 such six month period, any undeliverable or uncashed checks shall be
cancelled and such amounts shall be reinvested in the Fund at the per share net
asset value determined as of the date of cancellation of such checks.
The Fund intends to qualify annually as a "regulated investment company"
under the Internal Revenue Code. To qualify, the Fund must meet certain income,
distribution, and diversification requirements. In any year in which the Fund so
qualifies it generally will not be subject to federal income or excise tax to
the extent that its taxable income is distributed to shareholders.
The distributions received by the Fund from investments may, for federal
income tax purposes, consist of ordinary income, long term capital gains, or a
return of capital. The characterization of these distributions to the Fund may,
in turn, affect the tax treatment of the Fund's distributions to its
shareholders. Dividends and distributions are taxable to shareholders in the
same manner whether received in cash or reinvested in additional shares.
Dividends paid by the Fund from net investment income, including dividends,
interest and net short-term capital gains, will be taxable to shareholders as
ordinary income. 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 gain dividends are taxable as long-term capital gains,
regardless of the length of time shareholders have owned shares in the Fund. To
the extent that the Fund makes a distribution in excess of its current and
accumulated earnings and profits, the distribution will be treated first as a
tax-free return of capital, reducing the tax basis in a shareholder's shares,
and then, to the extent the distribution exceeds such basis, as a taxable gain
to be realized upon sale of such shares.
A distribution will be treated as paid by the Fund and received by its
shareholders on December 31 of the current calendar year if it is declared by
the Fund in October, November or December of that year with a record date in
such a month and paid by the Fund in January of the subsequent year.
Any dividends or distributions paid shortly after a purchase of shares will
have the effect of reducing the per share net asset value of the shares by the
amount of the dividends or distributions. Although in effect a return of
capital, these distributions are subject to taxes, even if their effect is to
reduce the per share net asset value below a shareholder's cost. The Fund will
notify you annually as to the tax status of dividend and capital gains
distributions paid by the Fund.
The sale or other disposition of shares of the Fund, including a redemption
of shares or an exchange of shares into another fund, is a taxable event and may
result in a capital gain or loss which will be long-term or short-term,
depending upon the shareholder's holding period for the shares.
Dividend distributions, capital gains distributions and capital gains or
losses from redemptions and exchanges may be subject to state and local taxes.
The Fund is required to withhold a portion of taxable dividends, capital
gains distributions, and redemptions paid to individuals and certain other
classes of shareholders if they fail to furnish the Fund with their correct
taxpayer identification number and certain certifications regarding their tax
status, or if they are otherwise subject to backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against a shareholder's normal federal income tax liability. For additional
information about withholding, please see the Statement.
BFDS, the shareholder servicing agent, will send you and the Internal
Revenue Service an annual statement detailing federal tax information, including
information about dividends and distributions paid to you during the preceding
year. If you redeem or exchange shares in any year, following the end of the
year, you will receive a statement providing the cost basis and gain or loss of
each share lot that you sold during such year. 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. Be sure to keep these statements as permanent records. A
fee may be charged for any duplicate information that you request.
The tax discussion set forth above is included for general information only.
Shareholders and prospective investors should consult their own tax advisers
concerning the tax consequences of an investment in the Fund.
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 Exchange 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 sixty
days or less are valued at amortized costs, 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 Statement.
PERFORMANCE INFORMATION
The Fund may include total return information in advertisements or other
written sales material. The Fund will show its average annual total return for
the one-, five- and ten-year periods through the end of the most recent calendar
quarter. Total return is measured by comparing the value of an investment in the
Fund at the beginning of the relevant period to the value of the investment at
the end of the period (assuming automatic reinvestment of all dividends and
capital gains distributions). The Fund may also show total return over other
periods or on an aggregate basis for the period presented.
The Fund may compare its performance to that of recognized financial indices
or groups of mutual funds. It may also include its ranking among other mutual
funds or its rating as published by mutual fund ranking services or major
financial publications. All performance information is based on past results and
is not an indication of likely future performance.
ADDITIONAL FACTS ABOUT THE FUND
[] The Fund was organized in 1986 as a Massachusetts business trust and is
authorized to issue an unlimited number of full and fractional shares. The
Fund is a series company that has only one series as of the date of this
prospectus. The Fund is a successor to Loomis-Sayles Capital Development
Fund.
[] When a shareholder invests in the Fund, the shareholder acquires freely
transferable shares of beneficial interest that entitle the shareholder to
receive dividends and to cast one vote at shareholder meetings for each
share owned. However, if an investor becomes a shareholder of the Fund by
means of a transfer from another shareholder after September 24, 1993, the
transferee shareholder will not be eligible to purchase additional shares of
the Fund.
[] The investment objective of the Fund is fundamental and cannot be changed
without shareholder approval. Non-fundamental policies may be changed at any
time without such approval.
<PAGE>
INVESTMENT ADVISER CGM
Capital Growth Management CAPITAL
Limited Partnership DEVELOPMENT
One International Place FUND
Boston, MA 02110 Prospectus & Application
May 1, 1997
TRANSFER AND DIVIDEND PAYING AGENT
AND CUSTODIAN OF ASSETS A No-Load Fund
State Street Bank and Trust Company
Boston, MA 02102
SHAREHOLDER SERVICING AGENT FOR
STATE STREET BANK AND TRUST COMPANY
Boston Financial Data Services, Inc.
P.O. Box 8511
Boston, MA 02266
CFP96
[FENCER LOGO]
CFP97
<PAGE>
Rule 497(c)
1933 Act File No. 2-16252
1940 Act File No. 811-933
CGM CAPITAL DEVELOPMENT FUND
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
This Statement of Additional Information (the "Statement") is not a
prospectus. This Statement relates to the CGM Capital Development Fund
Prospectus dated May 1, 1996 (the "Prospectus"), and should be read in
conjunction therewith. A copy of the Prospectus may be obtained from CGM Capital
Development Fund, c/o The CGM Funds Investor Services Division, P.O. Box 449,
Boston, Massachusetts 02117 (Telephone: 800-345-4048).
CSAI97
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INTRODUCTION.............................................................1
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS..........................1
PORTFOLIO TURNOVER.......................................................3
MANAGEMENT OF THE FUND...................................................3
INVESTMENT ADVISORY AND OTHER SERVICES...................................6
Advisory Agreement..............................................6
Custodial Arrangements..........................................7
Independent Accountants.........................................7
Other Arrangements..............................................7
PORTFOLIO TRANSACTIONS AND BROKERAGE.....................................8
DESCRIPTION OF THE FUND..................................................9
Shareholder Rights..............................................9
Shareholder and Trustee Liability..............................10
HOW TO BUY SHARES.......................................................11
ADVERTISING AND PERFORMANCE INFORMATION.................................11
Calculation of Total Return....................................11
Performance Comparisons........................................12
NET ASSET VALUE AND PUBLIC OFFERING PRICE...............................13
SHAREHOLDER SERVICES....................................................14
Open Accounts..................................................14
Systematic Withdrawal Plans ("SWP")............................15
Exchange Privilege.............................................16
Automatic Investment Plans ("AIP").............................16
Retirement Plans...............................................17
Address Changes................................................17
REDEMPTIONS.............................................................18
Redeeming by Telephone.........................................18
Check Sent to the Record Address...............................18
Proceeds Wired to a Predesignated Bank.........................19
All Redemptions................................................19
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS............20
FINANCIAL STATEMENTS....................................................22
<PAGE>
- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------
CGM Capital Development Fund (the "Fund"), registered with the Securities
and Exchange Commission ("SEC") as a diversified open-end management investment
company, is organized as a Massachusetts business trust under the laws of
Massachusetts in 1986. The Trust is governed by an Amended and Restated
Agreement and Declaration of Trust (the "Declaration of Trust") dated January
23, 1997. 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.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's investment objective is long-term capital appreciation. The
Fund seeks to attain its objective by investing substantially all of its assets
in common stocks and securities convertible into common stocks. Under some
market conditions, however, the Fund may, for temporary defensive purposes, hold
a substantial portion of its assets in cash or investment grade fixed-income
investments. There are no assurances that the Fund will attain its objective.
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;
(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 Trust'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.
Although it is a fundamental policy of the Fund not to invest in real estate,
the Fund may purchase publicly traded securities issued by real estate
investment trusts.
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 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.
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
Although the Fund's objective is long-term capital appreciation, it
frequently sells portfolio securities in response to changes in market
conditions or outlook, even though those securities may only have been held for
short periods of time. This policy may result in higher securities transaction
costs. To the extent that this policy results in gains on investments, the Fund
will make distributions to shareholders, which may accelerate the shareholders'
tax liabilities for realized gains and may result in the distribution of
short-term capital gains taxable as ordinary income. See "Income Dividends,
Capital Gains Distributions and Tax Status."
The Fund's portfolio turnover rate for each of the last ten 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
- --------------------------------------------------------------------------------
PETER O. BROWN (Age 55) -- 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.
NICHOLAS J. GRANT (Age 80) -- Trustee;
77 Massachusetts Avenue, Cambridge, MA; Professor of Metallurgy
and Materials Science, Massachusetts Institute of Technology.
G. KENNETH HEEBNER* (Age 56) -- Trustee and Vice President;
Employee, CGM; formerly Vice President and Director, Loomis,
Sayles and Company, Incorporated ("Loomis Sayles").
ROBERT L. KEMP* (Age 64) -- Trustee and President;
Employee, CGM; formerly President and Director, Loomis Sayles.
ROBERT B. KITTREDGE (Age 75) -- Trustee;
21 Sturdivant Street, Cumberland Foreside, ME; Retired; formerly
Vice President, General Counsel and Director, Loomis Sayles.
LAURENS MACLURE (Age 70) -- Trustee;
183 Sohier Street, Cohasset, MA; Retired; formerly President and
Chief Executive Officer, New England Deaconess Hospital.
JAMES VAN DYKE QUEREAU, JR. (Age 48) -- Trustee;
59 Annewood Lane, Wayne, PA; Managing Partner, Stratton
Management Company; formerly Institutional Managing Partner,
Loomis Sayles.
J. BAUR WHITTLESEY (Age 49) -- Trustee;
1521 Locust Street, Philadelphia, PA; Attorney.
KATHLEEN S. HAUGHTON (Age 36) -- Vice President;
222 Berkeley Street, Boston, MA 02116; Employee -- Investor
Services Division, CGM; formerly Vice President, Boston
Financial Data Services, Inc.
LESLIE A. LAKE (Age 52) -- Vice President and Secretary;
Employee -- Office Administrator, CGM; formerly Office
Administrator, Capital Growth Management Division of Loomis
Sayles.
MARTHA I. MAGUIRE (Age 41) -- Vice President;
Employee -- Funds Marketing, CGM; formerly marketing
communications consultant (self-employed); formerly Sales
Promotion Consultant, The New England.
MARY L. STONE (Age 52) -- Assistant Vice President;
Employee -- Coordinator, Mutual Fund Recordkeeping, CGM;
formerly Coordinator, Mutual Fund Recordkeeping, Loomis Sayles
FRANK N. STRAUSS (Age 35) -- Treasurer;
222 Berkeley Street, Boston, MA 02116; 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 59) -- 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.
As of January 31, 1997, the officers and trustees 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. Officers and trustees receive no
pension or retirement benefits paid from Fund expenses. The following table sets
forth the compensation paid by the Trust to its trustees for the year ended
December 31, 1996:
<TABLE>
<CAPTION>
Pension Total
or Retirement Estimated Compensation From
Aggregate Benefits Accrued Annual Registrant and
Name of Compensation as Part of Fund Benefit Upon Fund Complex
Trustee From Trust Expenses Retirement Paid to Trustees(a)
- -------- ------------ --------------- ------------ -------------------
<S> <C> <C> <C> <C>
Peter O. Brown $9,319.75 None None $35,750.00
Nicholas J. Grant 10,819.75 None None 41,750.00
G. Kenneth Heebner None None None None
Robert L. Kemp None None None None
Robert B. Kittredge 9,319.75 None None 35,750.00
Laurens Maclure 9,319.75 None None 35,750.00
James Van Dyke Quereau, Jr. 9,319.75 None None 35,750.00
J. Baur Whittlesey 9,319.75 None None 35,750.00
(a) The Fund Complex is comprised of two Trusts with a total of five 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.
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, 1994, 1995 and 1996, the advisory fee paid to CGM in
respect of services rendered to the Fund amounted to $3,539,323, $3,323,791 and
$4,263,484, 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 and CGM Realty Fund and three other
mutual fund portfolios. CGM also provides investment advice to other
institutional clients.
Certain officers and trustees of the Fund also serve as officers,
directors or trustees of other investment companies advised by CGM. The other
investment companies and clients served by CGM sometimes invest in securities in
which the Fund also invests. If the Fund and such other investment companies or
clients advised by CGM desire to buy or sell the same portfolio securities at
the same time, purchases and sales will be allocated to the extent practicable
on a pro rata basis in proportion to the amounts desired to be purchased or sold
for each. It is recognized that in some cases the practices described in this
paragraph could have a detrimental effect on the price or amount of the
securities which the Fund purchases or sells. In other cases, however, it is
believed that these practices may benefit the Fund. It is the opinion of the
trustees that the desirability of retaining CGM as adviser for the Fund
outweighs the disadvantages, if any, which might result from these practices.
Custodial Arrangements State Street Bank and Trust Company ("State
Street Bank"), Boston, Massachusetts 02102, is the Fund's custodian. As such,
State Street Bank holds in safekeeping certificated securities and cash
belonging to the Fund and, in such capacity, is the registered owner of
securities held in book entry form belonging to the Fund. Upon instruction,
State Street Bank receives and delivers cash and securities of the Fund in
connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. State Street Bank
also maintains certain accounts and records of the Fund and calculates the total
net asset value, total net income, and net asset value per share of the Fund on
each business day.
Independent Accountants The Fund's independent accountants are Price
Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110. Price
Waterhouse 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 Price Waterhouse
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, 1994, 1995 and 1996, CGM was reimbursed in the amounts
of $55,000, $55,000 and $58,000, respectively.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
In placing orders for the purchase and sale of portfolio securities for
the Fund, CGM always seeks the best price and execution. Transactions in
unlisted securities will be carried out through broker-dealers who make the
primary market for such securities unless, in the judgment of CGM, a more
favorable price can be obtained by carrying out such transactions through other
brokers.
CGM selects only brokers it believes are financially responsible, will
provide efficient and effective services in executing, clearing and settling an
order and will charge commission rates which, when combined with the quality of
the foregoing services, will produce the best price and execution for the
transaction. This does not necessarily mean that the lowest available brokerage
commission will be paid. However, the commissions are believed to be competitive
with generally prevailing rates. CGM will use its best efforts to obtain
information as to the general level of commission rates being charged by the
brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by the
broker in connection with the order, are taken into account. The Fund will not
pay a broker a commission at a higher rate than is otherwise available for the
same transaction in recognition of the value of research services provided by
the broker or in recognition of the value of any other services provided by the
broker which do not contribute to the best price and execution of the
transaction.
Receipt of research services from brokers may sometimes be a factor in
selecting a broker which CGM believes will provide the best price and execution
for a transaction. These research services include not only a wide variety of
reports on such matters as economic and political developments, industries,
companies, securities, portfolio strategy, account performance, daily prices of
securities, stock and bond market conditions and projections, asset allocation
and portfolio structure, but also meetings with management representatives of
issuers and with other analysts and specialists. Although it is not possible to
assign an exact dollar value to these services, they may, to the extent used,
tend to reduce CGM's expenses. Such services may be used by CGM in servicing
other client accounts and in some cases may not be used with respect to the
Fund. Receipt of services or products other than research from brokers is not a
factor in the selection of brokers.
In 1996, brokerage transactions of the Fund aggregating $1,783,788,168
were allocated to brokers providing research services and $3,255,089 in
commissions were paid on these transactions. During 1994, 1995 and 1996, the
Fund paid total brokerage fees of $2,366,201, $3,854,028 and $3,432,939,
respectively. The variation in the Fund's brokerage commissions is substantially
attributable to fluctuating portfolio activity.
- --------------------------------------------------------------------------------
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
On January 31, 1997, there were 21,648,601 shares of the Fund
outstanding. On that date State Street Bank, acting as trustee for various
retirement plans and individual retirement accounts, owned 6,664,748 shares --
about 31% 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.
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) in 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.
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.
- --------------------------------------------------------------------------------
HOW TO BUY 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."
- --------------------------------------------------------------------------------
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, 1996, the
Fund's average annual total return was 28.1%, 16.1% and 19.2%, respectively. For
the one, five, ten and twenty-five year periods ended December 31, 1996, the
total return on a hypothetical $1,000 investment in the Fund on an aggregate
basis was 28.1%, 110.6%, 479.5% and 4,561.2%, respectively.
In computing performance information for the Fund, no adjustment will
be 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 indices for stock and bond market
performance or against the U.S. Bureau of Labor Statistics' Consumer Price
Index.
The Standard & Poor's 500 Composite Index (the "S&P 500") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 stocks relative to the base period 1941-43. The S&P 500 is composed
almost entirely of common stocks of companies listed on the New York Stock
Exchange, although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included. The 500 companies
represented include 400 industrial, 60 transportation and 40 financial services
concerns.
The Dow Jones Industrial Average is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York Stock
Exchange.
No brokerage commissions or other fees are factored into the values of
the S&P 500 and the Dow Jones Industrial Average.
The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of change, over time, in the prices of
goods and services in major expenditure groups.
Lipper Analytical Services, Inc., an independent service that monitors
the performance of over 9,505 mutual funds, calculates total return for those
funds grouped by investment objective. From time to time, the Fund may include
its ranking among mutual funds tracked by Lipper in advertisements or sales
literature.
Morningstar, Inc. ("Morningstar") is an independent mutual fund ranking
service. Morningstar proprietary ratings reflect historical risk-adjusted
performance and are subject to change every month. Funds with at least three
years of performance history are assigned ratings from one star (lowest) to five
stars (highest). Morningstar ratings are calculated from the funds' three-,
five-, and ten-year average annual returns (when available) and a risk factor
that reflects the fund performance relative to three-month Treasury bill monthly
returns. Funds' returns are adjusted for fees and sales loads. Ten percent of
the funds in an investment category receive five stars, 22.5% receive four
stars, 35% receive three stars, 22.5% receive two stars, and the bottom 10%
receive one star. From time to time, the Fund may include its ranking among
mutual funds tracked by Morningstar in advertisements or sales literature.
Value Line, Inc. ("Value Line"), an independent mutual fund ranking
service reviews the performance of 6,101 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, articles about the Fund regarding performance,
rankings and other characteristics of the Fund and information about persons
responsible for its portfolio management may appear in national publications and
major metropolitan newspapers including, but not limited to, 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 publications 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 has been continuously managed since 1976 by G. Kenneth
Heebner.
- --------------------------------------------------------------------------------
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 expected to be closed on the following
holidays: Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas
Day, New Year's 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.
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Open Accounts
A shareholder's investment is credited to an open account maintained
for the shareholder by the CGM Shareholder Services Department ("CGM Shareholder
Services") of Boston Financial Data Services, Inc. ("BFDS"), the shareholder
servicing agent for State Street Bank. The address is: CGM Shareholder Services,
c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
Certificates representing shares are issued only upon written request
to CGM Shareholder Services but are not issued for fractional shares. Following
each transaction in the account, a shareholder will receive an account statement
disclosing the current balance of shares owned and the details of recent
transactions that have taken place during the year. After the close of each
fiscal year, CGM Shareholder Services will send each shareholder a statement
providing federal tax information on dividends and distributions paid to the
shareholder during the year. The year-end statement should be retained as a
permanent record. Shareholders will be charged a fee for duplicate information.
The open account system permits the purchase of full and fractional
shares and, by making the issuance and delivery of certificates representing
shares unnecessary, eliminates problems of handling and safekeeping, and the
cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are borne by the Fund,
and no direct charges are made to shareholders. Although the Fund has no present
intention of making such direct charges to shareholders, it reserves the right
to do so. Shareholders will receive prior notice before any such charges are
made.
Systematic Withdrawal Plans ("SWP")
A Systematic Withdrawal Plan, referred to in the Prospectus under
"Shareholder Services--Systematic Withdrawal Plan," provides for monthly,
quarterly, semiannual or annual withdrawal payments of $50 or more from the
account of a shareholder provided that the account has a value of at least
$10,000 at the time the plan is established. A shareholder may establish a SWP
by completing the Account Update 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 Account Update
Form. Shares to be included in a Systematic Withdrawal Plan must be held in an
Open Account rather than certificated form. Income dividends and capital gain
distributions will be reinvested at the net asset value determined as of the
close of the New York Stock Exchange on the record date for the dividend or
distribution. If withdrawal checks are returned to the Fund as "undeliverable"
or remain uncashed for more than six months the shareholder's Systematic
Withdrawal Plan will be cancelled, such undeliverable or uncashed checks will be
cancelled and such amounts reinvested in the Fund at the per share net asset
value determined as of the date of cancellation of the checks.
Since withdrawal payments represent in whole or in part proceeds from
the liquidation of shares, the shareholder should recognize that withdrawals may
reduce and possibly exhaust the value of the account, particularly in the event
of a decline in net asset value. Accordingly, the shareholder should consider
whether a Systematic Withdrawal Plan and the specified amounts to be withdrawn
are appropriate in the circumstances. The Fund makes no recommendations or
representations in this regard. It may be appropriate for the shareholder to
consult a tax adviser before establishing such a plan. See "Redemptions" and
"Income Dividends, Capital Gain Distributions and Tax Status" below for certain
information as to federal income taxes.
Exchange Privilege
A shareholder may exchange shares of the Fund for shares of CGM Mutual
Fund, CGM Fixed Income Fund, CGM American Tax Free Fund, CGM Realty Fund, New
England Cash Management Trust or New England Tax Exempt Money Market Trust. The
value of shares exchanged must be at least $1,000 and all exchanges are subject
to the minimum investment requirements of the fund into which the exchange is
being made. This option is summarized in the Prospectus under "Shareholder
Services--Exchange Privilege." The Fund reserves the right to terminate or limit
the privilege of a shareholder who makes more than four exchanges (or two round
trips) per year and to prohibit exchanges during the first 15 days following an
investment in the Fund. A shareholder may exercise the exchange privilege only
when the fund into which shares will be exchanged is registered or qualified in
the state in which such shareholder resides. If a shareholder exchanges all
shares from the Fund, he will be unable to reopen an account in the Fund (unless
he is currently the registered owner of another account in the Fund).
Exchanges may be effected by (i) a telephone request to CGM Shareholder
Services at 800-343-5678, provided a special authorization form is on file with
the Trust, or (ii) a written exchange request to CGM Shareholder Services
accompanied by an account application for the appropriate fund. 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, 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, all income dividends and capital
gain distributions of plan participants must be reinvested. Plan documents and
further information can be obtained from the Fund by writing or calling the Fund
as indicated on the cover of this Statement.
Check with your financial or tax adviser as to the suitability of Fund
shares for your retirement plan.
Address Changes
Shareholders can request to change their record address either by
telephone or in writing (by mail or delivery service, but not by facsimile) in
accordance with the policies and procedures of the Fund. After an address change
is made, no telephone or written redemption requests will be honored for three
months unless the registered owner's signature is guaranteed on the request.
Written requests for a change of address may be mailed to: CGM Shareholder
Services, c/o BFDS, P.O. Box 8511, Boston, MA 02266-8511.
- --------------------------------------------------------------------------------
REDEMPTIONS
- --------------------------------------------------------------------------------
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
Except as noted below, signatures on redemption requests must be
guaranteed by an eligible guarantor institution in accordance with procedures
established by the Trust. 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 (S)3(a)
of the Federal Deposit Insurance Act (the "FDIA") [12 U.S.C. (S)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 (the "Act"); credit unions (as defined in (S)
19(b)(1)(A) of the Federal Reserve Act [12 U.S.C. (S)461(b)]); national
securities exchanges, registered securities associations and clearing agencies,
as those terms are defined under the Act and savings associations (as defined in
(S)3(b) of the FDIA [12 U.S.C. (S)813(b)]). However, as noted in the Prospectus,
a signature guarantee will not be required if the proceeds of the redemption do
not exceed $25,000, and the proceeds check is made payable to the registered
owner(s) and mailed to the record address, which has not changed in the prior
three months. If the record address has changed within the prior three months, a
signature guarantee will be required.
This policy applies to both written and telephone redemption requests.
Redeeming by Telephone
There are two ways to redeem by telephone. In either case, a
shareholder should call 800-343-5678 prior to 4:00 p.m. (Eastern time). Requests
made after that time or on a day when the New York Stock Exchange is not open
for business cannot be accepted. Telephone redemptions are not available for
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
trustee.
Check Sent to the Record Address
A shareholder may request that a check be sent to the record address on
the account, provided that the address has not changed for the last three months
and the shareholder is redeeming $25,000 or less. Except in the case of a CGM
retirement plan, the service option of telephone redemption by check is
available to shareholders automatically unless this option is declined in the
application or in writing. The check will be made payable to the registered
owner(s) of the account.
If checks representing redemption proceeds are returned "undeliverable"
or remain uncashed for six months, such checks shall be cancelled and such
proceeds shall be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation of such checks.
Proceeds Wired to a Predesignated BankProceeds Wired to a Predesignated Bank
A shareholder may request that the redemption proceeds be wired to the
bank selected on the Fund application or subsequently on the Account Update Form
available from the Fund. 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 Account Update Form with a signature guarantee. Whenever the Account
Update 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 to you within seven
days after receipt of your request in good order. Telephone redemption proceeds
will normally be mailed or wired within seven days following receipt of a proper
redemption request. If you purchased your Fund shares by check (or through your
AIP) and elect to redeem shares within 15 days of such purchase, you may
experience delays in receiving redemption proceeds. The Fund will process your
redemption request upon receipt of a request in good order. However, the Fund
will generally postpone sending your redemption proceeds from such investment
until it can verify that your check (or AIP investment) has been or will be
collected. Under ordinary circumstances, the Fund cannot verify collection of
individual checks (or AIP investments) and may therefore automatically hold
proceeds from redemptions requested during the 15 day period following such
investment for a total of up to seven days. There will be no such automatic
delay following investments paid for by federal funds wire or by bank cashier's
check, certified check or treasurer's check although the Fund may in any case
postpone payment of redemption proceeds for up to seven days.
The Fund will normally redeem shares for cash; however, the Fund
reserves the right to pay the redemption price wholly in kind or partly in kind
and partly in cash if the Board of Trustees of the Fund determines it to be
advisable in the interest of the remaining shareholders. If portfolio securities
are distributed in lieu of cash, the shareholder will normally incur brokerage
commissions upon subsequent disposition of any such securities. However, the
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- 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
Distributions 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
an Account Update Form. In order for a change to be effective for any dividend
or distribution, it must be received by CGM Shareholder Services on or before
the record date for such dividend or distribution. If a shareholder elects to
receive distributions in cash and checks are returned "undeliverable" or remain
uncashed for six months, such shareholder's cash election will be changed
automatically and the shareholder's future dividend and capital gains
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, following
such six month period, any undeliverable or uncashed checks will be cancelled
and such amounts reinvested in the Fund at the per share net asset value
determined as of the date of cancellation of such checks.
The Fund has met, and intends to continue to meet, the requirements of
the Internal Revenue Code with respect to regulated investment companies.
Dividends paid by the Fund from net investment income, including
dividends, interest and net short-term capital gains, will be taxable to
shareholders as ordinary income. 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 distributions are taxable as long-term
capital gains, regardless of the length of time shareholders have owned shares
in the Fund. Dividends and distributions are taxable to shareholders in the same
manner whether received in cash or reinvested in additional Fund shares. To the
extent that the Fund makes a distribution in excess of its current and
accumulated earnings and profits, the distribution will be treated first as a
tax-free return of capital, reducing the tax basis in a shareholder's shares,
and then, to the extent the distribution exceeds such basis, as a taxable gain
to be realized upon sale of such shares.
Dividends and distributions on Fund shares received shortly after their
purchase, although in effect a return of capital, are subject to federal income
taxes.
The Fund is required to withhold and remit to the U.S. Treasury 31% of
all dividends from net investment income and capital gains distributions,
whether distributed in cash or reinvested in shares of the Fund, paid or
credited to any shareholder account for which an incorrect or no taxpayer
identification number has been provided or where the Fund is notified that the
shareholder has underreported income in the past (or the shareholder fails to
certify that he is not subject to withholding). In addition, the Fund will be
required to withhold and remit to the U.S. Treasury 31% of the amount of the
proceeds of any redemption of Fund shares from a shareholder account for which
an incorrect or no taxpayer identification number has been provided or where the
Fund is notified that the shareholder has underreported income in the past (or
the shareholder fails to certify that he is not subject to such withholding).
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.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements and Report of Independent Accountants for the
year ended December 31, 1996, included in the Fund's Annual Report to
Shareholders for the year ended December 31, 1996, are incorporated herein by
reference.
