<PAGE>
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Capital Development Fund declined -12.6% during the fourth quarter of 1997
compared to the unmanaged Standard and Poor's 500 Index which rose 2.9% over the
same period. For the year just ended, the Fund posted a total return of 23.9%
while the S&P 500 returned 33.4%.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
One year ago, we commented on the then-near-perfect economic conditions with one
reservation: we thought there was a real possibility of the economy overheating
as a result of tight labor conditions. In 1997, the Federal Reserve Board did
raise interest rates briefly and labor conditions did intensify, but inflation
never materialized.
Today, prospects for further growth in the U.S. economy remain bright. Though
the pace may slow periodically, productivity, employment and corporate profits
all point to higher levels. However, events in recent months have affected our
view looking forward: This fall, many currencies in Southeast Asia have
collapsed. World powers are cooperating to assist those nations with suffering
economies and are extending financial aid. These conditions will give rise to
some economic slowing, a decline in interest rates and possibly, lower levels of
inflation for the foreseeable future. As a result, inflation as a near-term
problem has been deferred to a later date. Additionally, declines in the prices
of many commodities, including crude oil, reinforce the low inflation outlook.
Looking ahead, Asian countries will be able to export products to the U.S. at
lower prices which, inevitably, will exert downward pressure on domestic prices.
At the same time, American companies will be hard pressed to sell goods to many
Asian trading partners. Fortunately, the impact overall should be slight since
exports amount to only about 10% of our total economy and exports to Southeast
Asia are but a portion of that amount. Still, there already has been some
business slowing and in some instances, earlier corporate profit forecasts have
proven to be high. Individual company stock prices are falling precipitously
with earnings shortfalls since stock prices are dependent on good news getting
better, not worse.
The bond market has reacted positively to signs of slowdown, the Southeast Asia
debacle and recent comments of the Federal Reserve Board Chairman. The long-term
government bond is 5.75%, down from 7.15% last April. Current interest rate
levels and recent trends generally are favorable to stock prices should
corporate margins be maintained.
PORTFOLIO STRATEGY
CGM Capital Development Fund remained fully invested in 1997 in anticipation of
continued moderate economic growth and low inflation. The Fund benefited from
substantial positions in the oil service and cement industries. The oil service
weighting was sharply reduced during the year and replaced by a substantial
investment in technology stocks later in the year. Problems in Asia, which
became significant in the fourth quarter, negatively affected the outlook for
many of the technology stocks and they were sold with substantial losses before
the end of the year.
CGM Capital Development Fund holds important positions in airlines, basic
materials and insurance companies. The Fund's three largest holdings are USG
Corporation, Mercury General Corporation and Philip Morris Companies.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 9, 1998
<PAGE>
COMPARISONS OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CGM CAPITAL DEVELOPMENT FUND AND THE UNMANAGED S&P 500
assuming reinvestment of dividends and capital gains
- ---------------------------------
Average Annual Total Return
- ---------------------------------
1 year 5 year 10 year
23.9% 17.3% 20.0%
- ---------------------------------
Past performance is no indication
of future results
- ---------------------------------
CGM Capital Unmanaged
Development Fund S&P 500
- ----------------------------------------------
$10,000 $10,000
1988 $ 9,970 $11,660
1989 $11,755 $15,345
1990 $11,919 $14,869
1991 $23,731 $19,389
1992 $27,884 $20,863
1993 $35,887 $22,970
1994 $27,669 $23,268
1995 $39,041 $31,994
1996 $50,011 $39,353
1997 $61,213 $52,496
CGM CAPITAL DEVELOPMENT FUND
PORTFOLIO MANAGER
- -------------------------------------------------------------------------------
G. Kenneth Heebner has managed CGM Capital Development Fund since 1976. In
1990, Mr. Heebner founded Capital Growth Management Limited Partnership with
Robert L. Kemp. Prior to establishing the new company, Mr. Heebner was at
Loomis, Sayles and Company where he managed the Fund, then known as Loomis-
Sayles Capital Development Fund. In addition to CGM Capital Development Fund,
Mr. Heebner currently manages CGM Mutual Fund, CGM Realty Fund and CGM Focus
Fund as well as two other mutual funds. He also co-manages CGM Fixed Income
Fund with Janice Saul.
INVESTMENT PERFORMANCE
(unaudited)
- -------------------------------------------------------------------------------
Total Return for Periods Ended December 31, 1997
CGM CAPITAL
DEVELOPMENT
FUND
-----------------------
10 Years .......................................... +519.6%
5 Years .......................................... +122.1%
1 Year ........................................... + 23.9%
3 Months ......................................... - 12.6%
The performance data contained in the report represent past performance. The
investment return and the principal value of an investment in the Fund will
fluctuate so that investors' shares, when redeemed, may be worth more or less
than their original cost.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
25 YEAR INVESTMENT RECORD
DECEMBER 31, 1972 -- DECEMBER 31, 1997 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1972
- ---------------------------------------------------------------------------------------------------------------------------
--AND HAD TAKEN ALL DIVIDENDS OR -- HAD REINVESTED ALL DIVIDENDS AND CAPITAL
AND DISTRIBUTIONS IN CASH GAINS DISTRIBUTIONS IN ADDITIONAL SHARES
-----------------------------------------------------------------------------------------------------------
During the Year
You Would Have Received Which Would Represent
------------------------------- ----------------------------------
The Value of A Cumulative
The Net Your Original Change
Asset Value Per Share Per Share Investment An Expressed
On of Your Capital Gains Income At Each Annual As An Index With
December Share Would Distributions Dividends Year End Total Return December 31,
31 Have Been of of Would Have Been of 1972 = 100.0
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1972 $14.63 100.0
1973 12.69 -- $0.08 $ 12.74 - 12.9 87.1
1974 7.78 $ 0.37* 0.14 8.15 - 36.0 55.7
1975 9.35 -- 0.15 9.98 + 22.5 68.2
1976 10.98 -- 0.13 11.89 + 19.1 81.2
1977 10.74 -- 0.18 11.82 - 0.6 80.7
1978 13.05 -- 0.27 14.76 + 24.9 100.8
1979 16.20 -- 0.35 18.80 + 27.4 128.4
1980 20.50 1.65* 0.36 26.87 + 42.9 183.5
1981 17.34 3.38 0.36 28.08 + 4.5 191.8
1982 24.88 2.88 0.41 50.24 + 78.9 343.1
1983 25.21 2.50 0.47 58.08 + 15.6 396.6
1984 17.28 6.15 0.11 53.32 - 8.2 364.1
1985 25.02 -- 0.18 77.95 + 46.2 532.3
1986 23.12 7.46 0.16 100.09 + 28.4 683.5
1987 16.56 10.09 0.14 116.00 + 15.9 792.2
1988 15.87 0.02 0.62 115.65 - 0.3 789.8
1989 18.37 -- 0.34 136.35 + 17.9 931.2
1990 18.53 -- 0.10 138.26 + 1.4 944.2
1991 25.80 11.07* 0.06 275.28 + 99.1 1879.9
1992 27.43 2.68* 0.20 323.45 + 17.5 2208.9
1993 27.71 7.51 0.07 416.28 + 28.7 2842.9
1994 20.58 0.71 0.07 320.95 - 22.9 2191.9
1995 27.33 1.68 0.02 452.86 + 41.1 3092.8
1996 29.08 5.87 0.07 580.11 + 28.1 3961.9
1997 26.96 9.08 -- 718.76 + 23.9 4908.8
------- ----- -------
Totals $ 73.10 $5.04 +4808.8
- ---------------------------------------------------------------------------------------------------------------------------
*Includes $0.15, $0.09, $0.02 and $0.02 per share distributed from paid-in capital.
- ---------------------------------------------------------------------------------------------------------------------------
The performance data contained in this report represent past performance, which is no guarantee of future results.
The investment return on, and the principal value of, an investment in the Fund will fluctuate so that investors' shares,
when redeemed, may be worth more or less than the original cost.
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
BOARD OF TRUSTEES
PETER O. BROWN
NICHOLAS J. GRANT
G. KENNETH HEEBNER
ROBERT L. KEMP
ROBERT B. KITTREDGE
LAURENS MACLURE
JAMES VAN DYKE QUEREAU, JR.
J. BAUR WHITTLESEY
OFFICERS
ROBERT L. KEMP, President
G. KENNETH HEEBNER, Vice President
LESLIE A. LAKE, Vice President and Secretary
KATHLEEN S. HAUGHTON, Vice President
MARTHA I. MAGUIRE, Vice President
W. DUGAL THOMAS, Vice President
MARY L. STONE, Assistant Vice President
FRANK N. STRAUSS, Treasurer
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP
Boston, Massachusetts 02110
TRANSFER AND DIVIDEND PAYING
AGENT AND CUSTODIAN OF ASSETS
STATE STREET BANK AND TRUST COMPANY
Boston, Massachusetts 02102
SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY
BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 8511
Boston, Massachusetts 02266-8511
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------
INVESTMENTS AS OF DECEMBER 31, 1997
COMMON STOCKS -- 101.0% OF TOTAL NET ASSETS
SHARES VALUE(a)
------ --------
AIRLINES -- 26.9%
AMR Corporation(b) ........................... 307,000 $ 39,449,500
Continental Airlines, Inc.(b) ................ 830,000 39,943,750
Delta Air Lines, Inc. ........................ 354,000 42,126,000
Northwest Airlines Corporation(b) ............ 610,000 29,203,750
UAL Corporation(b) ........................... 470,000 43,475,000
-------------
194,198,000
-------------
BANKS -- MONEY CENTER -- 9.0%
Chase Manhattan Corporation .................. 298,000 32,631,000
Citicorp ..................................... 259,000 32,747,313
-------------
65,378,313
-------------
BASIC MATERIALS -- 20.1%
Centex Construction Products, Inc. ........... 630,000 18,978,750
Lafarge Corporation .......................... 880,000 26,015,000
Southdown, Inc. .............................. 792,000 46,728,000
USG Corporation(b) ........................... 1,090,000 53,410,000
-------------
145,131,750
-------------
BEVERAGES AND TOBACCO -- 6.6%
Philip Morris Companies, Inc. ................ 1,050,000 47,578,125
-------------
COMPUTER SOFTWARE AND SERVICES -- 5.0%
Compaq Computer Corporation .................. 645,000 36,402,188
-------------
DRUGS -- 5.4%
Warner Lambert Company ....................... 313,000 38,812,000
-------------
FINANCIAL SERVICES -- 1.3%
Firstplus Financial Group, Inc.(b) ........... 252,000 9,670,500
-------------
INSURANCE -- 9.3%
Amerin Corporation(b) ........................ 570,000 15,960,000
Mercury General Corporation .................. 927,200 51,227,800
-------------
67,187,800
-------------
MACHINERY -- 6.6%
Navistar International Corporation, Inc.(b) .. 1,912,500 47,453,906
-------------
METALS AND MINING -- 3.1%
Titanium Metals Corporation(b) ............... 785,000 22,666,875
-------------
MISCELLANEOUS -- 6.1%
Standard Pacific Corporation ................. 1,258,600 19,822,950
Tubos de Acero de Mexico ADR(b)(c) ........... 1,123,500 24,295,687
-------------
44,118,637
-------------
RETAIL -- 1.6%
Pier 1 Imports, Inc. ......................... 507,500 11,482,187
-------------
TOTAL COMMON STOCKS (Identified Cost
$631,700,046) ........................................ 730,080,281
-------------
FACE
SHORT-TERM INVESTMENT -- 1.1% AMOUNT
-------
Chevron Oil Finance Company, 6.75% 1/02/98
(Cost $7,580,000) ......................... $7,580,000 7,580,000
-------------
TOTAL INVESTMENTS -- 102.1% (Identified Cost
$639,280,046)(d) ...................................... 737,660,281
Cash and Receivables .................................... 15,969,495
Liabilities ............................................. (30,956,872)
-------------
TOTAL NET ASSETS -- 100.0% ................................. $ 722,672,904
=============
(a) See Note 1A.
(b) Non-income producing security.
(c) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank
representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
(d) Federal Tax Information: At December 31, 1997 the net unrealized
appreciation on investments based on cost of $640,032,593 for Federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost ............................................. $ 116,286,352
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ........................................... (18,658,664)
-------------
Net unrealized appreciation ............................ $ 97,627,688
=============
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
ASSETS
Investments at value (Identified cost -- $639,280,046) ... $737,660,281
Cash ...................................................... 3,713
Receivable for:
Securities sold ........................ $14,794,278
Shares of the Fund sold ................ 692,097
Dividends and interest.................. 479,407 15,965,782
----------- ------------
753,629,776
------------
LIABILITIES
Payable for:
Securities purchased ................... $ 6,171,875
Shares of the Fund redeemed ........... 2,210,032
Distributions declared ................. 21,875,458 30,257,365
-----------
Accrued expenses:
Management fees ........................ 619,046
Trustees' fees ......................... 10,960
Accounting and Administration ......... 5,000
Other expenses ......................... 64,501 699,507
----------- ------------
30,956,872
------------
NET ASSETS ................................................. $722,672,904
============
Net Assets consist of:
Capital paid-in .......................................... $624,413,126
Accumulated net realized loss ............................ (120,457)
Unrealized appreciation on investments -- net .......... 98,380,235
------------
NET ASSETS ................................................. $722,672,904
============
Shares of beneficial interest
outstanding, no par value ................................ 26,808,321
============
Net asset value per share* ................................ $26.96
============
* Shares of the Fund are sold and redeemed at net asset value
($722,672,904 / 26,808,321).
See accompanying notes to financial statements
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
INVESTMENT INCOME
Income
Dividends (net of foreign taxes
withheld $25,500) ....................................... $ 5,405,883
Interest ................................................. 288,893
------------
5,694,776
------------
Expenses
Management fees .......................................... 7,210,245
Trustees' fees ........................................... 61,600
Accounting and Administration ............................ 60,000
Custodian ................................................ 131,000
Transfer agent ........................................... 205,000
Audit and tax services ................................... 31,000
Legal .................................................... 22,000
Printing ................................................. 30,500
Registration ............................................. 52,477
Miscellaneous ............................................ 5,751
------------
7,809,573
------------
Net investment loss ....................................... (2,114,797)
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain on investments -- net ....................... 190,224,896
Unrealized depreciation -- net ............................ (38,714,156)
------------
Net gain on investments ................................... 151,510,740
------------
NET INCREASE IN ASSETS FROM
OPERATIONS ................................................ $149,395,943
============
See accompanying notes to financial statements
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996
------------- ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) ........................... $ (2,114,797) $ 1,339,460
Net realized gain from investments ..................... 190,224,896 107,431,801
Unrealized appreciation (depreciation) ................. (38,714,156) 35,915,614
------------- ------------
Increase in net assets from operations ............... 149,395,943 144,686,875
------------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................................. -- (1,288,272)
Net realized gain on investments ....................... (187,774,697) (107,431,801)
In excess of net realized gain on investments .......... -- (507,030)
------------- ------------
(187,774,697) (109,227,103)
------------- ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ........................... 34,947,059 27,721,248
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ................. -- 1,125,517
Distributions from net realized gain ................. 165,899,987 95,194,271
Distributions in excess of net realized gain on
investments ........................................ -- 449,274
------------- ------------
200,847,046 124,490,310
Cost of shares redeemed ................................ (71,055,460) (49,937,780)
------------- ------------
Net increase in assets from capital share transactions 129,791,586 74,552,530
------------- ------------
Total increase in net assets ........................... 91,412,832 110,012,302
NET ASSETS
Beginning of period .................................... 631,260,072 521,247,770
------------- ------------
End of period .......................................... $ 722,672,904 $631,260,072
============= ============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares ............................. 1,029,907 905,100
Issued in connection with reinvestment of:
Dividends from net investment income ................. -- 38,642
Distributions from net realized gain ................. 6,153,926 3,273,530
Distributions in excess of net realized gain on
investments ......................................... -- 15,450
------------- ------------
7,183,833 4,232,722
Redeemed ............................................. (2,085,022) (1,597,130)
------------- ------------
Net change ........................................... 5,098,811 2,635,592
============= ============
</TABLE>
See accompanying notes to financial statements
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
For a share of the Fund outstanding throughout
each period:
<S> <C> <C> <C> <C> <C>
Net asset value at the beginning of period $29.08 $27.33 $20.58 $27.71 $27.43
------ ------ ------ ------ ------
Net investment income (loss) ............ (0.08)(a) 0.07 0.02 0.07 0.07
Dividends from net investment income .... -- (0.07) (0.02) (0.07) (0.07)
Net realized and unrealized gain (loss)
on investments ........................ 7.04 7.62 8.43 (6.42) 7.79
Distribution from net realized gain ..... (9.08) (5.84) (1.68) (0.69) (7.51)
Distribution in excess of net realized
gain on investments.................... -- (0.03) -- (0.02) --
------ ------ ------ ------ ------
Net increase (decrease) in net asset
value ................................. (2.12) 1.75 6.75 (7.13) 0.28
------ ------ ------ ------ ------
Net asset value at end of period ........ $26.96 $29.08 $27.33 $20.58 $27.71
====== ====== ====== ====== ======
Total Return (%) ........................ 23.9 28.1 41.1 -22.9 28.7
Ratios:
Operating expenses to average net assets(%) 1.07 0.82 0.85 0.84 0.85
Net investment income (loss) to average
net assets (%) ........................ -0.29 0.23 0.07 0.25 0.23
Portfolio turnover (%) .................. 230 178 271 146 143
Average commission rate* ................ $0.0668 $0.0669 -- -- --
Net assets at end of period (in
thousands) ($) ........................ 722,673 631,260 521,248 401,676 523,775
(a) Per share net investment loss does not reflect the period's reclassification of permanent differences
between book and tax basis net investment loss. See Note 1D.
*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>
See accompanying notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1997
1. The Fund is organized as a Massachusetts business trust under the laws of
Massachusetts pursuant to an Agreement and Declaration of Trust. The Fund is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund's objective is long-term capital
appreciation. The Fund seeks to attain its objective by investing in the
equity securities of a diverse group of companies and industries.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
A. SECURITY VALUATION -- Equity securities are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees, which provides the last reported sale price for securities listed
on a national securities exchange or on the NASDAQ national market system
or, if no sale was reported and in the case of over-the-counter securities
not so listed, the last reported bid price. Short-term investments having a
maturity of sixty days or less are stated at amortized cost, which
approximates value.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed) and dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. Net gain or loss on
securities sold is determined on the identified cost basis.
C. FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies, and to distribute to its shareholders all of its
taxable income and net realized capital gains, within the prescribed time
period. Accordingly, no provision for federal income tax has been made.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions
are recorded by the Fund on the ex-dividend date. The classification of
income and capital gains distributions is determined in accordance with
income tax regulations. Permanent book and tax differences relating to
shareholder distributions may result in reclassifications to paid-in
capital. Undistributed net investment income, accumulated net investment
loss, or distributions in excess of net investment income may include
temporary book and tax differences which will reverse in a subsequent
period. Any taxable income or gain remaining at fiscal year end is
distributed in the following year.
2. PURCHASES AND SALES OF SECURITIES -- For the year ended December 31, 1997,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $1,649,619,995 and
$1,671,231,556, respectively. There were no purchases or sales of United
States government obligations.
3. A. MANAGEMENT FEES -- During the year ended December 31, 1997, the Fund
incurred management fees of $7,210,245 paid or payable to the Fund's
investment adviser, Capital Growth Management Limited Partnership
(CGM), certain officers and directors of which are also officers and
trustees of the Fund. The management agreement provides for a fee at
the annual rate of 1.00% on the first $500 million of the Fund's
average daily net assets, 0.95% of the next $500 million and 0.80% of
such assets in excess of $1 billion.
B. OTHER EXPENSES -- CGM performs certain administrative, accounting and
other services for the Fund. The expenses of those services, which are
paid to CGM by the Fund, include the following: (i) expenses for
personnel performing bookkeeping, accounting, and financial reporting
functions and clerical functions relating to the Fund; (ii) expenses for
services required in connection with the preparation of registration
statements and prospectuses, shareholder reports and notices, proxy
solicitation material furnished to shareholders of the Fund or
regulatory authorities and reports and questionnaires for SEC
compliance; and (iii) registration, filing and other fees in connection
with requirements of regulatory authorities. The Accounting and
Administration expense of $60,000 is shown separately in the financial
statements.
C. TRUSTEES FEES AND EXPENSES -- The Fund does not pay any compensation
directly to its officers or to any trustees who are directors,
officers or employees of CGM, or any affiliate of CGM, (other than
registered investment companies). Each other trustee is compensated by
the CGM Funds with an annual fee of $37,000 plus travel expenses for
each meeting attended. Of this amount, the Fund is responsible for
$3,000 plus an annual variable fee calculated based on the proportion
of the Fund's average net assets to the aggregate average net assets
of the CGM Funds, which for 1997 is $6,536. In addition, the Chairman
of the Independent Trustees Committee receives an annual retainer of
$1,500.
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of CGM Capital Development Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CGM Capital Development Fund at
December 31, 1997, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
the financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at December 31, 1997 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 9, 1998
<PAGE>
CGM
CAPITAL
DEVELOPMENT
FUND
37th Annual Report
December 31, 1997
A No-Load Fund
[graphic omitted]
Investment Adviser
CAPITAL GROWTH MANAGEMENT
Limited Partnership
INVESTMENT ADVISER
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
Boston, Massachusetts 02110
- ---------------------------------------
TELEPHONE NUMBERS
For information about:
[] Account Procedures and Status
[] Redemptions
[] Exchanges
Call 800-343-5678
[] New Account Procedures
[] Prospectuses
[] Performance
Call 800-345-4048
- ---------------------------------------
MAILING ADDRESSES
FOR EXISTING ACCOUNTS
Boston Financial Data Services
P.O. Box 8511
Boston, MA 02266-8511
FOR NEW ACCOUNT APPLICATIONS ONLY
The CGM Funds
P.O. Box 449
Boston, MA 02117-0449
- ---------------------------------------
This report has been prepared for the shareholders of the Fund and is not
authorized for distribution to current or prospective investors in the Fund
unless it is accompanied or preceded by a prospectus.
CAR97 Printed in U.S.A.
