<PAGE>
TO OUR SHAREHOLDERS:
- -------------------------------------------------------------------------------
CGM Capital Development Fund increased 29.4% during the fourth quarter of 1998
compared to the Standard and Poor's 500 Index which rose 21.4%. For the year
just ended, CGM Capital Development Fund returned 8.5% while the unmanaged S&P
500 Index returned 28.6%, all on a total return basis.
THE YEAR IN REVIEW AND ECONOMIC OUTLOOK
Last year unfolded much as expected with growth in the U.S. economy, healthy
gains in productivity and employment, and moderate increases in corporate
profits. The market climbed during the first half of the year, but fell
precipitously in the third quarter in response to turmoil and falling markets
abroad. The Federal Reserve Board reduced interest rates on three occasions over
a fairly short period of time and, almost overnight, confidence was restored to
the markets. In the fourth quarter, the S&P 500 Index recovered 21% to end the
year near 1998 highs.
The one exceptional event of 1998 was a huge jump in the market price of large
capitalization company stocks which drove the leading averages to new highs.
Though the S&P 500 Index was up 28.6% for the year, the average stock in the
Index was up only 5% on an equal weighted basis.
We believe the outlook for 1999 is for more of the same with moderate growth,
low inflation, and, perhaps, low interest rates. Casting a shadow over otherwise
rosy economic forecasts, however, are commodity prices which are falling across
the board. Price pressures are squeezing profit margins to the downside and
corporations are being forced to reduce costs as excess capacity grows. Weaker
foreign markets for U.S. exports were a drag on the U.S. economy in 1998 and may
continue to be in the new year although there are signs that Japan, the second
largest economy in the world, is taking steps to resume economic growth.
Additionally, the new Euro currency could bolster trade and invigorate the
European economy.
From a large capitalization company perspective, the securities markets begin
1999 with generous valuations. However, as we learned in 1998, the securities
market is segmented and many smaller and mid-size companies, which have not
participated in the rising market, represent good value at current prices. We
expect the market to broaden to include those companies in which many of our
assets are invested today.
PORTFOLIO STRATEGY
CGM Capital Development Fund remained fully invested throughout 1998. A
significant portion of the Fund's assets was invested in small and mid-cap
stocks and this group generally failed to keep pace with the significant
appreciation of the S&P 500 despite mostly favorable earnings progress. While
ownership of a number of premium valuation large capitalization stocks which are
heavily weighted in the S&P 500 average would have enhanced 1998 results, we
believed then, as we do now, that they are significantly overvalued.
The CGM Capital Development Fund portfolio is dominated by holdings in company
stocks we believe are selling at reasonable price-to-earning relationships. The
Fund's three largest industry positions are in housing and building materials,
electronic components and hotels and restaurants. The three largest company
holdings are Nokia Corporation, Firstar Corporation, and CHS Electronics, Inc.
/s/ Robert L. Kemp
Robert L. Kemp
President
/s/ G. Kenneth Heebner
G. Kenneth Heebner
Portfolio Manager
January 8, 1999
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CGM CAPITAL DEVELOPMENT FUND AND THE UNMANAGED S&P 500 INDEX
assuming reinvestment of dividends and capital gains
CGM Capital Development Fund
Average Annual Total Returns
- ---------------------------------
1 year 5 year 10 year
8.5% 13.4% 21.0%
- ---------------------------------
Past performance is no indication
of future results
CGM Capital Unmanaged
Development S&P 500
- ------------------------------------------------------
$10,000 $10,000
1989 11,790 13,160
1990 11,955 12,752
1991 23,803 16,629
1992 27,968 17,892
1993 35,995 19,700
1994 27,752 19,956
1995 39,158 27,439
1996 50,161 33,750
1997 61,398 45,023
1998 67,432 57,899
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, 1998
CGM CAPITAL
DEVELOPMENT
FUND
-----------------------
10 Years ........................................... +574.3%
5 Years ........................................... + 87.3%
1 Year ............................................ + 8.5%
3 Months .......................................... + 29.4%
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, 1973 -- DECEMBER 31, 1998 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------------
IF YOU HAD PURCHASED ONE SHARE OF THE FUND ON DECEMBER 31, 1973
--------------------------------------------------------------------------------------------------------------------------------
--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 Shares Would Distributions Distributions Year End Total Return December 31,
31 Have Been of of Would Have Been of 1973 = 100.0
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1973 $12.69 100.0
1974 7.78 $ 0.37* $0.14 $ 8.12 - 36.0% 64.0
1975 9.35 -- 0.15 9.95 + 22.5 78.4
1976 10.98 -- 0.13 11.85 + 19.1 93.4
1977 10.74 -- 0.18 11.78 - 0.6 92.8
1978 13.05 -- 0.27 14.71 + 24.9 115.9
1979 16.20 -- 0.35 18.74 + 27.4 147.7
1980 20.50 1.65* 0.36 26.78 + 42.9 211.1
1981 17.34 3.38 0.36 27.99 + 4.5 220.6
1982 24.88 2.88 0.41 50.07 + 78.9 394.7
1983 25.21 2.50 0.47 57.88 + 15.6 456.3
1984 17.28 6.15 0.11 53.13 - 8.2 418.9
1985 25.02 -- 0.18 77.68 + 46.2 612.4
1986 23.12 7.46 0.16 99.74 + 28.4 786.3
1987 16.56 10.09 0.14 115.60 + 15.9 911.3
1988 15.87 0.02 0.62 115.25 - 0.3 908.6
1989 18.37 -- 0.34 135.88 + 17.9 1071.2
1990 18.53 -- 0.10 137.78 + 1.4 1086.2
1991 25.80 11.07* 0.06 274.32 + 99.1 2162.6
1992 27.43 2.68* 0.20 322.33 + 17.5 2541.1
1993 27.71 7.51 0.07 414.84 + 28.7 3270.4
1994 20.58 0.71 0.07 319.84 - 22.9 2521.5
1995 27.33 1.68 0.02 451.29 + 41.1 3557.8
1996 29.08 5.87 0.07 578.10 + 28.1 4557.5
1997 26.96 9.08 -- 716.27 + 23.9 5646.7
1998 24.95 4.19 0.11 777.15 + 8.5 6126.7
------- ----- ------
Totals $ 77.29 $5.07 +6026.7
--------------------------------------------------------------------------------------------------------------------------------
* 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, 1998
COMMON STOCKS -- 100.3% OF TOTAL NET ASSETS
SHARES VALUE(A)
------ --------
BANKS -- MONEY CENTER -- 6.4%
Chase Manhattan Corporation .......................... 662,000 $ 45,057,375
------------
BANKS -- REGIONAL -- 7.3%
Firstar Corporation .................................. 548,000 51,101,000
------------
BEVERAGES AND TOBACCO -- 5.0%
Philip Morris Companies, Inc. ........................ 656,500 35,122,750
------------
ELECTRONIC AND COMMUNICATION EQUIPMENT -- 7.9%
Nokia Corporation ADR(b) ............................. 463,000 55,762,563
------------
ELECTRONIC COMPONENTS -- 15.8%
Intel Corporation .................................... 330,000 39,125,625
Micron Technology, Inc.(c)............................ 680,000 34,382,500
Texas Instruments, Inc. .............................. 436,000 37,305,250
------------
110,813,375
------------
HOTELS AND RESTAURANTS -- 14.0%
CKE Restaurants, Inc. ................................ 1,425,380 41,959,624
Foodmaker, Inc.(c) ................................... 1,476,000 32,564,250
Ruby Tuesday, Inc. ................................... 1,134,200 24,101,750
------------
98,625,624
------------
HOUSING AND BUILDING MATERIALS -- 16.7%
Centex Corporation ................................... 468,000 21,089,250
D. R. Horton, Inc. ................................... 1,475,000 33,925,000
Kaufman & Broad Home Corporation ..................... 1,085,000 31,193,750
Lennar Corporation ................................... 1,242,600 31,375,650
------------
117,583,650
------------
INSURANCE -- 1.6%
The Progressive Corporation ........................... 68,000 11,517,500
------------
MISCELLANEOUS -- 7.8%
CHS Electronics, Inc.(c) ..............................2,720,000 46,070,000
Gucci Group NV ADR(b) ................................. 185,000 8,995,625
------------
55,065,625
------------
OFFICE EQUIPMENT AND SUPPLIES -- 6.8%
International Business Machines Corporation ........... 215,000 39,721,250
Lexmark International Group, Inc.(c) .................. 79,000 7,939,500
------------
47,660,750
------------
PAPER PRODUCTS/CONSUMER -- 4.4%
Asia Pulp & Paper Company Ltd. ADR(b)(c) ............. 3,765,000 30,825,937
------------
PERIPHERALS -- 0.8%
Hutchinson Technology, Incorporated(c) ............... 150,000 5,343,750
------------
RETAIL -- 0.6%
Wal-Mart Stores, Inc. ................................ 50,000 4,071,875
------------
TEXTILE AND APPAREL -- 5.2%
Tommy Hilfiger Corporation(c) ........................ 615,000 36,900,000
------------
TOTAL COMMON STOCKS (Identified Cost $653,779,503) .......... 705,451,774
------------
FACE
SHORT-TERM INVESTMENT -- 1.0% AMOUNT
------
American Express Credit Corporation, 4.85% 1/04/99
(Cost $7,020,000) ............................. $7,020,000 7,020,000
------------
TOTAL INVESTMENTS -- 101.3%
(Identified Cost $660,799,503)(d) ........................... 712,471,774
Cash and Receivables ........................................ 17,772,682
Liabilities ................................................. (26,826,492)
------------
TOTAL NET ASSETS -- 100.0% ..................................... $703,417,964
============
(a) See Note 1A.
(b) 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.
(c) Non-income producing security.
(d) Federal Tax Information: At December 31, 1998 the net unrealized
appreciation on investments based on cost of $663,228,994 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 ................................................. $ 90,017,330
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ....... (40,774,550)
------------
Net unrealized appreciation ................................. $ 49,242,780
============
See accompanying notes to financial statements
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
December 31, 1998
ASSETS
Investments at value (Identified
cost -- $660,799,503) ................................ $712,471,774
Cash .................................................. 4,616
Receivable for:
Securities sold ..................... $16,161,037
Shares of the Fund sold ............. 272,583
Dividends and interest............... 494,519
Foreign tax reclaim.................. 839,927 17,768,066
----------- ------------
730,244,456
------------
LIABILITIES
Payable for:
Securities purchased ................ 8,508,453
Shares of the Fund
redeemed ........................... 5,441,766
Distributions declared .............. 12,206,883 26,157,102
-----------
Accrued expenses:
Management fees ..................... 571,810
Trustees' fees ...................... 14,405
Accounting and
Administration ..................... 4,413
Other expenses ...................... 78,762 669,390
----------- ------------
26,826,492
------------
NET ASSETS ............................................. $703,417,964
============
Net Assets consist of:
Capital paid-in ...................................... $654,175,184
Accumulated net realized loss ........................ (2,429,491)
Unrealized appreciation on
investments -- net .................................. 51,672,271
------------
NET ASSETS ............................................. $703,417,964
============
Shares of beneficial interest
outstanding, no par value ............................ 28,197,266
============
Net asset value per share* ............................ $24.95
============
*Shares of the Fund are sold and redeemed at net asset value
($703,417,964 / 28,197,266).
See accompanying notes to financial statements
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
INVESTMENT INCOME
Income
Dividends (net of withholding
tax of $658,292) ...................................... $ 10,233,802
Interest ............................................... 140,860
-------------
10,374,662
-------------
Expenses
Management fees ........................................ 6,997,004
Trustees' fees ......................................... 55,313
Accounting and Administration .......................... 53,000
Custodian .............................................. 134,951
Transfer agent ......................................... 239,011
Audit and tax services ................................. 34,994
Legal .................................................. 16,547
Printing ............................................... 26,674
Registration ........................................... 58,659
Miscellaneous .......................................... 5,225
-------------
7,621,378
-------------
Net investment income ................................... 2,753,284
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain on investments -- net ..................... 100,982,649
Unrealized depreciation -- net .......................... (46,707,964)
-------------
Net gain on investments ................................. 54,274,685
-------------
NET CHANGE IN ASSETS FROM
OPERATIONS .............................................. $ 57,027,969
=============
See accompanying notes to financial statements
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997
------------ -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) ................................ $ 2,753,284 $ (2,114,797)
Net realized gain from investments .......................... 100,982,649 190,224,896
Unrealized depreciation ..................................... (46,707,964) (38,714,156)
------------ -------------
Change in net assets from operations ...................... 57,027,969 149,395,943
------------ -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ....................................... (2,753,284) --
Net realized gain on investments ............................ (100,982,649) (187,774,697)
In excess of net realized gain on investments ............... (1,692,581) --
------------ -------------
(105,428,514) (187,774,697)
------------ -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares ................................ 32,751,922 34,947,059
Net asset value of shares issued in connection with
reinvestment of:
Dividends from net investment income ...................... 2,347,427 --
Distributions from net realized gain ...................... 89,237,891 165,899,987
Distributions in excess of net realized gain on investments 1,495,726 --
------------ -------------
125,832,966 200,847,046
Cost of shares redeemed ..................................... (96,687,361) (71,055,460)
------------ -------------
Change in net assets derived from capital share
transactions ............................................ 29,145,605 129,791,586
------------ -------------
Total change in net assets .................................. (19,254,940) 91,412,832
NET ASSETS
Beginning of period ......................................... 722,672,904 631,260,072
------------ -------------
End of period ............................................... $703,417,964 $ 722,672,904
============ =============
NUMBER OF SHARES OF THE FUND:
Issued from sale of shares .................................. 1,202,694 1,029,907
Issued in connection with reinvestment of:
Dividends from net investment income ...................... 91,218 --
Distributions from net realized gain ...................... 3,580,435 6,153,926
Distributions in excess of net realized gain on investments 59,422 --
------------ -------------
4,933,769 7,183,833
Redeemed .................................................. (3,544,824) (2,085,022)
------------ -------------
Net change ................................................ 1,388,945 5,098,811
============ =============
</TABLE>
See accompanying notes to financial statements
<PAGE>
CGM CAPITAL DEVELOPMENT FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
For a share of the Fund outstanding throughout each period:
Net asset value at the beginning of
period ................................ $26.96 $29.08 $27.33 $20.58 $27.71
------ ------ ------ ------ ------
Net investment income (loss) ............ 0.11 (0.08)(a) 0.07 0.02 0.07
Dividends from net investment income .... (0.11) -- (0.07) (0.02) (0.07)
Net realized and unrealized gain (loss)
on investments ........................ 2.18 7.04 7.62 8.43 (6.42)
Distribution from net realized gain ..... (4.12) (9.08) (5.84) (1.68) (0.69)
Distribution in excess of net realized
gain on investments.................... (0.07) -- (0.03) -- (0.02)
------ ------ ------ ------ ------
Net increase (decrease) in net asset
value ................................. (2.01) (2.12) 1.75 6.75 (7.13)
------ ------ ------ ------ ------
Net asset value at end of period ........ $24.95 $26.96 $29.08 $27.33 $20.58
====== ====== ====== ====== ======
Total Return (%) ........................ 8.5 23.9 28.1 41.1 -22.9
Ratios:
Operating expenses to average net assets (%) 1.07 1.07 0.82 0.85 0.84
Net investment income (loss) to average
net assets (%) ........................ 0.39 -0.29 0.23 0.07 0.25
Portfolio turnover (%) .................. 335 230 178 271 146
Net assets at end of period (in
thousands) ($) ........................ 703,418 722,673 631,260 521,248 401,676
(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.
</TABLE>
See accompanying notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
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. During the year ended December
31, 1998, the Fund received $922,213 from various class action suits.
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, 1998,
purchases and sales of securities other than United States government
obligations and short-term investments aggregated $2,357,739,657 and
$2,435,720,636, respectively. There were no purchases or sales of United States
government obligations.
3. A. MANAGEMENT FEES -- During the year ended December 31, 1998, the Fund
incurred management fees of $6,997,004 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 $53,000 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 1998 was $5,602. 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, 1998, 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 at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 8, 1999
<PAGE>
CGM
CAPITAL
DEVELOPMENT
FUND
38th Annual Report
December 31, 1998
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.
CAR98 Printed in U.S.A.
