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Century
Shares
Trust
SEVENTIETH ANNUAL REPORT
DECEMBER 31, 1997
A GROWTH AND INCOME FUND
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<PAGE>
DEAR FELLOW SHAREHOLDERS:
1997 was an extraordinary year. For the third time in our seventy-year
history, the Trust's total return exceeded 50%. These results were far above
market returns, as measured by the Standard and Poor's Index of 500 stocks,
and far above the average results for our peer group of growth and income
mutual funds. In fact, leading national publications have ranked the Trust in
the top 1/2% of 1% of all mutual funds for 1997. For more than twenty years,
our portfolio companies' internal growth has generally exceeded investor
valuations. Not since the low-inflation decade of the 1960s has the intrinsic
worth of portfolio companies been properly reflected in share prices for any
sustained period. Importantly, our share price is just now back to the long-
term trend line of underlying business value.
A major question for investors today is whether the recent years of strongly
positive returns have now run their course or whether low inflation and
relatively low interest rates are sustainable. A recurrence of inflationary
pressures and rising interest rates would likely impact stock prices
negatively in the short run. Since insurance businesses typically are buyers
of investment securities, however, higher yields would have a beneficial
impact on investment income and earnings, which ultimately would be reflected
in their share prices. If instead we have a prolonged period of minimal
inflation, the likely result for the best managed insurance companies would be
a return to the positive absolute and relative valuations of the 1960s. This
year's report will provide perspective by showing how Century Shares Trust is
positioned currently compared with how it was positioned in the decade of the
sixties when I first joined the Trust.
NEW APPOINTMENT
On becoming Chairman in 1976, my first action was to ask Bill Dyer to join the
Trust. Over the years we have worked closely together. In 1994 when Century
Capital Management, Inc. was appointed investment manager of the Trust, our
purpose was to create a firm with continuity and greater depth and breadth of
personnel. We have made a lot of progress, and Bill has now been appointed
Director of our Public Securities Group. On the next page he offers
perspective on an interesting article written by Jason Zweig for Money
Magazine about investing in mutual funds.
FUNDAMENTAL PRINCIPLES
Looking to the period ahead, I must suggest caution: 50% annual increases do
not happen often. There are many risks investing today, some controllable,
some not. What I have found enduring over the years is to own the best
businesses, to invest in the best people, and to focus on quality,
consistency, and profitability. Regardless of short-term fluctuations,
remaining true to these principles should enable an investor to cope and
prosper far better than with most other investment alternatives. We remain
highly positive about the long-run ability of the excellent companies in which
we are invested to provide competitive returns in the years ahead.
Sincerely,
/S/ Allan W. Fulkerson
Allan W. Fulkerson
Chairman
February 6, 1998
<PAGE>
FELLOW SHAREHOLDERS:
After buoyant times such as we have enjoyed recently, it is smart for
investors to take a hard look at whether their strategies and the mutual funds
they hold continue to make sense. This includes making sure that assets
earmarked for emergencies and near-term needs are not overexposed to risk, as
well as reviewing asset allocations, which can become seriously unbalanced
after major market price moves. An article in the February, 1998 issue of
Money Magazine by Jason Zweig entitled "How Funds Can Do Better" comments on
several considerations that mutual fund investors should care about now,
because they can influence returns no matter which direction the market takes.
While we strongly recommend reading the whole article, Century's positions on
some of the more significant points are summarized below.
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MONEY MAGAZINE'S CONCERNS CENTURY SHARES TRUST'S POSITION
"Funds cost too much" Century is a pure "no-load" fund, meaning investors pay no
sales charge. The Trust's expense ratio (currently 0.82%)
is consistently below average for funds its size.
"Funds too big for your own good" At $415 million in assets, Century Shares Trust is well
below the maximum size for its investment strategy.
"Funds too taxing" "Money Rankings," in the same issue, assigned Century a tax
efficiency rating of 95%, much better than most funds
covered.
"Managers are trigger-happy" The Trust's portfolio turnover rate has averaged less than
5% for many years. The article suggests favoring funds with
a rate of 20% or less.
"Managers move around too much" Allan Fulkerson and Bill Dyer have worked together for 22
years.
"Too many managers act like sheep" The article tells funds to "dare to be different rather
than merely mirror the market" and also suggests that
investors "think twice before buying a fund that owns more
than 100 stocks." We are different; we concentrate on
growth opportunities in an area we know well, one that
others often ignore. Moreover, we typically hold less than
30 issues at any one time.
"Funds are getting too complicated" The article laments the proliferation of classes of stock
in the same portfolio, most of which are designed to
accommodate various sales charge schemes. We agree with
Money and do not do it.
</TABLE>
The short answer is that we believe we serve shareholders best by investing in
top quality companies capable of superior long-term profitability,
particularly by doing so with relatively low turnover and expense.
Sincerely,
/s/ William W. Dyer, Jr.
William W. Dyer, Jr.
Trustee, Century Shares Trust
Director, Public Securities Group
Century Capital Management, Inc.
<PAGE>
THE INVESTMENT UNIVERSE: GROWTH - CHANGE - CONSOLIDATION
Our primary investment universe is the insurance industry. It is large,
indispensable, growing and diverse. Superimposed on this essential industry
are today's trends of restructuring, consolidation, globalization,
entrepreneurship and an emerging recognition of differences. Insurance, be it
risk bearing (property-casualty, life insurance, health insurance) or fee
driven (businesses providing insurance-related services) can be highly
profitable. The only challenge is to get it right. We want to invest in
businesses that have real potential for profitable growth.
GROWTH
Over the last fifty years, U.S. insurance industry revenues have grown at a
compound annual rate of 8.8%, according to data published by A.M. Best Co.,
while U.S. Gross Domestic Product has seen average annual increases of 7.4%
during the same period. As shown in the chart below on the left, assets have
kept pace showing consistent growth for more than fifty years.
CHANGE
Along with the U.S. industry's historical growth, there has been continuous
change and consolidation. Of the 61 insurance companies in Century's 1965
Annual Report, when the Chairman joined the Trust as an analyst, there are
only 18 companies that have not been acquired, merged or radically changed.
Even the 18 are not what they used to be: Combined Insurance Co. of America is
now a part of AON Corp., the world's second largest international insurance
and consulting services organization, Federal Insurance Co. is now The Chubb
Corp., and General America Corp. is now SAFECO Corp.
What has driven these enormous changes? In the 1960s and early 1970s, it was
"surplus surplus," a term created to describe many insurance companies which
investors felt were overcapitalized. In the 1980s, the difficulty many buyers
of commercial property-casualty insurance had in obtaining coverage led to
innovation. Bermuda changed from being a marginal market to one of the world's
insurance centers. And in the 1990s, there has been increased recognition of
the globalization of the business. Today this global industry is in the midst
of extraordinary change. There has always been change, but the pace of change
is accelerating; change in methods of distribution, change because of the
speed of technology and fundamental structural change.
CONSOLIDATION
Historically, there has been consolidation in the insurance industry as
companies seek critical mass, complementary products, complementary
geographical operating territories, and complementary distribution systems.
The chart below on the right illustrates vividly how the pace of consolidation
has picked up significantly the past three years. We see no reason why this
pattern will not continue.
GROWTH OF U.S. INSURANCE INDUSTRY ASSETS
($ TRILLIONS)
1947 $0.06 1958 $0.13 1968 $0.24 1978 $0.54 1988 $1.65
1948 $0.07 1959 $0.14 1969 $0.25 1979 $0.61 1989 $1.83
1949 $0.07 1960 $0.15 1970 $0.26 1980 $0.68 1990 $1.96
1950 $0.08 1961 $0.16 1971 $0.29 1981 $0.74 1991 $2.12
1951 $0.08 1962 $0.17 1972 $0.31 1982 $0.82 1992 $2.26
1952 $0.09 1963 $0.18 1973 $0.33 1983 $0.91 1993 $2.47
1953 $0.10 1964 $0.19 1974 $0.34 1984 $0.99 1994 $2.63
1954 $0.10 1965 $0.20 1975 $0.38 1985 $1.14 1995 $2.89
1955 $0.11 1966 $0.21 1976 $0.43 1986 $1.32 1996 $3.11
1956 $0.12 1967 $0.22 1977 $0.48 1987 $1.47 1997E $3.50
1957 $0.12
Source: A.M. Best Co.
MERGER & ACQUISITION ACTIVITY
AGGREGATE VALUE OF DISCLOSED TRANSACTIONS ($ BILLIONS)
1988 $ 9.048 1993 $13.824
1989 $ 5.9293 1994 $ 7.3369
1990 $12.9357 1995 $33.6427
1991 $ 7.1412 1996 $36.6054
1992 $ 4.9007 1997 $45.4654
Source: Securities Data Corp.
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STRATEGY AND IMPLEMENTATION
Our investment strategy is straightforward. We aim to invest in good
businesses over a long period of time. To us, the key is management. Our
philosophy is that we are investors, not traders; we have always believed in
thinking and acting as part owners of a business. The characteristics we seek
are quality and consistency, managements that are profit-oriented, not volume-
oriented.
Implementing this philosophy, we are bottom-up investors, meaning that we
examine individual companies. We place the most emphasis on profitability.
Among the criteria we examine are: the annual compound growth rate of book
value per share plus dividends over a five-year period; return on equity; pre-
tax operating margins; return on assets; growth of operating earnings; growth
of dividends; and underwriting profitability. Too many observers talk about
the insurance industry as if the universe were a single monolithic block. That
is totally wrong: there are enormous differences among companies. We look for
those differences, what has produced them, and what the prospects are for
their continuing.
HISTORICAL PERSPECTIVE 1966-1997
Listed below are the ten largest stock positions held by Century Shares Trust
at year-ends 1965 and 1997. Considering that we were investing primarily in
the insurance business consistently throughout these years, the fact that not
one company made our top ten list both times may surprise, particularly those
who mistakenly think that the insurance business is monolithic and dominated
by a few bureaucratic, unresponsive giants.
TOP TEN HOLDINGS TOP TEN HOLDINGS
December 31, 1965 December 31, 1997
Aetna Life Insurance Co. American International Group, Inc.
Connecticut General Life Insurance Co. AON Corp.
Continental Casualty Co. The Chubb Corp.
Hartford Fire Insurance Co. Cincinnati Financial Corp.
Home Insurance Co. General Re Corp.
Insurance Co. of North America Mercury General Corp.
Lincoln National Life Insurance Co. MBIA Inc.
Southland Life Insurance Co. The Progressive Corp.
Travelers Corporation St. Paul Companies, Inc.
U.S. Fidelity & Guaranty Co. Torchmark Corp.
The decade of the 1960s was a period of generally moderate and relatively
stable inflation and economic growth. As a result, interest rates also were
moderate, and the climate was favorable for financial assets and for companies
dealing in financial products such as insurance. Between then and now, many
things changed -- some forever -- as political and economic conditions moved
through a full cycle from stability to near chaos and now back to what appears
to be stability once again.
<TABLE>
CENTURY SHARES TRUST PORTFOLIO
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DECEMBER 31, 1965 DECEMBER 31, 1997
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<S> <C> <C>
Number of Holdings in Portfolio .................................... 75 26
Five Year Growth Rate of Shareholders' Equity Plus Dividends
(Estimate) ....................................................... 9.8% 19.4%
Approximate Price-Earnings Ratio
CST Portfolio .................................................... 33.2X 19.7X
S&P 500 Index .................................................... 17.8X 21.4X
Price-Earnings Ratio Relative to S&P 500 Index ..................... 187% 92%
</TABLE>
Given the apparent similarities between today and the period of the 1960s, how
do the Trust's holdings compare? Basically, we own fewer issues today and
these companies are more profitable, have been building shareholder value
faster and are selling at lower valuations than those in the 1965 portfolio as
shown at the bottom of the previous page.
BUILDING THE CENTURY ADVANTAGE
In 1965, the insurance industry was a far simpler business than it is today.
Management sophistication, distribution methods, data processing abilities,
regulatory environment, and shareholder expectations all reflected an industry
where tradition ruled. The Trust's portfolio of the time was filled with
traditional companies, many of which had built organizations well designed to
deal with stability and unlikely to move far from the middle.
By 1976, when current management assumed responsibility for the Trust, it
seemed clear that above-average companies were needed, if better than average
investment results were to be achieved, particularly in the more challenging
environment that appeared to be developing. The decision was reached to
concentrate the portfolio in companies whose managements had both the desire
and ability to generate above-average returns, which at that time meant 15% or
more per year.
Aiming for 15% per year back in 1976 required changing the focus of
investments from "value" companies, often available at discounts, to a focus
on growth and profitability. The charts below illustrate the results of
management's focus on building a portfolio capable of providing a 15% annual
compounded value growth over the years. The chart at the left shows the
Century Advantage over companies comprising the Standard and Poor's 500 Stock
Index; the chart at the right illustrates the Century Advantage over the
insurance industry, as reflected by greater underwriting profitability.
Greater profitability is the key factor in obtaining faster compounding of
value than found in an average company.
FIVE-YEAR GROWTH OF BOOK VALUE PLUS DIVIDENDS
CENTURY SHARES TRUST vs. S&P 500
CST S&P 500
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1987 16.5% 11.3%
1988 16.7% 12.2%
1989 18.3% 12.3%
1990 17.2% 12.8%
1991 15.9% 12.8%
1992 16.4% 10.5%
1993 16.6% 9.3%
1994 14.3% 9.5%
1995 18.9% 11.2%
1996 18.2% 11.9%
1997E 19.4% 15.5%
PROPERTY-CASUALTY COMBINED RATIOS
CENTURY SHARES TRUST vs. INSURANCE INDUSTRY
CST S&P 500
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1987 99.7% 104.6%
1988 99.8% 105.4%
1989 103.3% 109.2%
1990 99.6% 109.6%
1991 99.7% 108.8%
1992 101.5% 115.7%
1993 100.1% 106.9%
1994 99.1% 108.4%
1995 98.0% 106.4%
1996 98.7% 105.8%
1997E 96.4% 101.1%
Source: A.M. Best Co.
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KEY PORTFOLIO CHARACTERISTICS
Dividend increases reflect both a management's view of sharing improved
operating results with shareholders, as well as optimism about future
prospects. Consistent increases year after year can only be declared by well-
managed companies whose results support such actions.
Stock repurchase programs are used by managements when they believe their
stock is underpriced relative to intrinsic value and when such actions can add
value to investors. Below we show for our investments those companies which
have declared dividend increases, produced annual compound gains over five-
year periods of per share book value plus dividends of at least 15%, and
bought back their own shares. All such actions reward investors directly.
<TABLE>
<CAPTION>
GROWTH OF BOOK VALUE
PLUS DIVIDENDS DIVIDEND RATE STOCK
15% OR MORE INCREASES IN REPURCHASES
5 YEARS TO 12/31/97 EACH OF THE IN THE
COMPANY NAME (EST.) LAST 5 YEARS LAST 5 YEARS
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AEGON N.V. o
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AFLAC Inc. o o o
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The Allstate Corp. o o
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American General Corp. o o
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American Heritage Life Investment Corp. o o
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American International Group, Inc. o o o
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AON Corp. o o o
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Banc One Corp. o o
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The Chubb Corp. o o
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Cincinnati Financial Corp. o o o
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General Re Corp. o o o
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HSB Group, Inc. o
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Marsh & McLennan Companies, Inc. o o o
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MBIA Inc. o o o
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Mercury General Corp. o o o
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J.P. Morgan & Co., Inc. o o o
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Ohio Casualty Corp. o o o
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The Progressive Corp. o o
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Protective Life Corp. o o o
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Provident Companies, Inc. o
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SAFECO Corp. o o o
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St. Paul Companies, Inc. o o o
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Torchmark Corp. o o
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UNUM Corp. o o
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USF&G Corp. o o
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Wachovia Corp. o o o
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</TABLE>
<PAGE>
MANAGEMENT
Century Shares Trust is managed by its investment adviser, Century Capital
Management, Inc., subject to oversight by its Board of Trustees. Listed below
are biographical sketches of the Advisor's officers.
ALLAN W. FULKERSON is President of Century Capital Management, Inc. and
Chairman of Century Shares Trust. A graduate of Williams College, he joined
Century Shares Trust in 1966 and was named Chairman in 1976. Mr. Fulkerson
serves as a director of various insurance companies. He is a member of the
Boston Society of Security Analysts and the Association of Insurance and
Financial Analysts.
WILLIAM W. DYER, JR. is Director of the Public Securities Group of Century
Capital Management, Inc. and a Trustee of Century Shares Trust. He joined
Century Shares Trust in 1976 and became a Trustee in 1977. A graduate of Brown
University, Mr. Dyer serves as a director of several companies and is a member
of the Boston Security Analysts Society and the Association of Insurance and
Financial Analysts.
IVAN E. BROWN, JR. is Vice President of Century Capital Management, Inc. He
joined Century in 1997, having previously been associated with J.P. Morgan and
with CS First Boston's and Morgan Stanley's investment banking groups as an
insurance and financial services specialist. Mr. Brown earned both a B.B.A.
and an M.B.A. at the University of Texas. He is a Chartered Financial Analyst,
a Certified Public Accountant, and a past president of the Association of
Insurance and Financial Analysts.
RICHARD F. COOK, JR. is Vice President and a Director of Century Capital
Management, Inc. Mr. Cook joined Century Shares Trust in 1985, having
previously worked with the General Electric Credit Corporation and the General
Electric Mortgage Insurance Companies. Mr. Cook is a 1973 graduate of Williams
College and a member of Phi Beta Kappa. He also received an M.B.A. from
Columbia University and a J.D. from Vanderbilt University School of Law in
1979.
RICHARD J. FREEMAN is Vice President of Century Capital Management, Inc. Prior
to joining Century in 1993, Mr. Freeman held investment positions with Kemper
Financial Services. Mr. Freeman received a B.A. in 1975 and an M.B.A. in 1977
from Michigan State University. He also received an M.S. in Accountancy from
Western Michigan University in 1980. Mr. Freeman is a Chartered Financial
Analyst, a member of the Boston Security Analysts Society and the Association
of Insurance and Financial Analysts.
JAMES B. STRADTNER is Vice President of Century Capital Management, Inc. and
President of its subsidiary, Century Merchant Bankers LLC. Prior to joining
Century in 1996, Mr. Stradtner was a Managing Director at Alex. Brown & Sons.
Mr. Stradtner received a B.S. from the University of Maryland and an LLB from
the University of Maryland School of Law. Mr. Stradtner is a Chartered
Financial Analyst and serves as a director of several insurance companies.
STEVEN ALFANO is Assistant Vice President of Century Capital Management, Inc.
and Director of Shareholder Relations for Century Shares Trust. He joined
Century in 1988 after six years with State Street Bank & Trust Co. Mr. Alfano
is a 1981 graduate of Suffolk University.
ROBIN M. SCIBILIA is Assistant Vice President of Century Capital Management,
Inc. She joined Century in 1986 and has a wide range of responsibilities
including regulatory matters, publications and office management.
INVESTMENT RESULTS
In managing the Trust we aim to provide long-term growth of principal and
income by owning superior companies. Some observers incorrectly categorize the
Trust: we do not aim to compete with funds invested in bank stocks nor those
which aim to participate in bank consolidation activity.
Below we show details of an investment made in the Trust on January 1, 1976,
the beginning of the year in which current management assumed accountability.
For investors interested in results for other periods, including since
inception in March, 1928, please contact the Shareholder Services Department
of the Trust.
<TABLE>
<CAPTION>
TWENTY-TWO YEAR INVESTMENT RECORD PER SHARE
VALUE OF
YEAR NUMBER OF VALUE OF REINVESTED VALUE OF TOTAL ANNUAL TOTAL RETURN
ENDED SHARES ORIGINAL CAPITAL GAIN REINVESTED VALUE OF ------------------------
12/31 OWNED SHARE + DISTRIBUTIONS + DIVIDENDS = INVESTMENT CST S&P 500
- ------------- ------------- ------------ ----------------- -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1975 1.000 $ 9.07 $ 9.07
1976 1.029 12.05 $ 0.00 $ 0.35 12.40 36.7% 23.9%
1977 1.087 11.17 0.30 0.67 12.14 -2.1 -7.2
1978 1.191 11.20 1.00 1.14 13.34 9.9 6.6
1979 1.336 12.15 2.18 1.90 16.23 21.7 18.6
1980 1.526 11.32 3.35 2.61 17.28 6.4 32.5
1981 1.706 12.17 4.82 3.77 20.76 20.2 -4.9
1982 1.881 12.25 5.73 5.06 23.04 11.0 21.6
1983 2.047 13.62 7.35 6.91 27.88 21.0 22.6
1984 2.296 14.02 9.63 8.55 32.20 15.5 6.3
1985 2.534 18.22 15.43 12.52 46.17 43.4 31.7
1986 2.765 18.30 18.47 13.83 50.60 9.6 18.7
1987 3.154 14.76 19.41 12.38 46.55 -8.0 5.3
1988 3.683 14.62 25.43 13.80 53.85 15.7 16.6
1989 3.927 19.42 36.53 20.32 76.27 41.6 31.7
1990 4.179 16.82 33.99 19.47 70.28 -7.8 -3.1
1991 4.395 21.03 44.95 26.45 92.43 31.5 30.5
1992 4.571 25.68 57.40 34.30 117.38 27.0 7.6
1993 4.865 24.04 58.85 34.07 116.96 -0.4 10.1
1994 5.163 21.77 57.66 32.97 112.40 -3.9 1.3
1995 5.415 28.07 79.17 44.76 152.00 35.2 37.6
1996 5.690 31.30 94.30 52.48 178.08 17.2 23.0
1997 5.987 44.66 145.52 77.18 267.36 50.1 33.4
22-year total return 2847.7 2408.8
</TABLE>
The dollar amount of shares accepted at the time reinvestment occurred was
$64.72 for capital gains and $31.90 for income dividends. If capital gains
distributions and dividends had been withdrawn in cash, the total dollar
amount received would have been $19.06 and $10.73, respectively. Computation
of results assumes that all income dividends were reinvested at the then
effective net asset value (which is the Trust's current practice as a no-load
fund) and not at offering prices which applied when the Trust's shares were
sold with a sales charge prior to 1982.
The following charts compare the performance of the Trust over the past ten
and twenty-two years, respectively, with the performance of the S&P 500, a
leading unmanaged stock market index.
PERFORMANCE OF $10,000 INVESTMENT IN CENTURY SHARES TRUST AND THE S&P 500
- ---------------------------
Average Annual Total Return
1 Year 5 Year 10 Year
50.13% 17.90% 19.10%
- ---------------------------
CST S&P 500
------- -------
1987 $10,000 $10,000
1988 $11,569 $11,661
1989 $16,386 $15,356
1990 $15,101 $14,880
1991 $19,859 $19,414
1992 $25,218 $20,894
1993 $25,128 $23,000
1994 $24,148 $23,303
1995 $32,656 $32,061
1996 $38,261 $39,422
1997 $57,443 $52,573
- --------------
Average Annual
Total Return
22 Years
16.63%
- --------------
CST S&P 500
-------- --------
1975 $ 10,000 $ 10,000
1976 $ 13,672 $ 12,393
1977 $ 13,383 $ 11,506
1978 $ 14,710 $ 12,262
1979 $ 17,898 $ 14,543
1980 $ 19,043 $ 19,270
1981 $ 22,886 $ 18,322
1982 $ 25,402 $ 22,270
1983 $ 30,735 $ 27,295
1984 $ 35,495 $ 29,006
1985 $ 50,901 $ 38,210
1986 $ 55,792 $ 45,339
1987 $ 51,316 $ 47,720
1988 $ 59,369 $ 55,646
1989 $ 84,087 $ 73,280
1990 $ 77,493 $ 71,009
1991 $101,909 $ 92,645
1992 $129,411 $ 99,704
1993 $128,948 $109,755
1994 $123,921 $111,203
1995 $167,577 $152,994
1996 $196,341 $188,121
1997 $294,774 $250,878
Past performance is not predictive of future performance.
COMPARATIVE SUMMARY OF INVESTMENT RESULTS
CST S&P 500
------- ---------
Cumulative as of 1997:
One Year.................................... + 50.1% + 33.4%
Three Years................................. 137.9 125.6
Five Years.................................. 127.8 151.6
Ten Years................................... 474.4 425.7
Fifteen Years............................... 1060.4 1026.4
Twenty Years................................ 2102.6 2080.5
Since 1976.................................. 2847.7 2408.8
Annualized as of 1997:
One Year.................................... + 50.1% + 33.4%
Three Years................................. 33.5 31.2
Five Years.................................. 17.9 20.3
Ten Years................................... 19.1 18.1
Fifteen Years............................... 17.8 17.5
Twenty Years................................ 16.7 16.7
Since 1976.................................. 16.6 15.8
Past performance should not be considered a representation of the income or
capital gain or loss which may be realized from an investment in the Trust
today. The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Achievement of objectives cannot be assured;
however, the Trust's management seeks to reduce risks and to provide rewarding
results through diversification and careful supervision of investments. The
illustrations throughout this report do not take into account income taxes
that might have been payable by a shareholder on distributions received or
reinvested, or upon sale of the investment.
SUCCESSFUL LONG-TERM INVESTORS
In connection with the Trust's 70 years of investment operations, the
Adviser's staff recently conducted a study of the Trust's shareholders. The
analysis revealed that today approximately 2000 investors, holding shares
worth more than $80 million, have been with the Trust since the beginning of
1976. In fact, 85% of these investors have been shareholders as far back as
1970 with quite a number making their first investment before that.
Coming from all 50 states, these investors include individuals, family
members, profit sharing plans, trusts, and corporations. We are grateful for
this long-term support and salute these "true" investors, who clearly are not
short-term traders.
INVESTOR INFORMATION AND SERVICES
Q. How do I find Century Shares Trust's price per share?
A. The Trust's per share price is listed daily in The Wall Street Journal and
all other newspapers quoting mutual fund prices. The trust usually appears in
the mutual funds columns as "CNT SHS" or "Century Sh." You may also call the
shareholder hotline, (800) 303-1928, for the daily share price.
Q. Can I reinvest my Capital Gains and Dividends in additional shares of the
Trust?
A. Automatic reinvestment of distributions easily ranks as the most popular
service offered shareholders. Recognizing the importance of maintaining their
interest in the Trust's assets, income and dividend payments, approximately
92% of shareholders currently elect to accept capital gain distributions in
additional shares. The service is especially appropriate for investors who
want to build their capital investment and future income. Conversion to
automatic reinvestment at no extra cost is simple and can be accomplished by
notifying the Trust.
Q. What is dollar-cost averaging?
A. Dollar-cost averaging is investing the same amount of money on a regular
schedule. By investing the same amount on a regular basis rather than a lump
sum all at once, your cost per share will be lower than the average price paid
because you buy more shares at lower prices. Thus, you actually take advantage
of price fluctuations. The Trust offers an AUTOMATIC INVESTING plan for
investors who choose to have their investment deducted from their bank account
monthly, quarterly or when making a telephone purchase.
Q. How can I find the Net Asset Value of the Trust on the Internet?
A. Many web sites, including those of most securities broker-dealers, offer a
price look-up feature. Price information can be accessed by entering the
ticker symbol of the security or mutual fund. The ticker symbol for the Trust
is CENSX. As shown in the charts below, the Internet has become an integral
part of financial research. Within the past two years, it has become the
Trust's leading source for new accounts. Over 30% of the accounts opened in
1997 learned about the Trust on-line.
CENTURY SHARES TRUST
TOP FIVE SOURCES FOR NEW ACCOUNTS IN 1997
Internet 33%
Shareholder Referral 21%
Kiplinger 13%
Morningstar 9%
Wall Street Journal 6%
CENTURY SHARES TRUST
TOP FIVE SOURCES FOR NEW ACCOUNTS IN 1995
Shareholder Referral 20%
Forbes 19%
Kiplinger 15%
Morningstar 14%
Wall Street Journal 10%
<PAGE>
PORTFOLIO OF INVESTMENTS -- December 31, 1997
COMMON STOCKS: INSURANCE COMPANIES -- 88.7%
SHARES VALUE
------ ------------
65,738 AEGON N.V. ........................................ $ 5,891,768
100,000 AFLAC Inc. ........................................ 5,112,500
50,000 The Allstate Corp. ................................ 4,543,750
200,000 American General Corp. ............................ 10,812,500
225,000 American Heritage Life Investment Corp. ........... 8,100,000
275,000 American International Group, Inc. ................ 29,906,250
430,000 AON Corp. ......................................... 25,208,750
265,000 The Chubb Corp. ................................... 20,040,625
250,000 Cincinnati Financial Corp. ........................ 35,187,500
115,000 General Re Corp. .................................. 24,380,000
50,000 HSB Group, Inc. ................................... 2,759,375
150,000 Marsh & McLennan Companies, Inc. .................. 11,184,375
390,000 MBIA Inc. ......................................... 26,056,875
360,000 Mercury General Corp. ............................. 19,890,000
285,000 Ohio Casualty Corp. ............................... 12,718,125
295,000 The Progressive Corp. ............................. 35,363,125
170,000 Protective Life Corp. ............................. 10,157,500
150,000 Provident Companies, Inc. ......................... 5,793,750
360,000 SAFECO Corp. ...................................... 17,550,000
215,000 St. Paul Companies, Inc. .......................... 17,643,438
500,000 Torchmark Corp. ................................... 21,031,250
200,000 UNUM Corp. ........................................ 10,875,000
250,000 USF&G Corp. ....................................... 5,515,625
------------
365,722,081
------------
COMMON STOCKS: BANKING INSTITUTIONS -- 6.6%
100,000 Banc One Corp. .................................... 5,431,250
100,000 J.P. Morgan & Co., Inc. ........................... 11,287,500
130,000 Wachovia Corp. .................................... 10,546,250
------------
27,265,000
------------
COMMON STOCKS: MISCELLANEOUS -- 0.8%
3,465,000
------------
TOTAL INVESTMENTS IN COMMON STOCKS -- 96.1%
(Identified cost, $93,105,465) ............................... 396,452,081
------------
CASH EQUIVALENTS -- 3.9%
15,977,000 State Street Bank and Trust Eurodollar Time
Deposit, at cost approximating value,
maturity 1/2/98 .................................. 15,977,000
------------
TOTAL INVESTMENTS -- 100% (Identified cost, $109,082,465) ...... $412,429,081
============
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES -- December 31, 1997
- -------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (Identified cost, $109,082,465) $412,429,081
Dividends and interest receivable ............................. 580,730
Receivable for Trust shares sold .............................. 2,290,820
Prepaid expenses .............................................. 8,404
------------
Total assets .......................................... 415,309,035
LIABILITIES:
Payable for Trust shares repurchased .......... $ 414,393
Accrued investment adviser fee (Note 5) ....... 219,089
Accrued expenses and other liabilities ........ 100,031
----------
Total liabilities ..................................... 733,513
------------
NET ASSETS (Note 3) ........................................... $414,575,522
============
Per share net asset value, offering price and redemption price
($414,575,522 / 9,283,204 shares of $1.00 par value capital
stock outstanding) (Note 2) ................................ $44.66
======
STATEMENT OF OPERATIONS -- Year Ended December 31, 1997
- -----------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
Dividends ................................................. $ 5,755,865
Interest .................................................. 384,744
------------
Total income .......................................... 6,140,609
Expenses:
Investment adviser fee (Note 5) ............ $2,281,156
Non-interested trustees' remuneration (Note 5) 48,500
Transfer agent ............................. 137,787
Custodian .................................. 56,830
Insurance .................................. 25,194
Audit ...................................... 54,625
Registration costs ......................... 54,076
Printing and other ......................... 50,158
----------
Total expenses ........................................ 2,708,326
------------
Net investment income ............................. 3,432,283
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions .............. 17,070,025
Increase in net unrealized appreciation of investments ...... 115,223,568
------------
Net realized and unrealized gain on investments ... 132,293,593
------------
Net increase in net assets resulting from operations .......... $135,725,876
============
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income .................................. $ 3,432,283 $ 4,012,180
Net realized gain on investment transactions ........... 17,070,025 9,627,266
Increase in net unrealized appreciation of investments . 115,223,568 26,491,322
------------ ------------
Net increase in net assets resulting from operations ... 135,725,876 40,130,768
Net equalization (Note 1C) ............................... 53,124 (88,887)
Distributions to shareholders from:
Net investment income .................................. (3,370,609) (3,903,632)
Realized gain from investment transactions ............. (16,991,380) (9,336,444)
Trust share transactions -- net (Note 2) ................. 28,377,066 (23,201,195)
------------ ------------
Total increase ............................... 143,794,077 3,600,610
NET ASSETS:
At beginning of year ................................... 270,781,445 267,180,835
------------ ------------
At end of year (including accumulated distributions in
excess of net investment income of $270,152 and
$323,276, respectively) .............................. $414,575,522 $270,781,445
============ ============
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $31.30 $28.07 $21.77 $24.04 $25.68
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........... $ 0.39 $ 0.46 $ 0.41 $ 0.44 $ 0.43
Net realized and unrealized gain
(loss) on investments ......... 15.25 4.34 7.22 (1.38) 0.52
------ ------ ------ ------ ------
Total income from investment
operations ................ $15.64 $ 4.80 $ 7.63 $(0.94) $(0.09)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ........... $(0.38) $(0.46) $(0.41) $(0.45) $(0.45)
Net realized gain on investment
transactions .................. (1.90) (1.11) (0.92) (0.88) (1.10)
------ ------ ------ ------ ------
Total distributions ......... $(2.28) $(1.57) $(1.33) $(1.33) $(1.55)
------ ------ ------ ------ ------
NET ASSET VALUE, end of year ...... $44.66 $31.30 $28.07 $21.77 $24.04
====== ====== ====== ====== ======
TOTAL RETURN ...................... 50.1% 17.2% 35.2% (3.9)% (0.4)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000
omitted) ...................... $414,576 $270,781 $267,181 $205,904 $242,781
Ratio of expenses to average net
assets ........................ 0.82% 0.87% 0.94% 1.01% 0.82%
Ratio of net investment income to
average net assets ............ 1.04% 1.58% 1.60% 1.93% 1.72%
PORTFOLIO TURNOVER RATE ........... 6% 3% 5% 2% 19%
AVERAGE COMMISSION RATE PAID ...... $0.0333 $0.0400
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES -- The Trust is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The following is a summary of significant
accounting policies consistently followed by the Trust in the preparation of
financial statements. The policies are in conformity with generally accepted
accounting principles.
A. Investment Security Valuations -- Securities listed on national securities
exchanges are valued at closing prices. Unlisted securities or listed
securities for which closing prices are not available are valued at the latest
bid prices. Short-term obligations, maturing in 60 days or less, are valued at
amortized cost, which approximates value.
B. Federal Taxes -- It is the Trust's policy to comply with the provisions of
the Internal Revenue Code applicable to investment companies and to distribute
to shareholders each year all of its taxable income, including any net
realized gain on investments. Accordingly, no provision for Federal income or
excise tax is necessary.
C. Equalization -- The Trust follows the accounting practice known as
equalization by which a portion of the proceeds from sales and costs of
repurchases of Trust shares equivalent, on a per-share basis, to the amount of
undistributed net investment income on the date of the transaction, is
credited or charged to undistributed net investment income. As a result,
undistributed net investment income per share is unaffected by sales or
repurchases of Trust shares.
D. Other -- Investment security transactions are accounted for on the date the
securities are purchased or sold. Gain or loss on sales is determined on the
basis of identified cost. Dividend income and distributions to shareholders
are recorded on the ex-dividend date. Shares issuable to shareholders electing
to receive income dividends and capital gain distributions in shares are
recorded on the ex-dividend date.
E. Use of Estimates -- The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of assets,
liabilities, revenues and expenses of the Fund. Actual results could differ
from those estimates.
(2) TRUST SHARES -- At December 31, 1997, 9,283,204 shares were outstanding.
The number of authorized shares of $1.00 par value is unlimited. Transactions
in Trust shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------------- -------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Sold .............................. 2,104,952 $83,150,199 699,331 $ 20,345,429
Issued to shareholders in
reinvestment of distributions from:
Net investment income ........... 60,077 2,472,550 88,021 2,669,827
Realized gain on investment
transactions .................. 298,078 13,237,627 242,250 7,684,171
---------- ----------- ---------- ------------
2,463,107 98,860,376 1,029,602 30,699,427
Repurchased ....................... (1,832,014) (70,483,310) (1,896,822) (53,900,622)
---------- ----------- ---------- ------------
Net increase (decrease) ....... 631,093 $28,377,066 (867,220) $(23,201,195)
========== =========== ========== ============
<PAGE>
<CAPTION>
<S> <C>
(3) SOURCES OF NET ASSETS -- At December 31, 1997, net assets consisted of:
Capital paid-in ............................................................................... $111,587,298
Accumulated distributions in excess of net investment income .................................. (270,152)
Accumulated distributions in excess of net realized gain on investment transactions ........... (88,240)
Unrealized appreciation in value of investments ............................................... 303,346,616
------------
Net assets applicable to outstanding capital stock ........................................ $414,575,522
============
</TABLE>
Statement of Position (SOP) 93-2; Determination, Disclosure and Financial
Statement Presentation of Income, Capital Gains and Return of Capital
Distributions by Investment Companies requires that differences in the
recognition or classification of income between the financial statements and tax
earnings and profits which result in temporary over-distributions for financial
statement purposes are classified as distributions in excess of net investment
income or accumulated realized gains. The effect of the SOP for the year ended
December 31, 1997 was to increase distributions in excess of net investment
income by $61,674, increase accumulated distributions in excess of net realized
gains by $78,645, and increase capital paid-in by $140,319. This adjustment
results from permanent differences arising from differing financial statement
and tax treatment of equalization. Net investment income, net realized gains and
net assets were not affected by this change.
(4) INVESTMENT SECURITY TRANSACTIONS -- Other than U.S. Government obligations
and certificates of deposit, purchases and sales of investment securities
aggregated $19,612,464 and $22,838,091, respectively, during the year ended
December 31, 1997. At December 31, 1997, the cost of investments for federal
tax purposes was $109,170,706. Net unrealized appreciation for all securities
at that date was $303,258,375. This consisted entirely of aggregate gross
unrealized appreciation.
(5) INVESTMENT ADVISER FEE -- The investment adviser fee is earned by Century
Capital Management, Inc. ("CCM"), as compensation for providing investment
advisory, management and administrative services to the Trust. CCM receives a
monthly fee equal on an annualized basis to 0.7% of the first $250 million and
0.6% of the amounts exceeding $250 million of the Trust's net asset value. For
the year ended December 31, 1997, the fee amounted to $2,281,156. Officers and
Trustees of the Trust who are employed by CCM receive remuneration for their
services out of such investment adviser fee.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of Century Shares Trust:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Century Shares Trust as of December
31, 1997, the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended December 31, 1997 and
1996, and the financial highlights for each of the years in the five-year
period ended December 31, 1997. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. Our procedures
included confirmation of securities owned at December 31, 1997 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Century Shares
Trust at December 31, 1997, the results of its operations, the changes in its
net assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 16, 1998
<PAGE>
FEDERAL INCOME TAX INFORMATION
The federal tax status of distributions per share in 1997 is as follows:
TAXABLE AS
TAXABLE AS CAPITAL GAIN
DATE PAID DIVIDENDS (SEE NOTE BELOW)
- --------- ---------- ----------------
June 25, 1997 ................ $.20
December 22, 1997 ............ .18
December 30, 1997 ............ $1.90
---- -----
Total .................... $.38 $1.90
==== =====
An amount equal to $.38 per share of the dividends listed above will qualify
for the dividends received deduction for corporate shareholders provided by
the Internal Revenue Code. The capital gain distribution of $1.90 per share is
taxable as a 1997 gain as follows: 21.4% at a maximum federal tax rate of 28%,
and 78.6% at a maximum federal tax rate of 20%, whether received in cash or
shares and irrespective of the period shareholders may have held shares of the
Trust. Please consult your tax advisor with questions you may have regarding
the application of this information to your tax return.
----------------
Capital gain distributions since 1952 have been paid, at the option of each
shareholder, either in cash or shares of the Trust. The amount of such
distributions and tax basis of shares issued are shown below.
FEDERAL TAX BASIS OF SHARES ISSUED IN PAYMENT OF CAPITAL GAIN DISTRIBUTIONS
PER SHARE(a) PER SHARE
--------------------------- -------------------------
AMOUNT OF TAX COST AMOUNT OF TAX COST
CAPITAL GAIN BASIS OF CAPITAL GAIN BASIS OF
DISTRIBUTION SHARES ISSUED DISTRIBUTION SHARES ISSUED
------------ ------------- ------------ -------------
1952 $.04 1/3 $ 5.25 1/3 1975 $ .29 $ 8.32
1953 -- -- 1976 -- --
1954 .08 1/3 5.62 1977 .30 11.62
1955 .20 2/3 7.91 2/3 1978 .60 10.41
1956 .27 1/3 8.29 1/3 1979 .79 10.40
1957 .26 7.32 2/3 1980 .96 11.06
1958 .21 6.85 1/3 1981 .70 10.64
1959 .16 1/3 9.35 2/3 1982 .49 11.70
1960 .26 9.34 1983 .45 11.71
1961 .41 9.58 1984 .91 12.69
1962 .46 13.35 1985 .91 13.04
1963 .15 13.20 1986(1-2-86) .71 17.43
1964 .23 15.49 1986(12-30-86) .40 18.25
1965 .30 14.89 1987 1.61 14.75
1966 .37 13.67 1988 1.90 14.58
1967 .30 11.09 1989 .71 18.73
1968 .30 9.67 1990 .58 16.72
1969 .38 12.42 1991 .57 20.91
1970 .35 11.05 1992 .56 25.72
1971 .30 11.77 1993 1.10 24.04
1972 .35 13.72 1994 .88 21.77
1973 .54 15.94 1995 .92 28.07
1974 .51 12.85 1996 1.11 31.72
1997 1.90 44.41
------
Total since 1952 $25.80
(a) Adjusted for the 3 for 1 stock split on March 9, 1959
----------------
This annual report is submitted for the general information of the
shareholders of the Trust. It is not authorized for distribution to
prospective investors in the Trust unless preceded or accompanied by an
effective prospectus.
<PAGE>
OUR GOAL - OUR STRATEGY - OUR RESULTS
The investment objective of Century Shares Trust is long-term growth of
principal and income. Our investment specialty is insurance. Since 1976, when
present management assumed investment responsibility for the Trust, we have
employed our knowledge to select the best companies in this global industry.
Our strategy has been to be part owners of businesses which have the capacity
to grow profitably because we believe that investment returns are tied to the
underlying growth in the value of businesses. Since many investors view the
Standard and Poor's Index of 500 stocks as the benchmark for investment grade
portfolios, we compete against that index.
The following table shows year-by-year results since 1976 compared with the
Trust's investment target (the S&P 500). In addition, we show the five-year
annual compound growth of shareholder equity per share, plus dividends, both
for the Trust on a weighted basis and for the Index as reported by Standard
and Poor's. We believe this measure is the best single indicator for business
value creation over the years.
INVESTMENT TOTAL RETURNS VS. BUSINESS VALUE CHANGE
STANDARD & POOR'S 500
CENTURY SHARES TRUST STOCKS
--------------------------- ---------------------------
BUSINESS BUSINESS
TOTAL RETURN VALUE CHANGE* TOTAL RETURN VALUE CHANGE*
YEAR ENDED ONE YEAR FIVE YEARS ONE YEAR FIVE YEARS
------- ------------ ------------- ------------ -------------
1976 ........... 36.7% 11.2% 23.9% -
1977 ........... -2.1 10.5 -7.2 -
1978 ........... 9.9 15.1 6.6 -
1979 ........... 21.7 19.8 18.6 -
1980 ........... 6.4 21.4 32.5 -
1981 ........... 20.2 19.5 -4.9 -
1982 ........... 11.0 18.1 21.6 13.6%
1983 ........... 21.0 16.1 22.6 12.7
1984 ........... 15.5 13.9 6.3 11.8
1985 ........... 43.4 14.2 31.7 11.1
1986 ........... 9.6 17.0 18.7 10.5
1987 ........... -8.0 16.5 5.3 11.3
1988 ........... 15.7 16.7 16.6 12.2
1989 ........... 41.6 18.3 31.7 12.3
1990 ........... -7.8 17.2 -3.1 12.8
1991 ........... 31.5 15.9 30.5 12.8
1992 ........... 27.0 16.4 7.6 10.5
1993 ........... -0.4 16.6 10.1 9.3
1994 ........... -3.9 14.3 1.3 9.5
1995 ........... 35.2 18.9 37.6 11.2
1996 ........... 17.2 18.2 23.0 11.9
1997 ........... 50.1 19.4 33.4 15.5
22 YEARS ANNUALIZED 16.6 15.8
*Annual compound growth of book value per share plus dividends
We must point out that the Trust and the S&P 500 Stock Index are not
comparable. The Trust, by choice, is invested in a concentrated group of
companies; the Index is unmanaged and includes a wide range of industries.
Importantly, past results are no indicator or prediction of future results.
Managements change; economic conditions change. If inflation remains at
current levels for an extended period, growth rates for many industries may be
lower than they have been for the past twenty years. The summary results shown
must be considered in connection with full details and cautions shown on pages
8 and 9.
<PAGE>
CENTURY SHARES TRUST
One Liberty Square
Boston, Massachusetts 02109
617-482-3060 800-321-1928
SHAREHOLDER HOTLINE
800-303-1928
OFFICERS AND TRUSTEES
Allan W. Fulkerson, Trustee and Chairman
William O. Bailey, Trustee
John E. Beard, Trustee
William W. Dyer, Jr., Trustee
Ernest E. Monrad, Trustee
Richard F. Cook, Jr., Secretary
INVESTMENT ADVISER
Century Capital Management, Inc.
AUDITORS
Deloitte & Touche LLP
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Palmer & Dodge LLP
