-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S860NNd35x/sriurULxvbf7us7mNrXfk4vzV6p9+oGW3ypBDAS4lVF8UkEY64nL0 SaDsFDhpq9wF4EC0zJSXsQ== 0000891092-01-000155.txt : 20010207 0000891092-01-000155.hdr.sgml : 20010207 ACCESSION NUMBER: 0000891092-01-000155 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010206 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL SECURITIES CORP CENTRAL INDEX KEY: 0000018748 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 131875970 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-00179 FILM NUMBER: 1525603 BUSINESS ADDRESS: STREET 1: 375 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10152 BUSINESS PHONE: 2126883011 MAIL ADDRESS: STREET 1: 375 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10152 FORMER COMPANY: FORMER CONFORMED NAME: TRANS CENTRAL SECURITIES CORP DATE OF NAME CHANGE: 19700722 FORMER COMPANY: FORMER CONFORMED NAME: BUERGER LADET & RADINSKY INC DATE OF NAME CHANGE: 19671026 N-30D 1 0001.txt ANNUAL REPORT ================================================================================ CENTRAL SECURITIES CORPORATION ---------- SEVENTY-SECOND ANNUAL REPORT 2000 ================================================================================ SIGNS OF THE TIMES "Wall Streeters talk a good game. The real challenge, however, is figuring out what they are saying. Below are some phrases often heard on Wall Street - and how you might interpret them." o "It's a dead-cat bounce": Believe me, there is no justification for this rally. o "We're near-term cautious but long-term optimistic": Don't blame us if the market tanks. o "Don't miss this compelling opportunity": I need the commission. o "The market climbs a wall of worry": Sure, it is tough to be blase about rising oil prices, climbing interest rates and Middle East tensions. But I really, really need the commission. o "Focus on total return": Please, please, please don't notice the fund's outrageously high expenses. o "It's cheap on a relative basis": It is pretty darn expensive, but other folks own stuff that is even more ridiculously priced. o "We buy growth at a reasonable price": We're holding our noses and paying up for some pretty expensive stocks. o "The stock's oversold": We never imagined the shares could fall this far. o "Nobody ever went broke taking profits": We bought the stock at $16, sold it at $32, and two weeks later it hit $114. o "We've researched this company thoroughly": Here's what we heard from the company's vice president of investor relations. o "We're fundamental investors": We listen to the chief executive's sales pitch. o "We're technical investors": We skip the sales pitch and pull out the Ouija board. o "We buy companies, not pieces of paper": I majored in philosophy. o "The company has solid fundamentals": It is a shame the shares are so absurdly overvalued. o "It's a New Economy stock": Don't even bother asking about earnings. o "We rate the stock a strong buy": We need the company's investment-banking business. o "We consider the stock attractive long-term": The next year is going to be rough. (Jonathan Clements, The Wall Street Journal, November 14, 2000.) [2] SIGNS OF THE TIMES "We don't fully subscribe to the bald statement that confidence in this country's economy can be lost in a day. There are tangible assets that are not easily wiped out-the soil, the climate, the industrial vigor, the immense spirit of a people who won freedom through revolutionary zeal and are still willing to work at it. And there are intangibles that give the economy fertility and vitality. The stock market, which is a sort of horse track without the horses, does not deserve its wide reputation as a barometer. It sometimes sows the hurricane, instead of reporting the breeze. It is naturally flighty, because traders are noncreative people who rely for their security on the creativeness of others and who are therefore uneasy... But what the market does symbolize, in its nervous way, is the health-giving flexibility of capitalism the trait that keeps our economy delicately balanced but that makes it a far better servant of the people than the state-driven economies that have hardly any elasticity at all. The other day, in San Diego, the American economy even adjusted to springtime: work was halted on a seven-million-dollar building project to give a dove time to hatch her eggs. Our confidence in a society that observes this sentimental ritual and practices this fiscal folly cannot be toppled in a day. To talk of peace is not enough; we must hatch the egg of the dove." (E. B. White, "Stock Market Zigzags," The New Yorker, March 26, 1955.) ---------- "The federal anti-drug budget in 1980 was roughly $1 billion. By 2000, that number had climbed to nearly $20 billion, with the states spending at least that much. Yet according to the federal government's own research, drugs are cheaper, purer and more readily available than ever before. As a nation we now have nearly half a million people behind bars on drug charges, more than the total prison population in all of Western Europe. ...Nearly 70 million Americans have smoked marijuana, which remains the third-most popular recreational drug in the country after tobacco and alcohol. Deaths attributable to marijuana are very rare. In fact, deaths from all illegal drugs combined, including cocaine and heroin, are fewer than 20,000 annually. By contrast, more than 450,000 Americans die each year from tobacco or alcohol use (not counting drunk-driving fatalities).... Perhaps the most pernicious aspect of the drug war, in fact, is the crime and violence that drug prohibition generates." Without achieving anything like the goal of a drug-free America, our policies have empowered a lethal black market, complete with international armies of latterday Al Capones. Their warfare against each other and against law enforcement will not be stopped until the public takes the regulation and control of their commodity away from them. (Gary E. Johnson, governor of New Mexico "Another Prohibition, Another Failure," The New York Times, December 30, 2000.) [3] CENTRAL SECURITIES CORPORATION (Organized on October 1, 1929 as an investment company, registered as such with the Securities and Exchange Commission under the provisions of the Investment Company Act of 1940.) TEN YEAR HISTORICAL DATA
Per Share of Common Stock ----------------------------------------------------- Distribu- Convertible Divi- tions(B) Preference dends(B) from Total Stock at Net Net from net long-term Net realized Unrealized net liquidation asset investment investment investment investment appreciation Year assets preference value income(A) income gains gains of investments - ---- ------ ---------- ----- --------- ------ ----- ----- -------------- 1990 $111,152,013 $10,027,050 $ 10.00 $ 25,940,819 1991 131,639,511 10,022,100 11.87 $ .14 $ .14 $ .56* $ 7,321,233 43,465,583 1992 165,599,864 10,019,000 14.33 .12 .20 .66 8,304,369 70,586,429 1993 218,868,360 9,960,900 17.90 .14 .18 1.42 16,407,909 111,304,454 1994 226,639,144 9,687,575 17.60 .23 .22 1.39 16,339,601 109,278,788 1995 292,547,559 9,488,350 21.74 .31 .33 1.60 20,112,563 162,016,798 1996 356,685,785 9,102,050 25.64 .27 .28 1.37 18,154,136 214,721,981 1997 434,423,053 9,040,850 29.97 .24 .34 2.08 30,133,125 273,760,444 1998 476,463,575 8,986,125 31.43 .29 .29 1.65 22,908,091 301,750,135 1999 590,655,679 -- 35.05 .26 .26 2.34 43,205,449 394,282,360 2000 596,289,086 -- 32.94 .32 .32 4.03 65,921,671 363,263,634
- ---------- A -Excluding gains or losses realized on sale of investments and the dividend requirement on the Convertible Preference Stock which was redeemed August 1, 1999. B -Computed on the basis of the Corporation's status as a "regulated investment company" for Federal income tax purposes. * Includes a non-taxable return of capital of $.11. The Common Stock is listed on the American Stock Exchange. On December 29, 2000 (the last trading day of the year), the market quotations were as follows: Common Stock..................... $27.69 low, $28.25 high and last sale [4] To the Stockholders of CENTRAL SECURITIES CORPORATION: Financial statements for the year 2000, as reported upon by our independent auditors, and other pertinent information are submitted herewith. Comparative market values of net assets are as follows: December 31, December 31, 2000 1999 ---- ---- Net assets ................................... $596,289,086 $590,655,679 Net assets per share of Common Stock ......... 32.94 35.05 Shares of Common Stock outstanding ....... 18,103,346 16,850,745 Comparative operating results are as follows: Year 2000 Year 1999 --------- --------- Net investment income ........................ $5,399,641 $4,517,918 Per share of Common Stock ................ .32* .26* Net realized gain on sale of investments ..... 65,921,671 43,205,449 Increase (decrease) in net unrealized appreciation of investments .............. (31,018,726) 92,532,225 Increase in net assets resulting from operations ............................... 40,302,586 140,255,592 Total return per share based on net asset value .................................... 7.0% 31.8% - ---------- * Per-share data are based on the average number of Common shares outstanding during the year and in 1999 are after recognition of the dividend requirement on the Convertible Preference Stock. The Corporation made two distributions to holders of Common Stock in 2000, a cash dividend of $.50 per share paid on June 23 and an optional distribution of $3.85 per share in cash, or one share of Common Stock for each 8 shares held, paid on December 27. The Corporation has been advised that of the $4.35 paid in 2000, $.32 represents ordinary income and the balance of $4.03 represents long-term capital gains. For Federal income tax purposes, separate notices have been mailed to stockholders. With respect to state and local taxes, the status of distributions may vary. Stockholders should consult with their tax advisors on this matter. In the optional distribution paid in December, the holders of 60% of the outstanding shares of Common Stock elected to receive stock, and 1,269,149 Common shares were issued. [5] During 2000 the Corporation repurchased 16,548 shares of its Common Stock at an average price per share of $29.41. These shares were purchased on the American Stock Exchange or in private transactions with stockholders. The Corporation may from time to time purchase Common Stock in such amounts and at such prices as the Board of Directors may deem advisable in the best interests of stockholders. ---------- Last year for the first time in a decade the stock market as measured by the S&P Composite declined by 9.1%. To put this decline in perspective: over the past ten years the Composite has increased by 400% or at an annual rate of 17.5%. The mania, or "bubble", about which we spoke in last year's annual report began to deflate in the late spring. By year end many internet stocks had collapsed. The Dow Jones Internet Index declined by 66%. With hindsight it appears that a confluence of events, as opposed to any one in particular, precipitated an economic slowdown and accompanying stock market correction. In February, March and May, the Federal Reserve raised interest rates while allowing credit to tighten. A number of new companies, many in the telecommunications industry, found themselves unable to borrow either from banks or in the high yield debt markets to fund their expansion plans. Oil prices surged and, because energy demand is inelastic in the short run, the price increase reduced consumer purchasing power. In addition, the U.S. presidential election created an uncertain environment at year end. Taken together, these events hurt consumer and business confidence, and spending in both areas slowed. On January 3 the Federal Reserve responded with a large fifty basis-point interest rate cut, clearly indicating its concern about the economy. As we begin the new year, economists are reducing forecasts for growth and a debate is developing about whether the country is heading into a recession. Indeed, some observers assert that one began in October. Were the U.S. to experience two successive quarters of economic contraction, which is generally considered a business recession, it would not be surprising. After all, the current business expansion began ten years ago and has been accompanied by an investment boom since 1997. Perhaps the most noteworthy aspect of Central's operations last year is not the amount of investment change but rather the lack thereof. Seven of our ten largest holdings (see page 9) remain the same. During the year the DII Group merged with Flextronics International, Ltd. and we sold Watkins-Johnson for cash when it was acquired in a buyout. In addition, we reduced our investments in Analog and Intel, while adding to our holdings of American Management Systems, Unisys and Impath. We are particularly pleased with the Flextronics deal because we had believed The DII Group needed more size to compete effectively. We continue to believe electronic manufacturing services outsourcing offers excellent growth potential and Flextronics is clearly one of the industry leaders. Unisys Corporation is primarily an information technology services company. Larry Weinbach, the former chief executive of Andersen [6] Worldwide, assumed leadership in September 1997. Over the past three years he has improved the company's financial position and reorganized its operations, emphasizing systems integration, outsourcing, and network services. Impath is a specialized clinical laboratory providing patient-specific information to physicians for the treatment of cancer. In addition, and perhaps more importantly, it provides services for drug discovery and clinical development to major pharmaceutical companies such as Bristol-Myers and GlaxoSmithKline. With the growth of the mutual fund industry in the 1990's has come a plethora of new, specialized funds, many of which are differentiated by investment style. It is interesting to compare growth and value styles because the dichotomy may be somewhat misleading. The Frank Russell Company produces a family of U.S. equity indexes, all of which are subsets of the Russell 3000 Index which represents approximately 98% of the investable U.S. equity market. Its growth indexes include companies with higher price-to-book ratios and higher forecasted growth values, and its value indexes include companies with lower price-to-book ratios and lower forecasted growth values. Last year the Russell 3000 Value Index increased by 8.0% while the Russell 3000 Growth Index decreased by 22.4%. In 1999, however, it was quite different. The Growth Index increased by 33.8% compared with a modest 6.7% increase for the Value Index. Interestingly, over the past two years, based on the above percentages, the Value Index is up 15.2% compared with 3.8% for the Growth Index. Over the last ten years the comparison is much closer. The annual compound percentage increase for the Value Index is 17.3%, only slightly more than the 16.9% return for the Growth Index. We are often asked if Central is a "growth" investor or a "value" investor. We respond that we are the latter but qualify our response to say that in our experience, growth has been the most significant component in the value equation. In essence, growth and value are not mutually exclusive. Every business is worth the present value of its future cash flows. Each new investment should be viewed as a value proposition. The practical question is, "How much growth is already in the price?" It is the unappreciated or unanticipated growth that provides above average returns to investors. The stock market has some of the characteristics of pari-mutuel betting. If a horse is everyone's favorite, the odds are such that the payoff is low. John Maynard Keynes, the noted economist, said, "My central principle of investment is to go contrary to general opinion, on the ground that, if everyone is agreed about its merits, the investment is inevitably too dear and therefore unattractive." Your management's job is capital allocation. We try to anticipate change and be in the right place at the right time. When searching for new investments, we look for companies which have good economic fundamentals and the capacity for growth, which can be purchased at a reasonable price. The ability and integrity of the management of companies in which we invest are very important considerations. We look especially for alignment of the interests of management and shareholders. Our practice has been to keep half our assets [7] in a small number of companies. We believe the risk associated with this approach can be reduced through intimate knowledge of the companies in which we invest. It is our goal to provide shareholders with investment management that will be judged as excellent over the long term. We are confident that under reasonably favorable economic conditions, we will continue to find good opportunities. I would like to take this opportunity to commend Karen Riley for her fifteen years of faithful and dedicated service to Central Securities as Secretary of the Corporation. We wish her well in the years ahead as she pursues new endeavors. Stockholders' inquiries are welcome. CENTRAL SECURITIES CORPORATION WILMOT H. KIDD, President 375 Park Avenue New York, NY 10152 January 24, 2001 [8] Central's Ten Largest Investments December 31, 2000 ----------------- % of Year First Cost Value Net Assets Acquired ---- ----- ---------- -------- (millions) Flextronics International Ltd. ...... $4.9 $41.3 6.9% 1996 The Plymouth Rock Company, Inc. ..... 2.2 40.5 6.8 1982 Capital One Financial Corporation ... 3.0 39.5 6.6 1994 Analog Devices, Inc. ................ 1.0 39.4 6.6 1989 Intel Corporation ................... 0.6 39.3 6.6 1986 The Bank of New York Company, Inc. .. 4.0 33.1 5.6 1993 Convergys Corporation ............... 12.6 30.8 5.2 1998 American Management Systems, Incorporated ..................... 20.8 29.7 5.0 1984 Unisys Corporation .................. 33.7 27.1 4.5 1999 Impath Inc. ......................... 4.9 26.6 4.5 1999 PRINCIPAL PORTFOLIO CHANGES October 1 to December 31, 2000 (Common Stock unless specified otherwise)
Number of Shares ---------------------------------------- Held Purchased Sold December 31, 2000 --------- ---- ----------------- American Management Systems, Incorporated. ... 280,000 1,500,000 American Power Conversion Corporation ........ 200,000 200,000 Analog Devices, Inc. ......................... 20,000 770,000 ArvinMeritor, Inc. ........................... 7,500 510,000 Flextronics International Ltd. ............... 725,000(a) 1,450,000 Impath Inc. .................................. 50,000 400,000 Kerr-McGee Corporation ....................... 70,000 -- MSC Industrial Direct Co., Inc. Class A ...... 70,000 70,000 PolyOne Corporation .......................... 500,000 1,600,000 Steuart Petroleum Company-- warrant .......... 1(b) -- Unisys Corporation ........................... 145,000 1,855,000
- ---------- (a) Stock split. (b) Warrant expired. [9] STATEMENT OF ASSETS AND LIABILITIES December 31, 2000
ASSETS: Investments: General portfolio securities at market value (cost $188,533,707) (Note 1) ........................... $512,464,640 Securities of affiliated companies (cost $3,462,486) (Notes 1, 5 and 6) ..................................... 42,795,187 Short-term investments (cost $41,809,789) ................ 41,809,789 $597,069,616 ------------ Cash, receivables and other assets: Cash ..................................................... 47,919 Dividends receivable ..................................... 178,575 Prepaid expenses ......................................... 48,235 Office equipment, net .................................... 26,523 301,252 ------------ ------------ Total Assets ......................................... 597,370,868 LIABILITIES: Payable for securities purchased ............................. 692,987 Accrued expenses and reserves ................................ 388,795 ------------ Total Liabilities .................................... 1,081,782 ------------ NET ASSETS ....................................................... $596,289,086 ============ NET ASSETS are represented by: Common Stock at par value, $1.00 per share, authorized 30,000,000 shares; issued 18,329,242 (Note 2) .............. $ 18,329,242 Surplus: Paid-in .................................................. $215,043,933 Undistributed net gain on sales of investments ........... 5,480,488 Undistributed net investment income ...................... 107,057 220,631,478 ------------ Net unrealized appreciation of investments ................... 363,263,634 Treasury stock, at cost (225,896 shares of Common Stock) (Note 2) ................................................... (5,935,268) ------------ NET ASSETS ....................................................... $596,289,086 ============ NET ASSET VALUE PER COMMON SHARE ................................. $32.94 ======
See accompanying notes to financial statements. [10] STATEMENT OF OPERATIONS For the year ended December 31, 2000 INVESTMENT INCOME Income: Dividends ....................................... $ 4,234,862 Interest ........................................ 3,603,658 Miscellaneous income ............................ 1,157 $7,839,677 ------------ Expenses: Investment research ............................. 733,425 Administration and operations ................... 733,317 Rent and utilities .............................. 175,798 Franchise and miscellaneous taxes ............... 118,106 Employees' retirement plans ..................... 109,341 Legal, auditing and tax fees .................... 98,077 Listing, software and sundry fees ............... 87,249 Directors' fees ................................. 84,000 Insurance ....................................... 78,152 Stationery, supplies, printing and postage ...... 46,599 Transfer agent and registrar fees and expenses .. 34,486 Travel and telephone ............................ 31,968 Custodian fees .................................. 30,233 Publications and miscellaneous .................. 79,285 2,440,036 ------------ ----------- Net investment income ............................... 5,399,641 NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain from security transactions ........ 65,921,671 Net decrease in unrealized appreciation of investments ....................................... (31,018,726) ------------ Net gain on investments ......................... 34,902,945 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................ $40,302,586 =========== See accompanying notes to financial statements. [11] STATEMENTS OF CHANGES IN NET ASSETS For the years ended December 31, 2000 and 1999
2000 1999 ---- ---- FROM OPERATIONS: Net investment income ............................................. $ 5,399,641 $ 4,517,918 Net realized gain on investments .................................. 65,921,671 43,205,449 Net increase (decrease) in unrealized appreciation of investments . (31,018,726) 92,532,225 ------------- ------------- Increase in net assets resulting from operations .............. 40,302,586 140,255,592 ------------- ------------- DIVIDENDS TO STOCKHOLDERS FROM: Net investment income: Preference Stock .............................................. -- (538,855) Common Stock .................................................. (5,402,497) (3,982,045) Net realized gain from investment transactions .................... (67,869,760) (37,367,455) ------------- ------------- Decrease in net assets from distributions ..................... (73,272,257) (41,888,355) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS: (Note 2) Distribution to stockholders reinvested in Common Stock ........... 39,089,789 20,643,984 Cost of shares of Common Stock repurchased ........................ (486,711) (4,683,567) Conversion: Preference Stock prior to redemption ........................... -- (8,867,550) Into Common Stock .............................................. -- 8,867,550 Other capital transactions ........................................ -- (135,550) ------------- ------------- Increase in net assets from capital share transactions ........ 38,603,078 15,824,867 ------------- ------------- Total increase in net assets .............................. 5,633,407 114,192,104 NET ASSETS: Beginning of year ................................................. 590,655,679 476,463,575 ------------- ------------- End of year (including undistributed net investment income of $107,057 and $107,021, respectively) ......................... $ 596,289,086 $ 590,655,679 ============= =============
See accompanying notes to financial statements. [12] STATEMENT OF INVESTMENTS December 31, 2000 PORTFOLIO SECURITIES 93.1% STOCKS (COMMON UNLESS SPECIFIED OTHERWISE) Prin. Amt. Market or Shares Value ---------- ------ Banking and Finance 17.5% 600,000 The Bank of New York Company, Inc. ........... $ 33,112,500 600,000 Capital One Financial Corporation ............ 39,487,500 300,000 First Union Corporation ...................... 8,343,750 430,000 Household International, Inc. ................ 23,650,000 ------------ 104,593,750 ------------ Business Services 1.4% 160,000 Gartner Group, Inc. Class A(a) ............... 1,104,000 70,000 MSC Industrial Direct Co., Inc. Class A(a) ... 1,264,375 160,000 ProBusiness Services, Inc.(a) ................ 4,250,000 170,000 UniFirst Corporation ......................... 1,742,500 ------------ 8,360,875 ------------ Chemicals 3.4% 1,600,000 PolyOne Corporation(d) ....................... 9,400,000 300,000 Rohm and Haas Company ........................ 10,893,750 ------------ 20,293,750 ------------ Computer Software & Services 17.7% 1,500,000 American Management Systems, Incorporated(a) . 29,718,750 200,000 Cabletron Systems, Inc.(a) ................... 3,012,500 680,000 Convergys Corporation(a) ..................... 30,812,500 395,000 Peerless Systems Corporation(a) .............. 382,656 310,000 SunGard Data Systems Inc. (a) ................ 14,608,750 1,855,000 Unisys Corporation(a) ........................ 27,129,375 ------------ 105,664,531 ------------ Data Processing 1.7% 500,000 The Reynolds and Reynolds Company Class A .... 10,125,000 ------------ Electronics 23.1% 200,000 American Power Conversion Corporation(a) ..... 2,475,000 770,000 Analog Devices, Inc.(a) ...................... 39,414,375 450,000 Arrow Electronics, Inc.(a) ................... 12,881,250 1,450,000 Flextronics International Ltd.(a) ............ 41,325,000 1,300,000 Intel Corporation ............................ 39,325,000 100,000 Motorola, Inc. ............................... 2,025,000 ------------ 137,445,625 ------------ [13] Prin. Amt. Market or Shares Value - ---------- ------- Energy 3.0% 300,000 Murphy Oil Corporation ....................... $ 18,131,250 ------------ Engineering and Construction 1.0% 700,000 Washington Group International, Inc.(a)(e) ... 5,731,250 ------------ Health Care 4.5% 400,000 Impath Inc.(a) ............................... 26,600,000 ------------ Household Products 1.7% 450,000 Church & Dwight Co., Inc. .................... 10,012,500 ------------ Insurance 9.1% 240,000 Mutual Risk Management Ltd. .................. 3,645,000 70,000 The Plymouth Rock Company, Inc. Class A(b)(c) ............................. 40,460,000 20,000 The Progressive Corporation .................. 2,072,500 290,600 UnumProvident Corporation .................... 7,809,875 ------------ 53,987,375 ------------ Manufacturing 4.2% 510,000 ArvinMeritor, Inc. ........................... 5,801,250 570,000 Brady Corporation Class A .................... 19,273,125 ------------ 25,074,375 ------------ Telecommunications 4.4% 900,000 Broadwing Inc.(a) ............................ 20,531,250 240,000 Nextel Communications, Inc. Class A(a) ....... 5,940,000 ------------ 26,471,250 ------------ Transportation 0.4% 533,757 Transport Corporation of America, Inc. Class B(a)(b) ............................. 2,335,187 ------------ Miscellaneous 0.0% Grumman Hill Investments, L.P.(a)(c) ......... 433,109 ------------ Total Portfolio Securities (cost $191,996,193) .................... 555,259,827 ------------ [14] Prin. Amt. Market or Shares Value - -------- ----- SHORT-TERM INVESTMENTS 7.0% $15,881,000 American Express Credit Corp. 6.439% due 1/17/01 ................................ $ 15,836,391 9,861,000 Ford Motor Credit Corp. 6.562% due 1/3/01 ................................. 9,857,472 1,452,000 General Electric Capital Corp. 6.488% due 1/10/01 ................................ 1,449,688 8,936,000 General Motors Acceptance Corp. 6.484% - 6.562% due 1/10/01 ................ 8,921,638 5,768,000 Prudential Funding Corp. 6.470% due 1/24/01 ................................ 5,744,600 ------------ Total Short-Term Investments (cost $41,809,789) ..................... 41,809,789 ------------ Total Investments (cost $233,805,982) (100.1%) ............................... 597,069,616 ------------ Liabilities, less cash, receivables and other assets (0.1%) .................... (780,530) ------------ Net Assets (100%) ........................ $596,289,086 ============ - ---------- (a) Non-dividend paying. (b) Affiliate as defined in the Investment Company Act of 1940. (c) Valued at estimated fair value. (d) Formerly known as M. A. Hanna Company. (e) Formerly known as Morrison Knudsen Corporation. See accompanying notes to financial statements. [15] NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies -- The Corporation is registered under the Investment Company Act of 1940, as amended, as a non-diversified, closed-end management investment company. The following is a summary of the significant accounting policies consistently followed by the Corporation in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. Security Valuation -- Securities are valued at the last sale price or, if unavailable, at the closing bid price. Corporate discount notes are valued at amortized cost, which approximates market value. Securities for which no ready market exists, including The Plymouth Rock Company, Inc. Class A Common Stock, are valued at estimated fair value by the Board of Directors. Federal Income Taxes -- It is the Corporation's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its stockholders. Therefore, no Federal income taxes have been accrued. Use of Estimates -- The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results may differ from those estimates. Other -- Security transactions are accounted for on the date the securities are purchased or sold, and cost of securities sold is determined by specific identification. Dividend income and distributions to stockholders are recorded on the ex-dividend date. 2. Preference Stock and Common Stock -- The Corporation repurchased 16,548 shares of its Common Stock in 2000 at an average price of $29.41 per share representing an average discount from net asset value of 15.2%. It may from time to time purchase Common Stock in such amounts and at such prices as the Board of Directors may deem advisable in the best interests of the stockholders. Purchases will only be made at less than net asset value per share, thereby increasing the net asset value of shares held by the remaining stockholders. Shares so acquired may be held as treasury stock, available for optional stock distributions, or may be retired. The Corporation made two distributions to holders of Common Stock in 2000, a cash dividend of $.50 per share paid on June 23 and an optional distribution of $3.85 per share in cash, or one share of Common Stock for each 8 shares held, paid on December 27. In the optional distribution, 1,269,149 Common shares were issued. The Corporation redeemed its outstanding Preference Stock on August 1, 1999. Pursuant to its fundamental policy regarding the issuance of senior securities, the Corporation may issue senior securities in the future when and if, in the judgment of its directors, such action is deemed advisable. 3. Investment Transactions -- The aggregate cost of securities purchased and the aggregate proceeds of securities sold during the year ended December 31, 2000, excluding short-term investments, were $81,134,667 and $118,119,953, respectively. As of December 31, 2000, based on cost for Federal income tax purposes, the aggregate gross unrealized appreciation and depreciation for all securities were $382,992,078 and $19,728,444, respectively. [16] NOTES TO FINANCIAL STATEMENTS -- continued 4. Operating Expenses -- The aggregate remuneration paid during the year ended December 31, 2000 to officers and directors amounted to $1,368,600, of which $84,000 was paid as fees to directors who were not officers. Benefits to employees are provided through a profit sharing retirement plan. Contributions to the plan are made at the discretion of the Board of Directors, and each participant's benefits vest after three years. The amount contributed for the year ended December 31, 2000 was $96,331. 5. Affiliates -- The Plymouth Rock Company, Inc., and Transport Corporation of America, Inc. are affiliates as defined in the Investment Company Act of 1940. The Corporation received dividends of $204,400 from affiliates during the year ended December 31, 2000. The Corporation realized gains of $6,545,826 from the sale of affiliates for the year ended December 31, 2000. Unrealized appreciation related to affiliates increased by $1,996,584 for the year 2000 to $39,332,701. 6. Restricted Securities -- The Corporation from time to time invests in securities the resale of which is restricted. On December 31, 2000 such investments had an aggregate value of $41,812,476, which was equal to 7.0% of the Corporation's net assets. Investments in restricted securities at December 31, 2000, including acquisition dates and cost, were:
Company Shares Security Date Purchased Cost - ------------------------------ -------- ------------------ -------------- ---------- Broadwing Inc. 40,301 Common Stock 11/24/99 $ 3 Grumman Hill Investments, L.P. Limited Partnership 9/11/85 33,975 Interest The Plymouth Rock Company, Inc. 70,000 Class A Common 12/15/82 1,500,000 Stock 6/09/84 699,986
In general, the Corporation does not have the right to demand registration of the restricted securities. The Corporation incurred realized losses on the sale of restricted securities of $150,278 for the year ended December 31, 2000. Unrealized appreciation related to restricted securities increased by $5,655,473 for the year ended December, 31, 2000 to $39,578,512. [17] FINANCIAL HIGHLIGHTS
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of year ..................... $ 35.05 $ 31.43 $ 29.97 $ 25.64 $ 21.74 Net investment income .................................. .32 .30 .34 .29 .33 Net realized and unrealized gain on securities ......... 1.92 5.96 3.11 6.51 5.28 -------- -------- -------- -------- -------- Total from investment operations ................. 2.24 6.26 3.45 6.80 5.61 Less: Dividends from net investment income* To Preference Stockholders ......................... -- .04 .05 .05 .06 To Common Stockholders ............................. .32 .26 .29 .34 .28 Distributions from capital gains* To Common Stockholders ............................. 4.03 2.34 1.65 2.08 1.37 -------- -------- -------- -------- -------- Total distributions .............................. 4.35 2.64 1.99 2.47 1.71 -------- -------- -------- -------- -------- Net asset value, end of year ........................... $ 32.94 $ 35.05 $ 31.43 $ 29.97 $ 25.64 ======== ======== ======== ======== ======== Per share market value, end of year .................... $ 28.25 $ 27.25 $ 24.38 $ 29.69 $ 24.13 Total return based on market(%) ........................ 17.75 22.96 (11.57) 35.60 22.35 Total return based on NAV(%) ........................... 7.02 31.79 13.75 26.08 25.97 Ratios/Supplemental Data: Net assets, end of year(000) ........................... $596,289 $590,656 $476,464 $434,423 $356,686 Ratio of expenses to average net assets for Common(%) ........................................ .38 .45 .51 .54 .57 Ratio of net investment income to average net assets for Common(%) ............................. .83 .89 1.09 .99 1.36 Portfolio turnover rate(%) ............................. 13.54 12.06 6.21 10.92 9.89
- ---------- * Computed on the basis of the Corporation's status as a "regulated investment company" for Federal income tax purposes. See accompanying notes to financial statements. [18] - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF CENTRAL SECURITIES CORPORATION We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Central Securities Corporation as of December 31, 2000, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Corporation'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 auditing standards generally accepted in the United States of America. Those standards 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2000 by correspondence with the custodian. As to securities purchased but not yet received we performed alternative auditing procedures. 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, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Central Securities Corporation as of December 31, 2000, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the information set forth for each of the years in the ten-year and two-year periods ended December 31, 2000 in the tables appearing on pages 4 and 5 is fairly stated in all material respects in relation to the financial statements from which it has been derived. KPMG LLP New York, NY January 24, 2001 - -------------------------------------------------------------------------------- [19] BOARD OF DIRECTORS DONALD G. CALDER DUDLEY D. JOHNSON President President G. L. Ohrstrom & Co., Inc. Young & Franklin Inc. New York, NY Liverpool, NY JAY R. INGLIS WILMOT H. KIDD Executive Vice President President Holt Corporation New York, NY C. CARTER WALKER, JR. Washington, CT OFFICERS WILMOT H. KIDD, President CHARLES N. EDGERTON, Vice President and Treasurer MARLENE A. KRUMHOLZ, Secretary OFFICE 375 Park Avenue, New York, NY 10152 212-688-3011 www.centralsecurities.com CUSTODIAN UMB Bank, N. A. P.O. Box 419226, Kansas City, MO 64141-6226 TRANSFER AGENT AND REGISTRAR EquiServe, First Chicago Trust Division P.O. Box 2500, Jersey City, NJ 07303-2500 INDEPENDENT AUDITORS KPMG LLP 767 Third Avenue, New York, NY 10017 [20] -----END PRIVACY-ENHANCED MESSAGE-----