-----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, UTZU0ZRG7YDuhTyRePFzwArc93hmYtHhi8TX2cVcedWnhcM8xNebJGdQajhz2kZy /SNM1Mc074jC5n6zDL93uA== 0000912057-97-002896.txt : 19970225 0000912057-97-002896.hdr.sgml : 19970225 ACCESSION NUMBER: 0000912057-97-002896 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970204 SROS: AMEX 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: 1940 Act SEC FILE NUMBER: 811-00179 FILM NUMBER: 97517102 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 N-30D CENTRAL SECURITIES CORPORATION ------ SIXTY-EIGHTH ANNUAL REPORT 1996 SIGNS OF THE TIMES "A fundamental rule in technology says that whatever CAN be done WILL be done. Consequently, once the PC brought a '10x' lower cost for a given performance, it was only a matter of time before its impact would spread through the entire computing world and transform it. This change didn't happen from one day to the next. It came gradually, as the graph below indicates with price/performance trends." Computer Economics: Cost Per MIPS (a Measure of Computing Power) BASED ON FULLY CONFIGURED SYSTEM PRICES FOR CURRENT YEAR - -------------------------------------------------------------------------------- [LOGO] SOURCE: INTEL - -------------------------------------------------------------------------------- (Andrew S. Grove, President and CEO, Intel Corporation, ONLY THE PARANOID SURVIVE.) ------------------------ "Yesterday, the Congressional Advisory Commission on the Consumer Price Index, which I chair, released its final report. My four eminent economist colleagues and I concluded that changes in the consumer price index currently overstate the change in the cost of living by about 1.1 percentage points per year. That is, if inflation as measured by the percentage change in the consumer price index is running 3%, the true change in the cost of living is about 2%. This bias might seem small. But when compounded over time, the implications are enormous. For example, over a dozen years, the cumulative additional national debt from over indexing the budget would amount to $1 trillion! Just the additional over indexing would be the fourth largest program in the federal budget, after only Social Security, health care, and defense." (Michael J. Boskin, Professor of Economics, Stanford University, THE WALL STREET JOURNAL, December 5, 1996.) [ 2 ] SIGNS OF THE TIMES "Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy." (Alan Greenspan, Chairman, Board of Governors of the Federal Reserve System, THE CHALLENGE OF CENTRAL BANKING IN A DEMOCRATIC SOCIETY, December 5, 1996.) ------------------------ "The political dynamic behind the Third Industrial Revolution is the spread of capitalism in response to the world-wide failure of communism, socialism and other central planning systems. This move to market-oriented, open economic systems has initiated a process that is putting 1.2 billion Third World workers into world-wide product and labor markets over the next generation. Over a billion of these workers currently earn less than $3 a day, while the approximately 250 million workers in the U.S. and the European Union currently earn roughly $85 a day. "With relatively modern technology, experience indicates that these Third World workers can produce from 85% to 100% of the output of their Western compatriots. The major shifts in the world product markets brought about by the 90 million workers in Hong Kong, Japan, Korea, Malaysia, Singapore and Taiwan in the past 30 years provide some insight into the even greater changes that are yet to take place in the West. "One can confidently forecast that the transition to open capitalist economies will generate great conflict over international trade as special interests try to insulate themselves from competition. The transition of established industrial economies will require a major redirection of Western labor and capital to activities where it has a comparative advantage." (Michael C. Jensen and Perry Fagan, THE WALL STREET JOURNAL, March 29, 1996.) ------------------------ "The difference in job growth between the U.S. and Europe is staggering. The European Union has one-third more people than the U.S. but in the 25 years ending with 1995, the EU added just 8.5 million jobs, or 6% of the work force. In the same period the U.S. increased its work force by more than 46 million, or 65%." (Peter Lynch, Vice Chairman, Fidelity Management & Research Co., THE WALL STREET JOURNAL, September 20, 1996.) [ 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- tions(B) Divi- declared from Convertible dends(B) long- term Net Preference declared from investment realized Unrealized Total Stock at Net Net net gains or investment appreciation net liquidation asset investment investment capital gains of Year assets preference value income(A) income surplus (losses) investments ----------- ---------- --------- ------------- ------------- ------------- ---------- ----------- 1986 $116,731,670 $10,230,075 $ 13.26 $32,538,800 1987 110,629,270 10,145,300 11.36 $ .17 $ .22 $ 1.55 $18,037,871 15,056,016 1988 118,930,727 10,072,150 11.77 .16 .16 .92 2,292,807 25,718,033 1989 129,376,703 10,034,925 12.24 .17 .35 .65* 661,161 38,661,339 1990 111,152,013 10,027,050 10.00 .17 .20 .50* (2,643,394) 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
- ------------------------------ A -Excluding gains or losses realized on sale of investments. 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 $.56 in 1989, $.47 in 1990 and $.11 in 1991. ------------------------------ The Preference and Common Stocks are listed on the American Stock Exchange. On December 31, 1996, the market quotations were as follows: Convertible Preference Stock, $2.00 Series D......... 70 bid, 80 asked Common Stock......................................... 24 1/2 high, 24 1/8 low and last sale
[ 4 ] TO THE STOCKHOLDERS OF CENTRAL SECURITIES CORPORATION: Financial statements for the year 1996, 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, 1996 1995 -------------- -------------- Net assets..................................................... $ 356,685,785 $ 292,547,559 Convertible Preference Stock at liquidation preference................................................... (9,102,050) (9,488,350) -------------- -------------- Net assets applicable to Common Stock.......................... $ 347,583,735 $ 283,059,209 -------------- -------------- -------------- -------------- Net asset coverage per share of Convertible Preference Stock............................................. $ 979.69 $ 770.81 Net assets per share of Common Stock........................... 25.64 21.74 Pro forma net assets per share, reflecting conversion of the Convertible Preference Stock.......................... 24.21 20.60 Shares of Convertible Preference Stock outstanding.............................................. 364,082 379,534 Shares of Common Stock outstanding......................... 13,555,021 13,018,389
Comparative operating results are as follows:
Year 1996 Year 1995 -------------- -------------- Net investment income.......................................... $ 4,252,357 $ 4,539,869 Number of times Preferred dividend earned.................. 5.6 5.9 Per share of Common Stock.................................. .27* .31* Net realized gain on sale of investments....................... 18,154,136 20,112,563 Increase in net unrealized appreciation of investments.................................................. 52,705,184 52,738,010 Increase in net assets resulting from operations................................................... 75,111,677 77,390,442
- ------------------------ * Per-share data are based on the average number of Common shares outstanding during the year and are after recognition of the dividend requirement on the Convertible Preference Stock. The Corporation made two distributions to holders of Common Stock in 1996, a cash dividend of $.20 per share paid on June 28 and an optional stock distribution of $1.45 per share or one share of Common Stock for each 16 shares held paid on December 27. The Corporation has been advised that of the $1.65 paid in 1996, $.28 represents ordinary income and $1.37 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 [ 5 ] distributions may vary. It is suggested that stockholders 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 488,432 Common shares were issued. As a result of the 1996 distributions to Common stockholders, the conversion rate of the Series D Preference Stock was increased to 3.241 in accordance with the provisions of the Certificate of Incorporation. During the year, 15,452 shares of Convertible Preference Stock were converted into 48,200 shares of Common Stock. The Corporation did not repurchase any of its Common or Preference Stock during 1996. However, it may from time to time purchase Common or Preference Stock in such amounts and at such prices as the Board of Directors may deem advisable in the best interests of stockholders. Equity investors had another good year in 1996. The stock market, as measured by the Standard and Poor's 500 (including dividend reinvestment), was up 23%. Smaller companies did somewhat less well, as investors concentrated their attention on large capitalization stocks. The S & P mid-cap 400 was up by 19%. From an economic point of view, the year was characterized by low inflation and moderate economic growth. As a result, ample liquidity was available for the financial markets. Long rates rose early in the year and declined somewhat in the fall, while short-term rates were basically unchanged for the year. Recently, rates have moved up on reports of accelerating growth in the final quarter. Last year I noted caution on the part of professional investors after a splendid 1995. Now, just one year later, the stock market has completed its best consecutive two years since 1976. Caution, however, still remains the "byword" among professionals, perhaps supporting agnosticism about market forecasting. The increase in Central's net assets last year was attributable primarily to the technology and financial sectors, each of which represent about 30% of the Corporation's net assets. Our energy stocks also performed well. Basic industrial companies, comprising about 20% of our net assets, had mixed results. It should be noted that many of our companies have diversified operations and do not neatly fit a specific category. Also, the value at which the investment in Plymouth Rock is carried was reduced by 10%. It is meeting tough price competition in Massachusetts, which, together with bad winter storms last year, has caused a substantial earnings decline. Plymouth Rock's diversified companies are operating satisfactorily. [ 6 ] Shown below are Central's ten largest investments, accounting for 59% of net assets.
December 31, 1996 --------------------- Year first Cost Value acquired --------- ---------- ----------- (millions) Intel Corp. (Microprocessors)............................................... $ 1.2 $ 39.3 1986 The Plymouth Rock Company (Insurance)..................................................... 2.2 31.5 1982 M.A. Hanna Company (Specialty Chemicals)........................................... 12.9 21.9 1992 The Bank of New York Company (Banking and Processing Services)............................... 8.1 20.3 1993 Analog Devices, Inc. (Semiconductors)................................................ 2.1 18.8 1987 Household International, Inc. (Consumer Finance and Credit Cards)............................. 4.8 18.5 1992 Murphy Oil Corporation (Oil and Gas)................................................... 10.3 16.7 1976 The Reynolds and Reynolds Company (Computer Software and Business Forms).......................... .8 16.3 1981 W.H. Brady Co. (Industrial Marking Systems).................................... 2.8 14.8 1984 Capital One Financial (Credit Cards).................................................. 5.1 11.7 1994
Central's investment objective is growth of capital. In pursuing this objective, we own a small number of growing businesses with good economic fundamentals and shareholder-oriented managements. Our focus is on companies with medium and small market capitalizations. Central uses a long-term approach in making investments, looking out three to five years. Over the past five years, portfolio turnover has averaged less than 15%. Our practice has been to keep a substantial portion of the Corporation's assets in a small number of situations, with the balance invested in a broad general market portfolio. We believe the risk associated with this approach can be reduced through intimate knowledge of our companies. We add new companies when we think we have found good opportunities. For example, we have bought growing companies' shares when they were temporarily depressed. We have, also, bought shares of companies benefiting from industry consolidations. Sales are made based on changes in business fundamentals, relative valuation, and portfolio balance considerations. Your management believes it can best serve shareholders by buying good businesses at sensible prices and holding for long periods, while the companies are performing well. Looking at the economic scene with a longer-term perspective, it is apparent that major industry consolidations are taking place in banking, defense, health care, power generation, transportation and telecommunications. Mergers are occurring on a relative scale not seen [ 7 ] since the beginning of this century. Corporations are "downsizing" and "outsourcing" to survive and prosper in a global competitive environment. Shareholder value has emerged as a concept with wide support among businessmen, and share repurchases are being made in record amounts. All this has not gone unnoticed by investors. Are they irrationally exuberant? Federal Reserve Chairman Greenspan has suggested the possibility. We do not know the answer. However, in the past two years, stock prices have moved well above their long- term trend. It would not be unprecedented for this to last should economic conditions continue to be favorable; but, even in that event, many economists believe investors should anticipate a lower rate of return. In our approach to investing, we do not attempt to forecast the stock market or interest rates. We look primarily at individual companies in the context of major industry or economic trends. The character and capability of management are very important in our analysis. Looking forward, we expect the stock market to fluctuate as it has in the past. However, we are confident that over the long term, given favorable economic conditions, we will be able to find interesting investment opportunities. Shareholders' inquiries are welcome. CENTRAL SECURITIES CORPORATION WILMOT H. KIDD, PRESIDENT 375 Park Avenue New York, N.Y. 10152 February 4, 1997 [ 8 ] PRINCIPAL PORTFOLIO CHANGES October 1 to December 31, 1996 (Common Stock unless specified otherwise)
Number of Shares ------------------------------------------- Held Purchased Sold December 31, 1996 ---------- ------------ ----------------- American Management Systems, Inc.............. 40,000 370,000 The DII Group, Inc............................ 50,000 250,000 GTE Corporation............................... 40,000 -- Morrison Knudsen Corporation.................. 300,000 300,000 Murphy Oil Corporation........................ 105,000 300,000 Petroleum Geo-Services ASA ADR................ 10,000 110,000 The Reynolds and Reynolds Company Class A..... 5,000 625,000 Santa Fe Energy Resources, Inc................ 220,000 -- Tidewater Inc................................. 30,000 50,000 Vesta Insurance Group, Inc.................... 10,000 170,000
[ 9 ] STATEMENT OF ASSETS AND LIABILITIES December 31, 1996 ASSETS: Investments: General portfolio securities at market value (cost $107,647,967) (Note 1)............ $288,599,746 Securities of affiliated companies (cost $4,367,061) (Notes 1, 5 and 6).......... 38,137,263 Short-term debt securities at cost plus accrued interest........................ 30,108,721 $356,845,730 ----------- Cash and receivables: Cash...................................... 147,903 Dividends receivable...................... 177,800 325,703 ----------- Office equipment and leasehold improvements, net......................................... 21,941 ----------- Total Assets.......................... 357,193,374 LIABILITIES: Payable for securities purchased.............. 232,380 Accrued expenses and reserves................. 275,209 ----------- Total Liabilities..................... 507,589 ----------- NET ASSETS........................................ $356,685,785 ----------- ----------- NET ASSETS are represented by: $2.00 Series D Convertible Preference Stock without par value at liquidation preference, $25.00 per share, authorized 750,000 shares; issued 364,082 (Note 2)..................... $ 9,102,050 Common Stock at par value, $1.00 per share, authorized 20,000,000 shares; issued 13,555,021 (Note 2)......................... 13,555,021 Surplus: Paid-in................................... $117,638,111 Undistributed net investment income....... 95,136 Undistributed net gain on sales of investments............................. 1,573,486 119,306,733 ----------- Net unrealized appreciation of investments.... 214,721,981 ----------- NET ASSETS........................................ $356,685,785 ----------- ----------- NET ASSET VALUE PER COMMON SHARE.................. $25.64 ----------- -----------
See accompanying notes to financial statements. [ 10 ] STATEMENT OF OPERATIONS For the year ended December 31, 1996 INVESTMENT INCOME Income: Cash dividends.................................. $3,884,564 Interest........................................ 2,004,180 Miscellaneous income............................ 136,735 $6,025,479 ---------- ---------- Expenses: Investment research............................. 406,477 Administration and operations................... 465,893 Employees' retirement plans..................... 82,530 Custodian fees.................................. 60,615 Franchise and miscellaneous taxes............... 100,374 Transfer agent's and registrar's fees and expenses...................................... 60,780 Rent and utilities.............................. 148,467 Listing, software and sundry fees............... 73,253 Legal, auditing and tax fees.................... 91,140 Stationery, supplies, printing and postage...... 50,515 Travel and telephone............................ 31,491 Directors' fees................................. 49,000 Insurance....................................... 81,709 Publications and miscellaneous.................. 70,878 1,773,122 ---------- ---------- Net investment income............................... 4,252,357 NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain from security transactions........ 18,154,136 Net increase in unrealized appreciation of investments......................................... 52,705,184 ---------- Net gain on investments......................... 70,859,320 ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................ $75,111,677 ---------- ----------
See accompanying notes to financial statements. [ 11 ] STATEMENTS OF CHANGES IN NET ASSETS For the years ended December 31, 1996 and December 31, 1995
1996 1995 -------------- -------------- FROM OPERATIONS: Net investment income........................................ $ 4,252,357 $ 4,539,869 Net realized gain on investments............................. 18,154,136 20,112,563 Net increase in unrealized appreciation of investments................................................ 52,705,184 52,738,010 -------------- -------------- Increase in net assets resulting from operations......... 75,111,677 77,390,442 -------------- -------------- DIVIDENDS TO STOCKHOLDERS FROM: Net investment income: Preference Stock......................................... (753,623) (771,139) Common Stock............................................. (3,643,403) (3,668,730) Net realized gain from investment transactions............... (17,907,647) (20,161,206) -------------- -------------- Decrease in net assets from distributions................ (22,304,673) (24,601,075) -------------- -------------- FROM CAPITAL SHARE TRANSACTIONS: (Note 2) Distribution to stockholders reinvested in Common Stock............................................... 11,331,622 13,119,148 Other capital transactions................................... (400) (100) -------------- -------------- Increase in net assets from capital share transactions... 11,331,222 13,119,048 -------------- -------------- Total increase in net assets......................... 64,138,226 65,908,415 NET ASSETS: Beginning of year............................................ 292,547,559 226,639,144 -------------- -------------- End of year.................................................. $ 356,685,785 $ 292,547,559 -------------- -------------- -------------- --------------
See accompanying notes to financial statements. [ 12 ] STATEMENT OF INVESTMENTS December 31, 1996 PORTFOLIO SECURITIES 91.6% (COMMON STOCKS UNLESS SPECIFIED OTHERWISE)
PRIN. AMT. MARKET OR SHARES VALUE - ------------- -------------- BANKING AND FINANCE 16.7% 600,000 The Bank of New York Company, Inc............... $ 20,250,000 325,000 Capital One Financial Corporation............... 11,700,000 200,000 Household International, Inc.................... 18,450,000 300,000 Signet Banking Corporation...................... 9,225,000 -------------- 59,625,000 -------------- BUILDING PRODUCTS 1.0% 100,000 USG Corporation(a).............................. 3,387,500 -------------- BUSINESS SERVICES 5.8% 50,000 Kelly Services Inc. Class A..................... 1,350,000 625,000 The Reynolds and Reynolds Company Class A....... 16,250,000 150,000 UniFirst Corporation............................ 3,187,500 -------------- 20,787,500 -------------- CHEMICALS 8.9% 1,000,000 Hanna (M. A.) Company........................... 21,875,000 230,000 Martin Color-Fi, Inc.(a)........................ 1,667,500 100,000 Rohm and Haas Company........................... 8,162,500 -------------- 31,705,000 -------------- COMMUNICATIONS 1.6% 93 IXC Communications Corporation 10% Cum. Pfd.(a)(b)........................... 93,110 440,000 Nextel Communications, Inc. Class A(a).......... 5,747,500 -------------- 5,840,610 -------------- COMPUTER SOFTWARE & SERVICES 3.2% 370,000 American Management Systems, Inc.(a)............ 9,065,000 181,130 Peerless Systems Corporation(a)(b)(c)........... 2,309,407 -------------- 11,374,407 --------------
[ 13 ]
PRIN. AMT. MARKET OR SHARES VALUE - ------------- -------------- CONSUMER PRODUCTS & SERVICES 2.4% 366,100 Church & Dwight Co., Inc........................ $ 8,374,538 -------------- ELECTRONICS 17.9% 555,000 Analog Devices, Inc.(a)......................... 18,800,625 250,000 The DII Group, Inc.(a).......................... 5,812,500 300,000 Intel Corporation............................... 39,281,250 -------------- 63,894,375 -------------- ENERGY 6.7% 300,000 Mercantile International Petroleum Inc.(a)...... 615,000 300,000 Murphy Oil Corporation(d)....................... 16,687,491 110,000 Petroleum Geo-Services ASA ADR(a)............... 4,290,000 Steuart Petroleum Company Warrant to Purchase Common Stock(a)(b)............................ 0 50,000 Tidewater Inc. ................................. 2,262,500 -------------- 23,854,991 -------------- HEALTH CARE 0.4% 100,000 MGI Pharma, Inc.(a)............................. 425,000 70,000 RKS Health Ventures Corporation(a)(b)(e)........ 700,000 15,950 RKS Health Ventures Corporation Series A Conv. Pfd.(a)(b)(e).................. 199,375 -------------- 1,324,375 -------------- INDUSTRIAL EQUIPMENT 6.0% 600,000 Brady (W.H.) Co. ............................... 14,775,000 280,000 Measurex Corporation............................ 6,720,000 -------------- 21,495,000 -------------- INSURANCE 15.0% 90,000 Allmerica Financial Corporation................. 3,015,000 50,000 Gallagher (Arthur J.) & Co. .................... 1,550,000 133,333 Mutual Risk Management Ltd...................... 4,933,321 70,000 The Plymouth Rock Company, Inc. Class A(b)(e)................................. 31,500,000 150,000 Provident Companies, Inc........................ 7,256,250 170,000 Vesta Insurance Group, Inc...................... 5,333,750 -------------- 53,588,321 -------------- LIMITED PARTNERSHIP 0.8% Grumman Hill Investments, L.P.(a)(b)............ 2,972,504 --------------
[ 14 ]
PRIN. AMT. MARKET OR SHARES VALUE - ------------- -------------- METALS AND MINING 2.7% 300,000 Cyprus Amax Minerals Company.................... $ 7,050,000 300,000 Morrison Knudsen Corporation(a)................. 2,700,000 -------------- 9,750,000 -------------- PUBLISHING 0.9% 100,000 Media General, Inc. ............................ 3,025,000 5,000 Southeast Publishing Ventures, Inc. Series A Pfd.(a)(b)(e)........................ 0 -------------- 3,025,000 -------------- TRANSPORTATION 1.6% 533,757 Transport Corporation of America, Inc. Class B(a)(e)....................................... 5,737,888 -------------- Total Portfolio Securities.............. 326,737,009 -------------- SHORT-TERM DEBT INVESTMENTS 8.4% $ 10,091,000 Chevron Corporation 5.45% due 1/21/97........... 10,112,379 8,975,000 Ford Motor Corporation 5.39%-5.62% due 1/13/97-1/27/97............................... 8,981,510 10,978,000 General Electric Capital Corp. 5.25% due 1/06/97....................................... 11,014,832 -------------- Total Short-Term Investments............ 30,108,721 -------------- Total Investments....................... 356,845,730 -------------- Liabilities, less cash, receivables and other assets.......................... (159,945) -------------- Net Assets--100%........................ $ 356,685,785 -------------- --------------
- ------------------------ (a) Non-dividend paying. (b) Valued at estimated fair value. (c) As a result of fractional adjustments, the actual number of shares received upon exercise of Warrants to purchase Common Stock of Peerless Systems Corporation was 47,876 shares rather than 47,878 shares as reported at September 30, 1996. (d) Value includes $1,853,571 attributable to 85,714 shares of Deltic Timber Corporation Common Stock to be received in a distribution from Murphy Oil Corporation effective January 2, 1997. (e) Affiliate as defined in the Investment Company Act of 1940. 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 on December 31, 1996 or, if unavailable, at the closing bid price. 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. These estimated values may not reflect amounts that could be realized upon immediate sale, nor amounts that ultimately may be realized. The estimated fair values, also, may differ from the amounts that would have been used had a liquid market existed for these securities, and such differences could be significant. 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. OTHER--Security transactions are accounted for on the date the securities are purchased or sold. Dividend income and distributions to stockholders are recorded on the ex-dividend date. 2. PREFERENCE STOCK AND COMMON STOCK--The Convertible Preference Stock is redeemable at the Corporation's option at $27.50 per share. Dividends are cumulative. Each share is convertible into 3.241 shares of Common Stock and 1,179,989 authorized but unissued Common shares have been reserved for issuance upon conversion. The Corporation issued 48,200 shares of Common Stock upon conversion of shares of Preference Stock in 1996. In the optional distribution paid on December 27, 1996, 488,432 Common shares were issued. The Corporation did not repurchase any of its Common or Preference Stock in 1996. However, it may from time to time purchase Common or Preference 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. 3. INVESTMENT TRANSACTIONS--The aggregate cost of securities purchased and the aggregate proceeds of securities sold during the year ended December 31, 1996, excluding short-term investments, were $32,699,658 and $28,275,559, respectively. As of December 31, 1996, based on cost for Federal income tax purposes, the aggregate gross unrealized appreciation and depreciation for all securities were $216,062,050 and $1,340,069, respectively. [ 16 ] 4. OPERATING EXPENSES--The aggregate remuneration paid during the year ended December 31, 1996 to officers and directors amounted to $798,970, of which $49,000 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, 1996 was $75,907. 5. AFFILIATES--The Plymouth Rock Company, Inc., RKS Health Ventures Corporation, Southeast Publishing Ventures, Inc. and Transport Corporation of America, Inc. are affiliates as defined in the Investment Company Act of 1940. The Corporation received a dividend of $371,700 from The Plymouth Rock Company, Inc. during the year ended December 31, 1996. Unrealized appreciation related to affiliates decreased by $3,900,318 for the year 1996. 6. RESTRICTED SECURITIES--The Corporation from time to time invests in securities the resale of which is restricted. On December 31, 1996 such investments had an aggregate value of $37,774,396, which was equal to 10.6% of the Corporation's net assets. Investments in restricted securities at December 31, 1996, including acquisition dates and cost, were: Grumman Hill Investments, L.P., 9/11/85, $537,052; IXC Communications, Inc., 3/15/96, $106; Peerless Systems Corporation, 12/21/92, $305,819; The Plymouth Rock Company, Inc., 12/15/82, $1,500,000 and 6/1/84, $699,986; RKS Health Ventures Corporation, 12/15/94, $700,000 and 7/13/95, $199,375; Southeast Publishing Ventures, Inc., 4/5/89, $5,200; and Steuart Petroleum Company, 6/8/93, $52,500. In general, the Corporation does not have the right to demand registration of the restricted securities. Unrealized appreciation related to restricted securities increased by $677,141 for the year 1996. ------------------- UNAUDITED QUARTERLY RESULTS OF OPERATIONS
Net Realized and Unrealized Net Investment Income* Gains on Investments ----------------------------- ------------------------------ Investment Per Common Per Common Income* Amount Share Amount Share ------------ ------------ --------------- ------------- --------------- 3 Mos. Ended 3/31/96............... $ 1,515,078 $ 1,113,445 $ .08 $ 17,398,356 $ 1.34 6/30/96............... 1,166,053 865,116 .07 12,588,365 .97 9/30/96............... 1,318,601 1,028,210 .08 14,748,612 1.13 12/31/96............... 1,272,124 491,963 .04 26,123,987 2.01
- ------------------------ * Net of dividends paid on the Convertible Preference Stock. [ 17 ] FINANCIAL HIGHLIGHTS
1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period............... $ 21.74 $ 17.60 $ 17.90 $ 14.33 $ 11.87 Net investment income.............................. .33 .37 .30 .21 .20 Net realized and unrealized gain on securities..... 5.28 5.76 1.08 5.03 3.20 --------- --------- --------- --------- --------- Total from investment operations............. 5.61 6.13 1.38 5.24 3.40 Less: Dividends from net investment income* To Preference Stockholders..................... .06 .06 .07 .07 .08 To Common Stockholders......................... .28 .33 .22 .18 .20 Distributions from capital gains* To Common Stockholders......................... 1.37 1.60 1.39 1.42 .66 --------- --------- --------- --------- --------- Total distributions.......................... 1.71 1.99 1.68 1.67 .94 --------- --------- --------- --------- --------- Net asset value, end of period..................... $ 25.64 $ 21.74 $ 17.60 $ 17.90 $ 14.33 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Per share market value, end of period.............. 24.13 20.88 15.75 15.50 11.63 TOTAL INVESTMENT RETURN (%)........................ 22.35 45.65 12.30 47.68 36.71 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period(000)..................... 356,686 292,548 226,639 218,868 165,600 Ratio of expenses to average net assets(%)......... .55 .62 .65 .77 .88 Ratio of net investment income to average net assets(%)........................................ 1.32 1.69 1.51 1.17 1.42 Portfolio turnover rate(%)......................... 9.89 8.27 11.73 15.14 18.56 Average commission rate paid ( CENTS per share).... 6.76 6.89 7.11
- ------------------------ * Computed on the basis of the Corporation's status as a "regulated investment company" for Federal income tax purposes. [ 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 and the statement of investments of Central Securities Corporation as of December 31, 1996, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period ended December 31, 1996. 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 generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996 by correspondence with the custodian and broker. 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, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the information set forth for each of the years in the ten-year and two-year periods ended December 31, 1996 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 PEAT MARWICK LLP New York, N. Y. January 27, 1997 [ 19 ] BOARD OF DIRECTORS DONALD G. CALDER DUDLEY D. JOHNSON Vice President President G. L. Ohrstrom & Co., Inc. Young & Franklin Inc. New York, N. Y. Liverpool, N. Y. JAY R. INGLIS WILMOT H. KIDD Executive Vice President President Holt Corporation New York, N. Y. C. CARTER WALKER, JR. Washington, CT GARDINER S. ROBINSON Director Emeritus
OFFICERS WILMOT H. KIDD, President CHARLES N. EDGERTON, Vice President and Treasurer KAREN E. RILEY, Secretary OFFICE 375 Park Avenue, New York, N. Y. 10152 212-688-3011 CUSTODIAN The Chase Manhattan Bank, N.A. 770 Broadway, New York, N. Y. 10003 TRANSFER AGENT AND REGISTRAR First Chicago Trust Company of New York P.O. Box 2500, Jersey City, N. J. 07303-2500 INDEPENDENT AUDITORS KPMG Peat Marwick LLP 345 Park Avenue, New York, N. Y. 10154
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