CENTRAL SECURITIES CORPORATION
-----------
SIXTY-SEVENTH ANNUAL REPORT
1995
<PAGE>
SIGNS OF THE TIMES
"The government budget has changed dramatically since 1970. Interest on the
national debt now exceeds total government spending in 1970."
<TABLE><CAPTION>
GOV'T PROGRAMS
-------------- FISCAL '95 FISCAL '70
(Those that have a rising SPENDING SHARE SPENDING SHARE
share in capital letters) IN BILLIONS NOW IN BILLIONS THEN
----------- ----- ----------- -----
<S> <C> <C> <C> <C>
SOCIAL SECURITY........................ $336.1 21.3% $30.3 14.8%
Defense................................ 271.6 17.2% 81.7 40.0%
NET INTEREST ON THE DEBT............... 234.2 14.8% 14.4 7.1%
MEDICARE (minus premiums paid)......... 157.3 10.0% 6.2 3.0%
MEDICAID............................... 88.4 5.6% 2.7 1.3%
FEDERAL PENSIONS....................... 64.8 4.1% 5.5 2.7%
Education and training................. 40.5 2.6% 6.4 3.1%
Transportation......................... 39.2 2.5% 7.0 3.4%
Veterans............................... 38.2 2.4% 8.7 4.3%
HOUSING SUBSIDIES...................... 26.7 1.7% .5 .2%
FOOD STAMPS............................ 26.5 1.7% .6 .3%
SUPPLEMENTAL SECURITY
INCOME............................... 25.1 1.6% -- --
Unemployment........................... 23.8 1.5% 3.4 1.5%
Environment and resources.............. 21.9 1.4% 3.1 1.5%
Int'l, including foreign aid........... 18.7 1.2% 4.3 2.1%
LAW ENFORCEMENT........................ 17.6 1.1% 1.0 .5%
Families and dependent children........ 17.3 1.1% 4.0 2.0%
Science and space...................... 17.0 1.1% 4.5 2.2%
LOW-INCOME TAX CREDIT.................. 16.8 1.1% -- --
General gov't operations............... 14.5 .9% 2.3 1.1%
Agriculture............................ 14.4 .9% 5.2 2.5%
NUTRITION PROGRAMS..................... 12.4 .7% .4 .2%
HEALTH RESEARCH AND
PLANNING............................. 11.7 .7% .7 .4%
Community & regional development....... 7.7 .5% 2.1 1.0%
DISASTER RELIEF........................ 4.8 .3% .3 .1%
Energy................................. 4.6 .3% 1.0 .5%
Other.................................. 28.2 1.8% 7.8 3.8%
-------------- ----- -------------- -----
$1.58 trillion 100% $204.2 billion 100%
</TABLE>
(The Kiplinger Washington Letter, March 10, 1995.)
[ 2 ]
<PAGE>
SIGNS OF THE TIMES
"About the only sound inside Intel's new factory here [in Rio Rancho, New
Mexico] is a robotic whir, high overhead, made by the tiny white cars of a
miniature monorail. They ferry a precious cargo of eight-inch silicon wafers.
Each is covered with a grid of nearly 300 thumbnail-sized semiconductor chips,
and each chip is microscopically packed with millions of electronic gateways, or
transistors.
"Indeed, this chip plant on a high desert mesa in New Mexico is probably the
most productive factory in the world, in terms of the value of goods it makes.
By industry estimates, it has the potential to generate revenue of more than $5
billion a year--more than all but the 200 or so largest companies in America."
(Steve Lohr, The New York Times, December 3, 1995.)
-------------------
"Environmental laws and rules, now seventeen volumes of fine print, often
seem to miss the mark or prove counterproductive. Under one requirement, before
industrial land with any toxic waste can be used, it must be cleaned up to
almost perfect purity. It sounds great, but the effect is to drive industry out
to virgin fields, where it encounters no such costs. Instead of cleaning up one
dirty lot, the strict law creates a second dirty lot. Then, of course, jobs are
moved away from cities, to places that workers can only reach by driving long
distances, which causes yet more pollution. A final irony is that whoever
cleaned the polluted land would often be required to incinerate it, literally
burning tons of dirt, a process that itself generates significant pollution.
Environmental laws have accomplished much, but not because the laws were
generally sensible. Spending a trillion dollars in the last twenty years was
bound to clean some things up, however inefficiently." (Philip K. Howard, The
Death of Common Sense.)
-------------------
"The export of greenbacks is a very profitable business for the U.S. No
other export-- not even movies and music--can match the profit margins earned by
the Fed's shipments of cash overseas. The Fed prints and hands over little
pieces of noninterest-bearing green paper at almost no cost and gets back an
interest-free loan from foreign holders of those pieces of paper. Then the Fed
invests the proceeds in U.S. government securities and turns the profits over to
the U.S. Treasury.
"The profits are huge. Vice Chairman Blinder calculates the Fed's
seigniorage profits at $11 billion to $15 billion per year--equal to federal
receipts from estate and gift taxes. Moreover, it's a growing business: Foreign
holdings of U.S. dollars are growing faster than the U.S. economy.
"The dollars in circulation outside the U.S. amount to about $50 for every
man, woman and child. So, thanks to central bank policies in developing nations,
you have hungry Africans and poverty-stricken Latin American peasants granting
Uncle Sam interest-free loans." (Steve H. Hanke, Forbes, December 4, 1995.)
[ 3 ]
<PAGE>
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
<TABLE><CAPTION>
Per Share of Common Stock
--------------------------------------------------
Distribu-
tions(B)
declared
Divi- from long-
Convertible dends(B) term Net
Preference declared investment realized Unrealized
Total Stock at Net Net from net gains or investment appreciation
net liquidation asset investment investment capital gains of
Year assets preference value income(A) income surplus (losses) investments
------------ ----------- ------ --------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1985 $111,397,854 $ 5,472,300 $15.38 $ 35,905,193
1986 116,731,670 10,230,075 13.26 $ .18 $.23 $ 3.47 $15,684,308 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
</TABLE>
- - ------------
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 29, 1995, the market quotations were as follows:
<TABLE>
<S> <C>
Convertible Preference Stock, $2.00 Series D... 58 bid, 66 asked
Common Stock................................... 21 1/4 high, 20 3/4 low and
20 7/8
last sale
</TABLE>
[ 4 ]
<PAGE>
To the Stockholders of
CENTRAL SECURITIES CORPORATION:
Financial statements for the year 1995, as reported upon by our independent
auditors, and other pertinent information are submitted herewith.
Comparative market values of net assets are as follows:
<TABLE><CAPTION>
December 31, December 31,
1995 1994
---- ----
<S> <C> <C>
Net assets........................................ $292,547,559 $226,639,144
Convertible Preference Stock at liquidation
preference...................................... (9,488,350) (9,687,575)
------------ ------------
Net assets applicable to Common Stock............. $283,059,209 $216,951,569
------------ ------------
------------ ------------
Net asset coverage per share of Convertible
Preference Stock................................ $ 770.81 $ 584.87
Net assets per share of Common Stock.............. 21.74 17.60
Pro forma net assets per share, reflecting
conversion of the Convertible Preference
Stock......................................... 20.60 16.82
Shares of Convertible Preference Stock
outstanding................................. 379,534 387,503
Shares of Common Stock outstanding............ 13,018,389 12,324,766
</TABLE>
Comparative operating results are as follows:
<TABLE><CAPTION>
Year 1995 Year 1994
--------- ---------
<S> <C> <C>
Net investment income............................. $ 4,539,869 $ 3,484,980
Number of times Preferred dividend earned..... 5.9 4.4
Per share of Common Stock..................... .31* .23*
Net realized gain on sale of investments.......... 20,112,563 16,339,601
Increase (decrease) in net unrealized appreciation
of investments.................................. 52,738,010 (2,025,666)
Increase in net assets resulting from
operations...................................... 77,390,442 17,798,915
</TABLE>
- - ---------
* 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 1995, a
cash dividend of $.15 per share paid on June 28 and an optional stock
distribution of $1.78 per share or one share of Common Stock for each 11 shares
held paid on December 27. The Corporation has been advised that of the $1.93
paid in 1995, $.33 represents ordinary income and $1.60 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 received by stockholders may vary. It is suggested that
stockholders consult with their tax advisors on this matter.
[ 5 ]
<PAGE>
In the optional distribution paid in December, the holders of 60% of the
outstanding shares of Common Stock elected to receive stock, and 670,028 Common
shares were issued. As a result of the 1995 distributions to Common
stockholders, the conversion rate of the Series D Preference Stock was increased
to 3.120 in accordance with the provisions of the Certificate of Incorporation.
During the year, 7,969 shares of Convertible Preference Stock were converted
into 23,595 shares of Common Stock.
The Corporation did not repurchase any of its Common or Preference Stock
during 1995. 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.
Review
The past year was a splendid one for both the stock and bond markets. The
Dow Jones Industrial Average reached record levels, increasing by 33.5%. The
broader market did less well. As measured by the Russell 2000, it increased by
26.2%. With respect to bond prices 1995 was the reverse of 1994 as long-term
interest rates declined throughout the year, erasing 1994's increase. The
average fixed income fund increased by 15.2%. After such a good year, many
professional investors have adopted a cautious attitude.
From an economic point of view, the expansion which began in 1991 has
slowed. A consumer malaise adversely affected retailing causing a number of
chains to experience financial difficulties. At year-end, there was an apparent
excess of inventory and capacity in a number of industries, most notably pulp
and paper. Most forecasters see only modest economic growth for 1996.
Central's trading activity or portfolio turnover in 1995 was quite low.
During the year we reduced holdings in American Management Systems, Analog
Devices and Reynolds and Reynolds while adding to those in M.A. Hanna and
Measurex. We established a new position in Cyprus Amax Minerals and eliminated
Chemical Banking Corporation. Our Steuart Petroleum Note was repaid.
At year-end, Central's liquid reserves (commercial paper and Treasury Bills)
amounted to 14% of net assets compared with 9% last year. This increase resulted
from investment portfolio decisions as opposed to market timing considerations.
Our policy is to remain generally fully invested. We do not attempt to buy or
sell in anticipation of general stock market moves. As we have said in the past,
however, it is not always desirable to immediately redeploy funds from
investment sales. As a result, liquid balances may be substantial for limited
periods.
[ 6 ]
<PAGE>
Investments
Shown below are Central's ten largest investments.
<TABLE><CAPTION>
December 31, 1995
-----------------
Cost Value
----- -----
(millions)
<S> <C>
The Plymouth Rock Company
(Insurance) $ 2.2 $35.0
M.A. Hanna Company
(Specialty Chemicals) 12.4 18.2
The Reynolds and Reynolds Company
(Computer Software and Business Forms) 1.1 17.5
Intel Corp.
(Microprocessors) 1.2 17.0
W.H. Brady Co.
(Industrial Products and Chemicals) 2.8 16.2
The Bank of New York Company, Inc.
(Banking) 8.1 14.6
Analog Devices, Inc.
(Semiconductors) 2.3 14.5
Household International, Inc.
(Consumer Finance and Credit Cards) 4.8 11.8
American Management Systems
(Computer Software) .3 9.0
Cyprus Amax Minerals Company
(Natural Resources) 8.0 7.8
</TABLE>
These investments, totaling $162 million, comprised 55% of net assets at
year-end. Eight were on the same list last year. It would have been nine but
Signet Bank distributed its shares of Capital One Financial Corp., giving us two
holdings in place of a larger one. If we look back five years, six were on the
list: Plymouth Rock, Reynolds and Reynolds, Intel, Brady, Analog and American
Management Systems.
Investment Approach
Central's investment objective is growth of capital. In attempting to
accomplish this objective we want to own a group of growing businesses with good
economic fundamentals and shareholder-oriented managements. Just as important,
we want to make each new investment at a low price in relation to our estimate
of its value over a period of years ahead. This often involves skepticism about
conventional wisdom. John Maynard Keynes, the famous economist, was also a
superb investor. He 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." We, also, use
a long-term investment strategy as opposed to a trading one. The lower turnover
implicit in this approach has the added advantage of allowing investments to
grow without the annual payment of taxes. The taxes, of course, must be paid
eventually. In the interim, however, investors receive what amounts to an
interest-free loan from the government.
[ 7 ]
<PAGE>
Your management continues to believe that the best long-term results can be
achieved by investing a substantial portion of the Corporation's assets in a
limited number of situations, with the balance held in a broad general market
portfolio. We believe that the risk associated with this approach can be reduced
through intimate knowledge of the companies in which the Corporation invests.
Shareholders' inquiries are welcome.
CENTRAL SECURITIES CORPORATION
WILMOT H. KIDD, President
375 Park Avenue
New York, N.Y. 10152
February 8, 1996
[ 8 ]
<PAGE>
PRINCIPAL PORTFOLIO CHANGES*
October 1 to December 31, 1995
(Common Stock unless specified otherwise)
<TABLE><CAPTION>
Number of Shares
or Principal Amount
-------------------------------------------------
Held
Purchased Sold December 31, 1995
--------- ---------- -----------------
<S> <C> <C> <C>
Analog Devices, Inc................. 15,000 410,000
Brady (W. H.) Co. .................. 400,000(a) 600,000
Frontier Corporation................ 36,767(b) 9,306 27,461
Hanna (M.A.) Company................ 70,000 650,000
Measurex Corporation................ 90,000 265,000
RKS Health Ventures Corporation..... 630,000(c) 70,000
RKS Health Ventures Corporation
Series A Conv. Pfd. .............. 8,049(d) 15,950
Steuart Petroleum Company 9% Sub.
Note due 12/31/99................... $2,170,000(e) --
Tidewater Inc....................... 50,000 100,000
</TABLE>
- - ------------
* Excluding stocks listed under "Miscellaneous" in the Statement of
Investments.
(a) Stock split.
(b) Received from Grumman Hill Investments, L.P.
(c) Reverse stock split.
(d) Received on conversion of a $98,778 Promissory Note plus accrued interest.
(e) Redeemed.
[ 9 ]
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C> <C>
ASSETS:
Investments:
General portfolio securities at market
value (cost $85,074,932) (Note 1)........ $209,416,010
Securities of affiliated companies
(cost $4,361,861)
(Notes 1, 5 and 6)..................... 42,037,581
Short-term debt securities at cost
plus accrued interest or
amortized discount..................... 41,531,497 $292,985,088
------------
Cash and receivables:
Cash....................................... 16,563
Dividends receivable....................... 201,900 218,463
------------
Office equipment and leasehold improvements,
net.......................................... 17,249
------------
Total Assets........................... 293,220,800
LIABILITIES:
Payable for securities purchased............... 404,205
Accrued expenses and reserves.................. 269,036
------------
Total Liabilities...................... 673,241
------------
NET ASSETS......................................... $292,547,559
------------
------------
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 379,534 (Note 2).................... $ 9,488,350
Common Stock at par value, $1.00 per share,
authorized 20,000,000 shares; issued
13,018,389 (Note 2)........................ 13,018,389
Surplus:
Paid-in.................................... $106,460,552
Undistributed net investment income........ 90,685
Undistributed net gain on sales of
investments.............................. 1,472,785 108,024,022
------------
Net unrealized appreciation of investments..... 162,016,798
------------
NET ASSETS......................................... $292,547,559
------------
------------
NET ASSET VALUE PER COMMON SHARE................... $21.74
------------
------------
</TABLE>
See accompanying notes to financial statements.
[ 10 ]
<PAGE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Cash dividends.................................... $ 3,545,682
Interest.......................................... 2,547,573
Miscellaneous income.............................. 100,061 $ 6,193,316
----------- -----------
Expenses:
Investment research............................... 371,234
Administration and operations..................... 435,244
Employees' retirement plans....................... 83,469
Custodian fees.................................... 55,365
Franchise and miscellaneous taxes................. 92,313
Transfer agent's and registrar's fees and
expenses........................................ 58,123
Rent and utilities................................ 145,201
Listing, software and sundry fees................. 60,540
Legal, auditing and tax fees...................... 85,094
Stationery, supplies, printing and postage........ 41,337
Travel and telephone.............................. 31,931
Directors' fees................................... 48,000
Insurance......................................... 77,407
Publications and miscellaneous.................... 68,189 1,653,447
----------- -----------
Net investment income................................. 4,539,869
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain from security transactions.......... 20,112,563
Net increase in unrealized appreciation of
investments......................................... 52,738,010
-----------
Net gain on investments........................... 72,850,573
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... $77,390,442
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
[ 11 ]
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1995
and December 31, 1994
<TABLE><CAPTION>
1995 1994
---- ----
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................... $ 4,539,869 $ 3,484,980
Net realized gain on investments................ 20,112,563 16,339,601
Net increase (decrease) in unrealized
appreciation of investments................... 52,738,010 (2,025,666)
------------ ------------
Increase in net assets resulting from
operations................................ 77,390,442 17,798,915
------------ ------------
DIVIDENDS TO STOCKHOLDERS FROM:
Net investment income:
Preference Stock............................ (771,139) (793,883)
Common Stock................................ (3,668,730) (2,591,097)
Net realized gain from investment
transactions.................................. (20,161,206) (16,239,975)
------------ ------------
Decrease in net assets from distributions... (24,601,075) (19,624,955)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS: (Note 2)
Distribution to stockholders reinvested in
Common Stock.................................. 13,119,148 9,597,024
Other capital transactions...................... (100) (200)
------------ ------------
Increase in net assets from capital share
transactions.............................. 13,119,048 9,596,824
------------ ------------
Total increase in net assets............ 65,908,415 7,770,784
NET ASSETS:
Beginning of year............................... 226,639,144 218,868,360
------------ ------------
End of year..................................... $292,547,559 $226,639,144
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
[ 12 ]
<PAGE>
STATEMENT OF INVESTMENTS
December 31, 1995
PORTFOLIO SECURITIES 85.9%
(COMMON STOCKS UNLESS SPECIFIED OTHERWISE)
Prin. Amt. Market
or Shares Value
- - ------------ ------------
BANKING AND FINANCE 14.1%
300,000 The Bank of New York Company, Inc..... $ 14,625,000
325,000 Capital One Financial Corporation..... 7,759,375
200,000 Household International, Inc.......... 11,825,000
300,000 Signet Banking Corporation............ 7,125,000
------------
41,334,375
------------
BUSINESS SERVICES 7.4%
50,000 Kelly Services Inc. Class A........... 1,387,500
450,000 The Reynolds and Reynolds Company
Class A............................. 17,493,750
150,000 UniFirst Corporation.................. 2,700,000
------------
21,581,250
------------
CHEMICALS 8.7%
650,000 Hanna (M. A.) Company................. 18,200,000
230,000 Martin Color-Fi, Inc.(a).............. 805,000
100,000 Rohm and Haas Company................. 6,437,500
------------
25,442,500
------------
COMMUNICATIONS 4.0%
27,461 Frontier Corporation.................. 823,830
100,000 GTE Corporation....................... 4,387,500
440,000 Nextel Communications, Inc. Class
A(a)................................ 6,490,000
------------
11,701,330
------------
COMPUTER SOFTWARE & SERVICES 3.2%
300,000 American Management Systems,
Inc.(a)............................. 9,000,000
197,302 Peerless Systems Corporation Series B
Conv. Pfd.(a)(b).................... 293,819
Peerless Systems Corporation Warrants
to Purchase Common Stock(a)(b)...... 12,000
------------
9,305,819
------------
[ 13 ]
<PAGE>
Prin. Amt. Market
or Shares Value
- - ------------ ------------
ELECTRONICS 10.8%
410,000 Analog Devices, Inc.(a)............... $ 14,503,750
300,000 Intel Corporation..................... 17,025,000
------------
31,528,750
------------
ENERGY 5.3%
40,000 Cliffs Drilling Company Conv.
Exchg. Pfd.......................... 1,100,000
185,000 Murphy Oil Corporation................ 7,677,500
370,000 Santa Fe Energy Resources, Inc.(a).... 3,561,250
Steuart Petroleum Company Warrant to
Purchase Common Stock(a)(b)......... 0
100,000 Tidewater Inc......................... 3,150,000
------------
15,488,750
------------
HEALTH CARE 0.3%
70,000 RKS Health Ventures
Corporation(a)(b)(c)................ 700,000
15,950 RKS Health Ventures Corporation
Series A Conv. Pfd.(a)(b)(c)........ 199,375
------------
899,375
------------
INDUSTRIAL EQUIPMENT 8.1%
600,000 Brady (W.H.) Co. ..................... 16,200,000
265,000 Measurex Corporation.................. 7,486,250
------------
23,686,250
------------
INSURANCE 17.2%
101,600 Hilb, Rogal and Hamilton Company...... 1,358,900
100,000 Mutual Risk Management Ltd............ 4,575,000
70,000 The Plymouth Rock Company, Inc.
Class A(b)(c)....................... 35,000,000
100,000 Provident Companies, Inc.(d).......... 3,387,500
112,600 Vesta Insurance Group, Inc............ 6,136,700
------------
50,458,100
------------
LIMITED PARTNERSHIP 0.3%
Grumman Hill Investments,
L.P.(a)(b).......................... 885,137
------------
METALS AND MINING 2.7%
300,000 Cyprus Amax Minerals Company.......... 7,837,500
------------
[ 14 ]
<PAGE>
Prin. Amt. Market
or Shares Value
- - ------------ ------------
PUBLISHING 1.0%
100,000 Media General, Inc. .................. $ 3,037,500
5,000 Southeast Publishing Ventures, Inc.
Series A Pfd.(a)(b)(c).............. 0
------------
3,037,500
------------
TRANSPORTATION 2.1%
533,757 Transport Corporation of America, Inc.
Class B(a)(c)....................... 6,138,206
------------
MISCELLANEOUS 0.7%
Other investments..................... 2,128,749
------------
Total Portfolio Securities.... 251,453,591
------------
SHORT-TERM DEBT INVESTMENTS 14.2%
$ 12,579,000 Chevron Corporation 5.58%-5.67% due
1/2/96-1/22/96...................... 12,618,044
13,239,000 Ford Motor Corporation 5.63% due
1/16/96............................. 13,259,711
5,676,000 General Electric Capital Corp. 5.56%
due 1/29/96......................... 5,678,628
10,000,000 U.S. Treasury Bill 5.43% due 1/18/96 9,975,114
------------
Total Short-Term
Investments................. 41,531,497
------------
Total Investments............. 292,985,088
------------
Cash, receivables and other
assets, less liabilities--0.1%. (437,529)
------------
Net Assets--100%.............. $292,547,559
------------
------------
- - ------------
(a) Non-dividend paying.
(b) Valued at estimated fair value.
(c) Affiliate as defined in the Investment Company Act of 1940.
(d) Formerly known as Provident Life & Accident Insurance Company of America.
See accompanying notes to financial statements.
[ 15 ]
<PAGE>
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
29, 1995 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. U.S. Treasury Bills are valued at their amortized cost.
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 3.120 shares of Common Stock and
1,184,146 authorized but unissued Common shares have been reserved for issuance
upon conversion. The Corporation issued 23,595 shares of Common Stock upon
conversion of shares of Preference Stock in 1995.
In the optional distribution paid on December 27, 1995, 670,028 Common
shares were issued.
The Corporation did not repurchase any of its Common or Preference Stock in
1995. 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,
1995, excluding short-term investments, were $18,983,370 and $45,093,667,
respectively.
As of December 31, 1995, based on cost for Federal income tax purposes, the
aggregate gross unrealized appreciation and depreciation for all securities were
$163,601,893 and $1,585,095, respectively.
[ 16 ]
<PAGE>
4. Operating Expenses--The aggregate remuneration paid during the year
ended December 31, 1995 to officers and directors amounted to $734,090, of which
$48,000 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, 1995 was $76,493.
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 $410,200 from The Plymouth Rock Company,
Inc. during the year ended December 31, 1995. Unrealized appreciation related to
affiliates increased by $5,835,187 for the year 1995.
6. Restricted Securities--The Corporation from time to time invests in
securities the resale of which is restricted. On December 31, 1995 such
investments had an aggregate value of $37,090,331, which was equal to 12.7% of
the Corporation's net assets. Investments in restricted securities at December
31, 1995, including acquisition dates and cost, were: Grumman Hill Investments,
L.P., 9/11/85, $530,233; Peerless Systems Corporation, 12/21/92, $305,819; The
Plymouth Rock Company, Inc., 12/15/82, $1,500,000, 6/1/84, $699,986; RKS Health
Ventures Corporation, 12/15/94, $700,000, 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 $3,447,644 for the year 1995.
-------------------
UNAUDITED QUARTERLY RESULTS OF OPERATIONS
<TABLE><CAPTION>
Net Realized and
Unrealized
Net Investment Income* Gains on Investments
------------------------ -------------------------
Investment Per Common Per Common
Income* Amount Share Amount Share
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
3 Mos. Ended
3/31/95.......... $1,469,079 $1,120,205 $.09 $17,109,375 $ 1.39
6/30/95.......... 1,153,741 851,443 .07 30,192,314 2.45
9/30/95.......... 1,316,583 1,043,202 .09 21,300,209 1.73
12/31/95......... 1,482,775 753,881 .06 4,248,675 .34
</TABLE>
- - ------------
* Net of dividends paid on the Convertible Preference Stock.
[ 17 ]
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE><CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 17.60 $ 17.90 $ 14.33 $ 11.87 $ 10.00
Net investment income.................. .37 .30 .21 .20 .22
Net realized and unrealized gain on
securities........................... 5.76 1.08 5.03 3.20 2.42
------- ------- ------- ------- -------
Total from investment operations. 6.13 1.38 5.24 3.40 2.64
Less:
Dividends from net investment income*
To Preference Stockholders......... .06 .07 .07 .08 .08
To Common Stockholders............. .33 .22 .18 .20 .14
Distributions from capital gains*
To Common Stockholders............. 1.60 1.39 1.42 .66 .44
Returns of capital*
To Common Stockholders............. -- -- -- -- .11
------- ------- ------- ------- -------
Total distributions.............. 1.99 1.68 1.67 .94 .77
------- ------- ------- ------- -------
Net asset value, end of period......... $ 21.74 $ 17.60 $ 17.90 $ 14.33 $ 11.87
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Per share market value, end of
period............................... 20.88 15.75 15.50 11.63 9.25
TOTAL INVESTMENT RETURN (%)............ 45.65 12.30 47.68 36.71 29.00
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period(000)......... 292,548 226,639 218,868 165,600 131,640
Ratio of expenses to average net
assets(%)............................ .62 .65 .77 .88 .96
Ratio of net investment income to
average net assets(%)................ 1.69 1.51 1.17 1.42 1.78
Portfolio turnover rate(%)............. 8.27 11.73 15.14 18.56 16.69
</TABLE>
- - ------------
* Computed on the basis of the Corporation's status as a "regulated investment
company" for Federal income tax purposes.
[ 18 ]
<PAGE>
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,
1995, 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, 1995. 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, 1995 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, 1995, 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, 1995, in conformity
with generally accepted accounting principles.
Also, in our opinion, the information set forth for each of the years in the
two-year period ended December 31, 1995 in the table appearing on page 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 26, 1996
[ 19 ]
<PAGE>
<TABLE><CAPTION>
BOARD OF DIRECTORS
<S> <C> <C>
DONALD G. CALDER DUDLEY D. JOHNSON
Partner President
G. L. Ohrstrom & Co. 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.
Private Investor
GARDINER S. ROBINSON
Director Emeritus
</TABLE>
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
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
[ 20 ]
