<PAGE>
CENTRAL SECURITIES CORPORATION
------
SIXTY-EIGHTH ANNUAL REPORT
1996
<PAGE>
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 ]
<PAGE>
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 ]
<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
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</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 31, 1996, the market quotations were as follows:
<TABLE>
<S> <C>
Convertible Preference Stock, $2.00 Series D......... 70 bid, 80 asked
Common Stock......................................... 24 1/2 high, 24 1/8
low
and last sale
</TABLE>
[ 4 ]
<PAGE>
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:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
-------------- --------------
<S> <C> <C>
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
</TABLE>
Comparative operating results are as follows:
<TABLE>
<CAPTION>
Year 1996 Year 1995
-------------- --------------
<S> <C> <C>
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
</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 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 ]
<PAGE>
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 ]
<PAGE>
Shown below are Central's ten largest investments, accounting for 59% of net
assets.
<TABLE>
<CAPTION>
December 31, 1996
--------------------- Year first
Cost Value acquired
--------- ---------- -----------
<S> <C> <C> <C>
(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
</TABLE>
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 ]
<PAGE>
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 ]
<PAGE>
PRINCIPAL PORTFOLIO CHANGES
October 1 to December 31, 1996
(Common Stock unless specified otherwise)
<TABLE>
<CAPTION>
Number of Shares
-------------------------------------------
Held
Purchased Sold December 31, 1996
---------- ------------ -----------------
<S> <C> <C> <C>
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
</TABLE>
[ 9 ]
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
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
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
[ 10 ]
<PAGE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C> <C>
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
----------
----------
</TABLE>
See accompanying notes to financial statements.
[ 11 ]
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1996
and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
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
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to financial statements.
[ 12 ]
<PAGE>
STATEMENT OF INVESTMENTS
December 31, 1996
PORTFOLIO SECURITIES 91.6%
(COMMON STOCKS UNLESS SPECIFIED OTHERWISE)
<TABLE>
<CAPTION>
PRIN. AMT. MARKET
OR SHARES VALUE
- ------------- --------------
<C> <S> <C>
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
--------------
</TABLE>
[ 13 ]
<PAGE>
<TABLE>
<CAPTION>
PRIN. AMT. MARKET
OR SHARES VALUE
- ------------- --------------
<C> <S> <C>
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
--------------
</TABLE>
[ 14 ]
<PAGE>
<TABLE>
<CAPTION>
PRIN. AMT. MARKET
OR SHARES VALUE
- ------------- --------------
<C> <S> <C>
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
--------------
--------------
</TABLE>
- ------------------------
(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 ]
<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
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 ]
<PAGE>
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
<TABLE>
<CAPTION>
Net Realized and Unrealized
Net Investment Income* Gains on Investments
----------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ------------------------
* Net of dividends paid on the Convertible Preference Stock.
[ 17 ]
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
</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,
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 ]
<PAGE>
BOARD OF DIRECTORS
<TABLE>
<S> <C>
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
</TABLE>
<TABLE>
<S> <C>
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
</TABLE>
[ 20 ]
