C E N T R A L S E C U R I T I E S C O R P O R A T I O N
-----------
SEMI-ANNUAL REPORT
JUNE 30, 1998
<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
Convertible dends(B) long-term
Preference declared investment
Total Stock at Net Net from net gains or Net realized Unrealized
net liquidation asset investment investment capital investment appreciation
Year assets preference value income(A) income surplus gains (losses) of investments
- --------- --------------- ------------- ----------- ------------ ------------ ----------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1987 $110,629,270 $10,145,300 $ 11.36 $ 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
1997 434,423,053 9,040,850 29.97 .24 .34 2.08 30,133,125 273,760,444
6 mos.
to
June 30,
1998 462,071,326 8,988,575 31.91 .16 .05 .15 19,805,284 282,165,663
</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, except for the six months ended
June 30, 1998 which are estimated.
* 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 June 30, 1998, the market quotations were as follows:
<TABLE>
<S> <C>
Convertible Preference Stock, $2.00 Series D ......... 86 bid, 98 asked
Common Stock ......................................... 26 1/8 high, 25 3/4 low and
25 7/8 last sale
</TABLE>
[ 2 ]
<PAGE>
TO THE STOCKHOLDERS OF
CENTRAL SECURITIES CORPORATION:
Financial statements for the six months ended June 30, 1998, 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>
June 30, December 31,
1998 1997
---------------- ---------------
<S> <C> <C>
Net assets ........................................................... $462,071,326 $434,423,053
Convertible Preference Stock at liquidation preference ............... (8,988,575) (9,040,850)
------------ ------------
Net assets applicable to Common Stock ................................ $453,082,751 $425,382,203
============ ============
Net asset coverage per share of Convertible Preference Stock ......... $ 1,285.16 $ 1,201.28
Net assets per share of Common Stock ................................. 31.91 29.97
Pro forma net assets per share, reflecting conversion of the
Convertible Preference Stock ....................................... 29.94 28.14
Shares of Convertible Preference Stock outstanding ................ 359,543 361,634
Shares of Common Stock outstanding ................................ 14,198,932 14,191,745
</TABLE>
Comparative operating results are as follows:
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Net investment income .......................................... $ 2,639,165 $ 2,329,399
Number of times Preferred dividend earned ................... 7.3 6.4
Per share of Common Stock ................................... .16* .15*
Net realized gain on sale of investments ....................... 19,805,284 18,658,537
Increase in net unrealized appreciation of investments ......... 8,405,219 33,087,437
Increase in net assets resulting from operations ............... 30,849,668 54,075,373
</TABLE>
- ---------
* Per-share data are based on the average number of Common shares outstanding
during the six-month period and are after recognition of the dividend
requirement on the Convertible Preference Stock.
A dividend of $.20 per share was paid on June 26 to holders of Common
Stock. Also, during the first six months of 1998 dividends of $1.00 per share
were paid on the Series D Preference Stock. Stockholders will be sent a notice
concerning the taxability of all 1998 distributions in January 1999.
[ 3 ]
<PAGE>
During the first six months of 1998 the Corporation did not repurchase any
of its Common or Preference Stock. 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.
Stockholders' inquiries are welcome.
CENTRAL SECURITIES CORPORATION
WILMOT H. KIDD, PRESIDENT
375 Park Avenue
New York, NY 10152
July 31, 1998
-----------
PRINCIPAL PORTFOLIO CHANGES
April 1 to June 30, 1998
(Common Stock unless specified otherwise)
<TABLE>
<CAPTION>
Number of Shares
----------------------------------
Held
June 30,
Purchased Sold 1998
----------- -------- ---------
<S> <C> <C> <C>
Allmerica Financial Corporation ........... 30,000 90,000
Capital One Financial Corporation ......... 90,000 210,000
The DII Group Incorporated ................ 100,000 600,000
Household International, Inc. ............. 300,000* 450,000
Intel Corporation ......................... 5,000 505,000
Morrison Knudsen Corporation .............. 67,000 372,000
Peerless Systems Corporation .............. 10,000 165,000
Provident Companies, Inc. ................. 30,000 220,000
RKS Health Ventures Corporation ........... 70,000 --
RKS Health Ventures Corporation Series A
Conv. Pfd ............................... 15,950 --
RKS Health Ventures Corporation Series C
Conv. Pfd ............................... 9,009 --
Vesta Insurance Group, Inc. ............... 150,000 320,000
Watkins-Johnson Company ................... 40,000 465,000
</TABLE>
- ---------
* Stock split.
[ 4 ]
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Investments:
General portfolio securities at market value
(cost $121,199,674) (Note 1) ................................... $364,009,039
Securities of affiliated companies (cost $16,540,693)
(Notes 1, 5 and 6) ............................................. 55,896,991
Short-term debt securities at cost plus accrued interest ......... 42,662,547 $ 462,568,577
------------
Cash and receivables:
Cash ............................................................. 30,986
Dividends receivable ............................................. 74,000 104,986
------------
Office equipment and leasehold improvements, net .................... 14,228
-------------
Total Assets ................................................. 462,687,791
LIABILITIES:
Payable for securities purchased .................................... 505,650
Accrued expenses and reserves ....................................... 110,815
------------
Total Liabilities ............................................ 616,465
-------------
NET ASSETS ............................................................. $ 462,071,326
=============
NET ASSETS are represented by:
$2.00 Series D Convertible Preference Stock
without par value at liquidation preference,
$25.00 per share, authorized 4,000,000 shares;
issued 359,543 (Note 2) ........................................... $ 8,988,575
Common Stock at par value, $1.00 per share, authorized
30,000,000 shares; issued 14,198,932 (Note 2) ..................... 14,198,932
Surplus:
Paid-in .......................................................... $135,252,573
Undistributed net gain on sales of investments ................... 19,778,693
Undistributed net investment income .............................. 1,686,890 156,718,156
------------ -------------
Net unrealized appreciation of investments .......................... 282,165,663
-------------
NET ASSETS ............................................................. $ 462,071,326
=============
NET ASSET VALUE PER COMMON SHARE ....................................... $ 31.91
=============
</TABLE>
See accompanying notes to financial statements.
[ 5 ]
<PAGE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Cash dividends .............................................. $2,343,615
Interest .................................................... 1,053,459
Miscellaneous income ........................................ 43,750 $ 3,440,824
----------
Expenses:
Investment research ......................................... 164,113
Administration and operations ............................... 180,422
Employees' retirement plans ................................. 4,102
Custodian fees .............................................. 40,204
Franchise and miscellaneous taxes ........................... 70,424
Transfer agent and registrar fees and expenses .............. 21,805
Rent and utilities .......................................... 77,814
Listing, software and sundry fees ........................... 65,812
Legal, auditing and tax fees ................................ 21,150
Stationery, supplies, printing and postage .................. 35,552
Travel and telephone ........................................ 15,835
Directors' fees ............................................. 27,600
Insurance ................................................... 40,383
Publications and miscellaneous .............................. 36,443 801,659
---------- -----------
Net investment income .......................................... 2,639,165
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain from security transactions ................... 19,805,284
Net increase in unrealized appreciation of investments ......... 8,405,219
----------
Net gain on investments ..................................... 28,210,503
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ................................................... $30,849,668
===========
</TABLE>
See accompanying notes to financial statements.
[ 6 ]
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the six months ended June 30, 1998
and the year ended December 31, 1997
<TABLE>
<CAPTION>
Six months
ended
June 30,
1998 1997
--------------- ---------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income ............................................. $ 2,639,165 $ 3,965,412
Net realized gain on investments .................................. 19,805,284 30,133,125
Net increase in unrealized appreciation of investments ......... 8,405,219 59,038,462
------------ ------------
Increase in net assets resulting from operations ............... 30,849,668 93,136,999
------------ ------------
DIVIDENDS TO STOCKHOLDERS FROM:
Net investment income:
Preference Stock ............................................... (361,609) (724,462)
Common Stock ................................................... (689,259) (4,601,457)
Net realized gain from investment transactions .................... (2,150,527) (28,220,809)
------------ ------------
Decrease in net assets from distributions ...................... (3,201,395) (33,546,728)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS: (Note 2)
Distribution to stockholders reinvested in Common Stock ........... -- 18,147,197
Other capital transactions ........................................ -- (200)
------------ ------------
Increase in net assets from capital share transactions ......... -- 18,146,997
------------ ------------
Total increase in net assets ............................... 27,648,273 77,737,268
NET ASSETS:
Beginning of period ............................................... 434,423,053 356,685,785
------------ ------------
End of period ..................................................... $462,071,326 $434,423,053
============ ============
</TABLE>
See accompanying notes to financial statements.
[ 7 ]
<PAGE>
STATEMENT OF INVESTMENTS
June 30, 1998
PORTFOLIO SECURITIES 90.9%
(COMMON STOCKS UNLESS SPECIFIED OTHERWISE)
<TABLE>
<CAPTION>
PRIN. AMT. MARKET
OR SHARES VALUE
- ------------ ---------------
<S> <C> <C>
BANKING AND FINANCE 21.8%
550,000 The Bank of New York Company, Inc. .................. $ 33,481,250
210,000 Capital One Financial Corporation ................... 26,079,375
324,500 First Union Corporation ............................. 18,902,125
450,000 Household International, Inc. ....................... 22,387,500
------------
100,850,250
------------
CHEMICALS 6.4%
1,000,000 Hanna (M. A.) Company ............................... 18,312,500
230,000 Martin Color-Fi, Inc.(a) ............................ 690,000
100,000 Rohm and Haas Company ............................... 10,387,500
------------
29,390,000
------------
COMMERCIAL SERVICES 0.8%
150,000 UniFirst Corporation ................................ 3,750,000
------------
COMPUTER SOFTWARE & SERVICES 9.6%
975,000 American Management Systems, Inc.(a) ................ 29,189,063
300,000 Electronic Data Systems Corporation ................. 11,981,250
165,000 Peerless Systems Corporation(a) ..................... 3,423,750
------------
44,594,063
------------
DATA PROCESSING 3.1%
100,000 First Data Corporation .............................. 3,331,250
600,000 The Reynolds and Reynolds Company
Class A ............................................ 10,912,500
------------
14,243,750
------------
ELECTRONICS 16.9%
740,000 Analog Devices, Inc.(a) ............................. 18,176,250
600,000 The DII Group Incorporated .......................... 10,237,500
505,000 Intel Corporation ................................... 37,433,125
465,000 Watkins-Johnson Company(b) .......................... 12,090,000
------------
77,936,875
------------
ENERGY 3.3%
300,000 Mercantile International Petroleum Inc.(a) .......... 54,000
300,000 Murphy Oil Corporation .............................. 15,206,250
------------
15,260,250
------------
ENGINEERING AND CONSTRUCTION 1.1%
372,000 Morrison Knudsen Corporation(a) ..................... 5,231,250
------------
</TABLE>
[ 8 ]
<PAGE>
<TABLE>
<CAPTION>
PRIN. AMT. MARKET
OR SHARES VALUE
- ----------- --------------
<S> <C> <C>
HEALTH CARE 0.2%
150,000 MGI Pharma, Inc.(a) ........................... $ 1,021,875
-----------
HOUSEHOLD PRODUCTS 2.6%
366,100 Church & Dwight Co., Inc. ..................... 11,852,488
-----------
INSURANCE 14.0%
90,000 Allmerica Financial Corporation ............... 5,850,000
266,666 Mutual Risk Management Ltd. ................... 9,666,642
70,000 The Plymouth Rock Company, Inc.
Class A(b)(c) ................................ 35,000,000
220,000 Provident Companies, Inc. ..................... 7,590,000
320,000 Vesta Insurance Group, Inc. ................... 6,820,000
-----------
64,926,642
-----------
MANUFACTURING 3.6%
600,000 Brady (W. H.), Inc. ........................... 16,687,500
-----------
METALS AND MINING 0.9%
300,000 Cyprus Amax Minerals Company .................. 3,975,000
-----------
PAPER AND FOREST PRODUCTS 0.4%
70,000 Deltic Timber Corporation ........... ......... 1,754,375
-----------
TELECOMMUNICATIONS 4.0%
175,356 IXC Communications Corporation(a) ............. 8,504,766
10,743 IXC Communications Corporation 7 1/4%
Junior Conv. Pfd. Due 2007(a)(c) ............. 2,307,059
300,000 Nextel Communications, Inc. Class A ........... 7,462,500
-----------
18,274,325
-----------
TRANSPORTATION 1.9%
533,757 Transport Corporation of America, Inc.
Class B(a)(b) ................................ 8,806,990
-----------
MISCELLANEOUS 0.3%
Grumman Hill Investments, L.P.(a)(c) .......... 1,350,397
5,000 Southeast Publishing Ventures, Inc.
Series A Pfd.(a)(b)(c) ....................... 0
Steuart Petroleum Company Warrant to
Purchase Common Stock(a)(c) .................. 0
-----------
1,350,397
-----------
Total Portfolio Securities .................... 419,906,030
-----------
</TABLE>
[ 9 ]
<PAGE>
<TABLE>
<CAPTION>
PRIN. AMT. MARKET
OR SHARES VALUE
- ---------------- ----------------
<S> <C> <C>
SHORT-TERM DEBT INVESTMENTS 9.2%
$ 17,214,000 Ford Motor Credit Corp. 5.50% - 5.54%
due 7/06/98 - 7/20/98 ....................... $ 17,263,281
25,360,000 General Electric Capital Corp.
5.54% - 5.65% due 7/01/98 - 7/27/98 ......... 25,399,266
------------
Total Short-Term Investments ................. 42,662,547
------------
Total Investments ............................ 462,568,577
------------
Liabilities, less cash, receivables and
other assets (0.1%) ......................... (497,251)
------------
Net Assets (100%) ............................ $462,071,326
============
</TABLE>
---------
(a) Non-dividend paying.
(b) Affiliate as defined in the Investment Company Act of 1940.
(c) Valued at estimated fair value.
See accompanying notes to financial statements.
[ 10 ]
<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 June
30, 1998 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 values
that would have been used had a liquid market existed, 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, and cost of securities sold is
determined by specific identification. Dividend income and distributions
to stockholders are recorded on the ex-dividend date.
2. PREFERENCE STOCK AND COMMON STOCK -- The Convertible Preference Stock
is redeemable at the Corporation's option at $27.50 per share. Dividends are
cumulative. Each share is convertible into 3.439 shares of Common Stock and
1,236,468 authorized but unissued Common shares have been reserved for issuance
upon conversion. During the six months ended June 30, 1998, 7,187 shares of
Common Stock were issued upon conversion of shares of Preference Stock.
The Corporation did not repurchase any of its Common or Preference Stock
in the first six months of 1998, but 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 six months ended June
30, 1998, excluding short-term investments, were $8,165,533 and $29,398,165,
respectively.
As of June 30, 1998, based on cost for Federal income tax purposes, the
aggregate gross unrealized appreciation and depreciation for all securities
were $288,695,245 and $6,529,582, respectively.
[ 11 ]
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
4. OPERATING EXPENSES -- The aggregate remuneration paid during the six
months ended June 30, 1998 to officers and directors amounted to $320,919, of
which $27,600 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. No contributions were made to
the plan for the six months ended June 30, 1998.
5. AFFILIATES -- The Plymouth Rock Company, Inc., Southeast Publishing
Ventures, Inc., Transport Corporation of America, Inc. and Watkins-Johnson
Company are affiliates as defined in the Investment Company Act of 1940. The
Corporation received a dividend of $184,800 from The Plymouth Rock Company,
Inc. during the six months ended June 30, 1998. Unrealized appreciation related
to affiliates increased by $3,502,688 for the six months ended June 30, 1998.
6. RESTRICTED SECURITIES -- The Corporation from time to time invests in
securities the resale of which is restricted. On June 30, 1998 such investments
had an aggregate value of $38,657,456, which was equal to 8.4% of the
Corporation's net assets. Investments in restricted securities at June 30,
1998, including acquisition dates and cost, were: Grumman Hill Investments,
L.P., 9/11/85, $535,285; IXC Communications, Inc., 4/14/97, $1,112,879; The
Plymouth Rock Company, Inc., 12/15/82, $1,500,000 and 6/1/84, $699,986;
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 $4,901,705 for the six months
ended June 30, 1998 to $34,854,032.
7. YEAR 2000 (UNAUDITED) -- The Corporation could be adversely affected if
computer systems used by the Corporation, the Corporation's principal service
providers, or other entities that interact electronically with the Corporation
or its principal service providers fail to properly process and calculate
date-related information up to and following January 1, 2000. The Corporation
is taking steps that it believes are reasonably designed to address the Year
2000 issue with respect to the computer systems it uses, to obtain reasonable
assurances that its principal service providers are preparing to be Year 2000
compliant, and to develop contingency plans to address unexpected problems
related to the Year 2000 issue. The Corporation does not expect it will incur
any material costs in addressing the Year 2000 issue. However, at this time
there can be no assurance that the steps being taken by the Corporation will be
sufficient to avoid any adverse impact on the Corporation.
[ 12 ]
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Mos.
Ended
6/30/98 1997 1996 1995 1994 1993
----------------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ......... $ 29.97 $ 25.64 $ 21.74 $ 17.60 $ 17.90 $ 14.33
Net investment income ........................ .19 .29 .33 .37 .30 .21
Net realized and unrealized gain on
securities ................................. 1.98 6.51 5.28 5.76 1.08 5.03
--------- -------- -------- -------- -------- --------
Total from investment
operations ............................. 2.17 6.80 5.61 6.13 1.38 5.24
Less:
Dividends from net investment
income*
To Preference Stockholders ................ .03 .05 .06 .06 .07 .07
To Common Stockholders .................... .05 .34 .28 .33 .22 .18
Distributions from capital gains*
To Common Stockholders .................... .15 2.08 1.37 1.60 1.39 1.42
--------- -------- -------- -------- -------- --------
Total distributions ..................... .23 2.47 1.71 1.99 1.68 1.67
--------- -------- -------- -------- -------- --------
Net asset value, end of period ............... $ 31.91 $ 29.97 $ 25.64 $ 21.74 $ 17.60 $ 17.90
========= ======== ======== ======== ======== ========
Per share market value, end of
period ..................................... $ 25.88 $ 29.69 $ 24.13 $ 20.88 $ 15.75 $ 15.50
TOTAL INVESTMENT RETURN,
MARKET(%) .................................. (13.08)+ 35.60 22.35 45.65 12.30 47.68
TOTAL INVESTMENT RETURN, NAV(%) .............. 7.11 + 26.08 25.97 34.59 8.62 36.66
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period(000) ............... $ 462,071 $434,423 $356,686 $292,548 $226,639 $218,868
Ratio of expenses to average net
assets for Common(%) ....................... .38 (++) .53 .55 .62 .65 .77
Ratio of net investment income to
average net assets for
Common(%) .................................. 1.24 (++) .97 1.32 1.69 1.51 1.17
Portfolio turnover rate(%) ................... 1.92 + 10.92 9.89 8.27 11.73 15.14
Average commission rate paid
(cents per share) ......................... 7.00 6.88 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, except for the six months ended
6/30/98 which are estimated.
+ Not annualized.
(++) Annualized.
[ 13 ]
<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,
including the statement of investments, of Central Securities Corporation as
of June 30, 1998, and the related statement of operations for the six months
then ended, the statements of changes in net assets for the six months ended
June 30, 1998 and the year ended December 31, 1997, and the financial
highlights for the six months ended June 30, 1998 and for each of the years
in the five-year period ended December 31, 1997. These financial statements
and financial highlights are the responsibility of the 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 audit 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 June 30, 1998 by correspondence with the custodian
and broker. As to securities purchased but not yet received, we performed
other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Central Securities Corporation as of June 30, 1998, the results
of its operations for the six months then ended, the changes in its net
assets for the six months ended June 30, 1998 and the year ended December
31, 1997, and the financial highlights for the six months ended June 30,
1998 and for each of the years in the five-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the information set forth as of June 30, 1998 and
December 31, 1997 and for the six months ended June 30, 1998 and 1997 in the
table appearing on page 3 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, NY
July 24, 1998
[ 14 ]
<PAGE>
ANNUAL MEETING OF STOCKHOLDERS -- (unaudited)
The 1998 Annual Meeting of Stockholders of the Corporation was held on
March 11, 1998. At the meeting all of the directors of the Corporation were
reelected by the holders of the Preference Stock and Common Stock voting
separately, as follows: Donald G. Calder, 351,386 shares of Preference Stock in
favor, 142 shares withheld; Jay R. Inglis, 351,354 shares of Preference Stock
in favor, 174 shares withheld; Dudley D. Johnson, 12,675,654 shares of Common
Stock in favor, 68,307 shares withheld; Wilmot H. Kidd, 12,673,109 shares of
Common Stock in favor, 70,852 shares withheld; and C. Carter Walker, Jr.,
12,675,630 shares of Common Stock in favor, 68,331 shares withheld. In
addition, the following proposals were approved by the votes indicated:
(1) Ratification of the selection of KPMG Peat Marwick LLP as independent
auditors of the Corporation for the year 1998 -- Preference Stock and Common
Stock voting together as one class: 13,015,942 shares in favor, 38,866 shares
against, 40,681 shares abstaining.
(2) Amendment to Certificate of Incorporation increasing the authorized
number of shares of Common Stock and Convertible Preference Stock -- Preference
Stock and Common Stock voting together as one class: 11,067,393 shares in
favor, 249,056 shares against, 100,881 shares abstaining, 1,678,159 broker
non-votes; Preference Stock voting separately: 337,514 shares in favor, 432
shares against, 594 shares abstaining, 12,988 broker non-votes.
(3) Change in fundamental policy to permit the issuance of senior
securities (subject to statutory restrictions) in situations in addition to
those set forth in the Corporation's former policy when and if, in the judgment
of the Corporation's directors, such action is deemed advisable -- Preference
Stock and Common Stock voting together as one class: 10,933,020 shares in
favor, 323,825 shares against, 160,486 shares abstaining, 1,678,158 broker non-
votes; Preference Stock voting separately: 332,906 shares in favor, 4,849
shares against, 785 shares abstaining, 12,988 broker non-votes.
(4) Change in fundamental policy to permit the purchase or sale of
commodities or commodity contracts not to exceed 15% of the value of the
Corporation's assets at the time of investment -- Preference Stock and Common
Stock voting together as one class: 10,869,073 shares in favor, 397,295 shares
against, 150,961 shares abstaining, 1,678,160 broker non-votes; Preference
Stock voting separately: 336,803 shares in favor, 951 shares against, 786
shares abstaining, 12,988 broker non-votes.
(5) Adoption of non-fundamental policy confirming the Corporation's right
to purchase and sell put and call options and to make short sales of securities
not to exceed 15% of the value of the Corporation's assets at the time of
investment -- Preference Stock and Common Stock voting together as one class:
10,921,293 shares in favor, 333,157 shares against, 162,880 shares abstaining,
1,678,159 broker non-votes.
(6) Affirmation of investment policy to operate as a non-diversified
investment company -- Preference Stock and Common Stock voting together as one
class: 11,165,940 shares in favor, 133,760 shares against, 117,630 shares
abstaining, 1,678,159 broker non-votes; Preference Stock voting separately:
337,739 shares in favor, 253 shares against, 548 shares abstaining, 12,988
broker non-votes.
[ 15 ]
<PAGE>
BOARD OF DIRECTORS
<TABLE>
<S> <C>
DONALD G. CALDER DUDLEY D. JOHNSON
President President
G. L. Ohrstrom & Co., Inc. Young & Franklin Inc.
New York, NY Liverpool, NY
JAY R. INGLIS WILMOT H. KIDD
Executive Vice President President
Holt Corporation
New York, NY
</TABLE>
C. CARTER WALKER, JR.
Washington, CT
OFFICERS
WILMOT H. KIDD, President
CHARLES N. EDGERTON, Vice President and Treasurer
KAREN E. RILEY, Secretary
OFFICE
375 Park Avenue, New York, NY 10152
212-688-3011
www.centralsecurities.com
CUSTODIAN
The Chase Manhattan Bank, N.A.
4 New York Plaza, New York, NY 10004
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York
P.O. Box 2500, Jersey City, NJ 07303-2500
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue, New York, NY 10154
[ 16 ]
