================================================================================
CENTRAL SECURITIES CORPORATION
----------
SEVENTY-FIRST ANNUAL REPORT
1999
================================================================================
<PAGE>
SIGNS OF THE TIMES
"For two decades, those who called the 20th century 'the American century'
have assumed that the 21st belongs to someone else.
"Harvard Prof. Ezra Vogel started the trend with his 1979 book, 'Japan as
Number One.' Historian Paul Kennedy marked its apogee a decade later with 'The
Rise and Fall of Great Powers.' And even today, Harold Evans writes in the
introduction to his coffee-table book, 'The American Century,' that 'the British
dominated the 19th century, and the Chinese may cast a long shadow on the 21st.'
"But the truth is, the U.S. enters the 21st century in a position of
unrivaled dominance that surpasses anything it experienced in the 20th. Coming
out of World War II, the U.S. may have controlled a larger share of world
output; but, it also faced threats to its security and its ideology. Today,
those threats are gone, and the nation far outstrips its nearest rivals in
economic and military power and cultural influence. America's free-market
ideology is now the world's ideology; and the nation's Internet and
biotechnology businesses are pioneering the technologies of tomorrow." (Alan
Murray, The Wall Street Journal, December 27, 1999.)
----------
"If the United States government had tried to come up with a scheme to
spread its brand of capitalism and its emphasis on political liberalism around
the world, it couldn't have invented a better model than the Internet." (Don
Heath, President, Internet Society, The Wall Street Journal, January 9, 2000.)
----------
"The rise of the Internet, now growing internationally at a breathtaking
36% a year, has reinforced and broadened the globalization [of information]. Of
all the information technologies, it is the most global, the most interactive
and the most empowering. It will enable ever-greater numbers of people to make
informed decisions in the marketplaces of ideas and policies and of goods and
services.
"The lesson of the last five centuries is that information confers
political, economic and social power on those who have access to it. In the
years ahead, hundreds of millions more people in all parts of the world will
gain such access as the cost of new information technology continues to decline.
As they do, their resistance to government controls is likely to grow. So is
their insistence on greater accountability and responsiveness from their
governments. For generations to come, the democratization of information will be
a powerful safeguard of representative government in countries that have it, and
a driving force on its behalf in those countries that have yet to achieve it."
(Robert D. Hormats, Vice Chairman, Goldman Sachs International, The Wall Street
Journal, December 22, 1999.)
[2]
<PAGE>
SIGNS OF THE TIMES
"Throughout the 1990's, top-ranked colleges and universities across the
United States watched their endowments skyrocket along with the stock market.
Still, the cost of attending them kept climbing.
"Now one such college, Williams, has decided not to raise tuition, room,
board or fees -- which total $31,520 annually, about half the institution's
actual cost -- in the next academic year. For Williams, a 2,000-student campus
in western Massachusetts, it is the first halt in increases since 1954.
"Such highly selective institutions operate in a fiercely competitive
environment, and experts predict that others will follow suit. One criticism of
these institutions has been that they were reluctant to free up money from their
rapidly expanding endowments to hold down costs to students; that, in fact, is
the course Williams now plans to take. Even as tuition and fees increased 50
percent there, from $20,760, since 1990, the endowment was tripling, from $333
million to more than $1 billion.
"Williams is hardly the only institution in such a situation: Harvard, the
leader, has an endowment near $14 billion -- and a current sticker price of
$34,682." (Jodi Wilgoren, The New York Times, January 9, 2000.)
----------
"In 1931 Japan conquered Manchuria; in 1933 Germany's Weimar Republic
gave way to Hitler's Nazi regime; in 1935 Italy attacked Ethiopia; in 1936
Hitler violated the Versailles Treaty by occupying the Rhineland. By then
Britain had already abandoned its 10-year rule, but it had not begun any serious
rearmament.
"Military weakness underlay the timidity, self-delusion and inadequacy of
British policies when the blue skies of 1919 gave way to the thunder-and
hailstorms of the 1930s. It sapped the will of Britain's leaders and led them to
ignore, then permit and justify, Hitler's aggression until the war was upon them
and defeat stared them in the face. That is the nature of international
relations: They can produce deadly threats with amazing speed and punish nations
that are thoughtless and complacent.
"The similarities to the situation of the U.S. today are obvious. Since
the end of the Cold War, its only peer competitor has subsided. It has reduced
its defense expenditure at a devastating pace. At the same time, its military
commitments around the world have grown and show no signs of diminution. Korea
and Iraq threaten potentially serious military challenges. Conflict with China
could burst out at any time over Taiwan. Who can tell what is the future of
Russia, which bears a troubling resemblance to the Weimar Republic? Should any
of these require military action, our current forces, especially the Army, would
be hard-pressed to meet the challenge. Should two conflicts occur
simultaneously, as Washington's official defense policy anticipates, their
demands could not be met." (Profs. Donald Kagan and Frederick W. Kagan, The Wall
Street Journal, September 1, 1999.)
[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
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>
1989 $129,376,703 $10,034,925 $12.24 $ 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
1998 476,463,575 8,986,125 31.43 .29 .29 1.65 22,908,091 301,750,135
1999 590,655,679 -- 35.05 .26 .26 2.34 43,205,449 394,282,360
</TABLE>
- ----------
A - Excluding gains or losses realized on sale of investments and the
dividend requirement on the Convertible Preference Stock.
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 $.47 in 1990 and $.11 in 1991.
The Common Stock is listed on the American Stock Exchange. On December 31,
1999, the market quotations were as follows:
Common Stock ..................................... 27 low, 27 1/4 high and
last sale
[4]
<PAGE>
To the Stockholders of
CENTRAL SECURITIES CORPORATION:
Financial statements for the year 1999, 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,
1999 1998
---- ----
<S> <C> <C>
Net assets ....................................................... $590,655,679 $476,463,575
Convertible Preference Stock at liquidation preference ........... * (8,986,125)
----------- ------------
Net assets applicable to Common Stock ............................ $590,655,679 $467,477,450
============ ============
Net asset coverage per share of Convertible Preference Stock ..... $ * $ 1,325.55
Net assets per share of Common Stock ............................. 35.05 31.43
Pro forma net assets per share, reflecting conversion of the
Convertible Preference Stock ................................... * 29.44
Shares of Convertible Preference Stock outstanding ........... * 359,445
Shares of Common Stock outstanding ........................... 16,850,745 14,872,742
Comparative operating results are as follows:
Year 1999 Year 1998
--------- ---------
Net investment income ............................................ $ 4,517,918 $ 4,775,728
Number of times Preferred dividend earned .................... * 6.6
Per share of Common Stock .................................... .26** .29**
Net realized gain on sale of investments ......................... 43,205,449 22,908,091
Increase in net unrealized appreciation of investments ........... 92,532,225 27,989,691
Increase in net assets resulting from operations ................. 140,255,592 55,673,510
Total return per share based on net asset value .................. 31.8% 13.8%
</TABLE>
- ----------------
* On August 1, 1999 the Corporation redeemed the remaining shares of the
$2.00 Series D Convertible Preference Stock.
** 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 1999,
a cash dividend of $.20 per share paid on June 15 and an optional distribution
of $2.40 per share in cash, or one share of Common Stock for each 10 shares
held, paid on December 22. The Corporation has been advised that of the $2.60
paid in 1999, $.26 represents ordinary income and the balance of $2.34
represents long-term capital gains. For Federal income tax
[5]
<PAGE>
purposes, separate notices have been mailed to stockholders. With respect to
state and local taxes, the status of distributions may vary. Stockholders should
consult with their tax advisors on this matter.
In the optional distribution paid in December, the holders of 54% of the
outstanding shares of Common Stock elected to receive stock, and 860,166 Common
shares were issued. During the year, 354,702 shares of Convertible Preference
Stock were converted into 1,295,185 shares of Common Stock. The remaining 4,743
shares of Preference Stock were redeemed by the Corporation.
During 1999 the Corporation repurchased 177,348 shares of its Common Stock
at an average price per share of $26.41. These shares were purchased on the
American Stock Exchange or in private transactions with stockholders. The
Corporation may from time to time purchase Common Stock in such amounts and at
such prices as the Board of Directors may deem advisable in the best interests
of stockholders.
----------
Returns to equity investors in 1999 exceeded 20% for the fifth year in a
row as measured by the S&P Composite, which increased by 21.0% last year. This
increase almost exactly matched that of the Russell 3000, an index which
represents about 98% of the investable U.S. equity market. There was a major
divergence, however, between growth and value. The Russell 3000 Growth Index
increased by 33.8% compared with an increase of only 6.7% for the Russell 3000
Value Index. The major cause of this disconnect was an almost mania-like
behavior concerning investments in technology and the Internet. Astute observers
like Andy Grove are reported to have predicted that within five years any
company that had not gotten involved in the Internet would be out of business.
Not everyone is caught up in the mania, however. Warren Buffett weighed in
from a different perspective, pointing out in a Fortune magazine article last
fall that many glamorous businesses (e.g., the manufacture of radios and
televisions) dramatically changed our lives but concurrently failed to deliver
rewards to U.S. investors. He believes that the key to investing is not
assessing how much an industry is going to affect society or how much it will
grow, but rather determining the competitive advantage of any given company and,
above all, the durability of that advantage. From Central's point of view, we
see the Internet as a powerful technological revolution with origins in Moore's
law about low cost computing power. In a Darwinistic sense, however, it will
benefit only those who can adapt. From an investment standpoint the terrain is
treacherous. The task for investors in technology is to find the companies that
can produce positive cash flow at a price that can be justified. At this
juncture, it is a difficult job.
Central's investment turnover last year increased slightly from the very
low level of the past few years. We continued to maintain most of our long-term
positions in the technology and financial sectors of the economy, although we
made some additions and reductions. Three new companies, Broadwing, Convergys
and Watkins-Johnson, were included among
[6]
<PAGE>
our ten largest holdings (see page 8) for the first time. Broadwing and
Convergys are both parts of what used to be Cincinnati Bell Telephone Co.
Convergys was spun-out as an independent company at year-end 1998. In commenting
on our Cincinnati Bell investment in last year's annual report, we said, "Our
main interest, like that of most investors, is in Convergys, which has an
opportunity for growth serving the wireless telecommunications industry.
However, we hope Cincinnati Bell will prove to be a sleeper." Little did we
know. We were stunned this summer when they announced the acquisition of IXC
Communications. We now have a much larger investment in the combination, renamed
Broadwing. Its management, led by Rick Ellenberger, is impressive. Rick gained
his telecom experience at MCI. We hope both companies will prosper providing
services to Internet and wireless telecommunications customers. Watkins-Johnson,
on the other hand, has not met our expectations, but it will not likely be in
our portfolio much longer as its directors have chosen to sell the company.
Like gamblers who take more risk when they are ahead of the game, many
investors have been caught up in the romance of the Internet and the rising
stock prices that have gone hand-in-hand with it. They ignore current
profitability and cash flow, not to mention sustainable competitive advantage.
All this makes the long-term investing we do even more interesting. We strive to
avoid losing objectivity about Internet investments and in this regard recall to
mind Ben Graham's famous parable about "Mr. Market", an obliging fellow who
shows up every day to either buy from you or sell to you, whichever you wish.
The stock market exists to serve investors, not to tell them what to do.
Our job is capital allocation. In doing this, we take a long-term view. In
our search for new investments, we look for growing companies with good economic
fundamentals that are available at a reasonable price. The ability and integrity
of management are very important considerations. We especially look for
alignment of the interests of management and shareholders. We then try to
anticipate change and be "in the right place at the right time". Additionally,
our continuing practice is to keep about one-half of our assets in a small
number of companies. We believe that the risk associated with this approach can
be reduced through intimate knowledge of the companies in which we invest.
It is our goal to provide investment management that will be judged as
excellent by stockholders. We are confident that, over the long-term and under
reasonably favorable economic conditions, we will be able to continue to find
good investment opportunities.
Stockholders' inquiries are welcome.
CENTRAL SECURITIES CORPORATION
WILMOT H. KIDD, President
375 Park Avenue
New York, NY 10152
February 2, 2000
[7]
<PAGE>
Central's Ten Largest Investments
December 31, 1999
----------------- Year First
Cost Value Acquired
---- ----- --------
(millions)
Intel Corporation
(Microprocessors) ........................ $ .7 $62.6 1986
Analog Devices, Inc.
(Semiconductors and Digital Signal
Processors) .............................. 1.6 55.8 1987
The DII Group Incorporated
(Electronic Manufacturing Services) ...... 5.6 35.5 1996
The Plymouth Rock Company, Inc.
(Insurance) .............................. 2.2 34.2 1982
American Management Systems, Inc.
(Consulting and Systems Integration) ..... 11.5 30.6 1984
Broadwing Inc.
(Communications) ......................... 7.0 32.6 1996
Capital One Financial Corporation
(Credit Cards) ........................... 3.0 28.9 1994
The Bank of New York Company, Inc.
(Banking and Processing Services) ........ 4.0 24.0 1993
Convergys Corporation
(Outsourced Customer Care and Billing) ... 12.6 20.9 1998
Watkins-Johnson Company
(Communications Equipment) ............... 14.0 20.0 1997
[8]
<PAGE>
PRINCIPAL PORTFOLIO CHANGES*
October 1 to December 31, 1999
(Common Stock unless specified otherwise)
<TABLE>
<CAPTION>
Number of Shares
---------------------------------------------
Held
Purchased Sold December 31, 1999
--------- ---- -----------------
<S> <C> <C> <C>
Analog Devices, Inc. ....................... 100,000 600,000
The Bank of New York Company, Inc. .......... 100,000 600,000
Broadwing Inc. .............................. 438,127(a) 788,127
Broadwing Inc. 7 1/4% Ser. A Conv. Pfd. ..... 10,743(b) 10,743
Church & Dwight Co., Inc. ................... 130,000 470,000
First Union Corporation ..................... 20,000 300,000
Gartner Group, Inc. Class A ................. 200,000 200,000
Intel Corporation ........................... 20,000 760,000
PharmChem Laboratories, Inc. ................ 18,347(c) 18,347
SunGard Data Systems Inc. ................... 250,000 250,000
Unisys Corporation .......................... 100,000 100,000
UNUMProvident Corporation ................... 30,000 230,000
</TABLE>
- ----------
* Excludes stocks listed under "Miscellaneous--Other investments" in the
Statement of Investments.
(a) 40,301 of which were received from Grumman Hill Investments, L.P., and
367,826 of which were received in exchange for 175,356 shares of Common
Stock of IXC Communications, Inc. pursuant to merger. Formerly known as
Cincinnati Bell Inc.
(b) Received in exchange for 10,743 shares of 7 1/4% Jun. Conv. Pfd. Stock of
IXC Communications, Inc. pursuant to merger.
(c) Received from Grumman Hill Investments, L.P.
[9]
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments:
General portfolio securities at market value
(cost $145,578,428) (Note 1) ......................... $496,605,439
Securities of affiliated companies (cost $17,481,381)
(Notes 1, 5 and 6) ................................... 60,798,603
Short-term investments (cost $33,117,204) .............. 33,055,331 $590,459,373
-----------
Cash, receivables and other assets:
Cash ................................................... 104,847
Interest receivable .................................... 196,970
Dividends receivable ................................... 172,025
Prepaid expenses ....................................... 95,425
Office equipment, net .................................. 14,512 583,779
----------- ------------
Total Assets ....................................... 591,043,152
LIABILITIES:
Accrued expenses and reserves .............................. 387,473
-----------
Total Liabilities .................................. 387,473
------------
NET ASSETS ..................................................... $590,655,679
============
NET ASSETS are represented by:
Common Stock at par value, $1.00 per share, authorized
30,000,000 shares; issued 17,060,093 (Note 2) ............ 17,060,093
Surplus:
Paid-in ................................................ $177,226,185
Undistributed net gain on sales of investments ......... 7,428,577
Undistributed net investment income .................... 107,021 184,761,783
-----------
Net unrealized appreciation of investments ................. 394,282,360
Treasury stock, at cost (209,348 shares of Common Stock)
(Note 2) ................................................. (5,448,557)
------------
NET ASSETS ..................................................... $590,655,679
============
NET ASSET VALUE PER COMMON SHARE ............................... $35.05
======
</TABLE>
See accompanying notes to financial statements.
[10]
<PAGE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1999
INVESTMENT INCOME
Income:
Dividends ..................................... $ 4,229,775
Interest ...................................... 2,542,851 $ 6,772,626
----------
Expenses:
Investment research ........................... 674,531
Administration and operations ................. 648,057
Employees' retirement plans ................... 93,315
Custodian fees (net of credits of $6,842) ..... 17,984
Franchise and miscellaneous taxes ............. 116,482
Transfer agent and registrar fees and
expenses ................................... 46,423
Rent and utilities ............................ 152,781
Listing, software and sundry fees ............. 85,140
Legal, auditing and tax fees .................. 101,616
Stationery, supplies, printing and postage .... 57,437
Travel and telephone .......................... 25,103
Directors' fees ............................... 80,500
Insurance ..................................... 66,891
Publications and miscellaneous ................ 88,448 2,254,708
---------- ------------
Net investment income ............................. 4,517,918
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain from security transactions ...... 43,205,449
Net increase in unrealized appreciation of
investments .................................... 92,532,225
----------
Net gain on investments ....................... 135,737,674
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ...................................... $140,255,592
============
See accompanying notes to financial statements.
[11]
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
FROM OPERATIONS:
Net investment income .......................................... $ 4,517,918 $ 4,775,728
Net realized gain on investments ............................... 43,205,449 22,908,091
Net increase in unrealized appreciation of investments ......... 92,532,225 27,989,691
------------- -------------
Increase in net assets resulting from operations ........... 140,255,592 55,673,510
------------- -------------
DIVIDENDS TO STOCKHOLDERS FROM:
Net investment income:
Preference Stock ........................................... (538,855) (721,149)
Common Stock ............................................... (3,982,045) (4,049,386)
Net realized gain from investment transactions ................. (37,367,455) (23,441,444)
------------- -------------
Decrease in net assets from distributions .................. (41,888,355) (28,211,979)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS: (Note 2)
Distribution to stockholders reinvested in Common Stock ........ 20,643,984 15,344,081
Cost of shares of Common Stock repurchased ..................... (4,683,567) (764,990)
Conversion:
Preference Stock prior to redemption ........................ (8,867,550) --
Into Common Stock ........................................... 8,867,550 --
Other capital transactions ..................................... (135,550) (100)
------------- -------------
Increase in net assets from capital
share transactions ....................................... 15,824,867 14,578,991
------------- -------------
Total increase in net assets ........................... 114,192,104 42,040,522
NET ASSETS:
Beginning of year .............................................. 476,463,575 434,423,053
------------- -------------
End of year (including undistributed net investment income
of $107,021 and $105,958, respectively) ...................... $ 590,655,679 $ 476,463,575
============= =============
</TABLE>
See accompanying notes to financial statements.
[12]
<PAGE>
STATEMENT OF INVESTMENTS
December 31, 1999
PORTFOLIO SECURITIES 94.4%
STOCKS (COMMON UNLESS SPECIFIED OTHERWISE)
Prin. Amt. Market
or Shares Value
--------- -----
Banking and Finance 13.4%
600,000 The Bank of New York Company, Inc. ........... $ 24,000,000
600,000 Capital One Financial Corporation ............ 28,912,500
300,000 First Union Corporation ...................... 9,881,250
430,000 Household International, Inc. ................ 16,017,500
-----------
78,811,250
-----------
Business Services 0.8%
200,000 MSC Industrial Direct Company Class A(a) . ... 2,650,000
170,000 UniFirst Corporation ......................... 2,146,250
-----------
4,796,250
-----------
Chemicals 3.9%
1,000,000 Hanna (M. A.) Company ........................ 10,937,500
300,000 Rohm and Haas Company ........................ 12,206,250
-----------
23,143,750
-----------
Computer Software & Services 11.6%
975,000 American Management Systems, Inc.(a) ......... 30,590,625
200,000 Cabletron Systems, Inc. ...................... 5,200,000
680,000 Convergys Corporation ........................ 20,910,000
200,000 Gartner Group, Inc. Class A(a) ............... 3,050,000
395,000 Peerless Systems Corporation(a) .............. 3,061,250
250,000 SunGard Data Systems Inc.(a) ................. 5,937,500
-----------
68,749,375
-----------
Data Processing 2.7%
555,000 The Reynolds and Reynolds Company Class A . .. 12,487,500
100,000 Unisys Corporation ........................... 3,193,750
-----------
15,681,250
-----------
Electronics 31.4%
600,000 Analog Devices, Inc.(a) ...................... 55,800,000
450,000 Arrow Electronics, Inc. ...................... 11,418,750
500,000 The DII Group Incorporated ................... 35,484,375
760,000 Intel Corporation ............................ 62,557,500
500,000 Watkins-Johnson Company(b) ................... 20,000,000
-----------
185,260,625
-----------
[13]
<PAGE>
Prin. Amt. Market
or Shares Value
--------- -----
Energy 6.1%
100,000 Conoco Inc. Class A .......................... $ 2,475,000
70,000 Kerr-McGee Corporation ....................... 4,340,000
300,000 MidAmerican Energy Holdings Company(a) ....... 10,106,250
300,000 Murphy Oil Corporation ....................... 17,212,500
100,000 Petroleum Geo-Services ASA Spon ADR .......... 1,781,250
-----------
35,915,000
-----------
Engineering and Construction 0.9%
700,000 Morrison Knudsen Corporation(a) .............. 5,468,750
-----------
Health Care 0.5%
150,000 MGI Pharma, Inc.(a) .......................... 1,790,625
100,000 Omnicare, Inc. ............................... 1,200,000
18,347 PharmChem Laboratories, Inc.(a) .............. 60,776
-----------
3,051,401
-----------
Household Products 2.1%
470,000 Church & Dwight Co., Inc. .................... 12,543,125
-----------
Insurance 7.7%
240,000 Mutual Risk Management Ltd. .................. 4,035,000
70,000 The Plymouth Rock Company, Inc.
Class A(b)(c) .............................. 34,160,000
230,000 UNUMProvident Corporation .................... 7,374,375
-----------
45,569,375
-----------
Manufacturing 3.3%
570,000 Brady Corporation Class A .................... 19,344,375
-----------
Publishing
100,000 Internet SportStations, Inc.(a)(c) ........... 100,000
-----------
Telecommunications 8.2%
788,127 Broadwing Inc.(d) ............................ 29,062,183
10,743 Broadwing Inc. 71/4% Ser. A Conv. Pfd. ....... 3,574,733
150,000 Nextel Communications, Inc. Class A .......... 15,468,750
-----------
48,105,666
-----------
Transportation 1.1%
533,757 Transport Corporation of America, Inc. (a)(b) 6,638,603
-----------
[14]
<PAGE>
Prin. Amt. Market
or Shares Value
--------- -----
Miscellaneous 0.7%
Grumman Hill Investments, L.P.(a)(c) ......... $ 562,247
5,000 Southeast Publishing Ventures, Inc.
Series A Pfd.(a)(b)(c) ..................... 0
Steuart Petroleum Company Warrant
Exp. 12/31/00 (a)(c) ...................... 0
Other investments ............................ 3,663,000
------------
4,225,247
------------
Total Portfolio Securities
(cost $163,059,809) ................ 557,404,042
------------
SHORT-TERM DEBT INVESTMENTS 5.6%
$14,514,000 American Express Credit Corp. 5.95%-6.10%
due 1/7/00-1/10/00 ......................... $ 14,496,569
18,560,000 U.S. Treasury Notes 5.75%-6.75% due
4/30/00-10/31/00 ........................... 18,558,762
------------
Total Short-Term Investments
(cost $33,117,204) ................. 33,055,331
------------
Total Investments
(cost $196,177,013) (100%) ......... 590,459,373
------------
Cash, receivables and
other assets less liabilities ...... 196,306
------------
Net Assets (100%) .................... $590,655,679
============
- ---------------
(a) Non-dividend paying.
(b) Affiliate as defined in the Investment Company Act of 1940.
(c) Valued at estimated fair value.
(d) 40,301 shares of which are valued at estimated fair value.
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, 1999 or, if unavailable, at the closing bid price.
Corporate discount notes are valued at amortized cost, which
approximates market value. Securities for which no ready market exists,
including The Plymouth Rock Company, Inc. Class A Common Stock, are
valued at estimated fair value by the Board of Directors. 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 Corporation issued 1,295,185
shares of Common Stock upon conversion of 354,702 shares of Preference Stock in
1999. The remaining 4,743 shares of Preference Stock were redeemed by the
Corporation on August 1, 1999. Pursuant to its fundamental policy regarding the
issuance of senior securities, the Corporation may issue senior securities in
the future when and if, in the judgment of its directors, such action is deemed
advisable.
In the optional distribution, 860,166 Common shares were issued on
December 22, 1999.
The Corporation repurchased 177,348 shares of its Common Stock in 1999 at
an average price of $26.41 per share representing an average discount from net
asset value of 18.9%. It may from time to time purchase Common Stock in such
amounts and at such prices as the Board of Directors may deem advisable in the
best interests of the stockholders. Purchases will only be made at less than net
asset value per share, thereby increasing the net asset value of shares held by
the remaining stockholders. Shares so acquired may be held as treasury stock,
available for optional stock distributions, or may be retired.
3. Investment Transactions -- The aggregate cost of securities purchased
and the aggregate proceeds of securities sold during the year ended December 31,
1999, excluding short-term investments, were $55,868,554 and $65,097,201,
respectively.
As of December 31, 1999, based on cost for Federal income tax purposes,
the aggregate gross unrealized appreciation and depreciation for all securities
were $398,238,406 and $3,956,046, respectively.
[16]
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
4. Operating Expenses -- The aggregate remuneration paid during the year
ended December 31, 1999 to officers and directors amounted to $1,278,154, of
which $80,500 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, 1999 was $79,505.
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 dividends of $341,000 from affiliates during the year ended
December 31, 1999. Unrealized appreciation related to affiliates increased by
$8,978,456 for the year 1999 to $43,317,222.
6. Restricted Securities -- The Corporation from time to time invests in
securities the resale of which is restricted. On December 31, 1999 such
investments had an aggregate value of $36,308,346, which was equal to 6.1% of
the Corporation's net assets. Investments in restricted securities at December
31, 1999, including acquisition dates and cost, were: Broadwing Inc. Common,
11/24/99, $3; Grumman Hill Investments, L.P., 9/11/85, $32,818; Internet
SportStations, Inc., 9/27/99, $100,000; The Plymouth Rock Company, Inc.,
12/15/82, $1,500,000 and 6/1/84, $699,986; Southeast Publishing Ventures, Inc.,
4/5/89, $0; 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 $231,708 for the year 1999 to $33,923,039.
[17]
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year ............ $ 31.43 $ 29.97 $ 25.64 $ 21.74 $ 17.60
Net investment income ......................... .30 .34 .29 .33 .37
Net realized and unrealized gain on
securities ................................. 5.96 3.11 6.51 5.28 5.76
-------- -------- -------- -------- --------
Total from investment operations ........ 6.26 3.45 6.80 5.61 6.13
Less:
Dividends from net investment income*
To Preference Stockholders ................ .04 .05 .05 .06 .06
To Common Stockholders .................... .26 .29 .34 .28 .33
Distributions from capital gains*
To Common Stockholders .................... 2.34 1.65 2.08 1.37 1.60
-------- -------- -------- -------- --------
Total distributions ..................... 2.64 1.99 2.47 1.71 1.99
-------- -------- -------- -------- --------
Net asset value, end of year .................. $ 35.05 $ 31.43 $ 29.97 $ 25.64 $ 21.74
======== ======== ======== ======== ========
Per share market value, end of year ........... $ 27.25 $ 24.38 $ 29.69 $ 24.13 $ 20.88
Total return based on market(%) ............... 22.96 (11.57) 35.60 22.35 45.65
Total return based on NAV(%) .................. 31.79 13.75 26.08 25.97 34.59
Ratios/Supplemental Data:
Net assets, end of year(000) .................. $590,656 $476,464 $434,423 $356,686 $292,548
Ratio of expenses to average net assets
for Common(%) ............................... .45 .51 .54 .57 .64
Ratio of net investment income to average
net assets for Common(%) .................... .89 1.09 .99 1.36 1.75
Portfolio turnover rate(%) .................... 12.06 6.21 10.92 9.89 8.27
</TABLE>
- -----------------
* Computed on the basis of the Corporation's status as a "regulated investment
company" for Federal income tax purposes.
See accompanying notes to financial statements.
[18]
<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
December 31, 1999, 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, 1999. 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and financial
highlights. Our procedures included confirmation of securities owned as of
December 31, 1999 by correspondence with the custodian. 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, 1999, 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, 1999, 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, 1999 in the tables
appearing on pages 4 and 5 is fairly stated in all material respects in relation
to the financial statements from which it has been derived.
KPMG LLP
New York, NY
January 25, 2000
- --------------------------------------------------------------------------------
[19]
<PAGE>
BOARD OF DIRECTORS
DONALD G. CALDER DUDLEY D. JOHNSON
President President
G. L. Ohrstrom & Co., Inc. Young & Franklin Inc.
New York, NY Liverpool, NY
JAY R. INGLIS WILMOT H. KIDD
Executive Vice President President
Holt Corporation
New York, NY
C. CARTER WALKER, JR.
Washington, CT
OFFICERS
WILMOT H. KIDD, President
CHARLES N. EDGERTON, Vice President and Treasurer
KAREN E. RILEY, Secretary
OFFICE
375 Park Avenue, New York, NY 10152
212-688-3011
www.centralsecurities.com
CUSTODIAN
UMB Bank, N. A.
P.O. Box 419226, Kansas City, MO 64141-6226
TRANSFER AGENT AND REGISTRAR
EquiServe, First Chicago Trust Division
P.O. Box 2500, Jersey City, NJ 07303-2500
INDEPENDENT AUDITORS
KPMG LLP
345 Park Avenue, New York, NY 10154
[20]
