CET Central Securities Corp

CENTRAL SECURITIES CORPORATION

NINETY-FIFTH ANNUAL REPORT

2023

SIGNS OF THE TIMES

“We have a financial system that is dependent on asset prices going up…. We have an economy that is based on asset prices going up. If they don’t go up, there are problems. There are problems because there is so much debt, and there are such high expectations in terms of P/E ratios and the like, that…it’s precarious at some point. I’m not saying get out. I’m just saying assets have to go up or else the economy will not do well.” (Bill Gross, Bloomberg Odd Lots, September 13, 2023)

“The US federal government is issuing $776 billion in marketable debt per quarter to fund a deficit running at around 7% of GDP – a shocking number at a time of near-full employment. According to Bloomberg, annualized interest payments on the federal debt exceeded $1 trillion at the end of last month – a figure that has doubled over the past 19 months. This quarter, for the first time since World War II (with the sole exception of the first quarter of 1998) interest payments will exceed defense spending.” (Niall Ferguson, Bloomberg, November 19, 2023)

“The U.S. economy has been running, improbably, with an unemployment rate under 4% for nearly two years. That isn’t just a holdover from pandemic bottlenecks, when employers let millions of people go and then struggled to find workers when demand roared back, economists and business leaders say. It is a storm that has been brewing for decades, flaring up most recently in the form of worker strikes at automakers and airlines. Labor shortages are turning into a long-term labor crisis that could push wages and turnover higher.

“Work experts have warned for years that the combination of baby boomer retirements, low birthrates, shifting immigration policies and changing worker preferences is leaving U.S. employers with too few workers to fill job openings. While the labor market is softening, none of those factors are expected to change dramatically in the coming years.” (Lauren Weber and Alana Pipe, The Wall Street Journal, September 25, 2023)

“The recent surge of migrants at our southern border, which reached a high in December, has, at long last, brought Democrats and Republicans closer to agreement on one thing: the need for immediate attention to our broken immigration system.

“We have an underfunded immigration apparatus that is swaddled in bureaucracy, complicated beyond imagination, bound by decades-old international agreements, paralyzed by divisive politics and barely functional under the best of circumstances.…

“In fiscal year 2023 alone (from October 2022 to September 2023), the United States had two and a half million ‘encounters’ along its 2,000-mile border with Mexico, according to U.S. Customs and Border Protection. That is over two and a half times the number just four years ago, overwhelming the ability of governmental bodies — border patrol, immigration courts, human services agencies — to manage the flow.” (Steven Rattner and Maureen White, The New York Times, January 9, 2024)

“Ice cover in North America’s Great Lakes has hit its lowest level for 50 years after an unusually warm start to the winter, continuing a decline that is being closely monitored for its links to climate change. According to data from the Great Lakes Environmental Research Laboratory, just 0.43 per cent of the interconnected lakes was covered with ice on Thursday compared with an average of 10.6 per cent for this time of year over the past half-century.” (Kenza Bryan and Steven Bernard, The Financial Times, January 5, 2024)

“Shortly after the launch of ChatGPT, the Atlantic drew up a list of the greatest threats to the 166-year-old publication from generative artificial intelligence. At the top: Google’s embrace of the technology.

“About 40% of the magazine’s web traffic comes from Google searches, which turn up links that users click on. A task force at the Atlantic modeled what could happen if Google integrated AI into search. It found that 75% of the time, the AI-powered search would likely provide a full answer to a user’s query and the Atlantic’s site would miss out on traffic it otherwise would have gotten.” (Keach Hagey, Miles Kruppa, Alexandra Bruell, The Wall Street Journal, September 15, 2023)

“Novo Nordisk is the company behind the first game-changing treatments that are used for obesity: Wegovy and Ozempic. Before these drugs, the only truly effective treatment was bariatric surgery, which is expensive and sometimes risky. Now there is a simple injection.

“A safe and readily available treatment for obesity could have a huge impact on human health, while also generating savings on treating other diseases. Obesity will affect an estimated 1bn people by 2030 – with all the associated impact that has on rates of diabetes, heart disease and mobility. In the US alone, the economy loses up to $30bn a year in sick days due to the condition, according to research from Cornell.” (Hannah Kuchler, The Financial Times, December 19, 2023)

“While official figures are no longer available, Xiong Bingqi, director of the Beijing-based 21st Century Education Research Institute, estimated that just half of the 11.58 million students that graduated from Chinese institutions of higher education this year have landed a job or been admitted to postgraduate study. Of that half, 1 million were absorbed into the public sector via the civil service, while roughly 2 million either went to study overseas or at a graduate school at home.” (Mandy Zuo, South China Morning Post, December 19, 2023)

“China is doubling down on manufacturing to reboot its economy after a turbulent year, a strategy that risks igniting new tensions over trade as countries step up support for prized industries and global growth teeters... A drawn-out property crunch means Beijing can no longer rely on debt-fueled real-estate investment to power the economy, and officials have shown little appetite to shift activity decisively toward consumer spending.

“The result: Capital is pouring into factories as Beijing tries to nudge China’s supertanker economy onto what it hopes will be a healthier trajectory. Central to that ambition is a plan to dominate global markets in emerging industries, such as electric vehicles, batteries and renewable-energy gear....The hope is that growth in what Chinese officials refer to as the ‘New Three’ industries and other favored sectors will help China’s economy banish the specters of deflation and Japan-style stagnation as a real-estate crunch weighs heavily on construction, investment and consumer confidence. Longer-term, Beijing wants these and other high-tech manufacturing industries to be in the vanguard of its push to eventually unseat the U.S. as the world’s largest economy, while also helping it grow richer and weather the pressure of an aging and shrinking population.” (Jason Douglas, The Wall Street Journal, January 18, 2024)

“Many companies no longer utter these three letters: E-S-G. Following years of simmering investor backlash, political pressure and legal threats over environmental, social and governance efforts, a number of business leaders are now making a conscious effort to avoid the once widely used acronym for such initiatives…. Advisers are coaching executives on alternative ways to describe their efforts, proposing new terms like ‘responsible business.’” (Chip Cutter and Emily Glazer, The Wall Street Journal, January 9, 2024)

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)

25-YEAR HISTORICAL DATA

*Computed on the basis of the Corporation’s status as a “regulated investment company” for Federal income tax purposes. Dividends from ordinary income include short-term capital gains.

**Includes non-taxable return of capital of $.55.

The Common Stock is listed on the NYSE American under the symbol CET. On December 29, 2023 (the last trading day of the year), the closing market price was $37.77 per share.

To the Stockholders of

Central Securities Corporation:

Financial statements for the year 2023, as audited by our independent registered public accounting firm, and other pertinent information are submitted herewith.

Comparative net assets are as follows:

Comparative operating results are as follows:

*Per-share data are based on the average number of Common shares outstanding during the year.

The Corporation declared two distributions to holders of Common Stock in 2023, $.20 per share paid on June 27 in cash and $1.65 per share paid on December 21 in cash or in additional shares of Common Stock at the stockholder’s option. For Federal income tax purposes, of the total $1.85 paid, $.50 represents ordinary income and $1.35 represents long-term capital gains. A separate tax notice has been mailed to stockholders. With respect to state and local taxes, the character of distributions may vary. Stockholders should consult with their tax advisors on this matter.

In the distribution paid in December, the holders of 45% of the outstanding shares of Common Stock elected stock, and they received 563,358 Common shares at a price of $36.80 per share.

During 2023, the Corporation purchased 163,782 shares of its Common Stock at an average price of $35.61 per share. The Corporation may from time to time purchase its Common Stock in such amounts and at such prices as the Board of Directors deems advisable in the best interests of stockholders. Purchases may be made in the open market or in private transactions directly with stockholders.

Central’s net asset value, adjusted for the reinvestment of distributions to shareholders increased by 20.5% during 2023. Over the same period, Central’s shares returned 18.9%. For comparative purposes, the S&P 500 Index increased by 26.3% while the Russell 2000, a broad index composed of smaller companies, increased by 16.9%.

Long-term returns on an annualized basis are shown below.

The U.S. economy remained resilient in 2023 as inflation moderated from the high-single digit level seen in 2022. Unemployment rose slightly from its 50-year low, and consumer spending remained strong. Fiscal policy remained strongly expansionary with the federal budget deficit exceeding 6% of GDP.

The Federal Reserve continued to tighten monetary policy by raising interest rates four additional times and by continuing to run off its bond portfolio, resulting in upward pressure on long-term interest rates. The ten-year treasury note reached a post-financial crisis high of 5% before pulling back at year-end. Existing home sales fell to the lowest level in more than two decades, as interest rates for new mortgages rose well above most owners’ existing rates.

Concerns about geopolitical risks and global supply-chain dependencies escalated again in 2023. Russia’s continuing invasion of Ukraine raised questions about the political will of western countries to support Ukraine. Terrorist attacks by Hamas on October 7 drew Israel into a war in Gaza that threatens to expand into a regional conflict. Both these situations as well as potential conflicts in Taiwan and Guyana have led some to question the ability or willingness of the United States to support and maintain a rules-based global order. The long-term impacts of a less stable, more multi-polar world remain unclear, and markets seem to have priced in little potential risk from broadening hostilities or decoupling of the global economy.

Growth stocks rallied strongly on the improved inflation outlook despite slowing economic growth, higher interest rates, modest changes in aggregate earnings estimates, and heightened geopolitical concerns. The contribution of seven large-cap stocks to the performance of the S&P 500 Index—Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia, and Tesla—was notable in 2023. The “Magnificent Seven” contributed 16 points of the index’s 26% return for the year and accounted for almost 28% of the total value of the index at year-end. Weighting each of the 500 companies in the S&P 500 Index equally, the index returned less than 14%. Of the seven companies noted above, Central owns shares in Alphabet, Amazon, Meta, and Microsoft; in aggregate they contributed seven points of our return for the year and had a year-end weighting in our portfolio of 12.6%.

Central maintained its approach of investing for the long term. We initiated two new positions during the year in Visa and Teledyne Technologies. Visa is the leading global consumer payments network, while Teledyne is a manufacturer of digital imaging and electronic instrumentation components and systems used for aerospace and defense, industrial, sub-sea, and research applications. We added modestly to our positions in Amazon, Charles Schwab, Coherent, and Kennedy-Wilson. We trimmed existing positions in Alphabet, American Express, Analog Devices, Brady, Hess, JPMorgan Chase, Intel, Microsoft, and Motorola. We ended the year with 30 holdings, up from 28 last year. The most significant positive contributors to Central’s 2023 results on an absolute basis, in order of importance, were Plymouth Rock, Alphabet, and Meta. The largest detractors from our performance were Charles Schwab and Wolfspeed.

Central’s largest and most important investment remains Plymouth Rock, a privately held company in which we invested in 1982. The Plymouth Rock Group of Companies together write and manage more than $1.9 billion in personal and commercial auto, homeowners and umbrella insurance in Massachusetts, New Hampshire, Connecticut, New York, New Jersey and Pennsylvania.

In 2023 Plymouth Rock maintained its focus on underwriting profitability and the adequacy of rates amid continued increases in claims costs. A more complete discussion of Plymouth Rock’s year will be contained in its 2023 annual report which we expect will be available in April. The most current annual report may be found at www.plymouthrock.com/about/financial-information/annual-reports.

Central is an independent, internally managed closed-end investment company. Our primary objective is long-term growth of capital through the ownership of equity stakes in select companies operating in diverse industries. We aspire to invest with a time horizon of at least five years and attempt to construct a portfolio with some degree of opposing risks. Honest and capable management working in the long-term interest of all stockholders is of the utmost importance in our appraisal of investments. Finally, we attempt to purchase investments at a reasonable, if not a bargain price. Our approach requires intimate knowledge of the business and management of the companies we own. We believe Central’s ability to take a long-term view is advantageous to our stockholders.

A statement of Central’s investment objectives, principal investment policies and the principal risks associated with an investment in Central’s common stock is provided beginning on page 25 of this report. We also include Management’s Discussion of Performance, beginning on page 9.

Stockholder’s inquiries are welcome.

John C. Hill         Wilmot H. Kidd         Andrew J. O’Neill

630 Fifth Avenue
New York, New York 10111
January 31, 2024

25-YEAR INVESTMENT RESULTS
ASSUMING AN INITIAL INVESTMENT OF $10,000

(unaudited)

Central’s results to December 31, 2023 versus the S&P 500 Index:

The Corporation’s total returns reflect changes in market price or net asset value, as applicable, and assume reinvestment of all distributions. Distributions that are payable only in cash are assumed to be reinvested on the payable date of the distribution at the market price or net asset value, as applicable. Distributions that may be taken in shares are assumed to be reinvested at the price designated by the Corporation. Total returns do not reflect any transaction costs on investments or the deduction of taxes that investors may pay on distributions or the sale of shares.

The Standard & Poor’s 500 Composite Stock Price Index (the “S&P 500 Index”) is an unmanaged benchmark of large U.S. corporations that assumes reinvestment of all distributions, and excludes the effect of fees, expenses, taxes, and sales charges.

Performance data represents past performance and does not guarantee future investment results.

MANAGEMENT DISCUSSION OF PERFORMANCE

The Corporation’s net asset value, adjusted for the reinvestment of distributions to stockholders, increased by 20.5% during 2023 while Central’s shares returned 18.9%. The S&P 500 Index returned 26.3% during 2023 driven by outsized gains of a limited number of megacap tech stocks. The Russell 2000 Index increased by 16.9%.

Economic conditions entering 2023 were somewhat cloudy, with many analysts factoring a recession into their forecasts. Some of the more bearish outlooks discussed the high interest rate backdrop, fears of a consumer pullback, risks to corporate earnings, and geopolitical uncertainties. However, mounting expectations for a dovish Federal Reserve pivot, continued spending by the U.S. consumer, and resilient corporate earnings overcame hard-landing fears and gave way to a broader soft- or no-landing economic consensus.

Consequently, U.S. equities were higher overall in 2023, with the Dow Jones Industrial Average and Standard & Poor’s 500 Index more than erasing their 2022 declines. The Dow set a fresh all-time high while the S&P ended the year close to its January 2022 record close. The trend for the S&P was generally higher, though stocks pulled back in the third quarter before rallying into year-end. Strong rallies by several megacap tech names (dubbed the “Magnificent Seven”) drove a majority of the overall index performance of the S&P 500, and narrow market leadership remained a nagging concern for much of the year.

Central maintained its approach of investing in a limited number of companies operating in diverse industries. We tend to hold these companies for the long term, participating in the growth of earnings and cash flow over time rather than seeking to add value by trading between companies and sectors. We focus on bottom-up fundamentals rather than a top-down allocation of investments to economic sectors. We seek to construct a portfolio with opposing risks and without dependence upon any one theme or sector. During 2023, Central trimmed some of its appreciated positions that resulted in an increase in our average cash position to approximately 9% of assets. Our cash is invested in short-term U.S. Treasury bills or a money market fund also holding Treasury securities. These short-term investments provided a mid-single digit return as short-term interest rates continued to increase throughout much of the year.

Central maintained its significant investment in The Plymouth Rock Company, a privately-issued, illiquid security. Plymouth Rock was the biggest positive contributor to Central’s absolute performance in 2023, although its return lagged the S&P 500 Index. While Plymouth Rock’s 2023 full year financial information is not yet available, we expect that the company’s book value will increase from the prior year due to the performance of its equity investments. We also believe that the company avoided significant operating losses from adverse weather events. Plymouth Rock paid two dividends to Central that added to our return in 2023.

Other significant positive contributors to Central’s absolute result were Alphabet, Meta Platforms and Analog Devices. Alphabet, the parent company of Google, provides web-based search, advertising, mobile software and other internet services. It returned over 58% for the year to Central as top-line pressures proved to be less than feared, and cost-cutting actions improved profit margins.

Meta, the parent of Facebook and Instagram, engages in the development of social media applications. It builds technology that helps people connect, find communities, and grow businesses. Meta was Central’s best performing stock in 2023, almost tripling in value, thanks to an improvement in earnings from the company’s cost-cutting program and an improved revenue outlook.

Analog Devices designs, manufactures and markets integrated circuits used in analog and digital signal processing and power management. It is Central’s largest publicly traded portfolio company investment and returned 23% for the year as worries over an inventory correction and weaker end-demand moderated by the end of 2023.

Significant detractors from performance on an absolute basis were Charles Schwab and Wolfspeed. Charles Schwab stock declined 10% for Central in the face of rising interest rates which pressured the company’s earnings from net interest margin, a key source of profitability, despite the continued increase in customer assets. Wolfspeed, a small position for Central, encountered setbacks during start-up of its new silicon carbide manufacturing facilities and the stock declined 37%.

Among the Corporation’s other large investments, Amazon.com and Capital One were strong contributors to Central’s performance. Progressive, American Express and Motorola Solutions had positive returns that lagged the broader stock market.

TEN LARGEST INVESTMENTS

December 31, 2023

(unaudited)

DIVERSIFICATION OF INVESTMENTS

December 31, 2023

(unaudited)

*Certain amounts from 2022 have been reclassified to conform with 2023 presentation.

PRINCIPAL PORTFOLIO CHANGES

October 1 to December 31, 2023

(unaudited)

STATEMENT OF INVESTMENTS

December 31, 2023

(a)Non-dividend paying.

(b)Affiliate as defined in the Investment Company Act of 1940 and restricted. See Note 5 and Note 6.

(c)Valued based on Level 3 inputs. See Note 2.

(d)Valued based on Level 2 inputs. See Note 2.

See accompanying notes to financial statements.

STATEMENT OF ASSETS AND LIABILITIES

December 31, 2023

STATEMENT OF OPERATIONS

For the year ended December 31, 2023

STATEMENTS OF CHANGES IN NET ASSETS

For the years ended December 31, 2023 and 2022