CET Central Securities Corp

CENTRAL SECURITIES CORPORATION

SEMI-ANNUAL REPORT

JUNE 30, 2022

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)

Comparative operating results are as follows:

A distribution of $.20 per share was paid on June 24, 2022 to stockholders of record as of June 13, 2022. Stockholders will be sent a notice concerning the taxability of all 2022 distributions in early 2023.

During the first six months of 2022, the Corporation did not purchase any shares of its Common Stock. 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.

Stockholder inquiries are welcome.

*Shares received in a 20 for 1 stock split.

(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 statement of investments.

NOTES TO FINANCIAL STATEMENTS — continued (Unaudited)

The Corporation’s investments as of June 30, 2022 are classified as follows:

The following is a reconciliation of the change in the value of Level 3 investments:

Unrealized appreciation of Level 3 investments still held as of June 30, 2022 decreased during the six months ended June 30, 2022 by $48,320,800, which is included in the above table.

In valuing the Plymouth Rock Level 3 investment as of June 30, 2022, management considered Plymouth Rock’s financial condition and results of operations, the insurance industry outlook, and any transactions in Plymouth Rock’s shares. Management used significant unobservable inputs to develop a range of values for the investment. It used a comparable company approach that utilized the following valuation multiples from selected publicly traded companies: price-to-book value (range: 0.7–1.8; average: 1.3); price-to-historical earnings (range: 11.5–31.3; average: 19.2); and price-to-forward earnings estimates (range: 10.4–23.9; average: 17.3). Management also used Plymouth Rock’s book value and a discounted cash flow model based on a forecasted return on equity of approximately 12% and a cost of capital of approximately 11%. The average of these values was then discounted for lack of marketability and control of the Plymouth Rock shares. Management considered a discount range of 30% to 40%, a range management believes market participants would apply. An independent valuation of Plymouth Rock’s shares obtained by Plymouth Rock was also considered. Management presented and discussed the above information with the Corporation’s directors, who approved the value for the investment.

Increases (decreases) in the price-to-book value multiple, price-to-historical earnings multiple, price-to-forward earnings estimate multiple, return on equity rate and book value in isolation would result in a higher (lower) range of fair values. Increases (decreases) in the discount for lack of marketability and control or cost of capital in isolation would result in a lower (higher) range of fair values.

3. Common Stock—During the six months ended June 30, 2022, the Corporation did not purchase any shares of its Common Stock. The Corporation may from time to time purchase its 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 prices 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 stock distributions, or may be retired.

4. Investment Transactions—The aggregate cost of securities purchased and the aggregate proceeds of securities sold during the six months ended June 30, 2022, excluding short-term investments, were $2,628,083 and $72,994,588, respectively.

As of June 30, 2022, the tax cost of investments was $490,496,321. Net unrealized appreciation was $611,261,411 consisting of gross unrealized appreciation and gross unrealized depreciation of $651,479,195 and $40,217,784, respectively.

NOTES TO FINANCIAL STATEMENTS — continued (Unaudited)

5. Affiliated Companies—Plymouth Rock is an affiliated company as defined in the Investment Company Act of 1940 due to the Corporation’s ownership of 5% or more of the company’s outstanding voting securities. During the six months ended June 30, 2022, unrealized appreciation from the Corporation’s investment in Plymouth Rock decreased by $48,320,800 and the Corporation received dividends of $9,344,958 from Plymouth Rock. The Chairman of the Corporation is a director of Plymouth Rock. The Chief Executive Officer of the Corporation is a director of certain subsidiaries of Plymouth Rock.

6. Restricted Securities—The Corporation may from time to time invest in securities the resale of which is restricted. On June 30, 2022, the Corporation’s only restricted security consisted of 28,424 shares of Plymouth Rock Class A stock that were acquired on December 15, 1982 at a cost of $710,600. This security had a value of $244,446,400 at June 30, 2022, which was equal to 22.2% of the Corporation’s net assets. The Corporation does not have the right to demand registration of this security.

7. Bank Line of Credit—The Corporation has entered into a $25 million uncommitted, secured revolving line of credit with UMB Bank, n.a. (“UMB”), the Corporation’s custodian. All borrowings are payable on demand of UMB. Interest on any borrowings is payable monthly at a rate based on the federal funds rate, subject to a minimum annual rate of 2.50%. No borrowings were made during the six months ended June 30, 2022.

8. Compensation and Benefit Plans—The aggregate compensation expense for all officers during the six months ended June 30, 2022 was $1,787,620, of which $1,035,000 was paid during the period.

Officers and other employees participate in a 401(k) profit sharing plan. The Corporation has agreed to contribute 3% of each participant’s qualifying compensation to the plan, which is immediately vested. Contributions in excess of 3% may be made at the discretion of the Board of Directors and vest after three years of service. During the six months ended June 30, 2022, the Corporation accrued $114,659 related to the plan.

Until March 20, 2022, the Corporation maintained an incentive compensation plan (the “2012 Plan”) which permitted the granting of awards of unrestricted stock, restricted stock, restricted stock units and cash to full-time employees and non-employee directors of the Corporation. The 2012 Plan was administered by the Corporation’s Compensation and Nominating Committee.

Pursuant to the terms of the 2012 Plan, each non-employee director was awarded 500 shares of vested unrestricted Common Stock at initial election to the Board of Directors and annually after re-election at the Corporation’s annual meeting. During the six months ended June 30, 2022, non-employee directors were granted a total of 3,500 shares of Common Stock at a weighted average grant date value of $40.58 per share. The grant date value is the average of the high and low prices of the Corporation’s Common Stock on the grant date. The aggregate share value of $142,030 plus cash payments of $96,750 made to all non-employee directors are included in Directors’ fees expense in the accompanying Statement of Operations.

9. Operating Lease—The Corporation leased office space under a lease that was scheduled to expire on June 30, 2022. The lease included fixed payments for occupancy and certain utilities and variable payments relating to the Corporation’s share of increases in building operating expenses and real estate taxes. The lease was amended effective April 27, 2022 to extend the lease term until June 30, 2033. Under the amended lease, utility costs will no longer be fixed monthly payments. The landlord has also agreed to abate the fixed rent for 12 months commencing July 1, 2022 and to reimburse the Corporation for certain renovation costs that the Corporation may incur. After June 30, 2027, the landlord may offer the Corporation comparable substitute office space under similar terms; if the Corporation does not accept the substitute space, it may terminate the lease 10 months after it delivers notice of such non-acceptance.

The lease extension is accounted for as a lease modification as of the effective date. The Corporation determined that the lease was an operating lease. As of the effective date of the lease extension, the Corporation measured its lease liability and corresponding ROU asset at approximately $2.9 million, which was the present value of the fixed payments less estimated incentive payments to be received under the lease using a discount rate of 4.89%.

NOTES TO FINANCIAL STATEMENTS — continued (Unaudited)

Total lease expense for the six months ended June 30, 2022 was $190,426 substantially all of which was operating lease cost.

Fixed amounts due under the lease as of June 30, 2022 are as follows:

FINANCIAL HIGHLIGHTS

The following table shows per share operating performance data, total returns, ratios and supplemental data for the six months ended June 30, 2022 and each year in the five-year period ended December 31, 2021. This information has been derived from information contained in the financial statements and market price data for the Corporation’s shares.

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 at the market price or net asset value, as applicable, on the payable date of the distribution. Distributions that may be taken in shares are assumed to be reinvested at the price designated by the Corporation.