New York, N. Y., March 22, 1928.

To THE Stockholders of the

HUDSON & MANHATTAN RAILROAD COMPANY:

The following report for the year ended December 31, 1927, is submitted:

Semi-annual dividends at the rate of 5% per annum on the preferred capital stock and at
the rate of 2%% per annum on the common capital stock were paid.

In preceding reports mention was made of the steady increase in taxes. The increase
contmued in 1927. Taxes on the railroad operating properties reached a total of $1,059,413.02,
which is $53,800.85 in excess of similar charges in 1926 and is equivalent to 11.7% of gross
revenue from railroad operation. Compared with the year 1920, the increase is $644,059.32,
or 155%.

Work of enlargement of the station, car storage yard and track faclHties at Journal
Square, Jersey City, has progressed. The yard and track work, including signal and interlock¬
ing appurtenances, is practically completed, and the increased capacity which it provides has
been in use since January 15, 1928, and fully justifies itself. Reconstruction and enlargement
of the station should be completed during the current year.

To care for the steady growth of trafSc, 16 new cars were bought and placed in the New
York-Newark joint rapid transit service during the year. Of this number, 12 cars were con¬
tributed by the Pennsylvania Railroad Company and 4 by your Company. In addition, order
was placed for 20 new cars for the local service in November, 1927, and these cars are now
under construction. When they are received it will represent an increase of 50%, in local car
equipment since 1920.

Voluntary wage increases averaging about 5% in the aggregate, were made during the
year.

The Holland Tunnels (vehicular tunnels) under the Hudson River, between New York
City and Jersey City, were opened to the public on November 12, 1927, and during the first
13 weeks an average of 19,011 vehicles used the tunnels daily. During this period there was
no indication that the opening of these tunnels had had any appreciable effect upon the
traffic of Hudson & Manhattan Railroad.

On February 17, 1928, a line of passenger buses, in direct competition with the Hudson
& Manhattan Railroad, started operation through the Holland Tunnels between Journal
Square, Jersey City, and two terminals in New York City; one at 9th Street and Broadway,
and the other at 31st Street and 6th Avenue. To and from 9th Street the bus fare is 15
cents, and to and from 31st Street it is 25 cents, or 10 tickets for $2.00. At the present time
the buses are carrying at the rate of approximately 1,500,000 passengers per annum, but the
inauguration of the service is of too recent date to permit of a conclusion as to the effect it
will have on the business of your Company.

There has been no deviation from the established policy of maintaining the tunnels,
stations, structures, plants and equipments at a high state of efficiency.

By order of the Board of Directors.

OREN ROOT,

President.