..

. .;
, ,
GRAHAM-NEWMAN CORPORATION
, " ',52 WALL - .nl
:, . :NEW'YORK 5. N. ',' , ..;'
"."...
,Feb .;28th;-'1946.:'o,:,,'
';Tei' :" - " -,'
;:. tenth .
opera ,:Thiseven't makes:!,t ,appropriat;eto depart, fromfor.Jll.El.r,'s
custom and to include ,with our Annual Report some .
..... ,," - .
on our, policies, results and' prospects. '$,
. ..
General Policy and Over-all Results.
The current Prospectus of the Corporation
general investment'po1icy is: '
'. .
states that its I! ..,;" .. '
. ":. ,".
- ..
, (1) To securities'at 'prices less than their
value as determined 'by careful analysis, with particular emphasifj
on purchase ,of securities at less than their liquidating value.
(2) To engage in arbitrage and in these-
curities field.
This policy means that, in our operations, relatively little
stress is ,laid upon forecasting the future course of the securities
market or the future prospects of individual companies on a basis'
differing materially from their past performance. With regard to
"general portfolio operations" -- as distinguished from arbitrage,
liquidation and hedging operations -- it means that we tend to
purchase securities when general sentiment is pessimistic and
prices are generally low, and to sell them out in periods of
optimism and high prices.
The over-all results realized by the Corporation in the past
decade are summarized in Tables I, II and III app,ended.
We may point out here that, for the ten-year period, 'total "
earnings before contingent compensation to officers aggregated $245
per share, as against the original issue price, adjusted, of $99 per
share. or these earnings, $41 per share was paid as contingent com-
pensation and $204 accrued to the Of the latter sum,
$161 was paid in cash dividends (including $3.87 as the later cash,
value of a distribution in kind); $16 represents'the value of sub-
scription rights offered; and $27 represents the increase in the '
remaining net asset value of the shares.
The annual percentage gain to stockholders, based on net asset
value at the beginning of each year, averaged 17.6%. This compares
with 10.1% in the same period shown by the Standard Statistics -
Poor's Index of 90 stocks, and 10% shown by the Dow-Jones Industrial
Average -- in both cases with allowance for dividends received. /
- 2
-
IIi the first six years: of-operation ,(calendar 1936-1941) _..:. a pe-
riod of generally declining ourover:"all gain
per annq!Il,against, a loss of .6'/>'fo7: ''the90-stock average. In the '
past four 'years (calendar. 1942-1945 inclusive) -- a period ofstead11.y .
rising prices -- we averaged 26!3% tIn
our last .fiscal year, we showed; for the first time, a lower percentage
gain 'thanthat' ,-afthe 'general These "coinparat'ive resuItf!'":i'ollow
direc'tlyfromour 'investment" policy, whichgrowsm.oreconservative,as,',
the market:level' ri"ses. '. '" . ' "'.; '. -:.: ,,;;',." ',;
Future Prosp@ts. <;il -.
Because of the large advance in the in ,
threeYf;lar's, we have substantially changed the character 'of our
curity holdings during this period. The percentage held in Ilgeneral
portfolio common stocks
ll
has been greatly reduced, and the percentage
in arbitrages, hedging operations end convertible senior issues corres-
pondingly increased. These changes are suminarized in the ac'companying
percentage-analysis of our portfolio as at January 31st, 1943 and
January 31st, 1946. . . . . .
..
Percentage Distribution of Portfolio by Type of Operations
(Based on Market Value of Long Securities)
Cash and Govenlffient Securities
Arbitrages, Reorganizations, Guaranteed
Issues
Liquidations
, Hedges and Convertible Issues
.Financial Companies
General Portfolio
Jan. 31, 1943
. Jan.
31, 1946
%of Total %of Total
3.4%
10.7%
17.2 36.1
11.7 12.2
..,..
20.0
8.5 13.0
59.2' 8.0

The sharp reduction in our general portfolio has not been based
on an opinion that the rise in the market has now run its course, but
on the' ,fact that very few common stocks remain attractive holdings
jUdged by our technical standards. Under our established policy, we
neither'participate in clearly speculative profit opportunities nor
assume clearly speculative risks. As long as the present rising market
continues it is not likely that we shall be able to match the percentage
gain shown by common stocks generally. There is reason to believe, how-
ever, that we may continue to make satisfactory, though not spectacular,
profits in arbitrage and similar operations, which entail less risk
than ordinary stock purchases at this time. The field of such operations
has tended to expand with the increase in general market and corporate
activity. For this reason we believe that we shall be able to find
sound employment for our capital, including the limited expansion recently
:z
.3 -
provided for.
If the market should decline substantially, we can not expect i
our holdings .to .thatany shrinkage in
the net asset value or our shares should be moderate in itself,
and relatively less severetnanthat.shownby the market generally.
The chief ,objective of .the management has been to conductgur
so as to show an rate of return on our
during when stock prices generally have not moved SUbstantially
(net) in either direction. In spite of problems presented by rising
and failing markets, we are hopeful. that we shall be able to catq-
out this objective in the future as in the past decade.
Results for the Year Ended January 31, .
. Submitted herewith is a copy of the report of our auditors, Messrs.
Stern, 'Porter, Kingston ,& Coleman, covering the fiscal year ended
January .31, 1946. .
The appended balance sheet indicates a net asset value of
per share on January 31, 1946, compared with $131.95 per share on
January .31, 1945. These figures give effect to the sale of additional
stock in January, 1946.
Dividends of $33.20 per share were paid during the.year, all
of which have been designated as Capital Gains Dividends, pursuant
to Section .362 of the Internal Revenue Code. Subscription rights
issued in January, 1946 had a computed value of $5.20 for each share
owned.
The over-all gain for the fiscal year, including the increase
in unrealized appreciation, amounted to ,$32 .31 per snare on the
average number of shares outstanding. This was equal to 24.5% of
the value at the beginning of the year.
The indicated net asset value as of February 21, 1946, was
approximately $126 per share. "
The annual meeting of stockholders is scheduled" to be held on
Monday, April 8, 1946. In connection.therewith,it is expected that
formal notice will be mailed to stockholders before March 30, 1946,
together with a proxy statement and request for proxies.
Very truly yours,
Benj. Graham,
President
Jerome A. Newman,
Vice-President &Treasurer
.3
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INVESTMENTS IN SECURITIES
JAlrI.lARY 31, 1940
(qONTINUED)
NO. OF . DESCRIPl'ION
SHA.RIlS OF SECURI'fIES
PREFERRED STOCKS- INDUSTRIALs
1,000 Avi8.tion Corp. (The) Cumulative.
. Convertible" .
500 Cities Servic!"\Compe.:nl $0.00 Cumulative
Preferred' \ . .
300 Giorgio FrUit\Corporation $3.00 .
. - Cumulative Participating Preferred
500 Gar Wood Industries, Inc. Cumulative
Convertible Preferred .
0,800 Graham-Paige Motors Co-:rP. Convertible
5% Cumulative Preferred .
1,000 Jones &Laughlin SteelC6rporation 5%
Series B Convertible Preferred
290 Mansfield Tire & Rubber Co. Convertible
. $1.20 Cumulative Preferred ",
300 The Murray Company $4.50 Cumulative Preferred
,
,
Total =__ Preferred, Stooks
' .
.PR!>'7ERRBD STOCKS - INVESTMENT COMPANIES -".
900 Alleghany Corporetion Cumulative Convertiole
Prior Preferred '
. _-. . ... _ ._ ... _ ...... _ ..
MARKET VALUE
. J1JiUARY 31. 1940" .
Price Amount
80 $ 80,OOO.op"
. -...
151 75,500.00'
110
33 000.00:
J -':Ii

02 ' 31,000.00

321,300.00
155-1/4 155,250.00
32 9,280.00
52-3/4
$'121.155.00
I
. _, '10-1/4 $ 68.025.00
, ...- ., .
PREFERRED 131'0OKS - UTILITIES
3,000 Market Street Railway Company Cumulative
Prior Preferenoe 6%
300 Twin City Rapid Transit Co. 5% Convertible
. Prior Preferred
18-1/2
----
55,500.00
1'1,812.50
Total - Utilities Preferred Stocks
TOTAL - STOCKS
. .....
COMMON STOCKS - INDUSTRIALS
1,300 A. D. F. Co.
100 Amerioan ShipbUilding Company
3,890 Bell Airoraft Corporation
10,000 Brewster Aeronauticel Corporation
2,500 Buda Company
3,000 Compania Manufacturers Del Patrero S.A.
1,000 Cuban ADarican Me.Lganese Corporation
2,200 Electric Boat Company'
2,200 L. H. Gilmer Company
200 Gisholt Machine Company
025 W. F. Hall Printing Company
300 International Matoh Realization Company,Ltd.
Forward
;;
44-5/8
32-1/2
5
31
-
5-1/4
24-1/8
3-112
22
31-1/4
25-1/4
'1,800.00
4,402.50
126,425.00
50,000.00
'1'1,500.00
5,250.00
53,0'15.00
'1,'100.00
4,400.00
19,531.25
7,5'15.00
$303,'118.'15
'NO. OF
SiiARES
COMMON STOCKS -
INVESTMENTS liT SECURITIES
JANUARY 51, 1946
(CONTINlJED)
DESCilIPrION
OF SECURITIES
INDUSTRIhLS (Continued)
mRKET VALUE
JA..1IiUARY 51,1946
Erice
1,000
600
1,600
200
100
89
Forward
;rones to Lamson Machine Company
McGraw-Rill l'1l:bl1shing Company Inc.
Nipissing Mines Company, Limited
PaoHic Lalls "
Pittsburgh Incline Plane Company: '
Pittsburgh Terminal Realization Corporation
. ,
Total - Industrial
"
,565,718.75
.'
51-1/2 51.5.P0.00
55-1/4 19,9tO,oo
4-1/4 6,800.00
76-1/2 15,500,00
190 19,OQ9.00
14-1/2 ...;...L2\iO.2Q

115
21
21-1/2
79-1/2
45-1/4
203'
38
43-1/2
25
COMMON STOCKS - niVESTMENT COMPANIES.. '
1,500 American International Corporation
7,400 Carriers and General Corporation
1,200 General Shareholdings;Corporation
7,000 Pacitic American Investors, Inc.
10,600 The Pennroad Corporation
5,100 Railway and Light ,Securities Company
1,000 Tri-:-ContinantaJ, ,Corporation
,/
T<:ltal - Investment Comp!!"ies
C0!!!I!Q!LtoM
2.Q:'-:9!LTOCKS - RAILROADS
512 Canada Southern Reilway Company
1,200 Illincis Central Railroad Company
570 Mine Hill and Schuylkill Haven Railroad Company
700 Northern Pacitic Railway Company
Mal.=..1!all!:Q!!d CO!!!I!Q!U,?toks
.....
- UTILITIl::S
500 International Ocean Telegraph Company
162 Pacitic and Atlantic Telegraph Company ot U,S,
223 Southern and Atlantic Telegraph Company

COHION STOCKS - INSUfuiNCE
250 American Surety Company
910 Employers' Croup Associates
100 National Union Fire Insurance Company
1,000 New Amsterdam Casualty Company ,
1,000 Standard Accident Insurance Company
1,000 Universal Insurance Company
Total - Common Stocks - Insurance Companies
15-5/8
10-1/8
6
5-114
8-7/8
23-1/8
12
54-5/4
42
53
34-1/2
25.457.50
74,925.00
7,200,00
56,750.00
94,075,00
71,687.50
..lb,OOO,OO

28,032,00
50,400,00
19,610.00


34.500.00
3,402,00

" 42,696.50
19,875.00
41,177.50
20,500,00
38,000,00
43,500.00

,852 .20
OIWWl-lflOOWf CORPORA'1'IOIl
: . lf3l{ TOIl!: ....
IlIVESTHEJlT5 II 5EClJRI'1'IES
- JAI1IARY
- .....-
.'

Railroads
Industrials
Ut1lities
Real Estate
Holding Companies
U. 5. Oovernment
Total Bonds
>:
'Jl.W'E'1' vduE
.......
-W'
$1,366,
291,500.'90
56,330.;:00
75,250.(JO .
80,137.50
307.593.75

PREl"ERRED STOOXS
Industrials
Investmsnt Companies
. Utilities
Total Preferrsd Stocks
COMMOK STOCll:8
Industrials
Invsstmsnt
Railroads
Utilities
Insurance Companies
R.....1 Estate
Total Common Stocke
721,155.00
68,625.00
73,312.50
863,092.50

320,075.00
122,192.00
42,696.50
187,852.50
1,015.00
$1,131,390.25