SALVADOR.

The External Debt of Salvador was in 1899 converted into 5 per cent. Mortgage Debentures of the Salvador Railway Company, Limited. The Government guarantees a fixed annual subsidy of £24,000 for 18 years from 1899.

1827. The proportion of the Debt of the Central American Federation (£163,000) assumed by Salvador was two-twelfths, £27,200.

1828-59.-No interest was paid during this period.

1860.--Salvador compromised her share of the Debt for 90 per cent. in cash.

1889.-Loan for £300,000, bearing 6 per cent. interest and 2 per cent. accumulative Sinking Fund, issued by the London and South Western Bank at 95 per cent., specially secured on 10 per cent. of the Customs Duties and the rights of the Government in the Railway from Acajutla to Ateos (35 miles) and in the proposed extension to San Salvador. Out of the proceeds of the Loan, a mortgage of the Government's interes in the portion of the Railroad already constructed (Acajutla to Sonsonate), amounting to £183,000, was paid off. The extension of the Railway was only continued for a distance of seven miles from Ateos to La Ceiba.

1892.-Loan of £500,000, bearing 6 per cent. interest and I per cent accumulative Sinking Fund. Issued by Messrs. Brown Janson & Company in pursuance of a Contract made by the Government with Mr. Scherzer in 1891 for the purpose of the extension of the Railway. Specially secured on 10 per cent. of the Customs Duties, and also by a first mortgage on the line from Ateos to Santa Ana (30 miles).

These Bonds were not issued to the public, but were delivered from time to time to the Contractor on the Engineer's Certificates as the works proceeded.

1894.-A Company called the Central American Public Works Company was formed by Mr. Scherzer, and in April, 1894, a Concession was obtained from the Government under which the Contract of 1891 was cancelled.

The Public Works Company undertook to complete the line to Santa Ana, to build a branch from Sitio del Niño to San Salvador (24 miles) together with a deviation of miles at the Port of Acajutla, to give the Government £70,000 in fully-paid Ordinary Shares of the Company when issued, and to attend to the service of the Loans of 1889 and 1892. The Government on its part agreed to hand over to the Company the whole of the Railways for a period of 99 years, and to guarantee the Company for 50 years a nett annual profit on working the Railways of 6 per cent. upon a sum of £80,000 secured by a charge of 10 per cent. on the Import Duties.

A change of Government took place shortly afterwards, and owing to differences between the Government and the Company the Concession was declared void.

In December, 1894, a supplementary Contract was entered into between the Company and the new Government by which it was agreed that :

1. The £70,000 of Shares of the Public Works Company were to be delivered to the Government by 31st May, 1895. (This was done and the Company took possession of the completed line and commenced the construction of the remainder.)

2. The duration of the Concession was shortened from 99 to 80 years.

3. The guarantee was reduced from £48,000 a year to £24,000 during construction of the line to Santa Ana; £36,000 during construction to San Salvador, and the full £48,000 was not to be paid until the Railway was entirely. finished.

1898.-A company called the Salvador Railway Company was formed to take over the Concession from the Public Works Company. Proposals were laid before the holders of the 1889 and 1892 Loans to convert their Bonds into First Mortgage Debentures of the Railway Company. Some of the 1889 Bondholders, however, declined to signify their adherence to the scheme, and it was not found possible to arrange for the release of the Mortgage on the first section of the Railway. The Public Works Company had, moreover, undertaken to deliver to the Government all the Bonds by December, 1898, and they therefore approached the Government with the object of securing further legislation in order to get over the difficulty.

In this they were not at the time successful, and the Government declined to remit to the Company the sum due under the Guarantee for the half-year ending 31st December, 1898.

The funds for the payment of the February and August, 1898, Coupons on the 1889 Bonds were sent by the Government direct to the London and South Western Bank.

The November, 1897 Drawing and May, 1898, Coupons on the 1892 Bonds, and the July, 1898 Drawing and February, 1899, Coupons on the 1889 Bonds were not paid.

1899.-On 8th February, 1899, a Contract was entered into between the Government and Mr. M. J. Kelly, representing the Central American Public Works Company (approved by Congress in March, 1899), of which the following were the principal provisions :

1. The Company was to hand over to the Government for cancellation the outstanding 1889 and 1892 Bonds (in round figures £725,000) within six months of the date of ratification of the Contract by Congress. The Company might, however, leave outstanding £60,000 of the Bonds if they could not make delivery of the whole of them, but on these they were to pay on their own account the same interest (6 per cent.) and amortisation (2 per cent.) as the Government was under obligation to do.

2. The Government was to pay the Company for 18 years from 1st January, 1899, a fixed annual subsidy of £24,000 in lieu of the previous guarantee, and to hand over all the Railways free of charge. The subsidy was to be secured on 15 per cent. of the Import Duties in respect of which the Government was to issue special Customs Notes. These notes were to be handed to a Bank named by the Company, who were to sell them and collect the proceeds.

The Company engaged themselves to complete the line to the capital by 30th June, 1900. If the Bonds of the External Debt were not handed over within the period stipulated, the Government was to have the right to take possession of the Railways, subject to existing hypothecations.

In April, 1899, an Agreement was entered into between the Council acting in conjunction with the Committee of 1889 Bondholders, and the Central American Public Works Company for the transfer to the Salvador Railway Company of the Railways and Concessions held by the Works Company, including the subsidy payable under the Contract of February 8th, 1899, on such terms as might be agreed between the Works Company and the Railway Company.

The Railway Company to issue :---

I. Prior Lien Debentures to the amount of £163,000, forming part of a total authorised issue of £250,000, and bearing 5 per cent. interest and I per cent. Accumulative

Sinking Fund, to be applied by purchase or drawings at par. Such issue to be for the purpose of providing the funds for the completion of the Railway, repairs, working capital and expenses.

2. Five per Cent. Mortgage Debentures to the amount of £660,000, to provide for the cancellation of the outstanding Bonds of the 1889 and 1892 Loans, the Debentures of the Public Works Company (£150,000), and other claims.

These Debentures to be redeemable by an accumulative Sinking Fund of 1 per cent. per annum, commencing from the 15th of August, 1906, to be applied by purchases or drawings, at the price in the case of drawings of £103 for each £100 of Debentures.

The holders of the 1889 Bonds to receive, in respect of each 100 Bonds, £100 in Mortgage Debentures of the Railway Company, bearing interest from 15th August, 1899. The 1889 Bonds to be deposited with the Council against the issue of Negotiable Receipts, with two Coupons of £2. 1os. each attached, payable out of the first two instalments of the subsidy in respect of the Coupons on each Bond of £100 due 15th February and 15th August, 1899.

This Arrangement was accepted by the holders of the Bonds of the 1889 and 1892 Loans, who by the necessary majorities authorised the Trustees of the Loans to release the respective Mortgages. It was also approved by the holders of the Debentures of the Public Works Company and has been duly carried into effect.

REPORT.

The Coupons on the Railway Debentures maturing 15th August, 1902, and 15th February, 1903, were duly paid by the London Bank of Mexico and South America.

SALVADOR RAILWAY COMPANY.

The Ordinary General Meeting of the Salvador Railway Company was held on the 6th November last. The

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