(b) For defraying extraordinary expenditure of the Company in repairing the railway and its appurtenances.

The reserve capital of the Company is formed out of annual sums put aside from the net profits of the working of the railway (section 17).

The reserve capital must be kept in Russian State interest-bearing securities, or in railway bonds guaranteed by the Russian Government.

At the expiration of the term of possession of the railway by the Company, the reserve capital shall be, first of all, employed in the payment of the debts of the Company, including among them sums due to the Russian Government, if such exist; and after the debts of the Company shall have been paid, the remainder of the reserve capital shall be divided among the shareholders. In the event of the redemption of the railway by the Chinese Government, the reserve capital becomes the property of the shareholders.

Section 15. The net revenue of the Company shall be the remainder of the gross receipts after deduction of working expenses. Under these expenses are classed:

(a) General outlays, including assignments towards pension and relief funds, if such be established on the line.

(b) Maintenance of the staff of the Board of Management, and of all the services, as also the maintenance of employés and labourers not on the permanent list.

(c) Outlays for materials and articles used for the railway as also expenditure in the shape of remuneration for using buildings, rolling-stock, and other various requisites for the purposes of the railway.

(d) Outlays for the maintenance, repair, and renewal of the permanent way, works of construction, buildings, rollingstock, and other appurtenances of the railway.

(e) Expenditure connected with the adoption of the measures and instructions of the Board of Management for insuring the safety and regularity of the railway service.

(f) Expenditure for the improvement and development

of the railway, as also the creating and developing its

resources.

Section 16. Should the gross receipts of the railway prove insufficient for defraying the working expenses and for meeting the yearly payments due on the bonds, the Company will receive the deficient sum from the Russian Government, through the Russian Minister of Finances. The payments referred to will be made to the Company as advances, at a rate of interest of six per cent. per annum. Sums paid in excess to the Company in consequence of its demands and on account of the guarantee will be deducted from succeeding money payments.

On the presentation to the general meeting of shareholders of the annual report of the working of the railway for a given year, the Company shall at the same time submit to the general meeting, for confirmation, a detailed statement of the sums owing by the Company to the Russian Government, with the interest that has accrued thereon. On the confirmation of this statement by the general meeting, the Board of Management shall deliver to the Russian Government an acknowledgment of the Company's debt, to the full determined amount of the same, and this acknowledgment, until its substitution by another, shall bear annually interest at the rate of six per cent.

The acknowledgment above mentioned, given by the Board of Management to the Russian Government, shall not be subject to bill or deed stamp tax.

Subjects of minor importance are dealt with in the following sections:

Section 17. Distribution of net profits of the railway. Section 18. Functions of Board of Management, the seal of which will be at Pekin and St. Petersburg.

Section 19. Constitution of the Board, which is to consist of nine members elected by the shareholders. The Chairman is to be appointed by the Chinese Government. The Vice-Chairman is to be chosen by the members of the Board from among themselves.

Sections 20-28. Administrative details.

Section 29. In accordance with the Agreement concluded with the Chinese Government, the latter, after the expiration of eighty years of possession of the railway by the Company, enters into possession of it and its appurten

ances.

The reserve and other funds belonging to the Company shall be employed in paying the money due to the Russian Government under the guarantee (section 16), and in satisfaction of other debts of the Company, and the remainder shall be distributed among the shareholders.

Any money that may remain owing by the Company to the Russian Government at the expiration of eighty years in respect of the guarantee shall be written off. The Russo-Chinese Bank will incur no responsibility in respect of the same.

Section 30. In accordance with the Agreement conIcluded with the Chinese Government, on the expiration of thirty-six years from the time of completion of the whole line and its opening for traffic, the Chinese Government has the right of acquiring the line, on refunding to the Company in full all the outlays made on it, and on payment for everything done for the requirements of the railway, such payments to be made with accrued interest.

It follows, as a matter of course, that the portion of the share capital which has been amortised by drawing, and the part of the debt owing to the Russian Government under the guarantee, and repaid out of the net profits (section 17) will not constitute part of the purchase money.

In no case can the Chinese Government enter into possession of the railway before it has lodged in the Russian State Bank the necessary purchase money.

The purchase money lodged by the Chinese Government shall be employed in paying the debt of the Company under its bonds, and all sums, with interest, owing to the Russian Government, the remainder of the money being then at the disposal of the shareholders.

E. THE KIAOCHOW CONVENTION.

I. His Majesty the Emperor of China, being desirous of preserving the existing good relations with His Majesty the Emperor of Germany, and of promoting an increase of German power and influence in the Far East, sanctions the acquirement under lease by Germany of the land extending for 100 li, at high tide (at Kiaochow).

His Majesty the Emperor of China is willing that German troops should take possession of the abovementioned territory at any time the Emperor of Germany chooses. China retains her sovereignty over this territory, and should she at any time wish to enact laws or carry out plans within the leased area, she shall be at liberty to enter into negotiations with Germany with reference thereto; provided always that such laws or plans shall not be prejudicial to German interests. Germany may engage in works for the public benefit, such as water-works, within the territory covered by the lease, without reference to China. Should China wish to march troops or establish garrisons therein she can only do so after negotiating with and obtaining the express permission of Germany.

II. His Majesty the Emperor of Germany, being desirous like the rulers of certain other countries, of establishing a naval and coaling station and constructing dockyards on the coast of China, the Emperor of China agrees to lease to him for the purpose all the land on the southern and northern sides of Kiaochow Bay for a term of ninety-nine years. Germany is to be at liberty to erect forts on this land for the defence of her possessions therein.

III. During the continuance of the lease China shall have no voice in the government or administration of the leased territory. It will be governed and administered during the whole term of ninety-nine years solely by Germany, so that the possibility of friction between the two

Powers may be reduced to the smallest magnitude. The lease covers the following districts :

(a)-All the land in the north-east of Lienhan, adjacent to the north-eastern mouth of the Bay, within a straight line drawn from the north-eastern corner of Yintao to Laoshan-wan.

(b)-All the land in the south-west of Lienhan, adjacent to the southern mouth of the Bay, within a straight line drawn from a point on the shore of the Bay bearing south-west by south from Tsi-pe-shan-to.

(c)-Tsi-pe-shan-to and Yintao.

(d)-The whole area of the Bay of Kiaochow covered at high-water.

(e)-Certain islands at the entrance of the Bay which are ceded for the purpose of erecting forts for the defence of the German possessions. The boundaries of the leased territory shall hereafter be more exactly defined by a commission appointed jointly by the Chinese and German Governments, and consisting of Chinese and German subjects., Chinese ships of war and merchant-ships, and ships of war and merchant-ships of countries having treaties and in a state of amity with China shall receive equal treatment with German ships of war and merchantships in Kiaochow Bay during the continuance of the lease. Germany is at liberty to enact any regulations she desires for the government of the territory and harbour, provided such regulations apply impartially to the ships of all nations, Germany and China included. :

IV.-Germany shall be at liberty to erect whatever lighthouse, beacons, and other aids to navigation she chooses within the territory leased, and along the islands and coasts approaching the entrance to the harbour. Vessels of China and vessels of other countries entering the harbour shall be liable to special duties for the repair and maintenance of all light-houses, beacons and other aids to navigation which Germany may erect and establish. Chinese vessels shall be exempt from other special duties. V. Should Germany desire to give up her interest in