were 55 newspapers and regular publications published in the Philippines, whose publishers were permitted to send their publications through the mails at newspaper rates of postage-1 cent per pound. There were also five firms which had permission to use the mails at the same rates of postage under the "Rights of news agents." The total weight of reading matter sent in the mails of the Philippines under these conditions was approximately 300,000 pounds.

On July 1, 1902, there were 90 post-offices throughout the islands. During the year 149 offices were established and 30 discontinued. At the close of the fiscal year we had 209 post-offices, being an increase of 119 during the year.

A new and complete postal code for the Philippine Islands is being prepared, which, upon completion, will be submitted to you with recommendation for its enactment into law. The code recommended will follow the United States postal laws as closely as possible, varying therefrom only when necessary to meet our peculiar conditions. It will be recommended that post-offices be classified into four classes, viz: First class, Manila; second class, the larger post-offices, such as Iloilo, Cebu, and Cavite; third class, all other provincial capitals and other offices of sufficient importance to justify a postmaster's salary of $20 or more per month; fourth class, all offices where the postmaster's salary is less than $20 per month.

It will be further recommended that one of the municipal officials, either the secretary or treasurer, be required by virtue of his office to act as postmaster, except where other provision is made at compensation fixed by the director of posts. It is believed that either of these officials in the small municipalities is in a position to serve as postmaster better than any other person.

This legislation is suggested by the fact that in our efforts to establish new post-offices we are frequently unable to find any one who will accept appointment as postmaster, and therefore for the time being, under present legislation, the municipality must go without an office.

I will also recommend that the presidente of the municipality, where other provision is not made by the director of posts, be required to furnish the necessary transportation for the mails to the next municipality. This legislation is likewise suggested by the fact that in many places without the assistance of the presidente we have great difficulty in securing persons who will carry the mails, and, in fact, in a few cases have been absolutely unsuccessful.

Recommendation is also made for legislation defining specifically the duties of all steamships and small craft authorized to engage in the coastwise trade with reference to the handling of the mails.

DEFALCATIONS.

This bureau, like others, has suffered during the year from defaulting postmasters and dishonest officials.

In April, 1902, the postmaster at Aparri, Cagayan Province, put up a money-order remittance containing $1,575 United States currency. Subsequently, and before the package was dispatched from his office, a soldier of the Sixteenth Infantry, detailed for special duty in the post-office, got possession of the package and abstracted the money contents. While it was believed from the beginning that this soldier was guilty of the crime, more than a year elapsed before sufficient

evidence was obtained to secure his conviction. When confronted with the evidence, he confessed his guilt and has received sentence for the crime committed. This did not, however, occur until after the death of the postmaster, who died believing himself to be under suspicion of the robbery of this package, notwithstanding my assurances to the contrary.

The next case was the theft of over $12,000 United States currency by the postmaster at Tacloban, Leyte Province. Suspicion rested upon him from the start, and after some months he was convicted and sentenced to eight years and one day in prison. After receiving this sentence, he confessed to the crime and made known where over $9,000 of the stolen money was hidden. This money was secured and placed to his credit.

Shortly after the postmaster at Bayambang, Pangasinan Province, was suspected of being guilty of opening registered letters and abstracting the contents. Necessary decoy letters were made up and dispatched so as to pass through his hands. He quickly accepted the bait set for him, and was at once arrested, subsequently convicted in court, and sentenced to imprisonment for three years. Within a few weeks after commencing his sentence he succeeded in escaping from the provincial authorities at Lingayen.

Next came the postmaster at Calamba, Laguna Province, who embezzled $1,000 United States currency, money-order funds. He put up a very neat scheme to make it appear that the pouch supposed to contain this money which he should have remitted to the postmaster at Manila was opened and robbed in transit. The investigation started soon developed conflicting evidence, which resulted in his arrest and subsequent conviction and sentence of ten years in prison. On July 13, of this year, an inspector of this bureau, in checking up the accounts of the postmaster at Laoag, Ilocos Norte Province, found him short in his money-order funds about $2,500. The postmaster confessed his crime, admitting that by manipulating his accounts and money he had been able to appropriate government funds from time to time for more than a year and a half. Within four days after the first discovery of the shortage he was sentenced to eight years and one day in prison for his crime.

CONCLUSION.

In my last report I stated that the American school-teachers stationed throughout the islands had taken much interest in the establishment of post-offices at their respective stations, and, with very few exceptions, had accepted appointments as postmasters, under the provisions of section 4 of Act 181. I regret to state at this time that the last year's experience in extending the postal service to smaller municipalities in this way has been far from satisfactory. It is developed that in many cases the American school-teacher has sought or accepted the appointment as postmaster for no other purpose than his own private gain, and has conducted the office without regard to the interests of other patrons. Therefore, as rapidly as these facts developed, changes in postmasters has been made.

Another fact operating against the success of this scheme has been the frequent transfer or change in station of the school-teachers, and because of the fact that during their vacation periods they usually go

away from their stations. For these reasons it is now my policy to secure competent, reliable Filipinos for postmasters at the smaller offices.

What I have said with reference to the American school-teachers must not be understood to apply in every case. A few of them have taken a deep interest in the postal service and rendered as good service as could be asked for.

In conclusion, I can only repeat my remarks of last year relative to the work of the employees of this bureau. With the exception of those heretofore mentioned who have proved dishonest, and of those who have been removed for cause, their work as a whole has been highly satisfactory, and they are entitled to great credit for the manner in which they have performed their duties.

Very respectfully,

C. M. COTTERMAN,
Director of Posts.

The Honorable the SECRETARY OF COMMERCE AND POLICE.

TABLE A.-Comparative statement of revenues and expenditures of the bureau of posts for the fiscal year ending June 30, 1903, with previous fiscal years.

TABLE B.-Statement of appropriations and expenditures for the fiscal year ending June

30, 1903.

TABLE B.-Statement of appropriations and expenditures for the fiscal year ending June 30, 1903-Continued."

Statement of mails dispatched on commercial steamers to foreign ports by the Manila postoffice during the fiscal year ending June 30, 1903, and amount paid for transportation.

Statement of mails dispatched on commercial steamers to foreign ports by the Manila postoffice during the fiscal year ending June 30, 1903, etc.-Continued.