As these accounts are kept so as to include all the operations of the company, without distinguishing the profits on the different branches, it became necessary, in order to carry out the spirit of their Lordship’s instructions, to inquire into the state of the company’s affairs generally; and to conduct this inquiry in such a way as to arrive at a satisfactory conclusion on the following points:-- 1. Whether the postal duties performed by the Peninsular and Oriental Steam Company are proportionate to the amount paid for those duties. 2. Whether such duties can, with advantage, be transferred from the contract steam vessels to those of her Majesty’s navy. 3. The propriety of throwing these duties open to public competition. 4. The expediency of accepting the Peninsular and Oriental Company’s proposal for a modification of the terms of the contract. Upon these important points the most careful and mature consideration has been bestowed; all the documents have been closely examined and compared with the books of the company, and the following are the results which are submitted for their Lordships’ information:-- First. That the amount paid to the Peninsular and Oriental Company for the duties it has performed has not hitherto been more than it was justly entitled to receive, on the principle that the shareholders are entitled to a fair commercial profit on the capital invested in the undertaking, and admitting that the affairs of the company have been managed, as they appear to have been, with economy and efficiency. The dividend hitherto made has never reached the amount of 10 per cent. per annum, and the additions made to their shipping and other capital are from reserves to meet contingencies. The principles on which these reserves have been laid aside, instead of being divided as profits, will be hereafter explained in this report. Second. That the present inadequate means of ascertaining the expense of her Majesty’s steam vessels, especially in the Indian and China seas, renders it difficult to determine the comparative pecuniary results which would follow the transfer of the duties. Considering, however, the difficulty of adapting her Majesty’s vessels to commercial purposes, accommodation of passengers and freight of merchandise, and the superior convenience and advantages of mercantile companies in these respects, the success or expediency of such a change is exceedingly doubtful, except on a necessity, arising from exorbitant demands for carrying the mails by contract.