small amount of bonds and all equipment obligations. The bonds to be affected by the plan are those issued under the applicant's first mortgage and three of its divisional mortgages secured by first liens upon the properties, its refunding and general mortgage bonds, and its 30-year 42-percent convertible bonds. The new bonds will be issued pursuant to supplemental indentures to the several mortgages and to the indenture for the convertible bonds. A description of the bonds to be affected by the plan, the amounts thereof outstanding or pledged, and the modifications to be effected, are hereinafter set forth. With the exception of the applicant's first-mortgage 4-percent bonds and one issue of divisional bonds, these bonds are now subject to the modifications made in their original terms by the 1938 plan insofar as interest payments are concerned, but only for a period of 8 years, after which at various dates in 1946 and January 1, 1947, interest will become payable as provided by the original terms of the bonds.

The plan contemplates no decrease in the principal amount of the securities outstanding or pledged or in the total amount of interest payments, but provides for the extension of maturities and a longrange program of reduction in debt and in fixed charges with provision for financing future improvements. To this end it will provide for the allocation each year of substantial amounts of income after fixed charges, hereinafter called available income, to the payment of contingent interest, sinking funds, and capital expenditures during the period of the plan which will be as long as any of the proposed securities are outstanding.

Securities to be affected by the plan.-Notes.-The matured notes held by the Finance Corporation, as previously stated, are to be refunded by the sale of not exceeding $84,563,276 of collateral-trust 4-percent bonds to be issued under, and pursuant to, and to be secured by, a collateral-trust indenture to be dated as of January 1, 1945, between the applicant and a trust company to be located in the city of New York to be hereafter determined, as trustee. The definitive bonds will be in coupon form, registrable as to principal and in registered form without coupons, in the denomination of $1,000, the coupon bonds to be dated January 1, 1945, and the registered bonds to be dated as of the date of authentication, the coupon bonds and registered bonds to be interchangeable. Pending the preparation of definitive bonds, one or more temporary bonds may be issued in registered form in any denomination or denominations. The bonds are to bear interest at the rate of 4 percent per annum, payable semiannually on January 1 and July 1 and will mature on January 1, 1965. They will be redeemable as a whole or in part on any interest date on 60 days' notice at par and accrued interest for sinking-fund purposes, and otherwise at par and accrued interest, plus a premium of one-fourth

of 1 percent for each year between January 1 of the year in which redeemed and January 1, 1964. These bonds will be secured by the deposit with the trustee of the collateral now securing the notes held by the Finance Corporation. A list of these securities with the appraised or market value of the principal items as of December 26, 1944, is given in appendix A. As of that date such value was $162,270,870.

The indenture will have provisions respecting the payment to the trustee of dividends received on certain shares of deposited stocks and other sums paid in respect of the pledged securities; for the application of cash so received to the redemption or purchase of bonds on the terms and conditions set forth; and for the release under stated conditions of deposited collateral. The indenture will also contain provisions for the determination and allocation of available income as set forth in the plan.

Pending final approval and confirmation of the plan, certain collateral may be liquidated, and certain other collateral may be released or exchanged for other collateral.

Until the date of refunding, interest will be paid at the present rate on the existing notes on the current interest-payment dates, and except in the event of default in such payments, the Finance Corporation will not demand the payment of the principal thereof unless the plan is abandoned prior to such default.

First-mortgage bonds. Of the first-mortgage bonds, $76,922,350 hereinafter called 4-percent bonds bear secured interest at the rate of 4 percent per annum, and $67,826,500, hereinafter called 5-percent bonds, bear secured interest at the rate of 4 percent per annum and unsecured interest at the rate of 1 percent per annum. The 5-percent bonds were authorized by order of division 4 dated September 5, 1924, in Baltimore & O. R. Co. Bonds, 90 I. C. C. 647. In addition to the outstanding bonds, $1,668,000 of first-mortgage bonds are held by the trustee of the mortgage securing them, and $3,409,150 are in the applicant's treasury. They were issued under and pursuant to the first mortgage dated July 1, 1898, to the United States Trust Company of New York and John A. Stewart (Williamson Pell, successor), as trustees, as supplemented, in the case of the 5-percent bonds, by a supplemental indenture dated September 1, 1924. The secured interest is payable semiannually on April 1 and October 1 (except interest on the registered bonds which is payable quarterly) and the unsecured interest of 1 percent on the 5-percent bonds, in pursuance with the supplemental indenture dated January 1, 1940, is contingent on earnings but cumulative and payable annually on May 1 of the following: year. These bonds will mature on July 1, 1948. The 4-percent bonds

are redeemable on any April 1 or October 1 upon 3 months' notice, at 105 and accrued interest, and the 5-percent bonds are redeemable on April 1, 1945, or on any April 1 or October 1 thereafter at par and accrued interest plus a premium of one-fourth of 1 percent for each 3 months between the date of redemption and the date of maturity.

Applicant proposes to extend the maturity date of the first-mortgage bonds to July 1, 1975. This is to be accomplished by issuing, pursuant to a proposed supplemental indenture to the first mortgage, two new series of bonds to be dated July 1, 1946, and to be designated series A and series B bonds which will be exchanged for the 4-percent bonds and 5-percent bonds respectively, outstanding or pledged as of the exchange date, in bearer or registered form at the option of the holders. Secured interest will be payable on both series of bonds at the rate of 4 percent per annum, semiannually on April 1 and October 1, and unsecured interest on the series B bonds will be payable annually, contingent on earnings but fully cumulative as hereinafter set forth. The proposed series A bonds and series B bonds, except as otherwise provided in the plan, will be secured, bear interest, and have all the other characteristics of the 4-percent and 5-percent bonds, respectively, as extended and modified in accordance with the plan.

The series A and B bonds, in conformity with the provisions of the plan, will be redeemable for the sinking fund at par and accrued interest. Otherwise they will be redeemable prior to the maturity date of the bonds for which they were exchanged, in all respects as those bonds were redeemable in accordance with their terms and those of the indentures pursuant to which they were issued. If not redeemed prior to that date, they will be redeemable on any semiannual interestpayment date, April 1 or October 1, thereafter to and including the fortieth semiannual interest-payment date prior to maturity at a premium of 5 percent, after which date such premium is to be 434 percent for the next redemption date, 41⁄2 percent for the next two such dates, the premium to decrease one-fourth of 1 percent for each two redemption dates thereafter, and on the two semiannual interestpayment dates immediately prior to maturity, they will be redeemable without premium, with accrued interest in all cases.

In the general provision for redemption and redemption premium, paragraph 5 of article IX of the plan, relating to all the issues of bonds to be extended, it is provided in part that the premium is to be 5 percent "until a date 20 years prior to their maturity, after which date such premium shall be 434 percent for the ensuing year * To avoid a possible ambiguity as to the term "ensuing year," in view of the several interest-payment dates for the different issues, the language of this paragraph should be modified so as to relate the premium to the number of semiannual interest-payment dates prior

to maturity to conform with the formula set forth in exhibit H-36, and substantially as stated in the foregoing description.

The supplemental indenture to the first mortgage will provide that additional first-mortgage bonds of one or more new series may be issued (1) to finance 75 percent of the cost of improvements and betterments to property subject to the first mortgage as a first lien, provided, however, that the total amount of first-mortgage bonds (other than emergency bonds) at any one time outstanding and pledged is not to exceed $155,000,000, less the amount of first-mortgage bonds (other than emergency bonds) retired through the sinking fund and less any amounts paid out of the sinking fund to retire any loans (other than loans secured by first-mortgage emergency bonds) applied to the payment of 75 percent of the cost of improvements and betterments to such property; (2) for emergency purposes, to finance up to 100 percent of the cost of improvements and betterments to property subject as above stated to the first mortgage; such bonds, hereinafter called emergency bonds, to be issued only upon the vote of two-thirds of the entire number of the applicant's directors adopting resolutions determining that funds are needed for such purpose and cannot be obtained except by the sale or pledge of first-mortgage bonds. The total amount of first-mortgage emergency bonds outstanding or pledged at any one time is not to exceed $10,000,000; and (3) to refund any series of first-mortgage bonds at the time outstanding or pledged.

Southwestern division bonds.-The Southwestern division bonds outstanding in the amount of $37,285,500 are a part of $15,000,000 of such bonds originally issued prior to the effective date of section 20a, bearing interest at the rate of 31⁄2 percent per annum, the maturity of which was extended from July 1, 1925, to July 1, 1950, at an increased rate of interest pursuant to the order of division 4, dated April 15, 1925, in Baltimore & O. R. Co. Bonds, 94 I. C. C. 785. These bonds were issued under and pursuant to the first mortgage dated January 1, 1899, to the Farmers Loan & Trust Company and W. H. H. Miller (now City Bank Farmers Trust Company and Lindsay Bradford) as trustees, as modified by supplemental indentures dated April 1, 1925, and January 1, 1940. They bear secured interest at the rate of 32 percent per annum payable semiannually on January 1 and July 1 (except interest on the registered bonds which is payable quarterly) and unsecured interest at the rate of 12 percent per annum, which pursuant to the supplemental indenture of January 1, 1940, is now contingent on earnings, but cumulative and payable annually on May 1 of the following year. They are redeemable on July 1, 1945, or on any January 1 or July 1 thereafter or not less than 3 months' notice at par and accrued interest plus a premium of one-half of 1

percent for each 6 months from the date of redemption to the date of maturity.

The maturity date of the Southwestern division bonds is to be extended to July 1, 1980, and will be accomplished by issuing, pursuant to a proposed supplemental indenture, new bonds to be designated series A. These will be delivered in exchange for the present outstanding or pledged bonds as of the date of exchange, in bearer or registered form, at the option of the holders. They will be dated July 1, 1946, and except as otherwise provided in the plan, will be secured, bear interest, and have all the characteristics of the present bonds as extended and modified in accordance with the plan. They will bear secured fixed interest at the rate of 32 percent per annum, payable semiannually, and contingent interest at the rate of 11⁄2 percent per annum, payable annually, contingent on earnings and fully cumulative as hereinafter set forth. They are to be redeemable for the sinking fund at par and accrued interest, and otherwise they will be redeemable at the option of the applicant, prior to the maturity date of the bonds for which they are to be exchanged, as those bonds were redeemable, and after such date at a premium to be determined in the manner previously described in connection with the first-mortgage bonds except that the dates on which they may be redeemed will be January 1 and July 1.

The supplemental indenture will have provisions for the issue of additional Southwestern division bonds to provide 75 percent of the cost of improvements and betterments to the property subject to the Southwestern division mortgage, as a first lien, for the issue of emergency Southwestern division bonds, and for the issue of bonds to refund outstanding or pledged Southwestern division bonds, under provisions and subject to the conditions and limitations in all respects similar to those to be provided for the issue of first-mortgage bonds and herein previously set forth, except that the total amount of bonds (except emergency bonds) at any one time outstanding or pledged is not to exceed $42,000,000 less the amount of Southwestern division bonds (other than emergency bonds) or loans obtained for above-mentioned improvements retired through the sinking fund, and the total amount of emergency bonds at any one time outstanding and pledged is to be limited to $4,000,000.

Pittsburgh, Lake Erie & West Virginia bonds.-The Pittsburgh, Lake Erie & West Virginia bonds are outstanding in the amount of $36,798,000, and pledged in the amount of $22,553,000, $20,970,000 thereof under applicant's refunding and general mortgage, and $1,583,000 with the Finance Corporation. In addition, $1,000,000 are held by the trustee of the mortgage securing them. They were issued.