File No. 2160.

The British Ambassador to the Secretary of State.

No. 5.]

Sir: I communicated to my Government the suggestion made by you early in November last regarding certain islands in North Borneo, the question of the control over which formed the subject of my note to Mr. Loomis, No. 198, of September 29 last. The Marquess of Lansdowne communicated with the British North Borneo Company on the subject.

The reply of the company has now been received, and they have expressed their appreciation of the offer made by you. They fear, however, that the course suggested by you would not be altogether satisfactory, and have pointed out that it would necessitate the drafting of a document of a very complicated character. They therefore desire to put forward an alternative proposal, namely, that they should carry on the administration of the islands in question, whilst recognizing the rights of the United States by an annual payment of $150.

I am accordingly instructed to submit this proposal to the favorable consideration of the United States Government.

I have, etc.,

H. M. Durand.