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the view of providing food for the children from the outlying islands, but it has been found to be insufficient, and, with your approval, I propose to increase it to £200 per annum. It will be money well spent, for it is from Tereora that the English language will spread over the whole Group. RECOMMENDATIONS FOR FUTURE GOVERNMENT OF GROUP. In order to provide for the better government of this group of islands I have the honour to make the following suggestions: — Pearl-shell Lagoons The area of the Penrhyn lagoon may be estimated at not less than seventy square miles, of which some twenty miles are more or less covered with the pearl-shell of commerce. But the population of the islands of this atoll, who now claim the exclusive right to dive for shell, are but few in number; there are certainly not more than eighty divers in Penrhyn, and of these not more than sixty are owners of the island. The policy of the so-called owners of the shell-beds is to take no more shell than will provide them with a good living, and I submit that this policy is in direct conflict with the interests of the government of the Group. Firstly, because old shell, if left lying in the beds, becomes worm-eaten tind spreads the disease; and, secondly, it should be our aim to encourage all of the islanders to dive. It must be borne in mind that it requires years of practice to turn out an efficient diver, and that the Penrhyn people are dying out there can be no question, while, on the other hand, we have at Manihiki and Pukapuka a healthy population who would be glad to join in this work if they could do so by right. To place this industry on a sound footing and give the small people equal rights with those who now claim exclusive mana over the best shell-beds, I make the following suggestions: That the Government of New Zealand shall declare the lagoons of Penrhyn, Manihiki, Palmerston, and Aitutaki, and all of the shell therein, to be the property of His Majesty, and, subject to certain restrictions, shall hand them over to be managed by the Resident Agent and Council of each island. That in each island the Resident Agent shall, ex officio, be the custodian of the lagoon, and shall, in conjunction with the Island Council, regulate the close seasons to be observed over the lagoon or any part thereof. The Resident Agent and Council, as aforesaid, shall, subject to the approval of the Resident Commissioner, decide what diving-machines —if any —shall be used, and on what terms, in order that the interests of the majority may not suffer. That no person shall be allowed to dive without a license, but any aboriginal inhabitant of the island shall be entitled to such license free of charge. That the aboriginal inhabitants of any island within the boundaries of New Zealand shall be entitled to a license on payment of an annual fee of 10s. That foreigners may, in the discretion of the Resident Agent, be allowed to dive for shell on payment of an annual license fee of £1 10s. That no alien shall own or work a diving-machine, unless he shall first have obtained the written permission of the Resident Commissioner. ADMINISTRATION OF JUSTICE. In any future Act of the New Zealand legislature providing for the government of these Islands I would suggest that provision should be made to abolish all Arikis' Courts within such Islands as shall have a resident European Agent, duly appointed b}< _ the New Zealand Government. My experience of these Courts is that they are most unsatisfactory tribunals. The Natives detest them for the reason that the amount of the fine is generally determined by the ability of the prisoner to pay, and not by the gravity of the offence. The benefit to the Natives of a firm and just administration of the law is well exemplified by the Island of Aitutaki. When I first arrived in the Cook Islands this people deserved the character they then bore —namely, that they were the most unsatisfactory and turbulent tribe in the Group. It was under these circumstances that I appointed Mr. J. T. Large as Magistrate of the island, and the result has been that the men of Aitutaki now compare favourably with any part of the Group, and are infinitely more industrious and enterprising. That the people did not at first appreciate the measures adopted for their good is quite true, and Mr. Large had many difficulties to contend with; but it is equally certain that his work is now appreciated by all, and that he had the respect of the whole community when he was removed to Mangaia. ISLAND LEASES. I would suggest for your consideration that it is not expedient that any of the islands of this Group should heieafter be leased to private individuals or companies. Shortly before my arrival in the Group the Island of Manuae was leased by the owners to the Cook Island Trading Company, and it may not be denied that this firm has expended large sums of money on the island, and have planted many thousands of cocoa-palms, to the great benefit of the future trade of the Cook Islands. But I am informed on good authority that a foreign financial firm is in treaty for the purchase of the lease, and I submit that it is not in the interests of the New Zealand Government or of British manufacturers that a foreign firm should be in a position to establish a depot in the midst of the Cook Islands. It would be better for all that Manuae should be taken over by the Government and worked together with Takutea as a Government plantation. One staff would work the two islands, and a very large revenue would eventually be obtained therefrom. I would here draw your attention to the fact that I have not yet received authority to plant Takutea, but the sooner this work is done the better for the Group.