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U S , F E C O N S T I I C T I O N A N D A n n u a F I N A N C E C O R P O R A T I O N S U B S I F I A R Y H l S o t r o Ju ne 3 0 , 1950 o t r o t o n i s LI KCASUA NOWLIDOC L I B R A R Y o f the O H I O A U N I V S E R T S L A W LIBRARY I T T E Y R EC O NS T R UC T IO N FINANCE C O R P O R A T I O N 811 Vermont Avenue W a s h i n g t o n 2 5 , D . C. BOARD OF DIRECTORS W . E L M E R HARBER , Chairman W A L T E R LEE D U N H A M W A L T E R E. COSGRIFF C. E D W A R D R O W E W I L L I A M E. W I L L E T T OFFICERS W . E L M E R H A R B E R .. C h a i r m a n of the B o a r d L E O H. N IE LSO N . ... S ecretary Tr eas ure r W I L L I A M C. B E C K , J R ...... J A M E S L. D O U G H E R T Y . Ge ner al Counsel E. A L L E N K E N Y O N SUBSIDIARY A T ...C o n tr o l l er JUNE 30 , 1950 Federal National M or t g ag e Association Directors a n d Officers as of D e c e m b e r 4 , 1950 RECONSTRUCTION FINANCE CORPOR ATION A.T L OA N AGENCIES c m .B 4587 AGENCY Atlanta, Ga . MANAGER M. E. Everett ADDRESS Healey Building 57 Forsyth Street Birmingham , Ala. Fred H. Foy Comer Building 2nd Avenue and 21st St. Boston, Mass. Mathew J. McGrath 10 Post Office Square Charlotte, N. C. James K. Wilson 317 South Tryon St. Chicago, Ill. Milnor 0. Hoel 208 S. LaSalle St. Cleveland, Ohio J. A. Fraser Federal Reserve Bank Bldg. E. 6th St. & Superior Ave. Dallas, Texas L. B. Glidden Rio Grande National Bldg. 251 North Field St. Denver, Colorado Ross L. Hudson Railway Exchange Bldg. 17th and Champa Sts. Detroit, Mich . Henry F. Eckfeld Griswold Building 1214 Griswold Street Helena, Mont . Leon E. Choquette Power Block Main St. and 6th Ave. P. O. Box 177 Houston, Texas Charles L. South City National Bank Bldg. Fannin St. & McKinney Ave. Jacksonville, Fla. Fred H. Farwell Graham Building 24 Laura Street Kansas City, Mo. David H. Powell Federal Reserve Bank Bldg. 10th St. and Grand Ave. Little Rock ,Ark . John J. Truemper Pyramid Building Second & Center Sts. Los Angeles, Calif. Hector C. Haight 417 South Hill St. Louisville, K y . J. Fort Abell 139 South 4th St. Minneapolis, Minn . Arthur W. Carlson Minnesota Federal Savings and Loan Bldg. 607 Marquette Ave. Nashville, Tenn . R. Lee Davis (Acting) Nashville Trust Bldg. 315 Union Street N e w Orleans, La. George W. Robertson 348 Baronne Street N e w York , N. Y. Percy C. Gale 44 Pine Street Oklahoma City, Okla. Carl B. Sebring Commerce ExchangeBldg. 130 Northwest Grand Ave. Omaha , Nebr. China R. Clarke Woodmen of the World Bldg. 14th and Farnum Streets Philadelphia, Pa. Bernard J. Kelley Lincoln -Liberty Building Broad and Chestnut Sts. Portland, Ore. William Kennedy Pittock Block 921 S. W. Washington St. Richmond , Va. W. B. Cloe Southern States Bldg. 627 E. Main Street St. Louis, Mo. Charles G. Alexander 407 N. 8th St. Bldg. Salt Lake City,Utah Gerald L. Leaver Dooly Building 109 W. Second, South San Antonio , Texas Francis M. Conlon Transit Tower 310 S. St. Mary's St. San Francisco, Calif. John S. McCullough, Jr. 130 Sutter Street Seattle, Wash . Charles R. Johnsone Central Building 810 Third Avenue Spokane, Wash . O. M. Green Columbia Building First and Howard Sts. APR 30 69 TABLE O F CONTENTS Page 5 Letter of transmittal.... Introductory c om me nt s . 7 Len ding activities ... 7 Non -Lending activities. 21 C o m m e n t s o n financial statements. 23 Exhibit A - Comparative consolidated balance sheet . 28 Exhibit B - Comparative consolidated statement of net income from lending activities . . 30 Exhibit C — Statement of accountability to U. S. Treasury for net funds expended in national defense, w ar and reconversion activities .. 31 Schedule 1 - Assets, at cost, acquired in connection with national defense, wa r and reconversion a c tivities for which the Corporation is accountable to the U. S. Treasury .... 32 Schedule 2 - Statement of operations of synthetic rubber program . 33 Schedule 3 - Statement of operations of tin program . 34 Schedule 4 - Statement of operations of fiber program .. 35 Exhibit D - Statement of accountability to U. S. Treasury for net assets transferred from Smaller W a r Plants Corporation . 36 Notes to financial statements . 37 Appendix A - S e m i-annual report of Federal National Mortgage Association . 39 Appendix B - Report on synthetic rubber operations. 45 Appendix C — Report on tin operations .... 49 Appendix D - Report on abaca operations . 54 Appendix E - Creation , purpose and legislative authority .. 58 RECONSTRUCTION FINANCE CO RPOR ATIO N W A S H I N G T O N To T h e President, T h e President of the Senate, a n d T h e S p e a k e r of the H o u s e of Representatives P u r s u a n t to the provisions of the Reconstruction Finance Corporation A ct , as a m e n d e d , there is transmitted herewith t h e report of the Reconstruction Finance Corporation for the fiscal year ended June 30 , 1950. A s a part of the report there are included the following sections, the first four of w hi ch are required pursuant to legislation covering the specific operations : 1. T h e report of operations relating to synthetic rubber . 2. T h e report relating to tin . 3. T h e report relating to abaca . 4. T h e report of Federal National M o r t g ag e Association . 5. A report on the liquidation of assets acquired under National Defense a nd w a rt i me p r o g r a m s ; the authority for such p ro gr am s terminated on June 30 , 1947 . T h e schedule of individual loans a n d investments of $ 100,000 or m o r e , required under the provisions of the Reconstruction Finance Corporation A c t , as am en de d , is the subject of a separate report. D u r i n g the years since its creation b y the Congress in J an ua ry 1932 , the Corporation has been called upon to p e r f o r m a variety o f functions relating to economic ,national an d international conditions of an e me r ge nc y nature. In the fiscal year 1950 , the eighteenth consecutive year of operations, the services of the Corporation were called u po n in t w o m a j o r respects. The se w er e ( 1) an extraordinary d e m a n d for long -t e r m loans b y business enterprises, an d (2 ) an unprecedented d e m a n d u p o n the facilities of Federal National M o rt g a ge Association int h e maintenance of the secondary m a rk e t for h o m e mortga ges insured by the Federal H o us i n g Administration or guaranteed b y the Veterans Administration . In e a c h of these fields, the trend established in the fiscal year 1949 continued up w ar d ; in each , the Corporation has endeavored to co mpl y with the stated wishes of the Congress in extending its services as needed "t o aid in financing agriculture, c o m m e r c e a n d industry, to encourage small business ,to help in maintaining the economic stability of the country , a n d to assist in promoting m a x i m u m e m p l o y m e n t an d production " (Section 4 (a ), R F C A ct, as a m en d e d ). Applications w er e received f r o m 13,086 business enterprises during the fiscal year 1950 , as c o m pared w i t h 8,156 during the fiscal year 1949. C o m m i t m e n t s for loans in the gross a m o u n t of $ 593.6 million , including $70.9 million of participation b y banks, w er e authorized to 5,506 of those applicants seeking assistance. This compares w it h 3,509 c o m m it m e n ts in the gross a m o u n t of $388,500,000 in the prior year . C o m m i t m e n t s by Federal National Mo rt ga ge Association to purchase h o m e m ort gag es aggregated $ 1.784 billion during the fiscal year 1950 , as c o mp a r ed w i t h $703,490,000 in the prior year. H o w e v e r , the m a k i n g of such c o m m i t m e n t s w a s terminated on M a r c h 20 , 1950 , at whi ch time funds allocated b y the Congress ha d b e e n fully committed ; subsequently ,purchases on a greatly reduced scale were re s um e d in accordance with a m e n d m e n t s to the National Ho u s in g Act . A m a j o r development in the maintenance of the secondary ma r ke t w a s the increasing interest s h o w n during the year by investors in the Association's portfolio of insured a n d guaranteed mortgages . While such portfolio h a d always been available to private investors , a n intensified selling p r o g r a m w a s undertaken by the Corporation in the latter part of 1949 , w hi c h resulted in sales of approximately $ 311,000,000 through June 30 , 1950 , at p r e m i u m s. D u r i n g the year, in accordance with the Reorganization Act of 1949 , the President submitted to the Congress Reorganization Plans N o s . 22 a nd 23, which proposed transfer to the Ho us ing and H o m e Finance Age ncy of Federal National M o rt g a g e Association a n d all functions with respect to loans involving the manufacture, sale or distribution of pre-fabricated housing. T hese transfers be c am e effective on S e p t e m ber 7 , 1950 . C o m b i n e d net earnings of the Corporation in its lending activities for the fiscal year 1950 w e r e $27,247,193, after provision for estimated losses of $ 8,523,775. O f the total, $ 17,462,540 w a s earned b y 5 F N M A , and $9,784,653 by the Corporation in its regular lending activities. O f the latter a m o u n t , $6,280,000 represents a profit f ro m the liquidation of property acquired through foreclosure of a m a j o r loan m a d e in prior years . Operations under the synthetic ru b b e r , tin a n d fiber p ro gr am s resulted in net losses of $ 1,794,621,$ 10,916,369 and $484,509, respectively, after charges for depreciation and for interest on the investment of the U. S. G o v e r n m e n t. S uc h losses are discussed in the special sections of the ac com pa nyi ng report relating to those p r o g r a ms. Whi le the enclosed report relates to activities of the Corporation during the fiscal year ended J u n e 30 , 1950, the Corporation has, since t h a t date, taken certain steps w h i c h are being reported at this t i m e for the information of the President an d the Congress . T h e m o r e important of these are : (1 ) P u r s u a n t to the direction of the President, all field offices were instructed on July 31 , 1950 , that priority w o u l d be given to loans w hic h contribute to the national defense a n d that no loans w o ul d be m a d e wh ic h w o u l d result in diverting substantial quantities of strategic materials a nd supplies for n on -defense p u rp o se s. Because of this change in policy, together with changes in the economic a n d credit conditions th ro ug ho ut the country, there has been a substantial reduction in the n u m b e r of loans being m a d e currently. In the first quarter of the current fiscal year c o mm i t m en t s for loans to business enterprises we re m a d e to only 949 applicants, as co m pa r ed to 1,274 c o m m i t m e n t s during the s a m e period a year ago . This decline h as , h o w e v e r, been m o r e m o d e r a t e in connection w i t h small loans ; in the first quarter of the current y e a r loans of less than $ 100,000 w er e m a d e to 889 borrowers, while in the comparable quarter a year ago loans of less than $ 100,000 w er e m a d e to 1,094 borrowers . (2 ) Effective N o v e m b e r 10 , 1950 , the Corporation increased its interest rates on loans to business enterprises to 5 percent an d increased participation fees charged banks in connection with deferred participation loans to 2 percent. Simultaneously, the p r a c tice w a s initiated of charging fees in connection w i t h applications f r o m business enterprises a n d of charging c o m m i t m e n t fees in connection with loans wh i ch have not been disbursed after a specified period. ( 3) Plans are under consideration for substantial reductions in administrative expenses t h ro u g h consolidation of functions a nd other steps whi ch will also permit m o r e efficient handling o f applications for loans . Whi le the Corporation has not finally established a system for determining accurate costs of each of its p r o g r a m s,n o r of the service rendered to applicants a n d borrowers f r o m wh ic h no revenue accrues to t h e Corporation, studies have been conducted , a n d are continuing , wh ic h indicate that the actions already taken, described u n d e r (2 ) a n d ( 3) above, will, with the present volu me o f loans, permit o p e r a tion of each p r o g r a m without loss. T h e Directors o f the Corporation plan to m a k e further adjustments which will be designed to enable the Corporation to operate each phase of its lending activities o n a completely self -sustaining basis an d , at the s a m e t i m e, render the service contemplated b y the Cong ress. Respectfully submitted , M e t r o Chairman D e c e m b e r 4 , 1950 6 n A N N UA L R E P O R T - FISCAL Y E A R 1950 T h e p r i m a r y purposes of the Reconstruction Finance Corporation, as expressed in Section 4 of Public L a w 548 ,Eightieth Congress, approved M a y 25 , 1948 , are : to ai d in financing agriculture ,c o m m e r c e , a n d industry, to encourage small business , to help in maintaining the stability of the country, an d to assist in promoting m a x i m u m e m p l o y m e nt a nd production .” A detailed statement of the authorities granted the Corporation is set forth in A p p e n d i x E of this report. T h e basic policies guiding the Corporation's lending activities are also contained in the law , a nd these are described in a following section under " Lending Policies .” In addition to the lending activities, wh ich n o w relate principally to business loans, the Corporation is e n g a g e d in the ma nufa ctur e a n d sale of synthetic rubber a n d in the operation of the G o v e r n m e n t o w n e d tin smelter at T e x a s City, Texas. Dur ing the last session of the E i g h t y -first Congress , legisla tion w a s enacted w h i c h authorized the continuation of the synthetic r u b b e r p r o g r a m to J une 30 , 1952 , a n d o f the tin smelter operations to J u n e 30 , 1956. Legislation w a s also enacted during the last session of C o n g r e s s w hi ch authorizes the Corporation to continue a n d expand the operations of the Central A m e r i c a n abaca plantations. T h e Corporation is also continuing to liquidate pr og ra ms remaining f r o m the national defense , w a r , a n d reconversion activities of 1940-1947 . T h e m a j o r aspects of this liquidation are nearing c o m pletion . A n important activity under the direction of the Corporation during the fiscal year 1950 w a s the m ai n te n a nc e of a secondary m a rk e t for federally -insured h o m e m or t ga g es thro ugh the Federal National M o r t g a g e Association, an R F C subsidiary. T h a t subsidiary has been transferred to the H ou s i ng an d H o m e Finance A g e n c y , effective Se pte mbe r 7 , 1950 , in accordance with recommendations of the C o m mission on Organization of the Executive B r a n c h of the G o v e r n m e n t . LENDING ACTIVITIES T h e total a m o u n t of loans, purchases, a n d c o m m i t m e n t s m a d e b y the Corporation after J un e 30 , 1947 , m a y not exceed $ 3,800,000,000 outstanding at a n y one time ($ 3,750,000,000 pursuant to the R F C A ct , a s am e n de d , a nd $50,000,000 pursuant to Section 102 o f the National H ou si ng Act, as a m e n d e d ). Included in the total is the a m o u n t authorized for use by the Federal National M or tg ag e Association to pur chase h o m e m ort gag es, w hich , a s stated above, w a s transferred to the Ho u s in g a n d H o m e Finance A g e n c y . T h e authority contained in Section 102 of the National Ho us ing Act w a s similarly transferred . Against the remaining authority , the Corporation had outstanding at June 30 , 1950 , loans a n d c o m m i t m e n t s m a d e after June 30 , 1947 , in the aggregate a m o u n t of $652,114,000, leaving approximately $400,000,000 available for additional c o m m i t m e n t s.A s part of the general limitation placed on loans a n d c o m m i t m e n t s m a d e after June 30 , 1947 , the R F C A ct , as a m e n d e d , states specific limitations of $200,000,000 for loans to public agencies, $40,000,000 for loans i n disaster areas ,a nd $ 15,000,000 for loans on capital notes and debentures of insurance companies. H o w e v e r , loans a nd c o m m i t m e n t s m a d e in these categories since Ju n e 3 0 , 1947, constitute only a small percentage of the m a x i m u m lending authority granted ; as of J une 30, 1950, loans a n d c o m m i t m e n t s t o business enterprises accounted for over 93 percent of the charges m a d e against the total funds available. It should be borne in m i n d that the above has reference only t o loans a n d c o m m i t m e n t s m a d e after June 30 , 1947 , whereas the balance sheet a n d certain other schedules contained in this report relate to loans and c o m m it m e n t s m a d e both before an d after that date. T h e activities of the Corporation a s they relate to the several phases of the e c o n o m y in which the Congress h a s authorized the extension of financial assistance are discussed in the sections whi ch follow . Business Loans D ur i ng the year ended J un e 30, 1950 , the increasing prosperity enjoyed by the nation's business concerns indicateu a steady recovery f r om the m o d e r a t e recession of 1948-1949 . In the course of the 1948-1949 period of contraction, s o m e difficulties we re experienced by business enterprises in the process of reducing their inventories a nd liquidating accounts receivable, b u t business concerns in general e me rg ed in relatively strong financial positions.W h i l e earnings of business generally for the calendar year 1 9 4 9 we re substantially under those for 1948 , results for the first six m o n t h s o f 1950 we re well above those of the comparable period a year earlier. 7 In the annual report of the Corporation for fiscal year 1949 it w a s pointed out that the contraction of business activity occurring during the period covered had been accompanied by a m a rk e d rise in t h e n u m b e r of requests for financial assistance received. T h e expansion of business activity since m i d s u m m e r 1949 , h ow e v er , did not bring with it a reduction in the vo l um e of applications for business l o a n s . Applications received during fiscal y e a r 1950 w e r e about 6 0 percent greater in n u m b e r t h a n d u r i n g t he previous year. It is believed that the larger volume of applications received during the past y e a r can be attributed to a combination of the following factors : 1. T h e effects of the 1948-1949 business contraction a n d the benefits of the subsequent recovery w e r e not equally distributed a m o n g business concerns of all sizes. B y far the greatest n u m b e r of requests f o r financial assistance received b y the Corporation c a m e f ro m small a nd m edi um -sized businesses ; it w a s these s a m e classes of concerns wh ich w er e most adversely affected b y the 1948-1949 recession a n d t h e y we re the last to share in the benefits of the recovery . 2. R edu ce d profit m arg in s arising mainly f r o m heightened competition . A m p l e supplies of m o s t goods resulted in stable or slightly declining prices during fiscal year 1950, but operating costs — p a r ticularly labor costs — continued to rise. T h e reduction in profit margi ns has been experienced by b o t h small and large concerns, but the effects of such reductions have been felt m o r e by smaller enterprises . Smaller concerns have not been able to realize operating economies f r o m additions a n d imp rov eme nts t o their plants a nd facilities to the s a m e extent a s larger concerns. E v e n with reduced profit m a r g i n s, t h e expa nded vo lum e enjoyed by the larger concerns h as been sufficient, for the mo st part, to result in larger net earnings w h e n m ea su re d on a n absolute rather than relative base. B U S I N E S S L O A N A P P L I C A T I O N S NUMBER 1600 NUMBER 1600 RECEIVED APPROVED DECLINED WITHDRAWN 1200 1200 800 800 400 400 o JUL AUG SEP OCT NOV DEC JAN FEB MAR APR 1950 1949 8 MAY JUN 3. Difficulties have been encountered by m a n y concerns - usually the smaller ones — wh i c h had fi na nc ed expansion p r o g r a m s a n d n e w ventures w i t h short -term credit. Short -te rm credit has been m u c h eas ier to obtain than the long -term credit or equity capital w hic h could have been used m o r e a d v a n t a g e o u s l y to finance expansion p r o g r a m s. 4. A n increasing tendency for commercial financial institutions to emphasize liquidity in their l o a n portfolios. While commercial lenders h a v e s h o w n an increasing t e n d e n c y to avoid long-term loans, r e p o r t s f r o m the Corporation's agencies also have indicated that such institutions w e r e s o m e w h a t m o r e selective in the granting of short -term credits. T h e pattern of business loan activity during fiscal year 1950 is illustrated in the a cc om pa ny in g c h a r t . T h e 13,086 applications received embodied requests for credit in a total a m o u n t of $ 1,592,297,000. T h e Corpor ation authorized 5,506 loans involving c o m m i t m e n t s of R F C funds for $522,714,000 ; ba nk participation i n 1,626 of these loans a m o u n t e d to an additional $ 70,866,000. T h u s,t h e aggregate a m o u n t o f credit m a d e available to business concerns as a result of the Corporation's activities w a s $593,640,000. L e n d i n g Policies T he requirements of the R F C A c t with respect to the m a k i n g of loans to business enterprises are substantially as follows: (a ) Tha t no financial assistance m a y be extended unless the credit requested is not otherwise available on reasonable terms. (b ) Th at all securities a n d obligations purchased a n d all loans m a d e are of such sound value or so secured as reasonably to assure retirement or r e p a y m e n t. (c ) T ha t all loans m a d e a n d all obligations a n d securities purchased shall m a tu r e in ten years or less. (d ) Th at in agreements with banks to participate in loans wherein the Corporation's disburse m e n t s are deferred , the a m o u n t of the Corporation's participation is limited to 70 percent of the balance outstanding at the time of disbursement i n those cases w h e r e the total a m o u n t borrowed is $ 100,000 o r less, and is limited to 60 percent of such a m o u n t in those cases wh er e the total a m o u n t is over $ 100,000 . (e ) T h a t no director, officer, attorney, agent or employee of the Corporation shall participate directly or indirectly in the deliberation u p o n or determination of an y question affecting his personal interests. B e y o n d the requirements of the R F C Ac t , the following considerations are also taken into account w h e n acting upon loan applications : (a ) the public interest involved in the business to be financed, either f r o m a national or local viewpoint ; (b ) soundness of the purposes for w h ic h the loan is to be used ; (c) the ability to repay the loan out of earnings ; (d ) m a n a g e m e n t m u s t be satisfactory, although the Corporation refrains f r o m taking part, directly, in the borrower's affairs. Consistent with the foregoing, each application is considered on its o w n merits and loans approved are set up to m ee t the n e e d s of individual circumstances . Applications for loans are received in the Corporation's loan agencies and branch offices located in thirty -six important industrial an d commercial centers throughout the nation an d its possessions . Authority has been delegated to the m a n a g e r s of the loan agencies to approve applications for direct loans not exceeding $ 100,000, a n d not exceeding $350,000 if a ba nk agrees to participate in the loan . Applications for larger loans are exa mine d in t h e loan agencies and f o r w a r d e d to W as h i ng t on with recommendations, for final review a nd decision . Although the m a n a g e r s of the loan agencies m a y re c o mm e n d against granting loans,th ey are not authorized t o decline a n y request for financial assistance, no matter h o w small an a m o u n t is involved . Applications on whi ch the loan agencies r e c o m m e n d declina tion are given careful study in the W as h in gt o n office to m a k e certain that e v e r y reasonable basis for assisting t h e applicant has been explored. T h e Small Business Division of the W as hi n gt on Office devotes particular attention to applications in a m o u n t s of $ 100,000 or less. Only w h e n all of these examinations have failed to demonstrate a n y possibility of m a k i n g a loan on a sound basis in conformance with established practices is the loan finally declined. Assistance to Small Business A s in previous years , the m a j o r part of t he Corporation's business loan activity has been directed to the encouragement an d assistance of small business enterprises. Continued interest in the financial 9 problems of small business has been evidenced b y the Administration , the Congress ,a n d a host of private bodies conducting research in economic fields. T h e experience of the Corporation during the past y e a r indicates that small businesses are still encountering difficulty in securing adequate and reasonable l o n g te rm financing f r o m private sources. O v e r the years , the short -term credit requirements of small business have been well m e t b y the nation's private lenders a nd investors. H o w e v e r,t h e Corporation's experience indicates that the source of m a n y small business financial difficulties is the inability of smaller enterprises to secure adequate a m ou n ts of equity capital an d long -term credit. Substantially similar conclusions have been reached by committees of the Congress, the Federal Res erve Bo ard , an d other bodies — both in and outside of G o v e r n m e n t — which have m a d e studies in this field. M o s t needs for equity capital an d long -term credit arise w h e n n e w projects are undertaken or w h e n existing concerns endeavor to hold or strengthen their positions through expansion a n d modernization of their facilities a n d by widening their markets. L a rg e business firms frequently raise funds for these purposes through public sale o f stocks or debentures , but this m e t h o d i s seldom employed by smaller conc erns because of the prohibitive costs incurred in marketing small issues. T h e independence so m u c h prized b y small businessmen is also a deterring factor, for the ow ner s of small concerns are often reluctant to secure capital f r o m the sale of additional stock . F ur t he r mo r e, n e w issue a n d secondary markets for the securities of smaller , m o r e -or -less u n k n o w n c o n cerns are practically non -existent. Outside of the owner's personal resources,t h e greatest part of the equity capital a n d long -term credit needed b y small business has been , a nd still is,supplied b y local investors a n d relatives or friends of the principals. H o w e v e r, the importance of these traditional sources of small business funds has diminished . P r o m p t e d largely b y i ncome, inheritance , an d estate tax considerations, there has been a change in the types of investment preferred b y individuals, an d the m o r e liquid holdings (such as life insurance, mutual funds , G o v e r n m e n t notes and bonds, a n d the tax -e xem pt securities of political s u b divisions) have gained in favor over equity investment. Institutional investors, such as insurance companies , frequently supply long -term credit to business concerns u nder m o r t g a g e arrangements or b y the private purchase of debentures. H o w e v e r , such arrangements are usually limited to a mo u n t s m u c h larger than are sought b y individual small business concerns . B a n k s a n d other co m me rc i al financial institutions play a mo st important part in supplying the credit needs of small business , b u t advances f ro m these institutions are usually limited to short -term needs . N u m e r o u s examples can be found in the experience of this Corporation w h e r e small businessmen applied for long -term R F C loans u po n the advice a nd re commendation of the banks w h o w er e willing to supply all the short -term credit needed . W h y bank s limit m os t of their business loans to short -term advances becomes apparent w h e n s o m e of the underlying c h a n g e s in our nation's economic structure are examined . C o m p a r i n g 1950 with 1940 , it is found that the physical v o l u m e of business being transacted is n o w at least half again as great; furthermore, the prices of goods a n d services are n o w a bo u t t w o times as great as in 1940. All other things being equal, the a m o u n t of wo r ki ng capital required to ca rr y on the present vo lu me of business would be three ti me s that needed in 1940. S o m e of the additional w orking capital has been supplied from the retained earnings of business concerns a n d through injections of new equity capital. H o w e v e r, a considerable portion of the additional wo rkin g capital has been supplied b y increasing the v ol um e o f short -term b a n k loans. T h e business loans of insured commercial banks are n o w s o m e 260 percent above 1940. Besides furnishing m o s t of the w or ki ng capital needed to finance an expanding industrial e c o n o m y, private lenders have also played a mo st important part in financing the tremendous n u m b e r of housing units constructed a n d have also expanded their co ns um er credit pr og ra ms to a very large extent. W i t h su ch wide ma rke ts existing for their loanable funds, it w a s natural for commercial financial institutions to ha ve restricted the m a k i n g of long -term business loans. F or one thing, short -term business credit is usually m a d e on a n unsecured basis , and the processing a nd servicing of such loans are rela tively inexpensive. On the other hand, long -term loans are usually secured b y tangible collateral a nd the costs of the investigations, fees and legal w o r k required in processing a nd servicing such loans , together with the lack of liquidity, tends to m a k e t h e m less attractive to commercial lenders than short-term loans . T h e experience of the Corporation h a s s h o w n that the cost of processing an d servicing relatively small individual long-ter m loans m a y well result in a net loss ; h owe ve r , w h e n considered as a part of the wide variety of all loans , large and small , whi ch comprise the Corporation's lending program , such loans m a y well b e m a d e without cost to the go ve rn me nt . 10 O t h e r factors also operate to restrain b anks f r o m m a k i n g long -te r m business loans. Chief a m o n g these is t h e greater risk involved as c om pa re d to short -term adv ance s. Important changes in business trends usually occur over relatively long periods of time ; banks can m a k e loans to extend over three m o n t h s, six m o n t h s, or even a year with reasonable assurance that n o g r e a t f unda men tal changes will occur affecting the abilities of borrowers to repay . W h e n longer periods of time are involved,h o w e v e r , the c h an c e s of adverse changes during the life of the loan are multiplied. Obviously , the degree of liquidity required fo r private lenders tends to restrain t h e m f r o m investment which , over a long period of t i m e, m i g h t result in slow collections an d extended “ work -out ” periods. Advisory Service to Small Business A substantial percentage of the business concerns w hi c h m a k e inquiry regarding R F C financial assistance h a v e not fully explored the possibilities of obtaining credit f r o m private lenders. These applicants are directed to banks and other financial institutions a n d the Corporation's personnel m a k e s every effort t o assist the applicants in obtaining credit f r o m such sources . In addition to inquiries r e g a r d ing financial assistance, the Corporation also receives a large n u m b e r of requests for advice on m a n a g e m e n t , engineering, legal an d accounting problems. A s with other types of inquiries, practically all requests for business advice c o m e f r o m small concerns w h i c h seldom e mpl oy their o w n technical advisors and c ann ot always afford a large consulting firm . B y using its engineers,accountants, a n d other personnel ha ving long experience in the solution of business problems, the Corporation is able to ren der material assistance t o small business in the field of m a n a g e m e n t, operations a n d accounting, outlining possible solutions, a n d by indicating the sources f r o m w h i c h expert technical a nd consulting assistance c a n be had . Applications Received Applications w e r e received f r o m every section of the country an d f r o m practically all lines of bu si ness end ea vor. M o r e than 86 percent of the requests w er e for credit i n am o un t s of $ 100,000 or less typical small business loans . T h e relatively small n u m b e r of applications for loans exceeding $ 100,000 were submitted b y firms that are comparatively small an d far f r o m dominant in their fields. Withdraron Applications Ap pro xi mat ely one out of every five requests for R F C credit is w i t h d r a w n by the applicant before final action is taken. Du rin g fiscal year 1950, m o r e than a third of the withdrawals w er e m a d e because the applicants h a d been able to secure financing f r o m other sources or h a d so altered their plans that borrowing w a s unnecessary . A n additional one -third of the withdrawals were m a d e because the applicants recognized that their plans w e r e not sufficiently developed, a n d that m o r e time w a s needed to perfect their proposals or to determine the trend of their operations. T h e remainder we re wi th dr a wn for m is ce l laneous reasons. Declined Applications T h e Corporation declined 4,570 applications for business loans during fiscal year 1950. T h e a m o u n t of credit requested in these w a s about $471,000,000. F o r m o r e than half of these, the prima ry reason for declining w a s that the collateral w a s considered insufficient to support a loan in a n a m o u n t large e n ou g h to be o f benefit to the applicant. T h e collateral offered in the average declined application could be given a loan value equal to only about t w o -thirds of the a m o u n t of credit requested ; for approved loans, the average loan value of t h e collateral exceeded the a m o u n t authorized by nearly 30 percent. In another large g r o u p of cases , the applications w e r e declined because it appeared th at the prospective earnings of the applicants w er e n o t sufficient to provide for orderly re pay men t of the loans. Other reasons for declining loans included unacceptable collateral, lack of sufficient equity invest m e n t, inefficient or inadequate m a n a g e m e n t, failure to demon strate a need for R F C fun ds ,and lack of adequate wo r ki n g capital e v e n though the loans should be m a d e . Loans Authorized O f the 10,076 applications acted u p o n during the year, the Corporation approved nearly 55 percent. Including the b a nk s 'share of participation loans,t h e a m o u n t of credit authorized in these 5,506 approvals was $ 593,640,000. Nearly 90 percent of the n u m b e r of loans authorized w er e for a m ou n t s of $ 100,000 or less — well in accord with previous experience. These smaller loans have always accounted for a p pr o x i mately 90 percent of R F C ' s business loan authorizations. 11 A L B UO S TA I HN N O ER SI SZ A T I O N S M N & A O N U F A C T U R I NN GG A B LY O G AE NN C Y NO . 79 23.4 $ . AMT $ 4.7 M SEATTLES NM 95 . NO 9. 7 $ A 1.MT 3 SPOKANE NO . 3 AMT $.2 . PORTLAND 2 $.6O .REG NM M W .ONT M 49 NM 133 N D.AK . HELENA NO .9 1 0 AMT $ . 2.9 8 N ( .INN N MM 52 NM M NO . 5 10 51 .4 AMT 2 $ .. 31 66 2.1 $ NAINE WYO . MIGH J .WISC MINNEAPOLIS S.AK D . N ,Y CALIF EV UTAM .6 AM 1. . 2 $ 4NO .T0 1 2 105 4 . NO 2 .2.9 AMT 3 $ 8 M NM 25 S L CA IL T KY T E NO 20 . 1 AMT $ . 2..50 58 FRANCISCO SAN N .EOR N MM DENVER N MM MO K .ANS OKLA NO . 42 AMT 1 $ . 3.6 0 M 77 NM 73 2 NO .9 2 AMT 4.8 . $ 6 MM N 199 .RK A M 1 NO 51 . 43 OI C KTLYAHOMA 2 A 3 .. $ M5 7 T NM NM M 230 99 LA S AA NT NONIO NO 3 . 1391 A 3 $ . 5.M94 T N MM NO . 90 31 1 A $.M2 . 6T N OASMHVILLE NM 272 NO 120 . AMT 6 .4 1 $ ..0 1 GA , .LA M .ISS A NM M HOUSTON NO 3 . 2 2 1.30 $ . AMT NM 52 M 12 8 NO .14 M NM 53 7 70 . NO 5 2 AMT .4 4 $ .2 .9 TENN N.C. CHARLOTTE NM M 51 50 . NO S.2 C . $ 3 . AMT .5 6 ATLANTA BIRMINGHAN NM NM M 182 1 . NO 4 $ 7 AMT . 1 2 0 2 A0 M. T 46 . 6 NO 3 8 4 $ : . AMT .43 BOSTON M .ASS Y NEW ORK NM MHIA 67 PHILADELP 1 . NO 38 9 A DEL $ 1. . 5MT 7.7 NM M N OR EL WEANS NM M C .ONN N.J. 1 NO . 86 23 AMT 3 5 $ .2 .. 82 DALLAS NO . M60 8 ..4 AMT $ 5 I 1 PUERTO RICO NCLUDES 2 I / HAWAII NCLUDES I ) 3 ALASKA NCLUDES . PA CLEVELAND NM M LOUISVILLE. KY S L .O TUIS N MM 50 ! L RI OTCTKLE LEGEND MILLIONS F $ ARE INIGURES M INDUSTRIES =ANUFACTURING NM N = M INDUSTRIES ON ANUFACTURING NM M W.VA C KI ATNYSAS N MM 4 63 NO .25 4 AMT ..8 $ 2 M N ..EX NO . 4 $ . AMT 23 4.1 8 ONIO 76 . NO 172 1 6 $ . AMT 8 .. 52 RICHMOND A .RIZ L AO NS GELES NO . 1 AMT $2.18 . CHICAGO L .IND N MM 12 1 NO .80 5 1 $9 . AMT 8.9 7 OMAHA C .OLO 7 . NO 4 5 3 $ . AMT .38 NO . 1 AMT 58 . $ 4.5 3 IOWA M NM M NM 11 073 DETROIT . VT 61 NO 103 . 2 1 AMT $ .700 .2 JACKSONVILLE N MM 140 T h e m a p on the facing page s ho w s the n u m b e r a n d a m o u n t of loans authorized in the territories served b y each of R F C ' s 31 loan agencies. T h e ac com pan yin g chart s ho ws similar information by size of loan . B U S I N E S S L O A N AUTHORIZATIONS N U M B E R AND AMOUNT AUTHORIZED BY RFC 123 LOANS OVER $500,000 ($298.1 MILLION) 479 LOA NS $100,000 $500,000 $99 .8 MILLION M o r e than 650 different kinds of business enter prises w e r e represented in the loans authorized during the fiscal year. S o m e of the specific lines of business included w er e represented by a single b o r row er , while in other lines there w a s considerable concentration . T h e kinds of businesses to wh ich m o r e than 100 loans w er e authorized during fiscal year 1950 are listed below ; these ten industries c omb in ed accounted for nearly one -fourth of the total n u m b e r of loans authorized to business enterprises during the year . A m ou n t N umb er Authorized * 2,827 LOANS $ 25,000 & UNDER ($30.1 MILLION ) 2,077 LOANS $25,001-$100,000 ($106.1 MILLION) General contractors (bldg. const.). Grocery stores ... M o t o r vehicle dealers . Restaurants and lunch rooms . Grain elevators and farm product warehousing .. Motels, auto courts,etc... Laundries and dry cleaning plants . Dairy product processors. Sawmills .. Planing mills . 121 119 159 106 $ 13,041,139 1,799,036 4,795,255 2,065,446 103 152 165 117 145 104 8,278,002 4,471,539 3,035,102 6,086,224 14,567,072 15,266,171 * Includes banks'share of participation loans. In a general sense , the distribution of the Corporation's loan authorizations by kind of business c o n f o r m e d to the pattern of the business population ; grocery stores, restaurants,a n d laundries, for e x a m p l e , are a m o n g the enterprises containing t he greatest n u m b er s of individual businesses,h e n c e it c a n be expected that relatively large n u m b e r s of loans will be m a d e in these fields. A f e w illustrations will s h o w the circumstances under wh ic h s o m e other concentrations occurred . M o t o r Vehicle Dealers - A m o n g the 44,000 n e w car dealers in the nation , there are m a n y w h o sell less than 100 cars a year. Th at the Corporation's loans to automobile dealers w e n t mostly to the smaller m e m b e r s of the industry is s h o w n b y t h e fact t h a t the average loan in this field w a s approximately $ 30,000. T h e proceeds of the loans m a d e to m e m b e r s of this industry we re intended mainly f o r m o d e r n i zation a n d expansion . M a n y borrowers w er e extending their service facilities to take advantage of the profit possibilities existing as a result of the record n u m b e r of cars on the road and the g r o w i n g tendency for motorists to t a k e their repair jobs to m o d e r n , well-equipped shops . Gra in Elevators — The loans authorized to m e m b e r s of this industry w er e almost exclusively for the purpose of providing additional storage capacity for preservation of the nation's fo od and feed s u p plies. Agencies of the De p ar tm e nt of Agriculture were authorized to m a k e loans to farmers for on -farm storage facilities, but they do not m a k e loans to commercial operators. Motels a n d A u t o Courts – O n e of the m o s t outstanding examples of g ro w th in a n industry co mpos ed almost exclusively of small businessmen has been found in m o to r courts. T h e n u m b e r of these es tab lishments n o w exceeds 30,000, three times the n u m b e r in existence ten years ago , a nd m o s t of the e x p a n sion has occurred since 1946. Recently , there has been a pronounced trend toward larger establishments and better acc ommodations, wh ich has increased the a m o u n t s of equity capital or long -term credit needed to construct an d equip profitable mot or courts. T h e loans authorized by the Corporation to m o to r court operators averaged slightly less than $ 30,000 each a n d represented about half of the costs of buildings a n d furnishings. Typical motels financed with the Corporation's assistance had f r o m 15 to 18 units a nd the average cost of a unit w a s approximately $ 3,100. Large L oans Because m o r e than 90 percent o f the loans m a d e by the Corporation are for a m o u n t s of $ 100,000 or less, the dollar am o u nt s authorized in loans to particular industry groupings are usually in direct p r o 13 portion to the n u m b e r of loans. H o w e v e r, it is occasionally found that one or t w o exceptionally large loans will swell the dollar total for a specific industry . F o r fiscal year 1950 , there w er e six instances w h e r e m o r e than $ 15,000,000 w a s authorized to a specific industry to whic h less than 30 loans we re authorized . These are s u mm a r i ze d in the table below : N um b er A mo u nt of Loans Authorized * 6 29 10 21 11 3 Crude petroleum production ... Quick -frozen foods. Steel works Aircraft and aircraft parts.. Motor vehicles and truck trailers.. Air transportation (c o m m o n carrier) $ 15,413,000 15,955,550 42,647,000 23,344,500 50,912,000 21,220,300 * Includes banks'share of participation loans. Us e of L o a n Proceeds Additions t o fixed assets and increases in working capital were the principal purposes intended for the proceeds of the loans authorized during fiscal y e a r 1950. T h e distribution of the a mo u nt s authorized in direct loans a nd in the Corporation's share of participation loans w a s as follows : Percent of total Fixed assets : Total.. Construction . Machinery and equipment . Additional working capital . 37.3 23.8 13.5 37.1 Replenishment of working capital and payment of debts: Total. T o refinance short and intermediate -term capital improvement arrangements . T o refinance short -term notes and accounts payable T o refinance long -term debt due banks and others (including approximately 2.5% to refinance R F C loans).. Miscellaneous.. 24.2 8.0 8.6 7.6 1.4 100.0 T ha t portion of the proceeds s h o w n as “ Replenishment of wo rk in g capital a nd p a y m e n t of debts " requires a special explanation : It is not the practice of the Corporation to " bail o u t ” banks or other creditors w h e n they face losses. Th ere are, h o w ev e r, instances in w h i c h a m ou n t s are authorized to p a y off balances due in order that valid liens m a y be secured on the collateral. Stud y of a representative sample of loans authorized during 1950 indicated that m o r e than three -fourths of the funds included in this category w er e intended for purposes wh ich would improve the borrowers' wo rk in g capital positions. M a n y of thos e instances occurred in situations w h e r e the b or ro we r s h a d expended their w or k in g capital funds for impro vement s a n d additions to their fixed assets a n d then found that the sources relied u p o n for p e r ma n e n t financing w er e either unable or unwilling to extend the credit needed ; others w er e f ou nd wherein borrowers h a d financed capital im prov emen ts entirely u po n a short -term basis an d found that their debt loads b e c a m e m o s t cu m b ro u s during periods of lower earnings. B a n k Participation B o t h in n u m b e r an d a m o u n t, nearly a third of all loans authorized b y the Corporation during fiscal year 1950 w e r e m a d e in cooperation with banks. A s u m m a r y of b a n k participation in the Corporation's loans is given below : No. Total- All Participation Loans... Immediate Participations.. Deferred Participations. 1,626 385 1,241 14 A mou nt Authorized (000 ) To t al RFC Ba nk $191,346 75,617 115,729 $ 120,480 52,488 67,992 $ 70,866 23,129 47,737 % Taken by Banks 37.0 30.6 41.2 I m m e d i a t e participations, wh i ch m a y cover a n y portion of a loan agreeable to the Corporation a n d the participating bank , areo f t w o general types. I n o n e, the b a n k disburses a n d services the loan a n d the Corporation purchases an agreed percentage of each disbursement m a d e on account of the loan . In the other type, the Corporation disburses a n d services the loan and upon disbursement the b a n k purchases its agreed share of each disbursement. D ef e r re d participations are those in w h ic h the Corporation a nd the b a n k execute a n a gre eme nt under w h i c h the Corporation will purchase , u po n d e m a n d b y the b an k , an agreed percentage of the unpaid balance of t h e loan, provided the b a nk has complied in all respects w i t h the terms of the a g r e e m e n t. S u c h participation b y t h e Corporation m a y not exceed 70 percent in loans of $ 100,000 or less, a n d 60 percent in larger loans. B y e mp l oy i ng these participation agreements, banks h a v e been able to assist business enterprises by a rra ngi ng loans larger than the ba nks' legal limits an d loans extending over longer periods of time than b a n k policy ordinarily permits. C o n s u m m a t i o n of L o a n Authorizations Di sbu rse ment s — Disbursements w e r e m a d e during the year on 3,246 loans ; the total a m o u n t d i s bursed w a s $ 302,394,000. In addition , banks disbursed $96,714,000 on 1,006 deferred participation loans m a d e in cooperation with the Corporation . T h e a m o u n t of unrepaid balances on the Corporation's business loan disbursements increased by about $ 134 million dur ing the year. H o w e v e r , a drop of nearly $46.5 million w a s s h o w n in the ou tsta nd ing balances of b a n k loans covered b y R F C guarantees u nd e r deferred participation agreements . A comparison of outstanding balances at the close of fiscal years 1949 a nd 1950 is given in the a c c o m p a n y ing table . June 30 , 1949 June 30 , 1950 Change Nu m be r Total ... R F C Loans . Deferred participation bank loans... 11,986 5,187 6,799 A mo u nt N um be r A m ou n t N u mb e r (Dollar figures are in thousands ) $605,372 12,092 $692,901 + 106 384,346 6,667 518,351 +1,480 221,026 5,425 174,550 -1,374 Am o u n t $ + 87,529 +134,005 46,476 Cancelled Authorizations — During the year ending June 30, 1 9 5 0 , there w e r e 1,052 loan authoriza tions for $ 114,491,985 w hic h w ere cancelled in full before a ny disbursements we re m a d e . In 478 of these cases, involving $ 73,934,492, the authorizations we re cancelled because the applicants we re able to secure financing elsewhere or because the credit w a s no longer needed . In m a n y of these cases the ability of the applicant to secure private financing or to forego borrowing w a s the result of the careful e x a m i n a tion m a d e of the applicant's affairs b y the Corporation's personnel. In a n u m b e r of cases , the C o r p o r a tion h a d approved loans on bases wh i ch had been overlooked b y banks or other private lending agencies, which , w h e n they reviewed the situation, w ere willing to extend t h e financial assistance wh i c h they ha d declined in the first instance. In other cases, the financial advice and business counsel offered in the course of examining applications resulted in such i m p ro v e m en t in the applicants' affairs that, prior to disbursement of the loan, it w a s determined that the requested credit w a s not actually needed . A total of 416 loan authorizations for $26,390,765 were cancelled because the applicants o r guarantors were unable or unwilling to co mpl y with the conditions of the loan authorizations. Included in this group were applicants w h o were unable t o present clear titles to the collateral offered, an d applicants w h o s e financial positions ha d suffered severe adverse changes after the loan ha d been authorized but before disbursement. T h e remaining 158 loan authorizations, involving $ 14,166,728, we re cancelled for miscellaneous r e a sons or because the applicants requested cancellation without stating definite reasons for their action . Cancelled Participation A g r e e m e n t s — There w e r e 36 2 instances, involving authorizations for $30,098,497, w h e r e the participation agreements between the Corporation a n d banks w er e cancelled after participating banks h ad m a d e s o m e disbursements on account of the loans. In 287 of these cases , involving authorizations for $ 26,630,422, the a gr e e me n ts w e re cancelled at the request o f participating banks w h i c h intended to continue the loans without R F C participation. T h e 15 a m o u n t outstanding on these loans w h e n the agreements w er e cancelled w a s $ 1 1 , 0 3 7 , 2 8 8 m o r e t h a n 40 percent of the original authorizations. T h e banks w er e apparently willing to continue these loans either because the outstanding balance ha d been reduced to c on for m to t he banks ' legal limits,or be c au se seasoning during the period of the Corporation's guaranty h a d demonstrated the s o u n d nature of t he credit. T h e maturity dates on the loans taken over by banks w e r e generally well into the future ; 2 3 1 loans with outstanding balances totalling $ 10,057,714 m a t ur e d in 1951 or later years , and 91 of th es e m a tu r ed in 1955 or later. There w e r e 44 loans wherein the banks requested cancellation o f the participation ag r ee me nt b u t stated no definite reason for so doing . All but six of these m at u re d after 1950 , so it is likely that t he banks expected to continue these loans also . I n a few instances the Corporation initiated cancellation of the participation agreement be c au s e the banks had not complied with the provisions of the participation a g re e m en t. L o a n s Rep aid i n Full - A total of 2,8 08 loans to business enterprises w e re repaid in full d u r i n g fiscal year 1950. O f these, 765 loans, originally authorized for $ 65,433,996 , w er e repaid as scheduled in the loan agreements an d subsequent modifications. T h e remaining 2,043 loans w er e repaid in a dv an ce of their final maturity dates. T h e table below sh o ws the circumstances under whi ch repayments were m a d e . N um b er , by Maturity Date Total... Refinanced outside of R F C ... Repaid from borrowers' o w n r e sources... Repaid from proceeds of fire insur ance policies. Refunded by loans in which R F C participated . Reason for advance repayment not reported .... Repaid fr om proceeds of involun tary liquidation prior to maturity of loan... Am ou nt Author ized * A mo u nt Final R e * payment * $ 145,131,375 $ 54,150,065 2,043 64,599,555 25,787,472 24,637,028 1954 and Beyond Prior to 1/1/51 1951 1953 908 156 553 345 582 96 9,381,028 668 251 288 129 1,062,665 462,527 32 8 12 12 30,882,963 7,462,339 286 64 128 94 22,182,264 10,029,544 666 148 304 214 1,766,900 1,027,155 46 15 20 11 Total 93 * Includes banks' share of participation loans. T h e extent to w hi ch R F C loans are repaid in advance of final maturity evidences the effective assistance provided b y R F C loans in ov e rc om i ng financial difficulties of m a n y borrowers, and also indi cates the willingness of banks a n d other private financing agencies to extend credit after seasoning h a s demonstrated the soundness of the loan . A n example will be found in the case of the Corporation's loan to Kaiser S t e e l Corporation , originally authorized i n the approximate a m o u n t o f $ 114,000,000, b ut subsequently paid d o w n to approximately $91,000,000 , a nd repaid in full on N o v e m b e r 1 , 1950 , f r o m the proceeds o f privately -m a d e loans a n d sales of securities to the general public. Losses — Since the inception of t h e Corporation's business loan p r o g r a m in 1934 , over 59,000 loans , in the aggregate a m o u n t of $4.6 billions,h a v e been authorized to business concerns; these figures include not only loans m a d e pursuant to the Corporation's normal peace -time lending authority, but also the so -called “ National Defense " loans m a d e during W o r l d W a r II, housing loans m a d e pursuant to Section 102 of the National Hou si ng A ct of 1948 , and similar special authorities. Against these authoriza tions , the Corporation has disbursed $2.2 billions. D u ri n g this 16 -year period, it has been necessary to write off as losses $ 101 million, including $35.5 million charged off in connection with the Lustron loans. D ur i ng fiscal year 1950 , the a m o u n t s written off as uncollectible aggregated $40 million , including the $35.5 million Lustron loan charge -off. 16 Hou sing L oans U n d e r Section 10 2 of the H ousing Act of 1 9 4 8 A s part of the general effort to encourage construction during a period of housing shortages, the Ei gh t ie th Congress, in Public L a w 901 , authorized the Corporation to : • .m a k e loans to a n d purchase the obligations of a n y business enterprise for the purpose of providing financial assistance for the production of prefabricated houses or prefabricated housing co mpo nent s, or for large -scale modernized site construction ." T h e A c t w a s approved A u g u s t 10, 19 48 , and little m o r e than a m o n t h later the first loan w a s m a d e u n d e r this authority. Effective Septem ber 7 , 1950 , responsibility for administration of this part of the Na t i on a l Ho u si n g Act w a s transferred to the Ho u s in g a n d H o m e Finance A g e n c y , under the provisions o f Reorganization Plan No. 23 . M o s t of the loans authorized by the Corporation under Section 102 of the National Hou si ng Act w e r e for the production of prefabricated houses. T h r o u g h June 30 , 1950 ,33 loans h ad been authorized to 2 6 bor rower s un de r this authority ; the total a m o u n t of these authorizations w a s $43,214,613 , including $ 325,000 taken b y banks in participation loans . T h e largest single recipient of loans under this authority w a s the Lustron Corporation, for $ 12,000,000 (the remaining co m m i tm e n t s to this corporation we re m a d e u n d e r other authorities ). In addition, a n u m b e r of loans for similar purposes w er e authorized under the Corporation's regular lending authority. A s u m m a r y of the Corporation's lending experience under the authority cited is given in the a cc om pa ny in g table. Total No. of Loans Authorized . A m o u n t Authorized ..., Cancelled before disbursement . Uncancelled authorizations. Undisbursed ... Disbursed . Repaid ... Foreclosure * Outstanding Balance, June 30 , 1950 . Current ... Delinquent . In Liquidation . 33 $43,214,613 2,297,000 40,917,613 14,004,531 26,913,082 592,846 12,000,000 14,820,236 13,985,482 79,871 254,883 Large-Scale Prefabricated Modernized Prefabricated H o u s i n g Site C o n Housing Components struction 24 $33,553,113 1,707,000 31,846,113 9,033,682 22,812,431 537,846 12,000,000 10,274,585 9,939,831 79,871 254,883 2 $ 925,000 175,000 750,000 695,000 55,000 7 $ 8,736,500 415,000 8,321,500 4,275,849 4,045,651 55,000 55,000 55,000 3,990,651 3,990,651 (Includes Banks ' Share of Participation Loans) * Lustron Corporation. Railroads T h e past decade has been a period in w hi ch the nation's railroads have m a d e notable progress in recovering fr o m the financial ills which beset t h e m during the depression of the 1930's. Generally s p e a k ing, railroad earnings have been good and markets for their capital securities and debentures have been favorable . In consequence, f e w railroads have approached th e Corporation for financial assistance. In the fiscal year just concluded , only four loan applications w e r e received b y the Corporation f r o m rail road companies; in addition, one application w a s pending at the start of the period. T h e total a m o u n t requested in these five applications w a s $8,175,000. O f these, t w o we re authorized for $3,774,000 , t w o we re declined, and one remained to be acted upon . L oans authorized to railroads m u s t bear the approval of the Interstate C o m m e r c e C om m is si o n , as provided by Section 4 (a ) (1 ) of the R F C Ac t . A s the financial condition of the railroads improved , the Corporation concentrated its efforts on the liquidation of its railroad loans a nd investments. O n J un e 30 , 1 9 5 0 , the total of railroad loans a nd security purchases outstanding w a s $ 110,427,000 . This a m o u n t is less than one -tenth of the $ 1,136,781,000 disbursed on railroad loans an d security purchases during the history of the Corporation . T h e C o r p o r a 17 tion also held , on June 30 , 1950 , railroad securities in the a m o u n t of $ 28,342,267 whi ch we re received under the reorganization plans of railroads indebted to the Corporation , an d securities in the a m o u n t of $ 288,655 received as the result of refunding an interest claim . Financial Institutions Since 1939 , the banks , insurance companies , an d other financial institutions of the nation h a v e m a d e very few requests for R F C assistance. N o applications for financial assistance w e r e received f r o m these sources during fiscal year 1950 , but approval w a s granted during the year to one application filed earlier for a loan on t h e preferred stock of an insurance c o m p a n y . T h e a m o u n t of this loan w a s $ 100,000 . Also dur ing the year, disbursement of $3,000,000 w a s m a d e on a similar loan previously approved .T h e needs of these companies for capital funds we re certified b y the Secretary of the Treasury ,a s provided in S e c tion 4 (a ) (2 ) of the R F C A ct . A t the close of fiscal year 1950 , there w e r e 495 loans or security purchases outstanding to financial institutions, aggregating $ 109,969,251. A year earlier there were 6 3 8 such loans a n d security pu r ch as es outstanding, having an unpaid balance of $ 122,816,564 . A comparison of the a m o u n t s outstanding at the close of fiscal y e a r 1949 an d 1950 is given in the a cc om pa ny in g table. June 30 , 1950 Purchases of preferred stock, capital notes and d eb en tures of banks and trust companies . Loans on preferred stock of banks and trust companies . Loans on preferred stock of insurance companies . Loans to banks and trust companies .. Loans to mortgage loan companies . Total.. June 30 , 1949 Nu mb er A mo un t N um be r Amount 488 2 4 1 1 $ 101,550,197 135,928 8,255,000 28,126 630 2 3 2 1 $117,333,193 139,371 5,309,989 3,082 30,929 495 $ 109,969,251 638 $ 122,816,564 W i t h the approval of b a n k supervisory authorities, the a m o un t s subscribed by the Corporation for the preferred stock and capital notes a nd debentures of banks are being reduced as rapidly as the financial condition o f the banks warrants. T h e progress m a d e i n the liquidation of these investments can be me as ur ed b y co mparing the a m o u n t outstanding at the close o f fiscal year 1950 with the $574,170,000 outstanding on the s a m e date in 1939 . Disaster Loans O v e rs h a d o we d in the cold figures of the balance sheet, the Corporation's activities in the mitigation of hardship due t o disaster are outstanding w h e n considered f r o m t h e viewpoint of h u m a n interest a n d the general welfare. W h e n e v e r and w here ver disaster strikes, representatives of the Corporation p r o ceed at once to the stricken area . There , in cooperation with t h e R e d Cross, local C o m m u n i t y Chests, C h a m b e r of C o m m e r c e organizations, and other public and private agencies, surveys are m a d e t o d e t e r m i n e the need for loans to rehabilitate individuals, families, business concerns , a n d local public bodies whic h m a y have suffered direct physical losses. W h e n the surveys s h o w need for R F C loans, local committees are formed to serve in advisory c a p a c ities, a nd interviews a n d the processing of loan applications are undertaken in the stricken area . A s a rule, the Corporation's disaster loan procedure is operating within one or t w o days after the catastrophe occurs . T h e practices governing t h e granting of disaster loan credits are m u c h m o r e liberal than those c o v e r ing other types of loans m a d e b y the Corporation. H o w e v e r , although there isn o statutory requirement therefor, it is not the practice t o m a k e loans to victims of catastrophe if credit is being m a d e generally available in the disaster area f ro m normal sources on reasonable t e r m s. A n y citizen or a ny alien possessing his first citizenship papers m a y apply for a disaster loan . Business concerns, farmers, churches, eleemosynary institutions, and public agencies are also eligible. T h e interest rate o n disaster loans is fixed at 3 percent; four m o n t h s' free interest is automatically allowed , a n d the loans m a y extend over periods as long as 10 years. H o w e v e r, in connection with every loan , regardless of use or size, there m u s t be a reasonable prospect that the loan will be repaid, and s u c h collateral security is required as the borrower m a y reasonably be expected to furnish . 18 Despite the fact that disaster loans a r e m a d e on v ery liberal t e r m s, losses sustained in the p r o g r a m h a v e been relatively small. This is high tribute to the integrity of the borrowers. T h r o u g h Ju ne 30 , 1 9 5 0 , 26,080 loans h a d been authorized to disaster victims for a total a m o u n t of $60,861,000. Di s bu rs e m e n t s against these authorizations totalled $ 49,132,000 ; it has been necessary to charge off as losses $ 3,330,000 . D u r i n g fiscal year 1950 , the Directors of the Corporation found that eme rge ncy situations existed i n 1 3 areas as t he result of m a j o r disasters. In s o m e o f these, local agencies w e r e well able to provide f o r the needs of the victims, an d but little need w a s felt for the Corporation's assistance. In other areas , h o w e v e r , considerable n u m b e r s of requests for aid we r e received . T h e disaster areas designated during t h e past year are listed below : Nature of Disaster Flood ... Hurricane . Windstorm and Flood . Fire .. Flood . Flood . Flood . Flood . Tornado . Flood .. Explosion . Flood ... Flood . Location Date Hannibal , Missouri . Florida Skagit River Valley, W a s h .. H y n d m a n , Pennsylvania . Ohio and W a b a s h Rivers, Illinois and Indiana . .Western Tennessee . . .Western Kentucky .. R e d River, No rth Dakota and Minnesota . Holdenville, Oklahoma ... Southeastern Nebraska . South A m b o y , N e w Jersey Crooksville, Ohio ... .Northcentral West Virginia .July, 1949 Au gus t , 1949 N o v em b e r, 1949 D e c e m b e r, 1949 January , 1950 January, 1950 M a r c h , 1950 April, 1950 April , 1950 M a y , 1950 M a y , 1950 J u n e , 1950 J u n e, 1950 Applications for assistance because of disasters n u m b e r e d 287 during fiscal year 1950. T h e total a m o u n t of financial assistance requested w a s $ 1,784,000. T h e n u m b e r approved during the year w a s 2 1 5 , for $ 1,171,000 . Fo r the mo st part, catastrophe loan authorizations are m a d e in relatively mod est a m ou n t s . T h e distribution b y size a n d general type of those approved during fiscal year 1950 isgiven in the a c c o m p a n y ing table : Individuals Business Total Size of Loan $500 or less... $501- $ 1,000 . $1,001- $2,500 $2,501- $5,000 ... $5,001-$10,000. $ 10,001-$25,000 $ 25,001 and over . Total . Enterprises 30 34 63 38 26 16 8 6 21 26 20 13 8 215 94 Farmers (households) 1 5 7 4 3 2 29 23 35 8 3 1 22 99 Nearly three -fourths of all disaster loan applications are processed within a w e e k of the date they are received. T h e processing of those filed by business enterprises requires m o r e time than for those filed b y individuals an d families, mainly because of the time required to determine the extent of ins ur ance coverage. T h e Corporation takes pride in the swiftness with whic h its disaster loan functions are placed in operation a n d the rapid m a n n e r in w hic h the rehabilitation needs of catastrophe victims are m e t . Public Ag enc y Lo ans A n important but relatively little k n o w n contribution to the economic stability, health , and w ell being of the nation h a s been m a d e by the Corporation t h r o u g h its public a g e n c y loans. B y purchasing the obligations of States, counties , municipalities, a n d other public agencies w hi ch could n ot secure funds elsewhere, the Corporation has aided in financing su ch projects a s w at er wo rk s, sewer s ys te ms, transportation facilities, hospitals, bridges, airports, a n d irrigation districts. 19 W i t h R F C assistance, relatively small installations have been constructed in tiny c ommu niti es w h i c h previously had been unable to obtain credit, a n d large projects have been undertaken a n d c o m p l e t e d in great urban areas w hich at the time could not procure financial aid by the sale of bonds in th e o p e n market . In city a nd country , in large projects an d small, this w o r k has been carried on not only w it h great local benefit, but on a self -supporting basis. T h e scope of these undertakings, and their successful fulfillment, are s h o w n by the fact t h a t of almost $ 1.5 billion authorized during the past 18 years , only $25 million remained unpaid at J u n e 3 0 , 1950. This_total includes $9,815,227 representing the cost of securities pur cha sed by t h e Corp oratio n f r o m the Public W o r k s Administrator, Federal W o r k s A ge n cy , of wh ic h $ 554,440 w e r e purchased at par a n d $ 9,260,787 at two -thirds of par value ; in addition to the securities purchased, t he C orp orat ion holds bonds in t h e a m o u n t of $ 1,478,313 acquired through advances m a d e for care a n d preservation of the collateral for the original securities. In the event such securities are disposed of for a m o u n t s e x c e e d ing the cost to R F C , the excess will be credited to the Corporation's liability for funds held ; similarly , disposals for less than cost will decrease such liability . A p a y m e n t of $5,000,000 w a s m a d e into m i s c e l laneous receipts of the Treasury during the year. D u ri n g the fiscal year 1950 , securities costing $ 1,047,827 w er e disposed of for $ 1,486,573. A large portion of the repayments were affected by the sale of bonds to private investors, often at a p r e m i u m . A s seasoned issues, these bonds w e r e in d e m a n d b y the s a m e investors w h o displayed little interest in t h e m w h e n first offered. D ur i ng the fiscal year 1950 , 33 loans totalling $ 10,014,000 w e r e approved ; 26 of these w e r e for less than $ 250,000 and only 2 w er e for m o r e than $ 1 million. A s an illustration of h o w the Corporation aids small to w ns in their financing p ro ble ms, 22 communities of less than 2,000 population sold b o n d s to the Corporation for water an d sewer construction . In addition to the loans actually m a d e , there are m a n y cases in w hich the Corporation t hr ou gh its advice and suggestions h a s m a d e it possible for municipalities to obtain private financing even w h e n such financing had previously been declined. Du rin g the year, m a n y hundreds of inquiries w er e received f r o m public agencies requesting financial counsel a n d assistance. I n each case the Corporation so u gh t m e a n s to assist t h e agency in securing bo nd m o n e y through private sources ; a n R F C l oan w a s c o n sidered only if the private aid w a s n o t available o n reasonable t e r m s. M a n y municipalities, after their representatives h a d conferred with R F C representatives, revised the scope a n d m e t h o d of financing their construction projects ,a n d w e r e able to place t h e m on such a n improved basis that private lenders supplied the f u n d s a n d R F C financial aid b e c a m e unnecessary . Federal National Mortgage Association T h e assets set forth i n the comparative consolidated balance sheet of t h e Corporation include insured a nd guaranteed mor tga ges in the aggregate a m o u n t of $ 1,156,494,358. O f this total $ 1,055,632,280 w a s o w n e d b y Federal National M o r t g a g e Association whic h , during the entire fiscal year 19 5 0 , w a s a wholly -ow ned subsidiary of the Reconstruction Finance Corporation . T h e purpose of the Association is to provide a secondary m a rk e t for housing mortgages insured b y Federal H ou si ng Administration or guaranteed b y Veterans Administration. T h e Association purchases such m or tg age s f r o m b a n ks, m o r t g a g e companies a nd other p rim ar y lenders , thus enabling su ch lenders to m a k e additional m or tg ag e loans. T h e mor tgages are subsequently offered to private investors o n t e r m s wh ic h provide such investors a n opportunity to employ funds on an immediate i n c o m e producing basis. T h e activities of the Association are described in detail in the report m a d e to the Federal H o u s i n g Administrator, pursuant to the Ho us ing Ac t of 1948 , as a me n d e d . A co py of that report (with certain charts deleted ), submitted for the six m o n t h s ended J u n e 30 , 1950 , whi ch also describes the activities of the Association for the full year , is m a d e a part o f this report as A p p e n d i x A. D u r i n g the year covered by this report, the Association m a d e c o m mi t m e n ts to p u r c h a s e 219,672 mo rtgages for $ 1,784,471,000. Actual purchases during the year a m o u n t e d to 133,032 mortga ges for $ 946,397,000. A t J un e 30, 1950 , the Association h a d outstanding c om m i t m en t s for the purchase of 113,904 mortga ges for $ 1,100,445,000. O f equal significance is t h e report on sales of mo rtgages effected b y the Association during the year. Beginning i n Oct ober , 1949, the Association intensifiedits efforts t o ma r ke t its portfolio of m o r t gages to financialinstitutions a n d other investors a n d f r o m that date through June 30, 1950 (primarily 20 in the last three m o n t h s of the year ),44,883 mortgages in the a m o u n t of $311,292,000 (exclusive of sa les of $ 17,623,000 o f mo rtgages held b y R F C ) w e r e sold . T h e sales p r o g r a m h a s continued at a c o m p a r a b l e rate during the fiscal year beginning July 1, 1950 . Pursuant to Reorganization Plan No. 22 of 1950 , the Association , together with its functions, assets, liabilities, personnel, etc., w a s transferred to the H ou si ng a n d H o m e Finance A g e n c y, effective S e p t e m b e r 7 , 1950 . N O N -L E N D I N G A C T I V I T I E S the All of the p r og ra m s described above relate to lending activities conducted b y the Corporation during fiscal year 1950 . In addition to the lending activities, the Corporation is en gaged in certain activities undertaken p u r s u a n t to authority granted to assist in financing various projects relating to national defense, w a r , a n d reconversion to a peace-time e c o n o m y . T h e production a nd sale of synthetic rubber, the purchase, p r o d uc t i o n an d sale of tin, a n d the operation of Central A m e r i c a abaca plantations are being continued p u r s u a n t to specific legislation a n d , in order to m ee t the current international situation , are being e x p a n d e d in scope beyond that wh ic h w a s fo un d necessary during the fiscal year 1950. These activities, a s well as the liquidation of assets acquired or liabilities incurred wh ile other wa rt im e pr o g ra m s w e r e active, are conducted on an accountability basis, as further explained below . Pursuant to the provisions of Public L a w 860 , Eightieth Congress, the Secretary of the Treasury w a s authorized to cancel notes of the Corporation in the a m o u n t of $ 9.3billion, representing t he a m o u n t of unrecovered costs expended b y the Corporation through June 30 , 1947 , in connection with national defense, w a r , a n d reconversion p r o g r a m s. T ha t statute also directed the Corporation to deposit in miscellaneous receipts o f the Treasury all net proceeds obtained f r o m operation or liquidation o f these p r o g r a m s. A s of Ju ne 30 , 1947 , there w a s on h a n d a balance of assets costing $ 2,593,894,697. A s of J u n e 30 , 1950 , the total of such assets at cost a m o u n t e d to $ 768,797,153, whic h includes $652,183,855 pertaining to assets held in connection with continuing operations. In addition, the Corporation held, after p a y m e n t of all operating an d capital costs, net proceeds in the a m o u n t of $ 179,718,600. P a y m e n t s to t h e Treasury have heretofore b ee n m a d e in the a m o u n t of $ 125,000,000 , representing net proceeds f r o m the operation and liquidation of these p r o g r a m s. A complete statement of the accountability of the Corporation to the U . S. Treasury under all n o n lending p ro gr am s will be found in Exhibit C. A detailed break -d o w n of all assets held at Ju ne 30 , 1950 , is s h o w n as Schedule 1 of Exhibit C. Synthetic Ru bb er , Tin an d Aba ca P r o g r a m s T h e legislation authorizing the synthetic rubber, tin a n d abaca p r og r am s m a k e s provision for reports to the Congress covering activities un der the respective p r o g r a m s. S u c h reports will be fou nd as Appendices B , C a nd D , respectively, of this report, each describing in detail the activities and operating results for the fiscal year 1950 . Liquidation of Other W a r t i m e Activities In addition to the investment of $ 4,267,230 in the a l u m i n u m a n d m a g n e s i u m forging plant w h i c h , during the fiscal year 1950 , w a s operated under agreemen t b e t w e e n the Corporation and W y m a n -G o r d o n Products Corporation, there remained for liquidation at Ju ne 30 , 1950, assets costing $ 112,346,068 acquired under wa rt im e p r o g r a m s, including $36,142,963 representing cost of plants under long -term leases. A t Ju ne 30 , 1949 ,t h e total o f such assets a m o u n t e d to $ 136,190,558, a n d at J un e 30 , 1948 , they totalled $261,779,539. T h e decrease of $23,844,490 during the fiscal year 1950 resulted f r o m collections and offsets on loans, advances a nd receivables, sale or other disposal of inventories, plants a n d other properties, write-off of uncollectible receivables, a nd transfer of strategic materials to the national stockpile an d to other G o v e r n m e n t agencies. A t Ju ne 30 , 1950 , there remained for liquidation, un der the liquidating wa rt im e p r o g r a m s, liabilities aggregating $ 7,930,514. S u c h liabilities totalled $ 12,573,852 at Ju ne 3 0 , 1 94 9 , an d $ 54,994,469 a t J u n e 30, 1948. T h e decrease of $ 4,643,338 during the fiscal year resulted f r o m p aym en ts, offsets a n d adjust ments. 21 T h e net aggregate decrease of $ 19,081,099 in these assets and liabilities during the fiscal year 1950, as s h o w n by the foregoing figures, does not accurately reflect the full extent of liquidation accomplished because it does not reflect assets and liabilities w h i c h accrued after the beginning of the fiscal year but wh ich w e re liquidated before the end of the year . F or e x a m p l e ,a total of over 10,000 n e w receivables a nd payables am ou nt in g to m o r e than $ 15,000,000 were filed during the year, while a total of o ve r 6,200 receivables a n d payables a m o u n t i n g to m o r e than $ 33,500,000 w e r e disposed of administratively during the s a m e period ,s o m e going into litigation. More over , substantial disposals of excess property during the year by sales and leases are not fully reflected in the year's net decrease of assets except w h e r e there w a s a complete disposal for cash . T he liquidation of s o m e pro gram s m a y be reflected by a n increase of assets ; for example, the progressive development of such items as land grant claims has substantially increased the accounts receivable. Typical of the liquidation accomplishments during the fiscal year we re the following : property of $43,676,977 book value w a s disposed of b y sale, lease or transfer ; stockpile operations w e r e wholly liquidated except for t w o virtually unsalable categories ; $3,547,517 of land grant claims w e r e developed a n d filed against railroads a n d $ 2,259,282 disposed of ; w a rt i me subsidy claims in a substantial amount were settled, typical of whi ch were s o m e $ 804,000 of m e a t subsidy claims ; and other claims a n d accounts totalling $ 31,262,780 w e r e disposed of administratively, s o m e of w h i c h w e n t into litigation. Typical of the items an d categories w hi ch comprise the assets a nd liabilities on the accounts for liquidation as of Ju ne 30 , 1950 , are the following : $ 36,142,963 of property under lease ; $ 14,689,072 of property u nd e r conditional sales contracts ; $ 43,847,022 of property for disposal, subject to priority, national defense a n d security requirements. Included also are land gr ant claims filed a n d pe ndi ng col lection, $ 3,706,851 ; and other miscellaneous claims pending settlement in the a m o u n t of $ 26,869,553, exclusive of matters in litigation a nd certain other items such as current receivables a nd payables . A s of June 30 , 1950 the operating agr eement between this Corporation a nd W y m a n -G o rd o n Products Corporation w a s terminated , a n d an interim permit , effective July 1, 1950, for use o f the plant was issued b y R F C to the D e pa r t m en t of the Air Force. Legislation is now pending providing for the official transfer of the facilities to the D e pa rt m en t of the Air Force. No m in a l title to the facilities is as yet held b y the R F C a n d the value of the properties is reflected on the records of R F C . W y m a n -G o r d o n continues to operate the plant under a lease arrangem ent with the D ep ar t me nt of the Ai r Force. T h e p r o g r a m of liquidating th e remaining assets a nd liabilities is being brought to conclusion as promptly as circumstances permit. It is estimated that substantially all such activities will be liquidated by the close of the fiscal year 1951 except for development of land grant claims, settlement of litigation an d of claims which m a y arise during the fiscal year, servicing of industrial plant facilities wh ich are the subject of long -t erm leases or deferred p a y m e n t conditional sales agreements, an d disposal of property up o n expiration of such leases. Smaller W a r Plants Corporation Liquidation of the assets of the Smaller W a r Plants Corporation , transferred to the Reconstruction Finance Corporation pursuant to Executive Order of D e c e m b e r 27 ,1945 , continued during fiscal year 1950. A t the close of fiscal ye ar 1950 , accountability for the net assets of S W P C ha d been reduced to $ 8,809,900 w h ic h is $ 10,591,556 below the figure for June 30 , 1949. T h e ma j o r portion of this reduction is t he reflection of $ 10,000,000 remitted to the U. S. Treasury on June 29 , 1950 , f r o m the proceeds of the liquidation program . T h e assets remaining on June 30 , 1950 , comprise the following : Proceeds realized and payable to U. S. Treasury . Loans outstanding .. Notes and accounts receivable. Machinery and equipment. Property acquired in liquidation of loan indebtedness . $ 3,550,480 3,458,310 963,505 215,838 621 767 $8,809,900 T h e progress m a d e in the liquidation of S W P C loans m a y be m ea su re d b y com paring the 118 loans for $ 3,458,310 w h ic h we re outstanding on J un e 30 , 1950 , with the 208 loans for $5,427,120 outstanding a year earlier. 22 FINANCIAL S T A T E M E N T S T h e financial statements contained in this report have been prepared f r o m the books a n d records o f t h e Corporation kept in accordance with sound accounting principles applicable in the circumstances, a n d are subject to their related notes.A comparison of financial highlights of the Corporation's lending activities, as reflected in the records, is set forth in the following chart: T O T A L ASSETS 1950: $2,161,084,205 (before reserves for estimated losses in collection) 1949: $ 1,510,432,728 195 $518,350,863 B U S I N E S S LOANS & 1949: $384,345,549 INSURED AND GUARANTEED M OR T GA G ES A L L OT HER LOANS A ND ASS ETS 1950 : $1,156,494,358 C1949:$ 591,866,0843 1950: $486,238,984 $1949: $534,221,095 1950 : RFC $46,683,934 FNMA $41,661,085 GROSS INCOME 1949:RFC $39,098,069 FNMA $10,334,194 1950: RFC $16,391,530 FNMA $ 5,000,634 ADMINISTRATIVE EXPENSE 1949: RFC $15,240,309 FNMA $2,660,627 1950: $26,696,653 IN TERE ST E XP EN S E €1949: $12,463,974 LOAN AND MO RTGA GE C OM MIT ME NT S MADE DURING YEAR UNDISBURSED LO AN COMM ITMENTS AT END OF Y E AR UNDISBURSED M OR TG AG E COMMITMENTS AT END OF Y E A R 1950: RFC $549,170,581 FNMA $1,784,470,891 1949:RFC $383,992,683 FNMA $703,489,8491 1950: $434,303,712 21949; $394,913,244 1950: $1,100,444,942 1949 ; $ 486,924,301 23 Balance Sheet - Exhibit A O f the net increase in total assets s h o w n in the Compara tive Consolidated Balance Shee t from $ 1.421 billion at June 30 , 1949 , to $2.103 billion at Ju ne 30 ,1 9 5 0 , $ 564 million resulted f r o m increased holdings of h o m e mortg ages insured by V A and $ 134 million resulted f r o m increased loans to business enterprises ; the balances of all other classes of loans declined during the year . T h e net increase in out standing business loans is after charging off loans d e e m e d uncollectible, (including $35.5 million applicable to the Lustron loans ), which charge-offs are offset by a decrease in " Estimated losses in col lection ” a n d an increase in “Properties a n d securities acquired in liquidation of loan indebtedness ,” the latter in a n a m o u n t representing the appraised value of the assets acquired through liquidation of the loans. Notes payable to the U. S. Treasury increased in proportion to the increase in assets. S uc h increases we re , of course, not identical because of changes in other liabilities, primarily the liability to t h e U . S. Treasury for net proceeds f r o m liquidation of assets a nd securities acquired under national defense, w a r , a nd reconversion p r o g r a m s. T h e a m o u n t of such liability increased f r o m $96,422,018 at J u n e 30, 1949 , to $ 179,718,600 at J un e 30 , 1950 ; this increase of approximately $ 83,296,000 w a s net , after paying into miscellaneous receipts of the Treasury the sum of $25,000,000 ( $100,000,000 w a s p a i d in the fiscal y e a r 1949 ). Further pa ym en ts to the Treasury of the $ 179.7 million held at Ju ne 30 , 1 9 5 0 , are contingent upon requirements for expenditures in connection with the synthetic rubber, tin a n d abaca p r o g r a m s. W i t h respect to the latter, substantial expenditures of a capital nature are contemplated in the n e a r future to carry out the expansion of abaca plantings in Central A m e r i c a , as provided in Public L a w 683 , 81st Congress. Similarly, certain expenditures are required to reactivate synthetic rubber plants a nd to purchase additional inventory of tin concentrates. T h e Corporation has followed the prac tice of retaining, in substantial a mo u n t s , the proceeds of liquidation or operation of assets acquired in national defense, w a r a n d reconversion pr o g ra m s (for w h ic h notes of the Corporation we re cancelled pursuant to Public L a w 860 , 80th Congress ) for the purpose of meeting financing requirements of all non -lending p r o g r a m s . T o the extent that such funds are utilized in the lending p ro gr am s of the C o r p o r a tion, they a r e considered in the s a m e light as borrowings f r o m the Treasury an d interest thereon is co mp ut ed at the s a m e rate as is currently paid to the Treasury , i.e., the rate fixed by the Secretary of the Treasury after taking into consideration the current average rate of outstanding marketable obliga tions of the U n i t e d States. A t the time such funds are required for operating or capital ex pe nd it ur es in connection with non -lending p r o g r a m s, or w h e n paid into miscellaneous receipts of the Treasury , it become s necessary to b o r r o w equivalent a m o u n t s f r o m the Treasury pursuant to the usual note -issuing procedure. T h e following statement sets out in s u m m a r y f o r m the source and use of funds during the fiscal year 1950 . (in Millions of dollars ) Receipts Operations: $ 120.9 Business loan repayments .. 372.3 Mortgage sales and repayments. 112.3 All other loan operations (net). 110.9 $ 716.4 Non -lending programs... Re pay men t of non -interest -bearing advances to other agencies m a d e by Congressional direction : E.C.A. — 1949-1950 ... E.C.A. Korean assistance . Relief Palestine refugees . 1,000.0 30.0 8.0 1,038.0 Total receipts.. Disbursements Loan operations : Business loans.. Mortgage purchases $ 1,754.4 302.4 946.4 1,248.8 Payments to Treasury : Dividend ..... Interest on notes . Liquidation proceeds Liquidation proceeds Liquidation proceeds Liquidation proceeds 1.3 17.1 25.0 10.0 5.0 .6 59.0 of war activities. of Smaller W a r Plants Corporation of Public Wo rks Administration .. of W a r D a m a g e Corporation .. 24 Advances by Congressional direction to other Government agencies : E.C.A. Korean assistance . Relief of Palestine refugees. $ 30.0 8.0 38.0 Total disbursements . $1,345.8 Excess of receipts over disbursements . $ 408.6 D i s position of Excess of Receipts $ Borrowings from Treasury (interest-bearing). Less: Repayments. Net borrowings— (interest-bearing ) Borrowings from Treasury (non -interest-bearing) Less : Repayments ... 702.2 102.0 $ 600.2 38.0 1,038.0 1,000.0 Net repayments - non -interest-bearing. Excess repayments over borrowings.. Increase in cash on deposit with U. S. Treasury and others. 399.8 8.8 $ 408.6 T h e balance sheet, as of June 30 , 1950 , reflects dividends payable to the U. S. Treasury of $ 18,674,005, a s c om pa re d to $ 1,345,185 at J u ne 30 , 1949. T h e dividend payable represents earnings of the Corporation in excess of $ 250,000,000 w hich , pursuant to the R F C Act , as a m e n d e d , is retained as accumulated surplus. A s indicated in the Statement of N e t I nco me , the Corporation's net income (includ ing that of Federal National Mo r t ga g e Association ) for the fiscal year 1950 , w a s $27,247,193 . T h e dividend payable, as s h o w n above, represents net earnings of the Corporation (after surplus ad jus t m e n t s ), exclusive of the earnings of Federal National M o rt g ag e Association during the fiscal year 1950 , b ut including a dividend of $ 10,000,000 declared an d paid b y t h e Association on the capital stock held b y Reconstruction Finance Corporation . T h e balance of the Association's accumulated net earnings are retained as undistributed earned surplus reserved for losses a nd contingencies. T h e balance sheet a m ou n ts do not include c o m m i t m e n t s undisbursed as of June 30 , 1950 , in the following a m ou n t s : 1. Direct loan commitments to industrial and commercial enterprises (including I m m e diate Participations).. 2. 3. Co mm it me nts to participate in loans m a d e by banks — Deferred Participations Other loans.. 4. Co mmi tm ent s to purchase insured or guaranteed mortgages.. $ 233,712,210 129,792,617 70,798,885 1,100,444,942 Statement of Net I n c o m e f r o m Le nding Activities — Exhibit B Total income of the Corporation increased by $ 38,912,756 over the $49,432,263 earned in the fiscal year 1949 , a n increase of approximately 79 percent. T h e m a j o r portion of this increase c a m e f r o m i n creased interest, p r e m i u m s, and c o m m i t m e n t fees earned in the mo r tg ag e program . O f the Corporation's total income of $ 88,345,019 ,Federa l National M o r t g a g e Association ea rne d $41,661,085, as c o mp a r e d wi th $ 10,334,194 earned b y the Association in the fiscal year 1949. Interest income f r o m business loans increased f r o m $ 12,588,183 to $ 18,507,681 , or $ 5,919,498 (approximately 47 percent ); this increase resulted entirely f r o m the increase in the portfolio o f business loans previously discussed .I n c o m e f r o m properties a n d securities acquired in liquidation of loan indebtedness increased b y $ 6,594,675, primarily bec ause of th e sale at a price in excess o f the carrying value of properties held for R F C b y Consolidated Realty Corporation. Th at corporation w a s organized in 1938 for t h e purpose o f liquidating property acquired b y R F C through foreclosure of its loan to the P rud en ce C o m p a n y Inc. Sale of the properties from which the profit referred to w a s earned , effected liquidation of m o s t of the remaining properties acquired in earlier years. N e t income f r o m lending activities (other than f r o m F N M A ) a m o u n t e d to $ 9,784,653 in the fiscal year 1950. This represents 9.785 % on the investment of t h e Treasury in capital stock of t h e Corporation . Încluded i n such net income are extraordinary profits of $ 6,280,000 earned during the year f r o m sale 25 of assets acquired through foreclosure, discussed above. After elimination of such extraordinary profits, net earnings w er e $ 3,504,653, representing a return of approximately 31,2 % on the Treasury's invest m e n t o f $ 100,000,000 in the capital stock of the Corporation. This co mpar es with the a m o u n t of $ 1,875,000 (discussed below ) paid by the Treasury , at 178 % , on the cost t o it of funds invested in the Corporation's capital stock . F o r the t w o -year period during w hi ch the Corporation has o p e r a t e d under existing legislation, net earnings have a m o u n t e d to $ 8,730,633 , after elimination of extraordinary profits o f $6,280,000, representing a gross return of 4.4 % per a n n u m on the capital stock outstanding. Interest expense increased very substantially over that of the prior year ; such increase is attributable primarily to increased borrowings necessitated by the increase in loans. A s indicated previ ously, the Corporation paid interest to the Treasury at a rate fixed by the Secretary of the Treasury after taking into consideration the current av era ge rate of outstanding marketable obligations of the United States on all m o n e y s borrow ed ; this rate w a s 178 % on all but a very m in o r portion of b o r r o w ings outstanding during the year . N o t all of the funds used by the Corporation bear interest. For example , no interest is paid on the a m o u n t of $ 250,000,000 representing earned surplus w h i c h w a s not bo rrow ed by the Treasury and whi ch the Corporation w a s directed by the Congress to retain after paying all accumulated earnings in excess of that a m o u n t into the Treasury as dividends . Also , in accordance with the R F C A ct , as a m e n d e d ,n o interest is paid on the a m o u n t o f $ 100,000,000 invested in capital stock of the Corporation by the Treasury. H a d interest been paid on the investment of the Treasury in the capital stock, interest expense would have been increased by $ 1,875,000 in t h e fiscal year 1950 ; in the prior year s u c h increase w ou ld have a m o u n t e d to $ 2,242,000 because capital stock outstanding w a s $ 325,000,000 for a brief period ($225,000,000 of capital stock w a s retired on July 23, 1948 , purusant to the provisions of Public L a w 548,80th Congress ). In arriving at its net income , the Corporation has m a d e provision for future losses on the basis of its past loss experience in the various m a j o r classes of loans . This "reserve m e t h o d ” of recognizing the contingency of loss w a s adopted effective July 1, 1948. Based on a m o u n t s charged off a nd estimated losses through Ju ne 30 , 1948 , experience factors w e r e adopted for application to disbursements in the several classes of loans. T h e factor with respect to business loans (the class in wh ich the Corporation h a d m o s t of its activity during fiscal year 1950 ) w a s 3.3 percent ; based on an average mat urit y of five years , this a m o u n t e d to .66 percentp e r a n n u m . R eexami nation of the Corporation's loss experience to date indicates that the business loan factor originally adopted w a s high in light of the cumulative experience through June 30, 1950. Accordingly , the factor for business loans w a s reduced to a p p r o x i mately 3 percent in arriving at the provision for losses of $ 8,523,775 for th e fiscal year 1950. It is anticipated that this percentage will be further reduced in the fiscal year 1951 . Al th ou gh total administrative expenses remained approximately the s a m e in the fiscal years 1949 a nd 1950 , expenses charged to lending activities increased by $ 3,491,228— $ 17,900,936 in 1949 as c o m pared to $ 21,392,164 i n 1950. O f the increase in administrative expenses charged to all lending activities, $2,340,007 resulted f r o m a n increase in expenses of Federal National Mo r t g a g e Association due to the vol ume of mort gage activity. 26 Financial I 12 27 Exhibits R E C O N S T R U C T I O N F I N A N EXHIBIT A - COMPARA A s s e t s June 30, 1950 CASH $ June 30, 1949 16,861,687 8,263,272 LOANS , SECURITIES AND RELATED RECEIVABLES (other than insured and guaranteed mortgages and loans to foreign governments ): Loans, and securities at cost: Industrial and commercial enterprises. . Railroads... Financial institutions. $ 518,350,863 110,426,721 109,969,251 24,907,491 4,516,948 384,345,549 117,246,021 122,816,564 30,195,439 3,998,054 Other receivables arising from loans and securities.. 768,171,274 9,723,031 2,266,535 658,601,627 9,564,789 2,031,817 Less estimated losses in collection .... 780,160,840 58,000,000 Political subdivisions of states and territories. Catastrophe loans.. Accrued interest and dividends.. 722,160,840 670,198,233 89,000,000 581,198,233 INSURED AND GUARANTEED M OR T GA G ES AND RELATED RECEIVABLES : 915,997,115 240,497,243 3,769,495 Partially guaranteed by Veterans Administration . Insured by F H A . Accrued interest . Other receivables arising from mortgages.. 251,720,134 1,124,917 1,161,388,770 68,345,327 60,003,288 128,348,615 340,145,950 1,941,500 1,237,986 595,045,570 LOANS TO FOREIGN GOVERNMENTS , including accrued interest : United Kingdom of Great Britain and Northern Ireland,less prepayments.. Republic of the Philippines 114,001,074 60,003,288 174,004,362 O THE R ASSETS : Properties and securities acquired in liquidation of loan indebt edness, including railroad reorganizations, at lower of cost or appraised values... 33,822,567 27,485,482 Equity in net assets of Defense Homes Corporation held for liquidation --Note D .... 32,133,188 33,073,643 Miscellaneous accounts and other notes receivable, less esti mated lossesof $83,379 in 1950 and $ 101,841 in 1949 .. Furniture and fixtures, less accumulated depreciation. 7,330,059 1,038,479 74,324,293 $ 2,103,084,205 28 1,360,155 1,002,011 62,921,291 $1,421,432,728 R P O R A T I O N A N D S U B S I D I A R Y OLIDATED BALANCE SHEET Liabil ities June 30, 1950 June 30, 1949 LIABILITIES TO THE PUBLIC : Arising from loan programs: Accounts payable.... Trust and deposit liabilities — Note E. Arising from national defense, war and reconversion programs: Accounts payable .... Trust and deposit liabilities. Provision for war damage insurance claims.. 1,704,623 24,086,353 1,202,407 25,963,960 25,790,976 27,166,367 27,173,725 612,939 39,907,797 2,822,678 630,000 27,786,664 $ 53,577,640 43,360,475 $ 70,526,842 LIABILITIES TO OT HER U. S. GO VE RN ME NT AGENCIES : Accounts payable and sundry liabilities.... Notes payable to U. S. Treasury: For general purposes,including accrued interest.. For specific purposes,non-interest bearing $8,000,000 at June 30, 1950 and $ 1,008,000,000 at June 30, 1949 Less: Funds in an equal amount delivered to other U. S. Government agencies at Congressional direction Dividends payable to U. S. Treasury ... Net proceeds from liquidation of assets and securities: Acquired under national defense, war and reconversion pro grams- Exhibit C....... Transferred from Smaller War Plants Corporation - Exhibit D. Purchased from Public Works Administrator, Federal Works Agency ... 3,678,273 5,670,567 1,460,752,973 855,176,299 18,674,005 1,345,185 179,718,600 3,550,480 96,422,018 10,961,567 7,614,575 1,673,988,906 12,473,196 982,048,832 4,791,945 6,000,000 10,791,945 4,726,350 7,791,059 12,517,409 RESERVES : For employees'accrued annualleave.... For losses under deferred participations in bank loans. CAPITAL STOCK HELD BY U. S. TREASURY ... 100,000,000 100,000,000 SURPLUS :- N O T E F Accumulated net income- unreserved ... Less: Dividends accrued or paid to U. S. Treasury. Reserved for contingencies (including reserve for self-insurance of $ 2,000,000 at June 30, 1950)... 577,410,745 327,410,745 558,736,740 308,736,740 250,000,000 250,000,000 14,725,714 264,725,714 $2,103,084,205 This exhibit is subject to the accompanying "Notes to Financial Statements”. 29 6,339,645 256,339,645 $1,421,432,728 R E C O N S T R U C T I O N FINANCE C O R P O R A T I O N A N D SUBSIDIARY E XH IB IT B - C O M P A R A T I V E C O N S O L I D A T E D S T A T E M E N T O F N E T I N C O M E F R O M L E N D I N G ACTIVITIES Fiscal Year Ended June 30,1950 Fiscal Year Ended June 30,1949 $ 18,507,681 $ 12,588,183 9,096,504 37,310,944 12,363,926 13,814,697 4,181,321 452,924 5,497,731 40,521 69,549,374 44,305,058 7,666,590 814,567 1,071,915 836,777 1,008,358 2,746,562 6,559,568 1,322,040 21,836 88,345,019 49,432,263 22,614,041 4,082,612 8,040,633 4,423,341 21,392,164 4,474,169 11,065 17,900,936 1,699,949 17,258 52,574,051 32,082,117 35,770,968 17,350,146 PROVISIONS FOR LOSSES . 8,523,775 9,218,813 NET INCOME . $ 27,247,193 INCOME : Interest and dividends earned on loans, securities, etc.: Industrial and commercial enterprises.. Railroads, financial institutions, political subdivisions of states and territories and catastrophe loans.... Insured and guaranteed mortgages . Foreign governments. Accounts and other notes receivable... Income from properties and securitiesacquired inliquidation ofloan indebtedness,including railroad reorganizations net .. Income from equity in net assets of Defense Homes Corporation. Fees on loan participation agreements.... Premiums earned .. Commitment fees and other income . 1,874,637 INTEREST AND OT H ER EXPENSES : Interest on : Funds borrowed from U. S. Treasury. Funds held for U. S. Treasury and others. Administrative expenses. Fees for servicing mortgages... Other expenses. NET INCOME BEFORE PROVISIONS FOR LOSSES. $ 8,131,333 AN AL YS IS O F A C C U M U L A T E D N E T I N C O M E Accumulated net income, June 30, 1949... Income for fiscal year ended June 30, 1950,as above. Adjustments of prior years income. Transfer to reserve for self-insurance. . Transfer from amounts reserved for contingencies... Amount of F N M A income reserved for contingencies... Unreserved Reserved for Contingencies $558,736,740 $ 6,339,645 27,247,193 187,119* 2,000,000 * 2,000,000 1,076,471 7,462,540* 1,076,471* 7,462,540 $577,410,745 * Deduct This exhibit is subject to the accompanying "Notes to Financial Statements”. 30 $14,725,714 RECONSTRUCTION AND FINANCE CO R P OR A T IO N SUBSIDIARY EXHIBIT C - S T A T E M E N T O F A C C O U N T A B I L I T Y T O U. S. T R E A S U R Y F O R N E T F U N D S E X P E N D E D B Y R F C IN N A T I O N A L D E F E N S E , W A R A N D R E C O N V E R S I O N ACTIVITIES ACCOUNTABILITY AT JUNE 30, 1949 : Net proceeds realized and payable to U. S. Treasury at June 30, 1949.. $ 96,422,018 Assets, at cost, remaining fordisposal at June 30, 1949.. 872,024,490 968,446,508 RESULTS OF LIQUIDATION FOR FISCAL YEAR 1950 : Cost of assets transferred to other U. S. Government agencies without reimbursement: Property,plant, equipment and inventories- net (current year transfers $6,635,357 less prop erties returned $7,737,547).... $ 1,102,190 * 102,539 Commodities transferred to national stockpile. Losses on sale and retirement of property, plant and equipment.... 12,916,596 Final price adjustments on alcohol,afteraudit,with distillerswhose accounts were previously settled on a tentative basis..., Administrative expenses. 2,298,382 Other losses and costs - net.. 5,182,134 5,918,592 25,316,053 Less : Rentals and royalties earned .... 3,109,148 Recoveries under land grant freight claims.. 5,368,329 8,477,477 16,838,576 951,607,932 RESULTS OF OPERATIONS OF CONTINUING P RO G RA M S FOR PERIOD JULY 1, 1949 T H R O U G H JUNE 30, 1950 : 1,794,621 Logs from synthetic rubber program - Schedule 2. 10,916,369 Loss from tin program - Schedule 3. 484,509 Loss from fiber program - Schedule 4 . Loss from aluminum and magnesium forgingsprogram (Wy ma n -Gordon Products Corp .)........ 13,410 13,208,909 Less: Charges not involving cash outlays (depreciation and interest)..... 31,811,651 18,602,742 INTEREST ALLO WED ON FUNDS UTILIZED IN R F C LENDING ACTIVITIES . 970,210,674 3,305,079 PROCEEDS REMITTED TO U. S. TREASURY DECEMBER 31, 1949. 973,515,753 25,000,000 ACCOUNTABILITY AT JUNE 30, 1950 .. $ 948,515,753 REPRESENTED BY : Net proceeds realized and payable to U. S. Treasury — Exhibit A ... $ 179,718,600 Assets, at cost, remaining for disposal at June 30, 1950 — Schedule 1 768,797,153 $ 948,515,753 *Deduct This exhibit is subject to the accompanying "Notes to Financial Statements ”. 31 RECONSTRUCTION AND FINANCE CORPORATION SUBSIDIARY S C H E D U L E 1 - ASSETS , A T C O S T , A C Q U I R E D IN C O N N E C T I O N W I T H N A T I O N A L D EF E NS E , W A R A N D R E C O N V E R S I O N ACTIVITIES F O R W H I C H T H E C O R P O R A T I O N IS A C C O U N T A B L E T O T H E U. S. T R E A S U R Y June 30, 1950 June 30, 1949 SYNTHETIC RUBBER P R OG R A M Accounts receivable.. Inventories: Synthetic rubber Raw materials, chemicals and processed stock . Supplies, spare parts and tools.. 801,813 $ 14,798,044 6,988,521 12,540,329 9,722,996 Property, plant and equipment. Prepaid taxes,insurance and other deferred charges. Total assets -Synthetic rubber program . 29,251,846 19,760,843 15,609,510 11,098,967 46,469,320 509,812,366 734,060 509,932,066 1,726,375 554,596,316 558,929,574 6,385,172 12,184,636 TIN P R O G R A M Accounts receivable... Inventories: Refined tin... Tin ore . By -products.. Operating and other supplies. 43,083,052 21,427,373 353,269 626,819 Property, plant and equipment... Prepaid taxes,insurance and other deferred charges. Total assets — Tin program . 65,490,513 90,795,000 44,624,337 122,994 667,014 136,209,345 11,631,015 256,443 10,046,364 60,382 83,763,143 158,500,727 FIBER P R O G R A M 1,289,589 Accounts receivable.. Inventories: Abaca .. Agave .. Operating and other supplies. 789,258 672,586 573,749 Plantations operated for the production of abaca and agave fiber.. Prepaid and deferred charges .. Total assets - Fiber program . 312,693 141,086 622,079 1,246,335 1,075,858 11,285,024 3,448 12,030,525 294,143 13,824,396 14,189,784 ALL OT HE R P RO GR A MS Loans, advances and receivables: U. S. Government agencies.. Other (includingconditional sales contractsof $14,689,072 at June 30, 1950 and $16,204,590 at June 30, 1949)... 38,249,188 Inventories of strategic materials held for disposal or transfer to n a tional stockpile: Metals and minerals.. Natural rubber. Other strategic materials. Property, plants, equipment and related facilities: Defense plantsand equipment. Aluminum and magnesium forgings plant. Other assets: Experimental plywood flying boat... Inventory ofplatinum . Prefabricated houses and housing materials. Miscellaneous assets.... 172,493 822,982 38,421,681 52,334,166 53,157,148 174,448 58,670 454,829 687,947 484,537 71,769 1,000,775 1,557,081 52,134,021 4,267,230 56,401,251 58,079,027 4,213,847 62,292,874 21,102,419 15,526,463 2,126,758 2,359,956 3,384,125 23,397,302 15,526,463 2,126,758 3,449,198 Total assets - Other programs. 116,613,298 140,404,405 Total- Exhibit C .. $768,797,153 $872,024,490 This schedule is subject to the accompanying "Notes to Financial Statements ”. 32 RECON STRUCTI ON FINANCE C OR P O R AT I O N AND SUBSIDIARY SC HE DUL E 2 - S T A T E M E N T O F OPERATIONS OF SYNTHETIC R U B B ER P R O G R A M Fiscal Year Ended June 30, 1950 INCOME : Sales of synthetic rubber.. $156,006,135 Revenue from tank car operations.. 211,434 Other income. 213,022 156,430,591 OPERATING COSTS AND EXPENSES : Cost of goods sold...... 115,939,875 25,522,411 Provision for depreciation of operating plants and facilities. Research and development..... 4,927,586 Excess of sales freight expense over freight charged to customers. 3,217,194 779,214 Storage and handling of finished goods .. Administrative expense . 1,655,686 Reactivation expense... 110,061 Other expenses and losses.. 147,766 152,299,793 INCOME FROM OPERATIONS BEFORE DEDUCTION OF INTEREST ON INVESTMENT.. 4,130,798 INTEREST ON U. S. GOV ERNME NT FUNDS INVESTED IN NET OPERATING ASSETS . 3,331,279 NET INCOME FROM OPERATIONS. 799,519 EXPENSES FOR MAINTENANCE AND PROTECTION OF STANDBY PLANTS AND FACILITIES (less rental income of $ 1,063,984). 2,594,140 NET Loss — NOTE H. $ This schedule is subject to the accompanying "Notes to Financial Statements”. 33 1,794,621 REC ONSTRUC TION FINANCE C OR P O RA T IO N A N D SUBSIDIARY S C H E D U L E 3 - S T A T E M E N T O F O P E R A T I O N S O F TIN P R O G R A M Fiscal Year Ended June 30, 1950 SALES OF REFINED TIN .. Smelter operations, Texas City, Texas Trading operations imported tin Total $79,156,420 $62,029,787 $ 141,186,207 COST OF TIN SOLD : Cost of production - longhorn tin: 44,624,337 Beginning inventory - tin ores and tin in process. Purchases — tin ores . 43,205,595 Delivery costs, weighing, assaying, storage, etc.. 1,073,845 Processing costs. 5,431,053 Total.. 94,334,830 Less: 21,427,373 Ending inventory - tin ores and tin in process. Tin in processinventory treated abroad .. 1,106,495 1,106,495 71,800,962 Cost of production .... 71,800,962 29,067,649 Purchases - imported refined tin... 520,205 Delivery costs, weighing, assaying, storage, etc. Re -processing costs of imported refined tin . 12,737 Total refined tin acquisitions. . 30,707,086 30,707,086 Beginning inventory - refined tin... 40,258,269 50,536,731 90,795,000 Total refined tin available..... Less: 112,059,231 81,243,817 193,303,048 24,418,464 18,664,588 43,083,052 87,640,767 62,579,229 150,219,996 Ending inventory - refined tin... Cost of sales..... LOSS FROM OPERATIONS.. $ 8,484,347 $ 549,442 9,033,789 574,452 SELLING , ADMINISTRATIVE , AND O THER EXPENSES . Loss, BEFORE DEPRECIATION AND INTEREST ON INVESTMENT. 9,608,241 DEPRECIATION .. 472,902 INTEREST ON U.S. GO V ER NM E NT FUNDS INVESTED IN THE TIN P R O G R A M (smelter operationsonly ).... 835,226 NET Loss — NOTE H ... $ 10,916,369 This schedule is subject to the accompanying “Notes to Financial Statements”. 34 RE CONS TRU CTIO N FINANCE C OR P OR AT I ON AND SUBSIDIARY S C H E D U L E 4 - S T A T E M E N T O F O P E R A T I O N S O F FIBER P R O G R A M Fiscal Year Ended June 30, 1950 C E N T R A L AMERICAN ABACA Sales.... $6,736,193 Cost of abaca sold: $ 312,693 Inventory at beginning of period. 5,923,155 Cost of production... 15,179 Ocean freight,storage and handling .. 6,251,027 Less sundry inventory adjustments... 60 672,586 Less inventory at end of period ... Gross profit. 5,578,381 1,157,812 H A I T I A N SISAL Sales.... 364,967 Cost of sisal sold : 131,986 Inventory at beginning of period.. Cost of production .. 268,774 400,760 35,793 * Gross profit (or loss*). Combined gross profit..... 1,122,019 DEPRECIATION AND NE T LOSSES ON RETIREMENTS . 1,194,127 ADMINISTRATIVE AND OT HER EXPENSES . 153,580 INTEREST O N U. S. GO VE RN ME NT FUNDS INVESTED IN NET OPERATING ASSETS . 258,821 Net Loss - NOTE H .. $ 484,509 This schedule is subject to the accompanying "Notes to Financial Statements”. 35 R E C O N S T R U C T I O N FINANCE C O R P O R A T I O N A N D SUBSIDIARY EX HI BI T D - S T A T E M E N T O F A C C O U N T A B I L I T Y T O U. S. T R E A S U R Y F O R N E T A S S E T S TR AN SF ER RED F R O M SM AL L ER W A R PLANTS CO RP O RA T IO N ACCOUNTABILITY AT JUNE 30, 1949: $ 10,961,567 Net proceeds realized and payable to U. S. Treasury (less $ 145,600,000 previously remitted )..... Assets remaining for disposal: Loans... $ Notes and accounts receivable. 5,427,120 1,389,314 Machinery and equipment . 956,498 Other assets. 666,957 8,439,889 19,401,456 TRANSACTIONS DURING FISCAL YEAR ENDED JUNE 30, 1950 : Losses on sale and retirement of property, plant and equipment .... Other losses and costs - net 386,758 Administrative expenses. 208,322 478,244 1,073,324 Less : Interest earned..... 176,937 Fees on loan participation agreements . 11,569 Rentals and royalties earned .. 71,369 813,449 259,875 18,588,007 INTEREST ALLOWED ON FUNDS UTILIZED IN R F C LENDING ACTIVITIES 221,893 18,809,900 PROCEEDS REMITTED TO U. S. TREASURY JUNE 29, 1950. 10,000,000 $ ACCOUNTABILITY AT JUNE 30, 1950. 8,809,900 REPRESENTED BY : $ 3,550,480 Net proceeds realized and payable to U. S. Treasury - Exhibit A .... Assets remaining for disposal: Loans... $ 3,458,310 Notes and accounts receivable.... 963,505 Machinery and equipment... 215,838 Property acquired in liquidation of loan indebtedness.. 621,767 5,259,420 $ 8,809,900 This exhibit is subject to the accompanying “ Notes to Financial Statements”. 36 R E C O N S T R U C T I O N FINANCE C O R P O R A T I O N A N D SUBSIDIARY N O T E S T O FINANCIAL S T A T E M E N T S JUNE 30, 1950 NOTE A T he accompanying comparative consolidated balance sheet and related statements of net income set forth the financial position at June 30, 1949, and June 30,1950,of the Reconstruction Finance Corporation and itssubsidiary, the Federal National Mortgage Association, and the consolidated results of their operations for the years ended on such dates. Assets shown on the balance sheet for bothyears represent those pertaining to the Corporation's lending activities, in which it has both title and beneficial interest. The unliquidated assetsrelating to programs for national defense, war and reconversion and assets transferred from Smaller W a r Plants Corporation are shown o n other schedules of this report and are not included in the Corporation's balance sheet, since the net proceeds from the liquidation thereof are required to be paid into miscellaneous receipts of the U. S. Treasury. NOTE B The Corporation's balance sheet and statement of income and expense of lending activities (Exhibits A and B ) are on a consolidated basis and include its wholly owned subsidiary, Federal National Mortgage Association. Statements of the Federal National Mortgage Association are included as a part of Appendix A. Condensed corporate statements of Recon struction Finance Corporation are shown below : Reconstruction Finance Corporation C o n d e n s e d C om p ar at i ve Balance Sheet June 30, 1950 Assets Cash .. Loans, Securities and related receivables (Other than insured and guaranteed mortgages and loans toforeign governments), less estimated losses in collections of $58,000,000 in1950 and $89,000,000 in 1949.. Insured and guaranteed mortgages and related receivables. Loans to foreign governments ,including accrued interest. Investment in subsidiary – Federal National Mortgage Association. Other assets.. $ 16,861,687 June 30, 1949 $ 8,263,272 722,160,840 101,337,201 128,348,615 1,047,371,875 66,425,591 581,198,233 128,128,133 174,004,362 453,482,603 62,790,717 $2,082,505,809 $1,407,867,320 $ $ Liabilities and Capital Liabilities to the public.. Liabilities to Other U. S. Government agencies. Reserves.. Capital stock. Surplus (including $2,423,529 in 1950 and $ 1,500,000 in 1949 — Reserved forcontingencies). 45,301,429 1,673,988,906 10,791,945 100,000,000 252,423,529 $2,082,505,809 61,801,111 982,048,800 12,517,409 100,000,000 251,500,000 $1,407,867,320 C o n d e n s e d C omp ar at iv e S t a te m e n t of I n c o m e a n d Exp ense Fiscal Year Ended June 30, 1950 Fiscal Year Ended June 30, 1949 $52,315,568 9,672,814 $39,458,437 3,362,333 $61,988,382 $42,820,770 26,696,653 16,391,530 591,771 12,463,974 15,240,309 671,694 43,679,954 28,375,977 Net income before provisions for losses. . Provisions for losses... 18,308,428 8,523,775 14,444,793 9,218,813 Net income before dividend from subsidiary. Dividend received on capital stock of F N M A held by RFC . 9,784,653 10,000,000 5,225,980 $ 19,784,653 $ 5,225,980 Income Interest and dividends earned . Other income.. Expense Interest expense. Administrative expense . Other expense . Net income.. 37 NOTE C In addition to the assets set forth in itsfinancialstatements, the Corporation at June 30, 1950, heldsecurities of Sea board Air Line Railroad Company aggregating $16,967,496 (par or stated value) for servicing and liquidation for the account of the Treasury Department pursuant to Executive Order 9543. Unremitted income from these securities amounting to $63,065 at June 30,1950 was included in the balance sheet as an account payable to the Treasury Department. NOTE D Pursuant to Public Law 860, 80th Congress,all assets and liabilities of Defense Homes Corporation were transferred to Reconstruction Finance Corporation for liquidation. As shown in Exhibit A , the amount due R F C as of June 30, 1950 was $32,133,188 which w a s secured by net assets of Defense Homes Corporation amounting to $ 45,012,118 held by RFC forliquidation. Any net assets remaining after the payment of all obligations of Defense Homes Corporation and liquida tion costs will be covered into the Treasury as miscellaneous receipts. NOTE E In addition to the liabilities reflected by the balance sheet the Corporation is responsible for funds collected from mort gagors for the payment of taxes, insurance, etc., by servicing institutions.A t June 30, 1950 such funds amounted to $ 13,515,968, all of which was on deposit with commercial banks covered by F DI C insurance. NOTE F The a mo u n t of $14,725,714 reserved for contingencies at June 30 ,1950, consists of: (1) accumulated net income of Federal National Mortgage Associationaggregating $ 12,302,185reserved for possible losses on mortgages partially guaran teed by Veterans Administration ; (2) $ 2,000,000 reserved for self-insurance; and (3) $423,529 reserved forpossible losses on other miscellaneous contingencies, principally claims and cases in litigation. During the current fiscal period the Corporation established the self-insurance reserve referred to, providing for (a) employees fidelityrisk,(b)losses from usual causeso n administrative property and properties acquired in liquidation of loans, (c) public liability and property damage resulting from the operations of automotive equipment, (d ) losses result ing from tortactions committed by corporate personnel or agents, and (e) other forms of public liability. The major items included in prior years net adjustment of $187,119 as reflected on Exhibit B under Analysis of Accumulated Net Income are a recovery in the amount of $468,416 on the balance of a railroad loan previously written off and a reduction of $894,623, arising from a court decision requiring this Corporation to refund such amount to borower. NOTE G The Corporation is a party defendant in legal proceedings,relatingto national defense,war and reconversion activi ties, involving contingent liabilities of approximately $7,500,000. In addition, the Corporation has contingent liabilities, including claims received from contractors, operators, and others, of approximately $ 9,000,000. The Corporation has out standing commitments relating to the procurement of tin and tin ore not delivered at June 30 ,1950, aggregating approxi mately $ 15,500,000. Any future expenditures on account of such contingent liabilities, for which no provision h as been made in the Corporation's statements,will be charged against the retained portion of the net proceeds from liquidation shown in Exhibt A as a liability to the U. S. Treasury. NOTE H T h e statements of operations relating tothe synthetic rubber, tin and fiber programs ( Schedules 2, 3 and 4 respec tively) include as operating costs interest on the Government's investments inthe n e t operating assets of these programs. This item has been included for the purpose of reflecting more accurately the net results to the Government of these operations. 38 APPENDIX A S E M I -A N N U A L R E P O R T — SIX M O N T H S ' P E R I O D E N D E D J U NE 30, 1950 F E D E R A L N A T I O N A L M O R T G A G E ASSOCIATION Washington July 31 , 1950 H o n o r a b l e Franklin D. Richards , Co mmi ssi oner Federa l Ho u si n g Administration V e r m o n t A v e n u e a n d K Street, N. W . W a s h i n g t o n 25 , D. C. D e a r Mr . Richards : I n accordance with the provisions of Section 306 o f the National H o u s i n g A ct , as a m e n d e d , the s e m i -annual report of t h e Federal National M or tg a ge Association covering the period Jan uary 1, 1950 t h r o u g h June 30 , 1950 is submitted herewith . T h e statements, schedules a nd charts indicated below reflect the operations of the Association for t h e subject period and , for comparative purposes, certain other periods : 1. Comp arative Balance Sheet 2. Comparative Statement of In c om e a n d Ex p e ns e 3. Schedule of C o m m i t m e n t s , Purchases, R e p a y m e n t s a n d Sales — B y Sections of Acts 4. Schedule of C o m m i t m e n t s to Purchase F H A Insured a n d V A Guaranteed M ortg ages, b y A g e n cies, J an ua ry through June 1950 * 5. M or t g ag e Sales Program , b y Agencies, A u g u s t 5, 1949 through J un e 30 , 1950 * 6. A g i n g of Delinquencies on Mor tga ges Held at J un e 30 , 1950 7. Percentage of C o m m i t m e n t s to Purchase H o m e Mort gages b y T y p e of Institution, Feb ru ary through J un e 1950 * 8. Charts sho wi ng activities : (a ) (b ) (c ) (d ) (e ) (f ) (g ) (h ) C o m m i t m e n t s — F H A ' s a nd V A ' s * U n pa i d Balances — F H A ' s an d V A ' s * Commitments — N u m b e r * Commitments — A m o un t * Mo rt ga ge Sales Program - F H A ' s an d V A ' s * Mo r t ga g e Sales Program - V A' s * M o r t g a g e Sales Program - F H A ' s * Status of Limitations A s s h o w n b y the chart entitled "Status of Limitations" attached, the volume of c o m m i t m e n t s to pur chas e F H A insured a n d V A guaranteed mortgages increased rapidly d u r i n g January , Fe bru ary a nd M a r c h . O n M a r c h 20th the f u n d s available to the Association for the purchase of mortgages w er e almost exhausted , and the Association w a s obliged to discontinue issuing further c o m m i t m e n t s until additional fu nds would be m a d e available by Congressional action. Subsequently, the H ou si ng Ac t of 1950 (Public L a w 475, 81st Congress ) w a s enacted a n d approved b y the President on April 20 , 1950. This legislation increased the funds available f r o m $ 2.5 billion to $ 2.75 billion. It also discontinued the Association's authority to issue c o m m i t m e n t s for the future purchase of mortgages , with the result that the additional $ 250,000,000 provided w a s available only for purchasing mor tgages on an over -the -counter basis. It w a s obvious to the Directors a n d Officers of F N M A that certain controls w oul d have to b e imposed u p o n t he m a n n e r in w hi ch the funds available for the purchase of mortgag es were to be utilized for the best interests of all interested parties, i.e., h o m e o w n e r s a n d the mortgagees selling mortga ges to the Association . Accordingly, it w a s determined that the Association would purchase, over -the -counter only , those mortgages upon which the F H A insurance a n d V A guaranty ha d been in effect for a period of not less than t w o m o n t h s nor m o r e than twelve m o n t h s. Further, the purchase of F H A insured large-scale m or tg ag es w a s restricted to those covering military housing (wherever located ) and housing projects * Not reprinted in this report. 39 located in Alaska . A s a result of these controls n e w contracts to purchase m ortgages d u r in g the last quarter of fiscal year 1950 dropped to $22,215,000, 2 % of the dollar volume during the previous quarter. T h e Association's net income for the fiscal year 1950 , before provision for estimated losses,was $ 17,462,540, which , w h e n added to the $4,839,645 representing the undistributed earned surplus at June 30 ,1 9 4 9 , g av e the Association a total undistributed earned surplus of $22,302,185. A t Ju ne 3 0 , 1949,the $ 4,839,645, previously mentioned , w a s reserved until such time as the Association ha d gai ned sufficient experience in the V A mo rt ga ge pr o g ra m to provide reasonable reserves for possible losses o n these mort gages. Although the experience with respect to possible losses in the V A p r o g r a m w a s , at J u n e 30 , 1950, still quite limited, the cumulated earned surplus of $ 22,302,185 appeared m o r e than adequate to provide for possible losses wh ich the Association mig ht incur in the existing portfolio or undisbursed co m mi t m e nt s of either V A or F H A mortgages . Accordingly , the Association declared a nd paid as o f June 30, 1950 , a dividend of $ 10,000,000 on the capital stock held b y R F C , retaining $ 12,302,185 as undistributed earned surplus reserved for losses and contingencies with respect to the portfolio an d undisbursed com mitments as of that date. In keeping with the intensified mo rt ga ge sales program , offering lists reflecting the R F C and F N M A m o r tg a g e portfolio, broken d o w n b y the various classes of mortgages a n d b y State location , are issued periodically to prospective investors. T h e s e lists are supplemented by catalogs of individual mo r t gages b y location, w h ic h are maintained in the R F C and F N M A field offices for distribution to interested parties. Increased interest in the p r o g r a m is indicated by the gradual mo nthly advance in the sales figure f r o m $20.8 million during January to $70.6 million in J une . O f the total n u m b e r of mor tgag es sold during the period, 58 % w e r e F H A a n d 42 % V A ; dollar -wise, F H A sales constituted 64 % a n d V A 36 % . Respectfully submitted , JAMES L. D O U G H E R T Y President 40 | 1 1 luring F E D E R A L N A T I O N A L M O R T G A G E AS SO C IA TI ON COMPARATIVE BALANCE SHEET June 30, 1950 December 31, 1949 June 30, 1949 94,473 239,957,742 815,674,538 3,385,888 1,494,036 6,391,968 1,033,706 12,393 315,679 403,257,701 425,095,851 3,264,852 1,811,305 375,714 48,957 11,947 $ 5,501,656 339,422,825 125,072,050 1,471,124 32,302 84,801 952,216 12,693 $ 1,068,044,744 $834,182,006 $472,549,667 $1,026,466,348 390,859 94,473 7,790,879 $792,375,593 383,508 315,679 9,218,180 $437,984,259 166,625 5,501,656 3,057,482 $1,034,742,559 $802,292,960 $446,710,022 21,000,000 12,302,185 $ 21,000,000 10,889,046 $ 21,000,000 4,839,645 33,302,185 31,889,046 25,839,645 $1,068,044,744 $834,182,006 $472,549,667 ASSETS : Cash on deposit with RFC .. Mortgages insured by FH AI. Mortgages guaranteed by Veterans Administration ?. Accrued interest receivable. . Property acquired by foreclosureor by deed in lieu of foreclosure. Claims against F H A and V A under insurance and guaranty provisions. Miscellaneous accounts receivable. Certificates of claim issued by F H A ,less estimated losses. LIABILITIES : Notes payable toR F C , including accrued interest. Accrued service charges.. Deposits for taxes, insurance, etc.2. Commitment fee deposits and other liabilities... C A P I T A L AND SURPLUS : Capital stock and paid-in surplus.. Undistributed earned surplus reserved for losses and contingencies. 1Includes atJune30,1950F H A insuredmortgagesaggregating$33,062,943 and V A guaranteed mortgages aggregating $36,336,885 on which sales offerings havebeen accepted with closing dates fixed or pending. 2Includes only that portion of such deposits heldin the generalfunds of Reconstruction Finance Corporation. In addition, the Association is responsiblefor the payment by servicing institutions oftaxes and insurance, out of funds received from mortgagors and set aside for thatpurpose, inthe amount of $12,107,094 at June 30, 1950 and $8,324,046 at December 31, 1949. All such funds are on deposit with commercial banks and are insured by FDIC . COMPARATIVE STATEMENT OF INCOME AN D EXPENSE INC OME : Interest earned ..... Commitment fees earned . Premiums earned ..., Other income.. Total income. EXPENSES AND LOSSES : Interest expense... Administrative expense . Fees for servicingmortgages. Other losses and expenses. Total expenses and losses. NET INCOME . Six Months Ended June 30, 1950 Six Months Ended December 31, 1949 Fiscal Year Ended June 30,1950 Fiscal Year Ended June 30,1949 $ 19,614,662 3,745,241 2,380,284 (61) $12,926,207 2,760,419 234,024 309 $ 32,540,869 6,505,660 2,614,308 248 $ 8,579,839 1,753,836 $25,740,126 $ 15,920,959 $41,661,085 $ 10,334,194 $ 9,200,039 2,775,603 2,347,318 4,027 $ 6,104,409 2,225,031 1,542,118 $ 15,304,448 5,000,634 3,889,436 4,027 3,722,701 2,660,627 1,045,490 23 $14,326,987 $ 9,871,558 $ 24,198,545 $ 7,428,841 $11,413,139 $ 6,049,401 $ 17,462,540 $ 2,905,353 519 A NA L YS IS O F A C C U M U L A T E D N E T I N C O M E $25,339,645 17,462,540 Accumulated net income, June 30,1949. Income for fiscal year ended June 30, 1950 . $42,802,185 Dividends paid to RFC .... Reserved for losses and contingencies. $30,500,000 12,302,185 $42,802,185 41 A F SS N M E A OT DROCI ETO I RGN AA AT LGLIO A E N M V G A F I O SALES R , P SN C U C F O A H ES R H A P D MU C E A R T MR H DA Y G IE A UN M A TD S LT EG MEN EEST ES NS DT S J , 1 T P 30 949 950 U EHL R NRI Y EOOUDG H D ( Figures in Are ) Thousands ollar Commitments cancelled Commitments undisbursed period end of Amount No. Amount No. AmountNo. Amount No. Amount No. Amount No. Amount 13,640 209,090 $ 3,987 49,662 $ 16,132 3 $ |46,871 9 12, $4,62 528 5 1 $ 1, 1,423 143 1 $ 1,734 9,366 4 $ 57,643 03,258 No. Repayments o and ther reductions Mortgages h at eld of p end erio Commitments to made purchase mortgages Purchases Sales Period July , 1 thru Dec. 31 949 1949 : TOTAL F INSURED MORTGAGES .HA Section 203 N , .HA Section 107 , N .HA Section 603 , N .HA Section 608 , N .HA 7,790 22,876 14,804 1 898 429 91,710 91 6,906 248,164 41,562 | | 179 39,301 13,762 964 590,158 1,810 13,164 64,934 477,232 45,404 304,619 73,952 247 701 8,3251 572,315 944 7,386 429 1 10,028 865 ) 11,9491 59,048 25 1571 47 7 1,183 ) 5,682 465,253 5,017 ) 2981 6,664 96,234 799,248 5,797 ) 62,826 81,066 824,103 3,851 42,641 7,775 109,572 | 7,044 243,673 3,742 23,291 46,125 6,685 1 1231 235 42,521 91 | 979 200,082 52,155 106,860 856,772 69,936 510,888 48,447 103,257 | 1 83 ,0501 24 3 2,637 ),496 849,111 3,256 155 ) 4,250 66,634 504,248 ) 2,262 34 73 433 ) 3 3,945 ,195 ) 218 15 161,727 113,904 1,100,445 ,500 75,100 547,154 11,6401 1 1,804 195 GUARANTEED MORTGAGES TOTAL VA . 82,594 Section 501 S , H ( .ome ) RA M Section 501 S , ( Dwell )ultiple . RA Section 502 S , . RA Section 505 S , ) a ( . RA . Total 71,624 91 13,181 124,194 2,8111 18,996 1,1181 58 7,229 924 4,921 13,165 72,563 9,898 531 797 ) 13 5,712 8,7331 44,401 77 310,5711 20,124 ) 117 4,208 224 3871 67,583 425,096 39,202 294,640 2,344 90 33 202 6,079 7,433 82 13 101 35 3,907 ) 17 2 282 211 ) 286 54,451 91 42 12,999 ) 406,551 2,436 254 15,855 57,932 399,244 1,260 15,631 1,958 12 19,753 5,226 828,354 5,164 36,266 ) 989 12,892 4,519 26,355 165 1,776 7,259 ) 42,605 627 18 4,924 4,987 | ) 819 5 9,010 2,106 56 131,831 17,751 26,458 12,238 34 5,2611 381 1,4721 1 Period Jan. , thru June 30 950 4 2 : 1950 INSURED MORTGAGES Total F . HA Section 203 NHA , Section 207 N , .HA Section 603 N , .HA Section 608 , N .HA 78 31 MORTGAGES TOTAL VA GUARANTEED . 119,587 Section 501 S , H ( .ome ) RA Section 501 S , M ( Dwell )ultiple . RA Section 502 S RA , . Section 505 S , ) a ( .RA Total . 116,1801 1 ( )4 51 3,370 7,342 226 6901 18,6601 207 942,583 7,7251 936,553 5,337 26 1,551 311 ) 1 4,168 2,361 123,438 985,224 17,491 251,731 15,382 | 1 1,8821 226 94,915 91 13,871 142,854 1,694 61,753 21 186,674 25,066 ) 36,752 10,260 239,958 54,537 ) 174,6551 10,766 15,445 119,331 104,865 17,859 815,674 5 106 14,8781 12,607 581 19 33 5,233 476 ) 108,260 97,953 1 ) 743 061 1100 10,855 6,169 797,969 3,897 653 ) 13,155 1,318 ) 28,337 17,692 130,891 2,132 24,315 67,917 344 3,248 44,225 18,749 1,783 5 18,908 ) 2,159 65,319 106,860 856,772 115,340 815,507 ) ) 446 19,653 3291 1,055,632 156,083 291,539 42,925 June Period July , 1 thru 30 949 : 1950 MORTGAGES TOTAL F INSURED .HA Section 203 N , .HA Section NHA , 107 Section 603 , N .HA Section N ,HA 608 . GUARANTEED MORTGAGES TOTAL VA . S Section 501 , H ( .ome ) RA Section 501 M Dwell S , ( )ultiple . RA Section 502 , S RA Section 505 S RA , ) a ( Total 11,762 159,234 | 7,044 10,153 65,121 6,685 1,344 265 9,484 84,629 123 ) 235 ) 243,6731 42,521 11,748 91 ) 979 5,888 200,082 561 1,532,741 202,181 9,535 190,132 1,508,868 ) 8,937 ) 233 7401 121 11 14, ,6 1951 96 219.672 1,784,172 $ 12,60 175 21 8 831 24 1551 1061 8 105,836 798,888 60,396 103,257 | 6,281 49,111 300 3,256 ) 4,6061 124 635 51 3,4961 3,226 3,82 4,250 11,3 9,274 01 78 141 21,297 3224,563 113,004 1 $ 133,032 940,308 ,100.440 18,785 751 35 758 43.008 $ | 206,040 26,800 36,752 8,183 239,958 47,5261 10,260 ) 54,537 137,543 18,548 26,458 ) 20,9711 69 34 174,655 10,766 119,331 105,252 18,083 743 ) 19 815,674 108,260 98,054 797,969 12,620 3, 106 8971 1101 6531 10,855 13,1551 6,455 6,444 1 156.088 $8311.202 41.883 ,068.682 AS FA N M E OSO DRI T ETCI RGN O AA AT LGLIO A E N H A J 30 1 , O M D950 E T U G F N O LI N I L RE N DTNGGQAUE GE NC S IE S D ( Figures in Are ) Thousands ollar Total Outstanding Delinquencies Total Delinquent o / and in .r Liq Current No. AmountNo. Amount No. 4 3 GAGES 10,260 100 . 100 . 26,458 100 . 10,766 34 100 . GUARANTEED M TOTAL VA ORT 119,331 100 . Percent . Section H 501 S , ( .ome ) RA Percent . Section 501 S , M ( D . )well ul RA Percent . Section 502 S RA , . Percent S Section 505 , ) a ( .R A Percent . TOTAL MORTGAGES Percent . 54,537 9 |,772 95.24 174,655 24,487 100 . 92.55 29 100 85.29 . Amount No. Amount No. Amount 1,544 4.20 9 $,173 3.82 456 1.24 $,293 5 2.21 27 .07 3 $,838 1.60 437 1.19 2,561 $ 1.07 488 4.76 1,971 7.45 5 14.71 2,586 4.74 13,610 7.79 4,669 43.37 327 3.19 1,217 4.60 1,715 3.14 7,458 4.27 44 0.43 411 1.56 1 2.94 255 0.47 4,082 2.34 956 8.88 6 0.06 17 0.06 4 11.77 34 0.06 91 0.05 3,713 34.49 111 1.08 326 1.23 582 1.07 1,979 1.13 815,674 116,520 797,112 2,811 97.64 . 100 97.72 2.36 18,562 2.28 2,253 1.89 15,199 1.87 328 0.27 2,002 0.25 31 0.03 193 0.02 199 0.17 1,168 0.14 108,260 105,850 797,969 779,963 2,410 97.74 1 . 9 100 00 7.77 2.23 3,897 3,8191 106 104 2 1 . 100 9 98.00 00 8.11 1.89 1 110 )10 653 100 . 1 100 .00 13,155 10,456 10,855 12,677 399 1 100 9 . 96.37 00 6.32 3.68 18,006 2.26 78 2.00 1,973 1.89 2 1.89 14,784 1.86 78 2.00 262 0.24 1,923 0.24 25 0.02 186 0.02 150 0.14 1,113 0.14 478 3.63 278 2.56 337 2.56 66 0.61 79 0.60 6 0.06 7 0.05 49 0.45 55 0.42 156,083 1,055,632 150,808 1,016,205 | 5,275 1 . 96.271 9 100 00 6.62 3.38 39,427 3.73 3,797 2.43 24,372 2.31 784 0.50 7,295 0.69 58 0.04 4,031 0.38 636 0.41 3,729 0.35 100 . 1 91.30 900 3.30 Section 203 N , .HA Percent . Section 603 , NHA Percent . Section 608 NHA , Percent . Amount No. Liquidation In 2,464 20,865 $ 6.70 8.70 3 TOTAL F INSURED MORTGAGES . 2 $ 34,288 6,752 39,958 19,093 HA Percent . Amount No. O & Mver 6 onths M 6 to 3 onths M t 1 3o onths 51,951 95.261 161,045 92.21 6,097 56.631 FEDERAL NATIONAL M O R T G A G E S T A T U S O F A S SO C I A T IO N L I M I T A T I O N S JULY 1949 TH RU JUNE 1950 M O N T H END BALA NCES AVAILAE LABLE AUTHORITY UNDISB B UURSED RS CO MM IT MEN TS M O R T G A G E S IN PORTFOLIO BILLION DOLLARS 2 3 1949 JUL .52 AUG .58 .59 P.L. 176- $1.5 BILLION LIMITATION .25 .67 .72 SEP .64 OCT 1.70 NO V .77 DEC .39 78 1.02 .79 .83 P.L. 387 – $2.5 BILLION LIMITATION .94 82 .85 1950 JAN .89 FE B 4.94 MAR 2.99 89 :1.27 7.29 1.45 APR 1.013 :1.34 M AY 1.04 1.22 JU N 1.06 .06 P.L.475 $2.75 BILLION LIMITATION V 1.10 44 E APPENDIX REPORT ON SYNTHETIC RUBBER B OPERATIONS FOR FISCAL Y E A R 1950 1. Introduction T h e entry of the U. S. G o v e r n m e n t into the field of synthetic rubber production in M a y , 1941 , m a r k e d t h e beginning of a period of spectacular growth of the A m e ri c a n synthetic rubber industry. This industry, t h e n only in its infancy, w a s expanded to supply most of the rubber requirements of the nation's w a r t i m e e c o n o m y w h e n supplies o f natural rubber w e r e all but completely cut off. Through the collaboration o f G o v e r n m e n t and private industry , production w a s increased f r o m the 1941 level of less than 10,000 l o n g tons to the peak achieved in the early part of 1945 wh ich approximated an annual output of 1,000,000 long tons. After the cessation of hostilities, natural rubber b e ca m e available to this country in increasing quantities a n d a n era of price competition between synthetic and natural rubber began . This era has been m a r k e d b y n u m e r o u s fluctuations but in general the d e m a n d for synthetic rubber fell until it reached its lowest level in the early part of fiscal year 1950 , at w hic h time the price of No. 1 R S S natural rubber h a d d r o p p e d to 16716 cents per p ou n d . In the third and fourth quarters of the fiscal year the d e m a n d for synthetic rubber, riding o n the strength of a b o o m i n g national e c o n o m y, particularly in the automobile a n d related industries, with an attendant natural rubber price increase, rose to the point that facilities in production w e r e unable to satisfy all the d e m a n d . W h i l e, in the first quarter of the year , a butadiene plant an d a G R -S plant located in Los Angeles , California , we re shut d o w n because they w er e high -cost N E W S U P P L Y O F R U B B E R T O T H E U N I T E D S T A T E S By Calendar Years THOUSAND LONG TONS 1500 THOUSAND LONG TONS 1500 PRIVATE SYNTHETIC AND IMPORTS OF SYNTHETIC GOVERNMENT SYNTHETIC NATURAL IMPORTS 1000 1000 500 500 o 1943 1944 1945 1946 1947 1948 1949 plants a n d their production w a s not needed , steps we re being taken at the end of the year to reactivate facilities to increase production to me et the n e w d e m a n d . T h e reactivation p r o g r a m has received c o m pletely n e w e mp h a si s since the end of the fiscal year 1950 , to m e e t the d e m a n d s for rubber production w h i c h have been brought about b y the national defense eme rge ncy . G R -S a n d butyl production rates varied , respectively, f r o m 24,982 an d 5,123 L.T. in July 1949, to 18,124 a nd 4,323 L.T. in J anu ar y , 1950 , and to 30,146 and 4,615 L.T. b y the end of the year . Presently, facilities are being reactivated to 45 increase production b y M a r c h 1951 to approximately 63,000 L T /m o . of G R -S a n d 6,250 L T /m o . of butyl . This expansion is in large part necessitated by the decision of the Munitions B o ar d to increase the rateof natural rubber stockpiling. Natural rubber otherwise available to the co ns u mi ng industry will , under the expanded p r o g r a m an d increased natural rubber stockpiling, be replaced b y synthetic. T h u s t he synthetic rubber program , having served in the previous four years to avert a serious post war sho rtag e of ru b ber, continues its vitalnational security function of supplying this nation's e c o n o m y with a n alternate source of rubber . T h e quality of synthetic rubber has been notably improved , a n d in m a n y products, with the important exception of large-size truck and bus tires, it is considered equal or superior to natural rubber . II. Legislative Authority a n d Responsibilities T h e Corporation continued to carry out its synthetic rubber activities in accordance w i t h the pro visions of Public L a w 469 ( The R u b b e r A ct of 1948 ) enacted by the 80th Congress a nd the President's Executive Order 9 9 4 2, dated April 1, 1948. Public L a w 475 , 81st Congress , h a s extended t h e earlier legislation, and the authority for operation of the p r o g r a m h a s n o w been extended to J u n e 3 0 , 1952. T h e principal responsibilities a n d functions of the Corporation under this authority are listed below . 1. Production of Synthetic Ru bb er — The R u b b e r A ct provides that production of synthetic rubber f r o m facilities operated by the G o v e r n m e n t or private persons shall be not less than 200,000 long tons per a n n u m of general purpose rubber a n d not less than 21,667 long tons of special p u r p o s e rubber ,of which at least 15,000 long tons shall be of a type suitable for use in pneumatic inner tubes. T h e Corporation is charged with the responsibility for the production of these quantities of synthetic rubber, a n d of such additional quantities for voluntary use as it d e e m s practicable. 2. Mainte nance of St an db y Facilities — The R u b b e r A ct requires that there shall be maintained at all times within the United States active or standby rubber -producing facilities having a n an nua l rated production capacity of no t less than 600,000 long tons of general purpose rubber a n d not less t h a n 65,000 tons of special purpose rubber, of wh i c h at least 45,000 tons shall be of a type suitable for use in pn eu matic inner tubes. I n addition to its operating facilities, the Corporation is responsible for the m a i n t e nance of a sufficient n u m b e r of plants i n standby to m e e t the foregoing requirements. 3. Research a n d D e v e l o p m e n t — The Corporation is authorized to undertake research a n d develop m e n t activities necessary to maintain a technologically advanced domestic rubber -producing industry . G R -S THOUSAND LONG TONS 800 G R -L P R O D U C T I O N By Fiscal Years THOUSAND LONG TONS 80 600 60 400 40 200 20 1943 4 4 P R O D U C T I O N By Fiscal Years o '45 46 '47 '48 '49 1943 '50 46 44 '45 46 '47 '48 49 '50 4. Lease a n d Sale of Facilities — The Corporation is authorized to sell or lease surplus facilities not I necessary to fulfill the requirements of the A c t, as indicated in Par agr aph 2 , provided that they shall n ot tob e used to produce rubber for m a n d a t o r y consumption , a nd obsolete property not required for the p r o d u c astion of t h e rated capacity of the facility in w h i c h the property is located. 5. St udy of Disposal of G o v e r n m e n t -o w n e d Synthetic R u b b e r Facilities — The Corporation w a s directed t o investigate the problems associated with the disposal to private industry of G o v e r n m e n t o w n e d rubber facilities and to report its findings to the President a nd to the Congress o n or before A p r i l 1, 1949. This it did in a report entitled "R e p o r t W ith Respect T o Devel opment of a P r o g r a m for D i s p o s a l of G o v e r n m e n t-O w n e d R u b be r -Producing Facilities. Ill . Manufacturing a nd Standby Activities T h e Corporation retained on J un e 30 , 1950 , in operation or standby , 28 of the original 51 facilities i n t h e program . These included 13 copolymer (G R -S) plants having a combined annual design capacity of 6 0 0 , 0 0 0 long tons, 2 butyl plants with a n aggregate design capacity of 68,000 long tons, 10 butadiene p l a n t s , 1 styrene plant, 1 chemical plant a nd 1 d e v e l o p m e n t laboratory. A t the end oft h e y ear , there w er e e n g a g e d i n active production 17 of these facilities,consisting of 8 co po ly m er plants, 2 butyl plants, 4 b u t a d i e n e plants, 1 styrene plant, 1 chemical plant a nd 1 development laboratory. Eleven complete plants a n d t h e unused portion of t w o other plants we re held in standby. D u r i n g the fiscal year 1950,G o v e r n m e n t -o w n ed plants produced 322,356 long tons of synthetic r u b b e r , including 274,343 t on s of G R -S ( general purpose rubber ) a n d 48,013 tons of G R -I (special purpose r u b b e r , principally for pneumatic inner tubes ). T h i s represented 28.8 % of the domestic natural a n d synthe tic rubber supply o f 1,120,000 long tons. T h e G o v e r n m e n t also produced c om po ne nt materials for i t s synthetic rubber manufacture w hi ch we re not available in sufficient quantities f r o m private industry. T h e m a j o r items of materials produced w e r e 209,271 short tons of butadiene f r o m basic r a w materials a n d 17,858 tons of styrene. D u r i n g the year , conversion of facilities at the copolymer plants to enable the production of ap p r o x i m a t e l y 183,000 long tons per year of " cold rubber " w a s completed at a cost of $ 4,700,000. This rub ber possesses outstanding abrasion -resistant properties w h i c h m a k e it ma rkedl y superior to natural rubber izin tire treads . S e v e n of the eight copolymer plants in operation we r e producing cold rubber during the T y e a r a n d a total of 105,441 long tons of this material w a s manufactured . T h r e e of the copolymer plants pr oduce d black masterbatch rubber and the total production of this material w a s 85,654 long tons, includ ing 29,471 tons of carbon black pi gmen t. A portion of this black masterbatch rubber w a s also produced b y the cold process a n d this quantity is included in the figure s h o w n above for cold rubber production. T w o of the copolymer plants produced a total of 24,136 long tons of G R - S latex during the y e a r. This material is b ec om in g of increased importance for the manufacture of f o a m sponge rubber a n d other special products. T h e versatility of the various plants w a s demonstrated during the year w h e n they were forced to curtail operations sharply throughout part of the year a nd then to increase production to m a x i m u m capacity during the latter m o n t h s. The copolymer plants produced in commercial quantities m o r e than 6 0 different types of G R - S rubber during the year. E a c h of these types w a s requested by a co ns um er a n d m a n y of the types w er e " tailorm a d e " to fit a certain end use. A t the beginning of the fiscal year, the total G o v e r n m e n t synthetic rubber stocks we re approximately 64,000 long tons, including 57,500 tons of G R -S an d 6,500 tons of butyl rubber. A s of June 30 ,1 9 5 0,these - st ock s h a d decreased to a total of approximately 23,754 long tons, including 20,265 tons of G R -S a nd 3 , 4 8 9 tons of butyl. A t the close of the year, about 6,400 people we r e employed in active G o v e r n m e n t -o w n e d synthetic r u b b e r plants a n d about 3 3 0 persons w er e e n g a g e d in standby activities. T h e W a sh in g to n Office of the R F C e mp l o ye d 180 people directly engaged in synthetic rubber activities. Total e m p l o y m e n t i n active a n d standby plants w a s 1 1 percent less than at the end of fiscal year 1949 a nd w a s approximately 30 p e r c e n t of the w a rt i me peak . I V . Research Activities D u r i n g the year, research a n d development w o r k w a s performed for the Corporation b y eight universities, seven industrial companies, two independent research institutes, and one G o v e r n m e n t a ge nc y . These organizations conduct three phases of research - fundament al' (about 10 % ), applied (3 0 % ), a n d developmental (60 % ). T h e Corporation formulates the over -all research plan for each year , a n d , with the aid of n u m e r o u s interrelated committees, develops detailed plans to fit the policy f r a m e w o rk . It is also the responsibility of the Corporation to maintain a proper relationship between the three phases of the p r o g r a m a nd to expedite a continuous exchange of research findings. 47 Research w o r k continued t o be directed toward developing a better general-p urpo se rubber and t h e improving a n d developing of specialty polymers. W o r k w a s co nd uc te d on both r eg ul ar G R -S and “ cold rubber ” polymerization recipes. Several h u n d r e d experimental polymers we re p r o d u c e d in the various pilot plants, m os t of wh ich w er e evaluated by the laboratories of rubber -processing plants or made into tires a n d evaluated with road tests. O n e phase of the development w o r k , w h i c h w a s expanded mar kedl y co mp ar ed with prior years , w a s that directed toward development of a p o l y m e r for us e in heavy -duty truck tires whic h wou ld be equal or superior to natural rubber . T h e inade quacy of synthetic rubber in such heavy -duty service is the principal reason that present types of G R - S c a n n o t be con sidered as entirely satisfactory replacements for natural as a general-purpose rubber . T h e expenditure for research and development in fiscal 1950 w a s $4,900,000 , w h ic h is 3.2 percent of the total operating costs a n d expenses for the entire p r o g r a m . This expenditure w a s a b o u t 35 per cent higher in 1950 than in 1949 with practically all of the increase being spent on the h e a v y -duty tire development work . V. Plant Disposal N o complete surplus plants w ere disposed of during the year , but certain equipment f r o m t w o sur plus plants w a s sold.A t the end of the year t w o butadiene plants,o n e copolymer plant a n d t w o chemical plants w e r e surplus to the p r o g r a m but not sold. VI . Statement of Operations A financial statement presenting a s u m m a r y of the operations of the Corporation in the field of synthetic rubber appears in Schedule 2 of this report. Alth ough the production of synthetic r ubb er in fiscal 1950 w a s only 77 percent of 1949 production and the sales w e r e only 93 percent of those in 1949 , the cost per ton of goods sold, excluding interest, plant amortization, research expenses , W a s h in g t o n Office administrative expenses, a nd ot he r non operating charges, w a s 3.6 percent less than in 1949. T h e excluded items aggregated 6.7 pe rcent less in 1950 ,b u t the cost per ton of goods sold w a s slightly higher in 1950 a n d resulted in a decrease in net income f r o m $ 1,653,110 in 1949 to $799,519 . Since depreciation of plants and facilities does not represent current out-of-pocket costs, the recovery, excluding s t a n d b y costs, to the G o v e r n m e n t on its investment in the synthetic r u b b e r opera tion a m o u n t e d to $ 26,321,930 during the year . This recovery w a s 16.8 percent of the total i n c o m e for the year and 9.3 percent of the investment in the operating plants. Expenses for “Maint enance an d Protection of Standby Plants and Facilities ” a m o u n t e d to $ 2,594, 140. This w a s $ 239,024 m o r e than that expended in 1949 an d w a s attributable to placing t w o additional plants in standby during the year . 48 APPENDIX REPORT ON THE G O V E R N M E N T -O W N E D AND PROGRAM FOR PURCHASE AND SALE C TIN S M E L T E R AT TEXAS CITY , T E X A S THE OF TIN M E T A L IN T H E UNITED STATES Six M o n t h s E n d e d June 3 0 , 1 9 5 0 a n d Fiscal Year 1 9 5 0 1. Introduction Public L a w 125 , 80th Congress , as a m e n d e d , representing a joint resolution to strengthen the c o m m o n defense a n d to me et industrial needs for tin by providing for the maintenance of a domestic tin smelting industry , directs th e Reconstruction Finance Corporation to render a full report to Congress o n all its activities u n d e r this joint resolution not later than D e c e m b e r 31 , 1947 , an d a t the end o f each six m o n t h s thereafter . In accordance with this directive, the last report , covering the six m o n t h s ended D e c e m b e r 31 , 1949 , w a s submitted on Febr uary 13 , 1950. T h e present report covers the six m o n t h s ended Jun e 30, 1950 , a n d for comparative purposes, the fiscal year 1950 . II. Legislative Authority a n d Responsibilities Public L a w 125, 80th Congress , authorizes the R F C , while it has succession , (1) to b u y , sell a nd transport tin a n d tin ore a n d concentrates ; (2 ) to improve , develop, maintain an d operate by lease or otherwise the G o v e r n m e n t-o w n e d tin smelter at Texas City,T e x a s ; (3 ) to finance research in tin smelting a n d processing ; and (4 ) to do all other things necessary to the accomplishment of the foregoing until J u n e 30 , 1949. S u c h authority w a s extended for two years, to J un e 30, 1951 , b y Public L a w 824, 80th Congress , a n d for a n additional five years , to J une 30 , 1956 , by Public L a w 723 , 81st Congress. III. Purchase a n d Sale of Tin Metal A world shortage of tin existed after the w a r a nd continued until the latter part of 1949. D uri ng this period ,domestic controls w e r e exercised b y successive G o v e r n m e n t agencies through regulations on the importation, sale and use of tin . S u ch controls we re relaxed in A u g u s t ,1949 a n d practicallyterminated o n D e c e m b e r 1, 1949 , b y the D e p a r t m e n t of C o m m e r c e . Th ro ug ho ut the period of such controls, the R F C , with a fe w m in or exceptions, w a s the sole importer a nd supplier of tin for the United States. Tin metal purchased abroad, together with tin produced at the T e x a s City smelter, w a s transferred to the national stockpile or sold, pursuant to allocations by the proper authorities to me et industrial needs . Since the termination of controls, the R F C has continued to m a k e its stocks available to industry as needed . It necessarily has taken industry s o m e time to re -establish a normal flow of tin metal to this country . T h e R F C sold 4,443 long tons of tin metal to industry during the first six mo n th s of 1950 a n d is currently selling about 500 tons per m o n t h ,equivalent to about 9 % of total primary tin consumption . Since R F C ' s selling terms are m o r e stringent than those of tin brokers, it is expected that sales to i n d u s try will continue to decline.F o r that reason , the agree ment with Tin Sales Corporation , whi ch ha d been handling the sale of R F C tin to industry from offices in N e w York , w a s terminated as of July 8, 1950 . Thereafter, sales of R F C tin have been handled direct b y the Wa s hi ng t on Office. All tin in excess of requirements for industry a n d w o r k i n g stock isbe in g transferred to the National Stockpile. Pursuant to its authority under the Stockpiling A c t , Public L a w 520 , 79th Congress, the D e p a r t m e n t of C o m m e r c e has directed R F C to withhold f r o m transfer to the National Stockpile a stock of 20,000 long tons of tin metal as a reserve for civilian deficiency. R F C continues to hold this reserve . All foreign tin metal purchased by R F C during the fiscal year 1950 w a s procured for resale to the Federal Supply Service . I V . O r e Pro cure men t a n d Stocks O re receipts at the smelter a m o u n t e d to 26,705 tons containing 10,698 tons of tin during the last half of fiscal year 1950 an d 67,981 tons containing 29,507 tons of tin during the entire fiscal year. T h e follow ing table s ho w s a b r ea k d ow n of these receipts b y country and grade : 49 January -June 1950 Tons Ore % Tin Tons Tin Fiscal Year 1950 % Total Tin Content Tons Ore % Tin Tons Tin % Total Tin Content Bolivian High Grade . M e d . Grade . L o w Grade . Total. 3,614 2,869 14,332 20,815 59.55 47.86 20.56 31.09 2,152 1,373 2,946 6,471 33.3 21.2 45.5 100.0 9,494 5,657 33,125 48,276 59.69 46.88 21.10 31.71 5,667 2,652 6,991 15,310 37.0 17.3 45.7 100.0 Bolivian . N.E.I ... Siam . Miscel ... Total . 20,815 3,004 2,291 595 26,705 31.09 72.94 73.90 57.65 40.06 6,471 2,191 1,693 343 10,698 60.5 20.5 15.8 3.2 100.0 48,276 12,685 4,519 2,501 67,981 31.71 73.25 73.78 62.81 43.40 15,310 9,292 3,334 1,571 29,507 51.9 31.5 11.3 5.3 100.0 T h e purchase o f tin concentrates in sufficient volume a nd kind to assure an economical operation at the smelter h a s always be e n a m a j o r problem . T h e m a j o r source, Bolivia, w a s b a d l y affected by the decline in the price of tin a t the close of 1 9 4 9 due to the fact that a large portion of the obligations of her tin producers is in a dollar area . Other foreign producers not only h a v e a lower production cost but h a v e obligations mainly in devalued foreign currency an d consequently did not feel the full impact of the decline. T h e f o r m e r Bolivian contract expired D e c e m b e r 31 , 1949 , a n d negotiations for a 1 950 contract continued for m a n y m o n t h s without success. H o w e v e r , agre ement on terms w a s finally reached and a contract for 1 9 5 0 production w a s entered into as of July 31 , 1950. In the m e a n t i m e, purchases from Bolivia b y R F C during the first six m o n t h s of the year we re limited to a f e w spot contracts. W hi le some 1950 production has been sold in E u r o p e a nd in the United States to others than the R F C , b y far the m a j o r part has accumulated in South A m e r i c a n ports a nd has been m a d e available under the n e w con tract. H o w e v e r, total deliveries in calendar year 1 9 5 0 are not expected to reach the 18,250 tons of tin content received at the smelter in 1949 . Purchase contracts covering the calendar year 1950 have been signed for substantial tonnages of tin concentrates f r o m Indonesia (9,000 to 12,000 tons contained tin) and the Belgian C o n g o (1,500 to 3,000 tons contained tin). T h e contracts give R F C the option to r e n e w for 1951 if exercised before October 15 , 1950 , with an additional option for renewal for 1952 under certain conditions. R F C continues to keep a representative in Thailand for the purchase of tin concentrates . The uncertain price structure for tin during the early m o n t h s of 1950 , together with keen competition from t h e nearby M a l a y a n smelters, h a s prevented the representative f r o m receiving the desired proportion of S i a m e s e production du rin g the first six m o n t h s of 1950. S o m e i mp r o ve m e nt is looked for during the second half o f the year but receipts o f Siamese concentrates at the smelter during the calendar year 1950 are not expected to equal the 3,679 tons of tin content received in 1949 . Other purchases are being m a d e in small a m o u n ts as concentrates are m a d e available f r o m Alaska, Mexico , C h i n a a n d Portugal, w it h the United States supplying an insignificant a m o u n t of tin -bearing materials produced as by -products f r o m other operations. A s of J un e 30 , 1950 , tin ore a nd tin bearing material held b y R F C , including ore in transit to the U n i t e d States from foreign sources, ore stored a t the smelter ,material in active process an d inactive inventories,s u c h a s low grade rejects a n d acid p on d slimes,h a d an estimated tin content of 14,331 long tons. V. Smelter Operations a n d Results T h e smelter continues to be operated b y T i n Processing Corporation under a cost-plus-fixed -fee a gre eme nt with R F C wh ic h extends to Ju ne 30 ,1951 . Smelter production of tin bullion a m o u n t e d to 15,504 long tons during the last half of fiscal year 1950 a n d 33,084 l o n g tons during the full fiscal year. T o n n a g e a n d percentages of the different grades of tin m a k i n g up this production are s h o w n in the following table : 50 3 Star Grade A 2 Star Grade B Jan. June 1950 Long Tons . Percent 10,840 69.92 4,364 28.15 Fiscal Year 1950 Long Tons . Percent . 20,916 63.22 7,830 23.67 2 Star Grade C 2,163 6.54 2 Star Grade D 233 0.70 1 Star Grade E Copan Alloy Metal Total Bullion 52 0.34 248 1.59 15,504 100.00 1,694 5.12 248 0.75 33,084 100.00 These figures do not include 3,186 long tons for the last half of fiscal year 1950 an d 4,927 tons for the full fiscal year of tin bullion resulting from the retreatment an d upgrading of G an d other grades of metal previously produced at the smelter and of off-grade foreign tin purchased in former years. If consideration is given to this upgrading o f previously produced lower grades of tin , the percentage of Gr a d e “ A ” metal produced for the period January -June 1950 would be increased to nearly 73 % . T h e above table indicates that only 52 tons of Gr ad e E bullion w a s produced in the J a nu a r y -June 1950 period. This tonnage , produced in January, m a y be the last Gr ade E material produced , since efforts are being m a d e to eliminate its further production . Beginning in Jan uary 1950 , a n e w alloy metal, with the trade n a m e “ Copan ," has been under p r o duction . C op an has an average analysis wh ic h should m a k e it acceptable for use b y babbitt m a n u f a c turers a nd its production in limited quantity m a k e s it possible t o eliminate the production of F a n d G grade metals. Co nt ra ry to the preliminary analysis given in the Febr uary 13 , 1950 report, this alloy does not contain a n y aluminum . W i t h the elimination of Grades E , F a n d G f r o m production , it is expected that practically all future production will be concentrated into 3 Star, 2 Star an d C o p a n grade metals. T h e relation between L o n g h o r n Smelter production, tin imports a n d United States consumption is s h o w n in the following table. T h e data therein pertaining to U. S. imports an d U. S. consumption coin cide with figures published by the International Tin Study G r ou p . Long Tons Tin Metal (Bullion ) U. S. Imports Longhorn Smelter Production U.S. Consumption 26,753 11,919 13,338 9,375 15,520 24,899 49,196 60,222 15,695 20,727 30,619 40,591 43,468 33,292 36,677 36,064 56,288 46,253 59,156 55,642 54,627 59,166 59,863 50,120 January -June 1950 .. 211,222 42,509 257,133 15,504 441,115 33,628 Total 812 years . 253,731 272,637 474,743 1942 .. 1943 . 1944 . 1945 . 1946 . 1947 . 1948 . 1949 . Total 8 years. Ment ion has been m a d e in former reports of certain inactive inventories , consisting of low -grade rejects a n d slimes, w h ic h w e r e accumulated during the w a r a n d reconversion period w h e n m a x i m u m production of high -grade metal w a s m o s t essential. T h e low-grade rejects and mo s t of the slimes resulted fr om dressing plant operations w hi c h p r od u c ed a high -grade, easily smelted concentrate a n d t w o l o w grade products k n o w n a s rejects and slimes . T h e rejects consist of coarser material containing approxi matel y 20 % tin while the slimes consist of finer material containing approximately 25 % tin.B o t h l o w g r a d e products carry s o m e impurities,contained in the original Bolivian ore, which acid treatment h a d failed to re mov e ,a n d both are difficult to smelt into high -grade metal due to their chemical composition . In order to prom ote m a x i m u m production , both products w e r e put aside for future treatment d u ri n g the period of tin scarcity. T o w a r d the end of 1947 , the policy w a s to treat all rejects a nd slimes as p r o duced , a nd dressing plant operations were discontinued shortly thereafter. 51 A t the time of their m a x i m u m accumulation in 1 9 4 7, there w e r e approximately 27,100 long dry tons of rejects containing 5,385 long tons of tin. B y steadily reclaiming and processing this material as furnace capacity permitted a n d b y s h ip m en t of 7,313 long tons to Capper Pass smelter in E n g l a n d for treatment, this inventory has been reduced to 8,357 long tons of rejects containing 1,801 tons of tin as of June 30 , 1950. Treat ment of this material is continuing at the rate of approximately 60 0 long tons per m o n t h . A t the end of 1947 , there w er e approximately 6,707 long dry tons of dressing plant slimes contain ing 1,722 tons of tin, stored in six p on ds. This inventory has not been added to o r reclaimed for treat m e n t a n d remains the s a m e as of June 30 , 1950. A seventh po nd containing 5,318 long dry tons of slimes with 1,122 tons of tin content has had a slight increase in tonnage since the end of 1947 . T h e treatment of these slimes has been deferred until the waste acid plant is in regular operation as it is expected that by -products will be partially recovered in this plant. Construction of the w a s t e acid plant w a s completed i n April but, as can be expected in the case of a n e w plant of original design , a considerable period of trial operations a n d extensive ad justme nts and changes will be necessary before operation will be on a steady basis. Total cost of the plant to June 30 , 1950 , a m o un t e d to $2,879,990 , an d further capital expenditures will be necessary during the current breaking -in period. W h e n placed in regular operation , this plant is expected to treat t h e waste acid resulting f r o m current smelter operations a n d gradually dispose of approximately 100,000,000 gallons of waste acid n o w stored in ponds adjacent to the smelter, w i t h the recovery of a commercial grade hydrochloric acid which can be used b y the smelter or sold. A dd i t io n ally, the plant will recover, in the f o r m of a c e m e n t, various m e ta l by -products of considerable value , notably silver. It should be pointed out, ho w e ve r , that the waste acid plant w a s planned primarily for disposal of w a s t e liquor and not as a source of revenue . Should the smelter be shut d o w n , the w a s t e acid plant w ould have t o be continued in operation until all the waste acid stored in ponds is treated a n d the hazard represented by such acid eliminated. Recent plant operations have s h o w n greater efficiency because of installation of n e w or improved equipment a nd mechanization w here ver possible. S u ch impr ovemen ts are expected to p a y for t h e m selves within a reasonable time an d have helped keep processing costs in line in spite of increased labor and supply costs. Constant research has brought out n e w metallurgical processes an d improved products. F o r e x a m ple, the use of the small separate dross furnace, mentioned in previous reports, has reduced the impurities carried in the regular smelter circuit, produced w h a t is believed to be a marketable alloy metal (Copan ) in place of undesirable F an d G grades of bullion, an d simplified the list of refined products . H i g h tungsten ores formerly caused formation on reverberatory hearths of tin-tungsten furnace bottoms w hi c h w e r e costly to r e m o v e a n d difficult to treat for recovery of tungsten an d tin. Special treatment of such ores for extraction of tungsten prior to smelting has decreased materially the f o r m a tion of such tin -tungsten furnace bottoms an d m a d e possible the production of a synthetic scheelite which , upon nodulizing, is suitable for the national stockpile. Actual expenditures for capital imp rove ment s, including the waste acid plant, a m o u n t e d $ 733,981 during the six m o n t h s ending Jun e 30 , 1950 a nd $ 1,721,589 during the full fiscal year . to T h e Statement of Operations of the Tin P r o g r a m (Schedule 3 ) reflects the results of a combination of (a ) operation of the smelter and ( b ) sale, at a price materially below the purchase price, of inventory acquired in earlier years. Du r in g the year ,t h e inventory of refined tin a n d tin contained in ores and concentrates declined b y 30 ,50 0 tons, as the result of sales to A m e r i c a n industry, transfer to the national stockpile, a n d negligible receipts of ores f r o m Bolivia during the last half of the fiscal y e a r. Except for tin or tin ores purchased during the year, the Corporation's inventory w a s pu rc h as ed at a price well in excess of the average sales price of 9314 cents per pound which prevailed during the year . A portion of the beginning inventory w a s purchased at the earlier price level of $ 1.03, w h e r e a s sales w ere m a d e during the year at prices as low as 7314 cents per p o un d . Accordingly, even t ho ug h the smelter operation is on a n approximate break -even basis, t h e Statement of Operations s hows a net loss f r o m the p r o g r a m of $ 10,916,369, substantially all of w hic h resulted from t h e price fluctuation referred to ; this loss compares with net income of $ 7,980,857 for the fiscal year 1949 in wh ic h sales w e r e being m a d e fr om inventories acquired in earlier periods at prices below the ma rke t level prevailing during that year. Selling , administrative a n d other expenses , as well as depreciation an d interest charges, remained fairly constant for the t w o years . 52 Operating costs before depreciation , metal loss an d by -product credits totaled $2,806,667 for the six months ending Ju ne 30 , 1950 ,a n d $ 5,500,173 for the full fiscal year. Bo th total a nd unit operating costs for the fiscal y e a r 1950 w e r e s o m e w h a t higher than those for 1949 due to increased labor a nd supply costs, lower grade of ore treated a n d greater tonnage of secondary material treated . Percentage recovery of tin metal w a s slightly lower in fiscal year 1950 c o m pa r e d with 1 9 4 9 , due also to the lower grade of ore treated a nd the greater tonnages of secondary material treated. VI. Research a n d Capital Imp rov eme nts A s h a s already been indicated, improveme nts in operations a n d metallurgical processes are c o n stantly being m a d e as the result of research a nd study . Expenditures for research alone a m o u n t e d to $33,672 during the six m o n t h s ending June 30 , 1950, and $64,371 during the full fiscal year . Research , tests an d investigations are carried out by the technical staff of Tin Processing Co r p o r a cion. T he R F C maintains at the smelter a competent metallurgical engineer as Consultant w h o discusses proposed im pr ov em en ts with the smelter m a n a g e m e n t a n d m a k e s r ec o m me n d at i o ns to the R F C . In addition, the R F C periodically employs one of the country's leading metallurgists to m a k e an independent survey of the smelter . His reports and recommendations have contributed a great deal to the efficiency of operations. Actual expenditures for plant improvements , aside f r o m the waste acid plant, am o u nt e d to $ 172,019 during the six m o n t h s ending J un e 3 0 , 1950 a nd $ 285,784 during the full fiscal year . I mp ro ve me nt s luring the six m o n t h s ' period ending June 30 , 1950 ,included w o r k o n the following m a j o r projects : Purpose Project Circulating of plant water . W a t e r conservation . Fu rnace charge mi xing equipment . A utomatic ore feeding. Increased cottrell capacity . Increased tin recovery f r o m furnace gases . B a g burner dust collector. Elimination of stack losses. Extension spectograph . Rapid analyses, with m i n i m u m cost, of daily c o n trol samples . W a t e r chlorination . A utomatic purification of drinking water . Dress press. Minimize tin loss an d danger of arsine poisoning . Tu ngst en leaching. Recovery of synthetic scheelite and preservation of furnace hearths. 53 APPENDIX REPORT ON ABACA OPERATIONS D FOR FISCAL Y E A R 1950 1. Introduction Since Ja nua ry 3 , 1942 , the Reconstruction Finance Corporation has been e ngaged in the produc tin of abaca fiber in Central A m er i ca as a part of the w a r -defense p r o g r a m of the G o v e r n m e n t. Prior to the enactment of Public L a w 6 83 , 81st Congress — signed b y t h e President o n A u g u s t 10, 1950, but effective April 1, 1950 — the operations in abaca w e r e conducted under Sections 5d (3) a n d 12 of the Reconstruction Finance Corporation Act, as a m e n d e d , and the W a r Mobilization and Reconversion Act of 1944. Public L a w 683 provides for the continuation and expansion of the operations for a period of not to exceed ten years ; subject to this limitation, the Reconstruction F i n a n c e Corporation has been directed b y the President to continue the operations until further notice . Section 7 of Public L a w 683 requires that a report on the activities u n d e r the Act be submitted t o the Congress wi thi n six months after the close of each fiscal year . T h e following report is submitted for fiscal year 1950 . II. History U n d e r the conditions existing during a national eme rge ncy involving military operations, thereare certain strategic or critical materials whi ch m u s t be obtained, if possible, with but little consideration as to their cost. A b a c a (or manila ) fiber, a r a w material used in the ma nufa ctur e of articles for military operations, is a n outstanding example of a strategic natural c o m m o d i t y . M o s t of the abaca fiber used in the United States is m a d e into rope a n d cables for ships — for which use it is particularly adapted, having the necessary high tensile strength , durability, lightness, and resistance to sea wate r. A b a c a rope absorbs water slowly a n d dries quickly,thus preventing , to a large extent, the rotting w h i c h ordinarily is so destructive to other types of ropes in m arine use . T h e most important uses of abaca rope are for hawsers, m o o ri n g lines, a n d heavy towing lines. Tarred abaca rope of smaller sizes is used on ships, in rope for rigging ,belt rope for sail edges, lanyards f r o m deck to m a s t , a n d boat -falls for life-boats. T h e finest quality abaca fibers are used in the m a k i n g of well-drilling cables a n d are treated with a lubricant to minimize w e a r . Steel cables are being used i n increasing quantities for well -drilling pur poses , bu t, even so, they are spliced at regular intervals with small lengths of abaca rope to su p pl y neces sary resilience. A b a c a ropes ar e used for fishing traps, a n d for purse lines for seine fishing. In long p o w e r drives, w h e r e the cost of leather belting w o u l d be excessive, abaca rope serves a useful purpose. Painters a nd builders prefer abaca rope. It is also used on f a r m s, especially in the f o r m of binder twine, although not in great volume . A b a c a fiber wh i ch is not suitable for manufactu re into rope or other textile products m a y , because of the high cellulose content of the abaca plant, be used as a source of paper pulp in the production of paper products. A t the time o f the entry of the United States into World W a r II, the entire supply of abaca fiber w a s cut off by the Japanese occupation of the Philippine Islands, which , u p to that t i m e, produced 95% of the world's supply of abaca — the remainder being produced in the D u t c h East Indies. Fortunately, the introduction of abaca into tropical A m e r i c a on an experimental basis s o m e years prior to the w a r pro vided to s o m e extent for an em er ge nc y of this character. C o m p l e t e records of th e attempts that have been m a d e to g r o w abaca in countries other than the Philippines are not available, b u t m a n y such attempts have been m a d e . W i t h but f ew exceptions, these experiments w e r e unsuccessful. H o w e v e r , the United Fruit C o m p a n y , w h ic h , in conjunction with the De pa r tm en t o f Agriculture, h ad been conducting experiments in Central A me r ic a for approximately 20 y e a r s had , by 19 41, approximately 2,000 acres of a b ac a under cultivation in P a n a m a, pro vi ng that abaca could successfully b e g r o w n outside of the Philippines. B u t the United Fruit C o m p a n y h a d had no success in the development of efficient m achinery for the large scale processing of abaca on a profitable basis an d it w a s occupied in solving this problem w h e n the w a r broke out . T h e w a r chang ed the outlook a n d approach to abaca production in the W es te rn H e mi sp h er e f r o m a commercial to a defense basis a nd on D e c e m b e r 12, 1941 , the Reconstruction Finance Corporation, acting through its subsidiary De fense Supplies Corporation, a n d acting pursuant t o Section 5 d (3) o f the Reconstruction Finance Corporation A c t, as a m e n d e d , opened negotiations with the United Fruit C o m p a n y for the installation of U. S. G o v e r n m e n t -o w n e d ab a ca plantations in the We s t er n He mi sp he re . These negotiations culminated in operating contracts dated January 3 , 1942. Rootstock f r o m United Fruit's farm in P a n a m a w a s used 54 in the plantings under these contracts and all of the projects envisaged b y the contracts we re under cultivation to abaca b y the end of 1943. T h e various plantations a n d their acreages w e r e as follows: Plantations Changuinola , P a n a m a G o o d H o p e , Costa Rica . M o n t e Ve r de , Costa Rica . Gu ay m as, Honduras L o s A n d e s , Guatemala .. Acres 6,461 6,000 5,500 5,716 5,000 Although , in the perspective of the conduct of a p r o g r a m for w a r purposes, very little thought w a s g i ve n to the question o f cost, all prior experience s e e m e d to indicate that the operation of the projects cou ld not be carried on profitably on a dollar and cents basis. H o w e v e r , subsequent experience ha s pr o ve d that abaca can be produced in this hemisphere on a commercial basis and that, at the s a m e time, 1: th e security interest of the country can be served . F r o m the date o f the surrender of J a p a n , operations under the contracts o f January 3, 1942, w e r e continued under authority of the W a r Mobilization a n d Reconversion Act of 1944 a nd Section 12 of the Reconstruction Finance Corporation A c t, as a me n de d . O n A u g u s t 10, 1950 , the President signed a bill (Public L a w 6 8 3 — 8 1 s t Congress ) wh ic h authorized the continuation of production of abaca in the W e s t e r n He mi sph er e by the United States for a period not to exceed 10 years, with provision for e x p a n sion b y Presidential direction of the total n u m b e r of acres under cultivation to 50,000 acres at a n y one t i m e, including the approximately 25,000 acres currently under cultivation . O n the s a m e date , the Presi d e n t issued a directive authorizing the Reconstruction Finance Corporation to operate the p r o g r a m until further notice, subject to the 10 -year limitation mentioned above . III. M a n a g e m e n t A gr ee m en t for Existing Operations T h e availability of United Fruit C o m p a n y lands and facilities, such as warehouses, hospitals, p o w e r plants, telephone a n d transportation systems, commissaries ,port facilities, etc., a nd of that corporation's large organization of m e n highly trained in agricultural operations in tropical America resulted i n the expeditious installation of the plantations under the contracts of J a n u a r y 3 , 1942 , at considerable s a v ings in material a n d m o n e y in the light of the e me rg en cy conditions existing at the t i m e. U n d e r the Ja nu ar y 3 , 1942 , contracts , the Un i t e d Fruit C o m p a n y agreed to m a n a g e the projects a n d , in addition, to m a k e certain of its lands in P a n a m a, H o n d u r a s , Gu at em al a a nd C osta Rica available for the production of abaca. T h e United Fruit C o m p a n y received n o fee for its services or for the u s e of the land during the te rm of the original contracts an d w a s reimbursed only for expenses w hich it incurred for the account of the G o v e r n m e n t in the operation of the projects and f or the use of the facili ties supplied b y it. This agree ment expired D e c e m b e r 31 , 1948 , a nd n e w contracts we re entered into effective Jan uary 1 , 19 49 , w h ic h provide f o r continuing operations for 5 years,subject to cancellation on 30 days ' notice. T h e contracts also provide for an annual m a n a g e m e n t fee of $ 1.00 per m o n t h for each acre under cultiva tion a t the b e gi nn in g of each m on th , or 15 % of the net profit f r o m operations before depreciation, domestic administrative expense a nd interest, whichever is greater. U n d e r the agreements , cost of operations is reimbursed to United Fruit C o m p a n y , an d it also receives a stipulated rental fee for use of its facilities. I V . Marketing T h e mar keting of U. S. G o v e r n m e n t -produced abaca is currently conducted on the basis of c omp et i tive bids by the buyers. Offerings are m a d e weekly a n d acceptances are governed b y the prevailing w o rl d abaca ma rke t .T h e average price received for abaca during fiscal year 1950 w a s $ 0.2367 per p o un d. V. Operating Experience F r o m inception of operations through J un e 30 , 1950 , expenditures under the U. S. G o v e r n m e n t fiber p r o g r a m ha ve amount ed to $43,367,551. Sales proceeds during such period have been $30,995,713, leaving an investment of $12,371,838 yet to be recovered . H o w e v e r , there w a s a n estimated $ 13,268,939 in assets on h a n d at the projects at Jun e 30 , 1 9 5 0 , consisting of a net value of capital facilities a n d inventories of $6,268,939 ($ 12,534,569 in capital facilities and inventories, less a reserve for depreciation o n capital facilities of $ 6,265,630 ) plus a n estimated net value of $7,000,000 of abaca standing in the fields . It should be noted th at the present unrecovered investment of $ 12,371,838 includes a loss, esti m a t e d at $ 3,500,000, w h ic h w a s sustained during the period w h e n O P A m a x i m u m selling prices w er e in effect a n d the Corporation w a s required to subsidize the production of abaca to that extent. 55 F r o m inception of operations through Ju ne 30 , 1950 , a total of 171,427,997 pou nds of fiber have b e en produced a t an over -all cost of $30,811,006, o r $ 0.1797 per p o u n d . In considering these pr o duction figures, it should be noted that a period of f r o m 24 to 30 m o n t h s is required f r o m the t im e abaca is planted until it reaches maturity a n d is harvested , hence no production f r o m the plantations was realized until late 1944 , although initial preparation for the installation of the G o v e r n m e n t -owned plantations w a s b eg u n in Janu ary 1942 an d the cultivations were completed b y the end of 1 9 4 3 . Du rin g fiscal year 1950 , production of abaca at the plantations w a s 30,061,600 lbs. Profits, before depreciation , interest a n d domestic administrative expense, for the period w e r e $ 1,157,812 . T h e total annual operating cost o f the plantations is fairly constant regardless of the total quantity of fiber pro duced . Therefore , profits are contingent primarily u po n weather conditions a nd types of soil a n d labor, wh ic h affect the yield . It has been R F C ' s experience that cost an d yield per acre vary s o m e w h a t from plantation to plantation . Constant effort is being exerted to establish uniform practices a n d procedures in the operations. V I . Expansion A survey party, headed by D e pa rt m en t of Agriculture personnel on a reimbursable basis, is n o w in Central A m e r i c a at the Corporation's request for the purpose of developing recommendations f o r expan sion of the plantations pursuant to Public L a w 683. T h e agricultural and engineering aspects of the selec tion of the additional lands to be planted to abaca require consideration o f the type of soil, drainage conditions, availability of transportation, labor, a nd quantity a nd distribution of rainfall. T h e search for land w h e r e desirable conditions in this regard prevail to a reasonable degree will require a n u m b e r of m o n t h s for proper investigation a nd survey work . While the existence o r non -existence of m o s t of the desired conditions can be ascertained within a short period of time , the presence of a well distributed rainfall m a y be mo st difficult to ascertain because in m a n y of the areas w h e r e possible expansion might take place no official or reliable rainfall records have been maintained . To the extent possible, additional acreage adjacent to the existing plantations sufficient to bring each existing plantation to top efficiency will be sought. N o comprehensive survey has been m a d e to this time with respect to the location of suitable land in the We s te rn He mis ph ere for expansion purposes because of lack of funds an d authority for the w o r k prior to the enactment of Public L a w 683. H o w e v e r , it is believed that suitable land to bring the total acreage up to 50,000 acres, as provided in Public L a w 683 , will be found an d t h a t the m a j o r part of the acreage necessary for the expansion will be under cultivation within 2 or 3 years . VII. Estimated Cost of Expansion T h e cost of establishing a n abaca plantation will vary to a considerable degree ,depending u p o n the natural qualities of the area selected for t h e installation a nd the imp rove ments w h ic h are required to put it to use for the cultivation of abaca . S o m e of the considerations involved are the accessibility of the land t o existing transportation , the n u m b e r a n d size of drainage canals , bridges, etc.,w h i c h ha ve t o be provided , and the cost o f labor in the particular area. A good system of m u l e roads m u s t be provided and, in countries w h e r e heavy rainfall is experienced and the soil is such that extra precautions m u s t be taken to protect it against m u d , extensive ballast is required,w h i c h will increase th e cost. F o r exa mple, in the installation o f the present Gu a te ma la plantation, consisting of approximately 5,000 acres, condi tions we re such as to require the construction of approximately 36 railroad bridges, 33 miles of track, 316 miles of drainage canals a n d ditches a nd 325 miles of m ul e roads. T h e bridges range in length f r o m 15 to 135 feet. Itis obvious, therefore,that it is difficult to project, with a n y degree o f accuracy, the exact cost w h ic h will be incurred in the installation of n e w plantations until a knowledg e is h a d of the areas selected for their sites. 1 . T h e Gu ate mal a plantation w a s the last established an d its installation cost of approximately $ 408 1 per acre w a s thel o w e s t .Since, h o we v e r, the installation of the Gu at ema la plantation w a s m a d e in 1943, it is estimated that installation cost for abaca cultivations in today's m a rk e t should be calculated at approximately 175 % of the original cost at Guatemala . In addition , a factor of approximately 50 % of present cost will be required to construct facilities of the character of those whic h were already present at the Gu ate mal a plantation a n d wh ich therefore, w e r e not included as items of cost in the figure of $408 per acre. On the basis of adjusted original cost at Guat emala , it is estimated that the cost of instal lation, cultivation an d maintenance to the first harvest in an expansion of the p r o gr a m would approxi m a t e $ 1,000 per acre. F or the continuation a nd expansion of the present plantations, Public L a w 683 provides funds in the a m o u n t o f $35,000,000 outstanding at an y o n e time,plus the net value of the assets of the p r o g r a m existing at the effective date of the Act . 56 VIII . Estimated Production Beca use of the hazards associated with tropical agriculture, it is difficult, if not impossible, to m a k e a n y accurate long -range estimates of future production. H o w e v e r , on the assumption that weather a n d labor conditions a n d other variable factors involved in an operation of this nature will n o t change materially f r o m past experience an d as sum in g that the intensive fertilization p r o g r a m under w a y will r ev i ve the present plantations to the extent expected, it is estimated that the following fiber yield m a y be anticipated within the next three fiscal years : 1951 . 1952 1953 . 30,000,000 lbs. 35,000,000 lbs. 35,000,000 lbs. I X . Research I n order to achieve efficiency in the continuance a n d expansion of the present abaca plantations a nd to attain the m a x i m u m in quality and quantity of fiber, it will be necessary to m a k e careful studies to a sc e r t ai n the best types of soils, the best plants for particular soils, the mo st advantageous culture to b e g i v e n the plants , a nd the causes a nd cures of plant diseases. It is anticipated that cost of research of t h i s character will approximate $ 100,000 per year. A r ra n g e m en t s have been concluded with the D e p a r t m e n t of Agriculture t o perform this phase of research for the Corporation on a reimbursable basis . T h e machi nery n o w used in the decortication of the fiber f r o m the plantations w a s developed unde r w a r t i m e conditions b y converting machin ery designed for similar use on other fibers. A b a c a stalk c o n t a i n s a potential of 8 % of fiber a nd recovery is approximately 31/2 % b y the machines n o w in use. A l t h o u g h the percentage of recovery is n o w m u c h greater than ever before achieved in the cleaning of a b a c a , it is felt that a greater yield is possible, and research into the i mp r o v e me n t of the decorticating m a c h i n e r y is planned . E A t present, after the stripping of the fiber, the remainder of the a ba ca plant goes to w a s t e . T h e fiber included in this waste w ould have a ready m a r k e t for paper manufactu re a n d other uses if i m p r o v e m e n t s could be effected in machin ery used in its processing an d present costs of its production t h e r e b y reduced. All previous efforts to reclaim the fiber f r o m the waste for marketing have been a b a n d o n e d because of prohibitive costs.T h e waste is n o w disposed of at s o m e cost through d u m p i n g on lands adjacent to the plantations. Research is planned for a m e a n s of m o r e efficient recovery of the fiber f r o m the w as t e a nd for a discovery of possible additional uses a nd markets for the waste . It is estimated that the cost o f the research with respect to the dev elopm ent of improved decorticat ing a n d waste reclamation ma c hi ne ry an d the ascertainment of better possibilities for the marketing of w a st e will approximate $ 150,000 annually for at least the next 2 years . 10A em ofr - 24 UN IN F 57 APPENDIX RECONSTRUCTION CREATION , PU RP OS E E FINANCE AND CORPORATION LEGISLATIVE A U T H O R I T Y T h e Reconstruction Finance Corporation w a s created by Ac t of Congress approved J a n u a r y 22 , 1932, a nd be gan operations on February 2 , 1932. A t the outset, the Corporation's m a j o r functions w e r e the extension of credit to agriculture , c o m m e r c e, and industry through loans to banks a n d other financial institutions, insurance companies, agricultural credit agencies , a nd railroads. F r o m time to t i m e, as economic conditions changed, the lending authority of the Corporation w a s broadened to include loans to business enterprises, loans to public agencies for the financing of public projects, and other lending functions . Du ri ng the national defense an d w a r periods the Corporation w a s assigned additional f u n c tions to enable it to assist in carrying out various p ro gr am s essential to the national defense a n d w a r effort. U n d e r the provisions of the Reconstruction Finance Corporation A ct , as presently a m e n d e d , the Corporation, in order to aid in financing agriculture , c o m m e r c e, an d industry, t o encourage small b u s i ness, to help in maintaining the economic stability of t h e country, and to assist in promoting m a x i m u m e m p l o y m e n t a nd production , is authorized , within specified limitations : (a ) T o purchase the obligations of and m a k e loans, directly or in participation with b ank s, to b u s i ness enterprises , including railroads an d air carriers ; (b ) to m a k e loans to financial institutions ; (c ) to subscribe for or m a k e loans up o n the non -assessable stock of insurance companies, or to p u r chase capital notes or debentures of insurance companies, in an aggregate a m o u n t outstanding at a n y one time not in excess of $ 15,000,000 ; (d ) to purchase the securities a n d obligations of or m a k e loans t o states, municipalities, political subdivisions of states, a n d public agencies or instrumentalities thereof, in order to aid in financing public projects, the aggregate a m o u n t of such loans or purchases outstanding at a ny one time for construction purposes not to exceed $ 200,000,000 ; a nd (e ) to m a k e such loans as the Corporation m a y determine to be necessary or appropriate because of floods or other catastrophes, in an aggregate a m o u n t outstanding at a n y one time not to exceed $40,000,000. T h e total a m o u n t of loans, purchases, a nd c o m m i t m e n t s m a d e after J un e 30 , 1947 , in the exercise of the foregoing powers , m a y not exceed $ 3,750,000,000 outstanding at a n y one time . T h e lending activi ties of the Corporation are financed by capital stock in the a m o u n t of $ 100,000,000, held b y the Secre tary of the Treasury, the retention of accumulated earned surplus in the a m o u n t of $250,000,000 , and borrowings f r o m the Secretary of the Treasury as needed to carry out its functions. Within six m o n t h s after the e n d of each fiscal year all surplus in excess of $ 250,000,000 m u s t be paid over to the Secretary of the Treasury as miscellaneous receipts. U n d e r existing law , the succession of the Corporation t e r m i nates on Ju ne 30 , 1956 . T h e Federal National M or t g ag e Association, a subsidiary of the Reconstruction Finance C o r p o r a tion until S ept emb er 7 , 1950, is authorized to purchase h o m e mortgages insured by the Federal H ou si ng Administration or guaranteed b y the Veterans Administration . T h e Association is also authorized , p u r suant to the Alaska H ou s i ng Act, to m a k e real estate loans secured by property located in Al ask a if such loans are insured b y the Federal H ou si ng Administration . T h e total a m o u n t of purchases, loans, a nd c o m m i t m e n t s m a d e by the Association m a y not exceed $2,750,000,000 outstanding at an y one time . In order to aid housing production , the Reconstruction Finance Corporation w a s authorized under the H ous in g A c t of 1948, to m a k e loans to a n d purchase the obligations of a n y business enterprise (not to exceed $ 50,000,000 outstanding at a n y one t i m e) for the purpose of providing financial assistance for the production of prefabricated houses or prefabricated housing components , or for large-scale m o d e r n ized site construction . Effective S ept emb er 7 , 1950, this function w a s transferred to the Ho u s i n g and H o m e F i n a n c e A g e n c y, pursuant t o Reorganization P l a n N o .2 3 of 1950 . In addition to its lending activities the Corporation is engaged in : (a ) T h e manufacture and sale of synthetic rubber , pursuant to the R u b b e r Act of 1948 ;8 58 (b ) the refining of tin ores an d concentrates at the Texas City tin smelter, t h e purchase of refined tin, an d the sale to private industry or the transfer to the national stockpile of that portion in excess of a wo rk in g inventory , as provided by Joint Resolution approved June 28 , 1947 , as a m e n d e d ;? (c ) the production an d sale of abaca , pursuant to the A b a c a Production A c t of 1950 ;s and (d ) liquidation of the affairs of the Defense Plant Corporation , Metals Reserve C o m p a n y , R u b b e r Reserve C o m p a n y, Defense Supplies Corporation , Disaster L o a n Corporation , Smaller W a r Plants Corporation, De f e n s e H o m e s Corporation, the R F C M o r tg a g e C o m p a n y , U. S. C o m mercial C o m p a n y , and W a r D a m a g e Corporation . T h e synthetic rubber, tin , and abaca pr og ra ms and the liquidation of national defense, w a r and reconversion activities are financed with funds held by the Corporation acquired through such activities, pursuant to t h e provisions of T h e G o v e r n m e n t Corporations Appropriation Act , 1949 ,' an d net r ec ov eries f r o m these activities are deposited in the Treasury as miscellaneous receipts. 1Reconstruction Finance Corporation Act, as amended byJoint Resolution approved June 30, 1947( 61 Stat.202),Act approved May 25, 1948 (Public Law 548, 80th Cong.), Act approved June 29, 1948 (Public Law 825,_80th Cong.), Act approved July 1, 1948 (Public Law 864,80th Cong.), Joint Resolution approved July 19, 1949 (Public Law 176,81st Cong .), Joint Resolution approved October 25, 1949 (Public Law 387, 81st Cong.),Act approved April 20,1950 (Public Law 475,81st Cong.). ? Effective September 7, 1950, Federal National Mortgage Association was transferred to the Housing and Home Finance Agency, pursuant to Reorganization Plan No. 22 of 1950. 3Title III of the National Housing Act, as amended by Act approved July 1, 1948 (Public Law 864, 80th Cong.),Act of August10, 1948 (Pub lic Law 901, 80th Cong.), Joint Resolution approved July 19, 1949 (PublicLaw 176,81st Cong.), Joint Resolution approved October 25, 1949 (Public Law 387,81st Cong.),Act approved April 20,1950 (Public Law 475,81st Cong.). • Act approved April 23,1949 (Public Law 52, 81st Cong.). 5 Act approved August 10, 1948 (Public Law 901, 80th Cong.). 6 Act approved March 31, 1948 (Public Law 469, 80th Cong.),as amended by Act approved June 24, 1950 (Public Law 575,81st Cong.), and Executive Order 9942,April 1,1948 (13 F.R. 1823). ? Public Law 125, 80th Cong ., as amended by Act approved June 29, 1948 (Public Law 824, 80th Cong.), Act approved June 30, 1949 (Public Law 148,81st Cong.),Act approved August 21, 1950 (Public Law 723,81st Cong.). & Public Law 683,81st Cong.,approved August 10, 1950. Public Law 860,80th Cong., approved June 30,1948. 59 4
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