American Railway Bonds

6. If American Railway Bonds are purchased they should be restricted to the leading lines, and be limited to First Mortgage Bonds expressed (with the interest) in gold or sterling. We have here to regard - in the exercise of careful discrimination - the methods of finance too frequently adopted: the control of many commercial and industrial undertakings by a few individuals who - stimulated by egregious eagerness for private gain, the love of power, and the attraction of unlimited wealth - have sometimes, in the past, attended mainly to their personal interests irrespective of the general good; the monopolies and trusts which exist, with their baneful influence and their sordid exclusive aims; the consequent aggregation o power and the command of general commodities in selfish hands, which grasp and never open except to grasp; the consequent merging of the community in the individual; and the deficient force of public opinion upon opprobrious and oppressive administration and action; the practical vanishing, which often ensues, of moral responsibility before the unintelligent energy for the quest of riches. Surveying this tortuous and bewildering condition a grave care is laid upon the ordinary man, in the form of inquiry, caution and discrimination. As these modes of investigation - in order to disentangle the genuine from the mass - are exceedingly difficult of accomplishment to the investor of small means, of smaller opportunities of direct information, and of still slighter knowledge, his decision should be, until he knows better than he does at present, to abstain, unless he can count among his friends a mentor who is practically competent to counsel, for undoubtedly many American securities are of high and commanding character.

Home Railways

7. Home Railways. The appended figures (employing round numbers) are those of a typical English railway - the London and North Western -

Thus the Debenture Capital (which stands first in priority of security upon the resources of the Line) possesses, as security for the payment of its interest, an annual net income (earned for the year observed) of £5,550,000; or, regarded from another point of view, there exists, after the discharge of such interest, a margin of £4,380,000, which is equivalent to an additional sum of £11¼ per cent. Nothing could be safer, and the Preference and Guaranteed Stocks, according to the rank of their security upon the undertaking, have behind their individual interest the annual security of the interest paid upon the succeeding stocks and of the dividend distributed upon the Ordinary Stock - the latter showing an annual security for provision of the antecedent obligations of nearly 2| millions of net revenue, or to consider the Debenture Stock (and correspondingly for the remaining subsequent stocks, which stand, in order of security, before the ordinary capital), the railway might lose a net income of £4,380,000 a year, without trenching upon the full payment to the extent of one penny of the Debenture interest.

It is obvious that Debenture Stocks, by reason of the superior security which they possess, yield a lower rate of interest than stocks stationed beneath them in order of rank of priority.

This analysis has been adopted for the purpose of showing the mode of estimating the security of the several classes of stocks, and the illustration applies generally to the principal lines. At the end of the section I shall specify the order in which the stocks of certain railways stand in respect of mortgage upon the line.

Railway Preference Stocks

Some Preference Stocks depend for their interest upon the profits of each separate year, so that if, after providing for the interest on the

Debenture Stocks, and upon any other obligations in prior order to the Preference Stocks in question, the remaining balance should prove insufficient to discharge in full the interest for such Preference Stocks, the deficiency could not be accumulated or held over for satisfaction out of the profits of a subsequent year.

Cumulative Preference Stocks

Some Preference Stocks are termed "Cumulative," and entitle the holder, when the profits of any year are insufficient to provide the entire interest then due, to claim the balance of arrears from the net surplus of a succeeding year before any payment of dividend can be allotted to the ordinary shares. The term "Preference" indicates that the claim of such stocks upon the profits of the line is prior to that of the owners of ordinary stocks.