It will then sell them to a railroad on the instalment plan. Or, to speak more strictly, the car-trust will lease the cars to the railroad under an agreement which provides that when the railroad company has paid a certain amount of rent the railroad company shall become the owner of the cars, but until such time the car-trust shall own them. Let us suppose that the Ontario & Western Railroad should arrange with the Central Car-Trust for $100,000 worth of cars. It might be provided that the Ontario & Western would pay $5,000 per month as rent, and that when it

The American Transportation Company for value

received hereby binds itself to pay to the bearer at the office of The State Trust Company in the City of New York, on the day of JANUARY 1902 unless this bond be seener redeemed $1000 in gold coin of the United States of the present standard of weight and fineness and to pay interest thereon in like gold coin at the rate of six per cent 6% per annum on the first days of January and July respectively upon presentation and surrender to the said "Trust Company in the City of New York of the annexed coupons as they severally become due until said principal sum is paid.

This is one of axies of bonds known as Class A bonds of like amount and date limited to $75000 numbered consecutive from indie fattion due differes date all secure in the manner as set forth in the decidermitgade doted Toril 2018 male between for American Transportation Company and to trust Company. Truss wider which said deed ermertgage said Trustee acquises and holds in trust behalf of the corne Kolaertain ether bonds known ass. B described in sai ortgage rate ruilroad equip ment and rol ock purchased by said American Transferthon Company subject to the terms and cons of which such dediftreten of the said bergssue presilient de recapture there maturing at panand interest in this bond is is gets and held. Any any of the dates appecified for the pumpment of said interest thereon and this end may be so redeemed on the American Transportation Company advertising its intention to redeem same in two newspapers published in The City of New York twice a month for three months prior to the date of such redemption and interest thereon shall cease from the time which shall be designated for such redemption This bond will not be valid until the certificate endorsed hereon has been signed by the Trustee of said dead of trust or mortgage.

FIG. 100.-FORM OF CONTRACT ENGRAVED ON CAR-TRUST BOND.

should have paid twenty months' rent at $5,000 per month it would own the cars. The car-trust bond is simply the obligation given by the car-trust company, the security for which is the cars rented to the railroad, the payment on the bonds being secured by payments of rent. The form of car-trust issued by the American Transportation Company is reproduced in line engraving above.

Debenture bonds of financial companies.-The term debenture bond is the most loosely used of any of the terms

De

descriptive or suggestive of financial instruments. benture means debt, and might be applied logically to any kind of a credit instrument. Its uses, however, have come to be quite strictly defined in certain financial relations. The "debenture bond" of a financial company is a form of collateral trust or credit obligation, secured by deposit of bonds and mortgages owned by the company. These "debentures" are used to obtain funds for permanent use in the purchase of other bonds and mortgages, which may again be used as a security for a further "debenture" issue. A facsimile copy of such a bond issue by the Spokane and Eastern Trust Company of Spokane, Washington, is given on page 194. From a reading of the contract printed across the upper corners of the instrument referred to it will appear that "this bond is secured by a deposit of first mortgages on real estate representing an amount loaned, not exceeding forty (40) per cent of the appraised value, other first lien real-estate security, municipal bonds and warrants," etc. A schedule or list of the documents deposited in trust for the benefit of the bondholders, is indorsed on the back of each bond. The debentures of financial companies are regarded as first-class investments. They are to be clearly distinguished from railroad debentures.

Railroad debenture bonds.-Railroad companies issue a form of bond called a "debenture" which is quite different in character. These bonds very often have no security for the payment of interest; many times the principal also is unsecured. The payment of interest is dependent on the surplus net earnings of the road. Instead of being a first lien on the properties and incomes of the road, they are a last claim, and stand in a rank inferior to all other bonds of the company; they are in some respects inferior to the unsecured short-time credit obligations of the road; they

FIG. 101.-CANCELLED DEBENTURE BOND OF TRUST COMPANY (ONE FOURTH ACTUAL SIZE).

and have little or no advantage from contracts of security. Income bonds.-An income bond is one the interest on lack the advantage of paper maturing at an early date,

which is payable out of the surplus net earnings of the company issuing it. The interest therefore is contingent on a remainder of earnings after the payment of all expenses, cost of maintenance, taxes, interest, rentals, and other fixed charges. If there be nothing left, then the company is under no obligation to pay interest for the year. The interest, however, may be made cumulativethat is, while there is no obligation to pay interest if there be no funds with which to do so, yet the amount of interest contracted for cumulates as a charge which stands ahead of all dividends on the common or preferred stock The income bond usually has the payment of the principal secured by a mortgage, which, although junior to other mortgages, gives to the income bondholder a rank ahead of the general, unsecured, creditor (see page 196).

Bonds classified according to their purpose.-Other bonds take their names from the purpose of the issue, as for example, the Purchase-Money Bonds issued in substitution for the indebtedness of the Virginia Central Railroad Company (page 198). In 1878 the Chesapeake & Ohio got control of the Virginia Central and arranged a consolidation whereby the securities of the contested road were taken up and replaced by the credit securities of the larger corporation. To this end, and, as a means of securing funds with which to cancel those which could not be exchanged, the issue was made. Exhibit is also given (page 200) of the Improvement bonds of the Philadelphia & Reading. These are issued for the purpose of financing the enormous coal properties purchased in the '70s, and for improving the equipment of the road for handling its increased busi

ness.

The bond here shown is an old one; it has been. through four receiverships and reorganizations has been subject to all the financial extremities of that great system whose destiny has been linked with the development and