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The Financial Department is prepared to furnish information regarding standard investment securities, but cannot undertake to advise the purchase of any specific security. It will give to inquirers facts of record or information resulting from expert investigation, and a nominal charge of one dollar per inquiry will be made for this special service. All letters of inquiry should be addressed to THE OUTLOOK FINANCIAL DEPARTMENT, 381 Fourth Avenue, New York


AILWAY bonds are bonds issued by railway corporations. K Every one knows that. Every one is not familiar with Il the various kinds of railway bonds, however, and it is our belief that a few words of explanation about the different railway issues may be of interest to our readers. This is a subject to which a large-sized book could easily be devoted, and, as our space is limited, we can do little more than mention the salient points in connection with it.

In considering any bond there are three points to bear in

mind: the security of the bond itself, the credit standing of the company which issued it, and the salability of the invest ment. The third point is minor to the others, but important none the less. We shall concern ourselves chiefly with the first two.

Both security and credit position should be carefully investigated, and one is often worth little unless the other too is satisfactory. The security for a bond is largely determined by the bonded debt per mile of road; the credit position, by the

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The Guaranty Trust Company maintains important branches in London,
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Branch offices and correspondents
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There are many ways in which our facilities can be of special value to you. We invite you to make known your needs and we shall be pleased to give you full information.

Guaranty Trust Company

of New York


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- earnings per mile. For example, two

roads may have net earnings of $5,000 per mile, but if one road has a bonded

indebtedness of $100,000 a mile and the , other $25,000 it stands to reason that - the bond issued by the road with the

lower indebtedness is the better invest. ment. The first road is obliged to pay interest on bonds issued at the rate of $100,000 a mile, and its earnings are no larger than the second corporation with a bonded indebtedness of only onefourth as much. Obviously, the credit

position of the second road is better i than that of the first. It might even happen that a given road would have so strong a credit position that its debenture bonds—mere unsecured promises to pay—would be rated better investments than the mortgage bonds of a weaker road. This does not mean to say that credit is necessarily more important than security; the point is that neither one should be emphasized at the. expense of the other.

In acquiring security it is well for the investor to find out just what portion of the railway system is pledged for the payment of his bond. Is it the main line, an important division, or merely a branch which is not essential to the prosperity of the railway and which it could easily get along without? On the answers to these questions may depend the value of the bonds as a highgrade investment.

Most of our great transportation systems are made up of numerous small railways which from time to time have been taken over and absorbed by the main roads. The small roads in nearly every case have had bonds outstanding secured by their properties. When these roads have been absorbed, they have become divisions of the parent system, which has also assumed the obligation of their outstanding bonds. Such bonds are what are known as “divisional liens," and if the particular division by which they are secured is essential to the main system they may be extremely valuable and high-grade issues. In fact, they are usually the underlying bonds which have a claim on the property prior to all the other mortgage bonds. And frequently they are difficult to buy, because the floating supply is small and because their owners, appreciating their investment qualities, are unwilling to part with them.

The divisional liens may or may not be secured by main-line mileage, but they rank ahead of all other bonds on that particular division. Next in rank come the bonds secured by a first mortgage on the main lines. They may not be a first mortgage on the mileage of the entire line, but the highest-grade ones are usually secured by a major part of it, and such bonds issued by our largest systems are usually regarded as investments of the best class. These bonds are easier to buy than the divisional liens, because they are usually outstanding in larger quantities and the supply is therefore more abundant.

After the first mortgages come the general mortgage bonds, which in most

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“I Guess”

100 OFTEN a guess on investments

means as little as a guess on the weather.

A carefully selected investment must be based on a study of facts—not guesses. Our representatives who talk with an average of 3,000 banks a day are welcome because they are offering securities which have been bought on facts, not guesses. Select your investments as carefully as your banker selects his. We invite you to get in touch with our nearest office. Write for Current List.


(Continued) cases are refunding bonds as well, their due dates being more distant than the underlying bonds and a sufficient nuntber of them being reserved for paying off-or refunding—the prior liens upon maturity. In some instances these issues have been made to run a hundred years or more and the entire mileage of the company included in the property covered by the mortgage. Sometimes terminals, and even equipment, have been included. These general mortgage bonds cover, in 'most instances, the same property covered by the divisional liens and the first mortgages, but are junior mortgages. That is to say, the divis ional liens and first mortgages rank ahead of them. To illustrate how this would work out, suppose a railway har outstanding $5,000,000 of bonds, due $2,500,000 in 1930 and $2,500,000 in 1937 secured on the properties of the various divisions acquired in making up the system; then come $15,000,000 of firstmortgage bonds due in 1940 and secureil also by these same divisional properties and on the main-line mileage as well As time went on and it became neces sary to do new financing and raise more money, a general mortgage was created providing for the issuance of $40.000,00) of bonds due 1990. Twenty million of these bonds were to be issued imme diately, the balance being reserved to refund the $2,500,000 of divisional liens due in 1930, the $2,500,000 due 1935, and the $15,000,000 of first-mortgage bonds due in 1940. And of course every time an issue of underlying bonds is retired the general mortgage bonds themselves improve their rank, until they them selves will eventually become first-mortgage bonds when all the issues ahead of them are paid off and canceled.

General mortgages have not been as popular with railway companies in late years as they were formerly. Their place has been usurped to a large extent by refunding mortgages, and in cases where refunding mortgages have been made and there was already a general mortgage the latter has usually been "closed"—that is, no more bonds can be issued under its provisions. Refunding mortgages operate in much the same way as the general mortgages, however. And usually such mortgages cover the same property and any additional property acquired-sometimes “to be here after acquired"-since the date of the general mortgage. Usually too the bonds may be issued at various times and at varying rates of interest, depending upon the state of the money market at the time they are sold. One big railway, for instance, has 4, 5, and 6 per cent refunding bonds outstanding, all secured by the same mortgage. The refunding bonds, as their name implies are used to retire underlying liens, ard when first issued are usually a first lies on a small amount of mileage the amount acquired since the general mortgage—and may be second, third, even a fourth lien on other portions.

Convertible bonds are, as their name





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implies, convertible into-exchangeable complicated affair and deserves careful
for-stock. The conditions upon which attention.
this exchange may be made are subject Collateral trust bonds are secured by
to considerable variation. The bonds the deposit of other securities. Some-
are usually convertible into stock at a times these securities may be stocks and
certain price, and sometimes before a bonds of the issuing company, or pos-
certain date. For example, a thousand- sibly of other companies which are
dollar bond may be convertible into owned by the issuing corporation.
stock, one share of stock for each $100, Strictly speaking, they are not mortgage
at the rate of, say, $100 a share, and the bonds, although some of the bonds
conversion privilege may expire in ten pledged for their payment may them-
years—ten years before the bonds ma selves be secured by a mortgage on the
ture. If the stock is selling at less than property.
$100 a share, there is very likely no in- Debenture bonds, in the true sense of
ducement for the bondholders to avail the word, are merely promises to pay.
themselves of the conversion privilege, Sometimes they enjoy mortgage se-
but if the stock should climb to more curity, but in most cases they are
than that figure the exchange would of merely an obligation on the part of the
course be profitable. Convertible bonds issuing company. The credit position of
are prone to fluctuate more or less with the issuing company is a very important
the selling price of the stock. If they factor of course in the case of unsecured
are secured by a mortgage, they are bonds.
naturally safer than the stock, and Income and adjustment bonds are
probably sell at a higher figure. They usually issued after a reorganization or
are not always thus secured, however, receivership. At such times it is impor-
and may depend upon the credit position tant to reduce the fixed charges of the
of the issuing corporation for their company, and these bonds usually pay
value as investments. Determining the interest only if it is earned, and some-
worth of a convertible bond is often a times the interest is cumulative, some-

times not. These bonds may in some SCRIBNER'S MAGAZINE

cases be secured by a mortgage, but,

with the debentures, are usually consid. INVESTMENT SERVICE BUREAU ered among the weakest of a railway's If you are an investor you owe it to yourself to read

issue. Of course if the company's credit

position is good these bonds may be The Mortgage in Retail Packages

considered good investments. • FREE This informative booklet without cost from the Investor's Service Bureau

Equipment bonds are almost always
SCRIBNER'S MAGAZINE, 598 Fifth Avenue, New York

rated as high-grade investments, being
secured by rolling stock (cars, locomo-
tives, etc.)-equipment necessary to the

operation of the road and the value of During the past year the Financial Editor the security is usually considerably in of The Outlook has helped hundreds of | excess of the amount of bonds outstandOutlook readers to solve intelligently their ing. It is customary for equipment particular investment problems. Perhaps you bonds to mature serially, a certain proare contemplating a shifting of your present portion every year, so that as the rollholdings or have fresh funds to invest. In

ing stock deteriorates the amount of the either case we shall be glad to give you specific information on any securities in

outstanding bonds is correspondingly re. which you may be interested. A nominal

duced. charge of one dollar per inquiry will be made Terminal bonds are also considered for this special service.

high grade in most cases. Terminals,

like equipment, are necessary to the The Outlook Financial Department

operation of a railway, extremely valuTHE OUTLOOK COMPANY able, and in the majority of cases the 381 Fourth Avenue

New York City interest on terminal bonds is made an

operating charge on the roads which
make use of the terminals. Some-
times-in the case of a union station,
for instance—the various roads using
the terminal all join in guaranteeing the
bonds secured by the property, so that
the bonds may be the guaranteed obliga-
tion of several railway systems.

These are the main classes of railway
bonds. The layman cannot expect to be

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prospective clients. And, after all, the
Twenty years under the same management.

three main things to find out about are
the security for the bond, the credit
position of the issuing corporation, and
the marketability of the investment.
Satisfied as to these three points, the
investor can proceed with confidence.

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