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Sometimes it is shared with the preferred stock. Sometimes the latter has full control. The American Telephone and Telegraph Co. and the United Fruit Co. are among the few large industrials which have only common stock.

(2) Preferred stock. This stock has a claim upon the earnings, or the property, or both, prior to the stock next in rank which is usually the common. First preferred has prior claims to both second or third preferred, and common. Just what this preference consists of varies according to the terms of issue. The usual preference is for dividends up to a certain percentage. The preferred stock of the U. S. Steel Corporation is entitled to 7%, that of the E. I. du Pont de Nemours & Co. (called debenture stock) to 6%, while Famous Players-Lasky Corporation preferred receives 8%. All three receive cumulative dividends, i.e., if the dividend is not paid, it accrues as a charge, and all back dividends must be paid before the other stock can share in the profits. But for this provision the preferred stockholders of the Westinghouse Electric & Manufacturing Co. would have lost their income in the years 1908-09. The unpaid dividends of the American Hide and Leather preferred amounted in June 1923 to 1304%. If the preferred stock is non-cumulative, it gets dividends only when the directors choose to declare them. This is true of the preferred stock of the American Beet Sugar Co., the American Car & Foundry Co., and the Pressed Steel Car Co.; but the first has paid its 6% dividend since 1900, the second its 7% since 1900 (6 2/3% in 1905), and the third its 7% since 1900. The Westinghouse Electric & Manufacturing Co. is an illustration of companies which allow the preferred stock to participate in the dividends on equal terms with the common after the common has received a share equal to the dividend of the preferred, or some other stated amount. In 1904-7 the 7% preferred and the common each received 10% dividends. Some pre

ferred stocks share in dividends equally with the common after their own is paid. Were this true of the Westinghouse stock, in the years mentioned the preferred stock would have received 132% to the common's 62%. Most of the large companies give the preferred stock preference as to principal as well as to dividends. This position is vital to the position of the preferred stock in case of reorganization or liquidation. Preferred stock may or may not have voting power.

(3) Other forms. English companies issue a variety of other stock issues such as founder, vendor, deferred, and debenture shares.

251. Credit securities.1 (1) Mortgage bonds. These are long-term notes, the principal and interest of which are secured by a mortgage, or deed of trust, under which the property pledged is conveyed to a trustee to be held in trust for the benefit of the bondholders. A "firstmortgage bond," if properly executed, has a first claim upon the property and the earnings. Second- and thirdmortgage bonds differ from the first-mortgage only in the rank of their claim upon the property. "Refunding " bonds are issued to cancel other bonds, and if different bonds are thus retired and the mortgages consolidated, they are called "consolidated" bonds. The U. S. Steel Corporation owns no property in fee. Its mortgage bonds are" underlying" bonds, i.e., they are secured by property owned by subsidiary companies. Where bonds are secured by a general mortgage upon all the properties of a business, upon a part of which there are already mortgages, they are known as "general mortgage" bonds or "blanket mortgage" bonds. If such an issue is large enough to provide for the refunding of the old mortgage bonds, the

1 For a detailed description of all classes of bonds see Lawrence Chamberlain, Principles of Bond Investment. New York. Henry Holt & Co., 1911.

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general mortgage will in time become a first mortgage. Until the amount of indebtedness authorized by the terms of a mortgage has been reached it is an open mortgage. After the authorized bonds have all been issued it is a "closed" mortgage. An open mortgage should provide for limitations as to the amount of bonds that can be issued in any one year, the proportion which must exist between the total of all issues and the assets, the appropriations from earnings (say 50%) to supplement improvements made from bond moneys, and the maximum ratio (say 20%) which the fixed charges shall have to lowest net earnings. Without such limitations no idea could be had of the security behind even the first issue. Each succeeding issue would weaken the security of the earlier issues.

(2) Equipment bonds. These are secured by a mortgage upon equipment. Among railroads they are frequently used to secure funds. The rolling stock of industrial railways is thus pledged.

(3) Collateral trust bonds. These are secured by the deposit with a trustee of bonds or stocks of other companies, or both. The U. S. Steel Corporation and the Republic Iron and Steel Co. are among the industrials which have secured funds in this way. It is a favorite method with holding companies.

(4) Debenture bonds. A debenture is a so-called bond; it is an unsecured pledge to pay. It is often used, especially by large companies who have executed no mortgages, such as the General Electric Co. which has outstanding $17,183,500 in debentures. Such obligations contain an agreement to secure the debentures by the same mortgage in case any mortgage is afterward issued. In case of insolvency the debenture holder ranks as any other unsecured creditor. They are usually long-term notes in coupon form.

(5) Short-term notes. For temporary needs or to defer a bond issue to a date when better terms are likely, notes maturing in one to five years are used. Short-time notes are often made subject to call (say at 103) on any interest date.

(6) Receiver's certificates. These are obligations issued by a receiver under the order of a court. They have a claim prior even to a first mortgage. They are allowed only when a cessation of operation would be a public calamity.

252. Other characteristics of bonds. - Credit obligations have been classified above according to their security. They may be named according to other provisions in the bond. (1) "Gold bonds" provide that both principal and interest shall be paid in gold. This makes them more satisfactory, especially to the foreign investor. (2) "Convertible bonds may be converted into some other form of security, usually stock, at the option of the holder. This provision adds speculative interest. The bondholder is a creditor, but if the stock should become worth more than the bond he can make a profit by the conversion. A part of the International Paper and Midvale Steel and Ordnance issues are convertible. The American Agricultural Chemical 1st Convertible 5's are convertible into 6% preferred stock at par. (3) "Coupon bonds" have attached to them interest coupons, one for each payment, upon the receipt of which at the proper time and place interest is paid to the bearer. (4) "Registered bonds" have the names of the holders to whom interest payments are mailed, registered on the books of the corporation. If desired, bonds may be registered as to principal only (see 176). (5) "Guaranteed bonds" have the payments of principal or interest, or both, guaranteed by another, usually the parent company. It has the effect of giving general in addition to divisional security. The bonds of

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the U. S. Steel Corporation which are largely underlying bonds are rated for investment purposes by Moody as "Aa" and "Aaa." Among the highest rated bonds are two issues secured by the Clairton Works, guaranteed both by the U. S. Steel Corporation and the Crucible Steel Co. Whether a guarantee helps or not depends upon the credit of the guarantor. (6) "Redeemable, or callable bonds " give the issuer the right to call them in and redeem them before maturity. The payment of a premium is usually provided. Some of the bonds of the U. S. Steel Corporation are redeemable at 105, some at 110, and some at 115. The preferred stock of the General Motors Co. is redeemable at 110. When redemption is optional with the issuer, the desired securities will probably be purchased in the market, if they stand at a lower value than the redemption price. The provision merely creates an optional artificial supply in case redemption seems advisable. It is a very important provision where a sinkingfund method of retiring bonds is to be used. (7) "Sinking-fund bonds" provide that the issuer shall set aside at intervals certain sums to provide for the payment of the entire debt or a part of it. This provision is very essential where the property upon the development of which the funds are used is of an exhaustible nature as a leasehold, a mine, or an oil well. Wherever the business is of an unstable character or the property is subject to depreciation, a sinking fund should be provided to retire the bonds. This sinking fund is usually administered by a trustee, who acts in the interest of the bondholders. He may use the fund to buy up the bonds at their market or redemption value, or invest it against the maturity of the bonds. If he buys in the bonds which is the best thing to do best for the company because it eliminates speculation, best for the bondholder because it widens his margin of security - he may cancel and turn them over