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American Securities

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AMERICAN SECURITIES ; GOVERNMENT.—The follom fug are the Government Securities of the United States :—(1) An issue of a Govern ment 4 per cent. Funded Loan, redeemable at option after 1st February 1925. The registered bonds on 31st December 1908 amounted to $97,273,200, and the coupon bonds to 321,216,700. The bonds are to bearer, or registered. Bearer borfils can be exchanged for registered certificates, but the latter cannot be reconverted. These bonds need not be stamped by the Inland Revenue in England. (2) The Government 3 per cent. Loan issued in 1898, redeemable since 1st August 1908. At 31st December 1908 there were $40,901,580 registered bonds, and $23,043,880 coupon bonds. (3) Government 2 per cent. Thirty-year Bonds, dated 1st April 1900, and payable at the pleasure of the Government after 1st. April 1930. At 31st December 1908 there were $641,129,750 registered bonds, and $5,120,400 coupon bonds. The rules as to exchange of kearer bonds into certificates, are the same in the last two loans.as in the first. All Stock-Exchange quotations are based on the exchange of 4s. to the dollar. Foreign bonds when negotiable are subject in England to the law appli cable to'English negotiable instruments. When the security is in the form of a certificate, the law relating thereto is the same as in the case of certificates for railroad and other shares to be hereinafter referred to. Railway Securities have always been regarded with some favour by British investors. But generally speaking, until recent years, more money has been lost than made by English investment in American railroads. It is cer tainly characteristic of this field for investment, that the security of which we shall treat first, on account of its value ranking highest, is the certi ficate issued by receivers of railroad companies in default. Default in payment of the bonded interest, the appointment of receivers and reorganisa tion committees, and a host of other formalities were, until about ten years since, very usual in connection with American railroads. Receiver's consequence of default in payment of interest, the bond holders may have seized the assets of the company, new capital having to be introduced in order to release the line from its encumbrances, and to enable the property to be kept together and continued as a going concern. In such a case the receiver, who has been appointed at the instance of the bond-holders, obtains power from the appropriate American Court to issue certificates for money to be raised necessary for the management and preservation of the railroad. The debt so created becomes a first charge on the property, and on the funds in the receiver's hand after payment of the working expen.es. Certificates issued, not to preserve the property, but to pay unsecured claims, cannot obtain priority over antecedent mortgages. When issued in excess of the amount authorised by the Court, they cannot be enforced against the property unless the proceeds have been used for its benefit. They cannot be issued to pay interest on bonds. A holder of these certificates is supposed to have knowledge of all proceedings of the litigation by which they were issued, and is assumed to have notice thereof. Such certificates are not negotiable, and in fact lack almost every

characteristic of negotiable instruments. Purchasers of certificates are not bound to see to the application of the purchase-money. The English Courts have power to authorise the receiver of a foreign company to give a charge in priority to the debentures. Prior lien bonds are generally issued to pay debts having priority over the funded debt. They must be issued with the consent of the holders of the existing bonds, who generally are the persons who take them up. Mortgage bonds are what are known in this country as mortgage debentures secured by a trtst deed. The power of a railway to create such a bond does not exist unless conferred by charter or statute. The mortgage upon which these bonds rest is drawn according to the law of the state in which the mortgaged property lies, and in which the mortgage is completed ; and the law enters into and becomes a part of the mortgage as if it were there in express terms. In the absence of a provision to the contrary, all bonds secured by mortgage have an equal lien irrespective of the time at which they were negotiated ; first mortgage bonds to second mortgage bonds, even if subsequently negotiated. The invalidity of some of the bonds does not invalidate the mortgage. Where the mortgage expressly covers subsequently acquired property, a rail road bond covers the road although the route differs from that originally laid out. Creditors cannot levy an attachment or execution• upon the railroad, or parts of it, even though the levy be made subject to the mortgage. A railroad mortgage bond acknowledges the debt owing to the bearer and stipulates for payment of interest. It specifies the property mortgaged, and is enforceable by foreclosure in case of default by the borrowing railroad company. The method of procedure upon default is by way of Bill of foreclosure in the federal courts, usually accompanied by a prayer for a receiver. This secures the appointment of the same receiver or receivers for the entire property irrespective of the states in which it lies. Thus may be avoided, to a certain extent, possible prejudice in a state court. Demand for payment is not necessary before proceeding for a foreclosure. The Court having acquired jurisdiction, takes control through the receiver of the entire property of the railroad company ; and usually continues the working of the company through such receiver for the benefit of all the creditors. American railroad bonds are not usually perpetual, but are redeemable at certain fixed periods. American Debentures are of no more value than are ordinary unsecured English bonds ; they arc not, in fact, debentures as we understand them. Income Lands are those the interest of which is payable only when earned, and after payment of interest upon prior mortgages. They resemble English preference shares in the sense that the holders have a preference for their interest over the dividends of the stock holders; but they do not carry any voting power.

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