As Banks lend money on the security of bonds, stocks, mortgages and similar instruments and hold them as investments, the following description of these is given:

A bond is an obligation, written or printed, given and signed by a corporation, company, firm or individual, by which it promises to pay a stated sum of money, at the end of a stated time, with interest at a certain rate, interest being usually payable at the end of each six months, or semiannually. A bond is usually given when the borrower wants the use of the money for a term of years, like five,ten,twenty, thirty or more years, and is also usually secured by what is known as a mortgage on some kind of property. The effect of a mortgage is to give the holder of the bond a prior lien on property pledged as security or mortgaged, and the right to take it, or acquire ownership or title to it in case the money borrowed is not returned, or if the interest is not paid when due. Such a taking of the mortgaged property is called "foreclosing" the mortgage, usually provided for under the laws of the State in which the property is located. A mortgage may be given on real estate or land, where the owner of the land in the city wants to erect a building on it, or in the country, where a farmer may wish to put up buildings or buy animals or agricultural implements to carry on his business. Such a mortgage is called a "real estate" mortgage. A mortgage on land usually includes all buildings landing on same, whether mentioned in the mortgage or not.

In the case of a railroad company borrowing money on bonds, a mortgage is usually given on all land or real estate owned by it, including buildings thereon, and on its locomotives, cars, rails and all movable property besides.

Where a party borrows money on a stock of merchandise animals, vehicles or any other movable or "personal property," and gives a mortgage to secure the debt, this is called a "chattel mortgage."

The law usually provides that when a mortgage of any kind is given it should be recorded at the court house or county seat nearest to the location of the property, as a notice to all parties that the property has been pledged as security for a loan, and this record should always be promptly made in the interest of the lender. Where he fails to record it promptly, a dishonest party may give another mortgage to someone else, which, if recorded first, would take legal precedence over the one previously given. Again, before one lends money on a mortgage of any kind of property, care should be taken to search the court, county, or other public legal records, to ascertain if any other mortgage has already been recorded, and this search can best be made by a reliable lawyer or a company or corporation whose business it is to examine the title to property.

A first mortgage, when properly recorded, gives a first or prior lien or claim on the property on which it is given. The next mortgage given, if any. is called the "second mortgage," and is entitled only to such share of value in the mortgaged property as may remain after the first has been paid or "satisfied." Such security as a second mortgage gives is called an "equity in the property."

The word "stocks" is usually applied to the printed instruments called "certificates of stock," issued by corporations to the "shareholders" or "stockholders" who contribute the "capital stock."

These usually certify that the party named therein is entitled to a stated number of shares in the company issuing the certificates. The "par value" of each share is usually stated in each certificate, and this par value may be for any amount from $1 up to $1,000, as the corporation may prefer to make it when organized.

A certificate of stock is the personal property of the party named therein, and so continues until he properly "assigns" it to some other party by signing his name, attested by signature of a witness, to the form for assignment usually printed on the back of the certificate. When a party sells or "transfers" his certificate to anyone else he should see that his cer-tificate is cancelled by the corporation issuing the stock, and that a new one is issued in the name of the party to whom he has transferred it. This is important in the case of such stock as National bank stock, which makes the holder of the stock liable for an assessment to make good any losses sustained by the corporation issuing the stock.

Formerly a corporation issued only one kind of stock, called "common" stock, the holders of which participated without discrimination in any profits or losses the corporation might make. But the custom is growing, nowadays, for a corporation to issue another class of stock, known as "preferred" stock, in addition to the "common" stock. This "preferred" stock, as compared with the "common," conveys to the stockholder a preference or prior lien over holders of "common" stock on any profits the corporation may earn over current expenses, and makes the condition that the shareholder shall receive out of the first profits dividends at a certain stated percentage. Such dividends on preferred stock are sometimes made "cumulative," which means that if, through lack of earnings at any time, any dividend on the preferred stock is not paid, then such unpaid dividends shall accumulate and eventually be paid if the necessary amount is afterward earned. If the corporation earns more than enough to pay dividends on the preferred stock, then a part or the whole of the profits remaining may be paid in dividends on the common stock.

In addition to a preference over common stock as to dividends, "preferred" stock sometimes conveys a preference as to assets, in case the corporation fails or gives up business. This means that after the debts of the corporation are paid in full, an amount equal to the par value of the preferred stock and any dividends due thereon must be paid to the holders of such stock before anything is returned to the holders of common stock.

The theory of issuing preferred stock may be illustrated in this way. Some parties own or control an invention of value, protected by patents in the United States and other countries. They believe if they can manufacture articles under the patents they can sell them at considerable profit over the cost of manufacture, but have not the necessary capital or funds to purchase land, erect a factory thereon, equip it with machinery, purchase the materials for manufacture into the finished product, and pay salaries, wages and other expenses. So they sell to parties willing to buy $100,000 of "preferred" stock at par, on which the corporation engages to pay dividends at the rate of 6 per cent a year, payable half-yearly, and also to repay the amount invested in the stock, in case the corporation should fail or cease business, provided enough of the assets or resources remain after the debts of the corporation are first paid. At the same time the preferred stock is issued and sold, the organizers or "promoters" of the corporation issue $100,000 of "common" stock, a part or the whole of which they will retain for themselves, as a consideration for their ownership or interest in the patents, and the remainder, if any, will either be sold to the public for what it will bring, or given as a "bonus" or premium to those who buy the preferred stock. The corporation, when fully organized, will have $200,000 capital stock issued; $100,000 of preferred, represented by money actually paid in or by an equal amount of property bought with the money and by cash on hand; and $100,000 of common stock, representing at the outset the hope that the earning power of the business will be sufficient not only to pay the regular dividends on the preferred stock, but dividends also on the common stock. If, in course of time, there proves to be a good demand for the articles made under the patents, that they can be sold at a good profit, and the management of the business is able and honest, the common stock may sometimes prove to be more valuable than the preferred stock, when this is limited to a certain rate of dividends and the profits of the business allow the payment of dividends at a higher rate on the common stock. While this illustration shows the case of a corporation organized to develop the earning power of patents covering an invention, the same principle may be applied to the greater development of the earning power of a business in any line, railroading, manufacturing, mining or any other, which in a smaller way has proved to be profitable, but which needs more capital to increase its earning power. In such organization or reorganization it is now pretty well understood by the investing public that when both preferred and common stock are issued, the preferred usually represents actual money or capital put into the business, while the common represents only the hope of earning power which may or may not be realized, depending largely upon the ability, judgment and integrity of the managers, essentially necessary to the success of business enterprises, whatever their nature.