There is in effect little difference between "income bonds" and "preferred stock," except that upon the former the interest is expected to be paid if earned. The management may decide otherwise, however. Such a bond is usually secured by a pledge of the net earnings of the corporation after payment of interest and sinking fund, if any, upon all indebtedness having a prior claim. An " income bond" may be "cumulative; " that is, if the earnings in any one year do not suffice to pay the interest, the sum lacking is carried forward into following years until paid in full. Also called "Preferred Bonds," or "Preference Income Bonds," if having some preference rights over other issues. They are sometimes redeemed by "sinking funds" and in some instances acquire mortgage rights if interest is unpaid, or if principal is unpaid at maturity. In the case of there being no mortgage rights, "income bonds " are often known as "debenture incomes." If they carry the convertible feature, as set forth under "Convertible Bond," they are termed "convertible incomes."

A bond issue of this nature may have a detrimental effect upon the value of all stocks of a company, as it lessens the likelihood of dividends upon the same.

This is not an investment class of securities. Too much depends upon the board of directors.