These bonds are secured by a mortgage or deed of trust on all the property of the corporation they represent. To redeem these bonds, when due, the company annually sets apart a sum, known as a "Sinking fund," for their redemption.
Such bonds are far safer than any form of the company's stock, for they bear interest that must be met, whether or not dividends are declared.
Every railroad in the country has been built and equipped by the sale of its bonds. In such cases, amounts of stock of the same, or approximately the face value, of the bond have been given to the purchaser as a bonus or inducement. Of course, the controlling stock is always retained by the promoters; and it is through the representation of this stock that all the business of the corporation is carried on. The cases are few where any money was paid directly for the original issue of any railroad stock.
Bonds sold to build a road are usually known as "construction" bonds. There may be another bond issue for equipment -- with a stock bonus -- and still other bonds, each series stating the property pledged and the purpose for which the money from sales is to be used.
The "Christian Herald," in one of its recent financial articles, clearly defines this species of bonds, as follows:
"Railroad bonds are usually pledged by the President and Treasurer of the railroad and by the Trustees, to whom the bonds are made out, and who must defend the rights of bondholders, should the company fail to meet any of the obligations it undertook in the mortgage deed.
