UC-NRLF B 3 214 abE 'I Associations for Provident Investment. ON AVERAGE INVESTMENT TRUSTS COMPANIES DEALING WITH STOCK EXCHANGE SECURITIES, (Foreign and Colonial Government Investment Trusts; I Guaranteed Securities Trusts j Exemplified in / ^^«'»>'>«^ Securities Trusts; \ Railway Share and Debenture Trusts; Gas and Water Trusts; Subscription Trusts, etc., etc. ; Practical Guide to their Formation and Management, An Exposition of tbe financial principles involTed in Stock Excbange Securities and Foreign Government Xoans, and of tbe errors in some Trusts; TABLES ON COMPOUND INTEREST, SINKING FUNDS AND DRAWINGS. ARTHUR SCRATCHLEY, M.A., 0/ the Inner Temple, Barrister-at-Laio, Formerly Felloiv and Sadlerian Lecturer of Queens' College, Cambridge ; One of the Examiners in 1850 and 1851 of the Institute of Actuaries ; Considtinij Actuary to the Tithe Redemption Trust, Corresponding Member of the Central Commission of Belgium on Statistics. 13avtB I.— HF. LONDON : SHAW AND SONS, FETTER LANE, FLEET STREET, E.G. 1875. OF T--^"* ejlsci This Facsimile of the EARLIEST KIV01¥IV BOOK V^— 1^^ Is Reproduced In 1 he ~"^^^S5< O PUBLIC INTEREST ^O BY iLr-irmHr ^ (xJiesenberger & L^otnfjant; MEMBERS OF NEW YORK STOCK EXCHANGE & NEW YORK CURB EXCHANGE 61 BROADWAY, NEW YORK, N. Y. DIVISION VI. of Treatise on Associatums for Provident Investment. ON AVERAGE INVESTMENT TRUSTS AND COMPANIES DEALING WITH STOCK EXCHANGE SECURITIES, I Foreign and Colonial Government- Investment Trusts; I Guaranteed Securities Trusts ; JExemplified in I Municipal Securities Trusts; Railwaif Share and Debenture Trusts; Gas and Water Trusts; Subscription Trusts, etc., etc. ; ■BSmOt A Practical Guide to ttieir Formation and Management, WITH An Bxpositlon of the financial principles InvolTed In Stock £xcbange Seoorlties and Poreig^n Oovemment XoanSi and of tlie errors In some Trusts; AND TABLES OH COMPOUND INTEREST, SINKING FUNDS AND DRANIN6S. ARTHUR SCRATCHLEY, M.A., Of the Inner Temple, Barrister-at-Law, Formerly Fellow and Sadlerian Lecturer of Queens' College, Cambridge ; One of tlie Examiners in 1850 ayid 1851 of the Institute of Actuaries ; Consulting Actuary to the Tithe Redemption Trust, Corresponding Member of the Central Commission of Belgium on Statistics. 5ait6 5.-117. LONDON : SHAW AND SONS, FETTER LANE, FLEET STREET, E.G. itato printer^ anir ^ul>Iii^er;S. 1875. *^* Tlie Author will feel obliged to Secretaries, Managers, and others wlio will forward to liim any Reports, or other Documents which may be useful to add to the materials collated in the present volume. Gift The following Parts will he published shortly : — Part — V.— OF PUBLIC DEBTS, continued. — The Re- arrangement of Foreign Debts. VI.— OF EXPENDITURE TRUSTS. „ VII.— OF OTHER TRUSTS (Colonial, &c.) not dealing with Stock Exchange Securities. „ VIII.— LAW NOTES, and Alphabetical Digest of Cases. „ IX.— OF RAILWAY SECURITIES,— MUNICIPAL SECURITIES, ETC. tvi809541 NOTICE. When advising on matters connected with Joint Stock Companies, we have frequently had occasion to remark the want of a work on the principles and practice of those which invest in Stock Exchange Securities. The object of this publication is to point out the legal and financial elements involved in the constitution of such associations, and to show how united action in dealing with Stock Exchange Securities may advan- tageously be substituted for individual venture. A person, who starts with the intention of purchasing stock for investment, is too often led on to speculation — an evil that has been growing up of late years to an alarm- ing extent. It has also been fostered by the custom of the Stock Exchange, wliich allows persons to buy stock without having suf&cient money to complete the pur- chase, in the hope of a profit by a rise in prices, or to sell without having any stock to deliver, in the fancied prospect of a gain by buying back at a fall ; the results usually happening adverse to their expectations. The House of Commons Eoreign Loans Committee of 1875 has recently published the results of its inquiries VI and removed any doubts as to the propriety of tlie Legislature interfering in such matters. The public recognizes that a service of the most useful kind has been rendered by the light thrown on the operations of the Stock market. Parliament might possibly have inquired with advantage into the circumstances attending the issue of other Foreign Loans, but the cases taken are typical enough and exhibit the general character of the system. Circumstances are changed, however, und the history of the past, with its details of recklessness and waste, is not likely for some years to be repeated. The uncertainty attending individual dealings with Stock Exchange Securities is forcibly exemplified by the recent collapse in the payment of the Turkish Debt, following as it has done almost immediately on the minor failure at Uruguay. These additions to the list of Defaulting States, which we have given in Part III., though not unanticipated by the experienced few, have in respect to Turkey fallen with sudden severity on the investing public. The moral they show is, that no such investments can be regarded as other than speculative, unless spread over a large range of Securities, and as we have pointed out in Chapter III., Part I., it is wrong, or at all events unwise, to pay away apparent profits in the earlier years of any Trust, when a long period of its future existence has yet to be provided for. Bv these disastrous events the further lesson will be taught that a better chance of profit on money is to be found in the wide field of Home investments, or at least in those which afi'ord tangible property as a guarantee vu rather than the promises of Governments, that may have the will hut not the power or means of performing what they undertake. In this puhlioation, Trust Associations, or Average Investment Punds, have, with a view to simplicity, heen separated into three classes according as they are con- stituted — (1) hy a Deed of Trusty (2) hy incor'poration as Companies with a capital in shares, (3) or as Subscription Trusts working mainly with the small subscriptions of members. This last kind having much to recommend it if con- ducted after the manner of the hest class of Bmlding Societies, which have been so successfully developed in this country. "We have to acknowledge the valuable assistance we have received from Mr. Edward A. Scratchley, of Lincoln's Inn, in the analysis of the various Trusts and statistical facts furnished. 2, PlOWDBK BxriLDINGS, TbMPLE, Novfimher, 1875. POSTSCRIPT TO Mr, Scratchley^s Practical Treatise on "^Average Investment TVusts and Companies dealing with Stock Exchange Securities, December, 1875. The decree of the Turkish Government, by which the payment of a portion of the amount becoming due for Interest and Sinking Fund on the pubHc debts of tliat country is suspended, having been issued as the sheets of this work were passing through the press, the follow- ing concise view is appended of the Redeemable loans raised by Turkey from 1854 to 1871 inclusive (but ex- clusive of the ordinary 5 per cent, debt of 1865, the Gruaranteed loan of 1855, and the loans after 1871). It shows some remarkable facts : — 1st. — That, although the total Nominal amount of these Redeemable loans was £59,932,040, the money which Turkey actually -received at the issue prices was but £39,811,581. The Bonus thus given on the bonds being over 20 millions. [• Messrs. Shaw and Sons, Fetter Lane, London, 1875, price 6*.] 2 POSTSCRIPT TO "AVERAGE INVESTMENT TRUSTS. STATE- The Loans to Turkey effected before 1872 and Bonds not being considered fully The Guaranteed Loan of 1855 and the General Year of Loan. 1854 1858 1860 1862 1863-4 Nominal amount of Loan issued. 1865 Muttons ' 1869 " Cohens 1871 8,000,000 (Mr. R. B. Martin.) 5,000,000 2,009,820 (^Mr. E. B. Martin.) 8,000,000 {Mr. R. B. Martin.) 8,000,000 {Mr. R. B. Martin.) 6,000,000 {Mr. Eyken.) 22,222,220 {Mr. Eyken.) 5,700,000 Prices of issue per cent. 59,932,040 80 85 and 62i 62i 68 72 and 68 65^ 60^ 73 Divi- dend Sinking Fund Year by Contract for last 1 per cent. per cent. repay- ^ uient. 6 1 1889 6 1 1892 6 1 1896 6 2 1886 6 2 1886 6 2.44 1886 6 1 1902 6 1 1905 [Against any special figures the names of the latest authorities are inserted, namely, the chairmen of the meetings recently held. The total cost of each loan would appear somewhat higher if the discount at the time of issue and interest for fractions of bonds undrawn eachyear were included.] POSTSCRIPT TO " AVERAGE INVESTMENT TRUSTS. 6 MENT OF redeemable at par. The later ones arc omitted, the placed with the Public. 5 per cent, debt are also not included. Money Turkey received on each Loan at price of issue. Total money remitted by Tur- key on each Loan up to the present time, reckoned only from the date of the first drawing in- clusive. Reduced amount Turkey would still owe on each Loan if the money it actu- ally received had been an ordinary •borrowing at 6 per cent, without Bonus. Amount still due by Turkey, represented by the discounted values of the remaining annuity repay- ments, covering Dividend and Sink- ing Fund, which it has covenanted to pay. 2,400,000 8,500,000 1,256,138 5,440,000 5,680,000 ] 8,930,000 18,444,443 1 4,161,000 £ 3,885,000 6,425,000 1,688,244 8,000,000 7,680,000 4,810,800 8,555,553 1,197,000 £ 266,034 73,605 131,792 r [Nothing due ) but overpaid \ 276,813] 529,800 531,688 8,648,638 3,685,561 £ 1,995,759 3,728,351 1,667,237 .5,099,813 5,261,955 4,163,522 20,824,547 5,524,937 ' 39,811,581 41,241,597 13,867,1181 48,266,121 [* The money actually advanced carrying 6 perpent. interest, from which is deducted the repayment annuity, remitted each year, by a debtor and creditor account.] [t In this column the Loan of 1862 is omitted in the casting, as at 6 per cent, without Bonus it would be overpaid.] 4 POSTSCRIPT TO " AVERAGE INVESTMENT TRUSTS." 2nd. — In repayment of these advances up to the present time £41,241,597 has been remitted by- Turkey for dividends and sinking funds, reckon- ing only from the respective dates at which the first drawing occurred on each loan. 3rd. — Nevertheless by the contracts there is still a debt of £48,266,121 outstanding; this being the equivalent discounted value of the repayments that Turkey has to make for the various unex- pired terms of years. The unsatisfactorily heavy nature of these contracts becomes very striking when the amount, yet to be paid in respect to any one of these loans, is compared with what would be due, if the transaction had been an ordi- nary advance at 6 per cent, interest per annum on the actual money lent to Turkey, without any Bonus. Taking as an example the 6 per cent, loan of 1865 (termed the " Muttons") — on which Turkey received £3,930,000 cash, while bonds were issued for £6,000,000 • — the table shows that the amount already remitted by Turkey on that loan is close upon five millions (£4,810,800), and that as a mere 6 per cent, debt the balance still owing would be but £531 ,688 ; whereas the outstanding debt by its contract is still £4,163,522. Viewed in the same manner, the total amount, which Turkey would owe now on these Eedeemable loans, would be under 14 millions (£13,867,118.) CONTENTS. PAGE Notice ....----v PART I. PRELIMINARY OBSERVATIONS. Section 1. — Origin of Trust Associations --1 Nature of Trust Associations 2 „ 2. — Opinions of Public Writers and Others 3 Bondholders Committee's Report 5 ^^ 3. — Of the usefulness of Trust Associations 7 Amounts of Public Securities 8 Fixed and Variable Dividends 9 Evils of Speculation 10 PART I. {continued). Chapter I. — The Original Trust. Section 1.— The Prospectus of 1868 12 ,, 2. — The first Contract and subsequent Issues - - - - 15 Fluctuation in Prices 16 „ 3. — Progress of the Original Trusts 18 Report of the fourth issue in 1875 ----- 19 Report of the fifth issue of 1875 20 Chapter II. — Of Existing Trusts. Section 1,— Names with details of Capital and leading features - - 21 Names of Trustees and Directors 22 „ 2. — Rate of Profit reported -------- 34 h CONTENTS. Chapter III.> — Of some Defects in Existing Trust Associations. PAGE Secticw 1.— Objections to a Premature System of Drawings - - - 39 „ 2. — Of Reserve Fiinds and Contingencies of Loss - - - 40 „ 3. — Of the Unequal EflFect of Drawings when of Fixed Amounts 42 „ 4. — Of the wide field for " Trust " operations - - - - 44 Necessity for Reserves -------45 Extent of Public Securities 46 PART II. OF THE PRINCIPLES OF NEW TRUST ASSOCIATIONS. Chapter I. — Plan of a Trust Company with Shares. Section 1.— The Debenture Trust Company (Limited) - - - 51 Chapter II. — Of New Trusts {continued). Section 1. — Subscription Trusts with or wdthout Share Capital - - 56 ,j 2. — Of the rate of Premium charged in place of Interest and of Valuations ----..---59 „ 3. — Regulations of Subscription Trusts - - - - - 60 Debenture Funds 60 Certificates ---------61 Security to Subscribers 63 Formation of Funds 63 Securities -----_--- 63 Remarks ---64 „ 4. — Other provisions of Subscription Trusts - - - - 65 Of Advances and Investments 65 Principal Clauses : — Members --------66 Funds 67 Loans -..-----67 Profits 68 Transfers 68 Withdrawals -------69 CONTENTS. XI Section 4. — Principal Clauses — continued. PAGE Votes 69 Officers 70 Directors 70 Accounts --- 71 „ 5. — Future Subscription Trusts 72 Modifications recommended 72 „ 6. — Of Tontine Bonuses and Subscription Shares - - - 73 „ 7. — Of some Special kinds of Trusts that may be formed with advantage 75 Eeal and Leasehold Property Investment Trusts - - 75 Annuity Trusts -- 76 Deferred Securities Trusts 76 Chapter III. — Of New Trusts [continued). Section 1. — Of the kind of Share Capital for Trusts, of Preferred and Deferred Shares, and of Trusts Limited by Guarantee - 76 Share Capital Kedeniptions - - - - - - 78 „ 2. — Of the Privileges of Founders and Expenses of Management 79 „ 3. — Of Erroneous Dividends and Deposits 80 Public Securities, Investment Companies, and their Profits 81 PART III. THE DEBTS OF NATIONS. Chapter I. — The Debts of Nations. Section 1. — Their Amount and recent Progress 87 Summary of their Total Indebtedness - - - - 88 J, 2. — Foreign Loans on which Default has been made - - - 90 Chapter II. — Particulars of the Debts, Population, Area, Im- ports and Exports, etc., of each Country. Summary of the Fluctuations in the prices of Consols from 1730 to 1875 - - 93 Xll CONTENTS. PART IV. OF THE TERMS ON WHICH FOREIGN DEBTS HAVE BEEN CON- TRACTED, AND THE FINANCIAL PRINCIPLES INVOLVED. Chapter I. PAGE Section 1. — Of Sinking Funds, Loan — Repayments and Drawings - - 129 Sinking Fund Table- - 130 Practical Rules for calculating the same - - - - 131 Misconception as to Sinking Funds 134 As to a " 51 years" Repayment by Drawings Table - - 135 „ 2. — Of Foreign Debts, with illustrations of the cost thereof to the State borrowing 137 Specimens from the Turkish and Egyptian Loans - - 138 The terms of the Egyptian Loan of 1868 examined - - 139 „ 3. — As to Profit to Lenders 140 J, 4. — On the cost to bonowing States (continued) - - - - 142 The Turkish " Muttons " Loan of 1865 examined - - 142 The Turkish "Cohen" Loan of 1869 - - - -142 Reckless nature of Foreign borrowings - - - - 143 Of Lottery-drawings 145 Further note on the cost of the Egyptian Loan of 1868 - 146 Particulars of some Loans expensively contracted - - 147 Of the Usurious terras involved - - - - - 148 „ 5. — Alternative measures proposed 149 Note on Foreign and Municipal Lottery Loans - - - 150 Popularity of Drawings 150 Of the Doubling of Money at 10^ per cent. - - - 151 Saving to Egj-pt if the 1868 Loan had been redeemable in 18^ years instead of in 30, vnih a dividend stock paying 6 per cent, and Bonus 152 Chapter II. — Of Dividends and Drawings in Foreign Stocks. Sectiijn 1. — The relative values of Dividends and Drawings ... 153 Table showing the value of Dividends and Drawings - 154 Comparison of Market prices with the same - - - 155 „ 2. — As to Stocks at a Premium which are reileemable at par - 156 Table showing the values of the same - - - - 158 CONTENTS. XIU PAGE Section 3- On the effect of the surplus of Dividends, over a security rate of 4 per cent, per annum, in replacing Capital paid for Stocks 159 Table showing the same 160 Illustrations of Capital returned by surplus dividends 161 Chaptee III. — Tables [continued). Section 1. — Memoria Technica Tables 163 Property of the number 70 and the Doubling of money - 163 Table showing the accuracy of the Rule - - - - 163 Doubling periods 164 Savings Fund Table 165 „ 2. — Suggestions with respect to Loans ------ 166 Alternatives for raising money at par on temporary or perpetual Stocks, so as to produce either fixed or in- creasing incomes -------- 166 jj 3. — Of the present values of Decreasing and Increasing Annuities 167 Rules for calculating the same 167 h 2 LIST OF TABLES. 1st. series. I. SINKING FUND TABLE. Showing the annual Sinking Fund {set aside in equal parts at the end of each half-year) which will amount to jSIOO at various rates of interest. II. " 51 YEARS' " DEBENTURE REDEMPTION TABLE. III. TABLE Showing the values of bonds carrying £6 and £7 dividends a year respectively , with £100 par value receivable by Drawings at the end of uncertain periods of years. [Discounted half- yearly at 6 and 7 per cent, per annum respectively .'\ IV. STOCKS AT A PREMIUM.— TABLE Showing the prices of Stock, corresponding to the rate of interest desired to be made on Stocks above par, and which produce half- yearly dividends at 5, 6, and 7 per cent, per annum. The Stock being redeemable at par or £100. V. SURPLUS OF DIVIDENDS OVER 4 PER CENT.— TABLE. If £100 be laid out in a purchase of Stock producing equal Divi- dends half-yearly, and the surplus of Dividends over £4< interest be applied half-yearly to write off Capital, then the amounts of Capital returned will be according to the amount of Dividend received for the £100. Xvi LIST OP TABLES. " MEMORIA TECHNICAL TABLES. VI. Table Showing the periods in which £100 or any other sum will double itself by the Rule dependent on the Number 70. VII. SAVINGS FUND TABLE Showing the savings per annum invested half-yearly^ which will amount to £100 at the end of any number of periods, using the accurate time in which a single sum of money would double, according to the rates of interest at which they are laid out half-yearly. 2nd series. TABLES FOR AN AVERAGE INVESTMENT TRUST, WITH SHARE CAPITAL ; AND ISSUING BONUS INVESTMENT BONDS AND BONUS INVESTMENT CERTIFICATES. These Tables are calculated on the basis of Bonds and Certificates of £100 each, but in many cases Bonds and Certificates of £25 and £30 each may be found more convenient. CLASS A. — Bonus Lttestment Bonds. Table showing how a Trust with a Fund of £100,000, making 6 per cent, per annum, clear of expenses, and paying 4 per cent, to the Bondholders, could after 8 years pay off 70 Bonds a-year, the Bonds drawn getting £120. A considerable surplus will remain, from the Compound Interest not included, available for residuary Allotments to the Shareholders. LIST OF TABLES. XVll CLASS B. — Bonus Investment Bonds. Table showing how a Trust with a Fund of £100,000, making 6 per cent, per annum, clear of expenses, and paying 4^ per cent, to the Bond- Jiolders, could after 7 years pay off 70 Bonds a-year, commencing at £115 pe7' Bond, and increasing £1 for each year's delay. The Bonds drawn in the last (21st) year getting £128. A considerable surplus tvill remain, from the Compound Interest not included, available for residuary Allotments to the Shareholders. CLASS C. — Doubling Accumulative Bonds. With Contingent Bonuses. Table showing how a Trust, which makes only 5 per cent, clear of Ex- penses, could, out of an Accumulation at Compound Interest, return £200 for each £100 Bond, by Annual Drawings commencing at the end of the IQth Year. If the Trust mads a higher rate clear of Expenses, it could set aside the Surplus towards Triennial Allotments of Additional Contingent Bonuses. The Table is given on the basis of £100,000 Fund in 1,000 Bonds of £100 each returnable by £200,000 drawn at the rate of 100 Bonds a Year. Class D. — Bonus Investment Cektificates. Realisable by Monthly or other Periodic Subscriptions. Table showing the Amount that may be received back in Principal and Interest {accumulated half-yearly at 4 per cent, per annum), at end of different terms of years, for £100 paid in, apart from the Bonuses to be allotted at Triennial Valuations of Profits, but payable on com- pletion of the Certificates. XVIU LIST OF TABLES. 3bd series. The following Tables are extracted from the Building Society Treatise as likely to be of service in "Trust^^ operations ; TABLE I. Showing the Decimal corresponding to every Penny in the Pound. TABLE 11. Showing the sum per Pound to which a Pate of Interest per cent, is equivalent, TABLE ni. Showing the kate of Interest obtainable from £S per cent, stock for £100 cash invested according to the price of the day. TABLE IV. Showing the Amount to which £100 Principal will increase at ^various Rates of Compound yearly Interest. TABLE V. Showing the Puites of interest payable only once a-year, which are equiva- lent to nominal annual rates of Interest actually paid at frequent intervals in each year. TABLE VI. Showing the nominal Annual Rates of Interest paid momently, uhich are equivalent to rates paid at the end of each year. LIST OF TABLES. XIX TABLE VII. Shoiving the Amount to which £100 xcill increase at Compound Interest, according as it is paid yearly, half-yearly, quarterly, or momently. [See TabU IF.] TABLE VIII. Time in which Money will double itself at Simple or Compound Yearly Interest. TABLE IX. Showing the present Value of dBlOO payable at the end of any number of Years, at various Rates of Interest. TABLE X. Showing the Amount to which an Annuity of £100, paid at the end of each year, will accumulate at Compound Interest. TABLE XI. Showing the present Value of an Annuity of £100 payable at the end of each Year. TABLE XII. Showing the yearly annuity which £100 ivill purchase for a given number of Years. TABLE XIIL Present value and amount of £100 payable at end of any number of years at 2i per cent, and 3^ per cent. Present value and Amount of an Annuity of £100 payable at end of each year at 2^ per cent, and 8 J per cent. XX LIST OF TABLES. TABLE XIV. Present value of an Annuity of £100 per annum, for a given member of years certain, supposing the Purchaser to take out of the annuity 5 per cent., 6 per cent., or 7 per cent, per Annum as Interest on his Pur- chase Money, while he is enabled to Re-invest the Surplus of the An- nuity beyond the Interest, so as to make 3 per cent., 4 per cent., and 5 per cent, thereon, in order to replace the Purchase Money by the end of the number of years. TABLE XV. Specimen of Deposit Tables, for Savings Banks and Industrial Associations, showing — 1. — The Amount to which a Deposit of ^100 will accumulate at the end of any number of years up to 10. 2.— The Amount to which a Deposit of £10 per annum will accumulate at the end of any number of years up to 10. TABLE XVI. Extract from the Tables of Logarithms. TABLE XVn. English Life Table No. 8. Interest 3 per cent. (Calculated by the Registrar-General from the Returns for 17 Years.) AVERAGE INVESTMENT TRUST ASSOCIATIONS. PART I. PRELIMINARY OBSERVATIONS. Section 1. — Oridaon, James, Esq. - Gooch, Sir Daniel, Bart., M.P. - Grey, Sir William, K.C.S.I. - Grosvenor, Geo., Esq. - - . Guild, John, Esq. . . . Habicht, C. E., Esq. - Harrison, R. P., Esq., C.S.I. Harvey, E. A., Esq. Hartley, J., Esq. - - . . Hawes, Wm., Esq., F.G.S. - Hay, Rt. Hon. Lord W. M. - Hay, Lord John - - - . Headlam. Rt. Hon. T. E., M.P, - Hester, John Cooke, Esq. Heyworth, Major L. - - Hind, Henry Chas., Esq. Hornby, Admiral W. W. Isbister, A. K., Esq. Johnston, A., Esq., M.P. Jones, Wm., Esq. Jeune, Francis, Esq. ... Kennedy, Matthew, Esq. Kinnaird, Hon. A., M.P. Laing, M. A., Esq. Laing, S., Esq., M.P. - Leeman, Geo., Esq., M.P. Leggatt, Daniel, Esq., LL.D. Lewis, C. E., Esq., M.P. Lloyd, John H., Esq. - Lord, Walter J., Esq. - Mackenzie, R., Esq. - . . Macpherson, D., Esq. - Maitland, G. G., Esq. - Mar, Rt. Hon. Earl of - Martin, R. B., Esq. - - Massey, Rt. Hon. W. N,, M.P. Moring, Thos., Esq. Monck, Rt. Hon. Viscount - Mulkern, E. C, Esq. - Mundella, A. J., Esq., M.P, - Murray, Sir John, Bart. Otway, A., Etq., M.P. Paget, Rt. Hod Lord Alfred Palliser, Major Sir W., C.B. - Patterson, John, Esq. - Pelly, Capt. R. W., R.N. - Pender, John, Esq., M.P. - Pre-Grenfell, P. Du - Raikes, Henry Cecil, Eaq. Ravenscroft, H. Esq. - Rawson, Philip, Esq. - Rayner R., Esq. - - . Riddell, Francis, Esq. - Rolls, Edward J., Esq. Rose, Sir Philip, Bart. - Ross, Edwd., Esq. Runtz, John, Esq. Ryder, Granville R., Esq., M.P. Sandford, G. M. W., Esq., M.P. Sebay, Joseph, Esq. Sharp, John, Esq. Shields, F. W., Esq., M.I.C.E. Smith, Thos., Esq. Surtees, C. F. Esq. Talbot, J. G., Esq,. M.P, - Taylor, Wm. L., Esq. - Thwaites, Wm., Esq. - TrewheUa, H. E., Esq^ M.D. Trotter, W., Esq. Vaughan, General, C.B. Walker, Wm., Esq. Walpole, Hon. F., M.P. Watkin, Sir E. W., M.P. - Wetherill, Chas., Esq. - Wilbraham, R. W., Esq. Wood, Alex., Esq. Wythes, G. E„ Esq. - 23 Names and particulars of existing Trusts. I.— June, 1871. —The Submarine Cables Trust, capital £1,000,000 in shares of £100 issued at £90. II.— Jan. 1872.--The Government Stock Investment Company (Limited) . 1st Issue. Capital ^1,000,000 in Shares of £100, bearing 6 per ceut. interest, issued at par. June, 1872. — The Government Stock Investment Company (Limited.) 2nd Issue. Capital £1,000,000 in Shares of £20, bearing 6 per cent, interest, issued at par. Jan. 1873. — The Government Stock Investment Company (Limited) . 3rd Issue of 7,137 Shares (being the remainder of 25,000 Shares) of £20 each, bearing 6 per cent interest, issued at par. The amount of preliminary expenses are fixed by contract, under which every expense is guaranteed, including advertising, printing, brokerage , a^ valorem and other stamps, legal and all and every expense up to the date of allotment of tbe Shares of the Company, and also all expenses which the Company may incur in purchasing and ' transferring the Stocks or guaranteed undertakings on which the capital is to be invested at a commission of £2 per cent, on the nominal amount of Stocks purchased. At the general meeting of the shareholders, held in March, 1875, the chairman called attention to the continuously prosperous condition of the Company last year which had resulted in a net balance in favour of £46,837 2s. 4d., which enabled them to pay the dividend of 6 per cent, for the year, amounting to £34,139 17s. From the balance remaining the directors had placed £3,000 to the reserve fund, raising it to £10,000, and carrying forward £8,834. III.— Feb. 1872.— The Share Investment Trust. Capital £500,000 to £2,000,000 (£560,000 subscribed) in Shares of £100, bearing 6 per cent, interest, issued at par, and redeemable at £110. For- mation expenses, limited to 2 per cent, on the price of Securities purchased or taken over, and management expenses to £2,500 per annum. 24 PAETICULARS OF EXISTING TllUSTS. It is stated of this Trust, " that the original cost of the Securities held by the Trust, at March 1874, was ^£558,290 8s. 2d. ; of this total it is estimated the amount not yielding revenue is £31,363 3s. 2d ; leaving as present amount of productive capital £526,927 5s. The present selling price of the Certificate is as follows : — 5,525 Preferred Certificates (75 having been drawn and paid off at 68, £375,700; 5,600 Deferred Certificates at 7, £39,200 ; total £414, 900 — that is to say, the selling price of the whole of the Preferred and Deferred Certificates at the present time is £414,900, while the estimated amount of the productive capital held by the Trust is £526,927, showing an apparent depreciation of value in the securities held by the Trust to the extent of £112,027." To pay the 6 per cent, interest on the Preference Certificates, it is reported that the value should be, " Preferred Certificates £76 2s. ; Deferred Certificates, £19 Os. 6d." The paying off of the Preference Certificates from revenue increases value of the Deferred ; the Preferred Certi- ficates, at the market price, pay an investor 9 per cent., added to the chance of a drawing at the price of £] 10 per Certificate. The report of the Trustees to the fourth yearly meeting of Certificate-holders, lOth May, 1875, stated — " No dividend has been received on four of the original investments. "The revenue received up to March 15 was £38,722 8s. Zd., from which is deducted £2,300 for expenses of the Trust, and £33,150 for the 6 per cent, interest on the Preference Certificates, lea\'ing £3,190 for the redemption of 29 Certificates at £110 each, which, with the 75 already redeemed, make a total of 104 Certificates cancelled." Mr. Abbott states that the Share Investment Trust Preferred Certificates at £76 pay 8 per cent, while the usual drawing at £110 takes place in April, also, that a careful examination of the property of the Trust gives a clear value of £83 per Preferred Certificate, and about £12 for the Defeixed, quoted at £10. IV. — June 1873. — The Governments and Guaranteed Securities Permanent Trust. 1st Issue. Capital £1,000,000, in Shares of £100, beai'ing 6 per cent, interest, issued at £94. April 1874.— 2nd Issue. Capital £1,000,000, in Shares of £10, £50, £100, £500, issued at the rate of £84 for each £100 Share, and bearing Interest at the rate of £5 19s. per cent TARTICULARS OF EXISTING TRUSTS. 25 " The working expenses of the Trust are restricted to an annual sum not exceeding in any one year one-half per cent of the nominal amount of the Fund subscribed. The Trustees have signed a contract under which all preliminary expenses, inclusive of brokerage on the original purchases, stamps, advertisements, legal expenses, and all charges are undertaken for 1^ per cent. on the nominal amount of the Stocks and Securities pui'chased." V. — February 1873. — The Scottish American Investment Trust. 1st issue. Capital ^£300,000, in shares of ^100, bearing 6 per cent, interest, issued at j^ar. Sept. 1873.— 2nd issue. Capital ^400,000, in shares of ^100, bearing 6 per cent, interest, issued at par. Management expenses are limited to a sum not exceeding £1,400 per annum. VI. — March 1873. — The Mortgage Debenture and Government Securities Trust. Capital £1,000,000, in Shares of £20 issued at par. Formation expenses are estimated not to exceed 1 per cent, on the nominal capital VII. — March 1873. — The American Investment Trust. Capital £750,000, in Shares of £100, bearing 6 per cent. Interest, issued at £95, and redeemable at £105. Preliminary expenses £2 per cent, on the nominal amount of Stocks purchased, and working expenses limited to £2,500 per annum. The following extract from the report of the trustees shows the position of the trust in 1875 : — " The revenue of the past year has suffered in consequence of no interest having been received upon the bunds of the Detroit and Milwaukee, the Oilman, Clinton, and Springfield, Missouri, Kansas, and Texas, and Mobile and Montgomery railroads, and upon the shares of the Michigan Central railroad company, and from only one half-year's interest having been received upon the Canada Southern, Toledo, Peoria, and Warsaw, and Toledo, Wabash, and Western railroad companies; but, notwithstanding these defaults, the interest which has been received during the year ended on March 15, 1875, has E 20 PARTICULARS OF EXISTING TRUSTS. been sufficient to pay the interest on the certificates of the Trust and expenses, and to leave a surplus of J2,368 85. 7d., ■which, added to the amount of £623 6s. M., received from bonds drawTi, and £40 \s. lOd. interest uninvested from last year, makes a total surplus of £3,031 17s. Id., as shown in the revenue account, and which, in pursuance of clause 17 of the trust-deed, will be invested by the tnistees under the advice of the committee of certificate-holders, to be held by the trustees upon the Trusts of the reserved fund. After the 15th of March, 1876, the surplus revenue of each year will be available for the redemption of Trust certificates, at the price of £105." The Chairman, in mo\ang the adoption of the report, said that almost simul- taneously with the completion of the investment of the Trust, business in the United States of America entered upon a period of depression almost unequalled in their recollection, and circumstances occurred most seriously detrimental to the traffic of many railways in which the money of this Trust was invested. He thought that, on the whole, they might congratulate themselves upmi the soundness of the scheme in 'which they had embarked, for, notwithstanding the serious defaults alluded to in the report, they were able to divide the full dividend upon the certificates, in addition to putting a considerable amount to reserve. VIII. — March 1873. — The Anglo-American Railroad Mortgage Trust. Capital £1,000,000, in Shares of £100, bearing 6 per cent. Interest, issued at £85. Preliminary expenses 2 per cent, on nominal amount of capital sub- scribed, and ordinary working and management expenses fixed at J per cent on nominal amount of capital. IX. — March 1873. — The Railway Debenture Trust Company (Limited) . Capital £3,000,200, in Shares of £20, bearing 6 per cent. Interest. — 1st issue. — £1,000,000 at par, and 200 Founders' Shares of £l. Directors' allow- ance £2,000 per annum, and 5 per cent, extra on net profits of any year in which a Dividend of not less than 6 per cent, is paid.; Founders undertaking to pay all preliminary and other expenses, up to and including allotment and issue of the Shares in consideration of receiving 10 per cent, on the net profits in every year in which not less than 6 per cent, is declared on the whole of the paid up capital, and after provitUng for the Directors' allowance. PARTICULABS OP EXISTING TRifSTS. 27 July 1873.— 2nd issue. — ^500,000 5 per cent. Debentures at £95, and redeemable at £110. May 1874. — 3rd issue. — £500,000 5 per cent. Debentures at £97, redeem- able by Annual Drawings in 51 years, at £110 by a cumulative Sinking fund of J per cent, per annum. The 1874 Prospectus states : " By the Articles of Association, all moneys raised by the issue of Debentures are to be invested in Mortgages, Debentures, or Obligations of Railways (or to an extent not exceeding one-fourth in the Debentures of other undertakings, such as Docks, Waterworks, Gas, Telegraphs, &c.). These Investments are selected with peculiar care, and under the condition that no more than one- tenth of the Capital raised is ever to be invested in any one security, "In addition to this, the £1,000,000 of Share Capital, half of which is paid up and invested, and half remaining to be called, will constitute a Guarantee Fund for the Debentures. All Capital raised by this and other issues of the Company's Debentures (which are limited by the Articles of Association to £5,000,000 for each £1,000,000 of Share Capital) will rank pari passu as a common preferen- tial charge on all the securities, as well as on the entire Share Capital. " From the investment of the £500,000 of paid-up Share Capital, and the £500,000 Debenture Capital already issued, the Directors were able at the first Annual General Meeting held in February, 1874, to declare a dividend at the rate of 7 per cent, per annum, carrying forward the sum of £14,323 6s. 2d^ " It may safely be said, therefore, that the Debentures of this Company prac- tically represent an investment in a careful selection of good Railway and other Debentures, with a margin so large as to make it a security wliich may be fairly classed with that of the Debenture Stocks of the leading British Railways, the return on which barely yields 4 per cent, per annum, while that of the Debentures now offered, at the price of issue is above 5 per cent., without taking into consideration the premium on the amortisation amounting to 13 per cent." X. — April 1873. — The Railway Share Trust Company (Limited) . Capital £2,000,200, in Shares of £20, £1,000,000 in " A " or Ordinary Shares, and £1,000,000 in " B " or Preference Shares. 1st issue.— £1,000,000 " A " Shares at par, and 200 Founders' Shares of £1 (to be fully paid up at once). 1. The "B" Shares are to be fully paid up and will bear a fixed Preferential Interest, They will«€'j;er exceed the number of "A " Sharesiorthe time being issued, and on which one half will have been paid up. 28 PARTrCULARR OF EXISTING TRUSTS. 2. The "A" Shares will thus give a practical guarantee for the punctual payment of the interest on the " B" Shares. 3. The investment of all capital is limited to approved Shares or securities of Railway Companies, or, to an extent not exceeding one-fourth of the whole, of other undertakings, but no more than one-tenth of the amount raised is ever to be invested in any one security. 4. The remuneration of the Directors is made mainly contingent on profits, the fixed allowance being limited to ^2,000 a year, in addition to which they are to receive 5 per cent, upon the net profits (after deducting preference interest) of any year in which a dividend of not less than 7 per cent, is paid to the "A" Shareholders on the paid-up Share Capital. 5. The Founders guarantee the subscription of ;£700,(X)0 out of the first issue of ;£ 1,000,000 'M " Share Capital. They further undertake to pay all preliminary and other expenses up to and including the allotment and issue of the shares in consideration of receiving 10 per cent, of the net profits (after deducting preference interest), in every year in which not less than 7 per cent, dividend is paid to the "A" Shareholder on the paid up share capital, and after providing for the Directors percentage. This arrangement, by which the Founders undertake such large immediate liabilities for a share of prospective profits — payable only after a remunerative dividend has been earned — proves their entire confidence in the success of the undertaking, .and gives the advantage to the Company of com- mencing with its Share Capital intact. Feb. 1874.— 2nd issue.— ^500,000 in " B" Shares of ^'20, beaiing six per cent, interest, issued at par. The reports and accounts (January, 1875) of the Railway Share Trust Company and the Railway Debenture Trust Company (Limited) are interest- ing, especially from the fact that both Trusts possess the .same directorate, and work for each other. Between them they made a profit of ^166,609, the larger haK of which, £89,000, falls to the Share Trust Company, wliich holds over £300,000 less investments than tlie Debenture Company. A paragraph in the report explains matters. The Share Trust Company made the larger part of its profits from " commissions and other business," and not merely from invest- ing the funds intrusted to it. The Share Company pays 8 per cent, and the Debenture 7 per cent, for the year. XI.— July 1873.— The Globe Telegraph aud Trust. Original Capital £3,000,000, divided into 150,000 6 per cent, preference shares of £10 each (interest payable quarterly), and 150,000 ordinary shares of £10 each (interim dividends contingent on profits payable quarterly). PARTICULAES OP EXISTING TRUSTS. 29 May 1875. — The Shareholders sanctioned an increase of the Capital (therehy raising it to £5,000,000), by the issue of 100,000 new ordinary shares of £10 each, and 100,000 new preference shares of £10 each, to rank equal to, and be entitled to the like privileges as attached to the existing ordinary and preferred sliares. Mr. W. Abbott (who undoubtedly possesses great knowledge of the subject) points out tliat in July, 1873, the holders of £849,354 Anglo-American Telegraph Stock transferred it to the Globe Telegraph and Trust Company, against which they received equal amounts -of 6 per cent, preferred and ordinary shares, tlie latter, in Stock, is now worth £60, and the former £102^ averaging 81^, whereas those who did not join the Globe now see their property sellihg for £64 — a reduction of 17^ per cent., or as much as 21 per cent, on the money value. Applied to the whole of the £7,000,000 of capital of the Anglo-American Company, the comparison would give an increased value to that stock, if in the Globe, of no less than £1,207,500, and, including the Eastern and Eastern Extension, the formidable total of £1,652,106 is attained as the result of the increased security afforded by means of the Globe Telegraph and Trust Company. The importance of such a combination as the Globe Company as affecting telegraph property may be also shown by the following statement: — "The investments in Eastern, Eastern Extension, German Union, Indo-European, and Submarine Cables Trust, give an average yield of 6 per cent. The holding of Anglo-American, amounting to £849,354, has, however, owing to an exceptionally large amount having been carried to renewal account in the past year, only brought in 5 per cent, to the Trust, thus showing, in respect of this investment, a deficiency of 1 per cent., or £8,493. Against this, however, is to be set the dividend on the 4,647 shares in the Telegraph Construction Company, which cost £167,761 ; 6 per cent, upon this amount would be £10,065, whereas it has yielded to the Trust during the past year £25,094, and deducting the 6 per cent, there remains £15,029 to meet the £8,493 deficiency on the Anglo-American investment, thus leaving a surplus of £6,536, after allowing for 6 per cent, dividend on both preference and ordinary shares. Another favourable feature in connection with the Globe Company is the fact that the directors have exchanged with the Telegraph Construction Company £250,000 of the ordinary shares for an equal amount of Brazilian Submarine Shares, and, according to the market quotations, that operation gives an enhanced value in favour of the Globe Company of £31,250, besides which there is the further advantage that there has been no fresh issue of preference shares against this ordinary capital. Such facts as the foregoing make the Globe ordinary shares rank as the cheapest Telegraph Stock in the market." 30 PABTICULAES OF EXISTING TRUSTS. The prospectus of 1875 stated that: — " The preference shares have attracted to telegraphic property a new class of investors, whilst the combined niaiket values of the preference mid ordinary shai-es of this company have been uniformly in excess of the market values of the shares taken in exchange. The preference dividend is cumulative; that is, if a deficiency should occur in any year it will be made up out of the profits of subsequent years." XII.— November 1873.— The Gas and Water Debenture Trust Company (Limited). Capital £2,000,200, in shares of £20 (and 200 Founders' shares of £1 each, to be paid up in full). 1st issue.— £1,000,000 in shares of £20 each at par. No promotion money is to be paid ; and the founders of the Company under- take to pay all preliminary and other expenses of its establishment, and to guarantee the subscription of two-thirds of the present issue (being the amount required by the rules of the Stock Exchange for obtaining an ofl&cial quotation) in consideration of recei\ing 10 per cent, of the net profits in every year in which not less than 7 per cent. Di^ddend is paid on the entire paid-up Share Capital. This arrangement not only assures the successful foundation of the Company, but enables it to start with its Share Capital intact. The remuneration of the Directors is made mainly contingent on profits, the fixed allowance being limited to £2,000 a year, in addition to which they are to receive 5 per cent, upon the net profits of any year in which a Dividend of of not less than 7 per cent, is paid to the Shareholders. XIII.— December 1873.— The Municipal Trust. Capital £1,000,000 in " A" Certificates of £50 and £100, bearing 7 per cent, inteiest, with which will be issued a " B" Certificate of £25 and £50 respectively, entitling the holder to payment of both certificates at par on drawing of the " A " Certificate. The ordinary yearly expenses of offices and management have been fixed at J per cent, on the amount of capital. The remuneration of the Trustees, Com- mittee, and Auditors is fijced by the Trust deed, and no other expenses will be incurred without the vote of a general meeting of the certificate-holders. The preliminary expenses, including ad valorem stamp, are limited to a charge of 1 J per cent on the amount of capital. One-third of the original amount of capital will be redeemed, by drawings, at par, out of the surplus interest and profits. With each " A " certificate the PAETICULARS OP EXISTING TRUSTS. 31 corresponding " B " certificate will be redeemed. When one-third of the " A " and " B " certiticates shall have thus been paid oflF, the Securities representing the amount of the original capital will be realized and applied to the immediate redemption of the remaining " A " and " B " certificates, and the Trust finally closed. By this arrangement all the certificate holders will in like manner partici- pate in the advantages of the Trust ; i. e., they will receive, besides 7 per cent, interest per annum, a bonus (as represented by the " B " certificates) of 50 per cent, on the invested capital. The constitution of this Trust will provide for the investment of not more than 5 per cent, of the capital in any one security. The prospectus stated that : " The bonds of corporations and public bodies in this country, such as those of tlie city of London and the Metropolitan Board of Works, are well known and command a high value in the market. In America, each separate Municipality raises the necessary funds for public purposes, such as improving streets and constructing roads, bridges, school-houses, court-houses, city halls and markets, by the issue of bonds for fixed periods, repayable by a sinking fund, and secured upon the taxable property of the district. The Municipalities are legally empowered to issue bonds to the extent of from 5 to 10 per cent, upon the assessed value of all real and personal property, which assessed value, in America, does not usually exceed one-third of the salable value, " The Municipalities are bound by law to levy taxes upon the real and per- sonal property of the whole district for payment of the interest and principal of bonds issued by them. " These bonds are as secure as mortgages or ground rents. They are not affected by changes of government, are not of a fluctuating nature, and conse- quently have become a favourite security for family settlements, savings banks, insurance companies, and other trusts. " The sa^^ng8 banks of New York State alone, according to the last Govern- ment repoi-t, hold an aggregate sum of over seventy-eight millions of dollars in Municipal bonds ; this being about one-fourth of their total assets. " The object of this Trust is to acquire bonds of the nature described, and thus to secure to investors a safe and steady interest by judicious employment of the funds of the Trust. A provisional contract has been entered into and advantage taken of the recent depressed state of the American markets, for the purchase of bonds of various Municipalities, atprices which \^dll secure to the Trust an averse interest of at least 9i per cent., exclusive of the profit which will be derived from the periodical payment of the bonds at par, from time to time, over an average period of say fifteen years. By this contract these bonds are 32 PARTICULARS OF EXISTING TRUSTS. guaranteed to be in confoi-mity with law, and to be subsisting debts against the several Municipalities issuing the same ; and, further, that the entire indebtedness in no case exceeds 10 per cent, of the assessed value of the property liable for the loan. In ordinary times such Securities are almost entirely absorbed in America, where the advantages they offer of high interest, combined with undoubted security, are fully understood. The present is, therefore, an exceptionally favourable opportunity for the formation of this Trust." XIV. — January 1874. — The Government Securities Debenture Company (Limited). Capit<^l £2,000,000, Ist issue £500,000 in shares of £20 at par. Expenses not to exceed 2i per cent, on nominal capital up to £1,500,000. XV.— January 1874.— The Omnium Stock Trust. Capital £1,000,000, in shares of £50, bearing interest at 5 per cent., issued at £40 and redeemable at par. The Omnium Stock Trust, in its prospectus, invited siibscriptions for Certificates of £50 each, to be issued at £40. The leading features are : — 1. The interest is 5 per cent, on the £50, which upon £40 paid equals £6 53. per cent., and is payable half yearly by Coupons attached to the Certificate. 2. After payment of the interest and expenses, which together amount to 6| per cent., the surplus income will be appropriated to paying off the Certificates at par. This will be accomplished by aimual drawings, and the holders of Certificates thus drawn will receive £50 per Certificate, and will retain a Coupon which entitles them to a share of the final distribution of the Trust. 3. At the end of 20 years the entire Capital of the Trust will be sold, and after paying off those Certificates that may not have been drawn, the balance remaining will be divided equally among the holders of remaining Coupons. 4. The expenses of the Trust are limited to ^ per cent, on the subscription. This must not exceed £2,500, even although the J per cent, should amount to more than that sum. [Some modification of this clause was introduced in 1875.] XVI. — February 1874. — The Birkbeck Property Investment Trust. Capital £500,000, in shares of £25, £50, and £100, bearing 5 per cent, interest, issued at the rate of £88 for each £100 share. PAETICULAES OF EXISTING TRUSTS. 33 " The Trust will be under the management of the Directors of the old- established Birkbeck Building Society, together with a Council of Certificate- holders, whose duties it will be to audit the accounts of the Trust. In terms of the Deed of Trust it is provided that the members of the Board shall receive no remuneration for their sendees until the annual produce arising from the Trust properties shall reach £25,000, being 5 per cent, on the amount to be raised. It is farther pro\'ided that the expenses of management shall be limited to 1 per cent, on the amount to be raised under the Trust, while the preliminary expenses, includiug the stamp duty payable under the Act, are fixed at 1 ^ per cent. Any further expenses will be borne by the promoters of the Trust." XVII.— February 1874.— The North British Foreign and Colonial Investment Trust. Capital £500,000 in shares of £100, bearing 6 per cent, interest, issued at £95. Working expenses limited to £1,400 per annum ; preliminary expenses limited to IJ per cent, on amount of Stocks purchased. XVIII. — March 1874. — The Investors' Trust Company (Limited) . Capital £100,000, in Shares of £10 each (issued at par), and 20 fully paid Founders' Shares of £1. Directors' allowance £150 per annum and 1 per cent, extra as soon as a profit of 11 per cent has been realized. Founders will receive 3 per cent, on all Capital subscribed, which sum is to include all legal and other expenses, and also to receive a bonus of 1 per cent, as soon as a profit of 10 per cent, has been realized, and a further bonus of 1 per cent, as soon as a fiirther profit of 12 per cent, has been realized. Half the above bonuses will be retained for three years to provide against the contingency of the declared profits proving less than anticipated. 34 Section 2. — Rate of Profit reported. Art. 21. — There are other excellent Trusts which we have not included, as they are more in the nature of small savings associa- tions for investment in general securities, and in principles of working are similar to building societies. It will be observed that most of the existing Trusts have distinctive features. Some are for investment in foreign and colonial government stocks of all kinds, others are for guaranteed securities, others purchase English and Foreign railway shares, and herein probably lies the secret of success. Their managers recognize that it is better for each Trust to endeavour to lay its funds out in a well selected but not too large variety of some particular species of stocks, the merits of which can be better gauged, and a more accurate knowledge obtained than by indiscriminate purchases. To this cause may be attri- buted the rate of profit reported in some of these Trusts. Mr. Samuel Laing, M.P., stated at the first meeting of the Railway Share Trust Company, Limited, that " the whole of the ordinary share capital of £1,000,000 had been subscribed, and the amount intended to be called up, viz., £500,000, had all been paid : — " The investment of this money has been so far completed that the directors are able to give the following approximate statement of the results, which they consider very favourable. The number of investments is about 36, making the average of each about £12,400. In order to form a solid basis for the Company's Preferred Shares, which will shortly be issued, a large proportion of these investments has been made in Debentures and Preferred Stocks, giving a high fixed rate of interest, with good security, and prospect of improvement. Other investments have been made in the Shares of Companies paying high Dividends, or holding out prospects of a considerable rise. The original prospectus of the Company stated that the investments would probably be made to realise an average rate of from 7 to 8 per cent, per annum. The rate RATE OF PROFIT REPORTED. 35 of return on the whole capital actually invested will, as nearly as can be estimated, average about £1 9s. 4 » £10 " Option being reserved to Allottees to pay up the whole £10 in one payment on Allotment, under discount at 5 per cent, per annum." TRUST COMPAKIES WITH SHARES. Observations, " I.— The Debenture Trust Company (Limited) is founded to place within reach of every raember of the community the means of investing any amount cf Capital, s:nall or large, on the security of first-class Railway and other Debentures, with the further security of a Guarantee Fimd furnished by a large Share Capital. " This will be attained by the principle on which the Trust Company is established, of issuing its own Debentures to an extent limited to five times the amoimt of the subscribed Share Capital, the proceeds being invested in Railway and other Debentures. " The price of British Railway Debentures has now risen to a point wliich makes the average return on the Capital invested in this description of security Ijarely 4 per cent, per annum ; and the tendency is towards stUl higher prices, as the Capital seeking safe investment constantly increases, while the supply of fresh first-class British Railway Debentures is practically very limited. " II. — Under these circumstances, a large aud increasing amount cf Capital is forced to seek investraent in Foreign Leans and speculative undertakings. " There are many Investors, however, who would prefer the solid security of Railway Debentures to loans of foreign countries, subject to political vicissi- tudes, if such securities could be brought within their reach in a convenient form, whilst practically having a security equal to that of English Railway Debentures. " The Debentures of the leading Railways of France, Germany, Austria, Russia, the United States, Canada, and other parts of British North America, and other countries and colonies, give an immense choice of such investments, yielding on the average a return of 6 per cent, per annum and upwards, with a security not really inferior to that of the best English Railways. " It may be confidently asserted that, for the last 20 years, there has been no instance of default in any of such cases where experience, combined with prudence, has been used in avoiding hazardous securities, where a high rate of interest rather than safety was the primary consideration. « HI. — There are, however, several reasons which make it difficult for the general public to find such investments, viz. : — " 1. They have no special knowledge on the subject, and no means of dis- tinguishing good from hazardouf» investments, or of watching the progress and obtaining information of the imdertakings in which their money is invested. TEUST COMPANIES WITH SUAllES.- 53 2, The fluctuations of exchange, and difficulty of collecting coupons pay- able abroad in francs, dollars, and other foreign coin, deter a large class of Investors. " 3. In the case of isolated investments the difficulty of realising is often great, and the margin between the bujang and selling price excessive, so that a holder who may have occasion to realize often, -ftithout his security having become deteriorated, loses 5 per cent, or more, from the mere fact that it is not well known and largely dealt in on the London Market. « The Debenture Trust Couipany (Limited), will effectually meet these wants, being founded on the principle of seeking safety rather than speculatively liigh interest on its investments. " The leading principle is that of distributing the investments over a large number of well selected securities. " IV.— Each Debenture of this Company will thus be represented by an equal amount of Debentures of various Companies, guaranteed by their omti Share Capital respectively, and supplemented by the large Share Capital of this Company, which wiU form a special Guarantee Fund, to be always maintained, at a sum never less than one-fifth of the amount of the Debentures of this Company, represented half by the paid-up capital invested in similar Debentures, and the other haK by the uncalled capital. " The Debentures will be issued from time to time at such prices as the Directors may decide, on the basis of ^5,000,000 Debentures for each ^1,000,000 Share Capital subscribed. " Thus each £5,000,000 of Debentures issued -will be secured : — " 1. By the proceeds thereof invested in Railway and other Debentures of various Companies, " 2. By £500,000 of paid up Share Capital invested in similar securities as a Guarantee Fund. " .3. By £500,000 uncalled Share Capital. " It is obvious that Debentures thus secured, and issued of such Uniform denomination, as to facilitate quotation on the Stock Exchange, thus affording a large and ready market for them, will enable holders to realize with facility, and "with due care in the selection of sound investments, may be considered practically quite as safe and desirable for Investors as that of the very best British Railways. " V. — A? regard? the essential point, that of safe investment, every possible safeguard, dictated by combined and practical experience, will be provided ; amongst the leading featxu-es of which are the following : — 54 TRUST COMPANIES WITH SHARES. " 1. The first ami fixed principle will be, tliat of absolutely avoiding specula- tive securities, and there is no inducement to depart from this principle, as the profits of the Shareholders, resulting in a great part, from the margin between the rate of interest paid on the Debentures of the Trust Company, and that received on the securities in which the proceeds are invested, will be best promoted by whatever inspires thorough confidence, and enables the Debentures to be issued at the best price possible. " 2. The investment of the Capital raised by shares or Debentures is limited to Railway Debentures, Mortgages, or Obligations, or to an extent not exceeding one-fourth of the whole in similar Debentures, Mortgages, or Obligations of other undertakings, such as Docks, Waterworks, Gas, Telegi-aphs, or other undertakings, but not more than one-tenth of the amount raised by Debentures is ever to be invested in any one security. " 3. No investment can be made or varied unless approved by a majority of at least three-fourths • of the Directors present, including the Chairman or acting Chairman. " 4. The qualification of the Board is ,fixed unusually high, viz., that of the Chairman at £20,000, and of each Director at £5,000, thereby giving the most solid guarantee for their identification with the success of the under- taking. " 5. The remuneration of the Directors is made mainly contingent on profits, the fixed allowance being limited to £2,000 a year in addition to wliich they are to receive 5 per cent, upon the net profits of any year in which a dividend of not less than 6 per cent, is paid to the Shareholders. " The Founders guarantee the subscription of £700,000 out of the first issue of £1,000,000 Share Capital, being the minimum amount required by the regulations of the Stock Exchange for obtaining the ofiicial quotation. They further undertake to pay all preliminary and other expenses up to and includ- ing the allotment and issue of the shares, in consideration of receiving 10 per cent, of the net profits in every year in which not less than 6 per cent, dividend is paid on the entire paid-up capital, and after providing for the Directors' per centage. This arrangement, by which the Founders undertake such large inunediate liabilities for a share of prospective profits— payable only after a remunerative dividend has been earned — proves their entire confidence in the success of the imdertaking, and gives the advantage of the Company com- mencing with the Share Capital intact. «' VI. — The following is a summary of the results which may be anticipated from the operations of this Company : — " The Share Capital being in the first instance invested in securities as before TEUST COMPANIES WITH SHAEES. 55 mentioned, may be taken as giving an average return of 6 per cent, per annum, or upwards. " As Deljenturos are issued, they will furnish further Capital for investment, at a rate which, as the solid security of the Debentures comes to be known, may be expected to approximate to that of the best British Kailway Deben- tures, and thus afford a large margin of profit on the Share Capital. " Considerable profit may also be expected to accrue from draioings and sinking /w?irfs, as well as from j udicious realizations and changes of investment into other similar securities, as favourable opportunities occur. " Profits may often be farther realized without incurring any risk or liability from Commissions on the purchase of large parcels of Debentures for invest- ment, and by acting simply as agent for the issue or sale of securities for account of Eailway and other Companies, for which its position will afi'ord xmusual advantages. " Supposing the paid-up Capital to be invested at 6 per cent. — that each £1,000,000 of Debentures issued gives an average profit of 1 per cent, per annum from the difference of interest paid on it, and that received from the securities in which it is invested — and that the profit from commissions, sales, and reinvestments, and all other sources, averages 1 per cent, per annum, which appears a moderate estimate, the results would be, approximately, as follows, after deducting Directors' and Founders' percentages, and an ample allowance for expenses : — Dividend per ann. on paid-up £ Share Capital. "With 1,000,000 Share Capital - - 6 p.c. on the amount called up. „ 1,000,000 of Debentures issued - 8 „ „ „ „ 2,000,000 ,, „ - 11 „ „ „ „ 3,000,000 „ „ - 14 „ „ 4,000,000 „ „ - 17 „ „ 5,000,000 „ „ - 20 ,, "From the experience of the Board of Directors, they feel justified in stating their belief that seldom has an institution been founded so free from risk, and yet possessing elements that hold out so good a prospect of a highly remunera- tive return to the Shareholders." CHAPTER II. Op New Trusts (continued). Section 1. — Subscription Trusts with, or without, Share Capital. Art. 2. — In a previous chapter we adverted to the fact that some of the existing Societies have nothing in common with Trusts but the name ; for they are merely Mutual Loan Associations, the plan being to give every certificate-holder the right to an advance out ot the subscriptions contributed, which are usually monthly, at a small rate, such as 2s. 6d. or 5s. a month per certificate. The certificates are sometimes of no definite amount, and occasionally fixed at £25 or ^£30. Much looseness in respect to the legal considerations affecting this point seems to prevail ; nor is provision always made to define the liability of the certificate- holders. Some of these Subscription Trusts profess to have a share capital ; others have none, adopting the principles of self- relying mutuality. 3. — To give a sort of lottery attraction to the Trust, one loan or appropriation in every four (or rather £100 out of every £400 it has ready to lend out of the subscriptions) is advanced by ballot, for a term not exceeding 22 years, without any charge for interest. The other three advances are made to the highest bidder of a premium on each £100 to be lent; such premium being in place of the charge for interest which would otherwise be required. The loan with the premium is then repaid in full by gradual * subscription, over a term of years selected. One [* Among the tables, which will be found appended to this division, is one that shows what the subscription of £100 by instahuents, in various terms of years, would amount to at 4 per cent, interest, and the equivalent present values]. SUESCElPnON TEUSTS. 57 objection to this premium system is tliat^ although ample security is stated to be required by the committee^ the necessitous member, with the least sound security to offer, may be the one to tender the highest premium in order to induce the committee to grant him the loan. 4. — The one loan out of four, which is granted without charge for interest or premium, is undoubtedly an artificial cause of the popularity of this kind of society. The attraction is increased by the privilege accorded to the lucky drawer of disposing of his appropriation at a profit to any other person, who may desire the advance, and offer to pay him a good price for it. The prospect of this profit being made is dressed up in glowing words in the examples set forth in the prospectuses. Its effect, however, is to cause a higher premium to be necessary on every £300 out of £400 advanced, in order that the society may make the average profit all round which it wants for its money. By way of illustration, in one society, 5 per cent, is required for interest which the society proffers to those members who are investors or depositors, and 1 per cent, for expenses and con- tingencies. Together, these make 6 per cent. Now, to obtain 6 per cent, profit all round on the society's funds, 8 per cent, must be charged on the £300. It is matter for regret that the general excellence of the principles involved in these subscription Trusts should be qualified by the gratuitous appropriation system. Where larger pay- ments are required from the majority of members, in order that a lucky few may have their loans without interest, it is time to admit that all real mutuality, as a fact, is destroyed, however much it may be asserted. Some of these Loan Trusts are ia such respectable hands, that one may well wonder at the foolish feature not having been abandoned earlier. They are exceedingly popular, and in many cases would be of undoubted prosperity if placed on a sounder footing as to the principles adopted. 58 SUBSCRIPTION TRUSTS. 5. — ^We append an example from another existing Trusty which is curious as illustrating the ideas that prevail on the subject : — Example. — "L. M. is desirous of becoming a borrower of ^400, and takes four certificates (entitling him to loans of that amount) at a monthly payment of £1 thereon. The directors haying given notice of a Loan Meeting, L. M. fills up a form of tender (provided by the Association), sends it ' to the head office, and (at his option) attends the meeting. The tenders are then opened, and L. M.'s ofi"er of a premium (say) £60 for each ^100 loan, payable with the loan itseK by instalments of £10 13s. 4d. quarterly in 15 years, being the highest, is accepted, and having provided approved security, he receives the money. Apparently L. M. has paid a high rate for the advance, seeing that loans on good security may usually be obtained at £5 per cent. ; but then the rate depends upon the fluctuating value of money, and the loans are made for short periods only, or are liable to be called in on short notice ; moreover, both principal and interest have to be paid in lump sums. L. M, in the meantime has paid up his 4 certificates (£100) and has received interest at £5 per cent, per annum on his subscriptions as paid, together with £48 per cent, of the profits of the ' Fund ' triennially, and is entitled to four equal shares of the reserve, distributable at the close of the * Fund.' If L. M. applied his profits to the repayment of his loan, he would materially lessen its cost, because by anticipating the period of its redemption, the premium payable for such period would be extinguished." 6. — In the above example, for a cash advance of £400 the borrower has to pay up in ]5 years four times £160, or £640 by instalments of £10 ]3s. 4d. a quarter; which is equivalent to pay- ing interest at from 6 J to under 7 per cent, per annum, accord- ing as the interest is reckoned at yearly, half-yearly, or quarterly rests. The mean rate of interest even at 7 per cent, is but Sj per cent., as only thi'ee out of four of the loans cai'ry interest. If the society continue to lend its money at this low rate of interest loss must follow, considering the miscellaneous nature of tlie securities on which advances are made, unless the number of years for which the member makes the above quarterly payment of £10 135. 4c?. are extended, or unless the premium be increased. 59 Section 2. — Of the rate of Fremium charged in place of interest and of Valuations. Art. 7. — The premium charged in place of interest by Subscrip- tion Trusts varies. In some^ as above, it is only £60 per £100 loan. In one of the largest and best societies of the kind it is fixed at not less than £70, which with the £100 cash advanced, making £170, is, however, only to be returned by instalments (monthly or quarterly) at the rate of £8 10s. a year in 20 years. If this were the highest premium obtained, the interest realized would be scarcely sufficient, for it is'^ under 6 per cent, per annum ; even reckoning interest as made quarterly. This is shown by the following rates of repayment per annum for a loan of £100 in 20 years, according as the subscriptions (with interest at 6 per cent, per annum) are calculated as — Compounded annually, viz., - - £8 14 4 „ half-yearly,, - - 8 13 „ quarterly „ - - 8 12 5 8. — "When the affairs of a society of the kind are being valued, error will be made if in estimating the present worth of the repayments (receivable on existing loans over unexpired terms of years) deduction is not made for the fact that, as such repay- ments come in, only three-fourths of them are capable of being [* As 6 per cent, on ^300 would be only £4 10s. on the £400, the average rate on its funds obtained by a Society lending at £70 premium would be only 4 J jjer cent. In practice, however, the premium actually bid is frequently much more than the minimum £70 — sometimes it is as much as £100 — so that for 20 years, in return for a loan of £100 the borrower pays £10 a year in quarterly instalments. The rate of interest he then pays is about 8 per cent. This 8 per cent, or £100 premium is, therefore, what the society must charge which desires Ml average profit of 6 per cent., since 4 timci 6 equal 3 times 8]. 60 EEGTJLATIONS OF SUBSCEIPTION TEUSTS. re-invested at interest, suiee a quarter of the appropriations is to be made -srithout any premium or interest being charged. The necessity for this provision arises, also, from the fact that 5 per cent, interest per annum is by the rules to be credited continuously in future years on the subscription moneys, which constitute the liability side of the account. Hence the amount set down in the assets side must be obtained by valuing at not less than £6 13s. 4;d. per cent, per annum discount, since 5 per cent, can only be credited on £400 in future by providing in the form of discount £6 13*. 4. In 1749 they went up again to 100. 3. In 17o3 (year of the peace of Paris), until the commencement of the American war, the 3 per cents, averaged 80 to 90; by the close of the war they were down at 54. 94 FLUCTUATIONS IN PRICK OF CONSOLS. 4. By 1792 they had risen to 96. 20th September, 1797, owing to French success, they fell to 47|. 5. In August, 1798, in spite of the battle of the Nile, they again fell to 47;|, the lowest price known. 6. In 1802, the Consols, though already down at 79, fell to 66|, by fear of Buonaparte. 7. In 1814-15 the Consols fluctuated from 72 to 62; in 1815- 1816, from 65 to 53|. 8. In 1819 (the year of cash payments resumption by the Banlc of England) , they fell from 79 to 64| because Mr. Robert Peel's Currency Bill was passed, declaring the Bank Note to be convertible once more on demand into gold, and the fundholders became alarmed at the prospect. 9. In 1825 (year of Bank failures and Bubble Companies) Consols fell from 94 to 75. The glut of money in 1824 and early in 1825 had caused private bankers to make advances on Securities not easily realizable. 79 banks failed, with 500 branches and liabilities at £14,000,000. 10. In 1847 (railway crisis). Consols fell from 94 to 78|. In 1852 they reached 101 1. 11. In 1854 they fell to 85. In 1859 (Stock Exchange Italian panic, which continued to April) 100 members of the Stock Exchange were said to have failed. Consols fell from 95 to 88, 12. In 1866 they ranged from 86| to 88^. 13. In July 1875 they were at 94^. XL ANTIGUA. Population in 1871, 35,157. Area, 183 square miles. Debt in 1872, £52,350. Revenue in 1872, £38,817. Expenditure, £39,870. Exports in 1871, £247,630 ; in 1872, £153,195. III. ARGENTINE CONFEDERATION. Population in 1866, 1,465,000; in 1870, 1,737,000. Area, 550,000 square miles. Population per square mile, 3. Public DEBT OF THE AEGENTTNE rONFEDERATTON. 95 debt in 1873 {including Buenos Ayres old loans, but excluding railway guarantees), about j6 16,500^000. Annual charge, including redemption, £1,500,000. Debt per head £9, expended on works of improvement and Paraguayan war. Annual charge per head, 165. Revenue in 1863, £1,295,000; in 1870, £2,966,781; in 1872, £3,634,400; in 1873, £4,120,000. Expenditure, owing to Avar, rebellions, and yellow fever, somewhat in excess. Trade rapidly increasing, the exports being about £4,000,000 in 1862 and £10,000,000 in 1872. The duty-paying imports in 1872 were £11,460,110; total imports, £12,045,827. The railway guarantees are of moderate extent, but the lines are fairly profitable. The Buenos Ayres new loans, besides the Enlre-Rios and Santa Fe debts, are not liabilities of the Confederated Government. At the opening of Congress, in 1875, President Avellaneda described the effect of the "War and the crisis of the previous year on the finances of the Republic^ by which a very large deficit was caused. % £ The total expenditure was 29,784,000 5,957,000 And the receipts were 1 6,527,000 .3,305,000 Deficit 13,257,000 2,652,000 The expenditure included an item of £1,786,000 on account of special loans, which is additional, apparently, to the War expenditure of the year, estimated at £780,000. The ordinary budget showed an expenditure of £3,936,000, being a deficit of about £600,000 compared with the above receipts. This deficit arose mainly from a reduction of customs duties. The estimated receipts from imports in 1873 were 16,516,000 dols., and the actual yield was only 12,540,000 dols., a difference of 3,976,000 dols., or £795,000. In previous years the estimates of the Government have frequently been exceeded in the result. The change now observed is signifi- cant of the depression which the raw material-producing countries have been passing through. The President stated that the falling off in the imports themselves amounts to £4,337,000, although 96 DEBT OF AUSTEALASIA. the exports had only diminished 2,857;,000 dols.^ or £571^000. A comparison was drawn between the expense of suppressing the late revolt and the previous ones. The first revolt in £ntre-Rios cost £1,500,000 ; the second, £920,000 ; but the one of September, 1874, is reported to have only cost £780,000 ; this diminution of the cost of suppressing insurrections being cited by the President as an illustration of the increased power of the Central Government. The President remarked on the present position of the Treasury : — *' We have paid the war expenses and met the ordinary expenditure of the hudget, in spite of a decline in revenue ; we have also paid 4\ millions of arrears to the "War OtSce between January 1, 1874, and April 30, 1875. We liave also paid for the arms and ships bought in Europe, and for wliich no funds had been set apart. All this has been done without injury to our credit, or even having to negotiate the balance of the loan in London. The Finance Minister, even at the darkest moment, paid no higher for money than the National Bank rate. " The Public Works of the 1871 loan proceed without interruption, and are defrayed out of the loan. ********* " The Finance Minister jealously guards our credit in Europe. The money is already in London for payment of the July coupons of the 1824 and 1868 loans, besides a considerable sum remitted for the coupons due next September on the Public Works loan of 1871." IV. AUSTRALASIA. New . South Wales. Population in 1871, 519,183. Area, 333,437 square miles. Population per square mile, 1§. Debt in 1874, £13,962,529. Annual charge at 6 per cent., including sinking fund, £830,000. Debt per head, £26 ; charge per head, 305. Debt incurred upon railways and productive works. Revenue in 1873, ^4,161,415, including £568,436 from loans. Expenditure, £3,638,623. Imports in 1871, £8,981,300 ; in 1872, £8,587,030. Exports in 1871, £7,784,766; in 1872, £8,005,571. New Zealand. Population in 1871, 266,986. Area, 106,259 square miles. Population per square mile, 2^. Public debt in 1872, £9,985,386, including amalgamated proAancial loans. Present DEBT OF AUSTEALASIA. 97 debt, £1 1,250,000. The annual charge at 5 § per cent, is £630,000 including sinking fund. The debt per head is £40 ; and the annual charge per head £2\. As in other Australasian colonies, debt mostly raised for reproductive purposes. Revenue in 1873-4, £2,459,014, including £1,038,798 land sales; revenue surplus, £207,461. Exports in 1871, £5,282,084; in 1872, £5,190,665. Gold export in 1871, £2,811,723 ; in 1872, £1,742,427. Imports in 1871, £4,078,193; in 1872, £5,142,951. The population in 1861 was only 98,971, and the colony has grown rapidly since the gold discoveries. Queensland. Population in 1871, 125,146. Area, 678,000 square miles. Debt in 1872, £4,547,850 ; noiv £5,500,000. Debt per head, £40; charge per head, £2|, at 5^- per cent. Revenue in 1872, £998,323 ; expenditure, £865,743. Exports, £2,635,026, including £660,553 gold. Imports, £2,175,590. South Australia. Population in 1871, 187,851. Area, 383,328 square miles. Population per square mile, I. Debt in 1873, £2,325,900. Annual charge at 6 per cent., £140,000. Debt per head, £12.^ ; charge per head, 15*. Revenue in 1869-70, £878,124; in 1873-4, £974,628. Expenditure in 1873-4, £943,807. Exports in 1872, £3,738,623, chiefly wool and copper ; in 1870, £2,419,488. Imports in 1872, £2,801,572 ; in 1870, £2,029,794. Tasmania. Population in 1870, 101,785. Area, 26,215 square miles. Debt in 1872, £1,455,900; charge at 6 per cent., £87,300. Revenue in 1872, £479,063. Exports in 1872, £910,663. Victoria. Population in 1871, 752,445. Area, 86,831 square miles. Population per square mile,8|. Debt in 1874, £12,520,432, excluding loan of October, 1874, £1,500,000. Annual charge at 5:^ per cent., £720,000. Debt per head, £16| ; charge per head, 195, Qd. Debt incurred for railways (515 miles at work), water- works, and docks. Revenue in 1873-4, £4,054,924. Expenditure, o 98 DEBT OP AUSTEIA. j€4,448,062. Imports in 1872, £13,691,322 ; exports, .€13,871,195 including £5,884,011 gold. Gold export in 1856, £12,929,818. V. AUSTRIA. Population, 36,000,000. Area, 227,230 square miles. Popula- tion per square mile, 158. Debt, including £215,000,000 compul- sorily converted, about £350,000,000; annual charge (deducting income tax), £15,000,000 ; annual charge (say), 8^. 4.d. per head. All these figures include the debt of Hungary. The report of the commission for controlling the debt of Austria states that the amount of the irredeemable consolidated debt of the Empire [exclusive of the debt of Hungary) at the end of June, 1874, was £215,471,000. It had increased six millions since December, 1873, and nearly 8A millions since June, 1873. The redeemable consolidated debt amounted, with arrears of interest, to 49 millions, and had decreased £287,000 since December, and £616,000 since June, 1874. The whole con- solidated debt of Austria, consequently, stood at £264,530,000, and had, after deducting debt redeemed, grown about six millions in the course of the year. This increase is due chiefly to the eight million loan voted by the Reichsrath in the Sessions of 1873. The special floating debt amounted to £9,650,000, or more than double what it stood at a year before. The guaranteed debt stood at £21,500,000, a decrease of about £700,000 on the year. The amount payable in interest, &c., on the whole debt of the Austrian State is estimated at £10,600,000 in the paper currency of the country and £6,556,000 in gold. The general floating debt of the Empire stood at 32 millions. VI. BELGIUM. Population in 1867, 5,000,000. Area, 11,313 square miles. Public debt, including railway loan of 1873, not yet paid in full, £36,000,000. Annual charge, £1,700,000 ; charge per head, 7s. 2>d. Revenue £7| millions; expenditure rather less. DEBT OF BOLIVIA. 99 VIZ. BOLIVIA. Population, 2,750,000. Debt, about £2,250,000 ; annual charge at 8 per cent., ^£180,000. A loan in 1872 was raised for rail and navigation purposes. (i). Improvement Loans for Foreign States. — The decision of tlie Master of the Rolls in the suit in 1875, between the National Bolivian Navigation Company and the Public Works Construction Company, again draws attention to the danger of clauses in public loans, which lay stress on the fact that the money is required for works of public improvement. The Bolivian Government intro- duced a clause of this nature into the prospectus of the loan issued in 1872, and by way of additional security agreed to the creation of a Trust by which a sum of £600,000 was to be specifically applied in constructing a railway around the rapids of the Madera River. But this clause has created a difficulty for both the Government and the bondholders. The Public "Works Construction Company, by which the railway was to be made, threw up the contract, and the money was so locked up as to prevent the Bolivian Govern- ment from using it for general purposes, or from returning it to the bondholders. In a suit between (1) the Navigation Company that held the concession for the railway, (2) the Public Works Construction Company, which was employed in the actual con- struction, and (3) the representatives of the bondholders, the Court held that the Navigation Company was entitled to a declaration that the money must be paid to them as the works proceed, and that the failure of the Public Works Construction Company does not concern them. The rights of the Bolivian Government, which did not appear in the suit were reserved, but as against all other parties the Navigation Company were held entitled to the fund. Thus the bondholders Avere unable to get back their money, although the public improvement, for which it was wanted, was thrown up as impracticable. The Bolivian Government failed to get possession of the fund, although it is liable for interest and drawings in respect of it, and has not got the public work by which 100 OTHER PUBLIC DEBTS. its ability to pay the interest was to have been increased. All these mishaps would clearly have been avoided if Bolivia had borrowed only what those who knew it were willing to lend on the faith of its own resoufces, instead of a great loan by which the proposed advantage was to be obtained at immense cost. The lenders did not know anything about Bolivia, and were partly induced to subscribe by a doubtful security. (ii). The Bolivian Loan of 1872 for £1,700,000, at 68 per cent., should have produced . . £1,156,000 The fund set apart for the proposed railway, respecting which the litigation arose was to meet a contract of £4,000 per mile for 160 miles 600,000 Agent's commission, stamps, printing, &c., consumed . . . . . . . . . . 116,393 Bolivian Government . . . . . . . . 10,000 Bolivian Navigation Company . . . . . . 107,664 The balance of the Loan applicable to dividends and drawings ; of this, the amount consumed was about , .. 265,000 Leaving a balance of about . . . . 56,943 £1,156,000 VIII. BKAZIL. Population, 10,100,000, including 2,000,000 slaves and Indians. Area, 3,100,000 square miles. Total debt, including paper money and treasury bills, about £62,000,000 of which £15,000,000 is foreign, and £28,000,000 home funded debt. Annual charge at 5 per cent., £3,100,000. Debt per head, £6 ; charge per head, Gs. Kevenue in 1865-6, £6,105,841; in 1870-71, £9,750,905; estimate for 1873-4, 12,360,707, showing a surplus. Imports in 1870, £16,824,369. Exports, £19,706,320. The Paraguayan war cost the country £45,000,000. OTHEE PUBLIC DEBTS. 101 IX. BRITISH COLUMBIA. Population of Vancouver's Island, 23,000; mainland, 12,000. Areas, 13,000 and 200,000 square miles respectively. Debt in 1870, £322,328. This colony is absorbed in the Canadian Dominion, and a raihvay is to be constructed from Canada, through ^Manitoba (Red River) , to British Columbia. Great Britain will guarantee interest on part of the outlay thereon. X. BUEXOS AYRES. Debt in 1874, £3,020,100. XI. CANADA. Population of Dominion in 1871, 3,497,714; consisting— Canada, 2,812,367; Xew BrunsM^ick, 285,594; Nova Scotia, 387,800; and Manitoba, 11,953; British Columbia in addition. Occupied area about 400,000 square miles ; unoccupied (say), 2,500,000 square miles. Debt in 1872, ^£21, 655,541, mostly expended pro- ductively. Present debt nearly £30,000,000, owing to railway extensions, with a view to construct the Canadian-Pacific line. Annual charge at 5 per cent., £1,500,000. Debt per head £^l ; charge per head, 8s. Zd. Population in 1861, 3,100,000. Revenue in 1872, £4,315,586; expenditure, £3,664,473. Imports in 1871, £18,355,037 ; ditto in 1872, £22,542,828, including £13,007,174 from the United Kingdom. Exports in 1871, £13,750,239; ditto in 1872, £14,940,173, including £5,254,955 to the United Kingdom. British Columbia, Manitoba, and Prince Edward Island (194,021 inhabitants) have now joined the Dominion ; but NcAvfoundland (146,536 inhabitants) still holds aloof. The estimated expenditure for 1873-4 was £4,517,344, leaving a deficit on the revenue account, but this included £140,000 for the acquisition of Prince Edward Island. 102 OTHER PUBLIC DEBTS. XII. CAPE OF GOOD HOPE. Population in 1865, 566,158. Area 200,610 square miles. Debt in 1873, £3,093,400, including Cape Railway Capital. Annual charge at 5| per cent., £115,000, or per head, 3*. Qd, Revenue in 1872, £1,161,548 ; expenditure, £922,568. Imports in 1870, £2,502,043 ; in 1872, £5,442,439. Exports in 1870, £2,603,211 ; in 1872, £4,829,589, chiefly to United Kingdom. In 1872, wool exported, £3,276,052 ; copper, £328,458 ; diamonds, £306,041; feathers, £158,904; skins, £331,352. Large Railway outlay recently sanctioned. XIII. CEYLON. Population in 1871, 2,405,287. Area, 24,454 square miles. Debt, £640,000, incurred on railway, costing £1,250,000. Annual charge, £38,400; per head, M. Revenue in 1873, £1,290,918; expenditure, £1,176,258. Exports in 1872, £3,139,060. XIV. CHILI. Population, 2,000,000. Area, 250,000 square miles. Foreign debt, about £7,400,000; total debt, about £10,300,000. Annual charge, £675,000. Debt per head, £5 ; charge per head, Qs. 9d. Chili has spent about £6,000,000 on railways, and the war with Spain increased the debt. Revenue in 1873, £6,500,000. Im- ports in 1870, £5,644,827; in 1873, £7,585,685. Exports in 1870, £5,395,163 ; in 1873, £7,762,054— £3,260,000 being mining pro- duce, chiefly copper. Trade one-half with United Kingdom. XV. COLOMBIA. Debt after the conversion of New Granada bonds into 4^ pef cent. Stock, about £4,300,000. The Panama Railroad has, since the opening of the San Francisco route, not proved so remunera- tive a property, and the State has at times been in arrear with its OTHER PUBLIC DEBTS. 103 payments. Since 1871, it is stated that the revenue, previously- showing constant deficits, lias exhibited a surplus. Estimated revenue for year 1874-5, £800,745. XVI. COSTA RICA. The whole of the debt of the Republic is estimated at £3,400,000. It has been contracted to provide for the construction of roads and railways. Costa Rica is in default upon both of its loans, and the railway is said to require another £1,000,000 to com- plete it. XVII. CUBA. Debt in 1874, £277,600. Population in 1867, 1,414,508, in- cluding 350,000 slaves, since which there has been some decrease, owing to the insurrection, &c. Area, 48,500 square miles. XVIII. DANUBIAX PRINCIPALITIES. Population of the Roumania, 4,000,000. Area 45,500 square miles. Debt, including railway loan [except Roumania Railway shares, which are a heavy liability), about £6,444,188. This Railway debt was for some time repudiated, and new issues were consequently refused recognition on the Stock Exchange. At the end of 1871, however, a conversion of the repudiated 7h per cent, bonds into 5 per cent, guaranteed shares was undertaken through the agency of the Anglo-Hungarian Bank. Revenue for 1873, £3,506,968; expenditure, £3,799,904. Trade chiefly in grain from the Danube. XIX. DENMARK. Population, 1,785,000. Area, 14,550 square miles. Debt in 1867, £14,512,200 ; in 1872, £12,747,500 ; a portion spent on pro- ductive works. Annual charge at 5 per cent, would be £640,000, or per head, 7s. The original amount of the foreign loans was 104 OTHER PUBLIC DEBTS. £12,328,000, and the present amount about £3,200,000. This steady application of the sinking fund enables Denmark to com- mand as high a market value for its debt as any other foreign State. The revenue in 1870-71 was £2,602,180. Exports in 1872-3, £5,650,000. XX. EGYPT. Population in 1871, 5,250,000 of all races. Area, 200,000 square miles. Foreign debt about £50,000,000, exclusive of the Viceroy's Daira loans, which amount to £9,000,000. In addi- tion to this £59,000,000, there is a floating debt of rather large amount, part of which is secured on the Daira estates. Alto- gether' the State and Daira indebtedness has been estimated at £75,000,000. Including heavy redemptions, the annual charge has been stated at £7,500,000, including £705,000 tribute to Turkey. Debt per head, £14 ; charge per head, £1|. As special security for the 1868 loan, the Customs receipts, lock tolls, salt revenues, &c., are hypothecated, and for the 1873 loan, the rail- way revenue in Lower Egypt, the personal and indirect taxes, and '' Moukabala." The government revenue in 1873-4 offici- ally estimated at £10,000,000, and the surplus at £1,100,000. State Railways, 750 miles. Exports in 1868, £16,230,880; in 1871, £14,716,145. XXI. ENTRE-EIOS. Debt in 1874, £211,600. XXII. EQUADOR. Debt in 1874, £1,824,000. In May, 1869, the dividends for 1867 were announced, but the Finance Minister then confiscated the payment of the Customs dues to the bondholders to meet deficits. Interest has been in arrear since 1860. THE DEBT OF FEANOE, 105 XXIII. FRANCE. Population in 1872^ 36,102,821, ex ceded territory. Area, 202,000 square miles. Debt, £900,000,000. Annual charge about £33,000,000. Debt per head, £25; charge, 18^. The war has added nearly £20,000,000 annually to the expenditure, and the ■vrar and indemnity have increased the debt by over £400,000,000. The two national loans for £200,000,000 in all, involved stock issues to the extent of £276,000,000. Commerce imports in 1873, jei44,007,120; exports, £157,075,800. The debt of Paris amounted to £73,200,000 before the recent loan. (i.) — M. Leroy Beaulieu, in an able article in the Debais on the Paris Loan, 1875, remarked that the certainty of 4| per cent, interest and the chance every year of four lots of 100,000f. for each bond of 5,000f. were quite enough to tempt all the pos- sesssors of small sums. The savings of former years have almost absorbed the National Loans, and recent savings had not found equally productive investments. The price of issue, 88, -was indeed too low. The Administration, not liking to intrust the loan to a syndicate of bankers, who would have required a com- mission, fixed a low price. (ii.) — Up to 1854 the French Government invited bankers to tender for public loans, and accepted the best offers, the bankers taking all risk of disposing of the bonds they had subscribed for en mass*'. All the great European houses competed, and the State was sure of obtaining the most favourable terms. Now, how- ever, the State fixes the price, and, fearing a failure, which would be more serious politically than financially, it generally fixes it below the mark. In 1830 the house of Rothschild ten- dered for a Four per Cent, loan at 102f. 57c., and iu 1844 for a Three per Cent, loan at 84f. 75c. The object of the new system was to enable the real rentiers to obtain bonds at first hand, and to secure better terms for the State by appealing to what was 106 THE DEBT OF FRANCE. called the " universal suffrage of capital." The first loan of the empire in 1854 for 350,000^000f. -was nearly twice covered ; the second, of double that amount, some months afterwards^ was four times covered; in 1855, when 750,0(X),000f. was asked for, 3,653,000,000f. was offered; in 1859, for a loan of 520,000,000f., the applications amounted to 2,500,000,000f., in 1864, 315,000,000f. was applied for and 5,000,000,000f. offered; in 1868 a loan of 450,000,000f. was thirty-four times covered. On the other hand, the War Loan of 800,000,000f. in August, 18'/0, was barely covered, and the loan of two milliards in 1871 was not quite twice covered, speculators being timid and leaving real capitalists to absorb it; but with the Paris Loan of 1871 speculation revived, and for the loan of three milliards in 1872, 43 milliards were subscribed. It is, however, the great banks which subscribe the enormous sums. Their direct co-operation being refused, though it would guarantee the placing of the loan and might raise the price of issue, they co-operate indirectly, the only effect being to prevent the bonds from promptly coming into the hands of those who will keep them. The present system really shuts out small capitalists. When fifty times the desired amount has to be offered, and four or five times that amount has to be deposited in cash, prudent men see that the chance of gain is too small and the chance of loss too great. Their safest course they consider is to purchase the amount they desire on the Bourse at a slight premium either before, during, or after the issue. (iii.) — The City of Paris new '^ Lottery" Loan of January, 1875, was an illustration of the popularity of this sort of Loan. It was for £10,000,000 nominal, or in 500,000 bonds of 500f. each, at the issue price of 440f. per bond, payable in four equal instalments. The bonds bear interest at 4 per cent., or 20f. per bond, and the loan to be redeemed in 75 years by quarterly drawings com- mencing on the 5th of May, 1875. At each of these drawings lottery prizes of 225,000f. will be given, in sums of from 100,000f. down to l,000f. Despite the low rate of about 4| per cent, net THE DEBT OF FRANCE. 107 interest, this loan will cost the City of Paris much money, hut the debt of the city is already very large. A French writer observes that, " The great success of the City of Paris Loan is another testimony to the same financial strength. The issue of £10,000,000 has been 42| times applied for, and although it is well known of course how speculation manipulates such affairs, and applications are multiplied because the allotment will be small, still the great eagerness of speculators to -compete for the premium on, such an issue is in itself a proof of the abundance of the money ready for investment by which the premium is ultimately supported.** (iv.) — It is becoming more and more clear now that when the Emperor Napoleon III. made use of the system of offering public loans to the masses, raising thereby some three milliards — in six loans, from 1854 to 1868 — he merely opened up the surface of a mine of wealth. That France has six millions of freeholders explains much, but not all. It is asserted by some political economists, that France is the only country in Europe where property is not accumulating among the few. (v.) — To what an extent the wealth of France is not only increas- ing, but spreading among the native population, is strikingly shown by a return published in 1875 from the Journal Officiel. The number is given of the holders of " Rentes," together with the amount of " Rentes," or interest of the National debt, at decennial periods ^rom 1798 to 1870, and annually from 1870 to 1875 :— Years, anuary 1. Number of holders of Rentes. Amount of annual Eentes. Francs. 1798 .. 24,791 25,111,785 1810 .. 145,663 56,730,583 1820 .. 199,697 172,784,838 1830 .. 195,370 204,696,459 1840 .. 265,447 195,911,137 1850 . . 846,330 229,608,758 1860 . . ., 1,073,801 338,356,589 108 THE DEBT OP FRANCE. Number of holders of Rentes. Ajnount of annual Rentes. Francs, 1,254,040 358,087,510 1M69,730 386,222,343 2,147.130 502,126,256 3,473,475 626,120,206 4,130,040 693,013,493 4,380,933 748,404,971 Tears. Januaiy 1. 1870 . . 1871 .. 1872 . . 1873 .. 1874 . . 1875 .. Since the war the number of fundholders has become about three and a-half times as many. It will be observed, also, that while the annual interest of the debt, or the " Eentes,^^ has multiplied not quite thirtyfold since 1798, the number of holders of the debt — " Rentiers," as they and all possessors of capital are called — have multipHed 182 times. The number of holders of " Rentes" at the present time is about equal to the number of freeholders of the soil. The wide and even distribution of wealth in France exceeds that of other countries of Europe. XXIV. GERMAN EMPIRE. Debt not publicly known. XXV. GREECE. Population in 1861, 1,332,500; in 1871, 1,457,894. Area, 20,000 square miles. Debt, say £8,000,000; foreign debt re- pudiated. Revenue, about £1,250,000; expenditure in excess, notwithstanding repudiation. Imports about £2,200,000 ; exports, £1,500,000. XXVI. GUATEMALA. Debt in 1874, £551,600. Population about 1,200,000, includ- ing Indians. Revenue in 1871, £159,563; deficit, £42,429. Revenue now increasing. The President in 1872 "questioned" the legality of the 1869 loan, which has since been recognized. THE DEBT OF INDIA. 109 XXVII. HOLLAND. Population (exclusive of Luxembourg) in 1870, 3,618,453. Area, 12,400 square miles. Debt in 1864, £80,792,421 ; in 1872, £80,511,443. Annual charge, £2,248,439; or per head, 12*. 6c?. The revenue was in 1870, £7,377,236; and the expenditure, £8,019,076. Estimated revenue in 1873, £7,601,065; ex- penditure £8,041,919. Imports in 1870, £51,084,898 ; exports, £43,497,540, exclusive of bullion. XXVIIL HONDURAS. Debt in 1874, £3,224,450. The object of the loans of this state was said to be the construction of a railway between the Atlantic and the Pacific, with which some progress has been made. For several years the Government has been in default, and a pro- posal has been adopted to convert the railway into a company, and relieve the Government of its liability. XXIX. HUNGARY. Debt {separate from Attstrian), £32,000,000 ; to a large extent expended on railways and other reproductive works. Estimated revenue for 1875, £22,281,691 ; expenditure, £25,030,289 ; deficit to be covered by sale of railway shares, raising price of tobaccos &c. Population, 15,509,455. XXX. INDIA. Population over 190,600,000; has rapidly increased of late. Area, 1,000,000 square miles. Debt, £126,500,000, of which some £.50,000,000 is held in England. This was inclusive of £6,000,000 E. I. Co.'s 10^ per cent, stock, redeemed last year at 200 percent. Including 4 per cent, issue for this purpose, famine loan, and other debts and deposits, the debt may be set down at £130,000,000, bearing £5,900,000 annual interest. Debt per head, 145. ; charge 7 Id. But this does not include the guaranteed 5 per cent, on 110 OTHER PUBLIC DEBTS. railways and canalsj the capital of which exceeds £95,000,000, and is increasing. The railways are productive to the extent of about three per cent. ; but the guarantee increases the sum to be provided as interest to about £7,400,000 per annum ; or, per head, 10c?. Revenue in 1872, £50,110,215; expenditure, £48,614,512, including public works. Imports in 1872, £42,657,560, including bullion, £11,573,813 ; exports, £64,661,940, including bullion, £2,476,093. Principal exports — cotton, opium, dyes, rice, jute, silk, hides, seeds, and coffee. 5,872 miles of railway open. XXXI. ITALY. Population, 27,000,000. Area, 115,000 square miles (includ- ing islands). Debt in 1873, £390,024,528; annual interest, £15,341,148; debt per head £14^; charge per head, lis. Qd. Inclusive of pensions, redemptions, railway guarantees, &c., the irreducible expenditure amounts to about £29,500,000, and this would be greater but for the imposition of a 13^ per cent, income tax on coupons. Ordinary revenue in 1872, £46,333, 105 ; total ex- penditure, £54,679,077. Ordinary revenue in 1873, £47,225,837 ; gross expenditure, £55,384,872. Imports in 1870, £33,710,948; in 1873, £47,378,565 ; exports in 1870, £22,916,840 ; in 1873, £43,339,920. XXXII. JAMAICA. Population in 1871, 506,154. Area, 6,400 square miles. Revenue in 1872, £494,564. Expenditure, £454,774. Debt under £1,000,000. Exports, £1,418,444; imports, £1,559,602. XXXIII. JAPAN. Since the resumption of power by the Mikado, the State of Japan has become more settled. The total debt of Japan is stated to be £8,644,940. Ordinary revenue estimated at £9,401,362. Imports in 1870,^6,224,128; exports in 1872, OTHER PUBLIC DEBTS. Ill about £4,858,906 ; in 1873, about £4,132,188. 38 miles of Govern- ment railway open. XXXIV. LIBERIA. Debt in 1874, £100,000. Tliis is the first public loan, the money being required for works of improvement, and to liquidate Treasury Bonds. XXXV. MAUEITIUS. Population in 1871, 318,584. Area, 708 square miles. Popu- lation, 450 per square mile. Debt, £1,095,500, a large portion expended on railways. Revenue in 1872, £703,159. Ex- penditure, £650,328. Imports in 1871, £2,044,246; in 1872 £2,677,973. Exports in 1871, £3,120,529 ; in 1872, £3,243,101, — I of whieh were sugar. XXXVI. MEXICO. Population in 1 869, 8,567,000 of mixed races. Area, 1,030,000 square miles. Ihe foreign and internal debtinlS65 was £63,470,000; annual charge, £3,945,100. The debt has been repudiated at various times since 1827, and since the revolution payments have again ceased. The Republic repudiates '^ Imperial loans," leaving £30,106^000 to be recognised, besides impaid coupons. XXXVII. MOROCCO. Debt in 1874, £226,500. Population said to be 8,000,000. Imports in 1872, £850,776 and £348,916 specie. Exports, £1,228,577; average of previous ten years, £800,000. Trade chiefly with England. XXXVIII. NATAL. Population, 289,773. Ai-ea, 16,145 square miles. Population, chiefly natives. Debt in 1872, £334,400. Revenue in 1872, 112 THE DEBT OF RUSSIA. £198,421. Expenditure, £149,694. Imports in 1871, £472,444. Exports, £403,308. Chief exports — sugar and wool. Imports in 1872, £852,252. Exports, £622,797. XXXIX. NEW GRANADA. Population of Confederation, 2| to 3 millions. Debt converted ' — see " Colombia." XL. PARAGUAY. Debt in 1874, £2,915,700. This comprises the only loans of Paraguay, raised to complete railway and roads, and to establish a bank, commercial routes, and immigration. Hypothecations — State lands, buildings, railway, &c. Paraguay is now a defaulter. XLI. PERU. Population, 3,000,000. Area, 500,000 square miles. Debt, including the railway loans, £37,000,000. Annual charge, with sinking fund, £2,590,000, or 17*. 3d. per head. The Government are carrying out railways and many works of improvement. The chief item of revenue is derived from guano sales. XLII. PORTUGAL. Population, 4,363,000, including Azores and Madeira. Area, 37,500 square miles. Debt £69,211,584, in 3 per cent, stock. Annual charge, £2,150,000 ; or per head, 9*. 10c?. Revenue iu 1871-2, £4,103,421; estimate, 1873-4, £4,966,836. Exports, £5,000,000. XLIIL RUSSIA. Population, 82,200,000. Area, 7,750,000 square miles; of which in Europe 2,000,000 square miles. The trade of Russia has rapidly expanded of late, a fact largely attributable to the opening of her railways, of which some 9,200 miles were in opera- THE DEBT OF EUSSIA. 113 tion in 1873. Imports in 1866, £25,453,000; ditto in 1871, £55,501,000. Exports in 1866, £27,834,000; ditto in 1871, £52,753,000. Principal exports to United Kingdom. These figures include Finland, whose imports in 1870 were £1,742,000; and exports, £1,846,000. Revenue. Expenditure. Debt. Interest. Tear. £ £ £ £ 1850 36,945,000 46,949,800 100,000,000 4,000,000 I860 42,259,104 84,155,162 175,000,000 7,000,000 1S60 68,000,000 66,000,000 250,000,000 9,600,000 1883 63,828,000 69,437,000 270,000,000 10,700,000 1870 68,661,261 69,354,583 300,000,000 12,000,000 1872 68,109,285 68,056,609 330,000,000 13,000,000 1874 77,121,665 76,669,120 340,000,000 13,450,000 The revenue and expenditure for 1874 are estimates. The 1872 Budget showed the first surplus during a period of 40 years. The expenditure includes outlay on some reproductive works. The railway guarantees form another item of debt, subject to the net revenue from which covers a large portion of the guarantee. £35,000,000 has been subscribed in foreign markets alone towards these guarantees. (i.) — Railway Guarantees. — An able foreign writer observes, that much satisfaction was felt in Russia at the success of the last Railway loan. In 1869 the Russian Government thought it expedient to adopt a new method of dealing with Guaranteed railway Stock. Up to that date, companies enjoying the prized advantage of a Government guarantee were allowed to take their Scrip to some Russian or foreign market, and realize it there as best they could ; but from the beginning of 1870, the Government, when according guarantees, has invariably made it a condition that the Stock be disposed of by themselves, at the place and on the terms settled by the Finance Minister. The power thus conferred upon this official is more easily imagined than described ; and as the practice soon arose of combining the Stock of several com- panies into a single loan, the details of the transaction ■jv^ere entirely withdrawn from public cognizance. Russian Government Stock commands a ready sale in every part of the world, and the Guaranteed Railway Debentures being virtually as good as a Q 114 THE DEBT OF RUSSIA. Government loan, there is reason why they should rank with the latter in prices. The £12,000,000 sterling loan issued in January, 1870, and the loan of February, 1872, the first time at 79^, and the second time at 81^, were at once taken up. The third and fourth issues of £15,000,000 each, in April, 1872, and November, 1873, though offered at the comparatively high prices of 89 and 93, were likewise well received. Owing to the gradual improve- ment in the rate of exchange, this Russian Security has since risen considerably in the market, and at Berlin, commands prices from 102 to 105. Such a marked success, of course, encouraged repetition, and in April, 1875, a fifth Guaranteed railway loan was issued at 92. Although the rate of interest was only 4| per cent., against the 5 per cent, of the preceding four issues, yet six times the amount demanded was subscribed. The money is said to be designed for the Caucasian, Siberian, and other Eastern lines, which cannot be remunerative for years to come. Hence the 15,000,000 roubles annually expended by the Russian Exchequer on railway guarantees are likely to require a propor- tionate increase in consequence of the new transaction. From a mere railway point of view there is no reason why this operation should not be repeated many times while the Government think it profitable to pledge themselves for the deficit incurred. As yet Russia has only 0.55 kilometres of railway to the geographical square mile, figures, the insignificance of which is seen by compar- ing them with the 1*018 of Sweden, 3*8 of Prussia, 4*2 of America, 5 "8 of England, and 6 of Belgium. (ii.) — Russian Finance and Commerce. — The question, whether Russia is entitled to appeal to foreign markets to the extent she does, depends upon the state of her Finances and Commerce. A few words will supply the leading facts upon the subject. In 1873, the total of the Russian income and expenditure amounted to 517,000,000 roubles, against 276,000,000 roubles in 1852. Of the total expenditure in 1852, 33,000,000 roubles were devoted to the interest on the public debt, the like purpose requir- THE DEBT OF RUSSIA. 115 ing 91,000,000 roubles in 1873. Thus, while both income and expenditure have not been doubled in the last 20 years, the National Debt has been nearly trebled. In other words, considerable as the increase of the productive forces has been, the public wants have been growing more rapidly than the public resources. If this had been mainly owing to the money consumed in creating railway communication, the outlay incurred might be regarded as a profitable investment in the long run ; but as 15,000,000 roubles a year pay the whole of the Railway interest, the inference is that the greater part of the new loans have been applied to very dif- ferent and less lucrative purposes than the laying down of metals in a formerly pathless Empire. Indeed, there is no difficulty in ascertaining into what channels the money has been flowing. The Army and Navy expenses were marked at 190,000,000 roubles in 1873, as against 96,000,000 roubles in 1852. Schools, on the other hand, which required about 8,000,000 roubles 20 years ago, are now accorded 12,000,000 roubles; so that comparing this small increase with the sums absorbed by the War Office, the balance is largely on the side of the improductive instead of the productive investment. (iii.)--Amore favourable view is presented by Russian Com- merce. Russia, which in 1851 exported to Europe goods to the amount of only 84,000,000 roubles, in 1871 exported to the amount of 353,000,000 roubles ; the imports in these years being respectively 87,000,000 roubles and 345,000,000 roubles. Accordingly, both imports and exports, speaking in round numbers, have quadrupled, and the principle articles of export being com, flax, and hemp, sent to England and Germany, there is a primd-facie probability that the trade will continue and even increase as these two countries become more industrial and less agricultural, Germany, more especially, requiring every year a larger amount of Russian rye and wheat, promises to remain quite as good a customer for raw produce as she is in return a liberal purveyor of manufactured goods. The nearly 9,000,000 bushels of grain representing the 116 THE DEBT OF RUSSIA. excess of imports over exports in Germany in 1872 mostly came from Russia ; the 162,000,000 roubles, which were the amount of Germany's exports to Russia in 1871, are on the other hand almost one half of the whole Russian imports that year. Considering that Germany, a corn-exporting country a very few years ago, has almost suddenly been converted into an importing one, it is easy to foresee that Russia may count upon her as a permanent cus- tomer, though American wheat proves a more and more dan- gerous rival to Russian grain in England. This conclusion is the more justifiable when it is taken into account that the natural tendency of commerce must make it ad\'isable for Germany to buy where she sells so largely. German imports to Russia, only one- fifth of the total imports in 1851, were about one-half in 1871 ; whereas Russian imports to Germany, one-eighth of the total imports in 1851, have since risen to one-fifth. The full meaning of these figures will be imderstood when it is considered that German imports into Russia have increased by 329 per cent, in the last 10 years ; English imports to that coimtry ha\^ng in the same period been augmented by only 103 per cent. (iv.) — If this looks promising for the Russian agricultural interest, and the National Exchequer too, it has to be borne in mind that the sums, thus accruing to the country, are realized for raw produce only, and in consequence may be diminished by a rival development in other primitive lands. Agricultural progress in Himgary and the Danubian Principalities, for instance, might in a very few years deprive the Russian Empire of a considerable portion of what may be styled its foreign income. Of the 350,000,000 roubles of exports, 150,000,000 roubles are in com, 40,000,000 roubles are in flax, 20,000,000 roubles in hemp, 23,000,000 roubles in timber, 10,000,000 roubles in cattle, 3,000,000 roubles in rape and linseed, 3,000,000 rouHles in hides, 2,000,000 roubles in spirituous liquors, 1,000,000 roubles in butter, &c. The small sum of 2,000,000 roubles is the whole that is realized by manufactured exports. Such being the case^ one THE DEBT OP SPAIN. 117 cannot but perceive that the power of exporting, and with it the ability to pay taxes, is to no small extent dependent in Russia upon her remaining the principal granary of Western Europe. Her manufacturers have so long enjoyed the doubtful advantage of a prohibitive tariflf, that even if a different policy were adopted — which is sure not to be unless at the last extremity — they would be unable for many years to come to compete with foreign goods. XLIV. SAN DOMINGO. Debt in 1874, .£728,500. This loan was raised for the purpose of constructing roads and railways. The country is now in default. XLV. SANTA FE. Debt in 1874, £296,300. XLVI. SAKDINIA. Debt in 1874, £2,665,360 ; see Italy. XL VII. ePAIN. Population in 1869, 16,673,481. Area, 182,750 square miles. Debt, £375,000,000, having increased from £160,000,000 in 1863. Annual charge, £11,000,000; or per head, 135. Revenue in 1866, £21,500,000; expenditure, £27,473,000. Revenue in 1871-2, £19,000,000; expenditure, £26,250,000, showing a deficit of over £7,000,000. The internal debt sustained an income tax of 5 per cent, for some time, but the last three coupons of both internal and external debt remain altogether unpaid. (i.) — The helpless condition of isolated investors in Foreign Stocks is shown by the way in which they have been treated by 118 THE DEBT OF SPAIN. the successive Governments of Spain. For several half-years no Dividends have been paid, -whilst several compromises have been offered and greedily accepted by bondholders at meetings in a manner that showed their weak financial condition. The third compromise offered at the close of 1874 was a modifi- cation for the worse of a previous one. The indebtedness having gro^vn and the Republican Minister having only got the Rio Tinto obligations to pledge he made a proposal, — (1) that the obliga- tions should be put in Trust, the amount thus to be realised to the bondholder being estimated at one-third nominally, but about one-fourth according to estimated selling price, of his three over- due coupons ; and (2) that for the remaining two-thirds of the nominal amount of the coupons the creditors should receive at the rate of £250 per £100 in new 3 per cent. Stock, which would probably realise about 25 per cent, more of the whole amount due. In other words, the new proposal was to give the creditor about one-fourth of what is overdue to him in money or its equivalent, and another fourth in new paper, which would be no real equivalent, as the creation, according to a fair reckoning, would pro tanto depreciate the selling price of what the creditor held. Spain being insolvent, the multiplication of its paper could do its creditors, in the aggregate, no good ; the most they could hope for was a dividend. The new compromise was thus, in fact, no better than a sacrifice by the creditors of the whole of their past due coupons for a pay- ment of five shillings in the pound. But this compromise, too — notwithstanding the failure by the Spanish Government in regard to its previous ofi'ers — was accepted with alacrity by the creditors of Spain with the express sanction of the Council of Foreign Bondholders. (ii) . — The Economist, which furnished these details, then adds : " TVTien the first proposal was made the civil war had not broken out, and at the time of the second all resources immediately available had not been so completely exhausted as they are now. THE DEBT OF SPAIN. 119 But the question is not whether Spain has offered from time to time to do as much as she could_, but whether the creditors are to cancel their titles in full for only part payment, leaving them nothing to show for a period of future settlement_, when a quiet and stable Government will permit the resources of the country to be developed. If the creditors will surrender their 'Hitles'^ for a fraction of what is nominally due, the Spanish Government has not yet hit upon a fraction so small as to provoke a refusal. There could be no clearer revelation of the weakness of the mass of foreign bondholders. Their disposition always is to be passive, to take what is offered, and on the terms offered, if the dividend is an appreciable one at all, and to submit to the most ignominious treatment from their defaulting debtor. Too many of them, unfortunately, can hardly help themselves. Belonging to a class which ought not to have meddled with doubtful Securities, and having been tempted by the desire for income, any offer of something in the shape of income is irresistible to them. Thus a compromise which is recommended actively or passively by any species of authority, is readily accepted by the mass of bond- holders ; and the few who might be justified in taking the risk of lending to a country like Spain, and who could afford to wait and deal vigorously with their debtor, are overruled." (iii) . — " Such is the first lesson from the history narrated ; but the second lesson — the little reliance to be placed on the special agencies created to protect the bondholders^ interests, and the danger that these agencies may be converted, unless great care is taken, into a new cause of loss — is also a most important one. The Council of Foreign Bondholders, has undoubtedly on more than one occasion done good service to its constituents. The per- versity and financial poverty of Spain, and the weakness of many of their own constituents, were fatal obstacles in their path. So far as a body, like the Council of Foreign Bondholders, does no real good, its existence must be reckoned prejudicial and has been utilised by the Spanish Government in its own interest. The zeal 120 THE DEBT OF SPAIN. of tlie council in arranging the last two compromises, instead of holding off or insisting on much more, appears to have been more pronounced than it ought to he, if the interests of its clients are to be vigilantly guarded. If the council or any similar body is to be as serviceable in the future as it has formerly been, the bond- holders in turn must supervise their action carefully and must rather be distrustful than otherwise of the compromises recom- mended, as probably sacrificing too much to the defaulting Government. " It is impossible to say that any greater success would have been possible in the present case, but a series of such successes would soon ruin the foreign bondholder.''^ (iv.) — The story is not improved if we carry it back a year or two earlier. In 1873, the late Lord Westbury stated, that, — '^The announcement made by the Spanish Minister of Finance of his intention to propose to the Cortes an income tax of 18 per cent, on the coupons of Spanish 3 per cent, bonds in the hands of foreigners, as well as of Spanish subjects, is so serious a thing that it demands prompt attention and action on the part of the holders of Spanish Stock in England. *•)«•* " There is no doubt of the proposed measure being most illegal, and contrary to the understanding and practice that have always prevailed on the subject of an income-tax. The Spanish bond is payable to bearer, and is, therefore, transmissible from hand to hand. The coupons for interest attached to the bonds do not require that they should be presented for payment in Spain. They may be collected in foreign countries. No registration is required in Spain of the holders of the bonds from time to time. The difference between the holders of Spanish bonds and the owners of English Government Stock is palpable. " The dividends on Consols are payable at and by the Bank of England alone. The contract, therefore, in respect of English Consols is purely a home or English contract. The locus con- tractus and the locus solutionis are in England. The English THE DEBT OF SPAIN. 121 Government, therefore, treats the owners of Consols as English subjects, and the dividends payable to them as part of their income, arising and payable in this country. It claims a right, therefore, to impose an income-tax. " In the case of the Spanish bonds the contract is universal. It may be transferred anywhere, and not (as in the British funds) by an act in Spain alone. Spain contracts with the holder, whoever he may be, and if the holder owes no allegiance to Spain the debt due to him cannot be affected by Spanish legislation. " If the Spanish Government ordered a steamship from an English builder it might as justly insist on the English builder paying a property-tax out of the money payable under the contract, as it can insist on retaining Spanish income-tax out of the divi- dends payable to the foreign holders of Spanish Stock." (v) . — On this matter it was also further urged, that, — " Every Government has authority to tax the property within its domi- nions, and that possessed by its own citizens, for the exigencies of the State, and when a debt is raised by a home subscription the right subsequently to tax the dividends payable to native holders of such debt has not been doubted." But in those countries which possess an External as well as an Internal Debt the specific characteristic of the former is that the subscription is originally obtained abroad, and that it is assumed that a large proportion, at any rate, of the debt will be, in all pro- bability, held abroad, and be in all times in the hands of foreign holders ; that it is, consequently (within the State), simply a debt due, and can only be viewed as matter of property beyond the Staters jurisdiction. Even apart, therefore, from any special stipulation it seems indisputable that an External debt must in its nature be free from taxation. To tax it as a debt would be simply a refusal of the Government to pay a portion of the amount in which it is indebted, and its character as an External debt pre- cludes the Government from taxing it as property in the hands of holders who are beyond its jurisdiction. 122 THE DEBT OF TURKEY. Butj quite apart from this,, the prospectus of some of the loans contains a clear and positive statement that the issue will be free from Spanish taxes; and this under the authority of the Spanish Financial Commission, authorized by the Decree, and acting as its agents. This would clearly, as between individuals, constitute a binding contract, and is equally valid as between the Spanish Government and its creditors. The only difficulty is in the mode of enforcing it. XLVIII. SWEDEN. Population in 1871 (without Norway), 4,204,177. Area, 168,042 square miles. Debt, £6,700,000. Annual charge, about £350,000; or per head. Is. 6d. The sum expended on State railways has exceeded the National Debt. Exports in 1871, £8,471,432. Norway— Population, 1,738,000. Area, 121,000 square miles. XLIX. TRINIDAD. Debt in 1874, £100,000. Population, 109,638. Area, 1,764 miles. Revenue in 1872, £296,060 ; expenditure, £285,384. Imports, £1,233,771; exports, £1,439,905. L. TURKEY. Population — in Europe (less Roumania), 12,000,000; in Asia, 15,000,000 ; in Africa (less Egypt) , 2,000,000. Area— in Europe, 150,000 square miles; in Asia, 600,000 square miles; in Africa (say), 500,000 square miles. Public debt in 1865, after the con- version of the internal debt, was £71,229,640, and in 1874 was, by the Economist, about £135,000,000. The annual charge for interest and considerable sinking funds was £9,500,000 (£700,000 being remitted from Egypt). In 1866 the Government fell into arrear in paying the interest of the general debt ; but since the special hypothecation of revenues to the Ottoman Bank, this had THE DEBT OF THE UNITED STATES. 123 not again occurred until 1875. Turkey has for years been in arrear with regard to the interest guaranteed on railways — the Ottoman^ Varna, Cassaba, &c., but since the 1874 loan placed the Porte in funds, some considerable payments have been made in this respect. The revenue is reported to have risen from £14,500,000 in 1863 to £18,987,000 in 1873. The deficit of 1873 was £4,580,000. The Government then stated tliat they were endeavouring to carry out much needed financial reforms to reduce the deficit ; and the guarantees given in the prospectus of the latest loan caused it to be a success and to materially raise Turkish credit, when the decree of 1875 appeared, announcing default in future payments, although the Budget for 1874 showed an estimated revenue of £22,327,000. The settlement of the Black Sea question and of disputes with Egypt had been re- garded in a favourable light. In addition to the above debt, there is the Roumelia Railway Loan, with a guarantee of 3 per cent./the total of which is £31,000,000. LI. UNITED STATES Population in 1850, 23,191,876 (including 3,204,313 slaves) ; ditto in 1860, 31,445,889 ; ditto in 1870, 38,558,371 free. Area (excluding "Russian America," reported worthless), 2,820,000 square miles. Population per square mile, 13i. Public debt, £15,905,900 in 1860; ditto in 1866, £574,000,000; annual charge, £26,400,000 gold; debt in 1874, £441,050,000 ; annual charge, £20,650,000 gold. Debt per head of population, £11 ; annual charge per head, 10s. 3d. This burden was raised during the four years' Civil War ; and in addition there was a large Con- federate debt, which has been repudiated. Nearly every separate State has its debt, which, collected together, may be estimated at £78,000,000 ; but a considerable portion has been spent on works reproductive. In 1860 the revenue was £12,385,000 : and the expenditure, £15,905,000. In 1870-71 the revenue was £76,750,000 124 THE DEBT OF THE UNITED STATES. and the expenditure £58,500,000 the surplus going to debt reductions. Revenue in ] 873-74, after reductions in taxes, £57,895,750 ; expenditure, £57,150,506. The debt interest is being considerably reduced by the operation of the Funded loan. Railroads open at the end of 1873, 66,237 miles. The foreign trade has rapidly increased, and in 1873 the imports were £119,172,250, including £5,600,000 bullion, and the exports were £138,629,610 including £12,000,000 bullion. Half this trade is with Great Britain and her colonies. Since the termination of the war the Southern States have greatly increased their debts, and some have been brought to a state of bankruptcy. The New York City net debt is £25,379,272. The Philadelphia Public Ledger gives the following particulars regarding the debts of the various States of tiie Union : — " The debts of all the States and Territories of the Union, it is estimated, do not much exceed 300,000,000 dols. A considerable amount of this sum was incurred by the loyal States to equip troops to aid in the suppression of the Confederacy. Of this 300,000,000 dols., the 11 Southern States owe one-half, or about 150,000,000 dols. And not a dollar of it is war debt. Much of it, indeed, was created by fraud since the war, but none for the support and maintenance of Confederate troops. All that was long ago repudiated, and now follows the lamentable fact that the condition of the debts of nearly all the Southern States is such as to excite the fears of those who desire to see American credit pre- served abroad and justice done to innocent persons at home, who have made honest investments in Southern State bonds.'' LII. URUGUAY. Population, 550,000. Area, 700,000 square miles. Debt, £8,296,000, besides railway guarantees. Principal source of revenue — Customs dues, which in 1862 Avere £354,000; in 1870, £907,700; and in 1873, £1,295,640. Imports in 1872, £3,771,945. OTHER PUBLIC DEBTS. 125 The amount of the " home debt" on which payment of interest has been suspended by the Republic of Uruguay is stated by an eminent writer to be about four millions and a quarter, or rather more than half the total funded debt of the State. This, at least, is the last obtainable official statement of the amount. " There is no repudiation of this debt, nor nominally even a sus- pension of payments, but the bondholders are to be compelled to take State paper money in lieu of cash. Supposing that paper money goes to a discount of 50 per cent, it will still be about equal in value to the Twelve per Cent. Bonds of the State, which have been selling at 56, should these be taken at par on payment. But nobody can tell what the new paper dollars will pass current for. If they are to be issued as a means of clearing off a hea\-y burden of debt, and with no other security to uphold them than that offered by a hea\'ily over-burdened community, they may sink low enough to be almost worthless. At the same time it should be admitted that Uruguay is not yet anything like in the same position as its neighbour Paraguay, where 30,000 pesetas worth of Treasury bills were sold by auction lately for 1,200 paper pesetas, of what actual value is not stated." LIII. VENEZUELA. The foreign debt is about ^66,700,000, while the home debt has been stated at £10,000,000. Venezuela has at various times dis- continued the payment of interest on loans, and has now done so since 186-i. After a period of successive revolutions, a Govern- ment has been established, which in 1874 proposed a settlement of outstanding claims ; but it has not come to anything. PART IV. OF THE TERMS ON WHICH FOREIGN DEBTS HAVE BEEN CONTRACTED, AND THE FINANCIAL PRINCIPLES INVOLVED. CONTENTS. Chapter I. — Of Sinking Funds, Loan-Repayments and Drawings. Of Foreign Debts, with illustrations of the Cost thereof to the State borrowing. As to Profit to Lenders. Alternative Measures. ,, 11. — Of the relative values of Dividends and Drawings on Foreign Stocks or other Investments. As to Stocks at a premium which are redeemable at par. On the effect of Surplus dividends, over a security rate of 4 per cent, per annum, in replacing Capital paid for Stocks. ,, III. — Memoria Technica Tables relating to the Doubling and Accumulating of money. Of the present values of Decreasing and Increasing Annui- ties. PART IV. Op the Terms on which Foreign Debts have been Contracted,, and THE Financial Principles Involved. CHAPTER I. In another * publication which forms a division of this treatise ■we have explained in detail, for persons not familiar with the subject, the leading principles involved in the working of compound interest. It may be convenient here to recapitulate some of the elements, which enter into the working of Average Investment Trusts, and arise in the liquidation of public debts or loans. Section 1. — Of Sinking Funds, Loan-Repayments, and Drawings. Art. 1. — A Sinking Fund is the amount put by periodically (yearly, half-yearly, or otherwise), which, accumulated at compound interest, will amount to a definite sum. Thus, 1.0177 {£1 Os. 4ic?.) a year set aside in half-yearly accumulations would at 7 per cent, interest per annum amount to £100 by the end of 30 years. 2. — Loan Repayments. — When a loan is redeemed by equal annual or other payments, termed in some countries " Amortiza- tion," the annuity required to be paid is merely the interest added to the sinking fund on the whole debt for the specified time. It is what is termed, with respect to a portion of the English debts, a terminable annuity. [♦ See Chapter II. at the beginning of the Building Society Treatise, and for Mathematical readers, the Appendix at the end of that work.] 130 OF SINKING FUNDS. ThuSj 8.0177 (£8 O*. 4ic?.) a year will repay or redeem in 30 years a loan of <£100 carrying interest half-yearly at 7 per cent, per annum. Other rates are given by the following table : — SINKING FUND TABLE. Showing the annual Sinking Fund (set aside in equal parts at the end of each half-year) which will amount to £100 at various rates of interest. In Years. * cent. K per cent. a per U cent. fv per • cent. O i-er O cent. per V cent. Iv cent. 1 99.0099 98.7654 98.5222 98.2801 98.0392 97.7995 97.5610 2 48.5248 48.1636 47.8054 47.4502 47.0980 46.7487 46.4024 3 31.7052 31.3100 30.9195 30.5336 30.1524 29.7757 29.4035 4 23.3020 22.8935 22.4913 22.0953 21.7056 21.3219 20.9444 5 18.2653 17.8518 17.4461 17.0483 16.6582 16.2758 15.9010 6 14.9119 14.4974 14.0924 13.6968 13.3104 12.9332 12.5651 7 12.5204 12.1073 11.7053 11.3141 10.9338 10.5641 10.2048 8 10.7300 10.3198 9.9222 9.5370 9.1640 8.8031 8.4540 9 9.3404 8.9340 8.5417 8.1634 7.7987 7.4474 7.1092 10 8.2313 7.8294 7.4432 7.0722 6.7164 6.3752 6.0485 11 7.3263 6.9293 6.5495 6.1864 5.8398 5.5091 5.1941 12 6.5742 6.1826 5.8095 5.4546 5.1174 4.7974 4.4942 13 5.9398 5.5538 5.1877 4.8411 4.5135 4.2043 3.9129 14 5.3979 5.0176 4.6587 43205 4.0026 3.7042 3.4245 15 4.9300 4.5555 4.2039 3.8743 3.5660 3.2783 3.0103 16 4.5221 4.1537 3.8093 3.4883 3.1897 2.9126 2.6561 17 4.1637 3.8014 3.4644 3.1519 2.8630 2.5964 2.3511 18 3.8466 3.4903 3.1 G08 2.8568 2.5774 2.3212 2.0869 19 3.5641 3.2140 2.8919 2.5964 2.3264 2.0803 1.8568 20 3.3112 2.9673 2.6525 2.3655 2.1047 1.8686 1.6556 21 3.0835 2.7458 2.4383 2.1597 1.9080 1.6817 1.4789 22 2.8776 2.5461 2.2460 1.9755 1.7329 1.5161 1.3233 23 2.6907 2.3654 2.0725 1.8102 1.5764 1.3689 1.1856 24 2.5204 2.2012 1.9156 1.6613 1.4361 1.2377 1.0637 25 2.3646 2.0516 1.7731 1.5267 1.3100 1.1204 .9553 26 2.2218 1.9149 1.6434 1.4049 1.1964 1.0154 .8589 27 2.0905 1.7896 1.5251 1.2942 1.0938 .9210 .7729 28 1.9693 1.6745 1.4169 1.1935 1.0010 .8362 .6960 29 1.8573 1.5685 1.3177 1.1016 .9168 .7598 .6273 30 1.7536 1.4707 1.2266 *1.0177 .8404 .6909 .5656 31 1.6573 1.3803 1.1428 .9410 .7709 .6286 .5104 32 1.5677 1.2965 1.0656 .8706 .7076 .5722 .4607 33 1.4842 1.2188 .9942 .8061 .6498 .5212 .4161 34 1.4064 1.1466 .9283 .7468 .5972 .4750 .3760 35 1.3335 1.0794 .8673 .6922 .5490 .4330 .3398 50 .6406 .4624 .3293 .2319 .1616 .1117 .0766 NEW RULES FOR CALCULATING SINKING FUNDS. L'U 3. — In long terms of years a small sinking fund would suffice, vrith the interest, for the liquidation of a debt ; and with an increase in the rate of interest the sinking fund is relatively less. Thus, while in a 30 years' term at 6 per cent, half-yearly the sinking fund is £1 4*. 6^d. a year, at 7 per cent, half-yearly it is only ^1 0*. 44c?. a year. On the other hand, the redemption annuity is smaller as the interest is less, being £8 Os. 4i\d. a year at 7 per cent., and £7 4*. Q\d. at 6 per cent. 4. — jSIOO divided by the figures in the sinking fund table gives the amount of £\ a year in the time selected. Thus, £100 divided by 2-9673 or 33-7006 is the amount of £1 a year at 5 per cent, interest half-yearly in 20 years. In like manner jClOO divided by the Repayment Annuity per cent, gives the present value of j£l a year. 5. — Practical ^ Rules. — From the preceding table, all other tables can easily be deduced by the following simple rules, which are new : — Rule i. — 77ie repayment annuity for any term divided by the sinking fund gives the amount to which a single £\ would accumulate, with interest, by the end of the same term of years. Such would be the amount to which a debt would accumulate in the time, if the interest and capital were left unpaid. Example : — Thus, the repayment annuity 8.0177 divided by the sinking fund 1.0177 gives 7.8783, which is the amount of a single £1 in the same time at half-yearly interest In other words, a debt of .£10,000, on which neither interest nor capital was paid, would accumulate to .£78,783 in 30 years at 7 per cent. ii. — The sinking fund divided by the repayment annuity gives the present value of a single £1 receivable at the end of the term. Example : — Thus, 1.0177 divided by 8.0177 gives .1269, which is the present value of £1 receivable at the end of 30 years at the same rate of interest. [* For other Rules see the Memoria Technica, Chapter III., section 1, and the Notes at foot of the Tables appended to this publication.] 182 NEW EULES FOB CALCULATING ANNUITIES. Conversely : — iii, — The repayment annuity is the amount of a sum (equal to the sinking fund) accumulated /or the term of years. Example : — Thus, 8.0177 is the amount of 1.0177 accumulated at 7 per cent, for 30 years. iv. — The sinking fund is the present value of a sum {equal to the repayment annuity) discounted for the term of years. Example: — Thus, 1.0177 is the present value at 7 per cent, of 8.0177 payable at the end of 30 years. V. — When a table of the amounts of an annuity gives the figures for only a limited number of years, it can be used to find the amounts of an annuity for intervening or longer periods (whether it be yearly, half-yearly, or otherwise), as in the following example : — The amount of £1 a year for a term of 30 years is equal to the sum of the amounts of £\ a year for 20 years and 10 years respectively, to which is added one year's interest on the product of the said amounts for 20 and 10 years. Thus, at 5 per cent, half-yearly, 1. Amount of £1 per annum for 20 years is from above 33-7006 2. „ „ 10 „ - - 12-7723 Product 430-4342 3. One year's interest thereon - . . . 21*5217 Sum of (1), (2) and (3) 67-9946 which is the amount in 30 years of £1 a year. Conversely, £100 divided by the result gives the sinking fund for jEIOO in 30 years as in the foregoing table. vi. — The present value of an annuity for the term of 30 years is, in like manner, the sum of the values of an annuity for 20 years and 10 years respectively , from which is to be deducted one year's interest on the product of the two present values. Thus, at 5 per cent, half-yearly. LOAN REPAYMENTS AND DRAWINGS. 133 1. The present value of £\ per annum for 20 years is 12"5514 2. „ ,, „ 10 „ - 7-7946 3. Product of (1) multiplied by (2) - 97-8331 4. Sum of (1) and (2) 20-3460 5. One year's interest at h per cent, on the product 4-8917 6. Sum less the one year's interest, being (4) less (5) 15-4543 This is the present value of an annuity of £\ a year for 30 years, calculated half-yearly. 6, — Of Loan Repayments and Drawings — When a debt is re- deemed by an annuity it can be viewed — either as gradually liquidated by the increasing surplus of the annuity over the interest required each half-year on the amount unredeemed — or the annuity can be looked upon as chargeable with the same amount of interest for the whole period, leaving the surplus to act as a sinking fund to accumulate through re-investment by the end of the time to the £100 borrowed. AVhere a large group of loans of equal amount has to be redeemed, a third system termed " Drawings'^ is frequently adopted instead of either of the preceding plans, for they are each open to objection in practical working. The one, that each loan has to be Avritten off by instalments ; the other, that all would have to wait for re-payment till the end of the full term. The * Drawing system is in fact a most ingenious mode of gra- dually paying off in succession the creditors of a Government or of a Trust in full, without the trouble of accumulating the sinking fund throughout the originally specified term of the loan. Instead of treating each bond as a separate debt they are viewed in the aggregate. The redemption fund required to be set aside for the whole of the debt being fixed, drawings of the bonds to be paid off each year are made by lot. As the gross repayment annuity remains undiminished until the expiration of the number of years fixed, the number of bonds drawn each year increases with tbe re- [* As to various kinds of drawings and a simple rule for estimating the amount available out of the annuity repayment in any year, see Part V.] 134 MISCONCEPTION AS TO SINKING FUNDS. duction in the amount required to be paid for interest on the bonds yet unredeemed. As far as the borrower is concerned it matters not to him that some of the lenders are paid off preferentially. He pays the stipulated annuity, and no more, for the term agreed. 7. — Misconception as to Sinking Funds. — A misconception occasionally arises as to the working of sinking funds and draw- ings. This can be best appreciated by giving an example : — The prospectus of a leading Trust quotes £o 10*. as the amount per debenture which it proposes to set aside on its £100 bonds for yearly drawings and dividends, so as to pay ^65 a year in dividends and return £110 per bond. The first drawing occurring at the end of the first year, and the dividends saved on the bonds drawn being carried to assist in the redemption of the others. This jE5 10*. a year is below the amount the Trust would have to set aside. To redeem by yearly drawings a present debt of £100 in 51 years would require an annuity of 5.45287 {£o 9s. \d. nearly), which would consist of the dividend of £5 on the £100, and a sinking fund of 9*. \d. Now, it appears to be thought that when a bonus of £10 is added to the bonds of £100 redeemed, the only addition to the yearly fund required is to increase the sinking fund by lie?., being one-tenth of the sinking fund of 9*. \d. mentioned above. This would be true if the bonus £10 on all the * bonds were only to be paid at the end of the 51 years, while the bonds themselves were redeemed by yearly drawings. The error consists in not cal- culating the sinking fund for the whole £110 at a rate of interest modified by the fact that the sum to be redeemed is £110 and not £100. [* The above is altogether independent of the circiunstance that the bonds are issued at a lower price than par. That difference is separately chargeable on the general profits of the society, which is equivalent to saying that it must make a higher rate of profit than the nominal rate of interest payable on the bonds.] ON 51 TEARS* REPAYMENT OF DEBENTURES. 135 The preceding is easily tested by the formulae for annuities^ but can be made practically visible by the following table : — 51 YEARS' TABLE. Showing how a Loan of £1,000,000, in 10,000 Bonds of £100 each, bearing £5 a year in Dividends, with a Bonus of £10, will not be liquidated in 51 years by half-yearly drawings of an Annuity of £55,000 a year, but will leave a deficiency of £134,920.920 on the Bonds, and £13,492.092 on the Bonus, total £148,413.012. [Four years' specimen of the calculation only are given, but if they be continued the results at the end of the 51st year will be as stated. As in practice fractions of Bonds could not be paid off, the deficiency at the close of the 51st year would be greater by the increase of interest paid on the fractions of bonds carried over unredeemed. In the Table the Dividends although payable half- yearly are charged by annual rests only on the £55,000 a year per bond, set aside for Dividend and Sinking Fund. Otherwise the Surplus available for Drawings each year would be even less, and the deficiency at the 51st year greater.] The last three figures in each column are decimal fractions. Years. Amount of Bonds unre- deemed at the end of each year. Dividend at ,65 a year on amount of Bonds unre- deemed. Surplus out of £65,000 over the Dividends paid avail- able for Drawings yearly. Number and pro- portion of Bonds that couJd be drawn each year. How Surplus could be applied. To Bonds at £100 each. To Bonus at £10 per Bond redeemed. 1 2 3 4 60 End of Cist year 1,000,000 995,464.546 990,702.479 986,734.410 980,540.620 134,920.930 £ 60,000. 49,772.727 49,536.124 49,286.721 8,844.044 £ 6,000. 6,227.273 6,464.876 6,713.279 46,165.966 45.466 47.621 49.681 61.939 419.600 £ 4,646.466 4,782.066 4,968.069 6,193.890 41,969.960 £ 464.646 476.207 496.807 619.389 4,196.996 961,586.993 8,650.787 136 DEFICIENCY IN THF 51 YEARS' SYSTEM. 8. — As to an ultimate deficiency of £148,413. — The preceding table draws attention to a point of importance in the consideration of sinking funds and repayment annuities. It affords an excellent illustration of the peril resulting from premature bonus payments. The setting aside of £5 10s. per bond or £55,000 a year to redeem a debt of one million in bonds (with £5 interest and a bonus of 10 per cent, or £100,000 thereon, total £1,100,000) causes about £951,587 of that amount to be paid in the 51 years, and leaves jE148,413 unprovided for at the end. Now we have said already that £54,528 14*. a year (which is £471 6s. a year less) would suffice to discharge in the same time the whole debt of one million bearing a like £5 interest, but carrying no bonus. The cause of the lesser eflFect in the first case being the application of a portion of the larger allowance, £55,000 a year, to the pay- ment of bonuses, by which a smaller sum is left available each year to cancel bonds themselves than would happen if there were no bonus. The result is that of the 10,000 bonds there will remain over 1349 unprovided for, allowing for the decimal fractions. The bond debt balance remaining larger, the interest still pay- able thereon continues larger, and, additionally, causes a smaller surplus to be applicable each year for the liquidation of bonds and bonus. If, however, all the bonuses were not paid till the end as by a coupon of reversion, the same annuity of £55,000 separated into two parts, £54,528 14s., and £471 6s., would suffice, — the £54,528 14*. a year as a repayment annuity, to redeem the million of debt in the time by drawings, — and the £471 6s. as a sinking fund, to accumulate to somewhat more than £100,000 for bonus by the close of the 51 years. 137 Section 2. — Of Foreign Debts, with illustrations of the Cost thereof to the State borrowing. Akt. 9. — In a previous section we have described the invest- ments made by existing Trusts as being of a varied character, viz.. Railway shares and debentures, Municipal and Corporation bonds, &c., and, to a large extent, the * debt- bonds of Foreign Governments. With respect to the latter, a disposition is some- times shown to disregard the question of security, and to purchase such as offer a large pecuniary return. Foreign countries, when borrowing money, usually find it necessary to issue their stock at prices below par. In addition, a large number adopt systems of repayment which select the recipients by drawings of an attractive character. While the State thus avoids the impracticable responsibility of having to repay its bonds all at once at the end of the term, it is not prevented, if it has sufficient spare money, from also cancelling stock by pur- chases in the open market when the price is advantageously low. [* The debts of Foreign Governments are no longer a small matter, nor is an interest in its stability confined to any one country. Holdings iu Turkish Stocks, as in those of Egypt and some other States, are spread over Europe. Stocks are bought and sold, and have become a sort of international currency, affecting the exchanges as well as performing many other functions in account. The bondholders of all countries are united in common interest to a degree that renders presumably certain the adoption of a portion of the debt, for ex- ample, of a vast country like Turkey, by the provinces, if the autonomy of any portions were conceded, or if any section of the territory became incorporated with another Kingdom. The principle of the settlement of a proportion of the debt of a country upon its territory has been recognized more than once in the last quarter of a century. In the case of Rome and the other Italian States, the whole debt went with the soil of the annexed territories. Whatever may happen to the Mahomedan rulers of Turkey in Europe, no new distribution of territory nor adjustment of rights is likely to be effected without a propor- tionate allotment and recognition of the existing foreign debts. — From a Paper by Mr. W. H. Bishop.] T 138 SPECIMENS OF FOREIGN BORROWING. When the bond is issued at a large discount and is to be repaid at par, or even above par, the amount of discount on the issue is often a serious item, and materially affects the repayment annuity required to be set aside. The bonus returned on the cash received is equivalent to a further interest paid in a single sum. It represents to the person receiving it a rate of profit on his lending, largely differing according to the number of years the drawing of his bond happens to be deferred. 10. — We subjoin a few specimens of the terms upon which two of the largest borrowers amongst foreign States have raised loans : — Particulars of Loans. TUKKISH. Egyptian. 1866. 1869. 1871. 1868. 1870. Khedive. Nominal amount of loan - . - Price of IssiTC per £100 bond - Yearly dividend on the £100 bond Nearest rate of in- terest correspond- ing to the price of issue, exclusive of bonus - Bonus to be paid by the half-yearly drawings of the bonds at par Original annual rate of sinking fund per £100 bond Eepayment annuity Number of years the loan 1b to last Special security given - £ s. d. 6,000,000 65 10 6 9 3 2 34 10 2 8 9 8 8 9 21 years. Sheep taxes, Tokah mines, Syrian in- demnity. £ s. d. 22,222,220 60 10 6 9 18 4 39 10 10 7 33 years. Tithes, etc. £ s. d. 6,700,000 73 6 8 4 6 27 10 7 34 years. Egyptian Tri- bute. £ s. d. 11,890,000 75 7 9 6 8 26 1 4i 8 4J 30 years. £ s. d. 7,142,860 78 10 less div. 7 9 6 8 26 2 7 3 9 7 3 20 years. Private domains THE COST OF THE EGYPTIAN LOAN OF 1868. 139 In the above specimens of Foreign debts, if we take for example the Egyptian loan of 1868 (as one convenient for illus- tration by figures) , it is observed that in return for £75 paid, the bondholder is to receive £7 a year in dividends until the bond shall be drawn for repayment, and that it is to be paid off at par (£100) by a system of drawings which are to take place half-yearly, from the beginning throughout a term of 30 years. To meet these drawings a"'^ sinking fund of 1.0177 is added to the dividends throughout the term, so that to liquidate each million of bonds issued, an annual cost of £80,1 77 is incurred for 30 years, payable half-yearly, which by the table in Section 1 is the repayment rate at £7 per cent, per annum. This £80,177 a year for 30 years represents an aggregate of £2,405,310 to be paid for the loan of £750,000 cash received on each million in bonds. Had the loans been an ordinary borrowing at 7 per cent, the £750,000 would require only £60,132 155. a year for 30 years to repay it, principal and interest; the total payments would be only £1,803,982 105. As only £750,000 cash was received for the bonds this f annuity represents about lOJ per cent, per annum as the mean cost to the State for interest each year, which is equivalent to the £7 dividends and the £25 bonus. [* The sinking fund on this loan is generally spoken of as £1 per cent., but •when four places of decimals are used the correct figure would be 1.0177, or slightly over ^1 Os. 4^d. per cent. The nominal amount of the loan of 1868 was £11,890,000, and the annuity set aside is £953,297, being within a few pounds of the tabular rate. The necessity for great precision, in compound interest calculations relating to large sums of money, is seen by what would be the effect if the 4|(i., or the decimals, were omitted in the annuity. They repre- sent £177 per million, or £2,104 10s. 7d. a year on the £11,890,000 of debt. This amount, measured in connection "ivdth the repayment annuity, would give rise to a deficiency exceeding £200,000 in bonds unredeemed.] [t At 10 per cent, interest an annuity of £79,242 a year, paid half-yearly, would repay a loan of £750,000 in 30 years.] 140 Section 3. — As to profit to lenders Art. 11. — If the lender of £75 above received back only ^75 at the end of the term, then the £,7 a year dividend would be pro- ducing to him j£9 6*. 8cf. per cent, interest per annum ; but as he is to obtain, in addition, a bonus of £25 when his bond is drawn, this is a further profit. For all practical purposes it might be sufficient to regard the profit from the £25 bonus on the £75 separately from the £7 a year dividend, especially as the bonus itself is increased or dimi- nished, and the rate of interest varied by the price paid for the bond in the market, according as it is less or more than £75. There would be a further convenience in viewing the bonus as a distinct rate of interest or profit, on account of its being dependent on the chance of a drawing, which chance increases each year, while the value of the additional profit so made by an investor decreases with the length of time the drawing is deferred. 12. — But, if the calculations be made with strict arithmetical pre- cision, the cost in dividends and bonuses to the State, as we have remarked above, will be fomid to be equal to an average rate of interest on all the bonds of about * 10| per cent per annum. The investor will, however, make much more, or a little less, than 10^ per cent., according to the year in which his bond happens to be drawn. Thus, if his bond be one of the last repaid, viz., at the end of the period of 30 years, then his dividends and bonus afford to him a mean rate of interest of 9-i- per cent, per annum. In other words, the bonus in that year only raises the rate of interest on his £75 from 9^ per cent, per annum (the [* The curious in such matters, who may not be familiar -with mathematical formulae, can verify the above and other like stiitements by constructing a Table, similar to the one on page 135, in which the interest is added at the rate specified, and the annuity deducted half-yearly or yearly, as the case may be.] THE PKOFIT TO LENDERS. 141 interest which the dividend alone would pay) to O} per cent, per annum. The tabular value of the dividend and bonus together being £75 6s. 2^d., in this case. On the other hand the bondholder, who had his bond drawn in the first year, received £7 and £100. This £107 for £75 paid was equivalent to a rate of £42 13*. 4d. per cent, interest, apart from the fact that half the £7 was received in the middle of the year. If the bond be drawn in the 15th or mean year, the average profit per annum made for the 15 years is about 10| per cent. 142 Section 4. — On the cost to borrowing States, continued. Art. 13. — It will be noticed in the preceding that we have spoken as if the Egyptian treasury had actudlly received £75 per bond issued; but, in raising money, Governments have to pay large sums to agents, and frequently have to sell many of the bonds below the ostensible price of issue. If we pass to other countries a lamentable state of things is seen, indicating a great want of prudence in the borrowers, and much foolish cupidity for gain in the lenders. Taking an illustration from the Turkish loans, we find that the 6 per cent, loan of 1865 (familiarly termed the " Muttons ") was for six millions, issued at the price of £65 \0s. per cent., redeem- able at par by half-yearly drawings in 21 years. The lender was thus offered for his £65 10*. an income of £6 a year and a bonus of £34 10*. Now, until repaid, the dividend alone affords him £9 Ss. 2d. a year interest per cent, for the money, while in some year, at the latest 21 years after 1865, he was to receive a bonus of £34 10*., or over 50 per cent, on the cash paid by him to the Turkish Government. Although these terms were so unusually heavy yet care was taken to provide for the repayment, for it was stipulated that all the sheep taxes of Anatolia, Roumelia and the Archipelago, the produce of the Tokah mines, and the balance of the Syrian in- demnity should be reserved as a special security for this debt. The (Cohen) 6 per cent, loan of Turkey raised in 1869 for over twenty-two millions was not less imprudent. The terms were £60 10*. as the price of issue, for which the dividend of 6 per cent, afforded near £10 per cent, to the purchaser, while a bonus of £39 10s. per bond was promised at the latest in 33 years, or in the interval by half-yearly drawings. In other words, by way of contrasting example, if a lender had placed £605 in ten bonds of the " Cohen" loan at its price of issue, he expected to reap (without exertion or risk) an income of £60 THE COST OP LOANS TO FOREIGN STATES. 143 a year from dividends and £1^000 in repayment of the jS605 in the 33 years. If the same person had placed his money in English Stock, the income for his £605 would not have reached j620 a year ; if in Russian or French Stock the annual produce would have been under £35. In neither of these cases would there have beep a Bonus of j£395 on repayment. 14. — It will occur to the reader that if the lenders themselves had bargained for such terms, they could scarcely be entitled to much sympathy. But they did not do so, for they had no part in the contract upon which the bonds were issued. The reckless nature of the loans made to struggling foreign States has been ably discussed by Mr. Arthur Crump, so well known by his articles as city editor of the Times. He remarks that " when a loan is issued at a certain price redeemable within a given time by a sinking fund, the redemption price at par, or any other figure above par, adds to the glitter of the bait in the eyes of the public. As the drawings based upon this sinking fund begin some- times 3, sometimes 6, and, at the outside, 12 months after the issue of the loan, it is obvious that, in proportion to the lowness of the issue price, is the attractiveness of the lure which places it in every bondholder's chance to have his bonds drawn at a premium on the sum paid by him of 20, 40, or 50 per cent., as the case may be. If the bonds held by the public be taken to represent the lottery ticket, we have in the annual or semi-annual drawings an exact reproduction of the old lottery business. The only difference is that, so long as the borrower is solvent, lenders obtain usurious interest for the loan of the capital which they invested in these tickets until their numbers are drawn.'' He recognises that the system of redeeming at par, on which this lottery drawing is based, may contrast favourably for example with the English practice of funding debts for an indefinite period, or for ever. The one system appears to show a laudable desire to keep open 144 THE USE OF A SINKING FUND. a clear way out of debt^ the other evinces an apparently total dis- regard for the good of posterity^ and, what is perhaps more important, for the dictates of common prudence. But a glance at the list of defaulting securities will show how frequently this specious show of thrift is fallacious. When the loans redeemed are issued in the first instance at a discount, the par drawings con- stitute a large premium, which a Government or a company is either forced or is content to pay for the use of a decreasing sum of money for a given time. He argues that, — " The true way to use a sinking fund, of whatever percentage, is to apply it in redemption of the bonds by buying them in at market price, just as the English Government buys up Consols with surplus revenue," occasionally. No doubt such a system is sound where the money saved in interest on the bonds bought is steadily applied to increase the amount available to redeem bonds in succeeding years. This is the design of the Act of Parliament of 1875, whereby a permanent annual sum, which will be 28 millions a year in 1878, is to be applied to pay interest and buy up bonds of the English debt, independently of the action of the old sinking fund. The effect, however, will still be very small on the large English debt. 15. — Where repayment is seriously designed, Mr. Crump contends that, — "If the credit of a Government is likely to improve, so that what money it now has to pay highly for, it could by-and-by get cheaply, then the sensible plan for those who wish to provide for getting out of debt, or for easing the charges of debt when the better days come, is to issue bonds in series, redeem- able at fixed dates and prices. This is good for the Government, who at such dates can probably substitute a low interest-bearing stock for a high, if not able to repay the principal, and it is good for the public, because everybody knows what he is lending upon, and for how long he lends. The gambling element is removed from the transaction, and if it be provided that the redemption of such bonds shall be effected at par price, there is ample security for everybody. The holder knows that, given the solvency of the Government, he will not have to take less than he gave, and the Government knows that it cannot be forced to take back its obligations at a high premium. These are simple and natural provisions, to which no one can make any serious objection," TWO DEFECTS IN LOTTERY DEAWINGS. 145 16. — The same writer points out two defects of many of the lottery drawings : the one that they are eminently usurious in many cases ; the other that the drawings begin too soon, so soon, in fact, that the Governments have not time to benefit by the money borrowed. This last objection could, however, be removed by deferring the first drawing for 5 or 7 years. He says : — " The half-yearly lottery drawing loans, and their* Sinking Fund arrange- ments are of a most onerous kind for the borrower. As the announcement is usually made upon a prospectus, the plan looks at the worst a mere offer of Bonus by the borrower, greater or less according to his credit. The sinking fund is 1, 2, or 3 per cent., as the case may be, by which the incidence of that bonus is distributed over the whole period of the loan. When a country ostensibly borrows at 70, and begins its paying-off arrangements at 100 the next year, it strikes mere outsiders as tolerably heavy terms, but not probably as in any way disastrous. * ♦ * * But one loan is not half utilized before another is needed to pay the remainder of the first. Taking into account the number of years which the borrower gets the use of the money for, the best -priced and longest-running loans mentioned below are, obviously, extravagantly dear, some of them ruinously so. They would be dear had the borrower the use of the whole of the money throughout the entire period, ["'■ On this subject the following letter appeared in a financial paper, which shows that the writer shared a misconception that occasionally prevails with regard to compound interest calculations : — '' Sir, — The Times of to-day, in its Money Article, has given the public the benefit of its ideas upon the effects of Foreign Loans carrying Drawings, as being demoralising to the lenders, and ruinous to the borrowing States. To make out its theoiy, however, the Times makes the unhappy borrower pay interest upon the full amount of the Loan during the whole time of its o^)era- tion, not being aware, apparently, that upon the drawn Bonds the interest ceases, and the yearly charge consequently becomes less and less. The Times' mode of financing would certainly be a ruinous one. It is to be hoped the writer of this homily -will employ his next holiday moments to better advantage, and, before engaging to teach the public, take a few lessons himself in common arithmetic. — Yours, &c., "A. B.] "City, May 18th, 1875."] U 146 A SINKING FUND IS NOT ALWAYS ONEROUS. and the amount of capital left in his hands were not a diminishing quantity year by year. " It may, of course, be urged that in some instances the borrowing party would pay more to the lender did the capital lent simply remain in his hands, to be repaid at a fixed time, bearing interest at 5, 6, or 7 per cent, as the case may be, till that time was up. That is doubtless true. In 20 years' time, for example, interest at 5 per cent, will amount to the capital of a loan, and if added to the capital paid back, we shall suppose, at the end of that period, will make the amount paid altogether by the borrower seem a very large sum. But the dra^ving loans, it cannot be too clearly explained, are not of this nature at all. The* borrower does not keep the capital for the whole period ; on the contrary, he begins paying it off at once, and to anyone who knows how long it takes capital in most instances to fructify so as to reproduce itself with usury — how rarely, in fact, it ever does so — it will at once be evident that capital borrowed on these terms for reproductive purposes must in 19 cases out of 20 [* The above remarks seem founded on an impression that the payment of the sinking fund with the interest makes the loan specially onerous. This is not always the case. Keferring to the example before given of the Egyptian Loan of 1868 which costs £80,177 a year per million in £100 bonds for £750,000 cash received, covering interest and sinking fund. Here, if no bonds were drawn, the annual cost would be £70,000 for interest alone throughout the 30 years, when the million to pay off the bonds at the end would have to be forthcoming. It is probable, therefore, that it is better for the government (which entered into so improvident a bargain) to set aside £10,177 a year more for the 30 years rather than have to find £1,000,000 in cash at the end. It is for a like reason that the recent suggestion that Peru should postpone the sinking fund on its 5 per cent, loan, would not help that country sufficiently. If relief be given it must be by the creditors consenting to treat the borrowers with less usury, and to accept such a rate of interest on their bonds, as more fairly corresponds to the cash received, and to what is usually demanded from States which are treated as honest in their intentions. Granting that the lenders have claims, so, also, is consideration expedient to the struggling popu- lations of the countries that have borrowed. In most cases the burdens they have already to bear are very heavy, and out of their smeJl earnings there is little mai^in to pay an extravagant debt. If, however, moderation be exer- cised in the present, the future may contain resources to meet a just arrange- ment.] THE USURIOUS NATURE OF CERTAIN LOANS. 147 prove a mere delusion and a snare. If reproductive works are prospering, their tendency is to require more capital, not less. There is no different law regu- lating the business of a State from that which controls the growth of the operations of a private firm. Our English Railways— the most prosperous of them — are not in a position to pay back capital ; they are, instead, constantly needing more, just because they ai-e for the most part flourishing. Yet we find foreign States, companies. Trusts, corporations of all kinds proceeding on an assumption contrary to all fact5, borrowing at heaAnr rates only to begin paying back, without gi-ving the chance to capital to take root and fructify. It needs no demonstration to prove that business done in this way is most unsound ; too often it proves most ruinous." 17. — This writer gives a list of certain public debts which, he remarks :— " Were chosen simply as the securities came, and with a view to give recent examples in the prominent foreign State loans that are launched on the im- provident system deprecated. There is, therefore, nothing exceptional in the figures. The best are there, and, perhaps, the worst, and of even the best it is not too much to say that they do not give a pleasing prospect in the future to those States who have committed themselves to this fallacious mode of raising sums of money for temporary or ' reproductive ' purposes. It should in fair- ness be stated, however, that the debts of some of the States here given are not entirely contracted after this fashion. Both Russia and Turkey, for example, have a great deal more than we have set do^vn below, and much of this debt is not subject to the lottery principle. [See also our specimen table in section 2.] Name of Loan. Issue Price. Argentine 6 per cent., 1871 88J Bolivian 6 per cent., 1872 68 Brazilian 5 per cent., 1866 74 ChlUan 6 per cent., 1873 94 „ 6 per cent., 1876 88J Egyptian 7 per cent., 1868 75 „ 7 per cent., 1873 84j Hungarian 5 per cent., 1871 81 6 per cent., 1873 80 Italian State Domain, 1865 77J Japanese 9 per cent., 1870 98 7 per cent., 1873 924 Peruvian 6 per cent., 1870 82} ,. 6 per cent., 1872 77j Spanish (Quicksilver) 5 per cent., 1871 80 Turkish 6 per cent., 1869 60* 6 per cent., 1873 68} Uruguay 6 per cent., 1871 72 RepajTnent Annuity, or Interest and Sinking Fund, I>er cent, per annum. ll| .... 19 9 8 from 1880 7 6} .... 7 7 8i .... Kominal Amount of Loan. £6,122,400 1,700,000 6,963,500 2,276,600 1,000,000 11,890,000 32,000,000 3,000,000 6,400,000 8,000,000 1,000,000 2,400,000 11,920,000 23.216,000 2.318400 22,222,220 14,000.000 3,500,000 "So. of Years to run. 21 24 37 26 26 30 30 32 30 16 10 22 34 26 30 33 33 21 148 THE USURIOUS NATURE OF CERTAIN LOANS. Name of Loan. •Net Produce to Bon'ower. Argentine 6 per cent., 1871 £6,418,324 Bolivian 6 per cent., 1872 1.16G,000 Brazilian 6 per cent, 1866 6,152,990 Chilian 5 per cent., 1873 2,139,910 „ 6 per cent., 1875 882,600 Egyptian 7 per cent., 1868 8,917,600 7 per cent., 1873 26,960,000 Hungarian 6 per cent., 1871 2.430,000 „ 6 per cent., 1 873 4.320,000 Italian State Domain. 1865 6,200,000 Japanese 9 per cent., 1870 !)8(!,000 7 per cent., 1873 2,220,000 Peruvian 6 per cent., 1870 9,834,000 6 per cent., 1872 17,991,626 Spanish (Quicksilver) 5 per cent., 1871 1,854,480 Turkish 6 per cent., 1F69 13,444,443 „ 6 per cent., 187."? 8,190,000 Uruguay 6 per cent , 1871 2,620,000 Annual Charge throughout. £620,404 1 36,000 417,810 159.356 70,000 1 951 ,200 2,560,000 190,000 351,000 906,660 190.000 216,000 1,013,200 1,625.050 150,676 1,565,555 9'30,000 297,500 Total Cost to Borrower, in- cluding Capital repaid at Redemption. £10,928,484 3,235.440 15,341,983 4.092,236 1,797.600 29,£3n.37G 78,(i68,600 6.133,200 10,547,5.00 14,506,606 2,080,000 4,801.680 24,104,028 41,730,584 4,527,813 51,939,981 32.722,200 6,247,500 18. — Another financial X Journal points, however, to a deeper moral in the arguments of Mr. Crump than is obvious at first sight : — "He furnishes a list which shows the hard terms of some 18 loans broiiglit out during the last 10 years (1865-75). Thus the Egyptian Loan of 1808, which yielded a little short of £9,000,000 net to the Government, will cost for re- demption upwards of £29,000,000, Avhile the Turkish 6 per Cent, of 1873, which yielded rather more than £8,000,000, will cost for redemption upwards of £32,000,000. These are terrible terms for the borrowers, but the cases quoted are selected at random, and are all on conditions substantially as onerous. " We have recently been calling defaulting States severely to task for their poverty and their faithlessness. The Council of Foreign Bondholders finds its raison d'Stre in these unliappy defaults ; but all the time we ourselves have been rank usurers, and are only now suffering a penalty which we have deliberately provoked. We have no sympathy with * West End usurers,' because of their extortions. What claim can City usurers have on our sym- pathies, when they find their debtors in default ? And it is on behalf of this abominable usury, and of those who practise it, that we are called to arouse the [* " Net," that is exclusive of commissions paid by borrower to loan agents varying from 2 per cent, in the case of good financial houses, to 5, 10, or more where the borrower is weak and the agents unscrupulous.] [t The actual figure according to the prospectus is £953,297.] [X The Monetary Gazette.] ALTERNATIVE MEASURES. 149 national indignation against the wretched States that are crushed beneath the burden of our covetousness ! Surely if the terms of these loans are not mis- stated, even the defaulters among the poor South American Republics are ' more sinned against than sinning.' The lust of our avarice has imposed on them burdens which from the first it was impossible for them to bear, and the lenders are responsible and as much to be blamed for the inevitable collapse as the borrowers. Nay, much more, for the borrowers may at least put in the ex- tenuating plea that they entered unwillingly on a bad bargain under the over- whelming pressure of straitened circumstances — a plea of which the lenders cannot possibly avail themselves. We are now taught to denounce these loans as prodigious engines for draining a country of its resources, or a means of dragging a corporation to ruin. But these terms, if ruinous to the borrower, are demoralizing and degrading to the lenders. There is no escape from that." Section 5. — Alternative Measures. Art. 19. — Supposing, then, a Government to find it convenient to raise money on the annuity system of repayment, it must yet be recognised that the mere applying of it by drawings does not increase the cost. It is the rate of interest involved and the amount of bonus that have to be looked to. If in future loans all drawing of bonds were omitted (as the recent parliamentary com- mittee almost recommends) it is doubtful whether the change would meet the views of the public at the present time. In this, as in other ^ countries, the system has become very popular and [* Abroad a system of prizes has been superadded, which is quite a distinct thing from mere repayment of debt with a moderate bonus by drawings. For example, on the 26th drawing of prizes, May 15th, 1874, in the city of Brussels loan of 1867, there was one prize of 25,000f. one of 2,000f., and two of l,000f. Again, the Communal Council of Antwerp, September, 187-4, ratified a contract entered into with Messrs. Errera, Oppenheim, Cassel and Basenwitz, for a loan to the city of Antwerp of 60,000,000f. redeemable by 66 annual drawings. The loan to be issued in lottery bonds bearing interest at the rate of 3 per cent. 150 THE ATTfiACTIVENESS OF DEAWINGS. any attempt to discourage it here would only drive loans for issue abroad, but would not prevent their being bought and sold in the London market afterwards. The fact exists that corporations and foreign States, at home and elsewhere, which borrow money, find it to their advantage to seek the passing favour of investors by announcing periodic drawings. 20. — The rate of interest receivable is not now always the main attraction. The prospective or contingent advantage is an element agreeable to many purchasers, who are not in any sense speculators. A loan of j6100 carrying 6 per cent, interest, issued at par and re- payable at par, would not be so attractive as another loan bearing In the Austrian Government loans of 1854 and 1860, Raab-Gratz Railway loan (guaranteed by the Austro-Hungarian Government), Russian Government (Internal) loans of 1864 and 1866, and in the loans of the following European cities, viz. : — Paris, Amsterdam, Brussels, Antwerp, Naples and Florence, the Debentures bear interest at from 3 to 5| per cent, per annum, and are redeem- able within a stated period by drawings at par. On each occasion a certain proportion is drawn with premiums, varying in amoimt from 4,000fl. to 30,000fl., the principle adopted being the payment of a small rate of interest on the bonds, while a further 1 per cent, per annum — more or less, as the case may be — is divided amongst the bondholders. Instead of each bond receiving its fractional participation, a few bonds are drawn with large sums representing that additional amount of interest upon the whole loan. The period for which they are issued is generally fifty or sixty years, by the expiration of which time it is promised that all shall be drawn at par, or higher. The Debentures of the Austrian Government loan of 1839, for 250fl. each, or £25 are sold at 720fl. or £12 each, as the final drawing takes place in 1878. It is stated that there are various Government and Municipal Debentures, which do not carry interest or dividends ; the entire available amount of inte- rest being appropriated to the operations of the sinking fund and to premiums. Amongst these loans are the following : — Austrian Government loan of 1864, Hungarian Government loan of 18Yo, Swedish Government loan of 1860, Finland loan of 1867, and loans of the undermentioned cities — viz., Vienna, Genoa, Milan, Venice, Bucharest, &c.] EXPENSIVE NATURE OP THE EGYPTIAN LOAN. 151 only 5 per cent., and having the additional £1 a year to form a Bonus drawing fund. The question then arises whether the dividend rate of interest should not, as a rule, be put somewhat lower than is the practice, and the money (otherwise payable in interest) be saved, so as to be used to keep up the half-yearly funds for drawings or repay- ment of stock. 21. — Taking the example of the Egyptian loan of 1868, even if the interest alone be looked at, the transaction was a costly one ; for without the bonus of j625, the rate of interest afforded by £T a year* dividend on £75 is 9J per cent. Such an offer to borrowers by a Government that has every element of soundness, apart from a repute for habitual integrity, was unnecessarily pro- fuse. The whole mean equivalent cost of 10^ per cent, per annum in itself would not be a very large rate of interest for a country in the situation of Egypt to pay for an advance if the present time by itself be considered ; but to pledge its credit for the payment of 10^ per cent, a year for so long a term of years as 30, was to ignore all probable improvement in its finances in the future, when money would be obtainable at a percentage more in accord- ance with the equitable usages of other countries. How greatly the length of time, as well as the rate, affects the question is seen by remembering that, as money would double in about 7 years at [* In long terms of years selected for a loan, where the dividend on the stock is such as to give a high rate of interest on the cash received by the borrower the payment of a bonus on redemption does not add to the expensiveness of the loan, so much as at first sight might be imagined. A striking illustration of this is shown by the above case of Egypt ; for supposing no ^25 bonus were payable per bond at all, the redemption in 30 years of the cash received, £750,000, carrying only a dividend of £7 per bond (or 9 J per cent.) interest half yearly, would cost £74,854.275 (£74,854 5s. 6d.) a year — yet with a bonus of £250,000 the redemption annuity for the debt of one million is, as we have stated, but £80,177 or £5,322 14s. Qd. a year more.] 162 BXPENSIVENESS OF THE EGYPTIAN LOAN. 10^ per cent, per annum half-yearly, a million would be multiplied nineteen-fold in the 30 years. For in 28 years, or 4 times 7 years, one million would accumulate with such a rate of interest to nearly sixteen-fold, and by the close of two years more, the further interest would make up nineteen millions. [See further on the Memoria Technica Tables and the property of the Number 70.] Now, if the dividend instead of £7 had been £4 lO*. on the stock issued at £75, it would have given to investors a very high rate of interest viz., 6 per cent, per annum ; while if the present repayment annuity had still been set aside, then a loan of £750,000, with all the bonuses of £250,000, would have been capable of liquidation by drawings (reckoning interest half-yearly) in little over 18^ years instead of 30 years. Both parties would have had reason to be satisfied with the arrangement described. The purchasers of the Egyptian stock would, indeed, have had less interest — viz., 6 per cent, per annum, — but they would be all repaid with their bonuses of £25 in the 18^ years. The State would have 30 years less 18^, that is 11^ years' payments fewer to make. The total loan was £11,890,000 and £953,297 a year is the annuity the Government sets aside. The aggregate of the payment saved would be £953,297 multiplied by 11^ or £10,962,915 10*. CHAPTER II. Of Dividends and Drawings in Foreign Stocks. Section 1. — The relative values of Dividends and Drawings. Art. 22. — The various stocks of a Foreign Government can rarely be compared with each other on precisely the same footing, Many^ being ostensibly guaranteed by some particular security, have had until lately a higher value in the market which is not likely, after recent events, to continue. A difference of price has also been observable in stocks of an earlier issue as com- pared with those of later dates. The relative values of different loans is affected by the amounts of the sinking funds applied to drawings. Ten years ago there were only a few stocks that possessed the drawing privilege, and the character aud value of the arrangement were very imperfectly understood. Conse- quently at that time there was scarcely any difference in the market prices of stocks having different allowances for drawings. In general, the term of years for the redemption of the earlier loans is shorter than in the later ones, thus giving to the first the largest rate of repayments. Moreover, the chance of a drawing to each investor increases each year, from the fraction, which measures it, depending on the amount available for paying off bonds, and the reduced balance of the whole debt outstanding. As some guide we give the following table, which shows how much of the outlay in the purchase of bonds or other securities, repayable by drawings and carrying 6 and 7 per cent, interest, corresponds to the dividend income receivable, and how much to the par value £100 of the bond, according to the number of years that elapse before it is drawn : — 154 DIVIDENDS AND DRAWINGS TABLE Showing the values of bonds carrying £Q and £7 dividends a year respectively, with £100 par value receivable by Drawings at the end of uncertain periods of years. [Discounted half- yearly at 6 and 7 per cent. per annum respectively.] Present value discounted at 6 per Present value discounted at 7 per Tears. cent, of cent, of £6 a year Dividend. £100. £7 a year Dividend. £100. 1 5.740 94.260 6.649 93.351 2 11.151 88.849 12.856 87.144 3 16.252 83.748 18.650 81.350 4 21.059 78.941 24.059 75.941 5 25.591 74.409 29.108 70.892 6 29.862 70.138 33.822 66.178 7 33.888 66.112 38.222 61.778 8 37.683 62.317 42.329 57.671 9 41.261 58.739 46.164 53.836 10 44.632 55.368 49.743 50.257 11 47.811 52.189 53.085 46.915 12 50.807 49.193 56.204 43.796 13 53.631 46.369 59.116 40.884 14 56.292 43.708 61.835 38.165 15 58.801 41.199 64.372 35.628 16 61.166 38.834 66.741 33.259 17 63.396 36.604 68.952 31.048 18 65.497 34.503 71.017 28.983 19 67.477 32.523 72.944 27.056 20 69.344 30.656 74.743 25.257 21 71.104 28.896 76.422 23.578 22 72.763 27.237 77.990 22.010 23 74.326 25.674 79.453 20.547 24 75.800 24.200 80.819 19.181 25 77.189 22.811 82.095 17.905 26 78.499 21.501 83.285 16.715 27 79.733 20.267 84.397 15.603 28 80.896 19.104 85.434 14.566 29 81.993 18.007 86.402 13.598 30 83.027 16.973 87.307 12.693 31 84.001 15.999 88.151 11.849 32 84.919 15.081 88.938 11.062 33 85.785 14.215 89.674 10.326 34 86.601 13.399 90.360 9.640 35 87.370 12.630 91.001 8.999 VALUES OF DIVIDENDS AND DRAWINGS. 155 In the preceding table as the figures, for the present value of a £100 at 6 and 7 per cent, at the end of any number of years, are only given up to 35, it may incidentally be mentioned that, if the number of years exceeds the last in the table, the desired figures can be obtained thus : — Say the number of years is 50 — the present value of j6100 at the end of 50 years is the product of the present values for any two or more numbers of years which make up 50. Thus the present value of .sBlOO in 20 years multiplied by that for 30 years, or 25.257 multiplied by 12.G93, gives 3.206, the present value of £100 in 50 years at 7 per cent. The present value of an annuity for any number of years beyond 35 can also be found from this table by the Rule given in Chap. I., Sect. 1, No. 6 of this Part. 23. — When the cost of a bond is compared with the preceding table, it will be found that frequently the market price is under the present value of the "dividend alone, even for the whole un- expired time. Thus, the "Cohen " Turkish loan of 1869, which has about 27 years to run, has a nominal £Q a year in di^ddend, of ■which the value for that time is by the table 79.733 or £79 145. 8c?. The market price of the stock in October 1875 fell to £32 \0s. or £47 4*. 8tf. below the measure of the dividend ; and no worth was attached to the £100 receivable per bond ; showing reasonable anti- cipations that a Government, which has raised money on such terms, would probably be unable to continue the stipulated repayments. Again, the Egyptian Stock of 1868, which has, in 1875, about 23 years unexpired, produces £7 a year dividend, of which the value would be 79.453 or £79 9^. \d. Even when no panic in- fluence has been at work, the market price was but two or three pounds over the value of the dividend, leaving little for the £100 bond itself, which is receivable at latest by the end of the 23 years. The table shows, as it should, that the present value of a divi- dend receivable for any number of years, added to the present value of the £100 on the bond at the end, is equal to £100. 156 VALUES OF DIVIDENDS AND DRAWINGS. Supposing the Egyptian bond to be drawn at the end of 10 years, the relative values are nearly equal, viz., £49.743 for the £7 a year dividends, and £50.257 for the £100 drawing. Section 2. — As to Stocks at a Premium, which are redeemable at par. Art. 24. — The following table, calculated at half-yearly interest, will serve for the correct assessment of the prices of stocks at a premium, Avhen they pay a high interest-dividend, but are subject to the condition of being paid off at par. Thus, suppose a stock paying £7 a year dividend half-yearly is redeemable by £100 at the end of 10 years, what the premium should be will depend upon the * purchaser's notion of how much [^ On this subject the Financier in 1874 had some observations of much practical value : — " Stocks, redeemable at par, whicli are quoted at a premium in the market, present a peculiar feature to intending investors, inasmuch as the premium paid must be allowed for in calculating the rate of interest returned, assuming that the Stock be held until its maturity. The market price would experience a gradual decline until the final year before redemption, when it would probably be quoted only so much above par as would represent one year's interest. The gradual decline in the quotations of Securities from this cause may be traced by comparing the prices current from one year to another. One example will show this. In 1869 India Five per Cents., redeemable in 1880, were quoted at 114. The Stock being redeemable in 11 years from 1869, should have declined about IJ per cent, each year afterwards. The price now, after four and a half years, is 107|, so that it has declined 6^ per cent., or more than the 1| in each year. This decline has not, however, taken place regularly each year to the extent of Ij per cent., although the result after four and a half years shows REDEEMABLE STOCKS AT A PREMIUM. 157 less than 7 per cent, a year he will be satisfied to be making for his money. If it be 5 per cent., then the present value of jglOO of such stock would be .£115.590 or £115 11*. 10c?. that the influence was at work. The following average price for each year shows how the do'\\Tiward movement went on : — Average prices in — 1868. 1869. 1870. 1871. 1872. 1873. 114 . .. 113 . .. 110 . .. Ill . .. 110 . .. 109 Similarly, the prices of the different Colonial Government Bonds vary con- siderably, according to the dates of their redemption. For instance, Canadian Six per Cents., redeemable in 1876, are quoted at 104, whilst the Six per Cents, of the same Colony, redeemable in 1881 to 1884, are quoted at 110 ; and, amongst South Australian Bonds, the Six per Cents, redeemable between 1881 and 1890 are quoted at 114, and those redeemable between 1901 and 1918 are quoted at 123. " In the case of Foreign Government Loans quoted above par, where the re- demption takes place by draAvings, the investor has to calculate his chance of having Bonds drawn as reducing his income. Loans quoted above par and subject to periodical drawings, pay in interest more than Loans quoted below par in which the drawings raise instead of reducing the return. An instance of this may be found in the Egyptian Viceroy Loans. The Nine per Cent. Loan is quoted at 101, and, at that price, pays the investor nearly 9 per cent. On the other hand, the Seven per Cent. Loan, at 90, pays less than 8 per Cent., but then the holder has the chance of a bonus of 10 per cent, each year, and the certainty of it in the course of a defined number of years. The recent advance in Russian Five per Cent. Stocks to par has not only reduced the rate of interest offered to an investor at the market price, but has also done away with the bonus obtainable on redemption, which, three years ago, amounted to nearly 20 per cent."] 158 4» 1^ 8 b** C3 ^S ^ s "e 5^ >i i ^ s ^ « \^ V to t— 1 •> ^ la M » « Pi i.. -§ (^ ^ "53 H ■^ § < Ol O O 'spon ■year H b ^ C/J (^ o -!< S i-H ^ ^ g ^ "? S5. 53 •^ s -■^ 5^1 -ts "O (JJ g « ^ ^ ^ -^ 8 Q i^; •§ ^ S* o •o Ci o r^ •o 00 C4 o ,.4 OS i o lo CO o o OS o c< ■^ 00 *^ °o » "9 »o ^ ''J* Oi •^ U5 •6 id o o o o ?^ ;:! ;^ M CO Cm o CO g l^ o 00 A OS o o ■^ a> s 00 *o It >o o CO a •«: "^ o ^ OS OS ■^ s CD ,^ lO oo o r-i CO to' ■fl< »d O »— ' 1— « c< e^ e< N cs tf '♦t '"' '^ '~' l-l *"* *"* '■' '"' *"* '^ ^ ^j •o h-T ^ :^ o a ct e^ o o c^ C4 00 00 c< CO Tl< o P« o o o OS >a 02 1^ ^ U5 a) m » •* CO CO b «5 o" id o O) ■<*' •a' o o c< r^ ^ I-H ;a 03 '> ,a 5 1 o n Uti (^ CO CO us CO oo U5 CO .9 00 iC la ■* m >o 00 lO o ^ o o ^ OS O lO fl 1 OS t^ M t^ C3 CD OS 0) j^ c. •— ' CO ■* -^ •* ■»< > gn i-to *^ ■"^ '5b ■<# c _o 3 "3 C a 4^ « a C3 m ■«■ -* CO o CO OS t^ 2 c» 05 -* 'J' •^ ^ t> ■^ S « cs rH CO CO CO J3 fi. u n •^ t-4 r^ oi CO 05 (N ■^ -*^ CIS ■^ ^ o U5 CD p. a" ^^^ o m L^ CO >c ■o ■* OS CO CO '3 » 03 o lO -t o o c5 o ■^ •»; *o rH ■01 "*. =1 « 1 2 u -* t-^ o c« ■^ U3 CD tJ t* oo o o rH a A •"" •"• '■' •^ •"• '^ ""* '"' '•^ f— I s lO ^ -^ o a £1 d es o ■k^ o — !3 a o M ■^ CO CO ^ o» CO CO cq aj a. § g ■^ t^ s CO 3 J » ^ CD CS CO oi P» ■>J< CO t^ 00 OS o o ^ o» C» c^ s I-l "> Xi ce 5 B a) C4 C4 CO CO OS 00 -*j a « *^ ^ ■^ ■«. .9 § to s C4 53 s CO OS ^ CO P. '-' ^ •^ ■^ '^ "^ ■^ '"' £ ■<* >s bo c j^ c* Oi m f^ ^ 00 ^ ^ s -1^ ffl § 5 KS s t>; OJ CO ^ > -S .9 s § 1 s o 1 o 1 1 1 u a ^ c2 a 00 00 e< o OS CO i &0 ."2 § ■^ ^ s CO t-^ "^ Tfl 00 o> s '> ^ '^ 00 ^ CI? o o lO o S g U5 o ■* « * >l Urn * 159 Section 3. — On the effect of the surplus of Dividends, over a security rate of 4 per cent, per annum, in replacing Capital paid for Stocks. Art. 25. — When investments are made in securities bearing a large rate of dividend, the prudent purchaser is aware tliat a reserve should be made of a certain proportion of the dividend received. It is generally admitted that, as a rule, 4 per cent, is the highest rate of interest obtainable by private individuals, not engaged in monetary business, for money invested with a view of security ; while associations can make more. This point is not always remembered by persons, who, having received a large rate of interest for many years, are yet ready to complain of the risk on their capital; — If loss arise it can scarcely be viewed, in such a case, as other than partial in respect to the capital originally invested. The surplus received above £4 per cent, (which we will term the security rate) should be treated by the purchaser as being de facto a return of the capital invested ; and the money which he would have outstanding (and for which the undiminished dividends would be receivable) would decrease each year as shown by the following table, in which the first column shows how much of £100 invested can be written off each year by means of a surplus dividend of £\ a year, which is the excess of £5 over £4 per cent. That column will serve, therefore, for other calculations where the dividend produced by a purchase does not happen to fall into either of the columns. 160 -^ r/T s S! 'W O is o 'W *!?> '^^^ s ^ ^"^ S>-: s e en S I ^'^ o "^ s« ^ V^^ e 5^ a ^ S li g^"^ o "« rO ■J v> S » e ►o 2 55 ;*« 3^ 2«rt l-H CS CO -^ «) I :»' o 03 «4i rt 03 OlMOOOO^t-eOOmOJ OOt-ic^-^t^oicociJ^-, ^ 00 CO ic ^ ec CO ( ,_, ^ ^ ^ ._ ^ »-ix»-ioctfooooTj f-tC^COeO-^iC^Dt^COCi^rHC^ ^1-t^ r^f-. ^-^ OC>-, ^ i-l ri ^ CO -^ ■ i-i;C4oa»t~oao?^0"*>Oi-^-rt( ^^rtcNC^coeo-oooto^t-ooOi^'-'-^ O'-'-^COOCOt-Ht^COr-tOOO* O-*C^C00Ca50CIOCDi-IC^'0»e^C^05i-IO o" Tjc^cDOcot*c^!00»/ro»aocoMt;-;3*ot^C|?»-^o ^JSt^eioxMcocOTX-^ioiocacot-t-oocnoj^o^sq 10"OINOOOC0500COOOIO>00'*I-CC2""""^*~"'~"~'*'* fl £^ OC^tCr^mOOOS(MQO«5a>aOCOr-.r-'»'^'*J:;2'*^^®So S.^ OeOr^OtOi-IOXOi-lOOCOOOCOCCeO-^fHC^COOO-^COOCIOlt-OWOOJCO ^ o^eoioo-. ■*caoert-i>oousco«i»o«a>o«o050|Ot-e<2"^"*S"J^o" ^<^^oJ-*««^-coo»O^JJco;*««P;=c«OrHC5Co^offl^J«go. ^iio ^5 <5 C m U THE AEGEJSTINE AND DANUBIAN LOANS. 161 26. — Illustrations of Capital returned by surplus dividends. — (i.) — Suppose a private individual or a Trust to have purchased, on its first issue, some of the Argentine 6 per cent, loan of 1868, issued at 72^ ; the dividend of £6 a year is equal to interest at the rate of over 8 j per cent, per annum. In addition, the investors have participated in accumulative drawings at the rate of 2^ per cent, per annum, giving a bonus of 27^ per cent. The present price of 90 shows a rise of 17^ per cent, on the price of issue. If the sum invested was £725 in the purchase of ten bonds of £100 in 1868, the surplus of the dividends ^60 a year over £29, which is 4 per cent, on the £725, has been £31 a year, half-yearly . These surplus dividends, treated as capital received back, have in seven years to 1875 returned £247 12^. Zd. The balance of the £725 outstanding is reduced to £477 7s. 9d. If the Argentine Government should be able to continue to pay the onerous dividends of this loan for 9 years 8 months longer (making altogether 16 years 8 months since the time of issue), the purchaser will have received all his capital back by the surplus dividends, and will stand in the free enjoyment of £60 dividends in the future, without any capital invested, and until the ten bonds are repaid by £1,000. (ii.) — Taking the Danubian 8 per cent, loan issued at 71 in 1867, the recent price was 104, or a rise of 33. The original subscribers to this loan have received interest at the rate of over 11 1 per cent, per annum, and have participated in accumu- lative drawings at the rate of II per cent, per annum, giving a bonus of 29 per cent. In this case, if £710 had been invested in ten bonds, the surplus would be £51 12*. arising from the £80 a year dividends over £28 Ss. a year, which is the 4 per cent, on the £710. In 11 years 1 month in 1878 this surplus would enable the whole £710 to be written off, and the Trust would stand free of any capital outstanding, although the £80 a year would be still receivable until the ten bonds are drawn, and payment received of j61,000. 162 CAPITAL RETURNED BY SURPLUS DIVIDENDS. 27. — Both these examples, if advantageous to the purchaser, show the exceedingly improvident terms on which the Argentine Confederation and the Danubian Government raised the loans referred to. Hence the importance cannot be too much insisted upon, of regarding all surplus received over 4 per cent., and all bonuses, as capital returned, or as premiums to be set against the risk attending high dividend securities. " If an investor receives 8 per cent, for his money and spends the whole, he is, in effect, living upon capital, or, at any rate, running the risk of doing so, as a portion of the amount is really received as insurance against contingent loss." The * journal from which those words are quoted points out further that securities yielding high interest rise and fall to a larger extent than those yielding small interest, and, the difference in interest afforded is a measure of the difference in liability to variation according to the opinion of the market, a result which would naturally be expected. In other words the liability of stocks to fluctuation in value is proportionate to the excess of interest above the rate obtainable on undoubted security : ^^ If there be two stocks, each paying 5 per cent, on the nominal capital, one of which is quoted at par and the other at 50, and if it be assumed that the former will fluctuate in value to the extent of 5 per cent, in the course of a year, then it follows that, in the estimation of the market, the latter will fluctuate in value 30 per cent, during the sapie time, because the rates of interest yielded by the two stocks are 5 per cent, and 10 per cent, respectively, and the excess of interest above 4 per cent, is 1 per cent, and 6 per cent, respectively ; so that the fluctuation in the latter case may be expected to be six times that in the former.^^ [* Financier, 1874.] CHAPTER III. Tables — continued. Section 1. — Memoria Technica Tables. Art. 28. — For calculations connected with '^Trust" operatiDns the following curious property may be useful, which relates to the doubling of money at compound interest. It is convenient as being one easily remembered. When a sum of money increases to double its value by the accumulation of compound interest^ the analytical investigations assume a peculiar form, from which the following Rule arises : — For all rates of interest not exceeding 10 per cent. : — The Num- ber of years, in which a Single sum 7vill become double in amount by accumulation of compound interest, may be found in round numbers by dividing 70 by the rate of interest per cent . , and taking that whole number which is nearest to the quotient obtained. The accuracy of this Rule may be judged of by the following table, wherein the results agree very closely with the figures in the half-yearly interest column : — £100 or any other sum will double itself in Approximate time of Accurate time of Rate of interest per cent. doubling shown by doubling when interest per annum. the number 70 is compounded divided by the interest. half-yearly. 2 per cent. 35 years 34# years n „ 28 „ 27^ „ 3 23^ „ 23i% „ H „ 20 „ 20 „ 4 17i „ 17i „ H „ 151 „ 15tV „ 5 14 „ 14^ „ G 11* » Hi „ 7 ,, 10 „ 10^ „ 8 81 „ 81 ., 9 7i „ 71 „ 10 7 /To ,, 164 DOUBLING PERIODS AND SAVINGS FUNDS. The ^ Rule may be applied to the converse question ; — given the number of years, to find the rate of interest required to be made in order that money may become doubled. Thus, let the number of years be 17^, then the rate of interest required would be 70 divided by 17| or 4 per cent. 29. — The foregoing table is also useful as a means of remem- bering the approximate periods in which annuities accumulate to certain amounts. Thus, since in one doubling period, £100 invested accumulates — (by the interest annuity on it being compounded) to £200 Then : — in 2 periods it accumulates to - - 400 in 3 „ „ - . 800 in 4 „ „ . - 1,600, and so on. In other words, the annuity (derived in the form of interest on the original jglOO) accumulates, by being itself invested, to £100, £300, £700, &c., in the various periods mentioned. Thus, taking for example interest at 5 per cent, a year and deducting the original £100 investment, an annuity of £5 per annum (by being compounded at the same rate, 5 per cent) would accumulate in — £ 1 period (14^ years accurate time) to 100 2 „ or twice that time „ 300 3 „ or thrice „ „ 700 4 „ or four times „ „ 1,500 Similarly for other rates in the respective periods corresponding to those rates. 30. — Hence, if the rate of interest per cent, be divided by the number of hundred pounds that would correspond to the accumu- [* For the mathematical demonstration of this property of the number 70, •which we first noticed and published in 1847, see the Appendix to our Treatise on Building Societies. The Rule has since been copied by some writers without acknowledgment, among others by M. Fedor Thoman, etc.] SUGGESTIONS WITH EESPECT TO LOANS. 165 lations in the above, we have the savings per annum invested half- yearly, which will amount to £100 at the end of the respective terms of years. Thus for example * 14s. dd. a year set aside half-yearly, at 5 per cent, com- pound interest, -will amount to ^100 in three periods of doubling. This cor- responds to the above, where it is shown that ^5 a year would amount to ^700 in that time (14s. 3d. being equal to £5 divided by 7) as shown by the followin" Table : — Number of Doubling Periods. i > s £3 At per cent. At £4 per cent. Int At £5 per cent. erest per Ann At £6 per cent. um. £7] At )er cent. £100 will be produced by a yearly saving of Inl — £3 a year £4 a year £5 a year £6 a year £7 a year In 2 3 £ 1 s. d. £ s. d. 16 8 £ *. d. 1 13 4 £ s. d. 2 £ 2 *. d. 6 8 In 3 7 8 7 11 5 14* 3 17 2 1 In 4 15 4 5 4 6 8 8 9 4 In 5 31 1 11 2 7 3 3 3 10 4 6 Section 2. — Suggestions with respect to Loans. Art. 31. — The preceding properties suggest some alternatives, which might he adopted for raising money at par on temporary or perpetual stocks, so as to produce either fixed or increasing incomes. 166 SUGGESTIONS WITH RESPECT TO LOANS. Thus, for £100 received, the cost to the borrower, by either of the following nine alternatives, would be the same at 5 per cent, interest : — (1.) In Perpetual Stock : — £100 would be worth £b a year for ever. (2.) In Temjiorary Stock : — for £100 £10 a year could be paid for 14 years. (3.) In Perpetual Deferred Stock: — £10 a year for ever, but not beginning till the end of 14 years. (4.) In Mixed Stock : — the payments could be £5 a year for the first 14 years and then increased to £10 a year for 14 years more. (5.) „ or £2 10s. a year for 14 years, then £7 10s. a year for ever. (6.) „ or £4 a year for 14 years, then £6 a year for ever. (7.) „ or £6 a year for 14 years, then only £4 a year for ever. (8.^ „ or £3 a year for 14 years, then £7 a year for ever. (9.) „ or £7 a year for 14 years, and £3 a year for ever. And so on, provided always that the sum of the two figures equals £10. Fourteen years is quoted as the time involved, t-hat being the number of years nearly in which money will double at 5 per cent. Other rates of interest may be used as the basis for calculating the equivalents. All that is necessary is that the sum of the figures should be twice the rate of interest. Thus, on a basis of 6 per cent., the time of doubling being 11 f years (half-yearly interest), a Government or other borrower could pay (modifying the numbers above), 8 per cent, for 11| years, and 4 percent, afterwards for ever, or 7 per cent, for 11 1 years and 5 per cent, for ever. Either would cost the same as 6 per cent, all through for ever. In the above alternatives the loans are supposed to be obtained at par. The £100 could be redeemed by drawings each year tliroughout a doubling term of years with interest until redemp- tion, by setting aside each year twice the interest. Thus, a Government could redeem 7 per cent, bonds in a little over 10 years by £14 a year for interest and sinking fund. In like manner, £8 would suffice at 4 per cent, interest in 17^ years. ]C7 Section 3. — Of the present values of Decreasing and Increasing Annuities. Art. 32. — The above annuities arise in Trust calculations occa- sionally. The following new rules, which will probably be best understood by examples, afford the means of easy calculations where they decrease or increase uniformly : — (i). Decreasing. — Let the annuity be one for 10 years payable yearly, commencing at £10 the first year, and decreasing £1 a year, until it is £1 in the last year; let the rate of interest be 6 per cent, yearly. Then, the present value of such a Decreasing annuity is equal to the difference (between £10 and the value of an ordinary £1 a year annuity for 10 years) divided by .06. Thus, the value of .€1 a year for 10 years at 6 per cent, is 7.36. Subtracted from £10, the diiference is 2.64. This 2.64 divided by .06 gives .£44, which is the value of the decreasing annuity. (When four places of decimals are used the result is £43.9983). (ii). Increasing. — Suppose the Increasing annuity be for 10 years, beginning at £1 the first year, and rising £1 a year till it is £10 in the 10th year. Then, the value of the Increasing annuity is found by sub- tracting the value of the above Decreasing annuity from 11 times the value of an ordinary £1 a year for 10 years. Thus, 11 times £7.36 is equal to . . £80.96 The value of a Decreasing Annuity is £44.00 Difference is .. .. £36.96 which is the value of the Increasing annuity. For other annuities and rates of interest the process of calcula- tion would be similar. 168 DECREASING AND INCREASING ANNUITIES. If the Decreasing or Increasing annuity be half-yearly, with half-yearly decrements or increments of 10s., calculate the value of a yearly £1 decreasing or increasing annuity for double the term at half the rate of interest, and half the result found will be the value required. TABLES TABLE I. She-mng the Decimal correspoudiug to every Penny in the Pound. s. d. Deci- mal. s. rf. Deci- s. d. Deci- mal. s. d. Deci- mal. s. d. Deci- mal. 1 .004 4 1 .204 8 1 .404 12 1 .604 16 1 .804 2 .008 4 2 .208 8 2 .408 12 2 .608 16 2 .808 3 .012 4 3 .212 8 3 .412 12 3 .612 16 3 .812 4 .017 4 4 .317 8 4 .417 12 4 .617 16 4 .817 5 .021 4 5 .221 8 5 .421 12 5 .621 16 5 .821 6 .025 4 6 *.225 8 6 .425 12 6 .625 16 6 .825 7 .029 4 7 .229 8 7 .429 12 7 .629 16 7 .829 8 .033 4 8 .233 8 8 .433 12 8 .633 16 8 .833 9 .037 4 9 .237 8 9 .437 12 9 .637 16 9 .837 10 .042 4 10 .242 8 10 .442 12 10 .642 16 10 .842 11 .046 4 11 .246 8 11 .446 12 11 .646 16 11 .846 1 .050 5 .250 9 .450 13 .650 17 .850 1 1 .054 5 1 .254 9 1 .454 13 1 *.654 17 1 *.854 1 2 .058 5 2 .258 9 2 .458 13 2 .658 17 2 .858 1 3 .002 5 3 .262 9 8 .462 13 3 .662 17 3 .862 1 4 .007 5 4 .267 9 4 .467 13 4 .667 17 4 .867 1 5 .071 5 6 .271 9 5 .471 13 5 .671 17 5 .871 1 6 * .075 5 6 .275 9 6 .475 13 6 .675 17 6 .875 1 7 .079 1 5 7 .279 9 7 .479 13 7 .679 17 7 .879 1 8 .083 : 5 8 .283 9 8 .483 13 8 .683 17 8 .883 1 9 .087 i 5 9 .287 9 9 .487 13 9 .687 17 9 .887 1 10 .092 1 5 10 .292 9 10 .492 13 10 .692 17 10 .892 1 11 .090 • 5 11 .296 9 11 .496 13 11 .696 17 11 .896 2 .100 6 .300 10 .500 14 ,700 18 .900 2 1 .104 G 1 .304 10 1 .504 14 1 .704 18 1 .904 2 2 .108 [ 6 2 .308 10 2 .508 14 2 .708 18 2 .908 2 3 .112 ' 6 3 .312 10 3 .512 14 3 .712 18 3 .912 2 4 .117 6 4 .317 10 4 .517 14 4 .717 18 4 .917 2 5 .121 6 5 .321 10 5 .521 14 5 .721 18 5 .921 2 6 .125 6 6 .325 10 6 *.525 14 6 .725 18 6 .925 2 7 .129 6 7 .329 10 7 .529 14 7 .729 18 7 .929 2 8 .133 6 8 .333 10 8 .533 14 8 .733 18 8 .933 2 9 .137 6 9 .337 10 9 .537 14 9 .737 18 9 .937 2 10 .142 6 10 .342 10 10 .542 14 10 .742 18 10 .942 2 11 .14G 6 11 .346 10 11 .546 14 11 .746 18 11 .946 3 .150 7 .350 11 .550 15 .750 19 .950 3 1 .154 7 1 .354 11 1 .554 15 1 *.754 19 1 *.954 3 2 .158 7 2 .358 11 2 .558 15 2 .758 19 2 .958 3 3 .162 7 3 .362 11 3 .562 15 3 .762 19 3 .962 3 4 .167 7 4 .367 11 4 .567 15 4 .767 19 4 .967 3 5 .171 7 5 .371 11 5 .571 15 5 .771 19 5 .971 3 6 .175 7 6 * .375 11 6 .575 15 6 .775 19 6 .975 3 7 .179 7 7 .379 11 7 .579 15 7 .779 19 7 .979 3 8 .183 7 8 .383 11 8 .583 15 8 .783 19 8 .983 3 9 .187 7 9 .387 11 9 .587 15 9 .787 19 9 .987 3 10 .192 7 10 .392 11 10 .592 15 10 .792 19 10 .992 3 11 .196 7 11 .396 11 11 .596 15 11 .796 19 11 .996 4 .200 8 .400 12 .600 16 800 20 1.000 *Example. — The value of the Decimal .075, is Is. 6c? — .225, is 4s. Gd. — .375, is 7s. M.- .525, is 10s. 6(/.— .654, is 13s \d. — 754, is 15s. Id— .854, is 17s. Itf.— .954, is 19s. Id. 2 ' TABLES. TABLE II. (A.) Shewing the SM??( per Pound to iL-hich a . Rate of Interest per cent S. d. 2 per cent interest is equal to nearly 5 in the pound. 2i M ;) exactly G »» 3 J» )) nearly n )> 3i M » » Sh » 4 » ») » 9| » H « » » 11 i» 5 » „ exactly H 5i » J) nearly U J» 6 »> » » 2^ )l 7 » » >» 5 )> 8 M >J »> 7i )> 9 l> )> » 9| » 10 « »» exactly 2 »> (BO To calculate the Interest for One Year on anj^ sum. If the rate be ^ multiply the sum , or tV i I and the product is the 2 per cent. ) by .02 interest ; required If 2k )> by .025 0^ A If 3 ») by .03 0^ T^a If 3^ )» by .035 or aU If 4 ?> by .04 «^ A If H » by .045 2 If 5 » by .05 or J- 2 If 6 » by .06 or -F^TT S If 7 .. by .07 ^'•t^ If 8 '. by .03 '' tV If 9 " by .09 «^ rt^r If: 10 )) by .1 Remark.— To perfonn the above, it will be remembered that to multiply a quantity by a fraction It must be first multiplied by the numerator, and then the result dirided by the denominator of the fraction. The division by lUO can be effected by dividing twice by 10. Similarly the other diwsora can be separated, and the quotient obtained by successive divisions. Note to Table IV., page 4. Table iv. can, hy means of the following Formulae^ he made to give the results generally required from Tables of Discount or Annuities. 1. Table IX. The present value of £100 due at ) is equal J£IOO divided by the Amount, in Table T7., of the end of any number of years J to (^1 at the end of the sime tiiae. (The quotient of: {the Amount in Table nr., of 2. Table X. The.4mo!iri< of anXnnuiZyof £100) is equal; a single £100 in the same time, less £100,) in any number of years j to Udivided by the rate of interest per pound) ( involved in the calculation. iThe quotient of £100 diminished by thepr«»«i/ value of a single £100, (due at the end of the same time) divided by the rate of interest per pound.* 4. Tables X and XI may be calculated from each other, if either be known, by the property, that 1 less } 1 is equal (a year's Present Value of an -Annuity Amount of an Annuity. ) to (interest. • [The present value required for the division being found from Table TV., by the formula of (I).] TABLES. TABLE III. Shewing the rate of Interest obtainable from £3 per cent. Stock for £100 cash invested according to the price of the day. Price of Stock. n.) 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 f>o 90 97 98 99 100 101 Interest which ^100 cash obtains. (2.) 18 16 15 13 12 6 5 5 4 3 3 2 1 1 19 10 11 9 7 8 3 9 4 2 1 7 5 4 3 2 1 18 11 17 11 3 16 11 3 15 H 3 15 3 14 3 13 3 12 3 11 3 10 9 9 11 3 6 10 2 6 10 3 7 4 Amount of Stock £100 will purchase, or iimont of Stock required to be sold to produce £100. (3,) £. 166 103 161 1.18 156 153 151 149 147 144 142 140 138 136 135 133 131 129 128 126 125 123 121 120 119 117 116 114 113 113 111 109 108 107 106 105 104 103 102 101 100 99 13 18 5 14 5 10 5 1 18 17 d. 4 9 10 8 16 11 16 11 17 8 19 2 6 11 17 4 11 9 19 9 8 11 12 11 5 7 10 9 2 3 17 10 13 11 10 7 3 4 10 10 3 ♦Most recent years in which the average price of Consols was that of 1815 1813 1816 1811 1808 1814 1820 1819 1817 1821 1788 1793 1777 1826 1831 1760 1827 1832 1848 1847 1773 1833 1841 1855 1856 1842 1849 1744 1843 1853 1850 1851 1852 1751 1743 '-^^ average price of Consols for the whole of the 100 years, 1759 to 1858, is about -• i?^"^^ ^^^* P*^"*^*^ ^^^ average price for the whole of a vear was never at or above par. Ihe average for several months of the year 1852 was above 100. It is curious however, that dunng several years previous to 1759, the average price for the whole of the year was at or above par : thus, in 1733, '42, '50, and '51, it was 100 ; in 1739 and '43 101 • in 36 102 ; '54, 103 ; '38, '52, and '53, 104 ; and in 1737 it was as high as 106. On the other hand, between 1781 and 1815, there were ten years in which the average fell below bU. Jietween 1822 and 1831, a medium price of about 80 was kept to.] From the Treatise on Savings Banks. 4 TABLES. TABLE rV. Shewing the Amount to which £100 Principal will increase at various Rates of Comj)ound yearly Interest. (See Note, page 2.) At the end of O per ^ cent A per ^ cent. ^ cent. a per ^ cent. *7 per • cent Q per O cent. Years. 1 103.00 104.00 105.00 106.00 107 00 108.00 2 106.09 108.16 110.25 112.36 114.49 116.64 3 109.27 112.48 115.76 119.10 122.50 125.97 4 112.55 116.98 121.55 126.24 131.07 136.04 5 115.92 121.66 127.62 133.82 140.25 146.93 6 119.40 126.53 134.00 141.85 150.07 158.68 7 122.98 131.59 140.71 150.36 160.57 171.38 8 126.67 136.85 147.74 159.38 171.81 185.09 9 130.47 142.33 155.13 168.94 183.84 199.90 10 134.39 148.02 162.88 179.08 196.71 215.89 11 138.42 153.94 171.03 189.82 210.48 233.16 12 142,57 160.10 179.58 201.21 225.21 251.81 13 146.85 166.50 188.56 213.29 240.98 271.96 U 151.25 173.16 197.99 220.09 257.85 293.71 15 155.79 180.09 207.89 239.65 275.90 317.21 16 160.47 187.29 218.28 254.03 295.21 342.59 17 165.28 194.79 229.20 269.27 315.88 370.00 18 170.24 202.58 240.66 285.43 337.99 399,60 19 175.35 210.68 252.69 302.55 361.65 431,57 20 180.61 219.11 265.32 320.71 386.96 466 09 21 186.02 227.87 278.59 339.95 414.0.5 503.38 22 191.61 236.99 292.52 360.35 443.04 543,65 23 197.35 246.47 307.15 381.97 474.05 587,14 24 203.27 256.33 322.50 404.89 507.23 634.11 25 209.37 266.58 338.63 429.18 542.74 684.84 26 215.65 277.24 355.56 454.93 580.73 739.63 27 222.12 28833 373.34 482.23 621.38 798.80 28 228.79 299.87 392.01 511.16 664.88 862.71 29 235.65 311.86 411.61 541.83 711.42 931.72 30 * 242.72 324.34 * 432.19 574.34 761.22 1006.26 31 250.00 337.31 453.80 608.81 814.51 1086.76 32 257.50 350.80 476.49 645.33 871.52 1173.70 33 265.23 364.83 500.31 684.05 932.53 1267.60 34 273.19 379.43 525.33 725.10 997.81 1369.01 35 281.38 394.60 551.60 768.60 1067.65 1478.53 36 289.82 410.39 579.18 814.72 1142.39 1596.81 37 298.52 426.80 608.14 803.60 1222.36 1724.56 38 307.47 443.88 638.54 915.42 1307.92 1862.52 39 316.70 461.63 670.47 970.35 1399.48 2011.52 40 326.20 480.10 703.99 1028.57 1497.44 2172.45 41 335.99 499.30 739.19 1090.28 1602.26 2346.24 42 346.06 519.27 776.15 1155.70 1714.42 2533.94 43 356.45 540.04 814.96 1225.04 1834.43 2736.66 44 367.14 561.65 855.71 1298.54 1962.84 2955.59 45 378.15 584.11 898.50 1376.46 2100.24 1 3192.04 46 389.50 607.48 943.42 1459.04 2247.26 , 3447.40 47 401.18 631.78 990.59 1546.59 2404.57 { 3723.20 48 413.22 657.05 1040.12 16.39.38 2572.89 4021.05 49 425.62 683.33 1092.13 1737.75 2752.99 4342.74 50 438.39 710.66 1146.74 1842.01 2945.70 4690.16 * Example.— £\00 will amount at the end of 30 years to £24!^. Us. 5d., if interest be made at the rate of 3 per cent, per annum, or to £4.12. 3s. 10c/. at 5 per cent. Notes:— \.—'Xo find the. present value of a sura of money payable at the end of any number of years, divide that sum bv the amount in the above Table and multiply by 100. 2— To find the amount of £100 at the end of any number of years not given in the above Table, take the product of the figures opposite anu two terms in the Table, which, added together, would make up the term re- quired, and divide by 100. Thus,' the amount of £100 at the end o/.53 years, (50 yearsandZ years), ts, at 5 per cent, (£1146.74 x 115.76) or £1327.47. Again, the amount of £\00 at Z per cent, at the end of \Q0 years (iO + 50) M (£438.39 x 438.39;, or £1921.86. See also Note, page 2. TABLES. TABLE V. Shewing the Rates of Interest payable only once a-year, which are equivalent to nominal annual rates of Interest actually paid at frequent intervals in each year. Nominal Annual Kate per cent. Real yearly interest, to which the nominal rates equivalent when paid : — are Yearly. ' Half-yearly. Quarterly. Monthly. Momently. 3 per cent. £. s. d. j £. 3 3 s. d. 5^ £. s. d. : £. s. d. 3 8^ 3 10 £. 3 s. d. 11 4 per cent. 4 4 9| 4 1 2^ 4 1 6 4 1 n 5 per cent. 5 *5 1 3 1 5 1 lOj 5 2 4 5 2 6^ 6 per cent. 6 6 1 H 6 2 8J 6 3 4 6 3 8i 7 per cent. 7 1 7 1 2 5i 7 3 8| 7 4 7 1 7 5 Oi 8 per cent. 8 j 8 3 2i 8 4 10| 1 8 6 8 6 7 * Example. — If a person receives interest half-}'*arly, after the nominal annual rate of 5 per cent., the actual interest derived by him by one year's investment is £b. Is. 'dd. TABLE VI. Shelving the nominal Annual Bates of Interest paid momently, which are equivalent to rates paid at the end of each year. Yearly Rate Corresponding nionientaneous liate. Yearly Hate. Corvespondinfc momentaneous liute. 2 per cent. 3 „ 4 „ 5 » 6 „ £. s. £1.9802 or 1 19 2.9558 2 19 3.9220 3 18 4.8790 *4 17 5.8268 5 16 d. 7 7 per cent. 8 „ 9 „ 10 „ £. s. d. £6.7658 or 6 15 4 7.6791 7 13 l\\ 8.6177 8 12 4i 9.5310 9 10 7i * Example The amount to which a sum of money wUl accumulate in any number of years at yearly interest 5 per cent., is the same as the amount to which it would accumulate at momentaneous interest^ after the nominal annual rate of £4. 17s. Id. per cent. TABLES. TABLE VII. Shewing the Amount to which £100 unll increase at Compound Interest, according as it is paid yearly, half-yearly, quarterly, or momently. [See Table /F.] Nominal rate of Interest. Payable. The Amount of £100 in 1 Year. 5 Years. 29 Years .50 Years. 3 per cent yearly half-yearly quarterly momently 10.3.000 103.022 103 034 103.045 115.927 116 054 110.119 116.183 209.378 210.524 211.103 211.700 438.391 443.204 445.667 448.1b9 4 percent. yearly half-yearly quarterly momently 104.000 104.040 104.060 104.081 121.665 121.899 122.019 122.140 266.584 269 1.59 270.481 271.828 710.6G8 724.465 731.602 738.906 5 per cent. yearly half-yearly qu;irterly momently 105.000 105.002 105.095 105.127 127.628 128.008 128.204 128.402 338.634 343.711 346.340 349.034 1146.740 1181.372 1199.617 1218.249 1842.015 1921.863 1964.303 2008.553 2945.703 3119.141 3212.799 3311.545 6 per cent. yearly half-yearly quarterly momently los.nuo 10G.090 1 00.136 106.184 133.823 134.3!)2 134.685 134.986 429.187 438.391 443.204 448.169 7 per cent. yearly half-yearly quarterly momently 107.000 107.122 107.186 107.251 140.2-55 141.060 141.-i78 H 1.907 542.743 558.493 566.816 575.460 8 per cent. yearly half-yearly quarterly momently 108.000 108.160 108.243 108329 146.933 148.024 14 8. .595 149.182 684.847 710.668 724.465 738.906 4690.161 .5050.495 6248.490 5459.815 TABLE Wll. Time in which Money will double itself at Simple cr Compound yearly Interest. Rate At At Per cent. Simple Interest. Coraponnd Interest. Years. Years. Years. Days. 2 r 50.0000 35.00278878 = 35 2 2J 40.0000 28.07103453 = 28 26 3 33.3333 23.44977225 = 23 165 3i £1 or any 28.5714 20.14879168 = 20 55 4 2.5.O0OO 17.67298769 = 17 246 4i ■will dou- ble itself 22.2222 15.74730184 = 15 272 5 20.UOOO 14.20669908 = 14 76 6 16.6666 11.89566105 =11 327 7 14.2857 10.24476835 = 10 90 8 12.5000 9.00646834 =9 3 9 11. nil 8.043:'3173 =8 16 10 J 10.0000 7.27264090 = 7 100 Ab to the time in which Money Doubles, see Chapter 2, and the Appendix, for our remarkable theorem, that — for all rates per cent under 10 per cent , the number of years in which a sum of money will Double Itself at compound interest, is simply 70 divided by the rate per cent. Examples. — 1. — Divide 70 by the rate of inttrest per cent , and take that whole number which is nearest to the quotient obtained. Thus, if the rate of interest be — 2 per cent, then the number of years will be ''-S or 35 years nearly. 7 70 70 in 70 7 10 „ „ TIT " ' •' i. — The time in which money doubles being thus ascertained, to find the further time in which it will tccome three/old, divide the doubling period by 1.70; fourfold, by 2.40; /'-e/oW, by 3.10 ; sixfold, by 3.80; and so on, the divisor increasing in arithmetical progression by .70 each time. Thus, since money doubles at 5 per cent, in 14 years, it would become threefold in -t-j-r or eight years more, m.it 36.72 38.11 38.80 39.51 40.21 4 2G.90 28.20 29.52 30.19 30.87 31.55 5 21.84 23 10 24.39 25.05 25.71 26.38 6 18.46 19.70 20.98 21.63 22.29 22.96 7 16.05 17.28 18.56 19.21 19.87 20.54 8 14.25 15.47 16.75 17.40 18.07 18.74 9 12.84 14.07 15.35 16.01 16.68 17.36 10 11.72 12.95 *14.24 14.90 15.58 16.27 11 10.81 12.04 13.34 14.01 14.69 15.40 12 10.05 11.28 12.59 13.27 13.97 14.68 13 9.40 10.65 11.97 12.65 13.36 14.08 U 8.85 10.10 11.43 12.13 12.84 13.58 ir, 8 37 9.63 10.98 11.68 12.41 13.15 l(j 7.96 9.23 10.59 11.30 12.03 12.78 17 7.60 8.87 10.24 10.96 11.70 12.47 18 7.27 8.55 9.94 1067 11.42 12.19 19 6.98 8.27 9.68 10.41 11.17 11.95 20 6.72 8.02 9.44 10 19 10.95 11.75 21 6.49 7.80 9.23 9.98 10.76 11.56 22 6.28 7.60 9.04 9.80 10.59 11.40 23 6.08 7.41 8.87 9.64 10.44 11.26 24 5.91 7.25 8.72 9.50 10.30 11.13 25 5.74 7.10 8.58 9.37 10.18 11.02 26 5.59 6,96 8.46 9.25 10.07 10.92 27 5.46 6.83 8.34 9.15 9.97 1083 28 5.33 6.71 8.24 905 9.89 10.75 29 5.21 6.60 8.15 8.96 9.81 10.67 30 5.10 6 51 8.06 8.88 9.73 10.61 31 6.00 6.41 7.98 8.81 9.67 10.55 32 4.90 6 33 7.91 8.74 9.61 10.50 33 4.82 6.25 7.84 8.68 9 56 10.45 34 4.73 6.18 7.77 8.63 9.51 10.40 35 4.65 6.11 7.72 8.58 9.46 10.37 36 4.58 6.04 7.67 8.53 9.42 10.33 37 4.51 5.98 7.62 8.49 9.39 10.30 38 4.45 5.93 7.58 8.45 9.35 10.27 39 4.38 5.88 7.54 8.42 9.32 10.25 40 4.33 5.83 7.50 8.39 9.30 10.23 41 4.27 5.78 7.47 8.36 9.27 10 21 42 4.22 5.74 7.43 8.33 9.25 10.19 43 4.17 5.70 7.40 8.30 9.23 10.17 44 4.12 5.66 7.38 8.28 9.21 10.15 45 4.08 5.63 7.35 8 26 9.19 10.14 46 4.04 5.59 7 33 8.24 9.17 10.13 47 4.00 5.56 7.30 8.22 9.16 10.11 48 .3.96 5..53 7.28 8.20 9.15 10.10 49 3.92 5.50 7.26 8.19 9.13 10.09 50 3.89 5.48 7.25 8.17 9.12 10.08 Perpetuity 3.00 1 5.00 1 7.00 1 8.0') 1 9.00 1 10.00 'Example. — If a member borrow £100 for iO years to be repaid by equal instalments inchidinfr princi]- 1 and interest, at 7 per cent., in that lime, he must pay £14.24 or nearly £14. os. a year in repayment for Ilio game. Ij^ From this Talk mny also be c-ilrul'ileii the anuual sinking fund to acciiiii'ilale to £lOO in any nimilfr fer cent, is rqital to £11.28 Ic!! the Intel est, or to £'..2K, uhtdi is £H. .">s. «./. nc^rfy 11 si ce - = si;?! S -^^ o ei C- O .'M ^ O O ~ 00 o .- to CO X t: CO "^ c. Z X W O ,-1 71 >o t, "• ooiMc:i-*,-i->o T" CO c C-. o c; ;r e o to r-l CO 'T' — -r^ Hi A O ""J «C -^ (M O C r-^ X i-f CO w O 1-1 lO c 1,^ C5 Oi X O O u. ~ c^ o — t:: uo i^ >-i f^ «K , -O r-^ t^ ~. i- C^ CI lo 1^ !;d 171 CO d — r-HlSl o o -^ (M TO lo i^ o r? t^ ^ :^ r^ CO 'M O l^ TTl TO IM 73 CO — CC O rH iM CO T* LI cc t^ c; -1 M — «: 1^ c: O -M -^ CO — r-l n^ i-l r-l 1— ( M M 71 (M 71 TO TO CO TO TO Cs ~ ri -^ -M CO :t 1-i X :;^ i-> — lO 71 71 CO ^ O lO 1- 17 71 TO CO CO CD 10 CO 1>. -:r 1-1 l'^ ■ ~ -e r. ■-. 71 1^ r^. = CO 71 X 'S" O !- -— ■'^. o i'^ lO M cc t^ i- CT' n CO >0 C X r- O — w ^ O (M r^ ira i.o X ■* lO r^Iol O C ~ i-H Tl CO irt 1^ -^ i^ .— 17 r. CO X CO C; >0 i-J X >0 TO " ^'■C r-l 71 :0 ■* lO CC l^ X !^ -^ 71 r: lo w i^ c; o 71 cr lO 1- X O (M -T< 1.^4 rH r^ 1-1 f-l r- 71 N 71 71 71 (71 TO TO TO i. ^ ~ s ^ c o"«<1 e. I TO 1^ O CO ^n ^^ i-» 1,-* », ^^ s^. * I >^ w ^^ .^ .*_ • . . k 1.-" * 1 w w- ' — ' ^*' * • i>i O -r- x 7i i> — CO -- lo -^ "o -j' r^ TO r; id 7i x o to d x C -- i-H r-, 74 71 TO CO -e -^ lO lO CO CO 1^ 1^ X C; C-. O — 71 71 rH— ^rH--r-ii-i.— ^^r-r-rHrH— '.-lr-li-^r-ii-l71?171IN 5 =. rH'Si) 50 c CO X >■ "T- CO CO ^ X - o X i7. c 71 i7 CO CO CO CO lo us so !•- I vooccTOr-cjxoqxcN^xiviX — 1— c;xxc;i-i'r<(30( 71 id i--^ d CO Ld ad — " — ' x — ' tt' w -J -r" x m id ci ed i-^ 71 d d i OOOrH— i-<--N7171MTOTO'?'-*'T"i0l«l0COC0t^l>X: S 5 r-l|« CO X -H 1^ c Ji 1- ct a: r >: — c r; CO 17 w w LO X lo — -rf lO c; — c: 10 r; — i^ C2 c^ 1^ TT i-<. X J^ 71 TO — 1 lo 10 rH CI o — ' CDM-H---■ ' c-.c;— . xxxi>i>i>t^cocococc"~ ■<#! ■«?' -^ tH T? r; r-, & "S ° C -J C. >0 lO C-j Cr — 71 C -r 17 71 71 C-. 71 ~ CO 71 1^ X CO ~. 1^ ~ CO X 17 C". X 7J 71 )^ r^ — — LO -* 1^ — CO -H -- lO 71 TO X CD X TO lO —; X 17 TO 71 ^ C; C r^ 71 TO 10 l^ C TO !>. r- 10 O LO O CO 71 ~ j^ id 71 d X CO 'r- 71 d X CO -^ 71 d d f>^ id- -^ 71 -^ d" X CO LO CO CJOCIOXX X X Xt»l>t>l>l^COCOCCCOCOCOLOLOiCLOO Pk ^ I i-HMTO-rL0COi^XC5C; TO — us CO , 12 TABLE XIV. i'KK^KM \ Ai.VK (if an .bint'ilii of !C\W per anuuiii.foi- er Cent., or 7 p'r Cent /nr Jittnnii as In i ej:i;st on his /'/nr/ifi-sc Muii J89 198 466 171 115 453 461 7 551 56G 521 536 499 508 518 s G15 G31 572 593 548 560 572 ;) G74 692 631 647 594 608 622 10 729 750 679 698 636 652 669 11 781 S05 721 715 G75 694 712 12 830 85hicb, lai'l out at n:,l_v -, j..., C'"<. iMt'T'-Sl, will in I i jcai'i lepr.nUicc th-' purchaae money, l;^:;ii. TABLES. 13 TABLE XV. Specimen of New Deposit Tables, for Savings Banks and Industrial Associations, shelving — 1, — The Amount to which a Deposit of ^100 will accumulate at the end of any number of years up to 10. 2. — The Amount to which a Deposit of £10 per annum will accumulate at the end of any number of years up to 10. On the condition that, after the first Year, One Half (or One Fourth) of the Sum deposited may be withdrawn, williout interest, on giving one week's notice ; the balance of the Deposit and the accumulated compound Interest remaining unwithdrawable till the end of the period, unless six months" notice of with- drawal be given. Eates of Interest £Z. 10s. and £2. 10s. per cent., as explained at foot. Deposit of £100. Deposit of £10 per annum. No. of One Half One Fourth One Fourth One Half No. of Years. withdrawable. withdrawable. withdrawable. withdrawable. Years. £. s. d. £. s. d. £. s. d. £. s. d. 1 103 103 5 10 6 6 10 6 1 2 106 2 1 106 12 4 20 19 9 20 18 2 2 3 109 G 6 110 1 11 31 19 11 31 16 10 3 4 112 12 11 113 13 11 43 7 4 43 2 1 4 6 116 1 9 117 8 7 55 2 2 54 14 3 5 6 119 13 121 5 9 67 4 9 6G 13 7 6 7 123 6 9 125 5 8 79 15 4 79 3 7 8 127 3 1 129 8 4 92 14 2 91 14 7 8 9 131 2 1 133 14 106 1 7 104 16 10 9 10 135 3 11 138 2 7 119 17 10 118 7 2 10 N.B — This Table is computed according to formulae Nos. 1 and 13, Arts. 67, 75, in the Appendix to " Treatise on Associations for Provident Investment," on the supposition that the lower rate of 2 J per cent, is allowed on the withdrawable portion of the Deposit, and3i per cent, on the unwithdrawable portion, as also upon the entire amount of the interest as it accumulates from year to year. Example : 1. — A person having deposited £100 will be entitled, at any time after the first year, to draw out £50, or £25, as the case may be, at a week's notice. Say he has retained the power to withdraw one-half, and that he exercises this power at the end of the 5th year. The amount at his credit at that moment is £116. Is. 9c/., from which deducting the £50 withdrawn, there will remain £66. Is. 9c?. to accumulate for the remaining 5 years (or until withdrawn under a six months' notice) at 3^ per cent, compound interest. If, on the other hand, the whole amount of the Deposit be left undisturbed by the Depositor during the term, then the accumulated amount at the end of 10 years will be £135. 3s. lid. 2. — A person having deposited £10 per annum, say for 5 years, will be entitled at the end of that year to withdraw one-half or one-fourth of the aggregate of his deposits to that time (ui>., £25 or £12. 10s.) as the case may be, at a week's notice; the remainder, together with the interest, being left to accumulate at 3^ per cent, till the end of the term, or until withdrawn under a six months' notice. 14 TABLES. TABLE XVI. Extract from the Tables of Logarithms. Hyperbolic Hyperbolic Number. or Neperian Logarithms. Ordinary Logarithms. Number. or Neperian Logarithms. Ordinary Logarithms. 1.01 .0099503 .0043214 47.00 3.8501476 1.6720979 1.02 .0198026 .0086002 48.00 3.8712010 .6812412 1.03 .0295588 .0128372 49.00 3.8918203 .6901961 1.04 .03922(17 .0170333 50.00 3.9120230 .6989700 1.05 .0487902 .0211893 51.00 3.9318250 .7075702 1.06 .0582689 .0253059 52.00 3.9512437 .7160033 1.07 .0676586 .0293838 53.00 3.9702919 .7242759 1.08 .0769610 .0334238 54.00 3.9889840 .7323938 1.09 .0861777 .0374265 55.00 4.0073332 ,7403627 1.10 .0953102 .0413927 56.00 4.0253517 .7481880 2.00 .6931472 .3010300 57.00 4.0430513 .7558749 3.00 1.0986123 .4771213 58.00 4.0604430 .7634280 4.00 1.3862943 .6020600 59.00 4.0775374 .7708520 5.00 1.609437S .6989700 60.00 4.0943446 .7781513 6.00 1.7917594 .7781513 61.00 4.1108739 .7853298 7.00 1.9459101 .8450980 62.00 4.1271344 .7923917 8.00 2.0794415 .9030900 63.00 4.1431347 .7993405 9.00 2.1972245 ,9542425 64.00 4.1588831 .8061800 10.00 2.3025851 1.0000000 65.00 4.1743873 .8129134 11.00 2.3978953 .0413927 66.00 4.1896547 .8195439 12.00 2.4849066 .0791812 67.00 4.2046926 .8260748 13.00 2.5649494 .1139434 68.00 4.2195077 .8325089 14.00 2.6390573 .1461280 69.00 4.2341065 .8388491 15.00 2.7080502 .1760913 70.00 4.2484952 .8450980 16.00 2.7725887 .2041200 71.00 4.2626799 .8512583 17.00 2.8332133 .2304489 72.00 4.2766661 ,8573325 18.00 2.8903718 .2552725 73 00 4.2904594 .8633229 19.00 2.9444390 .2787536 74.00 4.3040651 .8692317 20.(0 2.9957323 .3010300 75.