proceeds of the issue are employed for additional working capital and to increase the timber reserves. The net earnings of the company for the present year are estimated at $1,000,000, as compared with the interest requirement on the bonds of $360,000.

These statements are made by the banking house on the basis of a careful investigation. The bankers themselves verify the statements made on behalf of the management as to the history of the company, and the standing of those in control of it. For the financial results of the operation, the bankers rely upon the examination of chartered accountants. The report of these accountants they submit in connection with the offering of the bonds. In this case, the accountants' report showed that the average manufacturing profits for the past 6 years have been $5.81 per thousand feet of lumber sold.

The most important investigation made on behalf of the bankers is the amount of standing timber. This report is signed by Mr. W. E. Straight, one of the leading timber experts in the United States, whose name on a report is positive proof of a thorough preliminary examination. The method employed by Mr. Straight is

described in a booklet issued by Messrs. Clark L. Poole & Co. of Chicago, one of the leading banking houses in this line, in part as follows:

All corners having been established, Mr. Straight assigned the crews to work. They were started at different points and worked to a common centre, with the intention to have all the crews meet about the same time. Each crew is furnished with plans of the different portions of the land allotted to it, the descriptions all being checked from the original deeds to the property. . . . A camp will be occupied on an average of about ten days; and the crews will cover from 10 to 17 sections of land from one camp, depending on the character of the country.

Each crew covers on foot the several portions of the woods assigned to it. The crew starts at some point on the base given by the surveyor and continues to do its work, keeping an accurate check on its base as the work proceeds. The method used is known as "horse-shoeing a 40," and is the one most commonly used by Mr. Straight, as it enables the cruiser to see every portion of the land. If the start is made at the southeast corner of a section, the cruiser will say to his compassman: "Go to tally I north." When the compassman, who runs all the lines, has gone north 125 paces, or about 375 feet he calls out: "Tally I north," and stops until he is directed to move. This gives one side of a ten-acre tract.

The cruiser has begun to work toward the compassman, and counts and estimates each and every tree for a distance of 25 paces on each side of his base line, making 50 paces in all. At first he measures the trees with a tape, to verify his eye judgment of the circumference and measures windfalls for length to verify his eye judgment as to the height of trees. If his eye judgment has been at fault, he keeps measuring until his eye judgment becomes accurate, then he trusts solely to his eye. He keeps tally of each tree, and at the close of the day figures out his totals by an established mathematical rule. When the esti

mator has finished his work

he has an accurate tally of each tree on eight acres of each 40 acres, with its length and other dimensions. In his hand he has held a card on which he has kept a tally. He also carries a field book in which he notes the topography of the land, the location of marshes, lakes, streams, wagon loads, logging railroads, and everything that comes within his observation, together with notations as to the surface of the ground, general logging chance, character of soil, etc. At night he makes out from his field book an accurate plat, or timber section and field repart sheet, one for each section of land estimated.

It is on the basis of carefully detailed work of this sort, carried on under the direct supervision of the supervisor, that the banking house estimates the quantity of timber on which it advances money. When this estimate is supplemented by a verification of details, and by the drawing of a trust deed conveying the timber and all other property of the company, in trust for the payment of principal and interest of the bonds, under a variety of carefully drawn restrictions which practically eliminate the risk of careless financial management, the banking house can offer the investor a 6 per cent. bond which is as safe an investment as can be furnished him.

XX

INDUSTRIAL PREFERRED STOCK

EVERY part of the United States is the seat of old and prosperous manufacturing enterprises, many of them dating back to the middle of the last century, with long records of solvency and profit. Fifteen years ago, when the industrial trust movement started, a large number of these concerns were swept into consolidations, and their owners seized the opportunity to retire. This industrial trust movement, however, was aimed not at the investor, but at the speculator. The stocks of these much-criticised combinations were not sold by investment-bankers to their clients, but were marketed on the public stock-exchanges by the methods of public advertising and manipulation. For a long time the investor would have nothing to do with them.

Following the collapse of the consolidation movement, about 1903, the flotation of industrial preferred stocks languished, and not until the last three years has this class of securities seriously engaged the attention of the financial world.

This time it is not the speculative promoter who creates the new issue, but the investment-banker, anxious to satisfy the insistent demands of his clients for a security which will furnish them reasonable safety with a higher rate of return than they can secure from the purchase of bonds. The result has been a large number of preferred stock issues covering every kind of business. Agricultural machinery companies, canning companies, biscuit companies, clothing companies, automobile and trading companies, have all contributed to supply the now enormous total of these industrial preferred stocks.

The usual investigations are made by the banker in marketing these securities. If he is conscientious, however, he does not recommend them in the same unqualified terms as those which hc employs in advocating the purchase of a mortgage bond. The policy of one very large house is to discourage the sale of preferred stocks to the small investor. It recognizes that there is an element of speculation in these securities. They must be classified as speculative investments. There are few manufacturing enterprises which are sufficiently prosperous to guarantee seven per cent. to the investor in good times and