256 THE WORK OF THE STOCK EXCHANGE
classified according to the nature of the assets securing them;
thus, within this single industry there are “land grant” bonds,
“terminal” and “bridge” bonds, etc. With collateral bonds,
the mortgage is placed upon securities rather than directly
upon physical property. Weak government bonds are some-
times specially secured by certain sources of revenue—such as
port or internal taxes—but because of this fact they are not
called mortgage issues.
Debenture bonds are not thus secured by any mortgage, or
the pledge of any single source of income. The best gov-
ernment bonds, being claims against all rather than specified
assets and revenues, are debentures. Our American railway
reorganizations have also produced a peculiar and sometimes
riskier type of debenture—the “income” or “adjustment”
bond, which according to the terms of its indenture, needs
to pay its interest only when the company earnings are suffi-
cient to permit it, somewhat according to the manner of a
preferred stock. Finally, “convertible bonds”’—as their name
implies—can under specified conditions be converted at the
option of their holders into the stock of the issuing com-
pany. When this conversion privilege makes such an exchange
profitable, the price of the bonds and the stock into which they
are convertible will fluctuate together, owing to the rise of
arbitrage between them. Im such securities, regular arbitrage
sometimes occurs on the New York Stock Exchange between
its bond market and its stock market.
Form of Bonds.—Practically all American bond issues are
available in the bearer form, with coupons attached. “In-
scribed” bonds, after the British fashion, are unknown in this
country.? Sometimes, however, the holder of a bearer bond is
given the privilege of converting it into the registered form,
either in respect to interest or principal, or both. But by no
means all, or even most, American bond issues convey this
privilege, and even where they do. it is not often availed of by
~ 2See Chapter I. v. 24.
