INVESTMENT TRUSTS offer the public three principal kinds of securities -- ordinary stock, preferred stock, and debenture bonds. As with other corporations, there are different varieties of each. In the following paragraphs an attempt is made to show the relative advantages of these several ways of raising capital.
This represents a scant one-third of the average capitalization of investment trusts, the other two-thirds being almost equally divided between preferred and debenture stock. The average for ten years earlier1 shows about 28% in ordinary stock, approximately 34% in preferred, and the rest in debenture.
The diminishing importance of debenture stock, comparatively speaking, reflects the higher rates which must be paid on fixed-interest securities. At the time when the majority of larger trusts were organized (the late 'Eighties) the practice of issuing debentures was well-nigh universal. Money could be borrowed at four per cent and re-invested in fairly steady foreign securities bearing a much higher return. The margin between interest paid for capital, and interest and dividends received on investments constituted an important source of income for the common stockholder.____________________