The Bridgeport times and evening farmer., 1920-06-11
SINKING FUNDS
 DESCRIBED BY , BOND MANAGER
Describes Purpose of Fund ! and What Money Is
 Used For.

Used For.
 NBy Harold E.. Green Manager Bond ! Department, Guaranty Trust Co. ! ofsNew York.)
 A sinking fund is essentially an ar trAngement for paying on part or a1l of a bond issue before maturity, or for providing funds for its pay knaent. by setting aside at stated inter v11s definite sums to be used for pur- chasing and retiring and cancelling bonds of the issue, or to be other fwfse invested as separate fund for tho benefit of that issue. The usual peUxtsion Is that the amounts appro- pr11ted for the sinking fund must be invested in @bonds of the issue under the-terms of which the fund was es- ! abolished.
 The use of sinking funds in con nectton with funded debt while wide spread is by no means universal. The United States has established sink lfng 'fundGfor it's Liberty Loan issues. (6tHte loans and loans of municipai- ftteo and other. civil divisions in very large proportion have sinking fund epEDvtsions. American railroad bonds on, the other hand. in probably the flakges majority of cases. do not have
 
 bonds are very largely sinking fund issues, and the use of sinking funds has.recentry- become quite customary also in connection with their pr cferred stock issues.
 Obviously, there are fundamental differences in the nature of different enterprises which render sinking funds practically essential for the pro- lection of the bondholder in some cases, while in others sinking funds are not at all necessary so far as a safety is concerned, although other considerations may make them desfr- able. Take for example. the bonds sdescribed in the pamphlet entitled Five Railroad Bond Investm ents, issued recently by the Guaranty Trust Cumpany of New York. These are all secured by mortgages "c1ose to the rails'' on extensive mi1eages of some ofAour strongest railroad systems. The various rights of way would probably Fbe practically Impossible of duplica- tfon today, and the security ba ok of the, bonds consequently tends to in crease in value with time-assumfng of course, adequate maintenance of the property and fair treatment by thespubic.
 At the, other extreme we find such bonds as mining and timber bonds where the rcompany's operations di- rectIy deplete its assets and thus re- duce the security back of its bonds. Ins such cases sinking fund is we'll nigh imperative to secure the bonds, and it's adequacy should be carefully considered by the intending investor. Ezven to this rule, however, there are apparent exceptions. one such being that of a certain copper corporations ten-year secured 2 per cent. gold bonds, which have no sinking fund provision, because the bonds are spe- officially secured by pledge of shares of another copper company. The ore reserves of the latter company all ready blocked out are so large that the amount remaining at the end of ten years, even if no additional ore should be developed, will be sufficient to provide ample security for holders of. these bonds at maturity.
 : The various conditions affecting rsin1xing funds have resulted in va riety of methods of application. In many cases, a fixed annual or semi ! annual payment into the fund is made a nd bonds retired by use thereof are tcanceEed. In the socalled live sink Ting fund, the fixed annual payment is | increased by the amount of interest ' saved on bonds previously purchased ! for the fund, or as it is more com monly expressed, bonds purchased fare "held alive" in the fund, and the tcom pany pays interest on these bonds, (which interest is added to the fixed sinking fund payment. The amount of bonds retired thus increases yearly. tIn the case of bonds issued by com .panies whose business involves the f1iuuidation of their assets, such as mining. lumber, or oil companies, the fund often takes the form of a pay %Inent of so much per ton of coal, or Esbarrel of oil, or thousand feet o1 Plumber or other product turned out kso that reduction of bonded debt pro eceeds in direct proportion with the Sdepletion of assets.
 The fixed annual payment may bt Iepecff1ed as; certain sum of money kors it may be designated as certain tSpercentage of the total amount o1 Fsbonds issued. In other cases, sthe.pa, tvaiue of bonds or number ofashares Of preferred stock to be retired an. .5nuaIfy maybe fixed, the company ap- i~propriatfng to the sinking fund what
 ever amount may be necessary"to ac ,qufre these. Still other -ssues have tstnking fundsNvarying in amount witt
 the ,company's profits, the amount tt Sbe paid into the fund being fixed a jeomeapercentage of net profits. gener LaIIy with the limitation that the pay
 n.ent must be atIeast a specified sum
 Considerable variation has been in stroduced fn the methods of utilizin: hnoneys fin the sinking fund. As pre- r-vfously stated the general practice i Isto require sinking fund money to b. used to purchase bonds of the issu fus0uestfon. The most usual case i probably thatfwhere such bonds ma. Ete purchased fn the open market, i
 obtafnable at or below some specific sDrfce, white if not so -obtainable Ebonds sufficient to exhaust the fun FrnnSt be called for payment at tn
 call price specified at the time of is
 sue In some cases, the privilege o
 purchasing fin the open market is no
 given, but bonds must be drawn b
 lot and redeem ed at the caliable price
 In still other cases, a sinking fun
 provision was introduced apparent
 largely for the purpose of providin
 fo tsa yI nf H