The companies under the heading of "Financial Trusts" are of a varied character; but those to which I wish to direct your attention form the bulk of the list both in number and amount. I refer to the companies formed for the purpose of investing their capital it may be in one particular form of security, or it may be in different forms of security, with the view of giving an investor with small funds the opportunity of dividing his risk over many investments, instead of putting "all his eggs into one basket." With a small sum you can only obtain an interest in one or two securities, and if your selection is unfortunate you may lose all your capital; but if that small sum be invested in the stock of an investment trust which spreads its investments over, say, a couple of hundred securities, you have your share of each of these, and the chance of loss is reduced to a minimum. (I do not propose to refer to such companies in this list as the Stock Conversion Trust, the Mexican Central Railway Securities Company, and the Railway Investment Trust, which have been founded for the purpose of splitting up the stocks of different railways, in the same manner as has been done by some of the British railways, by dividing the stocks into preferred and deferred stock, with the view of separating the investment element from the speculative element.)

As an example of the modus operandi of a financial trust company I take at random from the 'Stock Exchange Official Intelligence' the information given as to one of the Scottish companies, which was "formed to invest money in debentures, bonds, property, stocks, and shares in the United States, Canada, and elsewhere, and generally to carry on a financial business." The explanation of another states that it was "formed to carry on the business of a trust company. Not more than one-thirtieth of the issued share and debenture capital may be invested in any one security except with the unanimous approval of the trustees. The resolution of the trustees as to the selection of securities must be unanimous."

The capital of these companies is generally divided into three classes - Debenture stock and Preferred and Deferred stocks or shares. In the London Share List there are eighteen companies where the preferred and deferred capital exceeds half a million sterling. The aggregate capital of these consists of -

Now if we take these companies in the aggregate it may be held that their debenture stocks form a security of the best class, the £12,000,000 of debenture stock being a first charge on property which has cost £30,000,000. This opinion is, of course, based on the assumption that the investments of the companies have been selected with ordinary judgment, and in the case of well-managed companies this is undoubtedly the case. It is true that in the initial stages a good many mistakes were made. Most of the companies were founded in the years 1887 to 1889, when speculation was booming and prices were high - in fact the companies themselves were suggested by the boom. The suras they received from the individual investors were invested therefore at high prices, and in many cases in securities of a doubtful character; hence a considerable amount of capital has been lost in the interval. Since 1887 the companies have had to face three crises in the financial world - namely, (1) the Baring failure in 1890; (2) the collapse of the Australian banks in 1893, and (3) the American railway depression in 1894 and 1895.

These misfortunes have acted beneficially in purging their balance-sheets of a mass of rotten securities, and have caused them to put their houses in order. Some of the weakest of the companies had to be reconstructed. The majority have during the last few years strengthened their position. In several cases the lost capital has been replaced, and if the companies take advantage of the lessons of the past - as they doubtless will - there is every reason to believe that even the deferred shareholders may look forward to satisfactory results, while the interests of the debenture and preferred stockholders will be well secured. Of course the security of the debenture stock is much the best. Many of the companies have equal amounts of debenture stock, preferred stock, and deferred stock, so that the debenture stock will not suffer until two-thirds of the capital is swept away.

The majority of the companies publish a list of the investments with each annual report, so that an investor is able to see for himself how the securities are placed. I can imagine no better training for any one desirous of studying investments than the careful scrutiny and valuation of a list of investments of one of the higher class of these companies. It is true that many of the investments will be unknown to him, and will not be found in the Stock Exchange list; but a sufficient number will remain for him to scrutinise, and if on valuing these he finds securities yielding ample margin over the debenture debt he may be quite satisfied as to the safety of the trust debenture stock. At present the prices of the 4 per cent debenture stocks of the eighteen companies I have referred to range from a little below par to 106 1/2, so that the return from them exceeds considerably that from the higher priced British railway debenture and preference stocks, many of which really do not provide equally good security.