PITFALLS OF TIMBER BOND ISSUES.^ 

 By Montgomery Rollins. 



Although the Timber Bond in its present form is somewhat 

 new, yet the idea of loaning upon timber land is by no means 

 new. It is an old custom, but the loan was made in the usual 

 lorm of an ordinary real estate mortgage and of a size so that the 

 whole amount might be taken by a single individual or an institu- 

 tion, but as the need and desire arose to borrow larger amounts, 

 it became necessary to resort to the bond plan in order that the 

 loan might be divided up among many holders as being too large 

 for a single investment. Besides, the industry had been divided 

 into small units dependent upon the portable sawmill, but the 

 more enterprising manufacturers realized the waste incident to 

 operating small tracts, so the tendency to consolidation and cen- 

 tralized ownership, as it were, entered into logging and milling — 

 the same as in other industries. The larger financing incident 

 thereto, caused recourse to the investment banker. 



Thus it was, that about 15 years ago, the timber bond actually 

 came into prominence. 



Although the first issue was in the early "nineties," yet it is 

 rather a strange fact, as we view it today, that the interest rates 

 prevailing were 5^, whereas, of late years, 6% has been the rul- 

 ing rate on securities of this nature. 



In this connection, it is somewhat amusing to have read a re- 

 cent publication of a society interested in social science, one issue 

 of whose magazine is devoted to timber bonds as investment 

 securities. It is evident that most of the articles appearing there- 

 in are the efforts of men directly or indirectly interested in the 

 sale of the wares discussed, for, although the fact was probably 

 not realized by the publishers, their pages were used as an ad- 

 vertising medium to boom bond issues of the class we are con- 

 sidering, and several misleading statements were incorporated. 

 To illustrate: take the matter of the interest rate; evidently the 

 writer who was treating that subject was somewhat new to the in- 



^ Read at the Annual Meeting of the Society for Protection of New 

 Hampshire Forests. 

 548 



