CHAPTER THIRTEEN WHY INVEST IN FEDERAL FARM LOAN BONDS HE reader who may wish to save and TH put by any sum from $1 and $25 upward, equally with the individual or institution that has thousands or millions to invest, cannot fail to have been favorably impressed by a perusal of the previous chapters. An exposition of the new system affords the following among many reasons why the federal farm loan bonds issued by a federal land bank should appeal to investors: 1. Safety. The federal farm loan act of the United States, the supervision by national authority, the by-laws of the banks, and the efforts of the management, all are directed toward making as near as possible to absolute safety each and every bond uttered by the new system. 2. Security. Each bond and each series of bonds have back of them the following security: (a) An undivided interest in all of the first mortgage notes which are held as collateral for each series of bonds (b) These mortgages being upon different farms in scattered localities throughout a large district, thus still further minimize the risk. (c) Each mortgaged farm is worth not less than double the amount of the loan. Therefore, the security for each loan is at least 200 per cent at the start. The security increases steadily each year, as the borrower reduces the principal of his debt. (d) The buildings upon the mortgaged premises must be amply insured against fire at all times. (e) As mortgages are accepted only upon farms occupied and cultivated by their owners, in contradistinction to agricultural land owned by landlords or speculators, the security represented by the personal character of the borrower is of the finest type (f) Each mortgage loan is further secured by a cash reserve against it of five per cent, invested by the borrower in the shares of his national farm loan association, and by the latter in stock of the federal land bank of which it is a member. This insures a special reserve of five per cent against the bonds in each series, which reserve is in cash, or invested in government bonds or in farm mortgages or federal farm loan bonds. (g) Each mortgage is further secured by the indorsement of the national farm loan association of which the borrower is a member. And all the members thereof are jointly and severally liable for all its obligations to the amount of double their holdings of its stock. (h) Each bond is also secured by the paid up cash capital stock of the federal land bank by which it is issued (part of which is invested in government bonds), also by the surplus of that institution, not to mention its suspense account. These three items together must at all times constitute an extra reserve equal to five per cent of the par value of the bonds outstanding. (i) Still further, and in addition to said special and extra cash reserves, together aggregating 10 per cent of the original loan, all twelve federal land banks are jointly and severally responsible for the principal and interest of each and all the bonds uttered by any or all of such banks. And these institutions have such rights and privileges and are so related to the treasury of the United States as almost to preclude the possibility of loss. (j) And finally, all, the foregoing security is constantly increasing because each borrower's debt is constantly being reduced. Thus the equity back of each mortgage steadily grows. 3. Non-taxable. The law provides that all farm loan bonds under the federal system shall be exempt from any and every form of taxation whatsoever. With the exception of United States government bonds, it is believed that federal farm loan bonds constitute the only security which, in the last analysis, is absolutely exempt from any form of direct or indirect taxation to the holder in life or death. And this is for the reason that the taxes are paid from the land itself, by which the bonds are secured. 4. Income. Some of the bonds first to be issued may bear 5% interest, payable annually or semi-annually. Being free of tax, this is equivalent to a return of 61% or 7%, or $65 to $70 per $1,000 annually, according as you have to pay 11% or 2% taxes upon taxable investments. Naturally the rate on subsequent issues may be lower, but still will furnish one of the most attractive sources of income for conservative investors. 5. Redemption. Federal farm loan bonds may be called in and retired at any time after five years from date of issue, but may run for the maximum period for which they are written. When called for redemption, the holder shall receive their full par value, of course with accrued interest. Should an investor be so fortunate as to have obtained the bonds below par, the difference will constitute a profit in addition to the tax free income he has enjoyed meanwhile. Doubtless the in 6. Reinvestment. vestor will have the opportunity to reinvest in bonds of later series the money he receives when his holdings are called for redemption. In effect redemption may, at the option of the holder, consist merely of the exchange of his bonds for those of another series or later issue. This will insure the objects desired by holders for permanent investment. 7. Legal Investment. Farm loan bonds issued in accordance with the act "shall be a lawful investment for all fiduciary and trust |