Right at the foot of the pine, on a decaying log, sat a little old man, who was altogether the ugliest looking object that Ned had ever seen. He was about half the size of ordinary men, though the whiteness of his hair and beard showed plainly that he would never be any taller, and though his body was short and crooked to the last degree, his face was long and pale, but was lighted up by wonderfully brilliant eyes. These were fixed on Ned from the moment he came in sight, and, piercing through the darkness, it is no wonder that they chilled the poor boy's blood and failed to quicken his pace. Indeed, it is not quite certain that he would have gone forward at all if the greater part of the forest had not been behind him, though there seemed to be a spell in the strange eyes that drew the boy on in spite of himself. "Come along! What are you afraid of?" cried the dwarf in a little, dry voice, that sounded like the cracking of a dry twig beneath one's foot. Ned hesitated, and, as if seeking the comfort of something alive and friendly, thrust his hand into his pocket alongside of the little bluebird. "Come on! Come on, little master," repeated the dwarf. "Here I have been waiting more than an hour to tell you some good news, and now that you are here you would hinder me because you are such a coward." "I don't know you," said Ned, as an excuse. "Well, well, no matter for that. I know you well enough. Would you read about gnomes and then be so cowardly that you would fear to associate with them?" As he finished speaking, he arose, disclosing a doorway in the trunk of the pine tree behind him. At that moment, a beautiful dwarf maiden emerged therefrom, and, as if having heard the conversation, said: "He is no coward, father. See, he will shake hands with me!" Ned put out his hand, but drew it back just in time to escape having the gold ring which the Fairy Queen had given him, slipped off his finger by the dwarf maiden. "Selfish mortal," she cried, "'tis nothing but a little gold band. Give it to me. See, I will exchange this beautiful diamond for it," and she held out a sparkling stone set in a gold ring. Ned drew back in alarm, more especially as the dwarf himself advanced with a threatening attitude. Continuing to step back, Ned kept his eyes upon the dwarf, who advanced now with upraised fist. Seeing this, Ned quickly threw off his coat and picking up a stout stick, prepared to defend himself. It would have gone ill with him, for the dwarf was surprisingly strong and agile, had not relief come from an unexpected quarter. [Illustration: NED THREW OFF HIS COAT.] The little bluebird had quietly slipped out of Ned's pocket, and flying up to him, received the gold ring about her neck in accordance with the command of the Fairy Queen, which Ned remembered suddenly and luckily in time.