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To all of which oil, gas and mineral leases, pooling agreements, assignments and transfers reference is hereby made for all purposes as though incorporated herein in extenso.

In consideration of the issuance to petitioners of a certificate of beneficial interest representing 404,350 shares in said Trust, and that petitioners thereupon transfer said certificate of beneficial interest in the Trust to The National Bank of Commerce in New Orleans, under the plan of complete liquidation heretofore inaugurated, the said The National Bank of Commerce in New Orleans to distribute the 404,350 shares in said Trust, represented by said certificate of beneficial interest, pro ratą to Canal Bank shareholders under and by virtue of appropriate contracts and arrangements substantially similar to the contract above provided with reference to the cash distribution; that said arrangements will provide for proper compensation to The National Bank of Commerce in New Orleans for services rendered.

(5) IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, before any step is initiated to transfer this Liquidation's residual assets to the new corporation and otherwise accomplish a tax-free reorganization, which is hereinafter provided for, petitioners are authorized, empowered and directed to cancel, or cause to be cancelled, 80 percent in number of each shareholder's shares in order that 80 percent in number of each shareholder's shares may be completely cancelled and retired, so that there shall remain only 80,870 shares of Canal Bank & Trust Company, in Liquidation; that, in order to effectuate such a result, each shareholder, at the time he receives the liquidating distribution heretofore provided for, shall present the Definitive Receipt held by him, which was issued under the stock plan previously adopted by the Court, to The National Bank of Commerce in New Orleans at the time said shareholder receives the distribution in liquidation, previously provided for herein, and that, at such time, said The National Bank of Commerce in New Orleans shall issue to said shareholder a new Definitive Receipt for two-tenths of the number of shares in Canal Bank & Trust Company, in Liquidation, which said shareholder had theretofore held; that appropriate provision may be made for the issuance of scrip certificates to take care of fractional shares; that as to those shareholders who have not deposited with The National Bank of Commerce in New Orleans their certificates of stock in accordance with the stock plan heretofore inaugurated, it is now ordered, adjudged and decreed that 80 percent in number of said undeposited shares are hereby declared to be completely cancelled and retired to the same extent and for the same purpose as is heretofore provided in the case of shares which have been deposited in accordance with the stock plan.

(6) IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, petitioners be and they are hereby authorized, empowered and directed to do and perform all things appropriate and necessary to effectually cancel, or cause to be cancelled, 80 percent in number of each shareholder's shares in order that 80 percent of Canal Bank shares shall be cancelled and retired.

(7) IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, petitioners are authorized, empowered and directed, following the consummation of the above partial liquidation, to adopt and consummate a plan of reorganization, and to effectuate said plan of reorganization, they are authorized, empowered and directed :

(a) To form, or cause to be formed, a new corporation called “Canal Assets, Inc.," organized under the General Business Corporation Laws of the State of Louisiana, and having an authorized capital stock of 80,870 shares of common stock of the par value of $1.00 per share, a copy of the Articles of Incorporation to be executed by petitioners being annexed hereto and made part of this judgment, and marked "Exhibit 2" ;

(b) To transfer and convey to said Canal Assets, Inc., all of the assets of every kind, character, and description owned by this Liquidation as of the date of the transfer and conveyance thereof, which said corporation will assume the liabilities of this Liquidation of every kind, character, and description; the real property to be transferred to Canal Assets, Inc., is more fully described hereinafter in this judgment;

(c) To cause Canal Assets, Inc. to issue, in consideration therefor, all of its authorized capital stock of 80,870 shares to petitioners, and petitioners thereupon shall distribute said 80,870 shares of capital stock of Canal Assets, Inc. to Canal Bank shareholders in proportion to their relative interest in Canal Bank & Trust Company, in Liquidation;

(d) To cause the remaining 80,870 Canal Bank shares to be cancelled, to completely dissolve said corporation, and surrender its charter.

(8) IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, petitioners mail notice of this judgment to all Canal Bank shareholders with the direction that Definitive Receipts issued to represent shares deposited be presented to The National Bank of Commerce in New Orleans, as Agent for petitioners; that, for all purposes and in all events, 80 percent in number of each shareholder's shares, and hence 80 percent in number of all of Canal Bank shares shall stand completely cancelled, said cancellation to be effective seventy-five days following the date this judgment is rendered ; that petitioners are directed to deposit with The National Bank of Commerce in New Orleans, under an appropriate contract and arrangement, documentary evidence of the rights, benefits, and privileges which inure hereunder to the shareholders of Canal Bank & Trust Company, in Liquidation, who have not deposited their stock, distributions heretofore made and those made in this judgment to remain with the said The National Bank of Commerce in New Orleans, for the account and benefit of all undeposited shares, until the further orders of this Court.

(9) IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, the final fees and compensation to be paid to the Receivers and their attorneys be fixed before the Receivers are discharged, their bonds cancelled, and the Receivership finally terminated.

(Description of real property omitted.) JUDGMENT READ, RENDERED AND SIGNED in open Court this 5th day of March 1954.

FRANK J. STICH, Judge. A true copy. (SEAL]

E. L. MCCARTHY, Deputy Clerk, Civil District Court, Parish of Orleans, State of Louisiana. Senator Long. Will there be taxes due under this reorganization plan as you proposed ?

Mr. SCHILLIN. Yes, sir; there would be taxes due.
Senator Long. They will be due at the capital gains rate.
Mr. SCHILLIN. Yes, they will be due at the capital gains rate.

The CHAIRMAN. Mr. Haussermann, will you identify yourself to the reporter, please.

Mr. HAUSSERMANN. My name is Oscar W. Haussermann; my address is 15 State Street, Boston, Mass. I am a director, the secretary, and counsel of American Research & Development Corp., a Massachusetts corporation with its principal offices in Boston. American Research has presented to this committee, along with a draft of its proposed amendments to the new code, a written statement dated April 14, 1954, and an April 16, 1954, addendum to the first written statement.

STATEMENT OF OSCAR W. HAUSSERMANN, AMERICAN RESEARCH

& DEVELOPMENT CORP., BOSTON, MASS. Our amendment involves subchapter M of the proposed new code. Subchapter M deals with regulated investment companies. It says that if an investment company desires to obtain the tax benefits of subchapter M, it must elect to become a regulated investment company. To become a regulated investment company, two sets of conditions or requirements must be met, one relating to income and the other to assets. Our proposed amendments have nothing to do with the income requirement, but solely with the assets requirement.

Senator FLANDERS. Excuse me, Mr. Haussermann. I wonder if you might just indicate very briefly the nature of this particular corporation, because that is pertinent, I think.

Mr. HAUSSERMANN. Our corporation comes within the purview of the definition in the new code and in the old code of a development investment company, which is defined as an investment company which is principally engaged in the furnishing of capital to other corporations, which in turn are principally engaged in the development or exploitaton of inventions, technological improvements, new processes, or products not previously generally available.

The CHAIRMAN. Senator Flanders is particularly interested in this.

Mr. HAUSSERMANN. He is one of the founders of American Research & Development Corp., and he was its first president. The corporation will always be indebted to him for starting us out on the right track.

The asset requirement is to the effect that every investment company which desires to become a regulated investment company must show that 50 percent or more of the value of its assets is represented (1) by cash, receivables, government securities, and securities of other regulated investment companies, and (2) by securities, with respect to any one issuer, which represent not more than 5 percent of the value of the total assets of the investment company and not more than 10 percent of the voting securities of the issuer.

Now, these requirements apply to ordinary investment companies, and they also apply to American Research's type of investment company, with one exception. That exception is that in computing 50 percent or more of the total value of its assets, an investment company such as American Research may include securities of any one issuer, even though they represent more than 10 percent of the voting securities of that issuer, provided they don't represent more than 5 percent of the total value of the investment company's assets.

Our proposed amendment is to change that 5 percent to 10 percent. Our reason for our proposal issues from our experience since we started business late in 1946.

In at least half a dozen cases we have advanced money to new projects and the securities which we received for such advances cost us in each case much less than 5 percent of the value of our total assets. By assisting the new projects through the furnishing of managerial and financial advice, giving it financial help in a time of need, and furnishing, from our own personnel, persons for its board of directors, we have contributed materially to the appreciation of the value of the securities held by us in the new project to an amount considerably in excess of 5 percent of the total value of all our assets.

For example, we made an early investment in Tracerlab, Inc. The cost of our investment stands us at $236,000. By staying with that concern from its early days to the present time, and assisting it in the solution of many problems, we have seen the value of our investment grow until it is now about $727,000 as against a cost to us of $236,000.

Another example is Ionics, Inc. Our investment in that enterprise cost us $400,000 and now has a value of almost $900,000.

Another example is High Voltage Engineering Corp. The cost of our investment in this enterprise is $200,000 and its present value is $600,000.

There are other examples of our buying into new enterprises at a cost amounting to less than 5 percent of the value of our total assets and working with these enterprises and contributing to their rise in value until our investment in each has grown in value to an amount greater than 5 percent of the value of our total assets. With these examples in mind, I should like to point out that the more successful we are in helping to develop a new enterprise, the harder it is for us to qualify as a regulated investment company. We feel that this result was not intended by the code and that raising this 5 percent limitation to 10 percent would be consistent with the aim and spirit of section 851 and would be fair and helpful to development investment companies.

I might point out that the reason American Research hasn't asked for a change hitherto is because we weren't selling our appreciated investments and we weren't asking our projects to pay us great dividends. Hence, although we operated at a profit in the past 2 years, our net income in 1952 was small and in 1953 was small. However, it is much larger for the first quarter of 1954. It looks, therefore, that we are now approaching a time when we may be ready to distribute earnings and, therefore, ready to become a regulated investment company and to serve as a conduit through which our earnings may be passed on to our stockholders as dividends.

Our other proposed amendment is simply this
The CHAIRMAN. Will you pause just a moment, please.
Has the staff considered that problem?

Mr. Smith. Yes, sir; a group was in the other day, Senator, on that matter.

The CHAIRMAN. Have you been in touch with the staff ?
Mr. HAUSSERMANN. No; but I shall.

The CHAIRMAN. Get in touch with Mr. Stam, 1011 New House Office Building. They are studying all the technical features of this. I think you will find them sympathetic and they will try to work something out.

Mr. HAUSSERMANN. I shall go there. Thank you, sir. Now, as to our other proposed amendment. The present language of section 851 of the proposed new code and of section 361 of the existing code defines a development investment company as one “principally engaged in the furnishing of capital to other corporations which are principally engaged in the development or exploitation of inventions, technological improvements, new processes, or products not previously generally available."

We would like to change the word "principally” where it is used the second time in section 851 (e) (1) and in the two places where it is used in section 851 (e) (3) to “substantially.”

The CHAIRMAN. You would like to do what?

Mr. HAUSSERMANN. We would like to change the word "principally" to “substantially” in the places indicated so that a development investment company would be defined as an investment company "principally engaged in the furnishing of capital to other corporations which are substantially engaged in the development or exploitation of inventions, technological improvements, new processes, or products not previously generally available.'

Changing principally” to “substantially, in the places indicated would encourage a development investment company to furnish funds for a new enterprise launched by an old company prior to the time when the old company could be said to be "principally" engaged in the new enterprise; and would obviate the present practical difficulties inherent in determining annually whether each corporation to which a development investment company has furnished capital, thomgh

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clearly “substantially" engaged in new things, is “principally” engaged in new things.

Bear in mind that the changing of the word “principally” to “substantially” in the places requested doesn't mean that we could arbitrarily say, "Any corporation in which we have invested funds is 'substantially engaged in new enterprises.” The SEC would be the final judge as to this. As you know, in order for us to become a regulated investment company, we would have to get each year a certificate from the SEC, addressed to the Secretary of the Treasury, to the effect that the SEC deemed us to be principally engaged in furnishing capital to other corporations which are "substantially" engaged in new enterprises.

The CHAIRMAN. Thank you very much.
(The prepared statement of Mr. Haussermann follows:)

STATEMENT OF AMERICAN RESEARCH AND DEVELOPMENT CORP. (HEREINBELOW

REFERRED TO AS AMERICAN RESEARCH) The amendments sought by American Research are annexed hereto. They pertain to section 851 of the proposed new revenue law (H. R. 8300) and old section 361 of the existing Internal Revenue Code.

New section 851 and old section 361 (which are now substantially the same) each contains a subdivision relating solely to that type of investment company which is a “development company," that is to say, a company “principally engaged in the furnishing of capital to other corporations which are principally engaged in the development or exploitation of inventions, technological improvements, new processes, or products not previously generally available.” (The term “development company” as used hereinbelow refers to the above type of investment company.)

As now written these sections, among other things, first specify the conditions as to assets which an investment company, other than a development company, must meet in order to become a regulated investment company and then specify the conditions as to assets which a development company must meet in order to become a regulated investment company. The two sets of conditions as to assets are the same, except as below indicated.

Under new section 851 (b) as now written, for an investment company, other than a development company, to quality as a regulated investment company the following conditions as to its assets must be met: “(4) At the close of each quarter of the taxable year“(A) at least 50 percent of the value of its total assets is represented by—

"(i) cash and cash items (including receivables), Government securities, and securities of other regulated investment companies, and

“(ii) other securities for purposes of this calculation limited in respect of any one issuer to an amount not greater in value than 5 percent of the value of the total assets of the taxpayer and, except and to the extent provided in subsection (e), to not more than 10 percent of the outstand

ing voting securities of such issuer, and” Under new section 851 (e) as now written, an investment company which is a development company and which desires to qualify as a regulated investment company must meet all the above requirements, with the exception that, in computing 50 percent or more of the value of its assets, securities of an issuer representing more than 10 percent of the voting securities of such issuer may be included, provided the securities of such issuer do not represent more than 5 percent of the total value of the development company's assets. The effect of the attached amendments proposed by American Research would be to raise the lastmentioned figure of 5 percent to 10 percent.

REASONS FOR ATTACHED AMENDMENTS

Development companies by advancing capital to and assisting in the development of new enterprises contribute to the increase of new business and to the increase of employment in new fields and are thus helpful to our national economy and our industrial progress. Legislation that facilitates a successful development company's qualifying as a regulated investment company is legis

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