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TITLE 26-INTERNAL REVENUE CODE poration") which is in control of the acquir- ing corporation, of substantially all of the properties of another corporation which in the transaction is merged into the acquiring corporation shall not disqualify a transac- tion under paragraph (1)(A) if (i) such transaction would have qualified under paragraph (1)(A) if the merger had been into the controlling corporation, and (ii) no stock of the acquiring corporation is used in the transaction. (E) Statutory merger using voting stock of corpo- ration controlling merged corporation A transaction otherwise qualifying under paragraph (1)(A) shall not be disqualified by reason of the fact that stock of a corpo- ration (referred to in this subparagraph as the "controlling corporation") which before the merger was In control of the merged corporation is used in the transaction, If- (1) after the transaction, the corporation surviving the merger holds substantially all of its properties and of the properties of the merged corporation (other than stock of the controlling corporation dis- tributed in the transaction); and (ii) in the transaction, former share- holders of the surviving corporation ex- changed, for an amount of voting stock of the controlling corporation, an amount of stock in the surviving corporation which constitutes control of such corporation. (F) Certain transactions involving 2 or more in- vestment companies (I) If immediately before a transaction described in paragraph (1) (other than subparagraph (E) thereof), 2 or more par- ties to the transaction were investment companies, then the transaction shall not be considered to be a reorganization with respect to any such investment company (and its shareholders and security hold- ers) unless it was a regulated investment company, a real estate investment trust, or a corporation which meets the require- ments of clause (it). (ii) A corporation meets the require- ments of this clause if not more than 25 percent of the value of its total assets is invested in the stock and securities of any one issuer, and not more than 50 percent of the value of its total assets is invested in the stock and securities of 5 or fewer is- suers. For purposes of this clause, all members of a controlled group of corpora- tions (within the meaning of section 1563(a)) shall be treated as one issuer. (iII) For purposes of this subparagraph the term "investment company" means a regulated investment company, a real estate investment trust, or a corporation more than 50 percent of the value of whose total assets are stock and securities and more than 80 percent of the value of whose total assets are assets held for In- vestment. In making the 50-percent and 80-percent determinations under the pre- ceding sentence, stock and securities in any subsidiary corporation shall be disre- garded and the parent corporation shall be deemed to own its ratable share of the subsidiary's assets, and a corporation shall be considered a subsidiary if the parent owns 50 percent or more of the combined voting power of all classes of stock enti- tled to vote, or 50 percent or more of the total value of shares of all classes of stock outstanding. (iv) For purposes of this subparagraph, in determining total assets -there shall be excluded cash and cash items (including receivables). Government securities, and, under regulations prescribed by the Secre- tary, assets acquired (through incurring indebtedness or otherwise) for purposes of meeting the requirements of clause (ii) or ceasing to be an investment company. (v) This subparagraph shall not apply if the stock of each investment company is owned substantially by the same persons in the same proportions. (vi) If an investment company which is not diversified within the meaning of clause (ii) acquires assets of another cor- poration, clause (I) shall be applied to such investment company and its share- holders and security holders as though its assets had been acquired by such other corporation. If such investment company acquires stock of another corporation in a reorganization described in section 368(a)(1)(B) (hereafter referred to as the "actual acquisition"), clause (I) shall be applied to the shareholders and security holders of such investment company as though they had exchanged with such other corporation all of their stock in such investment company for a percent- age of the value of the total outstanding stock of the other corporation equal to the percentage of the value of the total outstanding stock of such investment company which such shareholders own immediatley after the actual acquisition. For purposes of section 1001, the deemed acquisition or exchange referred to in the two preceding sentences shall be treated as a sale or exchange of property by the corporation and by the shareholders and security holders to which clause (1) is ap- plied. (b) Party to a reorganization For purposes of this part, the term "a party to a reorganization" includes- (1) a corporation resulting from a reorgani- zation, and (2) both corporations, in the case of a reor- ganization resulting from the acquisition by one corporation of stock or properties of an- other In the case of a reorganization qualifying under paragraph (1)(B) or (1)(C) of subsection (a), if the stock exchanged for the stock or properties is stock of a corporation which is in control of the acquiring corporation, the term "a party to a reorganization" includes the corporation so controlling the acquiring corporation. In the case of a reorganization qualifying under para- graph (1)(A), (1)(B), or (1)(C) of subsection (a) by reason of paragraph (2)(C) of subsection (a), the term "a party to a reorganization" includes the corporation controlling the corporation to Page 268 368