Answer. I infer that those were the balances of purchases and sales effected by Henry L. Doherty & Co., fiscal agents, in its process of performing the same function just prior to the formation of the Securities Co.

Question. Is it also to be inferred that Henry L. Doherty & Co. participated as a distributing dealer in the syndicate formed by A. B. Leech & Co.?

Answer. Yes, sir.

Question. What further inference is drawn from the facts in this connection?

Answer. That Henry L. Doherty & Co.'s participation in the syndicate was in the firm's capacity as agent for Cities Service Co. Question. What is the basis for this inference?

Answer. The basis is the fact that the $1,913,000 face amount of these debentures that in a bookkeeping sense were on hand at the end of March, and the liability to deliver $1,682,300 face amount of these debentures, were items of assets and liabilities that had been included prior to the formation of the Securities Co. in the special account between Cities Service Co. and Henry L. Doherty & Co.

Question. What was the period during which this syndicate dealt in these debenture 5's of 1966 of the Cities Service Co.?

Answer. From the date of the sale to the syndicate in March 1927 until June 22, 1927.

Question. Inclusive of the sales previously effected by Doherty & Co., what were the Securities Co.'s syndicate sales of these debentures up to June 22, 1927?

Answer. $2,092,400 face amount, the proceeds of which were $1,918,275.30.

Question. What was the total amount of these debentures purchased by the Securities Co. as a syndicate participant?

Answer. $2,066,000 face amount, at a cost of $1,895,555.

Question. Did the Securities Co. experience a loss on the entire volume of its sales for syndicate account?

Answer. Yes, sir; a loss of $4,606.57.

Question. Of that loss how much pertained to the $2,066,000 face amount of debentures that the Securities Co. purchased for syndicate account?

Answer. $4,483.22.

Question. Although the syndicate's period ended June 22, 1927, did the Securities Co. classify as syndicate sales certain sales made by it as late as November 1927?

Answer. Yes, sir; it did.

Question. Were additional syndicate purchases made by the Securities Co.?

Answer. No, sir.

Question. While the Securities Co. were selling through other channels was it also making purchases of these debenture 5's of 1966 in the market?

Answer. Yes, sir.

Question. In what market?

Answer. That is, over the counter and on the organized exchange. Question. During the first month of its existence what of these securities did the Securities Co. purchase in the market? Answer. $95,900 face amount.

Question. Did the Securities Co. continue making these purchases during the months that followed?

Answer. Yes, sir. During the months that followed the volume dwindled from $125,800 face amount in May to $42,300 face amount in August 1927.

Question. What was the purpose of these purchases?

Answer. I interpret them as purchases made for the purpose of supporting the market for those debentures or furnishing a resale market for them.

Question. We are dealing at this point, as has been stated several times, with the Cities Service debenture 5's of 1966?

Answer. Yes, sir.

Question. You have told us that the volume of the Securities Co.'s market purchases of these debentures fell as low as $43,200 face amount in August 1927. During the entire 5 months from August 1, 1927, to December 31, 1928, did the balance of these debentures on hand increase?

Answer. Yes, sir, to the extent of $13,700 face amount.

Question. Was the volume of purchases of these debentures greatly augmented during the months of September to December 1927? Answer. Yes, sir; it was.

Question. How did the purchases during these months compare with the volume of purchases in August?

Answer. They were large as compared with the volume of purchases in August and they also exceeded the total sales of those debentures during the same period by considerable amounts.

Question. How about the purchases during December 1927?

Answer. They were even larger; $234,300 face amount. However, they were not as large as the total sales effected during that month because there was renewed and increased activity in the sales of these debentures during December 1927 by the regular sales organization of Henry L. Doherty & Co.

Question. To what was the largely increased activity in market purchases of these debentures during the last 4 months of 1927 due? Answer. I conclude that it was due to a decision of the Doherty management to issue another block of those debentures and that they took place in order to prepare the market to take the new block on favorable terms.

Question. How could these operations that you have described prepare the market to take the new block on favorable terms?

Answer. By creating increased activity in the market, showing there was a lively interest on the part of the investing public in those debentures; so that an investor could readily resell his bonds, if he desired to do so, and at a favorable price.

Question. In January 1928 did the Securities Co. receive an additional block of these debentures from the Cities Service Co.?

Answer. Yes, sir; an additional block to the extent of $5,000,000 face amount, the credit to Cities Service Co. being $4,250,000.

Question. Following this purchase from Cities Service Co., what did you observe as to the volume of sales and the volume of market purchases of these 5 percent debentures?

Answer. I observed there was a large acceleration in both the volume of sales and the volume of market purchases; that the sales

through the regular channels, which amounted to $355,400 face in December 1927 increased to nearly $670,000 face in January 1928, and nearly $997,000 in February, and to more than $1,400,000 face amount in both March and April 1928.

Question. Were these sales to which you have just referred made in the United States and Canada?

Answer. Yes, sir.

Question. In addition to these were arrangements made in March 1928 for sales to European bankers?

Answer. Yes, sir; a small quantity was sold to a foreign syndicate in March; and in April $2,690,600 face amount of the debentures were sold to the foreign syndicate for proceeds amounting to $2,586,752.50.

Question. At the same time that the Securities Co. made this increased volume of sales, did it increase the volume of its market purchases?

Answer. Yes, sir. These market purchases increased from a little over $234,000 face amount in December 1927, to $677,400 in January 1928, to $1,194,000 in February, to nearly $1,568,000 in March, and to nearly $3,422,000 in April 1928.

Question. During the period January 1 to May 1, 1928, how did the sales to the public compare with the purchases from the public? Answer. The sales exceeded the purchases to the extent of $524,800 face amount.

Question. What were the average prices which the Securities Co. paid for these debentures on the market during this period?

Answer. 91.05 percent of par in January, 1928; 91.96 percent in February; 93.91 percent in March; 97.05 percent in April; 97.58 percent in May 1928.

Question. At this time-that is, early in 1928-were plans being laid for marketing a further issue of 5 percent debentures?

Answer. Yes, sir; plans were being made for marketing a new issue designated as 5 percent debentures of 1958.

Question. When did the distribution of them commence?
Answer. On May 29, 1928.

Question. What would be the effect of an active market demand at high and increased prices for the 5 percent debentures already out? Answer. It would naturally assist in obtaining favorable prices for the new debentures.

Question. What was the effect of the large market purchases of the debenture 5's of 1966, which were made at increased prices, as you have pointed out, on the market by the Securities Co.?

Answer. Those purchases not only tended to prepare a favorable reception for the new debentures, but they also had the effect to the extent of these purchases of taking these old debentures out of market competition with the new.

Question. How were these market purchases financed?

Answer. The resales of these debentures through the regular channels to the foreign syndicate performed the function of financing. Question. What do you mean by "regular channels?"

Answer. By regular channels I mean the sales organization of Henry L. Doherty & Co. or anybody connected with the system, who was authorized to make sales for commissions.

Question. In January 1929, was some adjustment made on the books of the Securities Co. in the recorded cost of the debentures of 1966 then in the hands of the Securities Co.?

Answer. Yes, sir. The book figure for the cost of the debenture 5's of 1966 on hand at that time was reduced $325,534.18.

Question. Was this reduction or this book entry supported by voucher?

Answer. Yes, sir; it was.

Question. What explanation of the reduction appears on the voucher?

Answer. That that amount was part of a total of $575,825.

Question. That is, the $325,534.18 reduction in cost of the debenture 5's of 1966 were part of a larger item of $575,825?

Answer. Yes, sir; and that larger item represented a 5-point allowance made by the Cities Service Co. to the Securities Co. on $11,516,500 face amount of these 5-percent debentures of 1966.

Question. What reason was stated for the allowance to which you have just referred?

Answer. The reason stated for the allowance was that it was the difference between the value of those debentures at the average normal price, 91, and the cost price, 96, of taking them off the market to make possible marketing of the $15,000,000 face amount of Cities Service Co.'s 5-percent debentures of 1958 at 98.

Question. How was the balance of the $575,000 allowance treated? Answer. The balance of it was applied to reduction in the book cost of 5-percent debentures of 1958, the new issue, on hand at that date. Question. During 1928 to what did the purchases by the Securities Co. of the Cities Service debenture 5's of 1966 amount?

Answer. To $11,503,800 face amount at a total cost of $10,970,273.40, an average price of 95.36.

Question. During the same year what were the regular sales that were made of these debentures by the Securities Co.?

Answer. The regular sales amounted to $9,141,000 face amount, with proceeds of $8,655,365.36, or an average of 94.69.

Question. What was the total of all sales of these debentures in 1928 by the Securities Co.?

Answer. The total of all sales except those to the sinking fund was $13,599,600 face, with proceeds of $12,927,022.36, or an average of 95.05.

Question. To what did the total of sales through the regular channels and through the foreign syndicate amount?

Answer. $13,501,600 face, with proceeds of $12,834,384.86, or an average of 95.06.

Question. You have stated, however, that the allowance of something over $575,000, which the Cities Service Co. made to the Securities Co., was based upon the difference between the value of these debentures at the average normal market price of 91 and the cost price of 96, of taking them off the market?

Answer. Yes, sir.

Question. Do you know how these prices of 91 and 96 were arrived at?

Answer. No, sir. The purpose of the statements just made was to arrive at that, but I could not find the cost higher than 95.36.

Question. In fact, the so-called "regular sales" were made at an average price of 94.69 percent of principal amount, were they not? Answer. Those are the regular sales; yes, sir.

Question. And what was the average price which the Securities Co. paid for these debenture 5's of 1966 which it bought in the market in 1928?

Answer. 95.36 percent of par.

Question. Let us try to summarize the transactions in the debenture 5's of 1966 for the entire period from April 1, 1927, to December 31, 1930. During that period, what were the total purchases by the Securities Co. of these debentures?

Answer. $23,568,200 face amount, with a total cost before adjustment amounting to $21,442,998.24.

Question. Of these total purchases, what amount was effected in the market?

Answer. $16,429,400 face amount.

Question. Were these purchases for the most part on the organized exchange?

Answer. Yes, sir.

Question. During the same period what amount of these debenture 5's of 1966 in the period April 1, 1927, to December 31, 1931, did the Securities Co., sell?

Answer. $22,466,100 face amount.

Question. How then did the market purchases by the Securities Co., compare with the quantity of these debentures that were sold by the Securities Co., through all channels, including the sales to the sinking fund?

Answer. The market purchases amounted to more than 70 percent of the quantity of these debentures sold through all channels.

Question. In this instance for what purpose was a considerable portion of the market purchases made?

Answer. A considerable portion of the market purchases was made for the purpose of supporting and preparing the market for the debenture 5's of 1958 and getting the debenture 5's of 1966 off the market and placed where they could not compete in the market with the new issue.

Question. Did the Securities Co., make a gross profit on all of the sales of the debentures of 1966 which it made?

Answer. Yes, sir; a gross profit of $641,204.90.

Question. Now, you have told us that in the spring of 1928 the Doherty management decided upon the issuance of a new series of debentures by Cities Service Co. What was the face amount thereof to be?

Answer. Fifty million dollars.

Question. Bearing interest at what rate?

Answer. At 5 percent per annum, payable semiannually.

Question. Maturing when?

Answer. Maturing in 1958.

Question. Was there a syndicate formed to take and market the issue?

Answer. Yes, sir. There was a syndicate contract with Harris, Forbes & Co., and Halsey, Stuart & Co., who headed the syndicate to take and market the issue.