mm MS NEW TAX INCENTIVES TO SPUR RESEARCH Enacted on July 1, 1981, new tax benefits for research and development were set in motion for American industry. in-dustry. These materially liberalized credits were designed for the purpose of rejuvenating our industrial productivity which has been lagging that of other major countries. The new incentives are expected to activate the automation of U.S. factories, fac-tories, allowing for the introduction of considerably more technologically advanced equipment as well as encouraging en-couraging further innovations in industrial in-dustrial laboratories. These are six industries which allocate the largest amount of in-house (company-sponsored) research and development. Electrical machinery and communications (excluding electronics and computers) now rank first among those business sectors with the highest amount of R&D work company-funded. Professional and scientific instruments in-struments range in second place, followed by transportation, chemicals and drugs, machinery, and petroleum products, in that order. While the aerospace industry would rate second-place second-place based on total R&D support, only 20 percent is company-funded. In the opinion of the Research Department of Babson's Reports, the new research and development provisions should lead to increased spending by all U.S. corporations in the coming years, especially for more basic research. In particular, high technology firms are expected to boost their outlays by 20 to 40 percent over the next few years in uch high-growth areas as industrial robots, biotechnology, personal and "oFfice (desk top) computers, sophisticated medical diagnostic equipment, and satellite communications. R&D OUTLAYS BESTING INFLATION RATE Since 1973, the average yearly in- . crease in spending for research and development by both the Federal Government and U.S. firms has advanced ad-vanced ,3.4 percent (adjusted for inflation). in-flation). The rate of advance for 1981 is estimated by the Battelle Memorial Institute (a renowned private research organization) at around 3.8 percent over 1980, totaling $68.6 billion. The government is the major source of expenditures for R&D, but 70 percent of the work is performed by industry. This will come to some $48 billion of the $68.6 billion in 1981. Colleges and universities, the government, and nonprofit institutions will account for the balance of domestic research in that order. Overall, research has kept ahead of inflation by a good percentage over the past decade and is projected to continue con-tinue to maintain the healthy lead in the 1980s. KEY CHANGES OUTLINED Spending for industrial R&D will benefit from a 25 percent incremental credit applied for yearly increases. Unlike the previous tax law, wages and salaries, outlays for laboratory supplies, sup-plies, research materials, and leasing are now included. All of the above expenses are to be averaged over the three preceding tax years; a 25 percent tax credit is allowed to be taken in the fourth year for the amount exceeding the average. The 25 percent tax credit will also apply to 65 percent of the sums for outside research done through nonprofit non-profit organizations. The 25 percent . credit runs retroactively from July 1, 1981 to Jan. 1, 1986. Innovative small companies should now be able to increase in-crease their R&D staffs to carry out promising basic research projects where product development was previously being employed. CURRENT STOCK ADVICE The Research Department of Babson's Bab-son's Reports is presently recommending recom-mending several attractive R&D buys. Among these are included the common stocks of such companies as Harris Corp. (average grade), engaged in electronics, traded on the NYSE; and Millipore Corp. (speculative grade), a promising manufacturer and distributor of filter systems and analytical instrumentation, traded over-the-counter. Both have high growth potential for the long term. I mm The diamond is the most durable of all gems 90 times harder than the next hardest mineral, corundum.