Proposed Exemptions; Bankers Trust Company

The proposed exemptions were requested in applications filed pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the Code, and in accordance with procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). Effective December 31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 1978) transferred the authority of the Secretary of the Treasury to issue exemptions of the type requested to the Secretary of Labor. Therefore, these notices of proposed exemption are issued solely by the Department. The applications contain representations with regard to the proposed exemptions which are summarized below. Interested persons are referred to the applications on file with the Department for a complete statement of the facts and representations.

Bankers Trust Company (Bankers Trust) Located in New York, New York

[Exemption Application Number D-10644]

Proposed Exemption

The Department is considering granting an exemption under the authority of section 408(a) of the Act and section 4975(c)(2) of the Code and in accordance with the procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).

Section I. Transactions

If the exemption is granted, the restrictions of section 406(a)(1)(A) through (D) and section 406(b)(1) and (b)(2) of the Act and the sanctions resulting from the application of section 4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall not apply to the sale (the Sale) of fractional amounts of certain fixed income instruments (Fractional Amounts) to Bankers Trust and its affiliates by plans for which Bankers Trust or its affiliates provide fiduciary or other services (Client Plans), as well as employee benefit plans established and maintained by Bankers Trust or its affiliates (BT Plans) (collectively, the Plans), provided that the following conditions are met: (a) Each Sale involves a one time transaction for cash; (b) The terms of each Sale are at least as favorable to the Plan as those terms which would be available in an arm's-length transaction with an unrelated party; (c) The Plans receive an amount in cash which is not less than the par value for each of the Fractional Amounts; (d) In the case of the Client Plans, (1) each Sale is subject to the prior approval of an independent plan fiduciary; (2) the independent fiduciary of each Plan is furnished written notice at least 60 days prior to the proposed Sale transaction, containing information relevant to the independent fiduciary's determination whether to approve the Sale transaction. The notice will inform the independent fiduciary that failure to respond within 45 days of receipt of the notice will constitute authorization of Bankers Trust to engage in the transaction. If the fixed income instruments are not redenominated within a year of provision of this notice, additional notice will be delivered to the independent fiduciaries each year notifying them of their right to not participate in this program; (e) In the case of BT Plans, Bankers Trust must purchase the Fractional Amounts from Plans within 30 days of the date that the Fractional Amounts are received from the issuer; (f) Neither Bankers Trust nor an affiliate has discretionary authority or control with respect to the investment of the plan assets involved in the transaction, or render investment advice (within the meaning of 29 CFR 2510.3-21(c) with respect to these assets); (g) The Plans do not incur any commissions or other expenses relating to the Sales; and (h)(1) Bankers Trust or an affiliate maintains or causes to be maintained within the United States, for a period of six years from the date of such transaction, the records necessary to enable the persons described in this section to determine whether the conditions of this exemption have been met; except that a party in interest with respect to an employee benefit plan, other than Bankers Trust or its affiliates, shall not be subject to a civil penalty under section 502(i) of the Act or the taxes imposed by section 4975(a) or (b) of the Code, if such records are not maintained, or are not available for examination, as required by this section, and a prohibited transaction will not be deemed to have occurred if, due to circumstances beyond the control of Bankers Trust or its affiliates, such records are lost or destroyed prior to the end of such six year period; (2) The records referred to in subsection (1) above are unconditionally available for examination during normal business hours by duly authorized employees of (a) the Department, (b) the Internal Revenue Service, (c) plan participants and beneficiaries, (d) any employer of plan participants and beneficiaries, and (e) any employee organization whose members are covered by such plan; except that none of the persons described in (c) through (e) of this subsection shall be authorized to examine trade secrets of Bankers Trust or its affiliates or any commercial or financial information which is privileged or confidential.

Section II. Definitions

(a) The term affiliate of Bankers Trust means any other bank or similar financial institution directly or indirectly controlling, controlled by, or

under common control with Bankers Trust. (b) The term Euro means the single European currency to be introduced on January 1, 1999 in eleven Member States of the European Union.1 ---------------------------------------------------------------------------

\1\ For purposes of reference, the Euro is slated to have a conversion rate of 1 Euro equals 1 European Currency Unit (ECU). The ECU is a basket of 12 European currencies that is frequently used for inter-governmental and market transactions. Currently, the ECU is worth less than one U.S. dollar. ---------------------------------------------------------------------------

(c) The term Fractional Amount means, with respect to any fixed income instrument, an amount less than one Euro. (d) The term independent plan fiduciary means a plan fiduciary independent of Bankers Trust and any of its affiliates. (e) The term par value means the face value of the fixed income instrument. (f) The term Plan includes all employee benefit plans to which Bankers Trust or an affiliate acts as a service provider, including a fiduciary, and all plans established and maintained by Bankers Trust and its affiliates, which have net assets of at least $25,000,000.

EFFECTIVE DATE: This exemption is effective for the period beginning on January 1, 1999 and ending three years from the date on which each country joining the European Economic and Monetary Union converts to the Euro.

Summary of Facts and Representations

1. Bankers Trust, a New York banking corporation, is a commercial bank which provides a wide range of banking, fiduciary, record keeping, custodial, brokerage and investment services to corporations, institutions, governments, employee benefit plans, governmental retirement plans and private investors worldwide. Bankers Trust is wholly-owned by Bankers Trust Corporation (BTCorp), a bank holding company established in 1965 under the laws of the State of New York. As of December 31, 1997, BTCorp and its affiliates had consolidated assets of approximately $140 billion and total stockholder's equity of approximately $5 billion. 2. Among the assets of the Plans for which Bankers Trust provides services are corporate and government-issued fixed income instruments denominated in the currencies of the following eleven European nations: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain. In May 1998, these eleven nations agreed to join the Economic and Monetary Union (EMU) and to cooperate in the creation of a European Central Bank and the development of a central currency (the Euro), in lieu of the individual currencies of the eleven members (Legacy Currencies). Beginning on January 1, 1999, these Legacy Currencies will be converted into the Euro, although the Legacy Currencies will continue to coexist with the Euro for a limited time as denominations of the Euro.2 ---------------------------------------------------------------------------

\2\ For example, a French Franc will be treated as a sub-unit of a Euro in the same way as a centime is treated as a subunit of the Franc. The applicant represents that because the conversion rate will be irrevocably fixed throughout a three-year transitional period, all existing banknotes and coins will continue in circulation as legal tender but will be treated as referring to the Euro at the fixed conversion rate. ---------------------------------------------------------------------------

During the initial transition weekend that includes January 1, 1999, the securities markets in the EMU will undergo a conversion in which (1) all stock exchanges and depositories will commence pricing, trading and settling only in the Euro, (2) approximately 1500 government securities will be redenominated, (3) currency balances will be converted to the Euro, and (4) all securities transactions pending over that weekend will be converted to settle in the Euro. From January 1, 1999 forward, all stock exchanges, depositories and national or central banks will operate only in the Euro. With regard to fixed income instruments, the process of conversion is scheduled to take place over a three-year period. The applicant states that the other European nations that are not currently part of the EMU may decide to follow these other nations and start their own conversion process after January 1, 1999. In that event, these other nations may take approximately 3 years from their commencement of the conversions process to redenominate fixed income securities. Bankers Trust represents that in the process of this redenomination, Fractional Amounts (as defined in paragraph (c) of Section II) will be created as a result of the relationship between the former currency values and the Euro. 4. Bankers Trust seeks exemptive relief permitting it and its affiliates to purchase the Fractional Amounts which result from the conversion to the Euro of certain fixed income instruments denominated in the Legacy Currencies that are held by its Client Plans and the BT Plans. Bankers Trust represents that while its custody systems currently support Fractional Amounts, it is widely predicted that there will be little or no market for Fractional Amounts resulting from the conversion to the Euro. In addition, Bankers Trust represents that the Fractional Amounts will need to be disposed of as soon as possible after the Euro Conversion because these Fractional Amounts will likely trade at a discount in any potential secondary market. In addition, when transaction costs and other costs are considered, the cost of selling the Fractional Amounts may exceed their value. Accordingly, Bankers Trust proposes purchasing these Fractional Amounts at par value from its clients, including Client Plans, and the BT Plans to ensure that no losses are sustained by such investors in the sale of the Fractional Amounts. 5. Bankers Trust represents that sixty (60) days prior to December 31, 1999, Bankers Trust and its affiliates shall provide written notice of the subject transaction in the form of a letter to all independent plan fiduciaries. In this letter, Bankers Trust will provide several items of important information. First, the letter will outline the facts surrounding the conversion of various Legacy Currencies to the Euro. Second, the letter will advise clients that no market dealing in Fractional Amounts can be expected and that, if such a market develops, the Fractional Amounts will likely trade at a substantial discount. Bankers Trust will also note that, due to the small amounts involved, any sale of the Fractional Amounts on a potential secondary market may result in the transaction costs exceeding the proceeds derived from the sale. Third, the letter will explain that Bankers Trust is prepared to purchase the Fractional Amounts at par, without any transaction costs. Fourth, the letter will advise all clients (including each Client Plan) that if they choose not to sell their Fractional Amounts, they must notify Bankers Trust within 45 days of receipt of notice. The notice will inform the independent fiduciary that failure to respond within 45 days of receipt of the notice will constitute authorization of Bankers Trust to engage in the transaction. If the fixed income instruments are not redenominated within a year of provision of this notice, additional notice will be delivered to the independent fiduciaries of the Client Plans each year notifying them of their right not to participate in this program. The letter will provide all appropriate information including telephone numbers, the names of contact persons, and relevant postal or electronic addresses that can be used for the purpose of providing such notification. 6. Bankers Trust represents that the subject transactions are administratively feasible in that each Sale will be for cash at an amount equal to the par value of the Fractional Amounts and that all

transaction records will be maintained. Furthermore, Bankers Trust states that each transaction should be viewed as being in the best interest of the Plans and their participants and beneficiaries because such transactions will provide for more efficient administration of the currency conversion process for such assets and increased value to the Plan's investments. Finally, Bankers Trust represents that the subject transactions will be protective of the Plans' participants and beneficiaries because each Plan will receive the par value for the Fractional Amounts during a time when any market that may develop for these interests will demand that they be sold at a discount. 7. In summary, Bankers Trust represents that the transactions will satisfy the statutory criteria of section 408(a) of the Act and section 4975 of the Code because: (a) Each Sale involves a one time transaction for cash; (b) The terms of each Sale are at least as favorable to the Plan as those terms which would be available in an arm's-length transaction with an unrelated party; (c) The Plans receive an amount in cash which is not less than the par value for each of the Fractional Amounts; (d) In the case of the Client Plans, (1) each Sale is subject to the prior approval of an independent plan fiduciary; (2) the independent fiduciary of each Plan is furnished written notice at least 60 days prior to the proposed Sale transaction, containing information relevant to the independent fiduciary's determination whether to approve the Sale transaction. The notice will inform the independent fiduciary that failure to respond within 45 days of receipt of the notice will constitute authorization of Bankers Trust to engage in the transaction. If the fixed income instruments are not redenominated within a year of provision of this notice, additional notice will be delivered to the independent fiduciaries each year notifying them of their right to not participate in this program; (e) In the case of the BT Plans, Bankers Trust must purchase the Fractional Amounts from their Plans within 30 days of the date that Fractional Amounts are received from the issuer after the government of each respective country determines that redenomination shall commence; (f) Neither Bankers Trust nor an affiliate has discretionary authority or control with respect to the investment of the plan assets involved in the transaction, or render investment advice (within the meaning of 29 CFR 2510.3-21(c) with respect to these assets); and (g) The Plans do not incur any commissions or other expenses relating to the Sales. Notice to Interested Persons: Because of the large number of interested persons, the Department and the applicant have agreed that notification through publication of the proposal in the Federal Register is sufficient.