lation differentials within the unrealized portion of the trust property. These eficiencies which were already outlined in our report on the partial accounts f Branch Office Bavaria as of unimportant volume and undecisive character, have been taken over for final adjustment in the fiscal year 1949.

26. Inasmuch as the view of the balance sheet may be presumed not to be ubjected to substantial alterations owing to unfilled gaps we are of the opinion hat the RM Closing Accounts together with enclosed readjustments present airly the financial condition of STEG as well as the position of the winding up of trust goods transactions as of June 20, 1948.

III. THE OPENING BALANCE SHEET IN DEUTSCHE MARK

'. Problems special to STEG

27. While, generally speaking, the decisive problem of economic enterprises in connection with the legislation regulating the questions around the opening balince sheet in Deutsche Mark (briefly referred to as DMEBG) is formed by the ossibility of revaluation-especially of those within the segments of fixed assets and inventories—inasmuch as it made possible, to a vast extent, the compensation of eventual losses on exchange owing to the conversion of RM into Deutsche Mark, the problem having first priority for STEG is the conversion account according to Military Government Laws No. 61 and 63. We therefore have been levoting a special chapter to the treatment of the conversion account, while we are commenting on the lesser important revaluation in an ensuing section.

28. For judging about the problems of the currency conversion one should also bear in mind that STEG which disposes merely of a nominal capital of *M 20,000,- has no capital of its own worth while mentioning, while all assets and liabilities are merely held by STEG in its character as custodian and have been committed as such in performing the aims set forth by its custodianship. All pertaining problems of the balance sheet resulting from this peculiarity have been dealt with exhaustively under text 119 through 135 in our report Nr. F 171 lated November 1, 1949 on the examination of the RM Closing Balance Sheet. As already pointed out at this occasion, it would have been more logical to comprise into the balance sheet also the trust property still awaiting realization as well as the liabilities under custodianship pertaining to the so-called old proeeds as well as their counterpart on the liability side of the balance sheet, since hey have the same legal status as all the other trust property and trust liabilities. This factor has been duly considered in the opening balance sheet in Deutsche Mark, which was also governed by the fact that in proceeding so, it became also possible to square in a more organic manner eventual currency tosses and gains with the Givers of Trust, or to clear them within the framework of the individual programs.

29. Because all assets are being administered in trusteeship by STEG and since they are realized by the latter under the same legal title while, furthermore, all other property items and liabilities of STEG did result from the fulfillment of its trusteeship, it is evident that eventual currency losses or gains are at the charge or in favor of the Givers of Trust, respectively of the underlying programs. Because tangible assets of the trust givers (the trusters) which had accumulated from the realization of the property of goods given in trust as well as assets pertinent to the comprehension of claims arising out of the so-called old proceeds, all of which did appear on the liabilities side of the balance sheet under the caption of "Surplus liable to remittance" got absolutely lost owing to the currency reform, it proved impracticable to clear them within the framework of the conversion account; this property did appear on the assets side incorporated in the prepayments on surplus liable to remittance as well as in "other banking accounts."

30. In fact, § 9 of Military Government Law No. 63, containing the most significant regulation governing the currency conversion with STEG, expressly stipulates that STEG's bank deposits in Reichsmark, in their character as assets in old currency of group III of § 1 of Military Government Law, were completely wiped out. In connection therewith STEG lost all its bank deposits including those prepayments on the surplus liable to remittance effected

with the Common Foreign Trade Office with Bank deutscher Länder, amounting to some RM 402 million.

Owing to the wiping out of the above-mentioned counterpart funds, the ba ancing of the surplus liable to remittance in the amount of some RM 377 milion, against which it would have been possible to square total losses arising on currency conversion of some RM/DM 9.2 million, became void.

31. These losses can therefore only be cleared within the DM-period and are reducing or increasing the surplus liable to remittance arising within the DM-era; consequently all losses arising out of the currency reform, as well as eventual gains thereunder, including the relatively unimportant losses on revaluations and for gains of the trust liabilities out of the trust property in goods still awaiting realization, have been duly taken into account in the opening bar ance sheet in Deutschemark (briefly referred to as BMED).

This is also the reason why the trust liabilities do not coincide with the trust property still awaiting realization in the opening balance sheet in Deutsche Mark.

32. By the wiping out of its bank deposits STEG did also lose the counterparts of funds belonging to third parties which were administered by STEG, with the exception of a small amount of some DM 127.000-resulting from the conversion in the ratio of 10:0.65 of funds kept on “account of third parties." However. by Ordinance No. 8 regarding the carrying through of the conversion law STEG was entitled to make an application for conversion in the ratio of 10:0.65 for funds of foreign ownership administered by it, with the Supreme Court of Accounts of Bavaria at Munich. Owing to this fact STEG did capitalize in its opening balance sheet in Deutsche Mark all claims on the release of banking deposits in RM in favor of third parties which, owing to its ascertainments and estimations amount to some DM 2 million. The counterpart of this amount is being represented by liabilities arising out of the keeping of funds of third parties and provisions for contingencies on account of eventual refunds, all of which have been subjected to conversion in the ratio of 10: 0,65. Insofar as the proof of private ownership cannot be given or in cases where the legal titles of persons or corporations to these claims cannot be furnished, so that claims for the release of banking funds in RM could not be recognized, which appears like'y to a substantial extent, transitory items would be cleared against one another. 33. To take first things first, it must be pointed out that the conversion et claims and liabilities became only possible, to some considerable extent, by agreements between parties or by lawsuits given the manifold uncertainties existing both about the critical date and the very extent of underlying purchase contracts.

Divergences of opinion are mainly due to the fact that during the RM-era STEG could not realize the trust property goods on its own free will but had to compy with the allocation of goods on the part of Economic Offices at Laender level in favor of the consumer of last resort and into trading channels.

2. The conversion account

34. The condensation of credit and debit balances of customer accounts a. s. e. with different conversion ratios for one and the same party, which was carried through in the course of the adjustment of accounts, is calling for the fact that the tying in of the values shown on the closing balance sheet in Reichsmark into those of the transition balance sheet in Deutsche Mark, does not clearly appear In this connection we wish to draw the reader's attention to the rather intricate clerical connection existing, which has been depicted in our partial reports. On the lines following we are therefore confining our comments to explaining that the tying in of assets and liabilities from the RM closing balance sheet into the DM opening balance sheet has been segregated by groups of conversion relations and balance sheet groups.

35. By conversion relations the picture is as follows:

36. On grounds of greater clearness of the figures no account has been taken in the summary shown overleaf of provisions set aside against the various items as well as of business amounts. Furthermore, valuation reserves against items of the current assets have not been subjected to clearings. In this connection the sums shown in the summary do not differ, although the results of conversion are not the same as shown hereunder.

37. Segregated by groups of the balance sheet the transition (tying-in) accounts show the following picture:

38. As regards conversion of the various items on the assets and liabilities sides of the balance sheet we beg to point out the following:

The shares in Fishing Vessels Trust Company, Bremerhaven, shown under the caption "participation" are appearing with a preliminary value of DM 3.060,--. because this corporation proposes to refix its capital in the ratio of 10: 0,9, i. e. converting it from RM 100.000,- to DM 9.000,--.

The loan granted to Fishing Vessels Trust Company in the amount of some RM 11,8 million, has been converted in the ratio of 10: 1,0 as well as long term claims, amounting to RM 300.000,-- against which an existing valuation reserve of RM 180.000,-, which was converted in the same ratio 10:1 has been cleared on the transition balance sheet; the same ratio was also applied to the conversion of prepayments made amounting to some RM 108.900,--.

39. Of claims on account of the delivery of goods and services an amount of some RM 322.600,-- has been converted in the ratio of 1:1. Out of this total some RM 166.000,-- relate to items which have been cleared subsequent to the currency reform by the return of goods. Another RM 101.000,- relate to the exports of steel scrap, equivalents of which in foreign currency came only to hand after the currency reform and were fully transferred in DM. Some RM 16.800,- originate in trade sales dating from June 19, 1948, remaining claims, i. e. some RM 48.800,-- were converted according to mutual agreements between parties in the ratio of 1:1.

40. The main portion of trade claims (some 96.5%) has been converted in the ratio 10: 1.

A claim of some RM 12.500,- against a Chamber of Commerce, whose funds in old currency have been wiped out, has been cancelled.

41. Funds available in coins at the critical date of the currency reform (some RM 900,-) as well as funds kept with Postal Checking Account Berlin (some RM 61.700,--) have been converted to one tenth of its nominal value according to existing legal regulations, i. e. some DM 6.200,--.

On the other hand STEG had succeeded to convert banking deposits owing to third parties, in the amount of some RM 1.9 million arising out of the realization of dispersal goods, in the ratio of 10: 0, 65, i. e. some DM 127.100,-even prior to the promulgation of the ordinance on funds deposited by third parties. All other banking funds amounting to some RM 402 million were wiped out, as already mentioned above.

42. A separate item of the conversion account is being represented by the so-called business amounts placed at the disposal of STEG in the course of the currency reform, in the amount of DM 521.470,--. Of the latter an amount of DM 473.480, was paid out to STEG in the course of the 2d half of 1948. The equivalent of these business amounts was at first added to provisions for contingencies appearing in the opening balance sheet in DM; it is planned to transfer the remainder of this item, after cancellation of an amount of DM 47.990, which was never paid, to surplus realized on programs.

43. Out of the other claims, some RM 57.800,-- have been taken over into the opening balance sheet in DM at their full nominal value in RM. They are concerned, besides with lesser claims for damages, with prepayments on wages and salaries which fell due subsequent to June 20, 1948. Amounts converted in the ratio of 10 1 to the extent of RM 3.355,000,-- are concerned for some RM 2,9 million with claims arising out of tobacco excises. The claim of RM 3.034,-- which was converted in the ratio of 10: 0,65 is based on guarantees and overpayments.

44. Out of total claims, which were wiped out according to standing regulations, in the amount of RM 524.800,--, a partial sum of RM 500.000,- relates to funds aavilable on blocked account, which had been opened by a Bavarian Official Body inadvertently in favour of U. S. Military Government. Because this amount related to proceeds realized on the sale of dispersal goods, STEG by its taking over the whole dispersal goods program possessed a right of preemption. However, conversion claims in the ratio of 10: 0,65 which would in principle have been feasible by virtue of § 1 of the ordinance on deposited funds, were turned down by U. S. Military Government because STEG could not indicate the very owners who, although authorized to indemnification, were still unknown to it.

Instead STEG did assert claims for release of banking deposits in RM in favour of third parties in adequate amounts, all of which have been capitalized on the balance sheet.

The remainder of the amount, i. e. RM 24.835,--, represents payments accepted by mistake by local authorities in favour of STEG. Because funds in old currency held by these official bodies became void, according to the terms of the currency reform, claims of STEG under this heading were also wiped out.

45. Prepaid expenses which have been taken over into the DM accounts in the conversion ratio 1:1 (i. e. some RM 162.000,--) relate almost exclusively to motor car taxes matured and prepaid for prior to June 20, 1948. The respective transitional item amounting to some RM 115.000,-- which has been carried over after the conversion in the ratio 10: 1, as well as the amount of some RM 11.000,- carried over as per agreement, are mainly relating to prepaid insurance premiums.

46. Out of total claims arising out of the sales prior to the foundation of STEG and outside of STEG (the so-called “old proceeds") as well as the counterpart in the shape of trust liabilities of even amount, i. e. some RM 64,1 million, nearly RM 51 million had been paid in at local bodies at the time of the currency reform. Because relative funds deposited in old currency have become void under the terms of the currency reform, all claims of STEG in this respect have been wiped out, too. In fact, these official bodies belong to the group III of MG law No. 63.

47. Out of claims converted in the ratio of 10:1 amounting to some RM 9 million, some RM 3 million relate to private debtors. The remaining claims existing against Public Bodies amounting to some RM 6 million, have been converted. In fact, the Ministry of Economics of the Federal Republic of Western Germany is urging the collection of these funds (some RM 5,1 million), while, on the other hand, it is likely that STEG did consider it necessary doing so with a view to probably existing dollar charges (some RM 0.9 million).

48. An amount deposited by a private debtor amounting to some RM 217 300,- has been converted in the ratio 10: 0.65. Claims against Official Offices of the Berlin Municipality in the amount of some RM. 3,7 million have been transferred by mutual accord to the DM accounts with RM/DM West 148.600,----.