          
          
          
                     USING ANNUITIES FOR TAX DEFERRAL
          
               An annuity is a tax advantaged way to put aside
          money for retirement, or other, objectives.  Annuities
          may be among the best ways to create retirement income. 
          They allow savings to grow tax-deferred, building
          assets faster than other investments.
               The way this works is that money is invested with
          an insurance company.  Annuities may be a good
          investment for many long-term goals, but several
          features make them especially well suited for
          retirement savings:
               * No Annual Investment Ceiling.  There is no limit
          to the amount that can be put into an annuity each
          year.  Other tax-advantaged plans such as IRAs should
          not be overlooked for retirement savings, but the
          amount that can be contributed each year is limited.
               * The Power of Tax-Deferral. Money will grow
          faster than in a taxable vehicle with a similar rate of
          return for several reasons.  Not only does the interest
          accumulate tax-free until withdrawal, but funds that
          otherwise would have been used to pay taxes remain in
          the account for additional earnings.  And if the
          payments are not taken until retirement, the recipient
          is probably in a lower tax bracket at that time.
               * Security for One's Family.  If the purchaser
          dies before distributions begin, their family (or other
          beneficiaries) can receive the full value of the
          annuity.  By naming a beneficiary, the annuity may even
          bypass probate and eliminate the associated costs and
          publicity.
               * Simplicity. There are no annual IRS forms to
          file, and there is no entry on Form 1040 until the
          payments actually begin.
               An annuity can offer the investment returns of a
          mutual fund, but deferring the tax until after
          retirement.  Though unglamorous, an annuity is one of
          the investment industry's fastest-growing products. 
          The annuity also contains some of the tax-deferred
          benefits of an individual retirement account or
          employer-sponsored 401(k) plan.  Although it has been
          available for more than 20 years, sales have boomed in
          the last few years.
               With an annuity, savings grow, tax deferred, until
          withdrawn, with no restrictions on how much can be
          invested -- unlike an IRA or other retirement plan.
               And because an annuity is also an insurance
          product, it promises a guaranteed regular income after
          retirement, regardless of how long the investor lives.
               Sales of domestic annuities in the U. S. are now
          running around $50 billion per year.  But the real
          reason for the growth is that as the American
          population ages, it is waking up to the fact that
          retirement self-sufficiency is an important issue. The
          annuity has some ideal characteristics for them.  
               An annuity, often described as the opposite of
          life insurance, is a financial contract with an
          insurance company. These can be structured so they make
          regular monthly payments for life, no matter how long
          the recipient lives.
               While technically the investor doesn't own the
          investments the annuity makes, he benefits from their
          investment. And because he doesn't own the
          investments -- the insurance company does -- savings
          can grow, and the gains are tax-deferred.
               Just as with an IRA, no taxes are due on
          investment gains while the funds remain in the annuity
          account.  This helps savings grow faster, and it allows
          individuals to better control when they will pay taxes.
               Taxes are due when money is withdrawn.  Just as
          with an IRA or 401(k) account, withdrawal of funds
          before age 59 1/2 incurs a 10 percent penalty. 
               While these investments do enjoy tax-deferred
          status as do other retirement accounts, individuals
          still get greater tax savings under traditional IRA or
          401(k) plans, at least to the degree that contributions
          to those accounts are also tax deductible.  But once
          beyond the level of what can be deducted, annuities are
          for investors who want to build substantial tax-free
          growth, not just be limited to a government-mandated
          maximum amount of savings.
               In an IRA or other retirement account, initial
          investments under certain limits are deposited before
          taxes.  That allows wage earners to shield current
          income from tax, as well as allow investments to
          accumulate on a tax-deferred basis.
               With an annuity, the initial investment is made
          with post-tax dollars, although after that, investment
          gains are tax-free until withdrawn.  
               This is a supplemental retirement tool, after all
          the other things.  In an annuity one can set aside as
          much money each year as retirement or other future
          plans require.  Other tax-advantaged plans such as IRAs
          should not be overlooked for retirement savings, but
          the amount that can be contributed each year is
          limited.
               Owning an annuity also can prevent some tax
          liability that often hits mutual fund holders.  When a
          mutual fund is purchased, at the end of the year they
          pay a capital gains distribution, and even if they
          reinvest it, it is a taxable event.  With a variable
          annuity, any profit made, as long as it stays there,
          grows tax-deferred.
               Other considerations in selecting an annuity
          include important safety questions, such as the
          financial health of the insurance company guaranteeing
          the investment.
               Because annuities are insurance products, the fees
          paid by investors are different than for mutual funds.
          Typically, there are no front-end load fees or
          commissions to buy an annuity, but there are
          "surrender" charges for investors who withdraw funds
          early in an American annuity, usually during the first
          five or six years.  (This is not the case in the Swiss
          annuities discussed later.).
               The money in an annuity will grow much faster than
          in a taxable vehicle with a similar rate of return, for
          several reasons.  Not only does interest accumulate
          tax-free until withdrawal, but funds that would
          otherwise have been used to pay taxes remain in the
          account for additional earnings.  And by the time of
          retirement, the recipient is usually in a lower tax
          bracket, and will thus pay less tax on the annuity
          payments.
               Although salesman like to point out that an
          annuity's value is "guaranteed," that promise is only
          as strong as the insurer making it.  An annuity is
          backed by the insurer's investment portfolio, which in
          America may contain junk bonds and troubled real estate
          investments.  If an American insurer has financial
          problems, the investor may become just another creditor
          hoping to be paid back.  For example, when the New
          Jersey state insurance department took over bankrupt
          Mutual Benefit Life, the state temporarily froze the
          accounts of annuity holders, preventing them from
          withdrawing money unless they could prove a significant
          financial hardship.
               Some American annuity marketers inflate their
          yields by playing games with the way they calculate
          them; others advertise sumptuous rates that have more
          strings attached than a marionette.  The most
          widespread form of rate deception is the bonus annuity,
          in which insurers tack on as much as eight percentage
          points to their current interest rate.  But many of
          these alluring bonuses can be illusory.  In most cases
          the bonus rate is only paid if the annuity is held for
          many years, and then taken out in monthly installments
          instead of a lump sum.  If the investor asks for the
          cash in a lump sum, the insurer will retroactively
          subtract the bonus, plus the interest that compounded
          on the bonus, plus a penalty on the original
          investment.
               Even more insidious are tiered-rate annuities --
          so named because they have two levels of interest
          rates.  They ballyhoo an above-average interest rate. 
          But as with their bonus-rate cousins, the accrued
          earnings in the account reflect this so-called
          accumulation rate only when the payout is made over a
          long time.  A straight withdrawal, by contrast, will
          knock the annuity down to a low "surrender value" rate
          for every year invested.
               Other insurers simply resort to the time-
          dishonored practice of luring customers with lofty
          initial rates that are lowered at renewal time.
               All of this nonsense has given the American
          annuity industry a bad name, and it is not surprising
          that most investors simply hang up the telephone when
          an annuity salesman calls.  But the tax structure has
          much to offer, and it is worth shopping around.  
          Long-term asset protection to beat the dollar -- tax-
          free
          
               According to Swiss law, insurance policies --
          including annuity contracts -- cannot be seized by
          creditors.  They also cannot be included in a Swiss
          bankruptcy procedure.  Even if an American court
          expressly orders the seizure of a Swiss annuity account
          or its inclusion in a bankruptcy estate, the account
          will not be seized by Swiss authorities, provided that
          it has been structured the right way.
               There are two requirements: A U. S. resident who
          buys an annuity from a Swiss insurance company must
          designate his or her spouse or descendants, or a third
          party (if done so irrevocably) as beneficiaries.  Also,
          to avoid suspicion of making a fraudulent conveyance to
          avoid a specific judgment, under Swiss law, the person
          must have purchased the policy or designated the
          beneficiaries not less than six months before any
          bankruptcy decree or collection process.
               The policyholder can also protect the policy by
          converting a designation of spouse or children into an
          irrevocable designation when he becomes aware of the
          fact that his creditors will seize his assets and that
          a court might compel him to repatriate the funds in the
          insurance policy.  If he is subsequently ordered to
          revoke the designation of the beneficiary and to
          liquidate the policy he will not be able to do so as
          the insurance company will not accept his instructions
          because of the irrevocable designation of the
          beneficiaries.
               Article 81 of the Swiss insurance law provides
          that if a policyholder has made a revocable designation
          of spouse or children as beneficiaries, they
          automatically become policyholders and acquire all
          rights if the policyholder is declared bankrupt.  In
          such a case the original policyholder therefore
          automatically loses control over the policy and also
          his right to demand the liquidation of the policy and
          the repatriation of funds.  A court therefore cannot
          compel the policyholder to liquidate the policy or
          otherwise repatriate his funds.  If the spouse or
          children notify the insurance company of the
          bankruptcy, the insurance company will note that in its
          records.  Even if the original policyholder sends
          instructions because a court has ordered him to do so,
          the insurance company will ignore those instructions. 
          It is important that the company be notified promptly
          of the bankruptcy, so that they do not inadvertently
          follow the original policyholder's instructions because
          they weren't told of the bankruptcy.
               If the policyholder has designated his spouse or
          his children as beneficiaries of the annuity, the
          insurance policy is protected from his creditors
          regardless of whether the designation is revocable or
          irrevocable.  The policyholder may therefore designate
          his spouse or children as beneficiaries on a revocable
          basis and revoke this designation before the policy
          expires if at such time there is no threat from any
          creditors.
               These laws are part of fundamental Swiss law. 
          They were not created to make Switzerland an asset
          protection haven.  There is a current fad of various
          offshore islands passing special legislation allowing
          the creation of asset protection trusts for foreigners. 
          Since they are not part of the fundamental legal
          structure of the country concerned, local legislators
          really don't care if they work or not -- the fees have
          already been collected.  And since most of these trusts
          are simply used as a convenient legal title to assets
          that are left in the U.S., such as brokerage accounts,
          houses, or office buildings, it is very easy for an
          American court to simply call the trust a sham to
          defraud creditors and ignore its legal title -- seizing
          the assets that are within the physical jurisdiction of
          the court.  
               Such flimsy structures, providing only a thin
          legal screen to the title to American property, are
          quite different from real assets being solely under the
          control of a rock-solid insurance company in a major
          industrialized country.  A defendant trying to convince
          an American court that his local brokerage account is
          really owned by a trust represented by a brass-plate
          under a palm tree on a faraway island is not likely to
          be successful -- more likely the court will simply
          seize the asset.  
               But with the Swiss annuity, the insurance policy
          is not being protected by the Swiss courts and
          government because of any especial concern for the
          American investor, but because the principle of
          protection of insurance policies is a fundamental part
          of Swiss law -- for the protection of the Swiss
          themselves.  Insurance is for the family, not something
          to be taken by creditors or other claimants.  No Swiss
          lawyer would even waste his time bringing such a case.
               Swiss annuities minimize the risk posed by U. S.
          annuities.  They are heavily regulated, unlike in the
          U.S., to avoid any potential funding problem.  They
          denominate accounts in the strong Swiss franc, compared
          to the weakening dollar.  And the annuity payout is
          guaranteed.
               Swiss annuities are exempt from the famous 35%
          withholding tax imposed by Switzerland on bank account
          interest received by foreigners.  Annuities do not have
          to be reported to Swiss or U.S. tax authorities.  
               A U.S. purchaser of an annuity is required to pay
          a 1% U.S. federal excise tax on the purchase of any
          policy from a foreign company.  This is much like the
          sales tax rule that says that if a person shops in a
          different state, with a lower sales tax than their home
          state, when they get home they are required to mail a
          check to their home state's sales tax department for
          the difference in sales tax rates.  
               The U.S. federal excise tax form (IRS Form 720)
          does not ask for details of the policy bought or who it
          was bought from -- it merely asks for a calculation of
          1% tax of any foreign policies purchased.  This is a
          one time tax at the time of purchase; it is not an
          ongoing tax.  It is the responsibility of the U. S.
          taxpayer, to report the Swiss annuity or other foreign
          insurance policy.  Swiss insurance companies do not
          report anything to any government agency, Swiss or
          American -- not the initial purchase of the policy, nor
          the payments into it, nor interest and dividends
          earned.
               A swiss franc annuity is not a "foreign bank
          account," subject to the reporting requirements on the
          IRS Form 1040 or the special U. S. Treasury form for
          reporting foreign accounts.  Transfers of funds by
          check or wire are not reportable under U. S. law by
          individuals -- the reporting requirements apply only to
          cash and "cash equivalents" -- such as money orders,
          cashier's checks, and travellers' checks.
               Swiss annuities can be placed in a U. S. tax-
          sheltered pension plans, such as IRA, Keogh, or
          corporate plans, or such a plan can be rolled over into
          a Swiss-annuity.  
               Investment in Swiss annuities is on a "no load"
          basis, front-end or back-end.  The investments can be
          canceled at any time, without a loss of principal, and
          with all principal, interest and dividends payable if
          canceled after one year.  (If canceled in the first
          year, there is a small penalty of about 500 Swiss
          francs, plus loss of interest.) 
               Although called an annuity, these plans act more
          like a savings account than a deferred annuity.  But it
          is operated under an insurance company's umbrella, so
          that it conforms to the IRS' definition of an annuity,
          and as such, compounds tax-free until it is liquidated
          or converted into an income annuity later on.
               The most practical way for North Americans to get
          information on Swiss annuities is to send a letter to a
          Swiss insurance broker specializing in foreign
          business.  This is because very few transactions can be
          concluded directly by foreigners either with a Swiss
          insurance company or with regular Swiss insurance
          agents.  They can legally handle the business, but they
          aren't used to it.
               JML Swiss Investment Counsellors is an independent
          group of financial advisors.  Since 1974 they have
          specialized in Swiss franc insurance, gold and selected
          Swiss bank managed investments for overseas and
          European clients.  To date the group is servicing
          nearly 16,000 clients worldwide with investments
          through JML of more than 1 billion Swiss francs.  Their
          services are free of charge to you because they are
          paid by the renowned companies with which you invest
          your money.  Their commissions and fees are standard,
          and all transactions are subject to strict regulation
          by the Swiss authorities.  JML represents the Swiss
          Plus program discussed in this book.
               All of their staff are fluent in English, and
          understand the special concerns of the international
          investor.  They know about all the many little details
          that are critical to you as a non-Swiss investor, and
          have answers to your tax questions and other
          legalities.
          
               Contact:  Mr. Jurg Lattmann. 
                         JML Swiss Investment Counsellors AG, 
          Dept. 212
                         Germaniastrasse 55 
                         8031 Zurich 
                         Switzerland
                         telephone (41-1) 363-2510 
                         fax: (41-1) 361-074, attn: Dept. 212.
               When you contact a Swiss insurance broker, be sure
          to include, in addition to your name, address, and
          telephone number, your date of birth, marital status,
          citizenship, number of children and their ages, name of
          spouse, a clear definition of your financial objectives
          (possibly on what dollar amount you would like to
          invest), and whether the information is for a
          corporation or an individual, or both.
          
          
          
