INSURANCE ANNUITIES 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 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. They are not a foreign financial account for the purpose of U.S. reporting requirements. 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 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. Earnings on annuities during the deferral period are not taxable in the U.S. until income is paid, or when they are liquidated, following exactly the same tax rules as for annuities issued by U.S. insurance companies. 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. (To put a Swiss annuity in a U.S. pension plan, all that is required is a U.S. trustee, such as a bank or other institution, and that the annuity contract be held in the U.S. by that trustee. Many banks offer "self-directed" pension plans for a very small annual administration fee, and these plans can easily be used for this purpose.) 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.) A new Swiss annuity product (first offered in 1991), SWISS PLUS, brings together the benefits of Swiss bank accounts and Swiss deferred annuities, without the drawbacks -- presenting the best Swiss investment advantages for American investors. SWISS PLUS, is a convertible annuity account, offered only by Elvia Life of Geneva. Elvia Life is a $2 billion strong company, serving 220,000 clients, of which 57% are living in Switzerland and 43% abroad. The account can be denominated in the Swiss franc, the U.S. dollar, the German mark, or the ECU, and the investor can switch at any time from one to another. Or an investor can diversify the account by investing in more than one currency, and still change the currency at any time during the accumulation period -- up until beginning to receive income or withdrawing the capital. If you are not familiar with the ECU, it is the European Currency Unit, a new currency created in 1979. It is composed of a currency basket of 11 European currencies, and its value is calculated daily by the European Commission according to the changes in value of the underlying currencies. The ECU is composed of a weighted mean of all member currencies of the European Monetary System. Since the ECU changes its balance to reflect changes in exchange rates and interest rates between these currencies, the ECU tends to limit exchange rate risk and interest rate risks. Although called an annuity, SWISS PLUS acts 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. SWISS PLUS accounts earn approximately the same return as long-term government bonds in the same currency the account is denominated in (European Community bonds in the case of the ECU), less a half- percent management fee. Interest and dividend income are guaranteed by a Swiss insurance company. Swiss government regulations protect investors against either under-performance or overcharging. SWISS PLUS offers instant liquidity, a rarity in annuities. All capital, plus all accumulated interest and dividends, can be freely accessible after the first year. During the first year 100% of the principal is freely accessible, less a SFr 500 fee, and loss of the interest. So if all funds are needed quickly, either for an emergency or for another investment, there is no "lock-in" period as there is with most American annuities. Upon maturity of the account, the investor can choose between a lump sum payout (paying capital gains tax on accumulated earnings only), rolling the funds into an income annuity (paying capital gains taxes only as future income payments are received, and then only on the portion representing accumulated earnings), or extend the scheduled term by giving notice in advance of the originally scheduled date (and continue to defer tax on accumulated earnings). 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 a life insurance policy 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. These laws are part of fundamental Swiss law. They were not created to make Switzerland an asset protection haven. In the Swiss annuity situation, 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. Contact information The only way for North Americans to get information on Swiss annuities is to send a letter to a Swiss insurance broker. This is because very few transactions can be concluded directly with foreigners either with a Swiss insurance company or with regular Swiss insurance agents. 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. One firm specializes in dealing with English speaking investors, and everybody in the firm speaks excellent English. They are also familiar with U. S. laws affecting the purchase of Swiss annuities. Contact: Mr. Jurg Lattmann JML Swiss Investment Counsellors AG, Dept. 212 Germaniastrasse 55 8033 Zurich Switzerland tel. (41-1) 363-2510 fax: (41-1) 361-4074, attn: Dept. 212