[an error occurred while processing this directive] (none) [an error occurred while processing this directive] [an error occurred while processing this directive] [an error occurred while processing this directive]

[ Home - Directory - Who's who - Mailing Lists - About Us - Sitemap - Social Events ]
[ Alumni - Management - Feedback - With Frills - Frames ]

Re: swiss-list: Swiss mutual funds not sold to US residents?

DISCLAIMER: Any opinion expressed by a contributor is to be considered his/her own personal opinion, not the opinion of any other swiss-list member, the swiss-list website managers or the swiss-list committee.

[an error occurred while processing this directive]

Re: swiss-list: Swiss mutual funds not sold to US residents?

From: Axel G.Merk <click for textversion of email address >
Date: Tue, 6 Jan 2004 23:13:12 -0800
X-Mailer: Apple Mail (2.609)

There seems to be a lot of confusion about investing in foreign funds
and keeping accounts abroad. Let me try to address some of the issues,
although this is by no means to be exhaustive, and this is not meant to
be tax or securities advice.

The short answer is: for practical purposes, you will most likely not
find mutual funds registered in Europe that will allow US persons
(that's a US resident or citizen) to invest with them. However, you are
free to purchase e.g. non-US securities directly. And the US does not
prevent you from holding an account outside the US.

For a long answer of why you are unlikely to be able to buy a European
mutual fund, see the post scriptum.

The second issue: are you allowed to hold a bank/securities account
abroad? Yes, you are, the US doesn't restrict you, although they do
require you to be good about reporting these on your tax returns.
However, the US has increased the reporting requirements for foreign
banks holding assets of US persons. Again, many banks have opted simply
not to accept accounts from US persons anymore. Especially discount
brokers often don't want to deal with the overhead.

To my understanding, UBS in Switzerland is one of a number of Swiss
banks that does allow US persons to open and hold cash/securities
accounts. With most Swiss banks, their Zurich branches have a special
desks for US persons, and there are even ways to open the account
without visiting Switzerland.

But let's focus on the real issue which seems to be: can we protect
ourselves from the falling dollar? Those of you who know me know that I
have given extensive analyses why I believe the dollar will weaken
further (you may look at some of my publications at
http://www.merkinvestments.com/html/Publications.html - I also discuss
there more extensive investment possibilities to position investments
against the fall in the dollar and consequences thereof). There is no
need for you to open an account outside the US to hold non-US
securities. There are brokers in the US where you can do just about
everything you could do with a Swiss bank (well, not quite, but close):
* buy ADRs of foreign issuers in the US
* buy foreign stocks and have them settle in US or foreign currency
(e.g. pay German stocks with Euro you may hold)
* buy foreign-denominated bonds of US corporate issuers
* buy foreign-denominated bonds of foreign corporate and government
* hold foreign currencies (direct, CDs, derivatives).
* With some brokers you can deal in derivatives that provide protection.

For small investors, I have heard (I have no first hand experience with
them) that Everbank allows the purchase of foreign Certificates of
Deposit (kind of like time deposits), even one based on the Chinese
Yuan. (again, these are no product endorsements, and each of these
investments carry their own set of risks, most notably currency risks;
CDs do have FDIC guarantee on their principle up to $100,000, but not
on the currency risk and not on the interest)

Aside from currencies, another protection against a fall in the dollar
is the purchase of gold:
* gold coins are available in the US through small dealers and by mail
* gold bars: in my experience, the most efficient way to buy gold bars
is through a gold desk at a Swiss bank. They offer the lowest spread
(difference between buying/selling price) I'm aware of, and are the
easiest to deal with should you want to revert the gold back to Swiss
Francs or Dollars. You would need someone to pick up the bars in
Switzerland (and do the appropriate filings if you carry more than
$10'000 worth of currency back to you to the US).
* gold account: with Swiss banks, you can ask them to hold gold in a
securities account just like another stock, then you don't need to go
an visit to pick up the gold.
* gold producers: a leveraged play on gold (their cost basis remains
relatively constant as the price of gold goes up). Gold producers carry
a bunch of risks other than that of fluctuating gold/dollar prices.
* gold/precious metal funds (they typically invest in the producers)
* gold can be acquired in the derivatives markets.

In summary, you can do lots of things, but European (including Swiss)
mutual funds are likely out of the question. If you hold them, there's
nothing illegal about it (you may have purchased them before you became
a US person; and if you did acquire them in violation of US some rules,
it's the fund company's risk, not yours), but be careful that you
report the appropriate income on your US tax return (that's difficult
because the US calculates the income differently, and these numbers are
typically not available).

Many of our clients are "internationals"; typically, the best way to
navigate multiple regulatory and tax systems is to keep investments
simple. That means, wherever possible, invest directly rather than
through investment products such as mutual funds. As a side benefit,
you avoid paying the high front-loads and high ongoing fees that most
funds do.

I hope this helps. Let me know if I can be of further help.



Axel Merk
Merk Investments
US (877)270 6999
CH 0 800 883 300

P.s.: Here's the longer answer on why European funds are not available
to US persons: there is no law against investing in non-US funds by US
persons (unless it would be e.g. a Cuba based fund...). However, any
investment product that is offered to the public in the US must be
registered with the SEC. In theory, if you are traveling in Europe and
were solicited to invest in a European fund, you should be free to
invest. However, by accepting US investors, European funds would be
required to furbish tax and other reporting information based on US
standards. For practical purposes, funds typically prefer not to go
through the hassle, it's generally not worth their time to register
their funds both in Europe and in the US.
The SEC has a bunch of exemptions (hedge funds take advantage of them,
but they are also applicable to foreign mutual funds) - if the European
fund company does not offer the fund to the US public, but only to you
privately, then you can invest if you meet certain "accredited
investor" criteria; and simplified reporting procedures apply. Again,
in theory, you should be able to invest, but for practical purposes,
European fund companies don't want to bother and are not set up that
The converse does exist: a few US mutual companies have gone through
the hassle of receiving the go-ahead to market their US mutual funds to
the European public.
I'm not a securities lawyer, but my comments are based on extensive
exposure with these regulations.

Swiss-list mailing list
Received on Wed Jan 07 2004 - 01:29:57 PST

[an error occurred while processing this directive]