Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.forbes From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: THE FUNDS Date: Wed, 18 Nov 92 14:52:03 EST Message-ID: "Copyright 1992 Forbes, Inc. Any further reproduction or redistribution without the express written permission of Forbes and ACC is prohibited." THE FUNDS EDITED BY JASON ZWEIG Shopping abroad There are some good home-grown funds in Europe, but you have to be a determined buyer to get in the door. By Carolyn T. geer IF YOU INSIST on Heineken beer and Hermes ties, perhaps you want your European mutual funds to be import- ed, too. You may want a British fund from a London money manager or a German fund from a German bank. There's no guarantee that a home- grown fund will be better than one sponsored by a U.S. firm. But there are more to choose from, including a lot of open-end single-country funds, which are next to impossi- ble to find in the U.S. Lip- per Analytical Services tracks 259 offshore Euro- pean stock funds and sin- gle-country funds at least a year old, but follows only 27 U.S.-based European stock funds. And some offshore funds do extremely well. Lon- don-based Global Asset Management's Sterling European Fund, which in- vests throughout Europe, has climbed 9.5% (in U.S. dollars) in the 12 months ended Oct. 30, against a 7.9% drop among U.S. funds specializing in Euro- pean stocks. A Danish bond fund, North Star High Performance, has returned 21.5% a year in U.S. dollars over the past five years, while the Lipper Global Bond Fund Index has risen just 9.5%. The only drawback, and it can be big, is that most offshore funds do not welcome U.S. shareholders. The U.S. Investment Company Act of 1940 bans unregistered foreign funds from making public offerings in the U.S. The law does not bar Americans from buying the funds unsolicited. But for- eign fund sponsors, afraid of having to register with the Securities & Ex- change Commission, may spurn ap- plications coming from the U.S. Another trade barrier is the U.S. tax code. The Internal Revenue Service can tax any foreign investment com- pany that markets to Americans or is otherwise found to be doing business in the U.S. Sponsors are fearful of taking on U.S. shareholders, lest they inadvertently become taxable here. That leaves just two ways for an American to get an offshore fund: Buy a private placement or sneak in. For- eign funds are allowed to mae private placements here if they keep the num- ber of U.S. shareholders under 100. Not surprisingly, funds tend to pick the 100 with the thickest wallets, which tend to be institutions. Is it hard to sneak in? Paul Melton, editor of The Outside Analyst, an Am- sterdam-based investment newslet- ter, says many Americans set up over- seas bank accounts, then have the banks buy funds for them. You could open a bank account in person while traveling overseas, or U.S. branches of some foreign banks will gladly help you set up an overseas account if you meet their deposit minimums. Mind you, fund managers look askance at all this. ''It is a bit naugh- ty,'' says a spokesman for a leading fund manager in Hong Kong. ''We may well have U.S. citizens on our register, as may all offshore funds. If people slip through the net, there's nothing we can do about it.'' But beware: Many offshore funds will re- deem without warning the shares of any U.S. investor they uncover. Also, weigh the income tax conse- quences carefully. We're assuming that you intend to pay taxes, not evade them. Peter Gregory, who manages the Manhattan office of Brit-ain' Global Asset Management, says GAM sometimes sells shares in its offshore funds to an accredited U.S. resident-anyone with an annual income of over $200,000 or net worth ex- ceeding $1 million- through a private place- ment. But, he adds, ''the tax implications [for inves- tors] are pretty complicat- ed, so unless they're very, very well advised, it's just such a quagmire that we've sort of stayed away.'' At a minimum, make sure your offshore fund re- ports enough detail in its financial statements for you to figure your pro rata share of income and capital gain each year. Then, you will pay the same tax you would have paid if the fund were U.S.-registered and thus compelled to distribute profits immediately. If you neglect these calculations, the IRS will eventu- ally catch up with you when you redeem your fund shares; your cumu- lative gain will be retroactively as- signed to the years when you held the fund, and you will owe back taxes with interest. The SEC has proposed making it easier for offshore funds to sell shares in the U.S.-a change likely to take at least several months. It also hopes to clarify that, in the absence of a public offering, a foreign fund would not be required to register if some shares leak into the U.S. Until then, the field is pretty much limited to wealthy and determined buyers.  "This information is the property of Forbes, Inc., ACC takes no responsibility for its content, or the actions of any individual or institution, predicated on the information herin. Forbes Subscriptions are available to students and faculty members at the student/educator rate of $33 for one year, 27 issues. Regularly priced $52. 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