Monday, September 25, 2006 Vol. 8 No. 191 In Today's Letter: Comment: In Old Vienna Offshore: Bermuda Beats London Wealth: Another Hedge Fund Takes a Hit Bonus Offshore: What to Know Before Going Offshore In Old Vienna Dear A-Letter Reader, VIENNA: This past fortnight in Europe, hobnobbing with bankers and investment advisors from Vienna, Liechtenstein, London, Copenhagen and Zurich, has reminded me to tell you what you're missing if you're not already a member of the Sovereign Society. The truth is that U.S. law prevents many Americans from taking part directly in some of the world's most profitable investments. In the face of highly restrictive U.S. stock registration and reporting laws, most foreign mutual funds and bond brokers won't do business in the U.S. -- or with Americans. These restrictive U.S. rules amount to investment censorship. This excludes a huge number of the more than 54,000 offshore mutual funds worldwide. Only about 8,000 offshore funds are registered for sale in the United States. This U.S. investment censorship is a scandal. Offshore funds can be far more profitable than domestic funds. They can take speculative positions prohibited by U.S. securities laws. Fund managers employ sensible risk-hedging techniques that would be impossible for U.S. funds to use. Offshore funds are often more affordable. Minimum investments are much lower, many as low as US$10,000. You can also invest offshore using your retirement plan. A domestic IRA or 401K retirement plan may purchase offshore funds and possibly defer some current taxes. You can create your retirement plan offshore where you're free to invest as you see fit. Or you can make investments using an offshore life insurance policy as a 'wrapper' for your choice of foreign stocks or funds. The beauty of Sovereign Society membership is that the minute you join, you are eligible immediately for an offshore bank account in Austria, Liechtenstein, or Denmark. It's automatic. You join the Society and we do the rest. In a few days your offshore bank can act as your agent for those profitable offshore investments that are otherwise denied. So -- for increased profits, better privacy, and greater peace of mind, I hope you'll join with us and go offshore. That's the way that it looks from here. BOB BAUMAN, Editor  Advertisement Today... An Email Alert Using the CIA-Based "New Intelligence" Could Make You $64,250 What began as a pattern-recognition theory developed by the U.S. Government, U.S. Air Force, and the CIA, is now being used in the private sector… And by 8 p.m. – it’s going to trigger a special alert for a small group of people. LINK: Click here for the full story.  Offshore Bermuda Beats London As Insurer's Choice London: Offer any reasonable businessperson lower taxes and less government regulation and he or she will take that deal any time. Thus it is no surprise that many UK-based insurance companies are leaving England for a new home in one of Her Majesty's richest overseas territories, the usually sunny, mid-Atlantic island of Bermuda. Two more major insurers have just announced they are Bermuda bound. In a bid to compete with rivals, Hiscox P.L.C. and Omega Underwriting are already based in the tax haven. These businesses moving their headquarters has reignited the debate over whether London can compete with the tiny Atlantic island that has transformed itself into a leading world insurance and re-insurance center. Observers say it's simple: lower taxes are a big incentive for global businesses to move offshore. "I think it's inevitable others will follow us," said Bronek Masojada, chief executive of Hiscox. While he said the company's decision was prompted primarily by the fact that over half the group's business now comes from the United States and Bermuda, he agreed that "the tax and regulation issues are a combined second." That's what I call a classic case of British understatement. BOB BAUMAN, Editor LINK: http://www.businessinsurance.com/cgi-bin/news.pl?newsId=8410  Wealth/Investments  Bet on Natural Gas Almost Destroys Popular Hedge Fund Another hedge fund takes a hit. Amaranth Advisors LLC, a popular multi-strategy hedge fund based in the United States, almost collapsed in September following an ill-timed bet on natural gas. The company's lead energy trader lost an estimated $4.6 billion dollars riding natural gas earlier this month. The same strategy resulted in a double-digit gain just a few months prior. Spot natural gas prices have tanked 18% in September and have crashed over 55% since hitting a high last December. Coined a "multi-strategy" fund, Amaranth obviously is not a diversified investment product. In its prospectus, the Fund claims to engage in a host of speculative investments, including some commodities. But that's not what happened in September as its notional leverage (the total number of its leveraged assets) ran an estimated 8 to 1, clobbering the fund and its investors. Many fund of funds, which invest in other hedge funds, and pension funds staked big bets on Amaranth, including Canada's largest pension fund (Caisse Populaire) and San Diego County, which lost a reported $3 billion dollars. So here's what this means for you and your investments... Hedge funds might belong in a diversified portfolio, but increasingly since 2000, the industry has attracted inexperienced traders, record amounts of capital and as a result, the industry is mired in an environment of "crowded trades." Compared to ten or twenty years ago when hedge funds were not mass-marketed, the industry is now considered mainstream. When too many traders are chasing the same trades and trying to achieve the same results, performance suffers. In 2005, a record 850 hedge funds closed as margins compressed in a low return environment. In the future, there are a few simple rules you can apply to try to avoid such hedge fund disasters. First, it's usually safer to choose hedge funds with multiple managers. Multi-manager hedge funds offer far less risk than a single-adviser hedge fund because you bet on several managers rather than one person's judgment. Also, when looking at hedge funds, you should analyze the prospectus very carefully, especially liquidity provisions. And always ask the advisor how much leverage is typically used. It's leverage that resulted in a 65% loss for Amaranth this month. ERIC ROSEMAN, Investment Director  BonusOffshore  When You Go Global, Get it Right! Global investments are going mainstream...but it's important to understand the potential drawbacks-especially if you're a U.S. citizen. Take something as simple as purchasing a vacation property in another country.  Expenses for the property will be denominated in the local currency, so it makes sense to open a bank account there to pay them, and also to receive any income if you rent out the property. But merely by opening that account, you've opened a can of worms. If the value of all offshore accounts you have signature or other authority over exceeds US$10,000 at any time, you must report their existence to the IRS on Schedule B of your federal income tax return. You have a separate annual reporting obligation via Treasury Form TD F 90-22.1.  Failure to report the account on both forms, each year, can result in a five-year prison sentence and a US$500,000 fine...a huge price to pay for what is in most cases an innocent omission. Similar traps exist if you follow the advice often given to purchase the vacation property through a foreign corporation. You must report any transfer of assets to a foreign corporation on IRS Form 926. And you'll be required to submit a detailed annual reporting form to the IRS each year, Form 5471.  There are also possible drawbacks in the country where you purchased the vacation home.  For instance, you may find yourself liable to inheritance tax or probate proceedings in that country at the death of the co-owner (if any). Numerous solutions are available to avoid this problem. One that works in some countries (e.g., Canada) is for a married couple to structure the purchase of Canadian property through a U.S. trust. At the death of one spouse, the other will inherit without it being subject to Canadian probate proceedings.  Don't let these possible pitfalls prevent you from venturing offshore. Just make sure you get good professional advice before doing so! MARK NESTMANN, Privacy Expert & President of The Nestmann Group www.nestmann.com EDITOR'S NOTE: If you're interested in "going global," but want to avoid all these unnecessary offshore mishaps described above, you might consider joining us for the first ever Offshore Advantage Seminar in November. This inaugural event will take you step-by-step through all aspects of the offshore world. Plus we'll have leading offshore experts from around the world to give you their latest ideas on investments and asset protection. You can save $45 by signing up before October 1st, so don't wait! Click here to find out more.  Advertisement Master the ABC's of the Offshore World in Just Four Days! If you'd like to know how to quickly and easily set up a private offshore bank account... If you'd like a clear picture of how to diversify internationally in the most promising investments around the world... If you'd like to find out the simplest, most direct way to create a tax-efficient, near judgement-proof estate... ...this is an event you will not want to miss. LINK: http://www.isecureonline.com/Reports/191SOAM6/E191G803/