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ARTICLE · 11 MAY 1998

Questions And Answers About Offshore Variable Annuities And Hedge Funds

The Scottish Annuity Company (Cayman) Ltd
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Cayman IslandsWealth Management
My hedge fund investment returns are great, but the taxes are very high. Is there any way I can defer the taxes and get the benefit of compounding on the deferral?

Although there are some complicated (and expensive) derivative transactions that a few investors have tried, by far the easiest, least expensive method is to invest in the hedge find (or finds) through a privately placed variable annuity issued by an offshore insurance company. Tiffs provides complete tax deferral until funds are actually withdrawn from the annuity. Investments can even be moved from one manager to another with no tax consequences.

What Is A Variable Annuity?

A variable annuity is nothing more than a tax-deferred savings and investment vehicle. An investor acquires a variable annuity contract for a specified stun and that sum is invested by the insurance company in one or more investment structures approved by the investor. The annuity contract provides that the insurance company will pay to the

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