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Investment trusts for UK investors involve a smaller market than unit trusts. Managers of investment trusts are allowed to borrow funds to invest, whereas unit trust managers are not allowed to do so. Large general trusts are the best choice for those with limited funds embarking on investment trusts for the first time. Professional advice should be taken for specialist trusts, and this is especially true for venture capital trusts. Risk levels should be carefully assessed before making a decision.

The UK 1994 Budget has brought a boost for Personal Equity Plans (Peps) by widening the range of investments eligible for inclusion. This move has been welcomed by investment funds and unit trusts. UK corporate bonds and preference shares from the UK and European Union are eligible, though government securities are not. The public is still unclear as to the tax advantages of Peps according to data from Ivory and Sime, and investment trusts could use this lack of knowledge in their marketing campaigns.

Unit trusts have attracted a rising proportion of funds invested in Personal Equity Plans (Peps) but this is related to marketing techniques as well as to investment performance. Collective funds benefited from changes in the 1992 Budget which allowed them to compete on equal terms with direct investments in equities. Performance tables illustrate that there is little difference between the best performers among investment trusts and unit trusts, but when the worst performers are examined, investment trusts have not performed quite as badly.

Monthly saving schemes available in the UK include investment trusts used by over 81,000 regular savers. Savers can enter the stock market and benefit from pound cost averaging which means that the average cost of stock is reduced compared with average prices when they were purchased. Personal investment plans (Peps) can provide tax shelter for savings schemes, and this can make a significant difference over a long period such as 15 years, though the impact is less noticeable over a 5 year period.

Unit trusts continue to rise in popularity, and funds under management reached 95 billion pounds sterling at the end of May 1994, according to the Association of Unit Trusts and Investment Funds (Autif). Investors are particularly attracted to the UK, with combined net sales for UK general, UK equity income and UK growth funds amounting to almost 400 million pounds sterling in May 1994. Investors are also looking at international growth and Japan funds, while Far East funds and funds focusing on financial and property stocks suffered net disinvestment.

Investors are still interested in personal equity plans (Peps), and are prepared to buy them as a long-term investment prospect even though the market is currently static. Pep-based investments certainly offer attractive long-term yields, although investors should be cautious about misleading statistics. Peps are also beginning to be recognised as extremely versatile, as they can be used in areas such as school fees planning and building up a fund to pay off the capital sum on a mortgage.

A large number of new unit trusts have been launched so far in 1994, most offering high income levels. However, investors may prove to be disappointed, as it is not at all certain that these trusts will live up to their promises. Investors should not forget the advantages offered by existing unit trusts, some of which are up to 30 years old but are still offering steady returns. Investors should also be aware that some companies will be using derivatives, about which there is still considerable controversy.

Fund managers are finding it harder to earn such good returns on equities and bonds as achieved in 1993. Bond prices have decreased recently, due to a lack of domestic investors prepared to buy long and medium term debt, according to Kemper Investment Management. Both equity and bond markets will improve in future, as the US's booming economy fuels global economic growth, according to M and G Group, investment house.

Personal equity plans (Peps) can be used by United Kingdom investors for tax planning purposes, and they should ensure their allowances are used by the end of the tax year, since they cannot be carried forward. Peps can be used with unit trust schemes, and with other financial products such as investment trusts, or in a combination of unit trust and share schemes. Investors should not be concerned over short-term instability in financial markets, since these are medium and long term investments.

A lot of new money has been invested in personal equity plans (Peps) in 1993. Net sales of Pep unit trusts totalled just under 2.2 billion pounds sterling in the first nine months of 1993. A lot of unit trust investment at the moment could be protected from tax in a Pep. The financial industry is expected to invest further in the Peps market in 1994. However, emerging markets and Far East funds are not totally qualifying unit trust Peps.

Small investors affected by lower interest rates find investment trusts' savings schemes a useful way of investing in the stock market, but schemes tend to be little known since they pay little in commission and are little advertised. Nearly 54 million pounds sterling entered such schemes in 2nd qtr 1993, a record, according to the Association of Investment Companies. The schemes are cheap, with low dealing commissions, and investors have a wide range of schemes to choose from, with different levels of risk, and some companies such as KBIM spell out risk levels to investors of their various trusts.

Offshore investments may payments with no tax deductions and this allows tax to be deferred by UK investors. Personal equity plans (Peps) and other tax-free investments have made offshore investments less attractive, and open-ended investment companies are also expected to represent serious competition. Offshore funds are especially useful for investors who aim to reside abroad, or are due to retire. The possibility of deferral of tax allows tax to be paid at a lower rate. Some funds are marketed in the UK, where an approved standard has been reached.

There are over 20 offshore institutions offering high interest cheque accounts (HICAs). Some banks require a minimum starting balance and interest rates vary. Services range from no-frills to debit and charge cards and some banks pay rising rates of interest on higher deposit levels.

Luxembourg is a major banking centre with more than 220 banks, including local banks Banque Generale and Banque Internationale a Luxembourg, and foreign banks from France, Italy, the Netherlands and the US. There has been a major inflow of German banks particularly after the introduction of withholding tax on interest earned on bank savings in Germany in 1993. The majority of banks belong to the Luxembourg Bankers' Association (ABBL), and they must be authorised by the Institut Monetaire Luxembourgeois, a regulatory authority.

There is expected to be a further increase in Luxembourg's 1,300 plus funds during 1995. There are already 219 billion pounds sterling of funds under management in Luxembourg, making the market twice the size that of the UK. Fund groups operating in Luxembourg include Flemings, Fidelity, Mercury and Henderson.

UK personal equity plans (Peps) can be put to a number of uses due to their versatility. These include Peps as savings plans to pay school fees, to top up pensions, and to pay off mortgages. Pep mortgages are a higher risk investment than endowment policies, and they are likely to become more popular when companies disclose charges. Pep mortgages are increasingly sold with critical illness cover which allows mortgages to be repaid if holders suffer from certain illnesses.

Personal equity plans (Peps) have brought benefits to investors since their launch in 1987, but investors may switch to a new manager whatever their holdings are worth. Investors use transfer authority forms to sell existing Peps, transferring the funds raised to new Pep managers. Transfer charges may be reduced as competition increases. Transfers charges can be avoided in some schemes such as the Skandia Multipep which gives access to a dozen unit trusts managers as part of the same plan.

A launch is planned for open-ended investment companies (OEICs) in the UK in 1995. These new vehicles are more common in mainland Europe, where unit trusts, popular in the UK, are less well known. OEICs will have boards and annual general meetings. Product regulations will be issued by the Securities and Investments Board (SIB). OEICs can be used as personal equity plans if fund managers permit this. Single pricing is likely to accompany the launch of OEICs.

Competition has intensified among providers of personal equity plans (Peps) in the UK with the result that charges are being reduced. This applies especially to unit trust Peps and to new launches which use low charges as part of their marketing. Pep charges are also expected to move toward a simpler structure. Companies which have been reducing Pep charges include Mercury Fund Managers, Fidelity and Save and Prosper. Some groups may be seeking to increase their market share rather than focusing on profits, and this trend cannot last for ever, but investors should benefit while charges are low.

Open ended investment companies (OEICs) are likely to become increasingly important from 1995, since the traditional UK unit trust is less easy to sell in Europe. The change will not have a major impact on consumers except that a single pricing system will be introduced to replace bid and offer prices and cancellation prices. Fund groups aiming to expand into Europe will be able to sell the same product range in all European countries. Meanwhile, unit trust sales fell in July 1994 compared with the previous month.

Personal equity plans were launched in the UK in 1986, and allow investors to invest in shares, either directly, or, following changes launched in 1993, through unit trusts and investment trusts. Investors gain from tax advantages but performance will depend on the investment, and financial advisers should be able to provide information on investment and unit trust performance. Unit trust investments attracted charges, but these are not usually higher for Pep investments than for non-Pep investments.

Jersey's financial services industry brings in some 50% of the gross domestic product (GDP) of this island. Jersey is aiming at a European market, though could this goal could be hampered by Jersey's not being part of the European Union (EU). Critics argue that the island is too dominated by landowners and small businesses to be an efficient international financial center, while a report on the island's facilities argues that Jersey has much to offer international investors such as those from the Asia-Pacific region.

United Kingdom investors can use personal equity plans (Peps) to free themselves of income tax and capital gains tax, provided they stay within annual limits. Peps have become increasingly popular, and are now seen as a way to save for retirement, replacing additional voluntary pension contributions. Pensions are seen as more tax efficient by some analysts, but Peps can be used to buy high income shares on retirement, rather than an annuity. Peps can also be used by non-working wives, but are not suitable for people claiming social security, since they count as assets and benefit is reduced, while pensions do not count as assets for social security claimants.

Several United Kingdom investment trust houses have carried out major changes to their management, and the impact of management changes varies from one trust to another, depending on the extent to which the management functions as a team. Changes include the appointment of Giles Weaver as managing director at Murray Johnstone, a company which has also carried out structural changes in management of trusts. Meanwhile, Henderson Administration has taken over Touche Remnant, which has improved the marketing side of Touche Remnant, and changed Henderson's emphasis to investment trusts from unit trusts.

Seven stockbroking companies operate in the Isle of Man, and they include City and International Securities and RL Stott. The Isle of Man is part of a mutual assistance pact with the UK Securities and Futures Authority (SFA), together with Guernsey and Jersey. The SFA carries out compliance visits to island brokers, but the service is scheduled to end. Regulatory activity is to be outsourced and carried out by KPMG, an arrangement approved of by the London Stock Exchange.

Life insurance companies have performed well in the Isle of Man during the 1990s. Advantages include a skilled work force and low costs. The market is performing well in contrast with the sector in the UK. Some UK residents use tax deferral advantages of the Isle of Man, in addition to tax planning and trust potential of this offshore center. This is likely to increase prior to the UK's next national election. Isle of Man insurers also operate internationally away from the UK.

The Isle of Man was badly affected by the crash of the Savings and Investments Bank which led to stricter regulations from the early 1980s. The island's Financial Supervision Commission (FSC) provides deposit compensation and is proposing new legislation which would allow it power to suspend banking licenses. Private banking is expanding in the island, and building societies are also performing well, in contrast to their performance in the UK mainland.

The Isle of Man is an offshore center for UK investors which also depends on the tourist industry. Finance accounts for 35% of the revenue of the Isle of Man according to official data, though unofficial estimates are for as much as 70%. The collapse of the Savings and Investments Bank in 1982 caused embarrassment and this is one reason for the low profiel given to financial services. The islands Commercial relations Department is seeking to remedy this by raising awareness through supplying speakers at international conferences.

Guernsey has a strong insurance industry which includes a number of major international insurance firms. captive insurance is also important in Guernsey. Capitves are insurers set up by commercial and industrial concerns which insure their risks. Captives may be set up for risk management purposes, to control insurance prices, or to gain access to the reinsurance market. Companies which have captives located on the island include Tesco, Reed International and Northern Foods.

Guernsey has seen a successful development of its banking industry. Deposit takers total 72 in 1995 compared with 45 in the mid 1980s. Total deposits have risen to 43 billion pounds sterling in 1995 from 5.8 billion pounds in 1994. The major four UK banks operate in Guernsey, as do banks from Switzerland, France, Spain, Japan, Turkey, the Netherlands, Germany and Bermuda. There is no compensation scheme, but regulators argue that this is not needed due to the high level of scrutiny of banks operating in Guernsey.

Guernsey has seen an increase in its financial services business, and management training is needed due to immigration controls. Population growth is restricted in order to preserve the environment. Re-engineering has removed some labor-intensive processes, and training has helped reduce the number of workers' licenses needed. The Guernsey Financial Services Commission has appointed Dick Taylor as adviser on the subject of training.

The value of assets in Guernsey's collective funvestment funds dropped in 1st qtr 1995, due to a number of factors such as a drop in investor confidence following poor returns in 1994. There are over 300 funds in Guernsey's fund management industry, with open-ended funds predominating. Competition is expected to increase among offshore funds marketing their products in the UK. Local open ended investment companies could eroded their market share in the UK.

Guernsey is an island in the English Channel, and handles its own internal affairs, despite having alleagiance to the UK Crown. Guernsey is not a member of the European Union (EU) so is unaffected by EU directives. Over half the island's gross domestic product (GDP) comes from the financial services industry. The UK government may require Guernsey to update some of its regulations relating to financial services, in order for products from Guernsey to continue to be sold in the UK.

Investors in unit trusts do not need to select individual shares and a fund manager manages the portfolio. Howeveer there are many different unit trusts and an investor will still have to choose which to invest in. Some funds invest only in UK shares, and others are international with exposure to the main stockmarkets. Others concentrate solely on certain areas and relatively small single markets.

Equity investment requires a spread of risk and many private investors invest through a collective investment scheme. Investment trusts are closed-ended investment companies whose share capital is invested in its shares by private or institutional investors. Unit trusts are open end with new units crerated for new investors. Both can be used as vehicles for personal equity plans and neither are taxed on their capital gains within a fund.

The multi-currency facilities provided by some banks in the Channel Islands and the Isle of Man mean that account holders can write cheques in many different currencies, using only one cheque book. Some banks do not require a minimum deposit or withdrawal. Features of such accounts include free cheques, direct debits, stnading orders, currencyc switching and money market levels of interest.

Many offshore banks actively seek private investors and the traditional target market comprises expatriates and other international investors. Advantages of an offshore bank deposit account including interest which is credited without tax deduction meaning an investor will benefit from a tax deferral period. Many investors are concerned about compensation if a bank collapses and some authorities operate compulsory compensation schemes. The financial regulators in Guernsey and Jersey believe that a compensation scheme would be superfluous as their screening of banks is extremely rigorous.

UK friendly societies offer a range of products such as ten-year savings plans with life insurance. Savers should only embark on these schemes if they are sure they will be able to invest for the whole ten-year period, since the cost of an early withdrawal is high. Legislation passed in 1992 allows UK friendly societies to offer a wider range of products such as general insurance and pensions. Friendly societies have traditionally been accessible and it is hoped that they can retain this quality while expanding.

Friendly societies have benefited from the UK 1992 Friendly Societies Act which has allowed societies to become incorporated and offer a wider range of products. There are 12 major friendly societies accounting for 75% of UK assets. They aim for social responsibility but there are concerns over their safety. Most societies belong to a voluntary scheme and there is likely to be an obligation to comply with the Policyholders Protection Act in the future.

UK savings schemes using personal equity plans (Peps) do not provide much commission for fund groups so tend not to be given as much publicity as lump sum schemes. They can offer advantages for small savers and tend to have a minimum limit of some 50 pounds sterling. Differences in returns provided by Peps may seem small over short periods but can be impressive over longer periods. The average monthly saving for investment trusts is 86 pounds sterling though some trusts will allow sums as low as 25 pounds per month.

Investment trusts and unit trusts can both be used to spread investment risks. Unit trusts are open-ended funds varying in size according to demand levels, and investment trusts are closed-end funds with the size set when they are floated on stock exchanges and changing when new share capital is added. Unit trusts can borrow, while investment trusts are not permitted to do so. There are over 1,500 unit trusts and a little more than 320 investment trusts. Performance varies according to sector and investment managers.

India is an emerging market with great potential, but investors also face risks. There are some 870 million inhabitants in India, and the economy has seen growth averaging 4% set to rise to above 5% in the five years from 1994. Problems include the volatility of the ruble and of Indian share prices, and government liberalization policies may be reversed especially if there are serious balance of payments problems. Investors should seek more defensive holdings but retain their investments in India in Oct 1994. For new investors, rising prices may be a deterrent.

Asia has attractions among emerging markets despite a shift away from Asia to Latin America in 1994. China has great potential but there is concern about high levels of inflation which has topped 20%. Investment funds tend to gain access to China through Hong Kong, but direct access may become more common as Chinese stock markets become better regulated. Asian countries are all struggling to achieve economic growth, but their performance varies. Investors can gain access to this market through funds which do not focus exclusively on Asia.

Investing in emerging markets became popular in 1993, but investment funds specializing in these markets have faced some instability in 1994. The markets still appear to offer good potential returns since such economies have high spending levels for consumer durables and infrastructure. Latin American markets have become more popular in 1994, taking the role of Asia in 1993. Single country funds tend to be more volatile than regional funds, with general funds showing the greatest stability.

The Association of Unit Trusts and Investment Funds (Autif) is making information available which it hopes will assist investors in choosing the right unit trust for their particular needs. The information is largely factual, as the organisation cannot promote the investment abilities of any specific fund management group. Autif aims to make unit trusts much more well known among the 23 million potential investors in the working population.

The launch of the open-ended investment company (OEIC) in 1995 could present a challenge to the unit trust industry in a number of different ways. This new investment vehicle could eventually replace all unit trusts, and it will certainly put pressure on unit trusts to move towards a single pricing system. OEICs will initially attract particular interest from fund management groups which are actively marketing into Europe, as at present the legal concept of a unit trust is not recognised in continental Europe.

There are already more than 1,500 unit trusts available in the UK, but new ones are still coming onto the market. In 1994, some of the new unit trusts have been very traditional and safe, while others have taken a much more exotic approach, so there are unit trusts to suit the tastes of all investors. Save and Prosper, for example, is offering a Southern Africa fund, while M and G and Guinness Flight are trying to attract building society investors who are now looking for a more exciting investment to make up for low interest rates.

Jersey can offer UK investors offshore trusts, and has some 150 trust companies which benefit from the Hague Convention on the Law Applicable to Trusts and on their Recognition. Trusts can be useful for executives posted to different countries over a short space of time, and can be used to obtain greater control of bequests. This may be achieved by ensuring funds are not frittered away by heirs, and to avoid forced inheritance laws. Legislation is planned which would make trust companies liable to greater supervision, and may be passed by the end of 1994.

Jersey had 70 offshore banking registered at the end of 1993, and their total assets were 52.9 billion pounds sterling, a reduction fromt he 54.4 billion pounds recorded at the end of the previous qtr. There is no compensation scheme for depositors on Jersey, though banks are thoroughly screen before they can begin operations. This screening is carried out by the island's Financial Services Department. A wide range of banking services is offered by banks operating on the island, including private banking for rich clients.

Jersey offers a range of back-up resources for the financial services industry, with a large number of accountants, administrators and lawyers available. They are needed in setting up trusts and companies, and in managing and administering them. The total number of companies incorporated in Jersey is some 30,000, including private investment companies and mutual funds. There are tax advantages to a company being domiciled in Jersey, and tax can be postponed, or avoided altogether.