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# International Investing

There are different ways you can invest internationally:through mutual funds, American Depositary Receipts, exchange-traded funds, U.S.-tradedforeign stocks, or direct investments in foreign markets. This online brochure explainsthe basic facts about international investing and how you can learn more aboutforeign companies and markets. Although this brochure covers foreign stocks,much of it also applies to foreign bonds.

## Why should investors read this brochure?  

As investors have learned recently, the market value ofinvestments can change suddenly. This is true in the U. S. securities markets,but the changes may be even more dramatic in markets outside the United States.  The world’s economies are becoming more interrelated, and dramatic changesin stock value in one market can spread quickly to other markets.  

Keep in mind that even if you only invest in stocks of U.S. companies you already may have some international exposure in your investmentportfolio.  Many of the factors that affect foreign companies also affect theforeign business operations of U.S. companies. The fear that economic problemsaround the globe will hurt the operations of U.S. companies can cause dramaticchanges in U.S. stock prices.

Sudden changes in market value are only one importantconsideration in international investing.  Changes in foreign currency exchangerates will affect all international investments, and there are other specialrisks you should consider before deciding whether to invest. The degree of riskmay vary, depending on the type of investment and the market. For example,international mutual funds may be less risky than direct investments in foreignmarkets, and investing in developed economies may avoid some of the risks of investingin emerging markets.

## Why do many Americans invest in foreign markets?  

Two of the chief reasons why people invest internationallyare: 
|  | Diversification -- spreading your investment risk     among foreign companies and markets that are different than the U.S. economy, and |
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|  |                                                                                                                                    |
|  | Growth -- taking advantage of the potential for     growth in some foreign economies, particularly in emerging markets.                 |

By including exposure to both domestic and foreign stocks inyour portfolio, you'll reduce the risk that you'll lose money and yourportfolio's overall investment returns will have a smoother ride.  That’sbecause international investment returns sometimes move in a differentdirection than U.S. market returns.  Even when international and U.S. investments move in the same direction the degree of change may be very different. When you compare the returns from emerging international markets with U.S. market returns you may see even wider swings in value.  

Of course, you have to balance these considerations againstthe possibility of higher costs, sudden changes in value, and the special risksof international investing.

## What are the special risks in international investing?

Although you take risks when you invest in any stock,international investing has some special risks: 
|  | Changes in currency exchange rates.  When the exchange     rate between the foreign currency of an international investment and the     U.S. dollar changes, it can increase or reduce your investment return. How     does this work? Foreign companies trade and pay dividends in the currency     of their local market. When you receive dividends or sell your international     investment, you will need to convert the cash you receive into U.S.     dollars. During a period when the foreign currency is strong compared to     the U.S. dollar, this strength increases your investment return because     your foreign earnings translate into more dollars. If the foreign currency     weakens compared to the U.S. dollar, this weakness reduces your investment     return because your earnings translate into fewer dollars.  In addition to     exchange rates, you should be aware that some countries may impose foreign     currency controls that restrict or delay you from moving currency out of a     country.   |
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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| ***Investor Tidbit: Whatis an index?***An index is a group of stocks representing a particularsegment of a market, or in some cases the entire market. For example, theStandard & Poor's 500 index represents a specific segment of the U.S. capital markets.  Foreign stock markets also may be represented by an index, such asthe MSCI EAFE index, a well-known index in more developed foreign markets, the Nikkeiindex of large Japanese companies, or the CAC 40 index of large Frenchcompanies. The components of an index can change over time, as new stocks areadded and old ones are dropped.  |
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|  | Dramatic changes in market value.  Foreign markets,     like all markets, can experience dramatic changes in market value. *One     way to reduce the impact of these price changes is to invest for the long     term and try to ride out sharp upswings and downturns in the market.*Individual     investors frequently lose money when they try to "time" the     market in the United States and are even less likely to succeed in a     foreign market. When you “time” the market you have to make two astute     decisions -- deciding when to get out before prices fall and when to get     back in before prices rise again.      |
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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|  | Political, economic and social events.  It is     difficult for investors to understand all the political, economic, and     social factors that influence foreign markets.  These factors provide     diversification, but they also contribute to the risk of international     investing.                                                                                                                                                                                                                                                                                                                                                            |
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|  | Lack of liquidity.  Foreign markets may have lower     trading volumes and fewer listed companies.  They may only be open a few     hours a day. Some countries restrict the amount or type of stocks that foreign     investors may purchase. You may have to pay premium prices to buy a     foreign security and have difficulty finding a buyer when you want to sell.                                                                                                                                                                                                                                                                              |
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|  | Less information.  Many foreign companies do not provide     investors with the same type of information as U.S. public companies. It     may be difficult to locate up-to-date information, and the information the     company publishes my not be in English.                                                                                                                                                                                                                                                                                                                                                                                        |
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|  | Reliance on foreign legal remedies.  If you have a     problem with your investment, you may not be able to sue the company in     the United States. Even if you sue successfully in a U.S. court, you may not be able to collect on a U.S. judgment against a foreign company. You may have     to rely on whatever legal remedies are available in the company's home     country.                                                                                                                                                                                                                                                                   |
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|  | Different market operations.  Foreign markets often     operate differently from the major U.S. trading markets. For example,     there may be different periods for clearance and settlement of securities     transactions. Some foreign markets may not report stock trades as quickly     as U.S. markets. Rules providing for the safekeeping of shares held by     custodian banks or depositories may not be as well developed in some     foreign markets, with the risk that your shares may not be protected if     the custodian has credit problems or fails.                                                                               |
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

## What are the costs of international investments?  

International investing can be more expensive than investingin U.S. companies. In smaller markets, you may have to pay a premium topurchase shares of popular companies. In some countries there may be unexpectedtaxes, such as withholding taxes on dividends. Transaction costs such as fees,broker’s commissions, and taxes often are higher than in U.S. markets.  Mutual funds that invest abroad often have higher fees and expenses thanfunds that invest in U.S. stocks, in part because of the extra expense oftrading in foreign markets. 

## What are the different ways to investinternationally?  

Mutual funds.  One way to invest internationally is throughmutual funds. There are different kinds of funds that invest in foreign stocks.
|  | *Global funds* invest primarily in foreign companies,     but may also invest in U.S. companies.                                                                                                                                                                            |
|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |                                                                                                                                                                                                                                                                        |
|  | *International funds*generally limit their investments     to companies outside the United States.                                                                                                                                                                          |
|  |                                                                                                                                                                                                                                                                        |
|  | *Regional or country funds* invest principally in     companies located in a particular geographical region (such as Europe or Latin America) or in a single country.  Some funds invest only in emerging markets, while     others concentrate on more developed markets.  |
|  |                                                                                                                                                                                                                                                                        |
|  | *International index funds* try to track the results     of a particular foreign market index.  Index funds differ from actively     managed funds, whose managers pick stocks based on research about the companies.                                                       |

International investing through mutual funds can reduce someof the risks mentioned earlier. Mutual funds provide more diversification thanmost investors could achieve on their own. The fund manager also should be familiar with internationalinvesting and have the resources to research foreign companies. The fund willhandle currency conversions and pay any foreign taxes, and is likely tounderstand the different operations of foreign markets. 

Like other international investments, mutual funds thatinvest internationally probably will have higher costs than funds that investonly in U.S. stocks.  If you want to learn more about investing in mutualfunds, information is available in our brochure, Invest Wisely – AnIntroduction to Mutual Funds.

Exchange-Traded Funds.  An exchange-traded fund is a type ofinvestment company whose investment objective is to achieve the same return asa particular market index.  Increasingly popular with investors, ETFs arelisted on stock exchanges and, like stocks (and in contrast to mutual funds),trade throughout the trading day.  A share in an ETF that tracks aninternational index gives an exposure to the performance of the underlying stockor bond portfolio along with the ability to trade that share like any othersecurity.  

American Depositary Receipts.  The stocks of mostforeign companies that trade in the U.S. markets are traded as American DepositaryReceipts (ADRs) issued by U.S. depositary banks.
| ***Investor Tidbit:  ADRsor ADSs?***Sometimes the terms “ADR” and “ADS” (American DepositaryShare) are used interchangeably.  An ADR is actually the negotiable physicalcertificate that evidences ADSs (in much the same way a stock certificateevidences shares of stock), and an ADS is the security that represents anownership interest in deposited securities (in much the same way a share ofstock represents an ownership interest in the corporation).  ADRs are theinstruments actually traded in the market.            |
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Each ADR represents one or more shares of a foreign stock ora fraction of a share. If you own an ADR you have the right to obtain theforeign stock it represents, but U.S. investors usually find it more convenientto own the ADR. The price of an ADR corresponds to the price of the foreignstock in its home market, adjusted for the ratio of ADRs to foreign companyshares.

*Owning ADRs has some advantages compared to owningforeign shares directly*:
|  | When you buy and sell ADRs you are trading in the U.S. market.  Your trade 			will clear and settle in U.S. dollars.    |
|--|-------------------------------------------------------------------------------------------------------------------------|
|  |                                                                                                                    |
|  | The depositary bank will convert any dividends or other     cash payments into U.S. dollars before sending them to you. |
|  |                                                                                                                    |
|  | The depositary bank may arrange to vote your shares for     you as you instruct.                                        |
|  |                                                                                                                    |

*On the other hand, there are some disadvantages:*
|  | It may take a long time for you to receive information from     the company because it must pass through an extra pair of hands. You may     receive information about shareholder meetings only a few days before the     meeting, well past the time when you could vote your shares.                    |
|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |                                                                                                                                                                                                                                                                                                       |
|  | Depositary banks charge fees for their services and will deduct     these fees from the dividends and other distributions on your shares. The     depositary bank also will incur expenses, such as for converting foreign currency     into U.S. dollars, and usually will pass those expenses on to you. |
|  |                                                                                                                                                                                                                                                                                                       |

U.S. Traded Foreign Stocks

Although most foreign stocks trade in the U.S. markets as ADRs, some foreign stocks trade here in the same form as in their localmarket. For example, Canadian stocks trade in the same form in the United States as they do in the Canadian markets, rather than as ADRs.  You can purchase ADRs andother foreign stocks that trade in the United States through your broker. Thereare different trading markets in the United States, and the information availableabout an ADR or foreign stock will depend on where it trades.  

Stocks Trading on Foreign Markets

If you want to buy or sell stock in a company that onlytrades on a foreign stock market, your broker may be able to process your orderfor you. These foreign companies do not file reports with the SEC, however, soyou will need to do additional research to get the information you need to makean investment decision. Always make sure any broker you deal with is registered with the SEC.  It is againstthe law for unregistered foreign brokers to call you and solicit yourinvestment.  

## What should I do if I want to invest?

Like any other investment, you should learn as much as youcan about a company before you invest. Try to learn about the political, economic,and social conditions in the company’s home country, so you will understandbetter the factors that affect the company’s financial results and stock price.If you invest internationally through mutual funds, make sure you know thecountries where the fund invests and understand the kinds of investments itmakes.

*Here are some sources of information:*
|  | SEC reports.  Many foreign companies file reports     with the SEC.  The SEC requires foreign companies to file electronically,     so their reports usually are available through the SEC’s web site at www.sec.gov/edgar.shtml at no     charge.  You can obtain paper copies for a fee from the SEC’s Office of FOIA Services by sending a written request to the FOIA office by e-mail (foiapa@sec.gov), fax (202-772-9337), or mail (100 F Street NE, Mail Stop 2736, Washington, DC 20549). Be sure to state your name, address, and telephone number on your request.        |
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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|  | International Regulators.  You might be able to     learn more about a particular company by contacting the securities     regulator that oversees the markets in which that company’s securities     trade.  Many international securities regulators post issuer information     on their websites, including audited financial statements.  You’ll find a     list of international securities regulators on the website of the     International Organization of Securities Commissions (IOSCO) at www.iosco.org.                                                               |
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|  | Mutual fund firms.  You can get the prospectus for     a particular mutual fund directly from the mutual fund firm. Many firms     also have websites that provide helpful information about international     investing.                                                                                                                                                                                                                                                                                                                                                           |
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|  | The company.  Foreign companies often prepare     annual reports, and some companies also publish an English language     version of their annual report. Ask your broker for copies of the     company’s reports or check to see if they are available from the SEC. Some     foreign companies post their annual reports and other financial information     on their websites.                                                                                                                                                                                                   |
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|  | Broker-dealers.  Your broker may have research     reports on particular foreign companies, individual countries, or geographic     regions. Ask whether updated reports are available on a regular basis.     Your broker also may be able to get copies of SEC reports and other     information for you.                                                                                                                                                                                                                                                                         |
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|  | Publications.  Many financial publications and     international business newspapers provide extensive news coverage of     foreign companies and markets.                                                                                                                                                                                                                                                                                                                                                                                                                          |
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|  | Internet Resources.  Various government,     commercial, and media websites offer information about foreign companies     and markets.  However, as with any investment opportunity, *you should     be extremely wary of “hot tips,” overblown statements, and information     posted on the Internet from unfamiliar sources.*For tips on how to     spot and avoid Internet fraud, please visit the “Investor Information”     section of our website at www.sec.gov/investor.shtml.                                                                                             |
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| ***Investor Tidbit: International Stock Scams***Whether it’s foreigncurrency trading, “prime European bank” securities or fictitious coconut plantationsin Costa Rica, you should be skeptical about exotic-sounding international investment“opportunities” offering returns that sound too good to be true. They usually are.In the past, con artists have used the names of well-known European banks orthe International Chamber of Commerce -- without their knowledge or permission-- to convince unsophisticated investors to part with their money.  Some promoters based in the United States try to make their investment schemes sound more enticing by giving them aninternational flavor. Other promoters actually operate from outside the United States and use the Internet to reach potential investors around the globe. Rememberthat when you invest abroad and something goes wrong, it's more difficult tofind out what happened and locate your money. As with any investmentopportunity that promises quick profits or a high rate of return, you shouldstop, ask questions, and investigate before you invest.            |
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Tracking down information oninternational investments requires some extra effort, but it will make you amore informed investor.  *One of the most important things to remember is to readandunderstand the information before you invest.*

If you have more questions or ifyou have a problem with your international investment, please contact us rightaway.  To submit your complaint electronically, please visit our online Complaint Center at www.sec.gov/complaint.shtml. You also may send us a letter at the following address:

Office of Investor Education and AdvocacyU.S. Securities and Exchange Commission100 F Street, N.E.  Washington, DC 20549-0213

 

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