Consumer) International Investing - Get the Facts

8/8/2019 Consumer) International Investing - Get the Facts

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P R E S E N T E D B Y :

United States

Securities and

Exchange Commission

Division of

Corporation Finance

How You Can

Learn More

About Foreign

Companies

and Markets

g et t he f a c t s

I nt er nat io nalI nt er nat io nal

I nv est ing I nv est ing



American Depositary

mutual funds

U.S. traded foreign st

direct investments



eceipts

cks

in foreign markets

here are different ways you can

invest internationally: through mutual

funds, American Depositary Receipts,

U.S.-traded foreign stocks, or directinvestments in foreign markets. This

brochure explains the basic facts about

international investing and how you

can learn more about foreign companies

and markets. Although this brochure

covers foreign stocks, much of it also

applies to foreign bonds.

T





ATwo of the chief reasons why people invest

internationally are

Diversification -- spreading your investment risk among foreign companies and markets that are different than theU.S. economy, and

Growth -- taking advantage of the potential for growth in

some foreign economies, particularly in emerging markets.

Of course, you have to balance these considerationsagainst the possibility of higher costs, sudden changes invalue, and the special risks of international investing.

Sudden changes in market value are only one importantconsideration in international investing. Changes inforeign currency exchange rates will affect all international

investments, and there are other special risks you shouldconsider before deciding whether to invest. The degree ofrisk may vary, depending on the type of investment andthe market. For example, international mutual funds may

be less risky than direct investments in foreign markets,and investing in developed economies may avoid some ofthe risks of investing in emerging markets.

Why have Americans been investing in foreignmarkets in increasing numbers?

Q u e s t i o n

A n s w

e r

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Annual Return 4.35% 2.17% 17.05% Average

1988 28.59 79.08 16.611989 10.80 53.52 31.691990 -23.20 -31.45 -3.101991 12.50 31.69 30.471992 -11.85 4.56 7.621993 32.94 68.76 10.081994 8.06 -1.07 1.32

1995 11.55 -9.20 37.581996 6.36 5.99 22.961997 2.06 -13.45 33.361998 20.33% -23.21% 28.58%

EMF Year EAFE® S&P 500MSCI MSCI

(in U.S. dollars)

the MSCI EMF Index and the S&P 500Annual Returns of the MSCI EAFE® Index,

You can see from the table below that internationalinvestment returns sometimes move in a different direction thanU.S. market returns. The table shows changes in:

a) the MSCI EAFE® Index, a well-known index of stocksin more developed foreign markets,

b) the MSCI Emerging Markets Force (EMF ) Index, and

c) the Standard & Poor’s 500, an index of large U.S.

companies.

Even when international and U.S. investments move in thesame direction the degree of change may be very different.When you compare the returns from emerging markets yousee even wider swings in value.

4 SEC

SM

SM

SM

Sources: Morgan Stanley Capital International and Standard and Poor's.





6 SEC

199819971996

199519941993

199219911990

19891988

12.60%

13.8211.63

9.83

-1.7829.56

-5.839.06

-29.6021.74

34.00

20.33%2.066.36

11.558.06

32.94

12.50

10.8028.59

-11.85

-23.20

Year Local Currency U.S. Dollars

Source: Morgan Stanley Capital International.

As you can see from the table, converting from local currencyto U.S. dollars reduced the 13.82% gain of the MSCI EAFE® in1997 to a gain of only 2.06%. In 1994, on the other hand, a 1.78%loss, measured in local currency, became a gain in U.S. dollars ofover 8%.

compared to the U.S. dollar, this weakness your returns because your earnings translate into fewer dollars.

The table below shows how your international investmentreturns can change when you convert them from localcurrency to U.S. dollars.

reduces

Annual Returns of the MSCI EAFE® Indexin Local Currency and U.S. Dollars

MSCI EAFE® Index





difficult to locate up-to-date information, and theinformation the company publishes may not be inEnglish.

. If you have a problemwith your investment, you may not be able to sue thecompany in the United States. Even if you suesuccessfully in a U.S. court, you may not be able to collecton a U.S. judgment against a foreign company. You mayhave to rely on whatever legal remedies are available inthe company's home country.

. Foreign markets often operatedifferently from the major U.S. trading markets. Forexample, there may be different periods for clearance andsettlement of securities transactions. Some foreignmarkets may not report stock trades as quickly as U.S.markets. Rules providing for the safekeeping of sharesheld 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 custodianhas credit problems or fails.

International investing can be more expensive than investing in U.S. companies. In smaller markets, you may have to pay apremium to purchase shares of popular companies. In somecountries there may be unexpected taxes, such as withholding taxes on dividends. Transaction costs such as fees, broker'scommissions, and taxes often are higher than in U.S. markets.Mutual funds that invest abroad often have higher fees andexpenses than funds that invest in U.S. stocks, in part becauseof the extra expense of trading in foreign markets. In 1998, for

Reliance on foreign legal remedies

Different market operations

8 SEC

What are the costs of international investments?

Q

u e s t i o n

A n s w e r



What are the different ways to invest internationally?

Q u e s t i o n

A n s w e r

9

* Source: Lipper - Directors Analytical Data. Third Edition 1998. World equity funds included global funds,which also may invest in U.S. securities.

example, world or non-U.S. equity mutual funds had amedian expense ratio of 1.78%, compared to 1.31% for

general U.S. equity funds.

One way to invest internationally isthrough mutual funds. There are different kinds offunds that invest in foreign stocks.

invest primarily in foreign companies, but may also invest in U.S. companies.

generally limit theirinvestments to companies outside the UnitedStates.

invest principally incompanies located in a particular geographic region(such as Europe or Latin America) or in a singlecountry. Some funds invest only in emerging markets, while others concentrate on moredeveloped markets.

try to track the results of

a particular foreign market index. Index fundsdiffer from actively managed funds, whosemanagers pick stocks based on research about thecompanies.

International investing through mutual funds can reducesome of the risks mentioned earlier. Mutual funds providemore diversification than most investors could achieve on

their own. The fund manager also should be familiar with

*

Global funds

International funds

Regional or country funds

International index funds

Mutual Funds.





The depositary bank may arrange to vote your shares foryou as you instruct.

It may take a long time for you to receive informationfrom the company because it must pass through an extrapair of hands. You may receive information aboutshareholder 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 willdeduct these fees from the dividends and otherdistributions on your shares. The depositary bank alsowill incur expenses, such as for converting foreigncurrency into U.S. dollars, and usually will pass thoseexpenses on to you.

On the other hand, there are some disadvantages:

11





13

If you want to buy orsell stock in a company that only trades on a foreignstock market, your broker may be able to process your

order for you. These foreign companies do not filereports with the SEC, however, so you will need to doadditional research to get the information you need tomake an investment decision. Always make sure any

broker you deal with is registered with the SEC. It’sagainst the law for unregistered foreign brokers to callyou and solicit your investment.

International investments are like any other investment.You should learn as much as you can about a company

before you invest. Try to learn about the political,economic, and social conditions in the company’s homecountry, so you will understand better the factors that

affect the company’s financial results and stock price. Ifyou invest internationally through mutual funds, makesure you know the countries where the fund invests andunderstand the kinds of investments it makes.

. More than 1,100 foreign companies file

reports with the SEC. The SEC doesn’t requireforeign companies to file electronically, so theirreports usually are not available through the SEC’sWeb site. You can get paper copies from our PublicReference Branch by calling

We charge a copying fee for this service.

Some sources of information:

SEC reports

Stocks Trading on Foreign Markets.

(202) 942-8090 or bywriting them at Securities and ExchangeCommission, 450 Fifth Street, N.W., Washington, DC20549.

What should I do if I want to invest?

Q u e s t i o n

A n s w e r



14 SEC

Mutual fund firms

The company

Broker-dealers

Publications

Electronic information

. You can get the prospectus for aparticular mutual fund directly from the mutual fundfirm. Many firms also have Web sites that provide

helpful information about international investing.

. Foreign companies often prepare annualreports, and some companies also publish an Englishlanguage version of their annual report. Ask your

broker for copies of the company’s reports or check tosee if they are available from the SEC. Some foreigncompanies post their annual reports and other financialinformation on their Web sites.

. Your broker may have research reports onparticular foreign companies, individual countries, orgeographic regions. Ask whether updated reports areavailable on a regular basis. Your broker also may beable to get copies of SEC reports and other informationfor you.

. Many financial publications and international business newspapers provide extensive news coverageof foreign companies and markets.

. Information about foreigncompanies may be available on the Internet.

You can find information about how to protect yourself

from investment fraud over the Internet by looking tothe “Investor Assistance and Complaints” section of ourwebsite

You shouldbe wary, however, of “hot tips,” overblown statements, andinformation posted on the Internet from unfamiliar sources.

( )www.sec.gov





mutual funds

American Depositary

U.S. traded foreign st

direct investments

Notes and important phone numbers

16 SEC Cover PhotoTSM/William Whitehurst 5/99C

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Consumer) International Investing - Get the Facts