0001193125-08-073437.txt : 20151023
0001193125-08-073437.hdr.sgml : 20151023
20080402171236
ACCESSION NUMBER: 0001193125-08-073437
CONFORMED SUBMISSION TYPE: 485APOS
PUBLIC DOCUMENT COUNT: 3
FILED AS OF DATE: 20080402
DATE AS OF CHANGE: 20090924
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: iSHARES INC
CENTRAL INDEX KEY: 0000930667
IRS NUMBER: 510396525
STATE OF INCORPORATION: MD
FISCAL YEAR END: 0831
FILING VALUES:
FORM TYPE: 485APOS
SEC ACT: 1933 Act
SEC FILE NUMBER: 033-97598
FILM NUMBER: 08734502
BUSINESS ADDRESS:
STREET 1: 400 HOWARD STREET
CITY: SAN FRANCISCO
STATE: CA
ZIP: 94105
BUSINESS PHONE: (415) 670-2000
MAIL ADDRESS:
STREET 1: 400 HOWARD STREET
CITY: SAN FRANCISCO
STATE: CA
ZIP: 94105
FORMER COMPANY:
FORMER CONFORMED NAME: ISHARES INC
DATE OF NAME CHANGE: 20000516
FORMER COMPANY:
FORMER CONFORMED NAME: WEBS INDEX FUND INC
DATE OF NAME CHANGE: 19970211
FORMER COMPANY:
FORMER CONFORMED NAME: FOREIGN FUND INC
DATE OF NAME CHANGE: 19950524
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: iSHARES INC
CENTRAL INDEX KEY: 0000930667
IRS NUMBER: 510396525
STATE OF INCORPORATION: MD
FISCAL YEAR END: 0831
FILING VALUES:
FORM TYPE: 485APOS
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-09102
FILM NUMBER: 08734503
BUSINESS ADDRESS:
STREET 1: 400 HOWARD STREET
CITY: SAN FRANCISCO
STATE: CA
ZIP: 94105
BUSINESS PHONE: (415) 670-2000
MAIL ADDRESS:
STREET 1: 400 HOWARD STREET
CITY: SAN FRANCISCO
STATE: CA
ZIP: 94105
FORMER COMPANY:
FORMER CONFORMED NAME: ISHARES INC
DATE OF NAME CHANGE: 20000516
FORMER COMPANY:
FORMER CONFORMED NAME: WEBS INDEX FUND INC
DATE OF NAME CHANGE: 19970211
FORMER COMPANY:
FORMER CONFORMED NAME: FOREIGN FUND INC
DATE OF NAME CHANGE: 19950524
0000930667
S000022494
iShares MSCI Emerging Markets Eastern Europe ETF
C000065070
iShares MSCI Emerging Markets Eastern Europe Index Fund
485APOS
1
d485apos.txt
FORM 485APOS FOR ISHARES INC.
As filed with the Securities and Exchange Commission on April 2, 2008
File Nos. 33-97598 and 811-09102
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 58 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 60 [X]
(Check appropriate box or boxes)
iShares, Inc.
(Exact Name of Registrant as Specified in Charter)
c/o State Street Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
(Address of Principal Executive Office)(Zip Code)
Registrant's Telephone Number, including Area Code: (415) 597-2000
The Corporation Trust Company
300 E. Lombard Street
Baltimore, MD 21202
(Name and Address of Agent for Service)
With Copies to:
MARGERY K. NEALE, ESQ. BENJAMIN J. HASKIN, ESQ. KEVIN D. SMITH, ESQ.
WILLKIE FARR & GALLAGHER WILLKIE FARR & GALLAGHER BARCLAYS GLOBAL
LLP LLP INVESTORS, N.A.
787 SEVENTH AVENUE 1875 K STREET, N.W. 45 FREMONT STREET
NEW YORK, N.Y. 10019-6099 WASHINGTON, D.C. SAN FRANCISCO, CA 94105
20006-1238
It is proposed that this filing will become effective (check appropriate
box):
[_] Immediately upon filing pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[_] On (date) pursuant to paragraph (b)
[_] On (date) pursuant to paragraph (a)(1)
[_] On (date) pursuant to paragraph (a)(2)
If appropriate, check the following box:
[_] The post-effective amendment designates a new effective date for a
previously filed post-effective amendment
================================================================================
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE SECURITIES DESCRIBED HEREIN MAY NOT BE
SOLD UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE IN WHICH THE OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL.
iShares(Reg. TM)
iShares, Inc. (the "Company") is a registered investment company that consists
of more than 25 separate investment portfolios called funds. This Prospectus
relates to the following fund:
iShares MSCI Emerging Markets Eastern Europe Index Fund (the "Fund").
CUSIP:
TRADING SYMBOL:
UNDERLYING INDEX: MSCI Emerging Markets Eastern Europe Index
The Fund issues and redeems shares at their net asset value ("NAV") only in
blocks of __ shares or multiples thereof ("Creation Units"). Only certain large
institutional investors known as "Authorized Participants" may purchase or
redeem Creation Units directly with the Fund at NAV. These transactions are
usually in exchange for a basket of securities similar to the Fund's portfolio
and an amount of cash. EXCEPT WHEN AGGREGATED IN CREATION UNITS, SHARES OF THE
FUND ARE NOT REDEEMABLE SECURITIES. SHAREHOLDERS WHO ARE NOT AUTHORIZED
PARTICIPANTS MAY NOT REDEEM SHARES DIRECTLY FROM THE FUND AT NAV.
iShares(Reg. TM) is a registered trademark of Barclays Global Investors, N.A.
("BGI").
The Securities and Exchange Commission ("SEC") has not approved or disapproved
these securities or passed upon the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
PROSPECTUS DATED ________________, 2008
Table of Contents
Introduction .................. 1
Investment Objective .......... 1
Principal Investment 1
Strategies
Principal Risks ............... 2
Portfolio Holdings Information 6
Performance Information ....... 6
Fees and Expenses ............. 6
Management .................... 6
Shareholder Information ....... 7
Distribution .................. 12
Financial Highlights .......... 12
Index Provider ................ 13
Disclaimers ................... 13
"MSCI Emerging Markets Eastern Europe Index/SM/" is a servicemark of MSCI Inc.
licensed for use for certain purposes by BGI.
i
Introduction
This Prospectus contains important information about investing in the Fund.
Please read this Prospectus carefully before you make any investment decisions.
Additional information regarding the Fund is available at www.iShares.com.
Barclays Global Fund Advisors ("BGFA") is the investment adviser to the Fund.
Shares of the Fund are listed and trade at market prices on ____________. The
market price for a share of the Fund may be different from the Fund's most
recent NAV per share. The Fund has its own CUSIP number and exchange trading
symbol.
The Fund is an exchange traded fund (commonly referred to as an "ETF"). ETFs
are funds that trade like other publicly-traded securities and are designed to
track an index. Similar to shares of an index mutual fund, each share of the
Fund represents a partial ownership in an underlying portfolio of securities
intended to track a market index. Unlike shares of a mutual fund, which can be
bought and redeemed from the issuing fund by all shareholders at a price based
on NAV, shares of the Fund may be purchased or redeemed directly from the Fund
at NAV solely by Authorized Participants. Also unlike shares of a mutual fund,
shares of the Fund are listed on a national securities exchange and trade in
the secondary market at market prices that change throughout the day.
The Fund invests in a particular segment of the securities markets and seeks to
track the performance of a securities index that generally is not
representative of the market as a whole. The Fund is designed to be used as
part of broader asset allocation strategies. Accordingly, an investment in the
Fund should not constitute a complete investment program.
An investment in the Fund is not a bank deposit and it is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency, BGFA or any of its affiliates.
Investment Objective
The Fund seeks investment results that correspond generally to the price and
yield performance, before fees and expenses, of publicly traded securities in
the aggregate in Eastern European markets, as represented by the MSCI Emerging
Markets Eastern Europe Index (the "Underlying Index"). The Fund's investment
objective and its Underlying Index may be changed without shareholder approval.
The Underlying Index is sponsored by an organization (the "Index Provider")
that is independent of the Fund and BGFA. The Index Provider determines the
relative weightings of the securities in the Underlying Index and publishes
information regarding the market value of the Underlying Index. The Fund's
Index Provider is MSCI Inc. ("MSCI").
Additional information regarding the Index Provider is provided in the INDEX
PROVIDER section of this Prospectus.
Principal Investment Strategies
The Underlying Index is a free float adjusted market capitalization index
designed to measure equity market performance of the following four emerging
market countries: the Czech Republic, Hungary, Poland and Russia.
BGFA uses a "passive" or indexing approach to try to achieve the Fund's
investment objective. Unlike many investment companies, the Fund does not try
to "beat" the index it tracks and does not seek temporary defensive positions
when markets decline or appear overvalued.
Indexing eliminates the chance that the Fund may substantially outperform its
Underlying Index but also may reduce some of the risks of active management,
such as poor security selection. Indexing seeks to achieve lower costs and
better after-tax performance by keeping portfolio turnover low in comparison to
actively managed investment companies.
The Fund generally invests at least 90% of its assets in securities of the
Underlying Index and depositary receipts representing securities of the
Underlying Index. The Fund may invest the remainder of its assets
1
in securities not included in its Underlying Index but which BGFA believes will
help the Fund track its Underlying Index, and in futures contracts, options on
futures contracts, options and swaps as well as cash and cash equivalents,
including shares of money market funds advised by BGFA.
BGFA uses a representative sampling indexing strategy to manage the Fund as
described below.
REPRESENTATIVE SAMPLING. "Representative sampling" is an indexing strategy that
involves investing in a representative sample of securities that collectively
has an investment profile similar to the Underlying Index. The securities
selected are expected to have, in the aggregate, investment characteristics
(based on factors such as market capitalization and industry weightings),
fundamental characteristics (such as return variability and yield) and
liquidity measures similar to those of the Underlying Index. The Fund may or
may not hold all of the securities included in the Underlying Index.
CORRELATION. An index is a theoretical financial calculation while the Fund is
an actual investment portfolio. The performance of the Fund and its Underlying
Index may vary somewhat due to transaction costs, foreign currency valuations,
asset valuations, corporate actions (such as mergers and spin-offs), timing
variances, differences between the Fund's portfolio and the Underlying Index
resulting from legal restrictions (such as diversification requirements that
apply to the Fund but not to the Underlying Index) or representative sampling.
BGFA expects that, over time, the correlation between the Fund's performance
and that of its Underlying Index, before fees and expenses, will be 95% or
better. A correlation percentage of 100% would indicate perfect correlation.
The difference between 100% correlation and the Fund's actual correlation with
its Underlying Index is called "tracking error." The Fund's use of a
representative sampling indexing strategy can be expected to result in greater
tracking error than if the Fund used a replication indexing strategy.
"Replication" is an indexing strategy in which a fund invests in substantially
all of the securities in its underlying index in approximately the same
proportions as in the underlying index.
INDUSTRY CONCENTRATION POLICY. The Fund will concentrate its investments (I.E.,
hold 25% or more of its total assets) in a particular industry or group of
industries to approximately the same extent that its Underlying Index is
concentrated. For purposes of this limitation, securities of the U.S.
government (including its agencies and instrumentalities) and repurchase
agreements collateralized by U.S. government securities are not considered to
be issued by members of any industry.
Principal Risks
The Fund is subject to the principal risks noted below, any of which may
adversely affect the Fund's NAV, trading price, yield, total return and ability
to meet its investment objective.
ASSET CLASS RISK. The securities in the Underlying Index or the Fund's
portfolio may underperform the returns of other securities or indexes that
track other industries, groups of industries, markets, asset classes or
sectors. Various types of securities or indexes tend to experience cycles of
outperformance and underperformance in comparison to the general securities
markets.
CONCENTRATION RISK. To the extent that its Underlying Index or portfolio is
concentrated in the securities of companies in a particular market, industry,
group of industries, sector or asset class, the Fund may be adversely affected
by the performance of those securities, may be subject to increased price
volatility and may be more susceptible to adverse economic, market, political
or regulatory occurrences affecting that market, industry, group of industries,
sector or asset class. An investment in the Fund should not constitute a
complete investment program.
CURRENCY RISK. Because the Fund's NAV is determined on the basis of the U.S.
dollar, you may lose money if the currency of a foreign market in which the
Fund invests depreciates against the U.S. dollar, even if the local currency
value of the Fund's holdings in that market increases.
CUSTODY RISK. Custody risk refers to the risks in the process of clearing and
settling trades and to the holding of securities by local banks, agents and
depositories. Low trading volumes and volatile prices in less developed markets
make trades harder to complete and settle and governments or trade groups may
compel local agents to hold securities in designated depositories that are not
subject to independent
2
[GRAPHIC APPEARS HERE]
evaluation. Local agents are held only to the standards of care of the local
markets. The less developed a country's securities market is, the greater the
likelihood of custody problems.
EMERGING MARKETS RISK. Investments in emerging markets are subject to a greater
risk of loss than investments in developed markets. This is due to, among other
things, greater market volatility, lower trading volume, political and economic
instability, greater risk of market shutdown and more governmental limitations
on foreign investment than typically found in developed markets.
EUROPEAN ECONOMIC RISK. The Economic and Monetary Union (the "EMU") of the
European Union ("EU") requires compliance with restrictions on inflation rates,
deficits, interest rates, debt levels and fiscal and monetary controls, each of
which may significantly affect every country in Europe. Decreasing imports or
exports, changes in governmental regulations on trade, changes in the exchange
rate of the euro and recessions among EU members may have a significant adverse
effect on the economies of other EU members and and Russia.
FOREIGN SECURITIES RISKS. Investments in the securities of non-U.S. issuers are
subject to all the risks of investing in the market of such issuers, including
market fluctuations caused by economic and political developments. As a result,
the Fund may be subject to increased risk of loss caused by any of the factors
listed below:
[] Lower levels of liquidity and market efficiency;
[] Greater securities price volatility;
[] Exchange rate fluctuations and exchange controls;
[] Less availability of public information about issuers;
[] Limitations on foreign ownership of securities;
[] Imposition of withholding or other taxes;
[] Imposition of restrictions on the expatriation of the funds or other assets
of the Fund;
[] Higher transaction and custody costs and delays in settlement procedures;
[] Difficulties in enforcing contractual obligations;
[] Lower levels of regulation of the securities market; and
[] Weaker accounting, disclosure and reporting requirements.
GEOGRAPHIC RISK. Russia has historically been prone to natural disasters such
as earthquakes, droughts, floods and tsunamis and is economically sensitive to
environmental events. Any natural disaster could cause a significant adverse
impact on the Russian economy and have a material adverse impact on the Fund's
performance.
ISSUER RISK. The performance of the Fund depends on the performance of
individual companies in which the Fund invests. Any issuer may perform poorly,
causing the value of its securities to decline. Poor performance may be caused
by poor management decisions, competitive pressures, changes in technology,
disruptions in supply, labor problems or shortages, corporate restructurings,
fraudulent disclosures or other factors. Issuers may, in times of distress or
on their own discretion, decide to reduce or eliminate dividends which would
also cause their stock prices to decline.
LEGAL ENFORCEMENT OF SHAREHOLDER RIGHTS RISK. Legal principles relating to
corporate governance, directors' fiduciary duties and liabilities and
stockholders' rights in markets in which the Fund invests may not be as
extensive as those that apply in the U.S. The Fund may therefore have more
difficulty asserting its rights as a stockholder of a non-U.S. company in which
it invests than it would as a stockholder of a comparable U.S. company.
MANAGEMENT RISK. The Fund does not fully replicate its Underlying Index and may
hold securities not included in its Underlying Index. As a result, the Fund is
subject to the risk that BGFA's investment management strategy, the
implementation of which is subject to a number of constraints, may not produce
the intended results.
3
MARKET RISK. The Fund's NAV reacts to securities market movements. You could
lose money over short periods due to fluctuation in the Fund's NAV in response
to short-term market movements and over longer periods during market downturns.
Securities may decline in value due to factors affecting securities markets
generally or particular industries represented in the markets. The value of a
security may decline due to general market conditions, economic trends or
events that are not specifically related to a company or to factors that affect
a particular industry or industries. During a general economic downturn in the
securities markets, multiple asset classes may be negatively affected.
MARKET TRADING RISKS. ABSENCE OF ACTIVE MARKET. Although shares of the Fund are
listed for trading on a national securities exchange, there can be no assurance
that an active trading market for such shares will develop or be maintained.
LACK OF MARKET LIQUIDITY. Secondary market trading in Fund shares may be halted
by a national securities exchange because of market conditions or for other
reasons. In addition, trading in Fund shares is subject to trading halts caused
by extraordinary market volatility pursuant to "circuit breaker" rules. There
can be no assurance that the requirements necessary to maintain the listing of
the shares of the Fund will continue to be met or will remain unchanged.
[] SHARES OF THE FUND MAY TRADE AT PRICES OTHER THAN NAV. Shares of the Fund
trade on exchanges at prices at, above or below their most recent NAV. The per
share NAV of the Fund is calculated at the end of each business day and
fluctuates with changes in the market value of the Fund's holdings since the
most recent calculation. The trading prices of the Fund's shares fluctuate
continuously throughout trading hours based on market supply and demand rather
than NAV. The trading prices of the Fund's shares may deviate significantly
from NAV during periods of market volatility. ANY OF THESE FACTORS MAY LEAD TO
THE FUND'S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. However, because
shares can be created and redeemed in Creation Units at NAV (unlike shares of
many closed-end funds, which frequently trade at appreciable discounts from,
and sometimes at premiums to, their NAVs), BGFA believes that large discounts
or premiums to the NAV of the Fund are not likely to be sustained over the
long-term. While the creation/redemption feature is designed to make it likely
that the Fund's shares normally will trade on exchanges at prices close to the
Fund's next calculated NAV, exchange prices are not expected to correlate
exactly with the Fund's NAV due to timing reasons as well as market supply and
demand factors. In addition, disruptions to creations and redemptions or the
existence of extreme market volatility may result in trading prices that
differ significantly from NAV. If a shareholder purchases at a time when the
market price is at a premium to the NAV or sells at a time when the market
price is at a discount to the NAV, then the shareholder may sustain losses.
[] COSTS OF BUYING OR SELLING FUND SHARES. Buying or selling Fund shares
involves two types of costs that apply to all securities transactions. When
buying or selling shares of the Fund through a broker, you will incur a
brokerage commission or other charges imposed by brokers as determined by that
broker. In addition, you will also incur the cost of the "spread" - that is,
the difference between what professional investors are willing to pay for Fund
shares (the "bid" price) and the price at which they are willing to sell Fund
shares (the "ask" price). Because of the costs inherent in buying or selling
Fund shares, frequent trading may detract significantly from investment
results and an investment in Fund shares may not be advisable for investors
who anticipate regularly making small investments.
NON-DIVERSIFICATION RISK. The Fund is classified as "non-diversified." A
non-diversified fund generally may invest a larger percentage of its assets in
the securities of a smaller number of issuers. As a result, the Fund may be
more susceptible to risks associated with these companies or to a single
economic, political or regulatory occurrence affecting these companies.
PASSIVE INVESTMENT RISK. The Fund is not actively managed and may be affected
by a general decline in market segments relating to its Underlying Index. The
Fund invests in securities included in, or representative of, its Underlying
Index regardless of their investment merits. BGFA does not attempt to take
defensive positions in declining markets.
PRIVATIZATION RISK. The countries in which the Fund invests have begun a
process of privatization of certain entities and industries. Historically,
investors in some recently privatized entities have suffered losses due to the
inability of the recently privatized company to adjust quickly to a competitive
environment or
4
[GRAPHIC APPEARS HERE]
changing regulatory and legal standards or, in some cases, due to
re-nationalization of such privatized entities. There is no assurance that such
losses will not recur.
RELIANCE ON TRADING PARTNERS RISK. Economies in emerging market countries
generally are dependent heavily upon commodity prices and trade with certain
key trading partners. Reduction in spending on the products and services of
emerging market countries by any of their key trading partners, institution of
tariffs or other trade barriers or a slowdown in the economies of any of their
key trading partners may cause an adverse impact on the economies of the
emerging market countries included in the Underlying Index.
SECONDARY MARKET TRADING RISK. Shares of the Fund may trade in the secondary
market on days when the Fund does not accept orders to purchase or redeem
shares. On such days, shares may trade in the secondary market with more
significant premiums or discounts than might be experienced on days when the
Fund accepts purchase and redemption orders.
SECURITY RISK. Some geographic areas in which the Fund invests have experienced
acts of terrorism or strained international relations due to territorial
disputes, historical animosities or other defense concerns. These situations
may cause uncertainty in the markets of these geographic areas and may
adversely affect the performance of their economies.
STRUCTURAL RISKS. The Czech Republic, Hungary, Poland and Russia are subject to
a considerable degree of economic, political and social instability, which
could adversely affect investments in the Fund:
[] ECONOMIC RISK. Some of these countries have experienced currency
devaluations, substantial (and, in some cases, extremely high) rates of
inflation, defaults on debt, widespread corruption or economic recessions,
causing a negative effect on the economies and securities markets of these
countries.
[] LABOR RISK. A significant portion of the workforce in Eastern Europe is
unionized and certain regions and sectors of these countries have
experienced very high unemployment rates and periods of labor and social
unrest.
[] HEAVY GOVERNMENT CONTROL AND REGULATIONS. Despite significant recent reform
and privatization, Eastern European governments, particularly Russia's,
continue to control a large share of economic activity in the region. The
Russian government owns shares in corporations in a range of sectors
including banking, energy production and distribution, automobiles,
transportation and telecommunications. Government spending in these
countries remains high compared to that of other European countries.
[] POLITICAL AND SOCIAL RISK. Russian national and regional governments remain
authoritarian. Disparities of wealth, the pace and success of
democratization and ethnic, religious and racial disaffection have led to
social turmoil, violence and labor unrest in Eastern Europe. Unanticipated
or sudden political or social developments may result in sudden and
significant investment losses.
[] EXPROPRIATION RISK. Investing in emerging market countries involves risk of
loss due to expropriation, nationalization, confiscation of assets and
property or the imposition of restrictions on foreign investments and on
repatriation of capital invested.
TRACKING ERROR RISK. Imperfect correlation between the Fund's portfolio
securities and those in its Underlying Index, rounding of prices, changes to
the Underlying Index and regulatory requirements may cause the Fund's
performance to diverge from the performance of its Underlying Index. This is
called "tracking error." Tracking error also may result because the Fund incurs
fees and expenses while its Underlying Index does not incur such expenses.
TRADING RISK. While the creation/redemption feature of the Fund is designed to
make it likely that shares of the Fund will trade close to their NAV,
disruptions to creations and redemptions may result in trading prices that
differ significantly from NAV.
VALUATION RISK. Because foreign exchanges may be open on days when the Fund
does not price its shares, the value of the securities in the Fund's portfolio
may change on days when shareholders will not be able to purchase or sell the
Fund's shares.
5
Portfolio Holdings Information
A description of the Company's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's
Statement of Additional Information ("SAI"). The top holdings of the Fund can
be found at www.iShares.com. Fund fact sheets provide information regarding the
Fund's top holdings and may be requested by calling 1-800-iShares
(1-800-474-2737).
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less than
one full calendar year and therefore does not report its performance
information.
Fees and Expenses
The following table describes the fees and expenses that you will incur if you
own shares of the Fund. You
will also incur usual and customary brokerage commissions when buying or
selling shares of the Fund:
ANNUAL FUND OPERATING EXPENSES/2/
-------------------------------------------------------------------
DISTRIBUTION AND TOTAL ANNUAL FUND
SHAREHOLDER MANAGEMENT SERVICE (12B-1) OTHER OPERATING
FEES/1/ FEES FEES EXPENSES/3/ EXPENSES
------------- ------------ ------------------ ------------- ------------------
None ___% None None ___%
--------
/1/Fees paid directly from your investment.
/2/Expenses that are deducted from the Fund's assets, expressed as a
percentage of average net assets.
/3/The Company's Investment Advisory Agreement provides that BGFA will pay
all operating expenses of the Fund, except interest expense and taxes
(both expected to be DE MINIMIS), any brokerage expenses, future
distribution fees or expenses, and extraordinary expenses.
EXAMPLE. This example is intended to help you compare the cost of owning shares
of the Fund with the cost of investing in other funds. The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all
of your shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
1 YEAR 3 YEARS
--------- --------
$___ $___
Management
INVESTMENT ADVISER. As investment adviser, BGFA has overall responsibility for
the general management and administration of the Company. BGFA provides an
investment program for the Fund and manages the investment of the Fund's
assets. In seeking to achieve the Fund's investment objective, BGFA uses teams
of portfolio managers, investment strategists and other investment specialists.
This team approach brings together many disciplines and leverages BGFA's
extensive resources. BGFA also arranges for transfer agency, custody, fund
administration and all other non-distribution related services necessary for
the Fund to operate.
Pursuant to the Investment Advisory Agreement between BGFA and the Company, on
behalf of the Fund, BGFA is responsible for substantially all expenses of the
Company, including the cost of transfer agency, custody, fund administration,
legal, audit and other services except interest expense and taxes, brokerage
expenses, distribution fees or expenses and extraordinary expenses.
For its investment advisory services to the Fund, BGFA is paid a management fee
based on the Fund's allocable portion of the aggregate of the average daily net
assets of the Fund and certain other iShares Funds (iShares MSCI BRIC Index
Fund and iShares MSCI Emerging Markets Index Fund), which are offered in
separate prospectuses) as follows: % per year of the aggregate net assets of
the Funds less than or equal to $ billion net assets, plus %
6
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per year of aggregate net assets of the Funds between $ billion and $
billion, plus % per year of aggregate net assets of the funds in excess of
$ billion.
For its investment advisory services to the Fund, BGFA is entitled to receive
management fees from the Fund, based on a percentage of the Fund's average
daily net assets, at an annual rate of %. Because the Fund has been in
operation for less than one full fiscal year, this percentage reflects the rate
at which BGFA will be paid.
BGFA is located at 45 Fremont Street, San Francisco, CA 94105. It is a
wholly-owned subsidiary of BGI, which in turn is a majority-owned subsidiary of
Barclays Bank PLC. As of ________, BGI and its affiliates, including BGFA,
provided investment advisory services for assets in excess of $__ trillion.
BGI, BGFA, Barclays Global Investors Services, Barclays Bank PLC and their
affiliates deal, trade and invest for their own accounts in the types of
securities in which the Fund may also invest.
A discussion regarding the basis for the Board of Directors' approval of the
Investment Advisory Agreement with BGFA will be available in the Fund's annual
report for the period ending _________.
PORTFOLIO MANAGERS. Diane Hsiung and Greg Savage (the "Portfolio Managers") are
primarily responsible for the day-to-day management of the Fund. Each Portfolio
Manager is responsible for various functions related to portfolio management
including, but not limited to, investing cash inflows, coordinating with
members of his or her team to focus on certain asset classes, implementing
investment strategy, researching and reviewing investment strategy and
overseeing members of his or her portfolio management team with more limited
responsibilities.
Diane Hsiung is an employee of BGFA and BGI and, together with the other
Portfolio Manager, is primarily responsible for the day-to-day management of
the Fund. Ms. Hsiung has been a senior portfolio manager for BGFA and BGI since
2007 and a portfolio manager for BGFA and BGI from 2002 to 2006.
Greg Savage is an employee of BGFA and BGI and, together with the other
Portfolio Manager, is primarily responsible for the day-to-day management of
the Fund. Mr. Savage has been a senior portfolio manager for BGFA and BGI since
2006 and a portfolio manager for BGFA and BGI from 2001 to 2006.
The Fund's SAI provides additional information about the Portfolio Managers'
compensation, other accounts managed by the Portfolio Managers and the
Portfolio Managers' ownership (if any) of shares in the Fund.
ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust
Company ("State Street") is the administrator, custodian and transfer agent for
the Fund.
Shareholder Information
ADDITIONAL SHAREHOLDER INFORMATION, INCLUDING HOW TO BUY AND SELL SHARES OF THE
FUND, IS AVAILABLE FREE OF CHARGE BY CALLING TOLL-FREE: 1-800-ISHARES
(1-800-474-2737) OR VISITING OUR WEBSITE AT WWW.ISHARES.COM.
BUYING AND SELLING SHARES. Shares of the Fund trade on a national securities
exchange during the trading day. Shares can be bought and sold throughout the
trading day like shares of other publicly traded companies. The Company does
not impose any minimum investment for shares of the Fund purchased on an
exchange. Buying or selling Fund shares involves two types of costs that apply
to all securities transactions. When buying or selling shares of the Fund
through a broker, you will incur a brokerage commission or other charges
determined by your broker. In addition, you will also incur the cost of the
"spread" - that is, the difference between the bid price and the ask price. The
commission is frequently a fixed amount and may be a significant proportional
cost for investors seeking to buy or sell small amounts of shares. The spread
varies over time for shares of the Fund based on its trading volume and market
liquidity, and is generally lower if the Fund has a lot of trading volume and
market liquidity and higher if the Fund has little trading volume and market
liquidity. The Fund's shares trade under the trading symbol listed on the front
cover of this Prospectus.
Shares of the Fund may be acquired or redeemed directly from the Fund only in
Creation Units or multiples thereof, as discussed in the CREATIONS AND
REDEMPTIONS section of this Prospectus. Once created, shares of the Fund
generally trade in the secondary market in amounts less than a Creation Unit.
7
The Company's Board of Directors has adopted a policy of not monitoring for
frequent purchases and redemptions of Fund shares ("frequent trading") that
appear to attempt to take advantage of a potential arbitrage opportunity
presented by a lag between a change in the value of the Fund's portfolio
securities after the close of the primary markets for the Fund's portfolio
securities and the reflection of that change in the Fund's NAV ("market
timing"), because the Fund sells and redeems its shares directly through
transactions that are in-kind and/or for cash with a deadline for placing
cash-related transactions no later than the close of the primary markets for
the Fund's portfolio securities. The Board of Directors has not adopted a
policy of monitoring for other frequent trading activity because shares of the
Fund are listed and traded on national securities exchanges.
The national securities exchange on which the Fund's shares are listed is open
for trading Monday through Friday and is closed on weekends and the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The Fund's primary listing exchange is _____.
Section 12(d)(1) of the Investment Company Act of 1940, as amended, restricts
investments by registered investment companies in the securities of other
investment companies. Registered investment companies are permitted to invest
in the Fund beyond the limits set forth in Section 12(d)(1), subject to certain
terms and conditions set forth in an SEC exemptive order issued to the Company,
including that such investment companies enter into an agreement with the
Company.
BOOK ENTRY. Shares of the Fund are held in book-entry form, which means that no
stock certificates are issued. The Depository Trust Company ("DTC") or its
nominee is the record owner of all outstanding shares of the Fund and is
recognized as the owner of all shares for all purposes.
Investors owning shares of the Fund are beneficial owners as shown on the
records of DTC or its participants. DTC serves as the securities depository for
shares of the Fund. Participants include DTC, securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that
directly or indirectly maintain a custodial relationship with DTC. As a
beneficial owner of shares, you are not entitled to receive physical delivery
of stock certificates or to have shares registered in your name, and you are
not considered a registered owner of shares. Therefore, to exercise any right
as an owner of shares, you must rely upon the procedures of DTC and its
participants. These procedures are the same as those that apply to any other
securities that you hold in book-entry or "street name" form.
SHARE PRICES. The trading prices of the Fund's shares in the secondary market
generally differ from the Fund's daily NAV per share and are affected by market
forces such as supply and demand, economic conditions and other factors.
Information regarding the intraday value of shares of the Fund, also known as
the "indicative optimized portfolio value" ("IOPV"), is disseminated every 15
seconds throughout the trading day by the national securities exchange on which
the Fund is listed or by market data vendors or other information providers.
The IOPV is based on the current market value of the securities and/or cash
required to be deposited in exchange for a Creation Unit. The IOPV does not
necessarily reflect the precise composition of the current portfolio of
securities held by the Fund at a particular point in time nor the best possible
valuation of the current portfolio. Therefore, the IOPV should not be viewed as
a "real-time" update of the NAV, which is computed only once a day. The IOPV is
generally determined by using both current market quotations and/or price
quotations obtained from broker-dealers that may trade in the portfolio
securities held by the Fund. The quotations of certain Fund holdings may not be
updated during U.S. trading hours if such holdings do not trade in the U.S. The
Fund is not involved in, or responsible for, the calculation or dissemination
of the IOPV and makes no representation or warranty as to its accuracy.
DETERMINATION OF NET ASSET VALUE. The NAV for the Fund is generally determined
once daily Monday through Friday generally as of the regularly scheduled close
of business of the New York Stock Exchange ("NYSE") (normally 4:00 p.m.,
Eastern time) on each day that the NYSE is open for trading, based on prices at
the time of closing, provided that (a) any assets or liabilities denominated in
currencies other than the U.S. dollar shall be translated into U.S. dollars at
the prevailing market rates on the date of valuation as quoted by one or more
major banks or dealers that makes a two-way market in such currencies (or a
data service provider based on quotations received from such banks or dealers)
and (b) U.S. fixed-income assets may be valued as of the announced closing time
for trading in fixed-income instruments on any day that the Securities Industry
and Financial Markets Association announces an
8
[GRAPHIC APPEARS HERE]
early closing time. The NAV of the Fund is calculated by dividing the value of
the net assets of the Fund (I.E., the value of its total assets less total
liabilities) by the total number of outstanding shares of the Fund, generally
rounded to the nearest cent.
In calculating the Fund's NAV, the Fund's investments are generally valued
using market valuations. A market valuation generally means a valuation (i)
obtained from an exchange, a pricing service, or a major market maker (or
dealer), (ii) based on a price quotation or other equivalent indication of
value supplied by an exchange, a pricing service, or a major market maker (or
dealer) or (iii) based on amortized cost. In the case of shares of funds that
are not traded on an exchange, a market valuation means such fund's published
net asset value per share. BGFA may use various pricing services or discontinue
the use of any pricing service. A price obtained from a pricing service based
on such pricing service's valuation matrix may be considered a market
valuation.
In the event that current market valuations are not readily available or such
valuations do not reflect current market values, the affected investments will
be valued using fair value pricing pursuant to the pricing policy and
procedures approved by the Board of Directors. The frequency with which the
Fund's investments are valued using fair value pricing is primarily a function
of the types of securities and other assets in which the Fund invests pursuant
to its investment objective, strategies and limitations.
Investments that may be valued using fair value pricing include, but are not
limited to: (i) an unlisted security related to corporate actions; (ii) a
restricted security (I.E., one that may not be publicly sold without
registration under the Securities Act of 1933, as amended (the "1933 Act"));
(iii) a security whose trading has been suspended or which has been de-listed
from its primary trading exchange; (iv) a security that is thinly traded; (v) a
security in default or bankruptcy proceedings for which there is no current
market quotation; (vi) a security affected by currency controls or
restrictions; and (vii) a security affected by a significant event (I.E., an
event that occurs after the close of the markets on which the security is
traded but before the time as of which the Fund's NAV is computed and that may
materially affect the value of the Fund's investments). Examples of events that
may be significant events are government actions, natural disasters, armed
conflict, acts of terrorism and significant market fluctuations.
Valuing the Fund's investments using fair value pricing will result in using
prices for those investments that may differ from current market valuations.
Use of fair value prices and certain current market valuations could result in
a difference between the prices used to calculate the Fund's NAV and the prices
used by the Fund's Underlying Index, which, in turn, could result in a
difference between the Fund's performance and the performance of the Fund's
Underlying Index.
The value of assets denominated in foreign currencies is converted into U.S.
dollars using exchange rates deemed appropriate by BGFA as investment adviser.
Any use of a rate different from the rates used by MSCI may adversely affect
the Fund's ability to track its Underlying Index.
DIVIDENDS AND DISTRIBUTIONS
GENERAL POLICIES. Dividends from net investment income, if any, are generally
declared and paid semi-annually by the Fund. The Fund generally distributes its
net capital gains, if any, to shareholders annually. The Fund also reserves the
right to declare special distributions if, in its reasonable discretion, such
action is necessary or advisable to preserve its status as a regulated
investment company ("RIC") or to avoid imposition of income or excise taxes on
undistributed income.
Dividends and other distributions on shares are distributed on a PRO RATA basis
to beneficial owners of such shares. Dividend payments are made through DTC
participants to beneficial owners then of record with proceeds received from
the Fund.
DIVIDEND REINVESTMENT SERVICE. No dividend reinvestment service is provided by
the Company. Broker-dealers may make available the DTC book-entry Dividend
Reinvestment Service for use by beneficial owners of the Fund for reinvestment
of their dividend distributions. Beneficial owners should contact their broker
to determine the availability and costs of the service and the details of
participation therein. Brokers may require beneficial owners to adhere to
specific procedures and timetables. If this service is available and used,
dividend distributions of both income and realized gains will be automatically
reinvested in additional whole shares of the Fund purchased in the secondary
market.
9
TAXES. As with any investment, you should consider how your investment in
shares of the Fund will be taxed. The tax information in this Prospectus is
provided as general information. You should consult your own tax professional
about the tax consequences of an investment in shares of the Fund.
Unless your investment in shares is made through a tax-exempt entity or
tax-deferred retirement account, such as an IRA, you need to be aware of the
possible tax consequences when the Fund makes distributions or you sell Fund
shares.
TAXES ON DISTRIBUTIONS. Distributions from the Fund's net investment income
(other than qualified dividend income), including distributions out of the
Fund's net short-term capital gains, if any, and distributions of income from
securities lending, are taxable to you as ordinary income. Distributions by the
Fund of net long-term capital gains in excess of net short-term capital losses
(capital gain dividends) are taxable to you as long-term capital gains,
regardless of how long you have held the Fund's shares. Distributions by the
Fund that qualify as qualified dividend income are taxable to you at long-term
capital gain rates.
Dividends will be qualified dividend income to you if they are attributable to
qualified dividend income received by the Fund which, in general, includes
dividend income from taxable U.S. corporations and qualified foreign
corporations, provided that the Fund satisfies certain holding period
requirements in respect of the stock of such corporations and has not hedged
its position in the stock in certain ways. For this purpose, a qualified
foreign corporation means any foreign corporation (i) that is incorporated in a
possession of the United States, (ii) that is eligible for benefits under a
comprehensive income tax treaty with the United States which includes an
exchange of information program or (iii) if the stock with respect to which the
dividend was paid is readily tradable on an established United States security
market. The term excludes a corporation that is a passive foreign investment
company. Under current Internal Revenue Service guidance, the United States has
a comprehensive income tax treaty with each of the following countries:
Australia, Austria, Bangladesh, Barbados, Belgium, Canada, China, Cyprus, Czech
Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary,
Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan,
Korea, Latvia, Lithuania, Luxembourg, Mexico, Morocco, Netherlands, New
Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russian
Federation, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden,
Switzerland, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, United
Kingdom and Venezuela.
Dividends received by the Fund from a real estate investment trust ("REIT") or
another RIC generally are qualified dividend income only to the extent the
dividend distributions are made out of qualified dividend income received by
such REIT or RIC. It is expected that dividends received by the Fund from a
REIT and distributed to a shareholder generally will be taxable to the
shareholder as ordinary income.
Under current law, the taxation of qualified dividend income at long-term
capital gain rates will no longer apply for taxable years beginning after
December 31, 2010.
A dividend will not be treated as qualified dividend income if the dividend is
received with respect to any share of stock held for fewer than 61 days during
the 121-day period beginning at the date which is 60 days before the date on
which such share becomes ex-dividend with respect to such dividend or in the
case of certain preferred stock 91 days during the 181-day period beginning 90
days before such date. In general, your distributions are subject to U.S.
federal income tax for the year when they are paid. Certain distributions paid
in January, however, may be treated as paid on December 31 of the prior year.
If the Fund's distributions exceed current and accumulated earnings and
profits, all or a portion of the distributions made in the taxable year may be
recharacterized as a return of capital to shareholders. A return of capital
distribution generally will not be taxable but will reduce the shareholder's
cost basis and result in a higher capital gain or lower capital loss when those
shares on which the distribution was received are sold.
If you are neither a resident nor a citizen of the United States or if you are
a foreign entity, the Fund's ordinary income dividends (which include
distributions of net short-term capital gains) will generally be subject to a
30% U.S. withholding tax, unless a lower treaty rate applies, provided that
withholding tax will generally not apply to any gain or income realized by a
non-U.S. shareholder in respect of any distributions of long-term capital gains
or upon the sale or other disposition of shares of the Fund.
10
[GRAPHIC APPEARS HERE]
Dividends and interest received by the Fund with respect to foreign securities
may give rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. Since more than 50% of the total assets of the Fund will
almost certainly consist of foreign stocks or securities, the Fund will "pass
through" to you certain foreign income taxes (including withholding taxes) paid
by the Fund. This means that you will be considered to have received as an
additional dividend your share of such foreign taxes but you may be entitled to
either a corresponding tax deduction in calculating your taxable income or,
subject to certain limitations, a credit in calculating your U.S. federal
income tax.
If you are a resident or a citizen of the United States, by law, back-up
withholding will apply to your distributions and proceeds if you have not
provided a taxpayer identification number or social security number and made
other required certifications.
TAXES WHEN SHARES ARE SOLD. Currently, any capital gain or loss realized upon a
sale of shares is generally treated as a long-term gain or loss if shares have
been held for more than one year. Any capital gain or loss realized upon a sale
of shares held for one year or less is generally treated as short-term gain or
loss, except that any capital loss on the sale of shares held for six months or
less is treated as long-term capital loss to the extent that capital gain
dividends were paid with respect to such shares.
THE FOREGOING DISCUSSION SUMMARIZES SOME OF THE CONSEQUENCES UNDER CURRENT U.S.
FEDERAL TAX LAW OF AN INVESTMENT IN THE FUND. IT IS NOT A SUBSTITUTE FOR
PERSONAL TAX ADVICE. YOU MAY ALSO BE SUBJECT TO STATE AND LOCAL TAXATION ON
FUND DISTRIBUTIONS AND SALES OF SHARES. CONSULT YOUR PERSONAL TAX ADVISER ABOUT
THE POTENTIAL TAX CONSEQUENCES OF AN INVESTMENT IN SHARES OF THE FUND UNDER ALL
APPLICABLE TAX LAWS.
CREATIONS AND REDEMPTIONS. The shares that trade in the secondary market are
"created" at NAV by market makers, large investors and institutions only in
block-size Creation Units of __ shares or multiples thereof. Each "creator" or
"Authorized Participant" enters into an authorized participant agreement with
the Fund's distributor, SEI Investments Distribution Co. (the "Distributor"). A
creation transaction, which is subject to acceptance by the transfer agent,
takes place when an Authorized Participant deposits into the Fund a portfolio
of securities approximating the holdings of the Fund and a specified amount of
cash in exchange for a specified number of Creation Units. To the extent
practicable, the composition of such portfolio generally corresponds PRO RATA
to the holdings of the Fund.
Similarly, shares can be redeemed only in Creation Units, generally in-kind for
a portfolio of securities held by the Fund and a specified amount of cash.
EXCEPT WHEN AGGREGATED IN CREATION UNITS, SHARES ARE NOT REDEEMABLE BY THE
FUND. The prices at which creations and redemptions occur are based on the next
calculation of NAV after an order is received in a form described in the
authorized participant agreement.
The Fund intends to comply with the U.S. federal securities laws in accepting
securities for deposits and satisfying redemptions with redemption securities,
including that the securities accepted for deposits and the securities used to
satisfy redemption requests will be sold in transactions that would be exempt
from registration under the 1933 Act. Further, an Authorized Participant that
is not a "qualified institutional buyer," as such term is defined under Rule
144A of the 1933 Act, will not be able to receive Fund securities that are
restricted securities eligible for resale under Rule 144A.
Creations and redemptions must be made through a firm that is either a member
of the Continuous Net Settlement System of the National Securities Clearing
Corporation or a DTC participant and has executed an agreement with the
Distributor with respect to creations and redemptions of Creation Unit
aggregations. Information about the procedures regarding creation and
redemption of Creation Units (including the cut-off times for receipt of
creation and redemption orders) is included in the SAI.
Because new shares may be created and issued on an ongoing basis, at any point
during the life of the Fund a "distribution," as such term is used in the 1933
Act, may be occurring. Broker-dealers and other persons are cautioned that some
activities on their part may, depending on the circumstances, result in their
being deemed participants in a distribution in a manner that could render them
statutory underwriters and subject to the prospectus delivery and liability
provisions of the 1933 Act. Any determination of whether one is an underwriter
must take into account all the relevant facts and circumstances of each
particular case.
11
Broker-dealers should also note that dealers who are not "underwriters" but are
participating in a distribution (as contrasted to ordinary secondary
transactions), and thus dealing with shares that are part of an "unsold
allotment" within the meaning of Section 4(3)(C) of the 1933 Act, would be
unable to take advantage of the prospectus delivery exemption provided by
Section 4(3) of the 1933 Act. For delivery of prospectuses to exchange members,
the prospectus delivery mechanism of Rule 153 under the 1933 Act is available
only with respect to transactions on a national securities exchange.
TRANSACTION FEES. The Fund imposes standard creation and redemption transaction
fees to offset transfer and other transaction costs associated with the
issuance and redemption of Creation Units. Purchasers and redeemers up to the
maximum amount shown below of Creation Units for cash are required to pay an
additional variable charge (up to the maximum amount shown below) to compensate
for brokerage and market impact expenses. The standard creation and redemption
transaction fees are set forth below. The standard creation transaction fee is
charged to each purchaser on the day such purchaser creates a Creation Unit.
The fee is a single charge regardless of the number of Creation Units purchased
by an investor on the same day. BGFA may, from time to time, at its own
expense, compensate purchasers of Creation Units who have purchased substantial
amounts of Creation Units and other financial institutions for administrative
or marketing services. Similarly, the standard redemption transaction fee is a
single charge regardless of the number of Creation Units redeemed on the same
day. The standard creation and redemption transaction fees for creations and
redemptions through DTC for cash (when cash creations and redemptions are
available or specified) are also subject to an additional variable charge up to
the maximum amount shown below under "Maximum Additional Variable Charge for
Creation/Redemption Transaction Fee." In addition, purchasers of shares in
Creation Units are responsible for payment of the costs of transferring
securities to the Fund and redeemers of shares in Creation Units are
responsible for the costs of transferring securities from the Fund. Investors
who use the services of a broker or other such intermediary may pay fees for
such services. The following table also shows, as of _________, the approximate
value of one Creation Unit, including standard and maximum additional creation
and redemption transaction fees:
MAXIMUM
ADDITIONAL
VARIABLE
CHARGE
APPROXIMATE STANDARD FOR CASH
VALUE OF CREATION CREATION/REDEMPTION CREATION/REDEMPTION
CREATION UNIT UNIT SIZE TRANSACTION FEE TRANSACTION FEE
--------------- ----------- --------------------- --------------------
$____ ____ $_____ *
*The maximum additional variable charge for cash purchases will be a
percentage of the value of the Deposit Securities, which will not exceed
___% and the maximum additional variable charge for cash redemptions will
be a percentage of the value of the Deposit Securities, which not exceed
___%.
HOUSEHOLDING. Householding is an option available to certain Fund investors.
Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be
delivered to investors who share the same address, even if their accounts are
registered under different names. Please contact your broker-dealer if you are
interested in enrolling in householding and receiving a single copy of
prospectuses and other shareholder documents, or if you are currently enrolled
in householding and wish to change your householding status.
Distribution
The Distributor distributes Creation Units for the Fund on an agency basis. The
Distributor does not maintain a secondary market in shares of the Fund. The
Distributor has no role in determining the policies of the Fund or the
securities that are purchased or sold by the Fund. The Distributor's principal
address is One Freedom Valley Drive, Oaks, PA 19456.
Financial Highlights
As of the date of this Prospectus, the Fund has been in operation for less than
one full calendar year and therefore does not report its financial highlights.
12
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Index Provider
MSCI is a leading provider of global indexes and benchmark related products and
services to investors worldwide. Morgan Stanley, a global financial services
firm and a market leader in securities, asset management and credit services,
is the majority shareholder of MSCI and The Capital Group Companies, Inc., a
global investment management group, is the minority shareholder. MSCI is not
affiliated with the Company, BGI, BGFA, State Street, the Distributor or any of
their respective affiliates.
BGI has entered into a license agreement with the Index Provider to use the
Underlying Index. BGI is sub-licensing rights in the Underlying Index to the
Company at no charge.
Disclaimers
THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY MSCI. MSCI MAKES NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THE SHARES OF
THE FUND OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN
SECURITIES GENERALLY OR IN THE FUND PARTICULARLY OR THE ABILITY OF THE
UNDERLYING INDEX TO TRACK GENERAL STOCK MARKET PERFORMANCE. MSCI'S ONLY
RELATIONSHIP TO THE FUND, BGI AND BGFA IS THE LICENSING OF CERTAIN TRADEMARKS
AND TRADE NAMES OF MSCI AND OF THE UNDERLYING INDEX, WHICH IS DETERMINED,
COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD TO THE COMPANY, BGI, BGFA OR THE
FUND. MSCI HAS NO OBLIGATION TO TAKE THE NEEDS OF THE COMPANY, BGI, BGFA OR THE
OWNERS OF SHARES OF THE FUND INTO CONSIDERATION IN DETERMINING, COMPOSING OR
CALCULATING THE UNDERLYING INDEX. MSCI IS NOT RESPONSIBLE FOR, AND HAS NOT
PARTICIPATED IN, THE DETERMINATION OF THE PRICES AND AMOUNT OF SHARES OF THE
FUND OR THE TIMING OF THE ISSUANCE OR SALE OF SUCH SHARES OR IN THE
DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH SHARES OF THE FUND ARE TO
BE CONVERTED INTO CASH. MSCI HAS NO OBLIGATION OR LIABILITY IN CONNECTION WITH
THE ADMINISTRATION, MARKETING OR TRADING OF THE FUND. MSCI DOES NOT GUARANTEE
THE ACCURACY OR THE COMPLETENESS OF THE UNDERLYING INDEX OR ANY DATA INCLUDED
THEREIN AND MSCI SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS OR
INTERRUPTIONS THEREIN.
MSCI MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY
BGI, BGFA, OWNERS OF SHARES OF THE FUND OR ANY OTHER PERSON OR ENTITY FROM THE
USE OF THE UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. MSCI MAKES NO EXPRESS
OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE UNDERLYING INDEX OR ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
MSCI HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS) RESULTING FROM THE USE OF THE UNDERLYING INDEX
OR ANY DATA INCLUDED THEREIN EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
SHARES OF THE FUND ARE NOT SPONSORED, ENDORSED OR PROMOTED BY [LISTING
EXCHANGE]. [LISTING EXCHANGE] MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, TO THE OWNERS OF THE SHARES OF THE FUND OR ANY MEMBER OF THE PUBLIC
REGARDING THE ABILITY OF THE FUND TO TRACK THE TOTAL RETURN PERFORMANCE OF THE
UNDERLYING INDEX OR THE ABILITY OF THE UNDERLYING INDEX IDENTIFIED HEREIN TO
TRACK STOCK MARKET PERFORMANCE. [LISTING EXCHANGE]IS NOT RESPONSIBLE FOR, NOR
HAS IT PARTICIPATED IN, THE DETERMINATION OF THE COMPILATION OR THE CALCULATION
OF THE UNDERLYING INDEX, NOR IN THE DETERMINATION OF THE TIMING OF, PRICES OF
OR QUANTITIES OF THE SHARES OF THE FUND TO BE ISSUED, NOR IN THE DETERMINATION
OR CALCULATION OF THE EQUATION BY WHICH THE SHARES ARE REDEEMABLE. [LISTING
EXCHANGE] HAS NO OBLIGATION OR LIABILITY TO OWNERS OF THE SHARES OF THE FUND IN
CONNECTION WITH THE ADMINISTRATION, MARKETING OR TRADING OF THE SHARES OF THE
FUND.
[LISTING EXCHANGE] DOES NOT GUARANTEE THE ACCURACY OR THE COMPLETENESS OF THE
UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. [LISTING EXCHANGE]MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE COMPANY, ON
BEHALF OF THE FUND AS LICENSEE, LICENSEE'S CUSTOMERS AND COUNTERPARTIES, OWNERS
OF THE SHARES OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF THE UNDERLYING
INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED AS
DESCRIBED HEREIN OR FOR ANY OTHER USE.
[LISTING EXCHANGE]MAKES NO EXPRESS OR IMPLIED WARRANTIES AND HEREBY EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
WITH RESPECT TO THE UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL [LISTING
13
EXCHANGE]HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE,
CONSEQUENTIAL OR ANY OTHER DAMAGES(LOST PROFITS) EVEN IF NOTIFIED OF THE
POSSIBILITY THEREOF.
BGFA DOES NOT GUARANTEE THE ACCURACY OR THE COMPLETENESS OF THE UNDERLYING
INDEX OR ANY DATA INCLUDED THEREIN AND BGFA SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN.
BGFA MAKES NO WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF SHARES OF THE FUND
OR TO ANY OTHER PERSON OR ENTITY, AS TO RESULTS TO BE OBTAINED BY THE FUND,
FROM THE USE OF THE UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. BGFA MAKES
NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL BGFA HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
DIRECT, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
14
[GRAPHIC APPEARS HERE]
Copies of the Prospectus, SAI and other information can be found on our website
at www.iShares.com. For more information about the Fund, you may request a copy
of the SAI. The SAI provides detailed information about the Fund and is
incorporated by reference into this Prospectus. This means that the SAI, for
legal purposes, is a part of this Prospectus.
If you have any questions about the Company or shares of the Fund or you wish
to obtain the SAI free of charge, please:
Call: 1-800-iShares
(toll free) 1-800-474-2737
Monday through Friday
8:30 a.m. to 6:30 p.m. (Eastern Time)
E-mail: iSharesETFs@barclaysglobal.com
Write: c/o SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456
Information about the Fund (including the SAI) can be reviewed and copied at
the SEC's Public Reference Room in Washington, D.C., and information on the
operation of the Public Reference Room may be obtained by calling the SEC at
1-202-551-8090. Reports and other information about the Fund are available on
the EDGAR Database on the SEC's website at www.sec.gov, and copies of this
information may be obtained, after paying a duplicating fee, by electronic
request at the following e-mail address: publicinfo@sec.gov, or by writing to
the SEC's Public Reference Section, Washington, D.C. 20549-0102.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
ABOUT THE FUND AND ITS SHARES NOT CONTAINED IN THIS PROSPECTUS AND YOU SHOULD
NOT RELY ON ANY OTHER INFORMATION. READ AND KEEP THE PROSPECTUS FOR FUTURE
REFERENCE.
Investment Company Act File No.: 811-09729
For more information visit our website
or call 1-800-iShares (1-800-474-2737)
WWW.ISHARES.COM
BGI-F-___-_____
[GRAPHIC APPEARS HERE]
[GRAPHIC APPEARS HERE]
The information in this Statement of Additional Information is not complete and
may be changed. A registration statement relating to these securities has been
filed with the Securities and Exchange Commission. The securities described
herein may not be sold until the registration statement becomes effective. This
Statement of Additional Information is not an offer to sell or the solicitation
of an offer to buy securities and is not soliciting an offer to buy these
securities in any state in which the offer, solicitation or sale would be
unlawful.
iShares(R)
Statement of Additional Information
Dated ______, 2008
This Statement of Additional Information ("SAI") is not a prospectus. It should
be read in conjunction with the current prospectus ("Prospectus") for the
following fund of iShares, Inc. (the "Company"), as such Prospectus may be
revised or supplemented from time to time:
iShares MSCI Emerging Markets Eastern Europe Index Fund (the "Fund").
The Prospectus for the Fund is dated ______, 2008. Capitalized terms used
herein that are not defined have the same meaning as in the Prospectus, unless
otherwise noted. A copy of the Prospectus may be obtained without charge by
writing to the Company's distributor, SEI Investments Distribution Co. (the
"Distributor"), at One Freedom Valley Drive, Oaks, PA 19456, calling
1-800-iShares (1-800-474-2737) or visiting www.iShares.com.
iShares(R) is a registered trademark of Barclays Global Investors, N.A. ("BGI").
Page
----
General Description of the Company and the Fund........................... 1
Exchange Listing and Trading.............................................. 1
Investment Strategies and Risks........................................... 2
Lack of Diversification of the Fund.................................... 2
Lending Portfolio Securities........................................... 2
Repurchase Agreements.................................................. 3
Reverse Repurchase Agreements.......................................... 3
Currency Transactions.................................................. 3
Foreign Securities..................................................... 3
Short-Term Instruments and Temporary Investments....................... 4
Securities of Investment Companies..................................... 4
Illiquid Securities.................................................... 4
Futures and Options.................................................... 4
Options on Futures Contracts........................................... 5
Swap Agreements........................................................ 5
Tracking Stocks........................................................ 5
Future Developments.................................................... 5
General Considerations and Risks.......................................... 6
Risks of Derivatives................................................... 6
Risks of Equity Securities............................................. 6
Risks of Futures and Options Transactions.............................. 6
Risks of Swap Agreements............................................... 7
Risks of Investing in Non-U.S. Equity Securities....................... 7
Dividend Risk.......................................................... 7
Proxy Voting Policy....................................................... 7
Portfolio Holdings Information............................................ 8
Construction and Maintenance of the Underlying Index...................... 9
The MSCI Indexes.......................................................... 9
MSCI Standard Indexes.................................................. 9
Weighting.............................................................. 9
Regional Weights....................................................... 9
Selection Criteria..................................................... 9
(i) Defining the Equity Universe................................... 9
(ii) Adjusting the Total Market Capitalization of Securities
in the Equity Universe for Free Float............................ 10
(iii) Classifying Securities under the GICS........................ 10
(iv) Selecting Securities for the Index Inclusion.................. 10
Free Float............................................................. 10
Additions and Deletions................................................ 10
Price and Exchange Rates.................................................. 10
Prices................................................................. 10
Exchange Rates......................................................... 10
Changes to the Indexes................................................. 10
MSCI Emerging Markets Eastern Europe Index................................ 11
Index Description...................................................... 11
Investment Limitations.................................................... 11
Continuous Offering....................................................... 12
Management................................................................ 12
i
Page
----
Directors and Officers................................................. 12
Committees of the Board of Directors................................... 17
Remuneration of Directors.............................................. 17
Control Persons and Principal Holder of Securities..................... 18
Investment Advisory, Administrative and Distribution Services............. 18
Investment Adviser..................................................... 18
Portfolio Managers..................................................... 19
Codes of Ethics........................................................ 20
Administrator, Custodian and Transfer Agent............................ 20
Distributor............................................................ 21
Index Provider......................................................... 21
Brokerage Transactions.................................................... 21
Additional Information Concerning the Company............................. 22
Capital Stock.......................................................... 22
Termination of the Company or the Fund................................. 22
DTC as Securities Depository for the Shares of the Fund................ 23
Purchase and Issuance of Creation Units................................... 23
General................................................................ 23
Fund Deposit........................................................... 24
Role of the Authorized Participant..................................... 24
Purchase Order......................................................... 24
Acceptance of Purchase Order........................................... 25
Cash Purchase Method................................................... 26
Issuance of a Creation Unit............................................ 25
Purchase Transaction Fee............................................... 26
Redemption of Creation Units........................................... 26
Taxes..................................................................... 28
Regulated Investment Company Qualification............................. 28
Taxation of RICs....................................................... 29
Excise Tax............................................................. 29
Net Capital Loss Carryforwards......................................... 29
Taxation of Certain Derivatives........................................ 29
Taxation of U.S. Shareholders.......................................... 30
Back-Up Withholding.................................................... 31
Sections 351 and 362................................................... 31
Qualified Dividend Income.............................................. 31
Corporate Dividends Received Deduction................................. 32
Excess Inclusion Income................................................ 32
Foreign Investments.................................................... 32
Passive Foreign Investment Companies................................... 32
Sales of Shares........................................................ 33
Other Taxes............................................................ 33
Taxation of Non-U.S. Shareholders...................................... 33
Reporting.............................................................. 33
Financial Statements...................................................... 34
Miscellaneous Information................................................. 34
Counsel................................................................ 34
Independent Registered Public Accounting Firm.......................... 34
Shareholder Communications to the Board................................ 34
Appendix A................................................................ 35
ii
General Description of the Company and the Fund
The Company currently consists of more than ______ investment series or
portfolios. The Company was organized as a Maryland corporation on August 31,
1994 and is authorized to have multiple series or portfolios. The Company is an
open-end management investment company registered with the Securities and
Exchange Commission (the "SEC") under the Investment Company Act of 1940, as
amended (the "1940 Act"). The offering of the Company's shares is registered
under the Securities Act of 1933, as amended (the "1933 Act"). This SAI relates
solely to the Fund.
The investment objective of the Fund is to provide investment results that
correspond generally to the price and yield performance, before fees and
expenses, of a specified benchmark index (the "Underlying Index") representing
publicly-traded equity securities of companies in a particular broad market,
market segment, market sector or group of industries. The Fund is managed by
Barclays Global Fund Advisors ("BGFA" or the "Investment Adviser"), a
subsidiary of BGI.
The Fund offers and issues shares at their net asset value per share ("NAV")
only in aggregations of a specified number of shares ("Creation Unit"),
generally in exchange for a basket of equity securities included in its
Underlying Index (the "Deposit Securities"), together with the deposit of a
specified cash payment (the "Cash Component"). Shares of the Fund are listed
and traded on ______ (the "Listing Exchange"), a national securities exchange.
Shares trade in the secondary market and elsewhere at market prices that may be
at, above or below NAV. Shares are redeemable only in Creation Units and,
generally, in exchange for portfolio securities and a Cash Component. Creation
Units typically are a specified number of shares, generally ______ or multiples
thereof.
The Company reserves the right to offer a "cash" option for creations and
redemptions of shares. Shares may be issued in advance of receipt of Deposit
Securities subject to various conditions including a requirement to maintain
with the Company a cash deposit equal to at least 110%, which BGFA may change
from time to time, of the market value of the omitted Deposit Securities. See
the Purchase and Issuance of Creation Units section of this SAI. Transaction
fees for cash creations or redemptions may be higher than the transaction fees
associated with in-kind creations or redemptions. In all cases, conditions and
fees will be limited in accordance with the requirements of the SEC applicable
to management investment companies offering redeemable securities.
Exchange Listing and Trading
A discussion of exchange listing and trading matters associated with an
investment in the Fund is contained in the Shareholder Information section of
the Prospectus. The discussion below supplements, and should be read in
conjunction with, that section of the Prospectus.
Shares of the Fund are listed for trading and trade throughout the day on the
Listing Exchange and other secondary markets. Shares of the Fund may also be
listed on certain non-U.S. exchanges. There can be no assurance that the
requirements of the Listing Exchange necessary to maintain the listing of
shares of the Fund will continue to be met. The Listing Exchange may, but is
not required to, remove the shares of the Fund from listing if (i) following
the initial 12-month period beginning upon the commencement of trading of the
Fund shares, there are fewer than 50 beneficial owners of shares of the Fund
for 30 or more consecutive trading days, (ii) the value of the Underlying Index
on which the Fund is based is no longer calculated or available, (iii) the
"indicative optimized portfolio value" ("IOPV") of the Fund is no longer
calculated or available or (iv) any other event shall occur or condition shall
exist that, in the opinion of the Listing Exchange, makes further dealings on
the Listing Exchange inadvisable. The Listing Exchange will remove the shares
of the Fund from listing and trading upon termination of the Fund.
As in the case of other publicly-traded securities, when you buy or sell shares
through a broker you will incur a brokerage commission determined by that
broker.
In order to provide additional information regarding the indicative value of
shares of the Fund, the Listing Exchange or a market data vendor disseminates
every 15 seconds through the facilities of the Consolidated Tape Association or
other widely disseminated means an updated IOPV for the Fund as calculated by
an information provider or market data vendor. The Company is not involved in
or responsible for any aspect of the calculation or dissemination of the IOPVs
and makes no representation or warranty as to the accuracy of the IOPVs.
An IOPV has an equity securities component and a Cash Component. The equity
securities values included in an IOPV are the values of the Deposit Securities
for the Fund. While the IOPV reflects the current market value of the Deposit
Securities required to be deposited in connection with the purchase of a
Creation Unit, it does not necessarily reflect the precise composition of the
current portfolio of securities held by the Fund at a particular point in time
because the current portfolio of
1
the Fund may include securities that are not part of the current Deposit
Securities. Therefore, the Fund's IOPV disseminated during the Listing Exchange
trading hours should not be viewed as a real-time update of the Fund's NAV,
which is calculated only once a day.
The Cash Component included in an IOPV consists of estimated accrued dividend
and other income, less expenses. If applicable, each IOPV also reflects changes
in currency exchange rates between the U.S. dollar and the applicable local
currency.
The Company reserves the right to adjust the share prices of the Fund in the
future to maintain convenient trading ranges for investors. Any adjustments
would be accomplished through stock splits or reverse stock splits, which would
have no effect on the net assets of the Fund.
Investment Strategies and Risks
The Fund seeks to achieve its objective by investing primarily in securities
issued by companies that comprise the Underlying Index and through transactions
that provide substantially similar exposure to securities in the Underlying
Index. The Fund operates as an index fund and will not be actively managed.
Adverse performance of a security in the Fund's portfolio will ordinarily not
result in the elimination of the security from the Fund's portfolio.
The Fund engages in representative sampling, which is investing in a sample of
securities selected by BGFA to have a collective investment profile similar to
that of the Underlying Index. Securities selected have aggregate investment
characteristics (based on market capitalization and industry weightings),
fundamental characteristics (such as return variability, earnings valuation and
yield) and liquidity measures similar to those of the Underlying Index. Funds
that use representative sampling generally do not hold all of the securities
that are included in the relevant underlying index.
Lack of Diversification of the Fund. The Fund is non-diversified. A
"non-diversified" classification means that the Fund is not limited by the 1940
Act with regard to the percentage of its assets that may be invested in the
securities of a single issuer. The securities of a particular issuer (or
securities of issuers in particular industries) may dominate the Underlying
Index and, consequently, the Fund's investment portfolio. This may adversely
affect the Fund's performance or subject the Fund's shares to greater price
volatility than that experienced by more diversified investment companies.
The Fund intends to maintain the required level of diversification and
otherwise conduct its operations so as to qualify as a "Regulated Investment
Company" ("RIC") for purposes of the U.S. Internal Revenue Code of 1986, as
amended (the "IRC"), and to relieve the Fund of any liability for U.S. federal
income tax to the extent that its earnings are distributed to shareholders,
provided that the Fund satisfies a minimum distribution requirement. Compliance
with the diversification requirements of the IRC may limit the investment
flexibility of the Fund and may make it less likely that the Fund will meet its
investment objective.
Lending Portfolio Securities. The Fund may lend portfolio securities to certain
creditworthy borrowers, including borrowers affiliated with BGFA. The borrowers
provide collateral that is maintained in an amount at least equal to the
current market value of the securities loans. No securities loan shall be made
on behalf of the Fund if, as a result, the aggregate value of all securities
loans of the Fund exceeds one-third of the value of the Fund's total assets
(including the value of the collateral received). The Fund may terminate a loan
at any time and obtain the return of the securities loaned. The Fund receives
the value of any interest or cash or non-cash distributions paid on the loaned
securities.
With respect to loans that are collateralized by cash, the borrower will be
entitled to receive a fee based on the amount of cash collateral. The Fund is
compensated by the difference between the amount earned on the reinvestment of
cash collateral and the fee paid to the borrower. In the case of collateral
other than cash, the Fund is compensated by a fee paid by the borrower equal to
a percentage of the market value of the loaned securities. Any cash collateral
may be reinvested in certain short-term instruments either directly on behalf
of the Fund or through one or more joint accounts or money market funds,
including those managed by BGFA. Securities lending involves exposure to
certain risks, including operational risk (i.e., the risk of losses resulting
from problems in the settlement and accounting process), "gap" risk (i.e., the
risk of a mismatch between the return on cash collateral reinvestments and the
fees the Fund has agreed to pay a borrower), and credit, legal, counterparty
and market risk. In the event a borrower does not return the Fund's securities
as agreed, the Fund may experience losses if the proceeds received from
liquidating the collateral does not at least equal the value of the loaned
security at the time the collateral is liquidated plus the transaction costs
incurred in purchasing replacement securities.
The Fund may pay a portion of the interest or fees earned from securities
lending to a borrower, as described above, and to a securities lending agent
who administers the lending program in accordance with guidelines approved by
the Company's Board of Directors (the "Board" or the "Directors"). BGI acts as
securities lending agent for the Fund subject to the overall supervision of
BGFA. BGI receives a portion of the revenues generated by securities lending
activities as compensation for its services.
2
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain counterparties. Repurchase agreements involve an agreement to purchase
financial instruments and to resell those instruments back to the same
counterparty at an agreed-upon date and price, which price reflects a rate of
interest unrelated to a coupon rate or maturity of the purchased instruments.
The value of the instruments purchased may be more or less than the price at
which the counterparty has agreed to repurchase them. As protection against the
risk that the counterparty will not fulfill its obligation, the instruments are
marked to market daily and are maintained at a value at least equal to the sale
price plus the accrued incremental amount. Delays or losses could result if the
counterparty to the repurchase agreement defaults or becomes insolvent. The
Fund will engage in repurchase agreements only with counterparties whose
creditworthiness has been reviewed and found satisfactory by BGFA.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements, which involve the sale of securities with an agreement to
repurchase the securities at an agreed-upon price, date and interest payment
and have the characteristics of borrowing. Generally the effect of such
transactions is that the Fund can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while in many cases the Fund is able to keep some of the interest
income associated with those securities. Such transactions are advantageous
only if the Fund has an opportunity to earn a rate of interest on the cash
derived from these transactions that is greater than the interest cost of
obtaining the same amount of cash. Opportunities to realize earnings from the
use of the proceeds equal to or greater than the interest required to be paid
may not always be available and the Fund intends to use the reverse repurchase
technique only when BGFA believes it will be advantageous to the Fund. The use
of reverse repurchase agreements may exaggerate any interim increase or
decrease in the value of the Fund's assets. The Fund's exposure to reverse
repurchase agreements will be covered by securities having a value equal to or
greater than such commitments. The Fund maintains liquid assets in connection
with reverse repurchase agreements. Under the 1940 Act, reverse repurchase
agreements are considered borrowings.
Currency Transactions. The Fund does not expect to engage in currency
transactions for the purpose of hedging against declines in the value of the
Fund's assets that are denominated in a foreign currency. The Fund may enter
into foreign currency forward and foreign currency futures contracts to
facilitate local securities settlements or to protect against currency exposure
in connection with its distributions to shareholders, but may not enter into
such contracts for speculative purposes.
A forward currency contract is an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency futures contract is a contract involving an obligation to
deliver or acquire the specified amount of a specific currency, at a specified
price and at a specified future time. Futures contracts may be settled on a net
cash payment basis rather than by the sale and delivery of the underlying
currency.
Foreign exchange transactions involve a significant degree of risk and the
markets in which foreign exchange transactions are effected are highly
volatile, highly specialized and highly technical. Significant changes,
including changes in liquidity and prices, can occur in such markets within
very short periods of time, often within minutes. Foreign exchange trading
risks include, but are not limited to, exchange rate risk, counterparty risk,
maturity gap, interest rate risk and potential interference by foreign
governments through regulation of local exchange markets, foreign investment or
particular transactions in foreign currency. If BGFA utilizes foreign exchange
transactions at an inappropriate time or judges market conditions, trends or
correlations incorrectly, foreign exchange transactions may not serve their
intended purpose of improving the correlation of the Fund's return with the
performance of the Underlying Index and may lower the Fund's return. The Fund
could experience losses if the value of its currency forwards, options and
futures positions were poorly correlated with its other investments or if it
could not close out its positions because of an illiquid market. In addition,
the Fund could incur transaction costs, including trading commissions, in
connection with certain foreign currency transactions.
Foreign Securities. The Fund intends to purchase publicly-traded common stocks
of foreign corporations. To the extent the Fund invests in stocks of foreign
corporations, the Fund's investment in such stocks may be in the form of
American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and
European Depositary Receipts ("EDRs") (collectively, "Depositary Receipts").
Depositary Receipts are receipts, typically issued by a bank or trust company,
which evidence ownership of underlying securities issued by a foreign
corporation. For ADRs, the depository is typically a U.S. financial institution
and the underlying securities are issued by a foreign issuer. For other
Depositary Receipts, the depository may be a foreign or a U.S. entity and the
underlying securities may be issued by a foreign or a U.S. issuer. Depositary
Receipts are not necessarily denominated in the same currency as their
underlying securities. Generally ADRs, issued in registered form, are designed
for use in the U.S. securities markets and EDRs, issued in bearer form, are
designed for use in European securities markets. GDRs are tradable both in the
United States and in Europe and are designed for use throughout
3
the world. The Fund will not invest in any unlisted Depositary Receipt or any
Depositary Receipt that BGFA deems, at the time of purchase, to be illiquid or
for which pricing information is not readily available. In general Depositary
Receipts must be sponsored, however a Fund may invest in unsponsored Depositary
Receipts under certain limited circumstances. The issuers of unsponsored
Depositary Receipts are not obligated to disclose material information in the
United States. Therefore there may be less information available regarding such
issuers and there may be no correlation between available information and the
market value of the Depositary Receipts.
Investing in the securities of foreign companies involves special risks and
considerations not typically associated with investing in U.S. companies. These
include differences in accounting, auditing and financial reporting standards,
the possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations, political instability which could
affect U.S. investments in foreign countries, and potential restrictions on the
flow of international capital. Foreign companies may be subject to less
governmental regulation than U.S. companies. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payment positions.
Short-Term Instruments and Temporary Investments. The Fund may invest in
short-term instruments, including money market instruments, on an ongoing basis
to provide liquidity or for other reasons. Money market instruments are
generally short-term investments that may include but are not limited to:
(i) shares of money market funds (including those advised by BGFA);
(ii) obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities (including government-sponsored enterprises);
(iii) negotiable certificates of deposit ("CDs"), bankers' acceptances, fixed
time deposits and other obligations of U.S. and foreign banks (including
foreign branches) and similar institutions; (iv) commercial paper rated at the
date of purchase "Prime-1" by Moody's(R) Investor's Service, Inc. ("Moody's")
or "A-1" by Standard & Poor's(R) Rating Service, a division of The McGraw Hill
Companies, Inc. ("S&P(R)"), or if unrated, of comparable quality as determined
by BGFA; (v) non-convertible corporate debt securities (e.g., bonds and
debentures) with remaining maturities at the date of purchase of not more than
397 days and that satisfy the rating requirements set forth in Rule 2a-7 under
the 1940 Act; (vi) repurchase agreements and (vii) short-term U.S.
dollar-denominated obligations of foreign banks (including U.S. branches) that,
in the opinion of BGFA, are of comparable quality to obligations of U.S. banks
which may be purchased by the Fund. Any of these instruments may be purchased
on a current or forward-settled basis. Time deposits are non-negotiable
deposits maintained in banking institutions for specified periods of time at
stated interest rates. Bankers' acceptances are time drafts drawn on commercial
banks by borrowers, usually in connection with international transactions.
Securities of Investment Companies. The Fund may invest in the securities of
other investment companies (including money market funds) to the extent allowed
by law. Pursuant to the 1940 Act, the Fund's investment in investment companies
is limited to, subject to certain exceptions: (i) 3% of the total outstanding
voting stock of any one investment company; (ii) 5% of the Fund's total assets
with respect to any one investment company and (iii) 10% of the Fund's total
assets with respect to investment companies in the aggregate. To the extent
allowed by law or regulation, the Fund may invest its assets in the securities
of investment companies that are money market funds, including those advised by
BGFA or otherwise affiliated with BGFA, in excess of the limits discussed
above. Other investment companies in which the Fund invests can be expected to
incur fees and expenses for operations, such as investment advisory and
administration fees, that would be in addition to those incurred by the Fund.
Illiquid Securities. The Fund may invest up to an aggregate amount of 15% of
its net assets in illiquid securities. Illiquid securities include securities
subject to contractual or other restrictions on resale and other instruments
that lack readily available markets.
Futures and Options. The Fund may enter into U.S. futures contracts, options
and options on futures contracts. These futures contracts and options will be
used to simulate investment in the Underlying Index, to facilitate trading or
to reduce transaction costs. The Fund will enter into futures contracts and
options only on futures contracts that are traded on a U.S. or foreign
exchange. The Fund will not use futures or options for speculative purposes.
The Fund intends to use futures and options in accordance with Rule 4.5 of the
Commodity Exchange Act ("CEA"). The Company, on behalf of the Fund, has filed a
notice of eligibility for exclusion from the definition of the term "commodity
pool operator" in accordance with Rule 4.5 so that the Fund is not subject to
registration or regulation as a commodity pool operator under the CEA.
A call option gives a holder the right to purchase a specific security at a
specified price ("exercise price") within a specified period of time. A put
option gives a holder the right to sell a specific security at a specified
exercise price within a specified period of time. The initial purchaser of a
call option pays the "writer" a premium, which is paid at the time of purchase
and is retained by the writer whether or not such option is exercised. The Fund
may purchase put options to hedge its portfolio against the risk of a decline
in the market value of securities held and may purchase call options to hedge
against an increase in the price of securities it is committed to purchase. The
Fund may write put and call options along with a long position in options to
increase its ability to hedge against a change in the market value of the
securities it holds or is committed to purchase. Investments in futures
contracts and other investments that contain leverage may require the Fund to
maintain
4
liquid assets. Generally, the Fund maintains an amount of liquid assets equal
to its obligations relative to the position involved, adjusted daily on a
marked-to-market basis. With respect to futures contracts that are
contractually required to "cash-settle," the Fund maintains liquid assets in an
amount at least equal to the Fund's daily marked-to-market obligation (i.e.,
the Fund's daily net liability, if any), rather than the contracts' notional
value (i.e., the value of the underlying asset). By maintaining assets equal to
its net obligation under cash-settled futures contracts, the Fund may employ
leverage to a greater extent than if the Fund set aside assets equal to the
futures contracts' full notional value. The Fund bases its asset maintenance
policies on methods permitted by the staff of the SEC and may modify these
policies in the future to comply with any changes in the guidance articulated
from time to time by the SEC or its staff.
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific instrument or index at a
specified future time and at a specified price. Stock index contracts are based
on indexes that reflect the market value of common stock of the firms included
in the indexes. The Fund may enter into futures contracts to purchase stock
indexes when BGFA anticipates purchasing the underlying securities and believes
prices will rise before the purchase will be made. To the extent required by
law, liquid assets committed to futures contracts will be maintained.
Options on Futures Contracts. An option on a futures contract, as contrasted
with the direct investment in such a contract, gives the purchaser the right,
in return for the premium paid, to assume a position in the underlying futures
contract at a specified exercise price at any time prior to the expiration date
of the option. Upon exercise of an option, the delivery of the futures position
by the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin account that
represents the amount by which the market price of the futures contract exceeds
(in the case of a call) or is less than (in the case of a put) the exercise
price of the option on the futures contract. The potential for loss related to
the purchase of an option on a futures contract is limited to the premium paid
for the option plus transaction costs. Because the value of the option is fixed
at the point of sale, there are no daily cash payments by the purchaser to
reflect changes in the value of the underlying contract; however, the value of
the option changes daily and that change would be reflected in the NAV of the
Fund. The potential for loss related to writing call options is unlimited.
The Fund may purchase and write put and call options on futures contracts that
are traded on a U.S. exchange as a hedge against changes in value of its
portfolio securities, or in anticipation of the purchase of securities, and may
enter into closing transactions with respect to such options to terminate
existing positions. There is no guarantee that such closing transactions can be
effected.
Upon entering into a futures contract, the Fund will be required to deposit
with the broker an amount of cash or cash equivalents known as "initial
margin," which is in the nature of a performance bond or good faith deposit on
the contract and is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Subsequent
payments, known as "variation margin," to and from the broker will be made
daily as the price of the index underlying the futures contract fluctuates,
making the long and short positions in the futures contract more or less
valuable, a process known as "marking-to-market." At any time prior to the
expiration of a futures contract, the Fund may elect to close the position by
taking an opposite position, which will operate to terminate the Fund's
existing position in the contract.
Swap Agreements. Swap agreements are contracts between parties in which one
party agrees to make periodic payments to the other party based on the change
in market value or level of a specified rate, index or asset. In return, the
other party agrees to make periodic payments to the first party based on the
return of a different specified rate, index or asset. Swap agreements will
usually be performed on a net basis, with the Fund receiving or paying only the
net amount of the two payments. The net amount of the excess, if any, of the
Fund's obligations over its entitlements with respect to each swap is accrued
on a daily basis and an amount of liquid assets having an aggregate value at
least equal to the accrued excess will be maintained by the Fund.
The use of interest-rate and index swaps is a highly specialized activity that
involves investment techniques and risks different from those associated with
ordinary portfolio security transactions. These transactions generally do not
involve the delivery of securities or other underlying assets or principal.
Tracking Stocks. A tracking stock is a separate class of common stock whose
value is linked to a specific business unit or operating division within a
larger company and which is designed to "track" the performance of such
business unit or division. The tracking stock may pay dividends to shareholders
independent of the parent company. The parent company, rather than the business
unit or division, generally is the issuer of tracking stock. However, holders
of the tracking stock may not have the same rights as holders of the company's
common stock.
Future Developments. The Board may, in the future, authorize the Fund to invest
in securities contracts and investments other than those listed in this SAI and
in the Prospectus, provided they are consistent with the Fund's investment
objective and do not violate any investment restrictions or policies.
5
General Considerations and Risks
A discussion of some of the risks associated with an investment in the Fund is
contained in the Prospectus.
An investment in the Fund should be made with an understanding that the value
of the Fund's portfolio securities may fluctuate in accordance with changes in
the financial condition of the issuers of the portfolio securities, the value
of stocks in general and other factors that affect the market.
Risks of Derivatives. A derivative is a financial contract, the value of which
depends on, or is derived from, the value of an underlying asset such as a
security or an index. The Fund may invest in stock index futures contracts and
other derivatives. Compared to conventional securities, derivatives can be more
sensitive to changes in interest rates or to sudden fluctuations in market
prices and thus the Fund's losses may be greater if it invests in derivatives
than if it invests only in conventional securities.
Risks of Equity Securities. An investment in a Fund should be made with an
understanding that the value of the Fund's portfolio securities may fluctuate
in accordance with changes in the financial condition of the issuers of the
portfolio securities, the value of preferred or common stocks in general and
other factors that affect securities markets. An investment in a Fund should
also be made with an understanding of the risks inherent in an investment in
equity securities, including the risk that the financial condition of issuers
may become impaired or that the general condition of the stock market may
deteriorate (either of which may cause a decrease in the value of the portfolio
securities and thus in the value of shares of a Fund). Common stocks are
susceptible to general stock market fluctuations and to volatile increases and
decreases in value as market confidence and perceptions of their issuers
change. These investor perceptions are based on various and unpredictable
factors, including expectations regarding government, economic, monetary and
fiscal policies, inflation and interest rates, economic expansion or
contraction, and global or regional political, economic or banking crises.
Holders of common stocks incur more risks than holders of preferred stocks and
debt obligations because common stockholders generally have rights to receive
payments from stock issuers inferior to the rights of creditors or holders of
debt obligations or preferred stocks. Further, unlike debt securities, which
typically have a stated principal amount payable at maturity (whose value,
however, is subject to market fluctuations prior to maturity), or preferred
stocks, which typically have a liquidation preference and which may have stated
optional or mandatory redemption provisions, common stocks have neither a fixed
principal amount nor a maturity. Common stock values are subject to market
fluctuations as long as the common stock remains outstanding.
Risks of Futures and Options Transactions. There are several risks accompanying
the utilization of futures contracts and options on futures contracts. First, a
position in futures contracts and options on futures contracts may be closed
only on the exchange on which the contract was made (or a linked exchange).
While the Fund plans to utilize futures contracts only if an active market
exists for such contracts, there is no guarantee that a liquid market will
exist for the contract at a specified time. Furthermore, because, by
definition, futures contracts project price levels in the future and not
current levels of valuation, market circumstances may result in a discrepancy
between the price of the stock index future and the movement in the Underlying
Index. In the event of adverse price movements, the Fund would continue to be
required to make daily cash payments to maintain its required margin. In such
situations, if the Fund has insufficient cash, it may have to sell portfolio
securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, the Fund may be required to deliver the
instruments underlying the future contracts it has sold.
The risk of loss in trading futures contracts or uncovered call options in some
strategies (e.g., selling uncovered stock index futures contracts) is
potentially unlimited. The Fund does not plan to use futures and options
contracts in this way. The risk of a futures position may still be large as
traditionally measured due to the low margin deposits required. In many cases,
a relatively small price movement in a futures contract may result in immediate
and substantial loss or gain to the investor relative to the size of a required
margin deposit. The Fund, however, intends to utilize futures and options
contracts in a manner designed to limit their risk exposure to levels
comparable to a direct investment in the types of stocks in which they invest.
Utilization of futures and options on futures by the Fund involves the risk of
imperfect or even negative correlation to the Underlying Index if the index
underlying the futures contract differs from the Underlying Index. There is
also the risk of loss by the Fund of margin deposits in the event of bankruptcy
of a broker with whom the Fund has an open position in the futures contract or
option. The purchase of put or call options will be based upon predictions by
BGFA as to anticipated trends, which predictions could prove to be incorrect.
Because the futures market imposes less burdensome margin requirements than the
securities market, an increased amount of participation by speculators in the
futures market could result in price fluctuations. Certain financial futures
exchanges limit the amount of fluctuation permitted in futures contract prices
during a single trading day. The daily limit establishes the maximum amount by
which the price of a futures contract may vary either up or down from the
previous day's settlement price at the end of a trading session. Once the daily
limit has been reached in a particular type of contract, no trades may be
6
made on that day at a price beyond that limit. It is possible that futures
contract prices could move to the daily limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting the Fund to substantial losses. In the event
of adverse price movements, the Fund would be required to make daily cash
payments of variation margin.
Although the Fund intends to enter into futures contracts only if there is an
active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time.
Risks of Swap Agreements. The risk of loss with respect to swaps generally is
limited to the net amount of payments that the Fund is contractually obligated
to make. Swap agreements are subject to the risk that the swap counterparty
will default on its obligations. If such a default occurs, the Fund will have
contractual remedies pursuant to the agreements related to the transaction.
However, such remedies may be subject to bankruptcy and insolvency laws which
could affect the Fund's rights as a creditor (e.g., the Fund may not receive
the net amount of payments that it contractually is entitled to receive).
Risks of Investing in Non-U.S. Equity Securities. An investment in the Fund
involves risks similar to those of investing in broad-based portfolios of
equity securities traded on foreign exchanges. These risks include market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in stock prices. Investing in
securities issued by companies domiciled in countries other than the domicile
of the investor and denominated in currencies other than an investor's local
currency entails certain considerations and risks not typically encountered by
the investor in making investments in its home country and in that country's
currency. These considerations include favorable or unfavorable changes in
interest rates, currency exchange rates, exchange control regulations and the
costs that may be incurred in connection with conversions between various
currencies. Investing in the Fund also involves certain risks and
considerations not typically associated with investing in a fund whose
portfolio contains securities of U.S. issuers. These risks include generally
less liquid and less efficient securities markets; generally greater price
volatility; less publicly available information about issuers; the imposition
of withholding or other taxes; the imposition of restrictions on the
expatriation of funds or other assets of the Fund; higher transaction and
custody costs; delays and risks attendant in settlement procedures;
difficulties in enforcing contractual obligations; lower liquidity and
significantly smaller market capitalization; different accounting and
disclosure standards; lower levels of regulation of the securities markets;
more substantial government interference with the economy; higher rates of
inflation; greater social, economic and political uncertainty; the risk of
nationalization or expropriation of assets; and the risk of war.
Dividend Risk. There is no guarantee that the issuer of the stocks held by the
Fund will declare dividends in the future or that, if declared, they will
either remain at current levels or increase over time.
Proxy Voting Policy
The Company has adopted, as its proxy voting policies for the Fund, the proxy
voting guidelines of BGFA, the investment adviser to the Fund. The Company has
delegated to BGFA the responsibility for voting proxies on the portfolio
securities held by the Fund. The remainder of this section discusses the Fund's
proxy voting guidelines and BGFA's role in implementing such guidelines.
BGFA votes (or refrains from voting) proxies for the Fund in a manner that
BGFA, in the exercise of its independent business judgment, concludes is in the
best economic interests of the Fund. In some cases, BGFA may determine that it
is in the best economic interests of the Fund to refrain from exercising the
Fund's proxy voting rights (such as, for example, proxies or certain non-U.S.
securities that might impose costly or time-consuming in-person voting
requirements). With regard to the relationship between securities lending and
proxy voting, BGFA's approach is also driven by our clients' economic
interests. The evaluation of the economic desirability of recalling loans
involves balancing the revenue producing value of loans against the likely
economic value of casting votes. Based on our evaluation of this relationship,
we believe that the likely economic value of casting a vote generally is less
than the securities lending income, either because the votes will not have
significant economic consequences or because the outcome of the vote would not
be affected by BGFA recalling loaned securities in order to ensure they are
voted. Periodically, BGFA analyzes the process and benefits of voting proxies
for securities on loan, and will consider whether any modification of its proxy
voting policies or procedures are necessary in light of any regulatory changes.
BGFA will normally vote on specific proxy issues in accordance with its proxy
voting guidelines. BGFA's proxy voting guidelines provide detailed guidance as
to how to vote proxies on certain important or commonly raised issues. BGFA
may, in the exercise of its business judgment, conclude that the proxy voting
guidelines do not cover the specific matter upon which a proxy vote is
requested, or that an exception to the proxy voting guidelines would be in the
best economic interests of the Fund. BGFA votes (or refrains from voting)
proxies without regard to the relationship of the issuer of the proxy (or any
shareholder of such issuer) to the Fund, the Fund's affiliates (if any), BGFA
or BGFA's affiliates, or the Distributor or the Distributor's affiliates. When
voting proxies, BGFA attempts to encourage companies to
7
follow practices that enhance shareholder value and increase transparency and
allow the market to place a proper value on their assets. With respect to
certain specific issues:
. The Fund generally supports the board's nominees in the election of
directors and generally supports proposals that strengthen the
independence of boards of directors;
. The Fund generally does not support proposals on social issues that lack
a demonstrable economic benefit to the issuer and the Fund investing in
such issuer; and
. The Fund generally votes against anti-takeover proposals and proposals
that would create additional barriers or costs to corporate transactions
that are likely to deliver a premium to shareholders.
BGFA maintains institutional policies and procedures that are designed to
prevent any relationship between the issuer of the proxy (or any shareholder of
the issuer) and the Fund, the Fund's affiliates (if any), BGFA or BGFA's
affiliates (if any), or the Distributor or the Distributor's affiliates, from
having undue influence on BGFA's proxy voting activity. In certain instances,
BGFA may determine to engage an independent fiduciary to vote proxies as a
further safeguard against potential conflicts of interest or as otherwise
required by applicable law. The independent fiduciary may either vote such
proxies or provide BGFA with instructions as to how to vote such proxies. In
the latter case, BGFA votes the proxy in accordance with the independent
fiduciary's determination.
Information with respect to how BGFA voted proxies relating to the Fund's
portfolio securities during the 12-month period ended August 31 will be
available (i) without charge, upon request, by calling 1-800-iShares
(1-800-474-2737) or through the Fund's website at www.iShares.com and (ii) on
the SEC's website at www.sec.gov.
Portfolio Holdings Information
The Board has adopted a policy regarding the disclosure of the Fund's portfolio
holdings information that requires that such information be disclosed in a
manner that: (i) is consistent with applicable legal requirements and in the
best interests of the Fund's respective shareholders, (ii) does not put the
interests of BGFA, the Distributor or any affiliated person of BGFA or the
Distributor, above those of Fund shareholders; (iii) does not advantage any
current or prospective Fund shareholders over any other current or prospective
Fund shareholders, except to the extent that certain Entities (as described
below) may receive portfolio holdings information not available to other
current or prospective Fund shareholders in connection with the dissemination
of information necessary for transactions in Creation Units, as contemplated by
the iShares Exemptive Orders and as discussed below and (iv) does not provide
selective access to portfolio holdings information except pursuant to the
procedures outlined below and to the extent appropriate confidentiality
arrangements limiting the use of such information are in effect. The "Entities"
referred to in sub-section (iii) above are generally limited to National
Securities Clearing Corporation ("NSCC") members and subscribers to various
fee-based subscription services, including those large institutional investors
(known as "Authorized Participants") that have been authorized by the
Distributor to purchase and redeem large blocks of shares pursuant to legal
requirements, including exemptive orders granted by the SEC pursuant to which
the Fund offers and redeems its shares ("iShares Exemptive Orders") and other
institutional market participants and entities that provide information
services.
Each business day, the Fund's portfolio holdings information will be provided
to the Distributor or other agent for dissemination through the facilities of
the NSCC and/or other fee-based subscription services to NSCC members and/or
subscribers to those other fee-based subscription services, including
Authorized Participants, and to entities that publish and/or analyze such
information in connection with the process of purchasing or redeeming Creation
Units or trading shares of the Fund in the secondary market. This information
typically reflects the Fund's anticipated holdings on the following business
day.
Daily access to information concerning the Fund's portfolio holdings is
permitted (i) to certain personnel of those service providers that are involved
in portfolio management and providing administrative, operational, risk
management, or other support to portfolio management, including affiliated
broker-dealers and Authorized Participants, and (ii) to other personnel of the
Investment Adviser and the Distributor, administrator, custodian and fund
accountant who deal directly with or assist in functions related to investment
management, distribution, administration, custody and fund accounting, as may
be necessary to conduct business in the ordinary course in a manner consistent
with the iShares Exemptive Orders, agreements with the Fund, and the terms of
the Fund's current registration statement. In addition, the Fund discloses its
portfolio holdings and the percentages they represent of the Fund's net assets
at least monthly, and as often as each day the Fund is open for business, at
www.iShares.com. More information about this disclosure is available at
www.iShares.com.
Portfolio holdings information made available in connection with the
creation/redemption process may be provided to other entities that provide
services to the Fund in the ordinary course of business after it has been
disseminated to the NSCC. From time to time, information concerning portfolio
holdings other than portfolio holdings information made available in
8
connection with the creation/redemption process, as discussed above, may be
provided to other entities that provide services to the Fund, including rating
or ranking organizations, in the ordinary course of business, no earlier than
one business day following the date of the information.
The Fund will disclose its complete portfolio holdings schedule in public
filings with the SEC within 70 days after the end of each fiscal quarter and
will provide that information to shareholders as required by federal securities
laws and regulations thereunder. The Fund may, however, voluntarily disclose
all or part of its portfolio holdings other than in connection with the
creation/redemption process, as discussed above, in advance of required filings
with the SEC, provided that such information is made generally available to all
shareholders and other interested parties in a manner that is consistent with
the above policy for disclosure of portfolio holdings information. Such
information may be made available through a publicly-available website or other
means that make the information available to all likely interested parties
contemporaneously.
The Company's Chief Compliance Officer may authorize disclosure of portfolio
holdings information pursuant to the above policy and procedures.
The Board reviews the policy and procedures for disclosure of portfolio
holdings information at least annually.
Construction and Maintenance of the Underlying Index
A description of the MSCI indexes generally and the Underlying Index is
provided below.
MSCI Indexes Generally
The MSCI indexes were founded in 1969 by Capital International S.A. as the
first international performance benchmarks constructed to facilitate accurate
comparison of world markets. Morgan Stanley acquired rights to the indexes in
1986. In November 1998, Morgan Stanley transferred all rights to the MSCI
indexes to MSCI Inc. ("MSCI"), a Delaware corporation of which Morgan Stanley
is the majority owner and The Capital Group of Companies, Inc. is the minority
shareholder. The MSCI single country standard equity indexes have covered the
world's developed markets since 1969 and in 1988 MSCI commenced coverage of
emerging markets.
Local stock exchanges traditionally calculated their own indexes which were
generally not comparable with one another due to differences in the
representation of the local market, mathematical formulas, base dates and
methods of adjusting for capital changes. MSCI, however, applies the same
calculation methodology to all markets for all single country standard equity
indexes, developed and emerging.
The Underlying Index of the Fund at its inception will be an index of the MSCI
Standard Indexes.
MSCI Standard Indexes
Weighting. All single-country MSCI Standard indexes are free-float weighted,
i.e., companies are included in the indexes at the value of their free public
float (free float multiplied by security price). MSCI defines "free float" as
total shares excluding shares held by strategic investors and shares subject to
foreign ownership restrictions. MSCI's Standard indexes generally seek to
include 85% of the free float-adjusted market capitalization of a country's
stock market represented in each industry group of each country.
Regional Weights. Market capitalization weighting, combined with a consistent
target of 85% of free float-adjusted market capitalization, helps ensure that
each country's weight in regional and international indexes approximates its
weight in the total universe of developing and emerging markets.
Selection Criteria. MSCI's index construction process involves: (i) defining
the equity universe, (ii) adjusting the total market capitalization of all
securities in the universe for free float available to foreign investors,
(iii) classifying the universe of securities under the Global Industry
Classification Standard (the "GICS") and (iv) selecting securities for
inclusion according to MSCI's index construction rules and guidelines.
(i) Defining the Equity Universe. The current index construction process
starts at the country level with the identification of all listed securities
for that country. MSCI currently creates international equity country
indexes for 48 countries. In general, companies and their respective
securities are classified as belonging only to the country in which they are
incorporated. This allows securities to be sorted distinctly by country. All
listed equity securities and listed securities that exhibit characteristics
of equity securities, except investment trusts, mutual funds and equity
derivatives, are eligible for inclusion in the equity universe. Shares of
non-domiciled companies generally are not eligible for inclusion in the
equity universe.
9
(ii) Adjusting the Total Market Capitalization of Securities in the Equity
Universe for Free Float. After identifying the universe of securities, MSCI
calculates the free float-adjusted market capitalization of each security in
that universe using publicly available information. The process of free
float adjusting market capitalization involves: (i) defining and estimating
the free float available to foreign investors for each security, using
MSCI's definition of free float, (ii) assigning a free float-adjustment
factor to each security and (iii) calculating the free float-adjusted market
capitalization of each security.
(iii) Classifying Securities under the GICS. All securities in the equity
universe are also assigned to an industry-based hierarchy, the GICS. This
comprehensive classification scheme provides a universal approach to
industries worldwide and forms the basis for achieving MSCI's objective of
broad industry representation in its indexes.
(iv) Selecting Securities for Index Inclusion. MSCI targets an 85% free
float-adjusted market representation level in each industry group of each
country. The security selection process within each industry group is based
on the analysis of: (i) each company's business activities and the
diversification that its securities would bring to the index, (ii) the size
(based on free float-adjusted market capitalization) and liquidity of
securities of the company and (iii) the estimated free float for the company
and its individual share classes. MSCI targets for inclusion the largest and
most liquid securities in an industry group. MSCI generally does not
consider securities with inadequate liquidity or securities that do not have
an estimated free float greater than 15% unless exclusion of the security of
a large company would compromise the index's ability to fully and fairly
represent the characteristics of the underlying market.
Free Float. MSCI defines the free float of a security as the proportion of
shares outstanding that are deemed to be available for purchase in the public
equity markets by international investors. In practice, limitations on free
float available to international investors include: (i) strategic and other
shareholdings not considered part of available free float and (ii) limits on
share ownership for foreigners.
Under MSCI's free float-adjustment methodology, a constituent's inclusion
factor is equal to its estimated free float rounded up to the closest 5% for
constituents with free float equal to or exceeding 15%. For example, a
constituent security with a free float of 23.2% will be included in the index
at 25% of its market capitalization. For securities with a free float of less
than 15% that are included on an exceptional basis, the estimated free float is
adjusted to the nearest 1%.
Additions and Deletions. Potential additions to the indexes are analyzed with
respect to their industry group and sub-industry group in order to represent a
wide range of economic and business activities. In assessing deletions, it is
important that indexes represent the full investment cycle including both bull
and bear markets. Out-of-favor industries and their securities may exhibit
declining prices, declining market capitalization and/or declining liquidity
yet not be deleted because they remain good representatives of their industry
group.
As a general policy, changes in number of shares are coordinated with changes
in the inclusion factor to accurately reflect the investability of the
underlying securities.
Price and Exchange Rates
Prices. The prices used to calculate all MSCI indexes are the official exchange
closing prices or those figures accepted as such. MSCI reserves the right to
use an alternative pricing source on any given day.
Exchange Rates. MSCI currently uses the foreign exchange rates published by WM
Reuters at 4:00 p.m., London time. MSCI uses WM Reuters rates for all developed
and emerging markets. Exchange rates are taken daily at 4:00 p.m., London time
by the WM Company and are sourced whenever possible from multi-contributor
quotes on Reuters. Representative rates are selected for each currency based on
a number of "snapshots" of the latest contributed quotations taken from the
Reuters service at short intervals around 4:00 p.m. WM Reuters provides closing
bid and offer rates. MSCI uses these rates to calculate the mid-point to five
decimal places.
MSCI continues to monitor exchange rates independently and may, under
exceptional circumstances, elect to use an alternative exchange rate if the WM
Reuters rate is believed not to be representative for a given currency on a
particular day.
Changes to the Indexes. The MSCI indexes are maintained with the objective of
reflecting, on a timely basis, the evolution of the underlying equity markets.
In maintaining the MSCI indexes, emphasis is also placed on continuity,
replicability and minimizing turnover in the indexes. Maintaining the MSCI
indexes involves many aspects, including (i) additions to, and deletions from,
the indexes, (ii) changes in number of shares and (iii) changes in inclusion
factors as a result of updated free float estimates.
10
Index maintenance can be described by three broad categories of changes:
. Annual full country index reviews, conducted on a fixed annual
timetable, that systematically re-assess the various dimensions of the
equity universe for all countries;
. Quarterly index reviews, aimed at promptly reflecting other significant
market events; and
. Ongoing event-related changes, such as mergers and acquisitions, which
generally are implemented in the indexes as they occur.
Potential changes in the status of countries (stand-alone, emerging and
developed) are normally implemented in one or more phases at the regular annual
full country index review and quarterly index review dates.
The annual full country index review for all the MSCI single country standard
international equity indexes is carried out once every 12 months and
implemented as of the close of the last business day of May. The implementation
of changes resulting from a quarterly index review occurs only on three dates
throughout the year: as of the close of the last business day of February,
August and November. Any single country indexes may be impacted at the
quarterly index review. MSCI Index additions and deletions due to quarterly
index rebalancing are generally announced at least two weeks in advance.
MSCI Emerging Markets Eastern Europe Index
Number of Components: approximately 142
Index Description. The MSCI Emerging Markets Eastern Europe Index is a free
float adjusted market capitalization index designed to measure the equity
performance of companies domiciled in four Eastern European nations emerging
market nations: the Czech Republic, Hungary, Poland and Russia.
Investment Limitations
The Board has adopted as a non-fundamental policy the investment objective of
the Fund. Therefore, the Fund may change its investment objective and its
Underlying Index without a shareholder vote. The Board has adopted as
fundamental policies the Fund's investment restrictions numbered one through
six below. The restrictions for the Fund cannot be changed without the approval
of the holders of a majority of the Fund's outstanding voting securities. A
vote of a majority of the outstanding voting securities is defined in the 1940
Act as the lesser of (a) 67% or more of the voting securities present at a fund
meeting, if the holders of more than 50% of the outstanding voting securities
are present or represented by proxy and (b) more than 50% of outstanding voting
securities of the fund.
The Fund will not:
1. Concentrate its investments (i.e., invest 25% or more of its total assets in
the securities of a particular industry or group of industries), except that
the Fund will concentrate to approximately the same extent that its
Underlying Index concentrates in the securities of such particular industry
or group of industries. For purposes of this limitation, securities of the
U.S. government (including its agencies and instrumentalities), repurchase
agreements collateralized by U.S. government securities, and securities of
state or municipal governments and their political subdivisions are not
considered to be issued by members of any industry.
2. Borrow money, except that (i) the Fund may borrow from banks for temporary
or emergency (not leveraging) purposes, including the meeting of redemption
requests which might otherwise require the untimely disposition of
securities, and (ii) the Fund may, to the extent consistent with its
investment policies, enter into repurchase agreements, reverse repurchase
agreements, forward roll transactions and similar investment strategies and
techniques. To the extent that it engages in transactions described in
(i) and (ii), the Fund will be limited so that no more than 33/ 1//3% of the
value of its total assets (including the amount borrowed) is derived from
such transactions. Any borrowings which come to exceed this amount will be
reduced in accordance with applicable law.
3. Issue any senior security, except as permitted under the 1940 Act, as
amended, and as interpreted, modified or otherwise permitted by regulatory
authority having jurisdiction, from time to time.
4. Make loans, except as permitted under the 1940 Act, as interpreted, modified
or otherwise permitted by regulatory authority having jurisdiction, from
time to time.
5. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this restriction shall not prevent the
Fund from investing in securities of companies engaged in the real estate
business or securities or other instruments backed by real estate or
mortgages), or commodities or commodity contracts (but this restriction
shall not prevent the Fund from trading in futures contracts and options on
futures contracts, including options on currencies to the extent consistent
with the Fund's investment objective and policies).
11
6. Engage in the business of underwriting securities issued by other persons,
except to the extent that the Fund may technically be deemed to be an
underwriter under the 1933 Act, in disposing of portfolio securities.
In addition to the investment restrictions adopted as fundamental policies set
forth above, the Fund has adopted a non-fundamental policy to not invest in the
securities of a company for the purpose of exercising management or control or
purchase or otherwise acquire any illiquid security, except as permitted under
the 1940 Act, which currently permits up to 15% of the Fund's net assets to be
invested in illiquid securities.
BGFA monitors the liquidity of restricted securities in the Fund's portfolio.
In reaching liquidity decisions, BGFA considers the following factors:
. The frequency of trades and quotes for the security;
. The number of dealers wishing to purchase or sell the security and the
number of other potential purchasers;
. Dealer undertakings to make a market in the security; and
. The nature of the security and the nature of the marketplace in which it
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer).
If any percentage restriction described above is complied with at the time of
an investment, a later increase or decrease in percentage resulting from a
change in values of assets will not constitute a violation of such restriction.
The Fund has adopted a non-fundamental investment policy in accordance with
Rule 35d-1 under the 1940 Act to invest, under normal circumstances, at least
80% of the value of its net assets, plus the amount of any borrowings for
investment purposes, in securities and Depositary Receipts based on securities
in its Underlying Index. The Fund also has adopted a policy to provide its
shareholders with at least 60 days' prior written notice of any change in such
policy. If, subsequent to an investment, the 80% requirement is no longer met,
the Fund's future investments will be made in a manner that will bring the Fund
into compliance with this policy.
Continuous Offering
The method by which Creation Units are created and traded may raise certain
issues under applicable securities laws. Because new Creation Units are issued
and sold by the Fund on an ongoing basis, at any point a "distribution," as
such term is used in the 1933 Act, may occur. Broker-dealers and other persons
are cautioned that some activities on their part may, depending on the
circumstances, result in their being deemed participants in a distribution in a
manner that could render them statutory underwriters and subject them to the
prospectus delivery requirement and liability provisions of the 1933 Act.
For example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Units after placing an order with the
Distributor, breaks them down into constituent shares and sells such shares
directly to customers or if it chooses to couple the creation of new shares
with an active selling effort involving solicitation of secondary market demand
for shares. A determination of whether one is an underwriter for purposes of
the 1933 Act must take into account all the facts and circumstances pertaining
to the activities of the broker-dealer or its client in the particular case and
the examples mentioned above should not be considered a complete description of
all the activities that could lead to a categorization as an underwriter.
Broker-dealer firms should also note that dealers who are not "underwriters"
but are effecting transactions in shares, whether or not participating in the
distribution of shares, generally are required to deliver a prospectus. This is
because the prospectus delivery exemption in Section 4(3) of the 1933 Act is
not available in respect of such transactions as a result of Section 24(d) of
the 1940 Act. Firms that incur a prospectus delivery obligation with respect to
shares of the Fund are reminded that, pursuant to Rule 153 under the 1933 Act,
a prospectus delivery obligation under Section 5(b)(2) of the 1933 Act owed to
an exchange member in connection with a sale on the Listing Exchange is
satisfied by the fact that the prospectus is available at the Listing Exchange
upon request. The prospectus delivery mechanism provided in Rule 153 is
available only with respect to transactions on an exchange.
Management
Directors and Officers. The Board has responsibility for the overall management
and operations of the Fund, including general supervision of the duties
performed by BGFA and other service providers. Each Director serves until his
or her successor is duly elected or appointed and qualified.
The Company, Master Investment Portfolio ("MIP"), Barclays Global Investors
Funds ("BGIF") and Barclays Foundry Investment Trust ("BFIT"), each an open-end
management investment company registered under the 1940 Act, are considered
members of the same fund complex, as defined in Form N-1A under the 1940 Act.
Each Director also serves as a Trustee for iShares Trust and, as a result,
oversees a total of ______ Funds within the fund complex.
12
In addition, Lee T. Kranefuss serves as a Trustee for BGIF and MIP and, as a
result, oversees an additional 24 portfolios within the fund complex. The
address of each Director and Officer, unless otherwise indicated, is c/o
Barclays Global Investors, N.A., 45 Fremont Street, San Francisco, CA 94105.
The Board has designated George G.C. Parker as its Lead Independent Director.
Principal Occupation(s) Other Directorships Held by
Name (Year of Birth) Position During the Past 5 Years Director
-------------------- -------------- ------------------------ ---------------------------
Interested Directors
*Lee T. Kranefuss Director and Chief Executive Officer, Trustee (since 2003) of
(1961) Chairman iShares Intermediary and iShares Trust; Trustee
(since 2003) Markets Group of BGI (since 2001) of BGIF and
(since 2005); Chief MIP; Director (since
Executive Officer of the 2003) of BGI Cayman
Intermediary Investor Prime Money Market Fund,
and Exchange Traded Ltd.
Products Business of BGI
(2003-2005); Director of
Barclays Global Fund
Advisors (since 2005);
Director, President and
Chief Executive Officer
of Barclays Global
Investors International,
Inc. (since 2005);
Director and Chairman of
Barclays Global
Investors Services
(since 2005); Chief
Executive Officer of the
Individual Investor
Business of BGI
(1999-2003).
*John E. Martinez Director Co-Chief Executive Trustee (since 2003) of
(1962) (since 2003) Officer iShares Trust; Director
of Global Index and (since 2005) of Real
Markets Group of BGI Estate Equity Exchange;
(2001-2003); Chairman of Chairman, Independent
Barclays Global Review Committee,
Investors Services Canadian iShares Funds
(2000-2003); Director, (since 2007) .
Barclays Global
Investors UK Holdings,
Inc. (2000-2003).
--------
* Lee T. Kranefuss and John E. Martinez are deemed to be "interested persons"
(as defined in the 1940 Act) of the Company due to their affiliations with
BGFA, the Fund's investment adviser; BGI, the parent company of BGFA; and
Barclays Global Investors Services, an affiliate of BGFA and BGI.
13
Principal Occupation(s) Other Directorships Held by
Name (Year of Birth) Position During the Past 5 Years Director
-------------------- -------------- ------------------------ ---------------------------
Independent
Directors
George G.C. Parker Director Dean Witter Trustee (since 2002) of
(1939) (since 2000) Distinguished Professor iShares Trust; Director
Lead of Finance, Emeritus, (since 1996) of
Independent Stanford University Continental Airlines,
Director Graduate School of Inc.; Director (since
(since 2006) Business (since 1994). 1995) of Community First
Financial Group;
Director (since 1999) of
Tejon Ranch Company;
Director (since 2004) of
Threshold
Pharmaceuticals;
Director (since 2007) of
NETGEAR, Inc.
Cecilia H. Herbert Director Chair of Investment Trustee (since 2005) of
(1949) (since 2005) Committee (1994-2005) iShares Trust.
Archdiocese of San
Francisco; Director
(since 1998) and
President (since 2007)
of the Board of
Directors, Catholic
Charities CYO; Trustee
(2004-2005) of Pacific
Select Funds; Trustee
(1992-2003) of the
Montgomery Funds;
Trustee (since 2005) and
Chair of Finance and
Investment Committees
(since 2006) of the
Thacher School.
Charles A. Hurty Director Retired; Partner, KPMG, Trustee (since 2005) of
(1943) (since 2005) LLP (1968-2001). iShares Trust; Director
(since 2002) of GMAM
Absolute Return Strategy
Fund (1 portfolio);
Director (since 2002) of
Citigroup Alternative
Investments
Multi-Adviser Hedge Fund
Portfolios LLC (1
portfolio); Director
(since 2005) of CSFB
Alternative Investments
Fund (6 portfolios).
John E. Kerrigan Director Chief Investment Trustee (since 2005) of
(1955) (since 2005) Officer, Santa Clara iShares Trust; Member
University (since 2002); (since 2004) of Advisory
Managing Director, Council for Commonfund
Merrill Lynch Distressed Debt Partners
(1994-2002). II.
Robert H. Silver Director President and Co-Founder Trustee (since March
(1955) (since March of The Bravitas Group, 2007) of iShares Trust;
2007) Inc. Director and Member
(since 2006); Member, (since 2006) of the
Non-Investor Advisory Audit and Compensation
Board of Russia Partners Committee Member (since
II, LP (since 2006); 2006) of EPAM Systems,
President Inc.
and Chief Operating
Officer
(2003-2005) and Director
(1999-2005) of UBS
Financial Services,
Inc.; President and
Chief Executive Officer
of UBS Services USA, LLC
(1999-2005); Managing
Director, UBS America,
Inc. (2000-2005);
Director and Chairman of
the YMCA of Greater NYC
(since 2001); Broadway
Producer (since 2006).
14
Principal Occupation(s)
Name (Year of Birth) Position During the Past 5 Years
-------------------- -------------------- -------------------------------------
Officers
Michael A. Latham President (since Head of Americas iShares (since
(1965) 2007) 2007); Chief Operating Officer of
the Intermediary Investors and
Exchange Traded Products Business of
BGI (since 2003-2007); Director and
Chief Financial Officer of Barclays
Global Investors International, Inc.
(since 2005); Director of Mutual
Fund Delivery in the U.S. Individual
Investor Business of BGI (1999-2003).
Geoffrey D. Flynn Treasurer and Chief Director of Mutual Fund Operations,
(1956) Financial Officer BGI (since 2007); President, Van
(since 2007) Kampen Investors Services
(2003-2007); Managing Director,
Morgan Stanley (2002-2007);
President, Morgan Stanley Trust, FSB
(2002-2007).
Eilleen M. Clavere Secretary (since Head of Legal Administration of
(1952) 2007) Intermediary Investors Business of
BGI (since 2006); Legal Counsel and
Vice President of Atlas Funds, Atlas
Advisers, Inc. and Atlas Securities,
Inc. (2005-2006); Counsel of
Kirkpatrick & Lockhart
LLP(2001-2005).
Ira P. Shapiro Vice President and Associate General Counsel (since
(1963) Chief Legal 2004) of BGI; First Vice President
Officer (since 2007) (1993-2004) of Merrill Lynch
Investment Managers.
Amy Schioldager Executive Vice Head of U.S. Indexing (since 2006)
(1962) President (since of BGI; Head of Domestic Equity
2007) Portfolio Management, BGI
(2001-2006).
H. Michael Williams Executive Vice Head of Global Index and Markets
(1960) President (since Group of BGI (since 2006); Global
2007) Head of Securities Lending, BGI
(2002-2006).
Patrick O'Connor Vice President Head of iShares Portfolio
(1967) (since 2007) Management, BGI (since 2006); Senior
Portfolio Manager, BGI (since 1999).
Lee Sterne Vice President Senior Portfolio Manager, BGI (since
(1965) (since 2007) 2004); Portfolio Manager, BGI
(2001-2004).
Matt Tucker Vice President Head of U.S. Fixed Income Investment
(1972) (since 2007) Solutions, BGI (since 2005); Fixed
Income Investment Strategist, BGI
(2003-2005); Fixed Income Portfolio
Manager, BGI (1997-2003).
15
The following table sets forth, as of December 31, 2007, the dollar range of
equity securities beneficially owned by each Director in the Fund and in other
registered investment companies overseen by the Director within the same family
of investment companies as the Company. If a Fund is not listed below, the
Director did not own any securities in that Fund as of the date indicated above:
Aggregate Dollar Range of
Equity Securities in all
Registered Investment
Dollar Range of Companies Overseen by
Equity Securities Director in Family of
Name of Director Name of Index Fund in the Fund Investment Companies
---------------- ---------------------------------- ----------------- -------------------------
Lee T. Kranefuss iShares Lehman 1-3 Year Treasury $50,001-$100,000 Over $100,000
Bond Fund
iShares Russell 3000 Index Fund Over $100,000
John E. Martinez iShares MSCI EAFE Index Fund Over $100,000 Over $100,000
iShares Russell 1000 Index Fund Over $100,000
iShares Russell 1000 Value Index Over $100,000
Fund
iShares Russell 2000 Index Fund Over $100,000
iShares S&P 500 Index Fund Over $100,000
George G.C. Parker iShares Russell 2000 Index Fund $50,001-$100,000 Over $100,000
iShares Russell 2000 Value Index $50,001-$100,000
Fund
iShares S&P 100 Index Fund Over $100,000
iShares S&P 500 Value Index Fund Over $100,000
iShares S&P MidCap 400 Index Fund $10,001-$50,000
iShares S&P MidCap 400 Value Index Over $100,000
Fund
iShares S&P Small Cap 600 Index $10,001-$50,000
Fund
iShares Russell 1000 Value Index Over $100,000
Fund
iShares Dow Jones Select Dividend Over $100,000
Index Fund
iShares S&P 500 Index Fund Over $100,000
iShares MSCI Mexico Index Fund Over $100,000
iShares MSCI EAFE Index Fund Over $100,000
Cecilia H. Herbert iShares FTSE/Xinhua China 25 Index Over $100,000 Over $100,000
Fund
iShares MSCI Emerging Markets $10,001-$50,000
Index Fund
iShares MSCI Hong Kong Index Fund $10,001-$50,000
iShares MSCI Japan Index Fund $10,001-$50,000
iShares Dow Jones U.S. Consumer $10,001-$50,000
Goods Sector Index Fund
iShares Russell 1000 Index Fund $10,001-$50,000
iShares S&P Global $10,001-$50,000
Telecommunications Sector Index
Fund
iShares Dow Jones U.S. Technology $1-$10,000
Sector Index Fund
iShares S&P 500 Index Fund Over $100,000
Charles A. Hurty iShares S&P 500 Index Fund $10,001-$50,000 Over $100,000
iShares FTSE/Xinhua China 25 Index $10,001-$50,000
Fund
iShares Dow Jones Financial Sector $10,001-$50,000
Index Fund
iShares Dow Jones U.S. Energy $10,001-$50,000
Sector Index Fund
iShares Dow Jones U.S. Technology $10,001-$50,000
Sector Index Fund
iShares MSCI EAFE Index Fund $10,001-$50,000
iShares MSCI Japan Index Fund $10,001-$50,000
iShares Dow Jones Select Dividend $10,001-$50,000
Index Fund
John E. Kerrigan iShares MSCI Japan Index Fund Over $100,000 Over $100,000
iShares MSCI Pacific ex-Japan Over $100,000
Index Fund
iShares MSCI EAFE Index Fund Over $100,000
Robert H. Silver iShares Dow Jones U.S.
Broker-Dealers Index Fund Over $100,000 Over $100,000
iShares MSCI EAFE Index Fund Over $100,000
iShares S&P 500 Index Fund Over $100,000
iShares Russell 2000 Index Fund Over $100,000
16
As of December 31, 2007, none of the Directors who are not interested persons
(as defined in the 1940 Act) of the Company ("Independent Directors") or their
immediate family members owned beneficially or of record any securities of BGFA
(the Fund's investment adviser), the Distributor or any person controlling,
controlled by or under common control with BGFA or the Distributor.
Committees of the Board of Directors. Each Independent Director serves on the
Audit Committee and the Nominating and Governance Committee of the Board. The
purposes of the Audit Committee are to assist the Board (i) in its oversight of
the Company's accounting and financial reporting principles and policies and
related controls and procedures maintained by or on behalf of the Company;
(ii) in its oversight of the Company's financial statements and the independent
audit thereof; (iii) in selecting, evaluating and, where deemed appropriate,
replacing the independent accountants (or nominating the independent
accountants to be proposed for shareholder approval in any proxy statement);
(iv) in evaluating the independence of the independent accountants; (v) in
complying with legal and regulatory requirements that relate to the Company's
accounting and financial reporting, internal controls and independent audits;
and (vi) to assume such other responsibilities as may be delegated by the
Board. The Audit Committee met four times during the calendar year ended
December 31, 2007.
The Nominating and Governance Committee nominates individuals for Independent
Director membership on the Board. The Nominating and Governance Committee
functions include, but are not limited to, the following (i) reviewing the
qualifications of any person properly identified or nominated to serve as an
Independent Director; (ii) recommending to the Board and current Independent
Directors the nominee(s) for appointment as an Independent Director by the
Board and current Independent Directors and/or for election as Independent
Directors by shareholders to fill any vacancy for a position of Independent
Director(s) on the Board; (iii) recommending to the Board and current
Independent Directors the size and composition of the Board and Board
committees and whether they comply with applicable laws and regulations;
(iv) recommending a current Independent Director to the Board and current
Independent Directors to serve as Lead Independent Director; (v) periodic
review of the Board's retirement policy; and (vi) recommending an appropriate
level of compensation for the Independent Directors for their services as
Directors, members or chairpersons of committees of the Board, Lead Independent
Director, Chairperson of the Board and any other positions as the Nominating
and Governance Committee considers appropriate. The Nominating and Governance
Committee does not consider Board nomination(s) recommended by shareholders
(acting solely in their capacity as a shareholder and not in any other
capacity). The Nominating and Governance Committee is comprised of all members
of the Board that are Independent Directors. The Nominating and Governance
Committee met four times during the calendar year ended December 31, 2007.
Remuneration of Directors. The Company pays each Independent Director and John
Martinez, an Interested Director, an annual fee of $90,000 for meetings of the
Board attended by the Director; also the Company pays Charles Hurty an annual
fee of $20,000 for service as the chairperson of the Board's Audit Committee
and George G. C. Parker an annual fee of $25,000 for service as the Board's
Lead Independent Director. During the period January 1, 2007 through
December 31, 2007, the Company paid each Independent Director and John
Martinez, an Interested Director, an annual fee of $75,000 for meetings of the
Board attended by the Director; also the Company paid Charles Hurty an annual
fee of $20,000 for service as the chairperson of the Board's Audit Committee
and George G. C. Parker an annual fee of $25,000 for service as the Board's
Lead Independent Director. The Company also reimburses each Director for travel
and other out-of-pocket expenses incurred by him/her in connection with
attending such meetings.
The table below sets forth the total compensation paid to each Interested
Director for the calendar year ended December 31, 2007:
Total
Pension or Compensation
Aggregate Retirement Estimated From the
Compensation Benefits Accrued Annual Fund
Name of Interested from the As Part of Company Benefits Upon and Fund
Director Company Expenses /1/ Retirement /1/ Complex /2/
------------------ ------------ ------------------ -------------- ------------
Lee T. Kranefuss/3/ $ 0 Not Applicable Not Applicable $ 0
John E. Martinez... $75,000 Not Applicable Not Applicable $150,000
--------
/1/ No Director or Officer is entitled to any pension or retirement benefits
from the Company.
17
/2/ Includes compensation for service on the Board of Trustees of iShares
Trust.
/3/ Lee T. Kranefuss was not compensated by the Company due to his employment
with BGI during the time period reflected in the table.
The table below sets forth the compensation paid to each Independent Director
for the calendar year ended December 31, 2007:
Pension or
Retirement
Aggregate Benefits Accrued Estimated Total
Compensation As Annual Compensation
Name of Independent from the Part of Company Benefits Upon From the Fund
Director Company Expenses /1/ Retirement /1/ and Fund Complex /2/
------------------- ------------ ---------------- -------------- -------------------
George G. C. Parker... $100,000 Not Applicable Not Applicable $200,000
John E. Kerrigan...... $ 75,000 Not Applicable Not Applicable $150,000
Charles A. Hurty...... $ 95,000 Not Applicable Not Applicable $190,000
Cecilia H. Herbert.... $ 75,000 Not Applicable Not Applicable $150,000
Robert H. Silver*..... $ 56,250 Not Applicable Not Applicable $112,500
/*/ Appointed to serve as Independent Director of the Company effective
March 9, 2007.
/1/ No Director or Officer is entitled to any pension or retirement benefits
from the Company.
/2/ Includes compensation for service on the Board of Trustees of iShares
Trust.
The Directors and Officers of the Company do not own any outstanding shares of
the Fund as of the date of this SAI.
Control Persons and Principal Holders of Securities. Ownership information is
not provided for the Fund as it had not commenced operations as of the date of
this SAI.
Investment Advisory, Administrative and Distribution Services
Investment Adviser. BGFA serves as investment adviser to the Fund pursuant to
an Investment Advisory Agreement between the Company, on behalf of the Fund,
and BGFA. BGFA is a California corporation indirectly owned by Barclays Bank
PLC and is registered as an investment adviser under the Investment Advisers
Act of 1940, as amended. Under the Investment Advisory Agreement, BGFA, subject
to the supervision of the Board and in conformity with the stated investment
policies of the Fund, manages and administers the Company and the investment of
the Fund's assets. BGFA is responsible for placing purchase and sale orders and
providing continuous supervision of the investment portfolio of the Fund.
Pursuant to the Investment Advisory Agreement, BGFA is responsible for all
expenses of the Fund, including the cost of transfer agency, custody, fund
administration, legal, audit and other services, except interest expense and
taxes, brokerage expenses and other expenses connected with the execution of
portfolio securities transactions, distribution fees and extraordinary expenses.
For its investment advisory services to the Fund and certain other iShares
Funds (iShares MSCI BRIC Index Fund and the iShares MSCI Emerging Markets Index
Fund (which are offered in separate prospectuses)) in the same management fee
category, BGFA is paid management fees equal to % per year of the aggregate net
assets of the Funds less than or equal to $, plus % per year of the aggregate
net assets of the Funds on amounts between $ and $, plus % per year of the
aggregate net assets of the Funds on amounts in excess of $.
The Investment Advisory Agreement with respect to the Fund continues in effect
for two years from its effective date, and thereafter is subject to annual
approval by (i) the Board or (ii) the vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund, provided that in
either event such continuance also is approved by a majority of the Board who
are not interested persons (as defined in the 1940 Act) of the Fund, by a vote
cast in person at a meeting called for the purpose of voting on such approval.
The Investment Advisory Agreement with respect to the Fund is terminable
without penalty on 60 days' notice by the Board or by a vote of the holders of
a majority of the Fund's outstanding voting securities (as defined in the 1940
Act). The Investment Advisory Agreement is also terminable upon 60 days' notice
by BGFA and will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
Current interpretations of U.S. federal banking laws and regulations (i) may
prohibit Barclays Bank PLC, BGI and BGFA from controlling or underwriting the
shares of the Company but (ii) do not prohibit Barclays Bank PLC or BGFA
generally from acting as an investment adviser, administrator, transfer agent
or custodian to the Fund or from purchasing shares as agent for and upon the
order of a customer.
18
BGFA believes that it may perform advisory and related services for the Company
without violating applicable banking laws or regulations. However, the legal
requirements and interpretations about the permissible activities of banks and
their affiliates may change in the future. These changes could prevent BGFA
from continuing to perform services for the Company. If this happens, the Board
would consider selecting other qualified firms. Any new investment advisory
agreement would be subject to shareholder approval.
If current restrictions on bank activities with mutual funds were relaxed BGFA
or its affiliates would consider performing additional services for the
Company. BGFA cannot predict whether these changes will be enacted, or the
terms under which BGFA or its affiliates might offer to provide additional
services.
Portfolio Managers. Diane Hsiung and Greg Savage (the "Portfolio Managers") are
primarily responsible for the day-to-day management of other iShares funds and
certain other portfolios and/or accounts as indicated in the table below as of
______:
Diane Hsiung
Types of Accounts Number Total Assets
----------------- ------ ------------
Registered Investment Companies............................ $
Other Pooled Investment Vehicles........................... $
Other Accounts............................................. $
Companies, Vehicles or Accounts with Incentive-Based Fee
Arrangements............................................. $
Greg Savage
Types of Accounts Number Total Assets
----------------- ------ ------------
Registered Investment Companies............................ $
Other Pooled Investment Vehicles........................... $
Other Accounts............................................. $
Companies, Vehicles or Accounts with Incentive-Based Fee
Arrangements............................................. $
Each of the portfolios or accounts for which the Portfolio Managers are
primarily responsible for the day-to-day management seeks to track the rate of
return, risk profile and other characteristics of independent third-party
indexes by either replicating the same combination of securities that
constitute those indexes or through a representative sampling of the securities
that constitute those indexes based on objective criteria and data. The
Portfolio Managers are required to manage each portfolio or account to meet
those objectives. Pursuant to BGI and BGFA policy, investment opportunities are
allocated equitably among the Fund and other portfolios and accounts. For
example, under certain circumstances, an investment opportunity may be
restricted due to limited supply on the market, legal constraints or other
factors, in which event the investment opportunity will be allocated equitably
among those portfolios and accounts, including the iShares Funds, seeking such
investment opportunity. As a consequence, from time to time the Fund may
receive a smaller allocation of an investment opportunity than they would have
if the Portfolio Managers and BGFA and its affiliates did not manage other
portfolios or accounts.
Like the Fund, the other portfolios or accounts of which the Portfolio Managers
are primarily responsible for the day-to-day portfolio management generally pay
an asset-based fee to BGFA or BGI, as applicable, for its advisory services.
One or more of those other portfolios or accounts, however, may pay BGI an
incentive-based fee in lieu of, or in addition to, an asset- based fee for its
advisory services. A portfolio or account with an incentive-based fee would pay
BGI a portion of that portfolio's or account's gains, or would pay BGI more for
its services than would otherwise be the case if BGI meets or exceeds specified
performance targets. Incentive-based fee arrangements could present an
incentive for BGI to devote greater resources, and allocate more investment
opportunities, to the portfolios or accounts that have those fee arrangements,
relative to other portfolios or accounts, in order to earn larger fees.
Although BGI has an obligation to allocate resources and opportunities
equitably among portfolios and accounts and intends to do so, shareholders of
the Fund should be aware that, as with any group of portfolios and accounts
managed by an investment adviser and/or its affiliates pursuant to varying fee
arrangements, including incentive-based fee arrangements, there is the
potential for a conflict-of-interest that may result in the Portfolio Manager's
favoring those portfolios or accounts with incentive-based fee arrangements.
19
The table below shows, for each Portfolio Manager, the number of portfolios or
accounts of the types set forth in the above table and the aggregate of total
assets in those portfolios or accounts with respect to which the investment
management fees are based on the performance of those portfolios or accounts,
as of ______:
Diane Hsiung
Number of
Other Accounts with
Performance Fees Aggregate of
Managed Total Assets
------------------- ------------
Registered Investment Companies..............
Other Pooled Investment Vehicles.............
Other Accounts...............................
Greg Savage
Number of
Other Accounts with
Performance Fees Aggregate of
Managed Total Assets
------------------- ------------
Registered Investment Companies..............
Other Pooled Investment Vehicles.............
Other Accounts...............................
As of ______, with respect to all iShares funds and other portfolios and/or
accounts managed by the Portfolio Managers, on behalf of BGFA, the Portfolio
Managers receive a salary and are eligible to receive an annual bonus. Each
Portfolio Manager's salary is a fixed amount generally determined annually
based on a number of factors, including but not limited to the Portfolio
Manager's title, scope of responsibilities, experience and knowledge. Each
Portfolio Manager's bonus is a discretionary amount determined annually based
on the overall profitability of the various BGI companies worldwide, the
performance of the Portfolio Manager's business unit and an assessment of the
Portfolio Manager's individual performance. Each Portfolio Manager's salary and
annual bonus are paid in cash. In addition, a Portfolio Manager may be paid a
signing bonus or other amounts in connection with initiation of employment with
BGFA. If a Portfolio Manager satisfied the requirements for being part of a
"select group of management or highly compensated employees (within the meaning
of ERISA section 401(a))" as so specified under the terms of BGI's Compensation
Deferral Plan, the Portfolio Manager may elect to defer a portion of his or her
bonus under that Plan.
Portfolio Managers may be selected, on a fully discretionary basis, for awards
under BGI's Compensation Enhancement Plan ("CEP"). Under the CEP, these awards
are determined annually, and vest after two years. At the option of the CEP
administrators, the award may be "notionally invested" in funds managed by BGI,
which means that the final award amount may be increased or decreased according
to the performance of the BGI-managed funds over the two-year period. If the
award is not notionally invested, the original award amount is paid once vested.
A Portfolio Manager may be granted options to purchase shares in Barclays
Global Investors UK Holdings Limited ("BGI UK Holdings"), a company organized
under the laws of England and Wales that directly or indirectly owns all of the
Barclays Global Investors companies worldwide, which options vest in three
equal installments over three years and are generally exercisable during
prescribed exercise windows. Shares purchased must generally be held 355 days
prior to sale. For such purposes, the value of BGI UK Holdings is based on its
fair value as determined by an independent public accounting firm.
As of ______ , Diane Hsiung and Greg Savage beneficially owned shares of the
Fund in the amount of $______ and $______, respectively.
Codes of Ethics. The Company, BGFA and the Distributor have adopted Codes of
Ethics pursuant to Rule 17j-1 of the 1940 Act. The Codes of Ethics permit
personnel subject to the Codes of Ethics to invest in securities, subject to
certain limitations, including securities that may be purchased or held by the
Fund. The Codes of Ethics are on public file with, and are available from, the
SEC.
Administrator, Custodian and Transfer Agent. State Street Bank and Trust
Company ("State Street") serves as administrator, custodian and transfer agent
for the Fund. State Street's principal address is 200 Clarendon Street, Boston,
MA 02116. Pursuant to an Administration Agreement with the Company, State
Street provides necessary administrative, legal, tax and accounting and
financial reporting services for the maintenance and operations of the Company
and the Fund. In addition, State Street makes available the office space,
equipment, personnel and facilities required to provide such services.
20
Pursuant to a Custodian Agreement with the Company, State Street maintains in
separate accounts cash, securities and other assets of the Company and the
Fund, keeps all necessary accounts and records and provides other services.
State Street is required, upon the order of the Company, to deliver securities
held by State Street and to make payments for securities purchased by the
Company for the Fund. Also, pursuant to a Delegation Agreement with the
Company, State Street is authorized to appoint certain foreign custodians or
foreign custody managers for Fund investments outside the United States.
Pursuant to a Transfer Agency and Service Agreement with the Company, State
Street acts as transfer agent for the Fund's authorized and issued shares of
beneficial interest and as dividend disbursing agent of the Company. As
compensation for these services, State Street receives certain out-of-pocket
costs, transaction fees and asset-based fees which are accrued daily and paid
monthly by BGFA from its management fee.
Distributor. The Distributor's principal address is One Freedom Valley Drive,
Oaks, PA 19456. The Distributor has entered into a Distribution Agreement with
the Company pursuant to which it distributes shares of the Fund. The
Distribution Agreement will continue for two years from its effective date and
is renewable annually. Shares are continuously offered for sale by the Fund
through the Distributor only in Creation Units, as described in the Prospectus
and below in the Purchase and Issuance of Creation Units section of the SAI.
Shares in less than Creation Units are not distributed by the Distributor. The
Distributor will deliver the Prospectus and, upon request, the Statement of
Additional Information to persons purchasing Creation Units and will maintain
records of both orders placed with it and confirmations of acceptance furnished
by it. The Distributor is a broker-dealer registered under Securities Exchange
Act of 1934, as amended (the "1934 Act") and a member of the Financial Industry
Regulatory Authority ("FINRA").
The Distribution Agreement for the Fund provides that it may be terminated at
any time, without the payment of any penalty, on at least 60 days' prior
written notice to the other party following (i) the vote of a majority of the
Independent Directors or (ii) the vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund. The Distribution Agreement
will terminate automatically in the event of its assignment (as defined in the
1940 Act).
The Distributor may also enter into agreements with securities dealers
("Soliciting Dealers") who will solicit purchases of Creation Units of shares.
Such Soliciting Dealers may also be Authorized Participants (as defined below),
DTC Participants (as defined below) and/or Investor Services Organizations.
BGFA or BGI may, from time to time and from its own resources, pay, defray or
absorb costs relating to distribution, including payments out of its own
resources to the Distributor, or to otherwise promote the sale of shares.
Index Provider. The Fund is based upon a particular index compiled by MSCI.
MSCI is not affiliated with the Fund or with BGI or BGI's affiliates. The Fund
is entitled to use its Underlying Index pursuant to a sub-licensing agreement
with BGI, which in turn has a licensing agreement with MSCI. BGI has provided
the applicable sub-licenses to the Funds without charge.
Brokerage Transactions
BGFA assumes general supervision over placing orders on behalf of the Fund for
the purchase and sale of portfolio securities. In selecting brokers or dealers
for any transaction in portfolio securities, BGFA's policy is to make such
selection based on factors deemed relevant, including but not limited to, the
breadth of the market in the security, the price of the security, the
reasonableness of the commission or mark-up or mark-down, if any, execution
capability, settlement capability, back office efficiency and the financial
condition of the broker or dealer, both for the specific transaction and on a
continuing basis. The overall reasonableness of brokerage commissions paid is
evaluated by BGFA based upon its knowledge of available information as to the
general level of commissions paid by other institutional investors for
comparable services. Brokers may also be selected because of their ability to
handle special or difficult executions, such as may be involved in large block
trades, less liquid securities, broad distributions, or other circumstances.
BGFA does not consider the provision or value of research, products or services
a broker or dealer may provide, if any, as a factor in the selection of a
broker or dealer or the determination of the reasonableness of commissions paid
in connection with portfolio transactions. The Company has adopted policies and
procedures that prohibit the consideration of sales of the Fund's shares as a
factor in the selection of a broker or a dealer to execute its portfolio
transactions.
The Fund's purchase and sale orders for securities may be combined with those
of other investment companies, clients or accounts that BGFA manages or advises
and for which it has brokerage placement authority. If purchases or sales of
portfolio securities of the Fund and one or more other accounts managed or
advised by BGFA are considered at or about the same time, transactions in such
securities are allocated among the Fund and the other accounts in a manner
deemed equitable to all by BGFA. In some cases, this procedure could have a
detrimental effect on the price or volume of the security as far as the Fund is
concerned. However, in other cases, it is possible that the ability to
participate in volume transactions and to negotiate lower transaction costs
will be beneficial to the Fund. BGFA may deal, trade and invest for its own
account in the
21
types of securities in which the Fund may invest. BGFA may, from time to time,
effect trades on behalf of and for the account of the Fund with brokers or
dealers that are affiliated with BGFA, in conformity with the 1940 Act and SEC
rules and regulations. Under these provisions, any commissions paid to
affiliated brokers or dealers must be reasonable and fair compared to the
commissions charged by other brokers or dealers in comparable transactions. The
Fund will not deal with affiliates in principal transactions unless permitted
by applicable SEC rule or regulation or by SEC exemptive order.
Portfolio turnover rates may vary from period to period and high commission
rates may result in comparatively greater brokerage expenses.
Additional Information Concerning the Company
Capital Stock. The Company currently is comprised of ______ series, referred to
as funds. Each series issues shares of common stock, par value $0.001 per
share. The Company has authorized and issued the Fund as a separate series of
capital stock. The Company has authorized for issuance, but is not currently
offering for sale to the public, four additional series of shares of common
stock. The Board may designate additional series of common stock and classify
shares of a particular series into one or more classes of that series. The
Amended and Restated Articles of Incorporation confers upon the Board of
Directors the power to establish the number of shares which constitute a
Creation Units or by resolution, restrict the redemption right to Creation
Units.
Each share issued by a Fund has a pro rata interest in the assets of that Fund.
The Company is currently authorized to issue 10.9 billion shares of common
stock. Fractional shares will not be issued. Shares have no preemptive,
exchange, subscription or conversion rights and are freely transferable. Each
share is entitled to participate equally in dividends and distributions
declared by the Board with respect to the relevant Fund, and in the net
distributable assets of such Fund on liquidation. Shareholders are entitled to
require the Company to redeem Creation Units of their shares. The Articles of
Incorporation confers upon the Board the power, by resolution, to alter the
number of shares constituting a Creation Unit or to specify that shares of
common stock of the Company that may be individually redeemable.
Each share has one vote with respect to matters upon which a stockholder vote
is required consistent with the requirements of the 1940 Act and the rules
promulgated thereunder and the Maryland General Corporation Law. Stockholders
have no cumulative voting rights with respect to their shares. Shares of all
Funds vote together as a single class except that, if the matter being voted on
affects only a particular Fund or, if a matter affects a particular Fund
differently from other Funds, that Fund will vote separately on such matter.
Shareholders may make inquiries by writing to the Company, c/o the Distributor,
SEI Investments Distribution Co., at One Freedom Valley Drive, Oaks PA 19456.
Under Maryland law, the Company is not required to hold an annual meeting of
stockholders unless required to do so under the 1940 Act. The policy of the
Company is not to hold an annual meeting of stockholders unless required to do
so under the 1940 Act. All shares (regardless of the Fund) have noncumulative
voting rights for the Board. Under Maryland law, Directors of the Company may
be removed by vote of the stockholders.
Following the creation of the initial Creation Units of a fund and immediately
prior to the commencement of trading in such fund's shares, a holder of shares
may be a "control person" of the fund, as defined in the 1940 Act. A fund
cannot predict the length of time for which one or more stockholders may remain
a control person of the fund.
Absent an applicable exemption or other relief from the SEC or its staff,
beneficial owners of more than 5% of the shares of a fund may be subject to the
reporting provisions of Section 13 of the 1934 Act and the SEC's rules
promulgated thereunder. In addition, absent an applicable exemption or other
relief from the SEC staff, officers and Directors of a fund and beneficial
owners of 10% of the shares of a fund ("Insiders") may be subject to the
insider reporting, short-swing profit and short sale provisions of Section 16
of the 1934 Act and the SEC's rules promulgated thereunder. Beneficial owners
and insiders should consult with their own legal counsel concerning their
obligations under Sections 13 and 16 of the 1934 Act.
Termination of the Company or the Fund. The Company or the Fund may be
terminated by a majority vote of the Board or the affirmative vote of a
supermajority of the holders of the Company or the Fund entitled to vote on
termination. Although the shares are not automatically redeemable upon the
occurrence of any specific event, the Company's organizational documents
provide that the Board will have the unrestricted power to alter the number of
shares in a Creation Unit. In the event of a termination of the Company or the
Fund, the Board, in its sole discretion, could determine to permit the shares
to be redeemable in aggregations smaller than Creation Units or to be
individually redeemable. In such circumstance, the Company may make redemptions
in kind, for cash or for a combination of cash or securities.
22
DTC as Securities Depository for Shares of the Fund. Shares of the Fund are
represented by securities registered in the name of DTC or its nominee and
deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold securities of its
participants ("DTC Participants") and to facilitate the clearance and
settlement of securities transactions among the DTC Participants in such
securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities'
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own DTC. More specifically, DTC is owned by
a number of its DTC Participants and by the New York Stock Exchange ("NYSE"),
the American Stock Exchange and the FINRA. Access to the DTC system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a DTC Participant,
either directly or indirectly ("Indirect Participants").
Beneficial ownership of shares is limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and
Indirect Participants. Ownership of beneficial interests in shares (owners of
such beneficial interests are referred to herein as "Beneficial Owners") is
shown on, and the transfer of ownership is effected only through, records
maintained by DTC (with respect to DTC Participants) and on the records of DTC
Participants (with respect to Indirect Participants and Beneficial Owners that
are not DTC Participants). Beneficial Owners will receive from or through the
DTC Participant a written confirmation relating to their purchase of shares.
Conveyance of all notices, statements and other communications to Beneficial
Owners is effected as follows. Pursuant to the Depositary Agreement between the
Company and DTC, DTC is required to make available to the Company upon request
and for a fee to be charged to the Company a listing of the shares of the Fund
held by each DTC Participant. The Company shall inquire of each such DTC
Participant as to the number of Beneficial Owners holding shares, directly or
indirectly, through such DTC Participant. The Company shall provide each such
DTC Participant with copies of such notice, statement or other communication,
in such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication may be
transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Company shall pay to each such DTC Participant a fair
and reasonable amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory requirements.
Share distributions shall be made to DTC or its nominee, Cede & Co., as the
registered holder of all shares of the Company. DTC or its nominee, upon
receipt of any such distributions, shall credit immediately DTC Participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in shares of the Fund as shown on the records of DTC or its nominee.
Payments by DTC Participants to Indirect Participants and Beneficial Owners of
shares held through such DTC Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in a "street name"
and will be the responsibility of such DTC Participants.
The Company has no responsibility or liability for any aspect of the records
relating to or notices to Beneficial Owners, or payments made on account of
beneficial ownership interests in such shares, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests, or
for any other aspect of the relationship between DTC and the DTC Participants
or the relationship between such DTC Participants and the Indirect Participants
and Beneficial Owners owning through such DTC Participants. DTC may decide to
discontinue providing its service with respect to shares of the Company at any
time by giving reasonable notice to the Company and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Company shall take action to find a replacement for DTC to
perform its functions at a comparable cost.
Purchase and Issuance of Creation Units
General. The Company issues and sells shares of the Fund only in Creation Units
on a continuous basis through the Distributor, without a sales load, at the NAV
next determined after receipt, on any Business Day (as defined below), of an
order in proper form. A Creation Unit of the Fund is composed of ______ shares
and the value of a Creation Unit as of is $______.
The Board reserves the right to declare a split or a consolidation in the
number of shares outstanding of the Fund of the Company, and to make a
corresponding change in the number of shares constituting a Creation Unit, in
the event that the per share price in the secondary market rises (or declines)
to an amount that falls outside the range deemed desirable by the Board.
A "Business Day" with respect to the Fund is any day on which the Fund's
Listing Exchange is open for business. As of the date of this SAI, the Listing
Exchange observes the following holidays (as observed): New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
23
Fund Deposit. The consideration for purchase of a Creation Unit of the Fund
generally consists of a cash portion plus the in kind deposit of a designated
portfolio of equity securities (together, the "Deposit Securities"), which
constitutes an optimized representation of the securities of the Fund's
Underlying Index, and the Cash Component computed as described below. Together,
the Deposit Securities and the Cash Component constitute the "Fund Deposit,"
which represents the minimum initial and subsequent investment amount for a
Creation Unit of the Fund. The Cash Component is an amount equal to the
difference between the NAV of the Shares (per Creation Unit) and the "Deposit
Amount", which is an amount equal to the market value of the Deposit
Securities, and serves to compensate for any differences between the NAV per
Creation Unit and the Deposit Amount. Payment of any stamp duty or other
similar fees and expenses payable upon transfer of beneficial ownership of the
Deposit Securities shall be the sole responsibility of the Authorized
Participant that purchasing a Creation Unit.
BGFA, through the NSCC, makes available on each Business Day, prior to the
opening of business on the Listing Exchange (currently 9:30 a.m., Eastern
time), the identity and the required number of shares (subject to possible
amendments) of each Deposit Security and the amount of the Cash Component to be
included in the current Fund Deposit (based on information at the end of the
previous Business Day). Such Deposit Securities are applicable, subject to any
adjustments as described below, to purchases of Creation Units of the Fund
until such time as the next-announced composition of the Fund Deposit is made
available.
The identity and number of shares of the Deposit Securities changes pursuant to
changes in the composition of the Fund's portfolio and as rebalancing
adjustments and corporate action events are reflected from time to time by BGFA
with a view to the investment objective of the Fund. The composition of the
Deposit Securities may also change in response to adjustments to the weighting
or composition of the component securities of the Underlying Index.
The Company reserves the right to permit or require the substitution of a "cash
in lieu" amount to be added to the Cash Component to replace any Deposit
Security that may not be available in sufficient quantity for delivery or that
may not be eligible for transfer through the systems of DTC or the Clearing
Process (discussed below). The Company also reserves the right to permit or
require a "cash in lieu" amount where the delivery of Deposit Securities by the
Authorized Participant (as described below) would be restricted under the
securities laws or where the delivery of Deposit Securities to the Authorized
Participant would result in the disposition of Deposit Securities by the
Authorized Participant becoming restricted under the securities laws, and in
certain other situations. The adjustments described above will reflect changes
known to BGFA on the date of announcement to be in effect by the time of
delivery of the Fund Deposit, in the composition of the Underlying Index or
resulting from certain corporate actions.
Role of the Authorized Participant. Creation Units of shares may be purchased
only by or through a DTC Participant that has entered into an Authorized
Participant Agreement with the Distributor. Such Authorized Participant will
agree pursuant to the terms of its Authorized Participant Agreement on behalf
of itself or any investor on whose behalf it will act to certain conditions,
including that such Authorized Participant will make available in advance of
each purchase of shares an amount of cash sufficient to pay the Cash Component,
together with the transaction fee described below. The Authorized Participant
may require the investor to enter into an agreement with such Authorized
Participant with respect to certain matters, including payment of the Cash
Component. Investors who are not Authorized Participants must make appropriate
arrangements with an Authorized Participant. Investors should be aware that
their broker may not be a DTC Participant or may not have executed an
Authorized Participant Agreement and that therefore orders to purchase Creation
Units may have to be placed by the investor's broker through an Authorized
Participant. Purchase orders placed through an Authorized Participant may
result in additional charges to such investor. The Company does not expect to
enter into an Authorized Participant Agreement with more than a small number of
DTC Participants. A list of current Authorized Participants may be obtained
from the Distributor.
Purchase Order. To initiate an order for a Creation Unit, an Authorized
Participant must submit to the Distributor an irrevocable order to purchase
shares of the Fund no later than 11:59 p.m., Eastern time, on any Business Day
to receive the next day's NAV. Orders to purchase shares of the Fund will not
be accepted on the Business Day immediately preceding any day (other than a
weekend) when the equity markets in any foreign market applicable to the Fund
for which the consideration is cash are closed. The Custodian shall cause the
subcustodian of the Fund to maintain an account into which the Authorized
Participant shall deliver, on behalf of itself or the party on whose behalf it
is acting, the securities included in the designated Fund Deposit (or the cash
value of all or a part of such securities, in the case of a permitted or
required cash purchase or "cash in lieu" amount), with any appropriate
adjustments as advised by the Company. Deposit Securities must be delivered to
an account maintained at the applicable local subcustodian. Those placing
orders to purchase Creation Units through an Authorized Participant should
allow sufficient time to permit proper submission of the purchase order to the
Distributor by the cut-off time on such Business Day.
24
The Authorized Participant must also make available on or before the
contractual settlement date, by means satisfactory to the Company, immediately
available or same day funds estimated by the Company to be sufficient to pay
the Cash Component next determined after acceptance of the purchase order,
together with the applicable purchase transaction fee. Any excess funds will be
returned following settlement of the issue of the Creation Unit. Those placing
orders should ascertain the applicable deadline for cash transfers by
contacting the operations department of the broker or depositary institution
effectuating the transfer of the Cash Component. This deadline is likely to be
significantly earlier than the closing time of the regular trading session on
the Listing Exchange.
Investors should be aware that an Authorized Participant may require orders for
purchases of shares placed with it to be in the particular form required by the
individual Authorized Participant.
Acceptance of Purchase Order. Subject to the conditions that (i) an irrevocable
purchase order has been submitted by the Authorized Participant (either on its
own or another investor's behalf) and (ii) arrangements satisfactory to the
Company are in place for payment of the Cash Component and any other cash
amounts which may be due, the Company will accept the order, subject to its
right (and the right of the Distributor and BGFA) to reject any order until
acceptance.
Once the Company has accepted an order, upon next determination of the NAV of
the shares, the Company will confirm the issuance of a Creation Unit, against
receipt of payment, at such NAV. The Distributor will then transmit a
confirmation of acceptance to the Authorized Participant that placed the order.
The Company reserves the absolute right to reject or revoke a creation order
transmitted to it by the Distributor in respect of the Fund if (i) the order is
not in proper form, (ii) the investor(s), upon obtaining the shares ordered,
would own 80% or more of the currently outstanding shares of the Fund;
(iii) the Deposit Securities delivered are do not conform to the identity and
number of shares specified by BGFA, as described above; (iv) acceptance of the
Deposit Securities would have certain adverse tax consequences to the Fund;
(v) acceptance of the Fund Deposit would, in the opinion of counsel, be
unlawful; (vi) acceptance of the Fund Deposit would, in the discretion of the
Company or BGFA, have an adverse effect on the Company or the rights of
beneficial owners or (vii) circumstances outside the control of the Company,
the Distributor and BGFA make it impracticable to process purchase orders. The
Company shall notify a prospective purchaser of a creation unit and/or the
Authorized Participant acting on behalf of such purchaser of its rejection of
such order. The Company, State Street, the subcustodian and the Distributor are
under no duty, however, to give notification of any defects or irregularities
in the delivery of Fund Deposits nor shall any of them incur any liability for
failure to give such notification.
Issuance of a Creation Unit. Except as provided herein, a Creation Unit will
not be issued until the transfer of good title to the Company of the Deposit
Securities and the payment of the Cash Component have been completed. When the
subcustodian has confirmed to the Custodian that the required securities
included in the Fund Deposit (or the cash value thereof) have been delivered to
the account of the relevant subcustodian or subcustodians, the Distributor and
the Investment Adviser shall be notified of such delivery and the Company will
issue and cause the delivery of the Creation Unit. Creation Units of the Fund
typically are issued on a "T+3 basis" (i.e., three Business Days after trade
date). However, as discussed in Appendix A, the Fund reserves the right to
settle Creation Unit transactions on a basis other than T+3 in order to
accommodate foreign market holiday schedules, to account for different
treatment among foreign and U.S. markets of dividend record dates and
ex-dividend dates (i.e., the last day the holder of a security can sell the
security and still receive dividends payable on the security), and in certain
other circumstances.
To the extent contemplated by an Authorized Participant's agreement with the
Distributor, the Company may issue Creation Units to such Authorized
Participant notwithstanding the fact that the corresponding Fund Deposits have
not been received in part or in whole, in reliance on the undertaking of the
Authorized Participant to deliver the missing Deposit Securities as soon as
possible, which undertaking shall be secured by such Authorized Participant's
delivery and maintenance of collateral having a value at least equal to 110%,
which BGFA may change from time to time, of the value of the missing Deposit
Securities in accordance with the Company's then-effective procedures. The only
collateral that is acceptable to the Company is cash in U.S. Dollars or an
irrevocable letter of credit in form, and drawn on a bank, that is satisfactory
to the Company. The cash collateral posted by the Authorized Participant may be
invested at the risk of the Authorized Participant, and income, if any, on
invested cash collateral will be paid to that Authorized Participant.
Information concerning the Company's current procedures for collateralization
of missing Deposit Securities is available from the Distributor. The Authorized
Participant Agreement will permit the Company to buy the missing Deposit
Securities at any time and will subject the Authorized Participant to liability
for any shortfall between the cost to the Company of purchasing such securities
and the cash collateral or the amount that may be drawn under any letter of
credit.
25
In certain cases, Authorized Participants may create and redeem Creation Units
on the same trade date and in these instances, the Company reserves the right
to settle these transactions on a net basis. All questions as to the number of
shares of each security in the Deposit Securities and the validity, form,
eligibility and acceptance for deposit of any securities to be delivered shall
be determined by the Company and the Company's determination shall be final and
binding.
Cash Purchase Method. Creation Units of the Fund are currently offered
partially for cash . Cash purchases will be effected in essentially the same
manner as in-kind purchases. An investor must pay the cash equivalent of the
Deposit Securities it would otherwise be required to provide through an in-kind
purchase, plus the same Cash Component required to be paid on the in-kind
position. In addition, to offset the Company's brokerage and other transaction
costs associated with using the cash to purchase the requisite Deposit
Securities, the investor will be required to pay a fixed purchase transaction
fee, plus an additional variable charge for cash purchases, which is expressed
as a percentage of the value of the Deposit Securities.
Purchase Transaction Fee. A purchase transaction fee is imposed for the
transfer and other transaction costs of the Fund associated with the issuance
of Creation Units. The fee is a single charge and will be the same regardless
of the number of Creation Units purchased by a purchaser on the same day.
Purchasers of Creation Units for cash are required to pay an additional
variable charge to compensate for brokerage and market impact expenses. When
the Company permits an in-kind purchaser to substitute cash in lieu of
depositing a portion of the Deposit Securities, the purchaser will be assessed
the additional variable charge for cash purchases on the "cash in lieu" portion
of its investment. Investors who use the service of a broker or other such
intermediary may be charged a fee for such services. Purchasers of Creation
Units are responsible for the costs of transferring the securities constituting
the Deposit Securities to the account of the Company. Investors will also bear
the costs of transferring the Deposit Securities to the Company. The following
table sets forth the standard and maximum creation transaction fees:
Standard Creation Maximum Additional
Transaction Fee Creation Transaction Fee*
----------------- -------------------------
iShares MSCI Emerging Markets
Eastern Europe Index Fund........ $_______ %
--------
* As a percentage of the value of the Deposit Securities.
Redemption of Creation Units. Shares of the Fund may be redeemed only in
Creation Units at their NAV next determined after receipt of a redemption
request in proper form by the Distributor and only on a Business Day. The
Company will not redeem shares in amounts less than Creation Units. Beneficial
owners must accumulate enough iShares to constitute a Creation Unit in order to
have such shares redeemed by the Company. There can be no assurance, however,
that there will be sufficient liquidity in the public trading market at any
time to permit assembly of a Creation Unit by an investor who wishes to redeem
a Creation Unit. Investors should expect to incur brokerage and other costs in
connection with assembling a sufficient number of iShares to constitute a
redeemable Creation Unit.
BGFA makes available through the NSCC, prior to the opening of business on the
Listing Exchange on each Business Day, the identity and number of shares that
will be applicable (subject to possible amendment or correction) to redemption
requests received in proper form (as defined below) on that day. ("Fund
Securities"). Fund Securities received on redemption may not be identical to
Deposit Securities applicable to purchases of Creation Units.
Unless cash redemptions are available or specified for the Fund, the redemption
proceeds for a Creation Unit generally consist of Fund Securities plus cash in
an amount equal to the difference between the NAV of the shares being redeemed,
as next determined after a receipt of a request in proper form, and the value
of the Fund Securities, less the redemption transaction fee described below.
A redemption transaction fee is imposed to offset transfer and other
transaction costs that may be incurred by the Fund. The fee is a single charge
and will be the same regardless of the number of Creation Units redeemed by an
investor on the same day. The redemption transaction fee for redemptions in
kind and for cash and the additional variable charge for cash redemptions (when
cash redemptions are available or specified) are set forth in the table below.
Investors will also bear the costs of transferring the Fund Securities from the
Company to their account. Investors who use the services of a broker or other
such intermediary may be charged a fee for such services.
Maximum
Additional
Creation
Standard Redemption Redemption
Transaction Fee Fee*
------------------- ----------
iShares MSCI Emerging Markets Eastern Europe
Index Fund................................... $_____ %
--------
* As a percentage of the value of the Deposit Securities.
26
An irrevocable redemption request in respect of Creation Units of the Fund must
be submitted to the Distributor by or through an Authorized Participant no
later than 11:59 p.m., Eastern time on any Business Day in order to receive the
next Business Day's NAV. Orders to redeem shares of the fund will not be
accepted on the Business Day immediately preceding any day (other than a
weekend) when the equity markets in any foreign market applicable to the fund
for which the consideration for a redemption order is cash are closed.
Investors other than through Authorized Participants are responsible for making
arrangements for a redemption request to be made through an Authorized
Participant. The Distributor will provide a list of current Authorized
Participants upon request.
The Authorized Participant must transmit the request for redemption in the form
required by the Company to the Distributor in accordance with procedures set
forth in the Authorized Participant Agreement. Investors should be aware that
their particular broker may not have executed an Authorized Participant
Agreement and that, therefore, requests to redeem Creation Units may have to be
placed by the investor's broker through an Authorized Participant who has
executed an Authorized Participant Agreement. At any time only a limited number
of broker-dealers will have executed an Authorized Participant Agreement.
Investors making a redemption request should be aware that such request must be
in the form specified by such Authorized Participant. Investors making a
request to redeem Creation Units should allow sufficient time to permit proper
submission of the request by an Authorized Participant and transfer of the
shares to the Company's Transfer Agent; such investors should allow for the
additional time that may be required to effect redemptions through their banks,
brokers or other financial intermediaries if such intermediaries are not
Authorized Participants.
A redemption request is considered to be in "proper form" if (i) an Authorized
Participant has transferred or caused to be transferred to the Company's
Transfer Agent the Creation Unit being redeemed through the book-entry system
of DTC so as to be effective by the Listing Exchange closing time on any
Business Day, (ii) a request in form satisfactory to the Company is received by
the Distributor from the Authorized Participant on behalf of itself or another
redeeming investor within the time periods specified above and (iii) all other
procedures set forth in the Participant Agreement are properly followed. If the
Transfer Agent does not receive the investor's shares through DTC's facilities
by 10:00 a.m., Eastern time, on the second Business Day following the day that
the redemption request is received, the redemption request shall be rejected.
Investors should be aware that the deadline for such transfers of shares
through the DTC system may be significantly earlier than the close of business
on the Listing Exchange. Those making redemption requests should ascertain the
deadline applicable to transfers of shares through the DTC system by contacting
the operations department of the broker or depositary institution effecting the
transfer of the shares.
Upon receiving a redemption request, the Distributor shall notify the Company
and the Company's Transfer Agent of such redemption request. The tender of an
investor's shares for redemption and the distribution of the cash redemption
payment in respect of Creation Units redeemed will be made through DTC and the
relevant Authorized Participant to the beneficial owner thereof as recorded on
the book-entry system of DTC or the DTC Participant through which such investor
holds, as the case may be, or by such other means specified by the Authorized
Participant submitting the redemption request.
In order to take delivery of shares of Deposit Securities upon redemption of
shares of the Fund, a redeeming Beneficial Owner or Authorized Participant
acting on behalf of such Beneficial Owner must maintain appropriate security
arrangements with a qualified broker-dealer, bank or other custody provider in
each jurisdiction in which any of the portfolio securities are customarily
traded, to which account such Portfolio Securities will be delivered.
Deliveries of redemption proceeds by the Fund generally will be made within
three Business Days (i.e., "T+3"). However, as discussed in Appendix A, the
Fund reserves the right to settle redemption transactions and deliver
redemption proceeds on basis other than T+3 to accommodate foreign market
holiday schedules, to account for different treatment among foreign and U.S.
markets of dividend record dates and dividend ex-dates (i.e., the last date the
holder of a security can sell the security and still receive dividends payable
on the security sold) and in certain other circumstances. For each country
relating to the Fund, Appendix A hereto identifies the instances where more
than seven days would be needed to deliver redemption proceeds. Pursuant to an
order of the SEC the Company will make delivery of in-kind redemption proceeds
within the number of days stated in Appendix A to be the maximum number of days
necessary to deliver redemption proceeds.
If neither the redeeming Beneficial Owner nor the Authorized Participant acting
on behalf of such redeeming Beneficial Owner has appropriate arrangements to
take delivery of Fund Securities in the applicable foreign jurisdiction and it
is not possible to make other such arrangements, or if it is not possible to
effect deliveries of Fund Securities in such jurisdiction, the Company may in
its discretion exercise its option to redeem such shares in cash and the
redeeming Beneficial Owner will be required to receive its redemption proceeds
in cash. In such case, the investor will receive a cash payment equal to the
net asset value of its shares based on the NAV of shares of the Fund next
determined after the redemption request is received in proper form (minus a
redemption transaction fee and additional variable charge for cash redemptions
specified above, to offset the Company's brokerage and other transaction costs
associated with the disposition of portfolio securities of the Fund).
Redemptions of shares for Fund Securities will be subject to compliance with
applicable U.S. federal and state
27
securities laws and the Fund (whether or not it otherwise permits cash
redemptions) reserves the right to redeem Creation Units for cash to the extent
that the Fund could not lawfully deliver specific Fund Securities upon
redemptions or could not do so without first registering the Fund Securities
under such laws.
Although the Company does not ordinarily permit cash redemptions of Creation
Units, in the event that cash redemptions are permitted or required by the
Company, proceeds will be paid to the Authorized Participant redeeming shares
on behalf of the redeeming investor as soon as practicable after the date of
redemption (within seven calendar days thereafter, except for the instances
listed in Appendix A hereto where more than seven calendar days would be
needed).
To the extent contemplated by an Authorized Participant's agreement with the
Distributor, in the event an Authorized Participant has submitted a redemption
request in proper form but is unable to transfer all or part of the Creation
Units to be redeemed to the Company's Transfer Agent, the Distributor will
accept the redemption request in reliance on the undertaking by the Authorized
Participant to deliver the missing shares as soon as possible. Such undertaking
shall be secured by the Authorized Participant's delivery and maintenance of
collateral consisting of cash, in U.S. dollars in immediately available funds,
having a value at least equal to 110%, which BGFA may change from time to time,
of the value of the missing iShares in accordance with the Company's
then-effective procedures. Such cash collateral must be delivered no later than
2:00 p.m., Eastern time, on the contractual settlement date and shall be held
by State Street and marked to market daily. The fees of State Street and any
subcustodians in respect of the delivery, maintenance and redelivery of the
cash collateral shall be payable by the Authorized Participant. The cash
collateral posted by the Authorized Participant may be invested at the risk of
the Authorized Participant and income, if any, will be paid to that Authorized
Participant. The Authorized Participant Agreement permits the Company to
acquire the missing Fund Securities and the Cash Component underlying such
shares at any time and subjects the Authorized Participant to liability for any
shortfall between the cost to the Company of purchasing such shares, Fund
Securities or Cash Component and the value of the cash collateral.
Because the portfolio securities of the Fund may trade on exchange(s) on days
when the Listing Exchange is closed or on days that are otherwise not Business
Days for the Fund, shareholders may not be able to redeem their shares of the
Fund or purchase or sell shares of the Fund on the Listing Exchange on days
when the NAV of the Fund could be significantly affected by events in relevant
foreign markets.
Redemptions of shares for Fund Securities will be subject to compliance with
applicable federal and state securities laws and the Fund (whether or not it
otherwise permits cash redemptions) reserves the right to redeem Creation Units
for cash to the extent that the Company could not lawfully deliver specific
Fund Securities upon redemptions or could not do so without first registering
the Fund Securities under such laws. An Authorized Participant or an investor
for which it is acting subject to a legal restriction with respect to a
particular stock included in the Fund Securities applicable to the redemption
of a Creation Unit may be paid an equivalent amount of cash. This would
specifically prohibit delivery of Fund Securities that are not registered in
reliance upon Rule 144A under the 1933 Act to a redeeming Beneficial Owner that
is not a "qualified institutional buyer", as such term is defined under Rule
144A of the 1933 Act. The Authorized Participant may request the redeeming
Beneficial Owner of the shares to complete an order form or to enter into
agreements with respect to such matters as compensating cash payment.
The right of redemption may be suspended or the date of payment postponed with
respect to the Fund (i) for any period during which the applicable Listing
Exchange is closed (other than customary weekend and holiday closings);
(ii) for any period during which trading on the applicable Listing Exchange is
suspended or restricted (iii) for any period during which an emergency exists
as a result of which disposal of the shares of the Fund's portfolio securities
or determination of its net asset value is not reasonably practicable or
(iv) in such other circumstance as is permitted by the SEC.
Taxes
Regulated Investment Company Qualifications. The Fund intends to qualify for
and to elect treatment as a separate RIC under Subchapter M of the IRC. To
qualify for treatment as a RIC, the Fund must annually distribute at least 90%
of its net investment company taxable income (which includes dividends,
interest and net short-term capital gains) and meet several other requirements.
Among such other requirements are the following: (i) at least 90% of the Fund's
annual gross income must be derived from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock
or securities or foreign currencies, or other income (including gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies, and net income derived from
interests in qualified publicly traded partnerships (i.e., partnership that are
traded on an established securities market or tradable on a secondary market,
other than a partnership that derives 90% of its income from interest,
dividends, capital gains and other traditionally permitted mutual fund income);
and (ii) at the close of each quarter of the company's taxable year, (a) at
least 50% of the market value of the Fund's total assets must be represented by
cash and cash items, U.S. government securities, securities of other RICs and
other securities, with such other securities limited for purposes of this
calculation in respect of
28
any one issuer to an amount not greater than 5% of the value of the Fund's
assets and not greater than 10% of the outstanding voting securities of such
issuer, and (b) not more than 25% of the value of the Fund's total assets may
be invested in the securities of any one issuer, of two or more issuers of
which 20% or more of the voting stock is held by the Fund and that are engaged
in the same or similar trades or businesses or related trades or businesses
(other than the securities of other RICs) or the securities of one or more
qualified publicly traded partnerships.
Although in general the passive loss rules of the Code do no apply to RICs,
such rules do apply to a RIC with respect to items attributable to an interest
in a qualified publicly traded partnership. The Fund's investments in
partnerships, including in qualified publicly traded partnerships, may result
in the Fund being subject to state, local or foreign income, franchise or
withholding tax liabilities.
Taxation of RICs. As a RIC, the Fund will not be subject to U.S. federal income
tax on the portion of its taxable investment income and capital gains that it
distributes to its shareholders, provided that it satisfies the minimum
distribution requirement mentioned above. To satisfy the minimum distribution
requirement, the Fund must distribute to its shareholders at least 90% of its
"investment company taxable income" (i.e., income other than its net realized
long-term capital gain over its net realized short-term capital loss), plus or
minus certain adjustments. If the Fund fails to qualify for any taxable year as
a RIC or fails to meet the minimum distribution requirement, all of its taxable
income will be subject to tax at regular corporate income tax rates without any
deduction for distributions to shareholders, and such distributions (including
any distributions of net long-term capital gains) generally will be taxable to
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. In such event, distributions to individuals
should be eligible to be treated as qualified dividend income for taxable years
beginning prior to January 1, 2011, and distributions to corporate shareholders
generally should be eligible for the dividends-received deduction. Moreover, if
the Fund fails to qualify as a RIC in any year, it must pay out its earnings
and profits accumulated in that year in order to qualify again as a RIC. If the
Fund fails to qualify as a RIC for a period greater than two taxable years, the
Fund may be required to recognize any net built-in gains with respect to
certain of its assets (i.e., the excess of the aggregate gains, including items
of income, over aggregate losses that would have been realized with respect to
such assets if the Fund had been liquidated) if it qualifies as a RIC in a
subsequent year. Although the Fund intends to distribute substantially all of
its taxable income and capital gains for each taxable year, the Fund will be
subject to U.S. federal income taxation to the extent any such income or gains
are not distributed. If the Fund's distributions exceed its taxable income and
capital gains realized during a taxable year, all or a portion of the
distributions made in the taxable year may be recharacterized as a return of
capital to shareholders. A return of capital distribution generally will not be
taxable but will reduce the shareholder's cost basis and result in a higher
capital gain or lower capital loss when those shares on which the distribution
was received are sold.
Excise Tax. The Fund will be subject to a 4% excise tax on certain
undistributed income if it does not distribute to its shareholders in each
calendar year at least 98% of its ordinary income for the calendar year plus
98% of its capital gain net income for the 12 months ended October 31 of such
year. The Fund intends to declare and distribute dividends and distributions in
the amounts and at the times necessary to avoid the application of this 4%
excise tax.
Net Capital Loss Carryforwards. Net capital loss carryforwards may be applied
against any net realized capital gains in each succeeding year, or until their
respective expiration dates, whichever occurs first.
Taxation of Certain Derivatives. The Fund's transactions in zero coupon
securities, foreign currencies, forward contracts, options and futures
contracts (including options and futures contracts on foreign currencies), to
the extent permitted, will be subject to special provisions of the Code
(including provisions relating to "hedging transactions" and "straddles") that,
among other things, may affect the character of gains and losses realized by
the Fund (i.e., may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to the Fund and defer Fund losses. These rules
could therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (a) will require the Fund to mark-to-market
certain types of the positions in its portfolio (i.e., treat them as if they
were closed out at the end of each year) and (b) may cause the Fund to
recognize income without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the distribution requirements for
avoiding income and excise taxes. The Fund will monitor its transactions, will
make the appropriate tax elections and will make the appropriate entries in its
books and records when it acquires any foreign currency, forward contract,
futures contract or hedged investment in order to mitigate the effect of these
rules and prevent disqualification of the Fund as a RIC.
In certain situations, the Fund may, for a taxable year, defer all or a portion
of its capital losses and currency losses realized after October until the next
taxable year in computing its investment company taxable income and net capital
gain, which will defer the recognition of such realized losses. Such deferrals
and other rules regarding gains and losses realized after October may affect
the timing and tax character of shareholder distributions.
The Fund's investment in so-called "section 1256 contracts," such as regulated
futures contracts, most foreign currency forward contracts traded in the
interbank market and options on most stock indices, are subject to special tax
rules. All section 1256 contracts held by the Fund at the end of its taxable
year are required to be marked to their market value, and any unrealized gain
or loss on those positions will be included in the Fund's income as if each
position had been sold for its fair market value at the end of the taxable
year. The resulting gain or loss will be combined with any gain or loss
realized by the Fund from positions in section 1256 contracts closed during the
taxable year. Provided such positions were held as capital assets and were not
part of a "hedging transaction" nor part of a "straddle," 60% of the resulting
net gain or loss will be treated as long-term capital gain or loss, and 40% of
such net gain or loss will be treated as short-term capital gain or loss,
regardless of the period of time the positions were actually held by the Fund.
29
As a result of entering into swap contracts, the Fund may make or receive
periodic net payments. The Fund may also make or receive a payment when a swap
is terminated prior to maturity through an assignment of the swap or other
closing transaction. Periodic net payments will generally constitute ordinary
income or deductions, while termination of a swap will generally result in
capital gain or loss (which will be a long-term capital gain or loss if the
Fund has been a party to the swap for more than one year). With respect to
certain types of swaps, the Fund may be required to currently recognize income
or loss with respect to future payments on such swaps or may elect under
certain circumstances to mark such swaps to market annually for tax purposes as
ordinary income or loss. The tax treatment of many types of credit default
swaps is uncertain.
Taxation of U.S. Shareholders. Dividends and other distributions by the Fund
are generally treated under the IRC as received by the shareholders at the time
the dividend or distribution is made. However, any dividend or distribution
declared by the Fund in October, November or December of any calendar year and
payable to shareholders of record on a specified date in such a month shall be
deemed to have been received by each shareholder on December 31 of such
calendar year and to have been paid by the Fund not later than such
December 31, provided such dividend is actually paid by the Fund during January
of the following calendar year.
The Fund intends to distribute annually to its shareholders substantially all
of its investment company taxable income, and any net realized long-term
capital gains in excess of net realized short-term capital losses (including
any capital loss carryovers). However, if the Fund retains for investment an
amount equal to all or a portion of its net long-term capital gains in excess
of its net short-term capital losses (including any capital loss carryovers),
it will be subject to a corporate tax (currently at a maximum rate of 35%) on
the amount retained. In that event, the Fund will designate such retained
amounts as undistributed capital gains in a notice to its shareholders who
(a) will be required to include in income for U.S. federal
30
income tax purposes, as long-term capital gains, their proportionate shares of
the undistributed amount, (b) will be entitled to credit their proportionate
shares of the 35% tax paid by the Fund on the undistributed amount against
their U.S. federal income tax liabilities, if any, and to claim refunds to the
extent their credits exceed their liabilities, if any, and (c) will be entitled
to increase their tax basis, for U.S. federal income tax purposes, in their
shares by an amount equal to 65% of the amount of undistributed capital gains
included in the shareholder's income. Organizations or persons not subject to
U.S. federal income tax on such capital gains will be entitled to a refund of
their pro rata share of such taxes paid by the Fund upon filing appropriate
returns or claims for refund with the Internal Revenue Service (the "IRS").
Distributions of net realized long-term capital gains, if any, that the Fund
designates as capital gains dividends are taxable as long-term capital gains,
whether paid in cash or in shares and regardless of how long a shareholder has
held shares of the Fund. All other dividends of the Fund (including dividends
from short-term capital gains) from its current and accumulated earnings and
profits ("regular dividends") are generally subject to tax as ordinary income,
subject to the discussion of qualified dividend income below.
If an individual receives a regular dividend qualifying for the long-term
capital gains rates and such dividend constitutes an "extraordinary dividend,"
and the individual subsequently recognizes a loss on the sale or exchange of
stock in respect of which the extraordinary dividend was paid, then the loss
will be long-term capital loss to the extent of such extraordinary dividend. An
"extraordinary dividend" on common stock for this purpose is generally a
dividend (i) in an amount greater than or equal to 10% of the taxpayer's tax
basis (or trading value) in a share of stock, aggregating dividends with
ex-dividend dates within an 85-day period; or (ii) in an amount greater than
20% of the taxpayer's tax basis (or trading value) in a share of stock,
aggregating dividends with ex-dividend dates within a 365-day period.
Distributions in excess of the Fund's current and accumulated earnings and
profits will, as to each shareholder, be treated as a tax-free return of
capital to the extent of a shareholder's basis in his shares of the Fund, and
as a capital gain thereafter (if the shareholder holds his shares of the Fund
as capital assets). Shareholders receiving dividends or distributions in the
form of additional shares should be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive
and should have a cost basis in the shares received equal to such amount.
Dividends paid by the Fund that are attributable to dividends received by the
Fund from domestic corporations may qualify for the federal dividends-received
deduction for corporations.
Investors considering buying shares just prior to a dividend or capital gain
distribution should be aware that, although the price of shares just purchased
at that time may reflect the amount of the forthcoming distribution, such
dividend or distribution may nevertheless be taxable to them. If the Fund is
the holder of record of any stock on the record date for any dividends payable
with respect to such stock, such dividends will be included in the Fund's gross
income not as of the date received but as of the later of (a) the date such
stock became ex-dividend with respect to such dividends (i.e., the date on
which a buyer of the stock would not be entitled to receive the declared, but
unpaid, dividends); or (b) the date the Fund acquired such stock. Accordingly,
in order to satisfy its income distribution requirements, the Fund may be
required to pay dividends based on anticipated earnings, and shareholders may
receive dividends in an earlier year than would otherwise be the case.
Back-Up Withholding. In certain cases, the Fund will be required to withhold at
the applicable withholding rate (currently 28%), and remit to the U.S. Treasury
such amounts withheld from any distributions paid to a shareholder who: (1) has
failed to provide a correct taxpayer identification number; (2) is subject to
back-up withholding by the IRS; (3) has failed to certify to the Fund that such
shareholder is not subject to back-up withholding; or (4) has not certified
that such shareholder is a U.S. person (including a U.S. resident alien).
Sections 351 and 362. The Company, on behalf of the Fund, has the right to
reject an order for a purchase of shares of the Fund if the purchaser (or group
of purchasers) would, upon obtaining the shares so ordered, own 80% or more of
the outstanding shares of the Fund and if, pursuant to Sections 351 and 362 of
the IRC, the Fund would have a basis in the securities different from the
market value of such securities on the date of deposit. If the Fund's basis in
such securities on the date of deposit was less than market value on such date,
the Fund, upon disposition of the securities, would recognize more taxable gain
or less taxable loss than if its basis in the securities had been equal to
market value. It is not anticipated that the Company will exercise the right of
rejection except in a case where the Company determines that accepting the
order could result in material adverse tax consequences to the Fund or its
shareholders. The Company also has the right to require information necessary
to determine beneficial share ownership for purposes of the 80% determination.
Qualified Dividend Income. Distributions by the Fund of investment company
taxable income (excluding any short-term capital gains) whether received in
cash or shares will be taxable either as ordinary income or as qualified
dividend income, eligible for the reduced maximum rate to individuals of 15%
(0% for individuals in lower tax brackets) to the extent the Fund receives
qualified dividend income on the securities it holds and the Fund designates
the distribution as qualified dividend income. Qualified dividend income is, in
general, dividend income from taxable domestic corporations (but generally not
31
U.S. REITs) and certain foreign corporations (e.g., foreign corporations which
are not "passive foreign investment companies" and which are incorporated in a
possession of the U.S. or in certain countries with a comprehensive tax treaty
with the U.S., or the stock of which is readily tradable on an established
securities market in the U.S.). The United States currently has a comprehensive
income tax treaty with the following countries: Australia, Austria, Bangladesh,
Barbados, Belgium, Canada, China, Cyprus, the Czech Republic, Denmark, Egypt,
Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia,
Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea, Latvia, Lithuania,
Luxembourg, Mexico, Morocco, Netherlands, New Zealand, Norway, Pakistan, the
Philippines, Poland, Portugal, Romania, Russian Federation, Slovak Republic,
Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Thailand,
Trinidad and Tobago, Tunisia, Turkey, Ukraine, the United Kingdom, and
Venezuela. A dividend from the Fund will not be treated as qualified dividend
income to the extent that (i) the shareholder has not held the shares on which
the dividend was paid for 61 days during the 121-day period that begins on the
date that is 60 days before the date on which the shares become ex dividend
with respect to such dividend (or the Fund fails to satisfy those holding
period requirements with respect to the securities it holds that paid the
dividends distributed to the shareholder or, in the case of certain preferred
stock, the holding period requirement of 91 days during the 181-day period
beginning on the date that is 90 days before the date on which the stock
becomes ex-dividend with respect to such dividend); (ii) the Fund or the
shareholder is under an obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to substantially similar or
related property; or (iii) the shareholder elects to treat such dividend as
investment income under section 163(d)(4)(B) of the IRC. Dividends received by
the fund from a REIT or another RIC may be treated as qualified dividend income
only to the extent the dividend distributions are attributable to qualified
dividend income received by such REIT or other RIC. It is expected that
dividends received by the Fund from a REIT and distributed to a shareholder
generally will be taxable to the shareholder as ordinary income. Absent further
legislation, the maximum 15% rate on qualified dividend income will not apply
to dividends received in taxable years beginning after December 31, 2010.
Distributions by the Fund of its net short-term capital gains will be taxable
as ordinary income. Capital gain distributions consisting of the Fund's net
capital gains will be taxable as long-term capital gains.
Corporate Dividends Received Deduction. The Fund does not expect its dividends
paid to corporate shareholders to be eligible, in the hands of such
shareholders, for the corporate dividends received deduction.
Excess Inclusion Income. Certain types of income received by the Fund from
REITs, real estate mortgage investment conduits, taxable mortgage pools or
other investments may cause the Fund to designate some or all of its
distributions as "excess inclusion income." To Fund shareholders, such excess
inclusion income may (1) constitute taxable income, as "unrelated business
taxable income" for those shareholders who would otherwise be tax-exempt such
as individual retirement accounts, 401(k) accounts, Keogh plans, pension plans
and certain charitable entities; (2) not be offset by otherwise allowable
deductions for tax purposes; (3) not be eligible for reduced U.S. withholding
for non- U.S. shareholders even from tax treaty countries; and (4) cause the
Fund to be subject to tax if certain "disqualified organizations" as defined by
the IRC are Fund shareholders.
Foreign Investments. Dividends or other income (including, in some cases,
capital gains) received by the Fund from investments in foreign securities may
be subject to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes in some cases. If more than 50% of the Fund's total assets
at the close of its taxable year consists of stock or securities of foreign
corporations, the Fund may elect for U.S. income tax purposes to treat foreign
income taxes paid by it as paid by its shareholders. The Fund may qualify for
and make this election in some, but not necessarily all, of its taxable years.
If the Fund were to make an election, shareholders of the Fund would be
required to take into account an amount equal to their pro rata portions of
such foreign taxes in computing their taxable income and then treat an amount
equal to those foreign taxes as a U.S. federal income tax deduction or as a
foreign tax credit against their U.S. federal income taxes. Shortly after any
year for which it makes such an election, the Fund will report to its
shareholders the amount per share of such foreign income tax that must be
included in each shareholder's gross income and the amount which will be
available for the deduction or credit. No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions. Certain limitations
will be imposed on the extent to which the credit (but not the deduction) for
foreign taxes may be claimed.
Under Section 988 of the IRC, gains or losses attributable to fluctuations in
exchange rates between the time the Fund accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time
the Fund actually collects such income or pays such liabilities are generally
treated as ordinary income or ordinary loss. Similarly, gains or losses on
foreign currency, foreign currency forward contracts, certain foreign currency
options or futures contracts and the disposition of debt securities denominated
in foreign currency, to the extent attributable to fluctuations in exchange
rates between the acquisition and disposition dates, are also treated as
ordinary income or loss unless the Fund were to elect otherwise.
Passive Foreign Investment Companies. If the Fund purchases shares in certain
foreign investment entities, called "passive foreign investment companies"
("PFICs"), it may be subject to U.S. federal income tax on a portion of any
"excess distribution" or gain from the disposition of such shares even if such
income is distributed as a taxable dividend by the Fund to its shareholders.
Additional charges in the nature of interest may be imposed on the Fund in
respect of deferred taxes arising from such distributions or gains.
If the Fund were to invest in a PFIC and elect to treat the PFIC as a
"qualified electing fund" under the IRC, in lieu of the foregoing requirements,
the Fund might be required to include in income each year a portion of the
ordinary earnings and net
32
capital gains of the qualified electing fund, even if not distributed to the
Fund, and such amounts would be subject to the 90% and excise tax distribution
requirements described above. In order to make this election, the Fund would be
required to obtain certain annual information from the PFICs in which it
invests, which may be difficult or impossible to obtain.
Alternatively, the Fund may make a mark-to-market election that will result in
the Fund being treated as if it had sold and repurchased its PFIC stock at the
end of each year. In such case, the Fund would report any such gains as
ordinary income and would deduct any such losses as ordinary losses to the
extent of previously recognized gains. The election must be made separately for
each PFIC owned by the Fund and, once made, would be effective for all
subsequent taxable years, unless revoked with the consent of the IRS. By making
the election, the Fund could potentially ameliorate the adverse tax
consequences with respect to its ownership of shares in a PFIC, but in any
particular year may be required to recognize income in excess of the
distributions it receives from PFICs and its proceeds from dispositions of PFIC
stock. The Fund may have to distribute this "phantom" income and gain to
satisfy the 90% distribution requirement and to avoid imposition of the 4%
excise tax.
The Fund will make the appropriate tax elections, if possible, and take any
additional steps that are necessary to mitigate the effect of these rules.
Sales of Shares. Upon the sale or exchange of his shares, a shareholder will
realize a taxable gain or loss equal to the difference between the amount
realized and his basis in his shares. A redemption of shares by the Fund will
be treated as a sale for this purpose. Such gain or loss will be treated as
capital gain or loss if the shares are capital assets in the shareholder's
hands, and will be long-term capital gain or loss if the shares are held for
more than one year and short-term capital gain or loss if the shares are held
for one year or less. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced, including
replacement through the reinvesting of dividends and capital gains
distributions in the Fund, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of the shares. In such a case, the basis
of the shares acquired will be increased to reflect the disallowed loss. Any
loss realized by a shareholder on the sale of the Fund share held by the
shareholder for six months or less will be treated for U.S. federal income tax
purposes as a long-term capital loss to the extent of any distributions or
deemed distributions of long-term capital gains received by the shareholder
with respect to such share. If a shareholder incurs a sales charge in acquiring
shares of the Fund, disposes of those shares within 90 days and then acquires
shares in a mutual fund for which the otherwise applicable sales charge is
reduced by reason of a reinvestment right (e.g., an exchange privilege), the
original sales charge will not be taken into account in computing gain/loss on
the original shares to the extent the subsequent sales charge is reduced.
Instead, the disregarded portion of the original sales charge will be added to
the tax basis of the newly-acquired shares. Furthermore, the same rule also
applies to a disposition of the newly acquired shares made within 90 days of
the second acquisition. This provision prevents a shareholder from immediately
deducting the sales charge by shifting his or her investment within a family of
funds.
Other Taxes. Dividends, distributions and redemption proceeds may also be
subject to additional state, local and foreign taxes depending on each
shareholder's particular situation.
Taxation of Non-U.S. Shareholders. Dividends paid by the Fund to non-U.S.
shareholders are generally subject to withholding tax at a 30% rate or a
reduced rate specified by an applicable income tax treaty to the extent derived
from investment income and short-term capital gains. In order to obtain a
reduced rate of withholding, a non-U.S. shareholder will be required to provide
an IRS Form W-8BEN certifying its entitlement to benefits under a treaty. The
withholding tax does not apply to regular dividends paid to a non-U.S.
shareholder who provides a Form W-8ECI, certifying that the dividends are
effectively connected with the non-U.S. shareholder's conduct of a trade or
business within the United States. Instead, the effectively connected dividends
will be subject to regular U.S. income tax as if the non-U.S. shareholder were
a U.S. shareholder. A non-U.S. corporation receiving effectively connected
dividends may also be subject to additional "branch profits tax" imposed at a
rate of 30% (or lower treaty rate). A non-U.S. shareholder who fails to provide
an IRS Form W-8BEN or other applicable form may be subject to back-up
withholding at the appropriate rate.
In general, United States federal withholding tax will not apply to any gain or
income realized by a non-U.S. shareholder in respect of any distributions of
net long-term capital gains over net short-term capital losses, exempt-interest
dividends, or upon the sale or other disposition of shares of the Fund.
A distribution from the Fund to foreign shareholders who have held more than 5%
of the Fund at any time during the one-year period ending on the date of
distribution is treated as real property gain subject to 35% withholding tax
and treated as income effectively connected to a U.S. trade or business with
certain tax filing requirements applicable if such distribution is attributable
to a distribution of real property gain received by the Fund from a REIT and if
50% or more of the value of the Fund's assets are invested in REITs and other
U.S. real property holding corporations. Restrictions apply regarding wash
sales and substitute payment transactions.
Reporting. If a shareholder recognizes a loss with respect to the Fund's shares
of $2 million or more for an individual shareholder or $10 million or more for
a corporate shareholder, the shareholder must file with the IRS a disclosure
statement on Form 8886. Direct shareholders of portfolio securities are in many
cases exempted from this reporting requirement, but
33
under current guidance, shareholders of a RIC are not exempted. The fact that a
loss is reportable under these regulations does not affect the legal
determination of whether the taxpayer's treatment of the loss is proper.
Shareholders should consult their tax advisors to determine the applicability
of these regulations in light of their individual circumstances.
The foregoing discussion is a summary only and is not intended as a substitute
for careful tax planning. Purchasers of shares should consult their own tax
advisers as to the tax consequences of investing in such shares, including
under state, local and foreign tax laws. Finally, the foregoing discussion is
based on applicable provisions of the IRC, regulations, judicial authority and
administrative interpretations in effect on the date of this SAI. Changes in
applicable authority could materially affect the conclusions discussed above,
and such changes often occur.
Financial Statements
Financial statements for the Fund are not available because, as of the date of
this SAI, the Fund has no financial information to report.
Miscellaneous Information
Counsel. Willkie Farr & Gallagher LLP, located at 787 Seventh Avenue, New York,
NY 10019, is counsel to the Company.
Independent Registered Public Accounting Firm. ______, located at ______,
serves as the Company's independent registered public accounting firm, audits
the Fund's financial statements, and may perform other services.
Shareholder Communications to the Board. Shareholders may make inquiries by
writing to the Company, c/o the Distributor, SEI Investments Distribution Co.,
at One Freedom Valley Drive, Oaks, PA 19456. The Board has established a
process for shareholders to communicate with the Board. Shareholders may
contact the Board by mail. Correspondence should be addressed to: iShares Board
of Directors, c/o Barclays Global Investors, N.A. Mutual Fund Administration,
45 Fremont Street, San Francisco, CA 94105. Shareholder communications to the
Board should include the following information: (i) the name and address of the
shareholder; (ii) the number of shares owned by the shareholder; (iii) the
Fund(s) of which the shareholder owns share; and (iv) if these shares are owned
indirectly through a broker, financial intermediary or other record owner, the
name of the broker, financial intermediary or other record owner. All
correspondence received as set forth above shall be reviewed by the Secretary
of the Company and reported to the Board.
34
APPENDIX A
The Fund generally intends to effect deliveries of Creation Units and Fund
Securities on a basis of "T" plus three Business Days (i.e., days on which the
NYSE Arca is open). The Fund may effect deliveries of Creation Units and Fund
Securities on a basis other than T plus 3 or T plus five in order to
accommodate local holiday schedules, to account for different treatment among
foreign and U.S. markets of dividend record dates and ex-dividend dates and
under certain other circumstances. For every occurrence of one or more
intervening holidays in the applicable foreign market that are not holidays
observed in the U.S. equity market, the redemption settlement cycle will be
extended by the number of such intervening holidays. In addition to holidays,
other unforeseeable closings in a foreign market due to emergencies may also
prevent the Company from delivering securities within normal settlement period.
The securities delivery cycles currently practicable for transferring Fund
Securities to redeeming investors, coupled with foreign market holiday
schedules, will require a delivery process longer than seven calendar days for
the Fund in certain circumstances. The holidays applicable to the Fund during
such periods, if any, are listed below, as are instances where more than seven
days will be needed to deliver redemption proceeds. Although certain holidays
may occur on different dates in subsequent years, the number of days required
to deliver redemption proceeds in any given year is not expected to exceed the
maximum number of days listed below for the Fund. The proclamation of new
holidays, the treatment by market participants of certain days as "informal
holidays" (e.g., days on which no or limited securities transactions occur, as
a result of substantially shortened trading hours), the elimination of existing
holidays, or changes in local securities delivery practices, could affect the
information set forth herein at some time in the future.
Regular Holidays. The dates of the regular holidays in the calendar year 2008
in the Czech Republic, Hungary, Poland, Russia and are as follows:
The Czech Republic
Jan 1 Oct 28 Dec 26
Mar 24 Nov 17 Dec 31
May 1 Dec 24
May 8 Dec 25
Hungary
Jan 1 May 12 Dec 24
March 24 Aug 20 Dec 25
May 1 Oct 23 Dec 26
May 2 Oct 24
Poland
Jan 1 May 22 Nov 11
March 21 June 7 Dec 25
March 24 June 22 Dec 26
May 1 Aug 15
35
Russia
Jan 1-4 May 1-2
Jan 7-9 May 9
Feb 25 June 12-13
March 10 Nov 3-4
Redemption. The longest redemption cycle for the iShares MSCI Emerging Markets
Eastern Europe Index Fund is a function of the longest redemption cycles among
the countries whose stocks comprise this Fund. In the calendar year 2008, the
dates of the regular holidays affecting the following securities markets
present the worst-case redemption cycle for the iShares MSCI Emerging Markets
Eastern Europe Index Fund as follows:
Redemption Redemption
Request Settlement Settlement
Country Date Date(R) Period
------- ---------- ---------- ----------
Russia* 12/26/07 01/08/08 13
12/27/07 01/09/08 13
12/28/07 01/10/08 13
* Settlement cycle in Russia is negotiated on a transaction by transaction
basis. The settlement periods shown above are based on a "T plus 3" cycle.
This information is current as of November 1, 2007. Holidays are subject to
change without notice.
In the calendar year 2008, 13 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on iShares MSCI
Emerging Markets Eastern Europe Index Fund.
36
iShares, Inc.
Files Nos. File Nos. 33-97598 and 811-09102
Part C
Other Information
Item 23. Exhibits
PEA # 58
Exhibit
Number Description
------- ----------------------------------------------------------------------
(a.1) Articles of Restatement, filed September 15, 2006, are incorporated
herein by reference to Post-Effective Amendment No. 31 to the
Registration Statement, filed on December 22, 2006 ("PEA No. 31").
(a.2) Articles of Amendment, filed December 20, 2006, are incorporated
herein by reference to PEA No. 31.
(a.3) Articles Supplementary, filed December 20, 2006, are incorporated
herein by reference to PEA No. 31.
(a.4) Articles Supplementary, filed July 18, 2007, are incorporated herein
by reference to Post-Effective Amendment No. 35 to the Registration
Statement, filed on July 19, 2007.
(a.5) Articles of Amendment, filed March 25, 2008, are incorporated herein
by reference to Post-Effective Amendment No. 55 to the Registration
Statement, filed on March 26, 2008 ("PEA No. 55").
(a.6) Articles Supplementary, filed March 25, 2008, are incorporated herein
by reference to PEA No. 55.
(b.1) Amended and Restated By-Laws are incorporated herein by reference to
Post-Effective Amendment No. 32 to the Registration Statement, filed
on April 16, 2007 ("PEA No. 32").
(c.) None.
(d.1) Investment Management Agreement between Registrant and Barclays Global
Fund Advisors ("BGFA") is incorporated herein by reference to PEA
No. 31.
(d.2) Amended Schedule A to Investment Management Agreement to be filed by
amendment.
(e.1) Distribution Agreement between Registrant and SEI Investments
Distribution Co., dated March 27, 2000, are incorporated herein by
reference to Post-Effective Amendment No. 18 to the Registration
Statement, filed on December 29, 2000 ("PEA No. 18").
(e.2) Amended Exhibit A to Distribution Agreement to be filed by amendment.
(e.3) Form of Authorized Participant Agreement is incorporated herein by
reference to Post-Effective Amendment No. 27 to the Registration
Statement, filed on December 30, 2003.
(e.4) Form of Sales and Investor Services Agreement incorporated herein by
reference to PEA No. 18.
(f.) None.
(g.1) Custodian Agreement between Registrant and Investors Bank & Trust
Company ("IBT/1/"), dated May 21, 2002, is incorporated herein by
reference to exhibit (g.3) of Post-Effective Amendment No. 26 to the
Registration Statement, filed on December 30, 2002 ("PEA No. 26").
(g.2) Amendment, dated December 31, 2002, to the Custodian Agreement is
incorporated herein by reference to exhibit (g.3) to PEA No. 31.
(g.3) Amendment, dated January 1, 2006, to the Custodian Agreement is
incorporated herein by reference to exhibit (g.4) to PEA No. 31.
(g.4) Appendix A to Custodian Agreement to be filed by amendment.
(h.1) Administration Agreement between Registrant and IBT/1/, dated May 21,
2002, is incorporated herein by reference to exhibit (h.3) of PEA No.
26.
(h.2) Amendment, dated January 1, 2006, to the Administration Agreement is
incorporated herein by reference to exhibit (h.3) to PEA No. 31.
(h.3) Amendment, dated January 1, 2007, to the Administration Agreement is
incorporated herein by reference to exhibit (h.4) to PEA No. 32.
(h.4) Appendix A to Administration Agreement to be filed by amendment.
(h.5) Transfer Agency and Service Agreement between Registrant and IBT/1/,
dated May 21, 2002, is incorporated herein by reference to exhibit
(h.7) of PEA No. 26.
(h.6) Amendment, dated May 21, 2002, to the Transfer Agency and Service
Agreement is incorporated herein by reference to exhibit (h.7) to PEA
No. 31.
(h.7) Amendment, dated September 1, 2004, to the Transfer Agency and Service
Agreement is incorporated herein by reference to exhibit (h.8) to PEA
No. 31.
(h.8) Amendment, dated January 1, 2006, to the Transfer Agency and Service
Agreement is incorporated herein by reference to exhibit (h.9) to PEA
No. 31.
(h.9) Appendix A to Transfer Agency and Service Agreement to be filed by
amendment.
(h.10) Sub-License Agreement between Registrant and Barclays Global Investors
with respect to the use of the MSCI Indexes, dated May 8, 2000, is
incorporated herein by reference to PEA No. 18.
(h.11) Amendment to the Sub-License Agreement between Registrant and Barclays
Global Investors with respect to the use of the MSCI Indexes is
incorporated by reference to PEA No. 55.
(h.12) Securities Lending Agency Agreement, dated April 2, 2007, between
Registrant and iShares Trust and Barclay's Global Investors is
incorporated herein by reference to PEA No. 32.
(h.13) Appendix A to Securities Lending Agency Agreement between BGI and the
Registrant to be filed by amendment.
(i.) Legal Opinion and Consent of Venable LLP is filed herein.
(j.) Consent of PricewaterhouseCoopers LLP to be filed by amendment.
(k.) None.
(l.1) Subscription Agreement between the Registrant and Funds Distributor,
Inc. is incorporated herein by reference to Pre-Effective Amendment
No. 3 to the Registration Statement, filed on March 6, 1999.
(l.2) Letter of Representations among the Registrant, Depository Trust
Company ("DTC") and Morgan Stanley Trust Company Exhibit is
incorporated herein by reference to Pre-Effective Amendment No. 2 to
the Registration Statement, filed on March 1, 1996, to the Company's
initial registration statement on Form N-1A filed on September 29, 1995.
(l.3) Letter of Representations between the Registrant and DTC, dated May 5,
2000, is incorporated herein by reference to PEA No. 18.
(l.4) Letter of Representations between the Registrant and DTC dated October
15, 2001 is incorporated herein by reference to Post-Effective
Amendment No. 21 to the Registration Statement, filed on October 22,
2001.
(m.) Amended Plan of Distribution pursuant to Rule 12b-1 is incorporated
herein by reference to Post-Effective Amendment No. 24 to the
Registration Statement filed on September 19, 2002.
(n.) None.
(o.) Not applicable.
(p.1) Code of Ethics of the Registrant is incorporated herein by reference to
Post-Effective Amendment No. 30 to the Registration Statement, filed on
December 22, 2005 ("PEA No. 30").
(p.2) Code of Ethics of BGFA is incorporated herein by reference to PEA No.
30.
(q.) Powers of Attorney, each dated September 18, 2007, for Michael A.
Latham, Lee T. Kranefuss, John E. Martinez, George G.C. Parker, Cecilia
H. Herbert, John E. Kerrigan, Charles A. Hurty, and Robert H. Silver
are incorporated by reference to Post-Effective Amendment No. 42 to the
Registration Statement, filed November 9, 2007 ("PEA No. 42").
Item 24. Persons Controlled By or Under Common Control with Registrant.
iShares MSCI Belgium Index Fund
Citigroup Global Markets Inc............ 44.70%
iShares MSCI EMU Index Fund
Deutsche Bank Securities Inc./Cedear.... 31.81%
iShares Netherlands Index Fund
A.G. Edwards & Sons, Inc................ 25.83%
iShares Spain Index Fund
Citigroup Global Markets Inc............ 26.46%
iShares MSCI South Africa Index Fund
State Street Bank and Trust Company..... 28.25%
Item 25. Indemnification.
Incorporated herein by reference to Post-Effective Amendment No. 7 to the
Registration Statement, filed on January 15, 1997.
Item 26. Business and Other Connections of Investment Adviser.
The Fund is advised by BGFA, a wholly owned subsidiary of Barclays Global
Investors, N.A. ("BGI"), 45 Fremont Street, San Francisco, CA 94105. BGFA's
business is that of a registered investment adviser to certain open-end,
management investment companies and various other institutional investors.
The directors and officers of BGFA consist primarily of persons who during
the past two years have been active in the investment management business. Each
of the directors and executive officers of BGFA will also have substantial
responsibilities as directors and/or officers of BGI. To the knowledge of the
Registrant, except as set forth below, none of the directors or executive
officers of BGFA is or has been at any time during the past two fiscal years
engaged in any other business, profession, vocation or employment of a
substantial nature.
Name and Position Principal Business(es) During the Last Two Fiscal Years
----------------- ------------------------------------------------------------
Blake Grossman Director and Chairman of the Board of Directors of BGFA and
Chairman Chief Executive Officer and Director of BGI
45 Fremont Street, San Francisco, CA 94105
Frank Ryan Chief Financial Officer of BGFA and Chief Financial Officer
Officer and Cashier of BGI
45 Fremont Street, San Francisco, CA 94105
Rohit Bhagat Director and Chief Operating Officer of BGFA and BGI
Director 45 Fremont Street, San Francisco, CA 94105
Item 27. Principal Underwriters:
(a) Furnish the name of each investment company (other than the Registrant) for
which each principal underwriter currently distributing the securities of
the Registrant also acts as a principal underwriter, distributor or
investment adviser.
Registrant's distributor, SEI Investments Distribution Co. ("SEI") acts as
distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Advisors' Inner Circle Fund II January 28, 1993
Bishop Street Funds January 27, 1995
SEI Asset Allocation Trust April 1, 1996
SEI Institutional Investments Trust June 14, 1996
Oak Associates Funds February 27, 1998
CNI Charter Funds April 1, 1999
iShares Trust April 25, 2000
Optique Funds, Inc. November 1, 2000
Causeway Capital Management Trust September 20, 2001
Barclays Global Investors Funds March 31, 2003
SEI Opportunity Fund, LP October 1, 2003
The Arbitrage Funds May 17, 2005
The Turner Funds January 1, 2006
ProShares Trust November 14, 2005
Community Reinvestment Act Qualified Investment Fund January 8, 2007
Accessor Funds March 1, 2007
SEI Alpha Strategy Portfolios, LP June 29, 2007
TD Asset Management USA Funds July 25, 2007
SEI Structured Credit Fund, LP July 31, 2007
SEI provides numerous financial services to investment managers, pension plan
sponsors, and bank trust departments. These services include portfolio
evaluation, performance measurement and consulting services ("Funds
Evaluation") and automated execution, clearing and settlement of securities
transactions ("MarketLink").
(b) Furnish the information required by the following table with respect to
each director, officer or partner of each principal underwriter named in
the answer to Item 20 of Part B. Unless otherwise noted, the business
address of each director or officer is One Freedom Valley Drive, Oaks, PA
19456.
Positions and
Offices with
Name Position and Office with Underwriter Registrant
---- ------------------------------------ -------------
William M. Doran Director --
Edward D. Loughlin Director --
Wayne M. Withrow Director --
Kevin Barr President & Chief Executive Officer --
Maxine Chou Chief Financial Officer & Treasurer --
Thomas Rodman Chief Operations Officer --
John Munch General Counsel & Secretary --
Karen LaTourette Chief Compliance Officer, Anti-Money --
Laundering Officer & Assistant Secretary
Mark J. Held Senior Vice President --
Lori L. White Vice President & Assistant Secretary --
Robert Silvestri Vice President --
John Coary Vice President & Assistant Secretary --
Michael Farrell Vice President --
Robert McCarthy Vice President --
John Cronin Vice President --
(c) Not applicable.
Item 28. Location of Accounts and Records
(a) The Fund maintains accounts, books and other documents required by
Section 31(a) of the Investment Company Act of 1940 and the rules thereunder
(collectively, the "Records") at the offices of IBT/1/, 200 Clarendon Street,
Boston, MA 02116.
(b) BGFA maintains all Records relating to its services as advisor at 45
Fremont Street, San Francisco, CA, 94105.
(c) SEI maintains all Records relating to its services as distributor at One
Freedom Valley Drive, Oaks, PA 19456.
(d) IBT/1/ maintains all Records relating to its services as transfer agent,
fund accountant and custodian at 200 Clarendon Street, Boston, MA 02116.
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
(a) The Company hereby undertakes to call a meeting of the shareholders for the
purpose of voting upon the question of removal of any Director when requested
in writing to do so by the holders of at least 10% of the Company's outstanding
shares of common stock and, in connection with such meeting to comply with the
provisions of Section 16(c) of the 1940 Act relating to shareholder
communications.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
--------
/1/ On July 2, 2007, State Street Corporation acquired Investors Financial
Services Corporation, the parent company of IBT which provides
administrative, custodial and transfer agency services for the Funds.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment No. 58 to the Registration Statement to be signed on
its behalf by the undersigned, duly authorized, in the City of San Francisco
and the State of California on the 2nd of April 2008.
By:
------------------------------
Michael A. Latham*
President
Date: April 2, 2008
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 58 to the Registration Statement has been signed
below by the following persons in the capacity and on the dates indicated.
By:
------------------------------
Lee T. Kranefuss*
Director
Date: April 2, 2008
------------------------------
John E. Martinez*
Director
Date: April 2, 2008
------------------------------
George G. C. Parker*
Director
Date: April 2, 2008
------------------------------
Cecilia H. Herbert*
Director
Date: April 2, 2008
------------------------------
Charles A. Hurty*
Director
Date: April 2, 2008
------------------------------
John E. Kerrigan*
Director
Date: April 2, 2008
------------------------------
Robert H. Silver*
Director
Date: April 2, 2008
------------------------------
Michael Latham*
President
Date: April 2, 2008
/s/ Geoffrey D. Flynn
------------------------------
Geoffrey D. Flynn
Treasurer
Date: April 2, 2008
*By: /s/ Geoffrey D. Flynn
------------------------------
Geoffrey D. Flynn
Attorney in fact
Date: April 2, 2008
* Powers of Attorney, each dated September 18, 2007, for Michael A. Latham, Lee
T. Kranefuss, John E. Martinez, George G.C. Parker, Cecilia H. Herbert,
Charles A. Hurty, John E. Kerrigan, and Robert H. Silver are incorporated by
reference to Post-Effective Amendment No. 42.
Exhibit Index
(i.) Legal Opinion and Consent of Venable LLP
EX-99.(I.)
2
dex99i.txt
LEGAL OPINION AND CONSENT OF VENABLE LLP
Exhibit (i.)
April 1, 2008
iShares, Inc.
45 Fremont Street
San Francisco, California 94105
Re: Registration Statement on Form N-1A:
1933 Act File No. 033-97598 and
1940 Act File No. 811-09102
Ladies and Gentlemen:
We have served as Maryland counsel to iShares, Inc., a Maryland corporation
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company (the "Corporation"), in
connection with certain matters of Maryland law arising out of the registration
and issuance of an indefinite number of shares (the "Shares") of Common Stock,
par value $.001 per share (the "Common Stock"), classified and designated as
iShares MSCI Emerging Markets Eastern Europe Index Fund, covered by
Post-Effective Amendment No. 58 (the "Post-Effective Amendment") to the
above-referenced Registration Statement (the "Registration Statement"), filed
by the Corporation with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "1933 Act"),
and the 1940 Act.
In connection with our representation of the Corporation, and as a basis for
the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
1. The Post-Effective Amendment, substantially in the form transmitted to
the Commission under the 1933 Act and 1940 Act;
2. The charter of the Corporation (the "Charter"), certified as of a recent
date by the State Department of Assessments and Taxation of Maryland (the
"SDAT");
3. The Amended and Restated Bylaws of the Corporation, certified as of the
date hereof by an officer of the Corporation;
4. A certificate of the SDAT as to the good standing of the Corporation,
dated as of a recent date;
5. Resolutions adopted by the Board of Directors of the Corporation (the
"Resolutions") relating to the authorization of the sale and issuance of the
Shares at net asset value in a continuous public offering, certified as of the
date hereof by an officer of the Corporation;
6. A certificate executed by an officer of the Corporation, dated as of the
date hereof; and
7. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth below, subject to the assumptions,
limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed the following:
1. Each individual executing any of the Documents, whether on behalf of such
individual or any other person, is legally competent to do so.
2. Each individual executing any of the Documents on behalf of a party
(other than the Corporation) is duly authorized to do so.
3. Each of the parties (other than the Corporation) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding and are enforceable in accordance with all stated
terms.
4. All Documents submitted to us as originals are authentic. The form and
content of all Documents submitted to us as unexecuted drafts do not differ in
any respect relevant to this opinion from the form and content of such
Documents as executed and delivered. All Documents submitted to us as certified
or photostatic copies conform to the original documents. All signatures on all
such Documents are genuine. All public records reviewed or relied upon by us or
on our behalf are true and complete. All representations, warranties,
statements and information contained in the Documents are true and complete.
There has been no oral or written modification of or amendment to any of the
Documents, and there has been no waiver of any provision of any of the
Documents, by action or omission of the parties or otherwise.
5. Upon any issuance of Shares, the total number of shares of each series
and class of Common Stock issued and outstanding will not exceed the total
number of shares of each series and class of Common Stock that the Corporation
is then authorized to issue under the Charter.
Based upon the foregoing, and subject to the assumptions, limitations and
qualifications stated herein, it is our opinion that:
1. The Corporation is a corporation duly incorporated and existing under and
by virtue of the laws of the State of Maryland and is in good standing with the
SDAT.
2. The issuance of the Shares has been duly authorized and, when and if
issued and delivered against payment of net asset value therefor in accordance
with the Resolutions and the Registration Statement, the Shares will be validly
issued, fully paid and nonassessable.
The foregoing opinion is limited to the substantive laws of the State of
Maryland and we do not express any opinion herein concerning any other law. We
express no opinion as to compliance with federal or state securities laws,
including the securities laws of the State of Maryland, or the 1940 Act.
The opinion expressed herein is limited to the matters specifically set
forth herein and no other opinion shall be inferred beyond the matters
expressly stated. We assume no obligation to supplement this opinion if any
applicable law changes after the date hereof or if we become aware of any fact
that might change the opinion expressed herein after the date hereof.
This opinion is being furnished to you solely for submission to the
Commission as an exhibit to the Registration Statement and, accordingly, may
not be relied upon by, quoted in any manner to, or delivered to any other
person or entity without, in each instance, our prior written consent. We
hereby consent to the filing of this opinion as an exhibit to the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required by Section 7 of the 1933 Act.
Very truly yours,
/s/ Venable LLP
CORRESP
3
filename3.txt
[LOGO] 787 Seventh Avenue
New York, NY 10019-6099
Tel: 212 728 8000
Fax: 212 728 8111
April 2, 2008
VIA EDGAR
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: iShares, Inc.
File Nos. 33-97598, 811-09102
Post-Effective Amendment No. 58
Ladies and Gentlemen:
On behalf of iShares, Inc. (the "Company"), we hereby transmit for filing under
the Securities Act of 1933 (the "1933 Act") and the Investment Company Act of
1940, Post-Effective Amendment No. 58 (the "Amendment") to the Company's
Registration Statement on Form N-1A.
The Amendment is being filed for the purpose of adding one new fund to the
Company:
iShares MSCI Emerging Markets Eastern Europe Index Fund (the "Fund").
The Amendment is being filed pursuant to Rule 485(a)(2) under the 1933 Act and
will become automatically effective 75 days after the filing.
The following information is provided to assist the Staff of the Commission in
its review of the Amendment to the Registration Statement.
(1)Investment Objective and Underlying Index
The underlying index of the Fund is the MSCI Emerging Markets Eastern Europe
Index (the "Index"). The Index is a free float adjusted market capitalization
index designed to measure equity market performance of the following four
emerging market countries: the Czech Republic, Hungary, Poland and Russia.
The Fund seeks results that correspond generally to the price and yield
performance, before fees and expenses, of the Index.
NEW YORK WASHINGTON, DC PARIS LONDON MILAN ROME FRANKFURT BRUSSELS
(2)Other Fund Specific Disclosure
The Fund's description of its investment strategy (i.e., the Fund, using
representative sampling, will at all times invest at least 90% of its assets in
the securities of the Index and in depositary receipts representing securities
of the Index) and risk factors are specific to the Fund. The portfolio managers
are also specific to the Fund. In addition, the Fund requires partial cash
consideration for Creation Units and has established a cut-off time for
purchase and redemption of Creation Units that is earlier than the Fund's
pricing time.
(3)Prior Filings with Similar Disclosure
Much of the disclosure in the Amendment is substantially similar to that in
previous filings submitted by the Company and reviewed by the Staff. In
particular, we invite your attention to Post-Effective Amendment No. 49, filed
pursuant to Rule 485(a) on January 11, 2008, relating to the iShares MSCI
Israel Capped Investable Market Index Fund (formerly, the iShares MSCI Israel
Capped Index Fund) (which became effective on March 26, 2008).
The disclosures applicable to the Fund and the Company included in the
Amendment that are substantially similar to those in the referenced prior
filing relate to descriptions of shares, the investment manager and other
attributes under the headings "Management - Investment Adviser," "Management -
Administrator, Custodian and Transfer Agent," "Shareholder Information,"
"Determination of NAV," "Dividends and Distribution," and "Distribution,"
included in the Prospectus, and under the headings "Proxy Voting," "Portfolio
Holdings Information," "Continuous Offering," "Management - Investment
Adviser," "Management - Code of Ethics," "Management - Administrator, Custodian
and Transfer Agent," "Management - Distributor," "Brokerage Transactions,"
"Creation and Redemption of Creation Units" (except as described above),
"Financial Statements" and "Miscellaneous Information," included in the
Statement of Additional Information.
* * * * *
The operations of the Fund, the description of the shares offered and the other
information that is typically common in a fund complex do not appear to raise
novel issues or problem areas that warrant particular attention of the Staff in
reviewing the Registration Statement. On behalf of the Company, in accordance
with Investment Company Act Release No. 13768, we request that the Registration
Statement be given selective review.
If you have any questions or comments, please call the undersigned at (212)
728-8138.
Sincerely,
/s/ Elliot J. Gluck
--------------------------
Elliot J. Gluck
cc: Kevin D. Smith, Esq.
Benjamin J. Haskin, Esq.
Anthony A. Vertuno, Esq.
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