0001193125-07-208748.txt : 20120820
0001193125-07-208748.hdr.sgml : 20120818
20070927134631
ACCESSION NUMBER: 0001193125-07-208748
CONFORMED SUBMISSION TYPE: 485APOS
PUBLIC DOCUMENT COUNT: 4
FILED AS OF DATE: 20070927
DATE AS OF CHANGE: 20080104
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: iSHARES TRUST
CENTRAL INDEX KEY: 0001100663
IRS NUMBER: 943351276
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 485APOS
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-92935
FILM NUMBER: 071138833
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 TRUST
DATE OF NAME CHANGE: 19991213
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: iSHARES TRUST
CENTRAL INDEX KEY: 0001100663
IRS NUMBER: 943351276
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 485APOS
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-09729
FILM NUMBER: 071138834
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 TRUST
DATE OF NAME CHANGE: 19991213
0001100663
S000019798
iShares J.P. Morgan USD Emerging Markets Bond Fund
C000055529
iShares JPMorgan USD Emerging Markets Bond Fund
485APOS
1
d485apos.txt
FORM 485APOS
As filed with the Securities and Exchange Commission on September 27, 2007
File Nos. 333-92935 and 811-09729
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 101 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
Amendment No. 101 [X]
(Check appropriate box or boxes)
-----------------
iShares(R) Trust
(Exact Name of Registrant as Specified in Charter)
-----------------
c/o State Street Bank and 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
1209 Orange Street
Wilmington, DE 19801
(Name and Address of Agent for Service)
-----------------
With Copies to:
MARGERY K. NEALE, ESQ. BENJAMIN J. HASKIN, ESQ. DEEPA DAMRE, ESQ.
WILLKIE FARR & GALLAGHER LLP WILLKIE FARR & GALLAGHER LLP BARCLAYS GLOBAL INVESTORS, N.A.
787 SEVENTH AVENUE NEW 1875 K STREET, 45 FREMONT STREET
YORK, NY 10019-6099 NW WASHINGTON, DC SAN FRANCISCO, CA 94105
20006-1238
-----------------
It is proposed that this filing will become effective (check appropriate
box):
[_] Immediately upon filing pursuant [_] On (date) pursuant to paragraph
to paragraph (b) (b)
[_] 60 days after filing pursuant to [_] On (date) pursuant to paragraph
paragraph (a)(1) (a)(1)
[X] 75 days after filing pursuant to [_] On (date) pursuant to paragraph
paragraph (a)(2) (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 Trust
ISHARES TRUST (the "Trust") is a registered investment company that consists of
over ___ separate investment portfolios called "Funds." This Prospectus relates
to the following Fund:
iShares JPMorgan USD Emerging Markets Bond Fund
The Fund issues and redeems shares at their net asset value ("NAV") only in
blocks of [100,000] 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 [________________], 2007
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Table of Contents
"JPMorgan" and "JPMorgan EMBI Global Core Index," are trademarks of JPMorgan
Chase & Co. and are marks that have been licensed for use for certain purposes
by BGI.
Introduction .................. 1
Investment Objective of the 2
Fund
Principal Investment 2
Strategies of the Fund
Principal Risks of the Fund ... 3
Portfolio Holdings Information 8
Performance Information ....... 9
Fees and Expenses ............. 9
Management .................... 9
Shareholder Information ....... 10
Distribution .................. 15
Financial Highlights .......... 16
Index Provider ................ 17
Disclaimers ................... 18
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i
[THIS PAGE INTENTIONALLY LEFT BLANK]
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.
BGFA is a subsidiary of BGI. The shares of the Fund are listed and trade at
market prices on a national securities exchange such as the American Stock
Exchange, the Chicago Board Options Exchange, the New York Stock Exchange
("NYSE") or the NYSE Arca, Inc. 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, only Authorized Participants may purchase or redeem shares directly
from the Fund at NAV. Also, unlike shares of a mutual fund, the 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.
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1
iShares JPMorgan USD Emerging Markets Bond Fund
CUSIP:
TRADING SYMBOL:
UNDERLYING INDEX: JPMorgan EMBI Global Core Index
-------------------------------------------------
Investment Objective of the Fund
The iShares JPMorgan USD Emerging Markets Bond Fund seeks results that
correspond generally to the price and yield performance, before fees and
expenses, of the JPMorgan EMBI Global Core Index (the "Underlying Index"). The
Fund's investment objective and the 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 JPMorgan Chase & Co.
Additional information regarding the Index Provider is provided in the INDEX
PROVIDER section of this Prospectus.
Principal Investment Strategies of the Fund
The JPMorgan EMBI Global Core Index is a liquid, U.S. dollar denominated
emerging markets debt benchmark which tracks the total return of actively
traded external debt instruments in emerging market countries. As of August 31,
2007, the Underlying Index consisted of 26 countries including Argentina,
Brazil, Bulgaria, China, Colombia, Ecuador, Egypt, El Salvador, Hungary,
Indonesia, Iraq, Lebanon, Malaysia, Mexico, Panama, Peru, Philippines, Poland,
Russia, Serbia, South Africa, Turkey, Ukraine, Uruguay, and Venezuela. As of
August 31, 2007, the Underlying Index's five highest weighted countries were
Brazil, Mexico, Russia, Turkey and Venezuela. The Underlying Index may change
its composition and weightings monthly upon rebalancing. The Underlying Index
includes both fixed and floating-rate instruments issued by sovereign and
quasi-sovereign entities from index-eligible countries. Only those instruments
which: (i) are denominated in U.S. dollars; (ii) have a current face amount
outstanding of $1 billion or more; (iii) have at least 21/2 years until
maturity; (iv) are able to settle internationally through Euroclear or another
institution domiciled outside the issuing country; and (v) have bid
and offer prices that are available on a daily and timely basis-either from an
inter-dealer broker or JPMorgan-are considered for inclusion into the
Underlying Index. Convertible bonds are not eligible for inclusion into the
Underlying Index. The Underlying Index is market value weighted and is
rebalanced monthly on the last business day of month.
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.
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2
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The Fund generally will invest at least 90% of its assets in the securities of
its Underlying Index. However, the Fund may at times invest up to 20% of its
assets in certain futures, options and swap contracts, cash and cash
equivalents, including money market funds advised by BGFA, as well as in bonds
not included in its Underlying Index, but which BGFA believes will help the
Fund track its Underlying Index. For example, the Fund may invest in bonds not
included in its Underlying Index in order to reflect various corporate actions
(such as mergers) and other changes in its Underlying Index (such as
reconstitutions, additions and deletions).
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 the bonds included in the Underlying Index that
collectively has an investment profile similar to the Underlying Index. The
bonds 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, duration,
maturity or credit ratings and yield) and liquidity measures similar to those
of the Underlying Index. The Fund may or may not hold all of the bonds that are
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, asset valuations, corporate actions
(such as mergers and spin-offs), timing variances and 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 only to approximately
the same extent that its Underlying Index is so concentrated. For purposes of
this limitation, securities of sovereign and quasi-sovereign entities of a
particular country may be considered to be equivalent of an "industry."
Principal Risks of the Fund
The Fund may be subject to the principal risks noted below. Some or all of
these risks may adversely affect the Fund's NAV, trading price, yield, total
return and its ability to meet its investment objective.
Asset Class Risk
The bonds in the Underlying Index or the Fund's portfolio may underperform the
returns of other bonds or indexes that track other countries, regions,
industries, groups of industries, markets, asset classes or sectors. Different
types of bonds or indexes tend to go through cycles of outperformance and
underperformance in comparison to the general bonds markets.
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3
Call Risk
During periods of falling interest rates, an issuer of a callable bond may
"call" or repay a security before its stated maturity, which may result in the
Fund having to reinvest the proceeds at lower interest rates, resulting in a
decline in the Fund's income.
Concentration Risk
If the Underlying Index or the Fund's portfolio is concentrated in the bonds of
sovereign and quasi-sovereign entities in a particular market, country, group
of countries, sector or asset class, the Fund may be adversely affected by the
performance of those bonds and may be subject to increased price volatility and
may be more susceptible to adverse economic, market, political or regulatory
occurrences affecting that market, country, group of countries, sector or asset
class. An investment in the Fund should not constitute a complete investment
program.
Credit Risk
Credit risk is the risk that issuers or guarantors of debt instruments or the
counterparty to a derivatives contract, repurchase agreement or loan of
portfolio securities is unable or unwilling to make timely interest and/or
principal payments or to otherwise honor its obligations.
There is the chance that any of the Fund's holdings will have their credit
ratings downgraded or will default (fail to make scheduled interest or
principal payments), potentially reducing the Fund's income level and share
price. Debt instruments are subject to varying degrees of credit risk, which
may be reflected in credit ratings.
Emerging Markets Risks
GENERAL. Investments in emerging markets are subject to a greater risk of loss
than investments in a developed market. 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 policy than those typically found in developed markets,
greater risk that a sovereign or quasi-sovereign issuer will cancel or abandon
its obligations under its securities. Furthermore, since securities in which
the Fund invests may combine the risks of emerging markets and low credit
quality, the Fund's performance is likely to be more volatile than that of
other bond funds. These risks and fund volatility are likely to be heightened
when the Fund concentrates its investments in a small number of countries.
ECONOMIC RISK. Economic instability in an emerging market may arise when such
country is heavily dependent upon commodity prices and international trade.
Economies in emerging market countries have been and may continue to be
adversely affected by the economies of their trading partners, exchange
controls, managed adjustments in relative currency values, trade barriers and
other protectionist measures imposed or negotiated by the countries with which
they trade.
These economies may also suffer from extreme debt burdens and/or extremely high
and volatile inflation rates. Some emerging market countries have experienced
currency devaluations and some have experienced economic recessions causing a
negative effect on the economies and securities markets of such emerging
countries.
POLITICAL AND SOCIAL RISK. Some governments in emerging market countries are
authoritarian in nature or have been installed or removed as a result of
military coups, and some have periodically used force to suppress civil
dissent. Disparities of wealth, the pace and success of democratization and
capital market development, and ethnic, religious and racial disaffection,
among other factors, have also led to social unrest, violence and/or labor
unrest in some emerging market countries. Unanticipated political or social
developments may result in sudden and significant investment losses, and may
affect the sovereigns' and quasi-sovereigns' ability in servicing their debt
obligations.
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Foreign Security Risk
Investments in the Fund generally involve certain risks and considerations not
typically associated with investing in a fund that invests in U.S. government
securities. Foreign markets are subject to special risks associated with
foreign investment including, but not limited to: generally less liquid and
less efficient securities markets; generally greater price volatility; exchange
rate fluctuations and exchange controls; imposition of restrictions on the
expatriation of funds or other assets; less publicly available information
about the investments; the imposition of taxes; higher transaction and custody
costs; settlement delays and risk of loss; difficulties in enforcing contracts;
smaller market capitalizations; less regulation of securities markets;
different accounting and disclosure standards; higher inflation; social,
economic and political uncertainties; the risk of expropriation of assets; and
the risk of war.
Geographic Risk
Some countries in which the Fund invests are located in parts of the world
prone to natural disasters, such as earthquakes, volcanoes or tsunamis, or are
economically sensitive to environmental events. Any such event could cause a
significant impact on their respective economies and investments in these
countries.
High Yield Risk
High yield securities risk is the risk that securities that are rated below
investment grade (commonly referred to as "junk bonds," include those bonds
rated lower than "BBB-" by Standard & Poor's and Fitch or "Baa3" by Moody's),
or are unrated but judged by the Fund to be of comparable quality, at the time
of purchase, may be more volatile than higher-rated securities of similar
maturity.
High yield securities may also be subject to greater levels of credit or
default risk than higher-rated securities. The value of high yield securities
can be adversely affected by overall economic conditions, such as an economic
downturn or a period of rising interest rates, and high yield securities may be
less liquid and more difficult to sell at an advantageous time or price or to
value than higher-rated securities.
Interest Rate Risk
As interest rates rise, the value of fixed-income securities held by the Fund
are likely to decrease. Securities with longer durations tend to be more
sensitive to interest rate changes, usually making them more volatile than
securities with shorter durations. To the extent the Fund invests a substantial
portion of its assets in fixed-income securities with longer-term maturities,
rising interest rates may cause the value of the Fund's investments to decline
significantly.
Issuer Risk
The value of a security may decline for a number of reasons which directly
relate to the issuer, such as management performance, financial leverage and
reduced demand for the issuer's goods or services.
Liquidity Risk
Liquidity risk exists when particular investments are difficult to purchase or
sell. If the Fund invests in illiquid securities or securities that become
illiquid, it may reduce the returns of the Fund because the Fund may be unable
to sell the illiquid securities at an advantageous time or price. Since the
Fund invests a significant portion of its portfolio in emerging market bonds,
the Fund's portfolio may have greater exposure to liquidity risk than a fund
that invests in securities of larger, more developed markets.
Management Risk
The Fund may be subject to management risk because the Fund does not fully
replicate its Underlying Index and may hold securities that are not included in
its Underlying Index. Management risk is the risk
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5
that BGFA's investment strategy, the implementation of which is subject to a
number of constraints, may not produce the intended results. The Fund is
managed in a manner that seeks to track the Fund's Underlying Index, and is
therefore subject to passive investments risk, which is described below.
Market Risk
The Fund's NAV will react to securities market movements. You could lose money
over short periods due to fluctuation in the Fund's NAV in response to 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 or economic trends or events which are
not specifically related to an entity or to factors which affect a particular
country or countries. During a general economic downturn in the securities
markets, multiple assets classes may be negatively affected. The Fund invests
primarily in emerging market bonds and, as a result, the Fund's portfolio may
have greater exposure to market risk than a fund that invests in securities of
developed markets.
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 WILL 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, given that 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
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6
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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 the risks
associated with these particular issuers, or to a single economic, political or
regulatory occurrence affecting these issuers.
Passive Investments Risk
The Fund is not actively managed. The Fund may be affected by a general decline
in the bond market segments relating to its Underlying Index. The Fund invests
in the bonds included in, or representative of, its Underlying Index regardless
of their investment merits. BGFA does not attempt to take defensive positions
in declining markets.
Securities Market Risk
Local securities markets may trade a small number of securities and may be
unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of holdings difficult or impossible at times.
Settlement procedures in emerging countries are frequently less developed and
reliable than those in the United States (and other developed countries).
In addition, significant delays may occur in certain markets in
registering the transfer of securities. Settlement or registration problems may
make it more difficult for the Fund to value its portfolio securities and could
cause the Fund to miss attractive investment opportunities.
Sovereign Obligations Risk
An investment in sovereign debt obligations involves special risks not present
in corporate debt obligations. Sovereign debt includes investments in
securities issued by or guaranteed by a foreign sovereign government. The
issuer of the sovereign debt that controls the repayment of the debt may be
unable or unwilling to repay principal or interests when due, and a Fund may
have limited recourse in the event of a default. During periods of economic
uncertainty, the market prices of sovereign debt, and the Fund's NAV, may be
more volatile than prices of U.S. debt obligations. In the past, certain
emerging markets have encountered difficulties in serving their debt
obligations, withheld payments of principal and interest and declared moratoria
on the payment of principal and interest on their sovereign debts.
Tracking Error Risk
Imperfect correlation between the Fund's 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. BGFA expects that the tracking error for the Fund
may be greater than other iShares bond funds due to the characteristics of the
market place in which the securities of the Fund may trade.
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7
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.
Portfolio Holdings Information
A description of the Trust'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).
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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 TOTAL
AND ANNUAL
SERVICE FUND
SHAREHOLDER MANAGEMENT (12B-1) OTHER OPERATING
FUND FEES/1/ FEES FEES EXPENSES/3/ EXPENSES
------------------------------ ------------- ------------ -------------- ------------- ----------
iShares JPMorgan USD Emerging None [___]% None None [___]%
Markets Bond
Fund
--------
/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/TheTrust'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:
FUND 1 YEAR 3 YEARS
------------------------------ -------- --------
iShares JPMorgan USD Emerging $[__] $[__]
Markets Bond
Fund
Management
Investment Adviser
As investment adviser, BGFA has overall responsibility for the general
management and administration of the Trust. 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.
Under the Investment Advisory Agreement, BGFA is responsible for substantially
all expenses of the Trust, 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.
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9
BGFA is entitled to receive management fees from the Fund based on a percentage
of the Fund's average daily net assets, as shown in the following table:
FUND MANAGEMENT FEE
------------------------------ ---------------
iShares JPMorgan USD Emerging [___]%/1/
Markets Bond Fund
--------
1 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 May 31, 2007, 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 Trustees' approval of the
Investment Advisory Agreement with BGFA will be available in the Fund's
semi-annual report for the period ended [___________].
Portfolio Managers
John Sulski and Lee Sterne (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
team to focus on certain asset classes, implementing investment strategy,
researching and reviewing investment strategy, and overseeing members of his
portfolio management team with more limited responsibilities.
John Sulski has been employed by BGFA and BGI as a portfolio manager and credit
trader since 2004. Prior to joining BGFA and BGI, Mr. Sulski received a
Master's degree in Financial Engineering from the Haas School of Business,
University of California Berkeley, which he attended from 2003 to 2004. From
2002 to 2003, Mr. Sulski was employed by Collabnet, Inc. as an Information
Technology Consultant.
Lee Sterne has been employed by BGFA and BGI as a portfolio manager since 1996.
{PM BIO 5}
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 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 Trust 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 stock transactions.
When buying or selling shares of the
--------------------------------------------------------------------------------
10
[GRAPHIC APPEARS HERE]
Fund through a broker, you will incur a brokerage commission 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 the 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 for the Fund
in the DESCRIPTION OF THE FUND section 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.
The Trust's Board of Trustees 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 Trustees 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, including shares of the Fund. 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 Trust, including that such investment companies
enter into an agreement with the Trust.
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
all 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
bonds 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 will
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 cash
required to be
--------------------------------------------------------------------------------
11
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 will generally be determined once daily Monday through
Friday generally as of the regularly scheduled close of business of the 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 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 Trustees. 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 "Securities
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.
--------------------------------------------------------------------------------
12
[GRAPHIC APPEARS HERE]
Because foreign markets may be open on different days than the days during
which a shareholder may purchase the Fund's shares, the value of the Fund's
investments may change on days when shareholders are not able to purchase the
Fund's shares.
Dividends and Distributions
GENERAL POLICIES. Dividends from net investment income, if any, are declared
and paid at least annually by the Fund. Distributions of net realized
securities gains, if any, generally are declared and paid once a year, but the
Trust may make distributions on a more frequent basis for certain Funds. The
Trust reserves the right to declare special distributions if, in its reasonable
discretion, such action is necessary or advisable to preserve the status of the
Fund as a registered investment company or to avoid imposition of income or
excise taxes on undistributed income.
Dividends and other distributions on shares of the Fund are distributed on a
PRO RATA basis to beneficial owners of such shares. Dividend payments are made
through DTC participants and indirect participants to beneficial owners then of
record with proceeds received from the Fund.
DIVIDEND REINVESTMENT SERVICE. No dividend reinvestment service is provided by
the Trust. Broker-dealers may make available the DTC book-entry Dividend
Reinvestment Service for use by beneficial owners of 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.
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, including income from
securities lending, and out of the Fund's net-short term capital gains, if any,
are taxable to you as ordinary income. Distributions of net long-term capital
gains, if any, in excess of net short-term capital losses are taxable as
long-term capital gains, regardless of how long you have held the shares.
Distributions from the Fund do not qualify for the lower tax rates applicable
to qualified dividend income. In general, your distributions are subject to
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.
Dividends and interest received by a 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 federal income
tax.
--------------------------------------------------------------------------------
13
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
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 U.S. CURRENT
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
[100,000] 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 bonds
closely approximating the holdings of the Fund and a specified amount of cash
in exchange for a specified number of Creation Units.
Similarly, shares can only be redeemed in a specified number of Creation Units,
principally in-kind for a portfolio of bonds held by the Fund and a specified
amount of cash. EXCEPT WHEN AGGREGATED IN CREATION UNITS, SHARES ARE NOT
REDEEMABLE. 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 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 Securities Act. Further, an Authorized Participant
that is not a "qualified institutional buyer," as such term is defined under
Rule 144A of the Securities 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 in either case, 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
Securities 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 Securities Act.
--------------------------------------------------------------------------------
14
[GRAPHIC APPEARS HERE]
Nonetheless, any determination of whether one is an underwriter must take into
account all the relevant facts and circumstances of each particular case.
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 Securities Act, would
be unable to take advantage of the prospectus delivery exemption provided by
Section 4(3) of the Securities Act. For delivery of prospectuses to exchange
members, the prospectus delivery mechanism of Rule 153 under the Securities Act
is only available with respect to transactions on a national securities
exchange.
Transaction Fees
The Fund will impose a creation transaction fee and a redemption transaction
fee to offset transfer and other transaction costs associated with the issuance
and redemption of Creation Units. Purchasers and redeemers of Creation Units
for cash are required to pay an additional variable charge to compensate for
brokerage and market impact expenses. The creation and redemption transaction
fees for creations and redemptions in-kind for the Fund are discussed 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 and will be
the amount indicated below 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 will
be the amount indicated regardless of the number of Creation Units redeemed
that 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) will also be subject to an additional variable charge
up to the maximum amount shown below under "Maximum 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.
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 [___________], 2007, the approximate value of one
Creation Unit per Fund, including the standard creation and redemption
transaction fee:
STANDARD MAXIMUM
APPROXIMATE CREATION/ CREATION/
VALUE OF A CREATION REDEMPTION REDEMPTION
FUND CREATION UNIT UNIT SIZE TRANSACTION FEE TRANSACTION FEE
------------------------------ --------------- ----------- ----------------- ----------------
iShares JPMorgan USD Emerging $ [100,000] $[___] $[_____]
Markets
Bond Fund
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.
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15
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.
--------------------------------------------------------------------------------
16
[GRAPHIC APPEARS HERE]
Index Provider
JPMorgan Chase & Co.(Copyright) ("JPMorgan") is the Index Provider for the
Underlying Index. JPMorgan is not affiliated with the Trust, BGFA or its
affiliates, or the Distributor.
JPMorgan provides financial, economic and investment information to the
financial community. JPMorgan calculates and maintains the JPMorgan EMBI Global
Core Index, JPMorgan Emerging Markets Bond Index Plus, JPMorgan Emerging
Markets Bond Index Global and Emerging Markets Bond Index Global Diversified.
Security additions and deletions into the emerging markets bond indexes do not
in any way reflect an opinion in the investment merits of the security.
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
Trust at no charge.
--------
(Copyright) Copyright 2007 JPMorgan Chase & Co. All rights reserved.
JPMorgan is the marketing name for JPMorgan Chase & Co., and its
subsidiaries and affiliates worldwide. J.P. Morgan Securities Inc. is a
member of NYSE and SIPC. JPMorgan Chase Bank, National Association is a
member of FDIC. J.P. Morgan Futures Inc. is a member of the NFA. J.P.
Morgan Securities Ltd. and J.P. Morgan plc are authorized by the FSA and
members of the LSE. J.P. Morgan Europe Limited is authorized by the FSA.
J.P. Morgan Equities Limited is a member of the Johannesburg Securities
Exchange and is regulated by the FSB. J.P. Morgan Securities (Asia
Pacific) Limited is registered as an investment adviser with the
Securities & Futures Commission in Hong Kong and its CE number is AAJ321.
J.P. Morgan Securities Singapore Private Limited is a member of Singapore
Exchange Securities Trading Limited and is regulated by the Monetary
Authority of Singapore ("MAS"). J.P. Morgan Securities Asia Private
Limited is regulated by the MAS and the Financial Services Agency in
Japan. J.P. Morgan Australia Limited (ABN 52 002 888 011) is a licensed
securities dealer.
--------------------------------------------------------------------------------
17
Disclaimers
THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY JPMORGAN. JPMORGAN
MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS 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 BOND MARKET PERFORMANCE. JPMORGAN'S ONLY
RELATIONSHIP TO THE TRUST, BGI, OR BGFA IS THE LICENSING OF THE UNDERLYING
INDEX WHICH IS DETERMINED, COMPOSED AND CALCULATED BY JPMORGAN WITHOUT REGARD
TO THE TRUST, BGI, OR BGFA OR THE FUND. JPMORGAN HAS NO OBLIGATION TO TAKE THE
NEEDS OF TRUST, BGI, OR BGFA OR THE OWNERS OF THE FUND INTO CONSIDERATION IN
DETERMINING, COMPOSING OR CALCULATING THE UNDERLYING INDEX. JPMORGAN IS NOT
RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN THE DETERMINATION OF THE TIMING OF,
PRICES AT, OR QUANTITIES OF THE FUND TO BE ISSUED OR IN THE DETERMINATION OR
CALCULATION OF THE EQUATION BY WHICH THE FUND IS TO BE CONVERTED INTO CASH.
JPMORGAN HAS NO OBLIGATION OR LIABILITY IN CONNECTION WITH THE ADMINISTRATION,
MARKETING OR TRADING OF THE FUND.
THE UNDERLYING INDEX AND THE FUND ARE PROVIDED "AS IS" WITH ANY AND ALL FAULTS.
JPMORGAN DOES NOT GUARANTEE THE AVAILABILITY, SEQUENCE, TIMELINESS, QUALITY,
ACCURACY AND/OR THE COMPLETENESS OF THE UNDERLYING INDEX AND/OR THE FUND AND/
OR ANY DATA INCLUDED THEREIN, OR OTHERWISE OBTAINED BY THE TRUST, BGI, BGFA,
OWNERS OF THE FUND, OR BY ANY OTHER PERSON OR ENTITY FROM ANY USE OF THE
UNDERLYING INDEX AND/OR THE FUND. JPMORGAN MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OF
FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE UNDERLYING INDEX OR
ANY DATA INCLUDED THEREIN, OR OTHERWISE OBTAINED BY THE TRUST, BGI, BGFA,
OWNERS OF THE FUND OR BY ANY OTHER PERSON OR ENTITY FROM ANY USE OF THE
UNDERLYING INDEX AND/OR THE FUND. THERE ARE NO REPRESENTATIONS OR WARRANTIES
WHICH EXTEND BEYOND THE DESCRIPTION ON THE FACE OF THIS DOCUMENT, IF ANY. ALL
WARRANTIES AND REPRESENTATIONS OF ANY KIND WITH REGARD TO THE UNDERLYING INDEX
AND/OR THE FUND, ARE DISCLAIMED INCLUDING ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, QUALITY, ACCURACY, FITNESS FOR A PARTICULAR PURPOSE AND/OR
AGAINST INFRINGEMENT AND/OR WARRANTIES AS TO ANY RESULTS TO BE OBTAINED BY
AND/OR FROM THE USE OF THE UNDERLYING INDEX AND/OR THE FUND. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL JPMORGAN HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, DIRECT, INDIRECT, OR CONSEQUENTIAL DAMAGES, INCLUDING LOST
PROFITS, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
SHARES OF THE FUND ARE NOT SPONSORED, ENDORSED OR PROMOTED BY THE [LISTING
EXCHANGE]. THE [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. THE [LISTING EXCHANGE] IS NOT RESPONSIBLE FOR,
NOR HAS IT PARTICIPATED IN, THE DETERMINATION OF THE COMPILATION OR THE
CALCULATION OF ANY 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. THE [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.
THE [LISTING EXCHANGE] DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
OF ANY UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. THE [LISTING EXCHANGE]
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE
TRUST ON BEHALF OF ITS FUNDS AS LICENSEE, LICENSEE'S CUSTOMERS AND
COUNTERPARTIES, OWNERS OF THE SHARES OF THE TRUST, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE SUBJECT INDICES OR ANY DATA INCLUDED THEREIN IN
CONNECTION WITH THE RIGHTS LICENSED AS DESCRIBED HEREIN OR FOR ANY OTHER USE.
THE [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 ANY UNDERLYING INDEX OR ANY DATA INCLUDED
THEREIN.
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18
[GRAPHIC APPEARS HERE]
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE [LISTING EXCHANGE]
HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL
OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
BGFA DOES NOT GUARANTEE THE ACCURACY AND/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, AS TO RESULTS TO BE OBTAINED BY THE
FUND, TO THE OWNERS OF THE SHARES OF THE FUND, OR TO ANY OTHER PERSON OR
ENTITY, 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.
--------------------------------------------------------------------------------
19
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) Trust
Statement of Additional Information
Dated [ ], 2007
This Statement of Additional Information ("SAI") is not a prospectus. It should
be read in conjunction with the current prospectus (the "Prospectus") for the
iShares JPMorgan USD Emerging Markets Bond Fund (the "Fund") of iShares Trust
(the "Trust") as such Prospectus may be revised or supplemented from time to
time.
The Prospectus for the Fund is dated [ ], 2007. 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 Trust's distributor, SEI Investments Distribution Co. (the
"Distributor"), at One Freedom Valley Drive, Oaks, PA 19456, calling
1-800-iShares or visiting www.iShares.com.
(R)iShares is a registered trademark of Barclays Global Investors, N.A. ("BGI").
Table of Contents
Page
----
General Description of the Trust and the Fund.................. 1
Exchange Listing and Trading................................... 1
Investment Strategies and Risks................................ 2
Lack of Diversification of the Fund......................... 2
Bonds....................................................... 2
Foreign Securities.......................................... 3
Risks of Investing in Non-U.S. Debt Securities.............. 3
Emerging Market Securities.................................. 3
Brady Bonds................................................. 4
Sovereign Obligations....................................... 4
High Yield Securities....................................... 5
Short-Term Instruments and Temporary Investments............ 5
Futures and Options......................................... 5
Swap Agreements............................................. 6
Risks of Derivatives........................................ 6
Investment Companies........................................ 6
Ratings..................................................... 6
Lending Portfolio Securities................................ 7
Repurchase Agreements....................................... 7
Reverse Repurchase Agreements............................... 7
Future Developments......................................... 7
Proxy Voting Policy............................................ 8
Portfolio Holdings Information................................. 8
Construction and Maintenance Standards for the Underlying Index 9
The JPMorgan EMBI Global Core Index......................... 9
Investment Limitations......................................... 11
Continuous Offering............................................ 12
Management..................................................... 12
Trustees and Officers....................................... 12
Committees of the Board of Trustees......................... 17
i
Page
----
Remuneration of Trustees........................................................ 18
Investment Adviser.............................................................. 18
Portfolio Managers.............................................................. 19
Codes of Ethics................................................................. 21
Administrator, Custodian and Transfer Agent..................................... 21
Distributor..................................................................... 21
Index Provider.................................................................. 21
Brokerage Transactions............................................................. 21
Additional Information Concerning the Trust........................................ 22
Shares.......................................................................... 22
Termination of the Trust or the Fund............................................ 23
DTC as Securities Depository for the Shares of the Trust........................ 23
Creation and Redemption of Creation Unit Aggregations.............................. 24
Creation........................................................................ 24
Fund Deposit.................................................................... 24
Procedures for Creation of Creation Unit Aggregations........................... 24
Placement of Creation Orders for Foreign Funds.................................. 25
Acceptance of Orders for Creation Unit Aggregations............................. 25
Creation Transaction Fee........................................................ 26
Redemption of Shares in Creation Unit Aggregations.............................. 26
Redemption Transaction Fee...................................................... 27
Placement of Redemptions Orders for Domestic Funds Using the Clearing Process... 27
Placement of Redemptions Orders for Domestic Funds Outside the Clearing Process. 27
Placement of Redemptions Orders for Foreign Funds............................... 27
Taxes.............................................................................. 29
Regulated Investment Company Qualifications..................................... 29
Taxation of RICs................................................................ 29
Excise Tax...................................................................... 29
Taxation of U.S. Shareholders................................................... 29
Back-Up Withholding............................................................. 30
Sections 351 and 362............................................................ 31
ii
Page
----
Qualified Dividend Income................................ 31
Market Discount.......................................... 31
Corporate Dividends Received Deduction...................
Net Capital Loss Carryforwards........................... 31
Federal Tax Treatment of Complex Securities.............. 31
Sales of Shares.......................................... 32
Other Taxes.............................................. 32
Taxation of Non-U.S. Shareholders........................ 32
Reporting................................................ 33
Financial Statements........................................ 33
Miscellaneous Information................................... 33
Counsel.................................................. 33
Independent Registered Public Accounting Firm............ 33
Shareholder Communication to the Board................... 33
Appendix A.................................................. A-1
iii
General Description of the Trust and the Fund
The Trust currently consists of over [ ] investment portfolios. The Trust
was organized as a Delaware statutory trust on December 16, 1999 and is
authorized to have multiple series or portfolios. The Trust is an open-end
management investment company, registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The offering of the Trust's shares is
registered under the Securities Act of 1933, as amended (the "Securities Act").
This SAI relates solely to the iShares JPMorgan USD Emerging Markets Bond 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
a segment of emerging countries bond markets. 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 (each, a "Creation Unit"
or a "Creation Unit Aggregation"), generally in exchange for a basket of
fixed-income securities included in its Underlying Index (the "Deposit
Securities"), together with the deposit of a specified cash payment (the "Cash
Component"). The shares of the Fund are listed and traded on the [ (" ")], 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 Unit Aggregations, and, generally, in exchange for
portfolio securities and a Cash Component. Creation Units typically are a
specified number of shares, generally [100,000] or multiples thereof.
The Trust reserves the right to offer a "cash" option for creations and
redemptions of shares although it has no current intention of doing so. Shares
may be issued in advance of receipt of Deposit Securities subject to various
conditions including a requirement to maintain on deposit with the Trust cash
at least equal to 105%, which BGFA may change from time to time, of the market
value of the missing Deposit Securities. See the Creation and Redemption of
Creation Unit Aggregations section of this SAI. In each instance of such cash
creations or redemptions, transaction fees may be imposed that will be higher
than the transaction fees associated with in-kind creations or redemptions. In
all cases, such conditions and fees will be limited in accordance with the
requirements of the Securities and Exchange Commission (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 on the [ ] (the "Listing Exchange") and
trade throughout the day on the Listing Exchange and other secondary markets.
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 (1) following the initial 12-month period beginning upon
the commencement of trading of the Fund, there are fewer than 50 beneficial
owners of the shares of the Fund for 30 or more consecutive trading days,
(2) the value of the Underlying Index on which the Fund is based is no longer
calculated or available, (3) the "indicative optimized portfolio value"
("IOPV") of the Fund is no longer calculated or available; or (4) 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 disseminates every 15 seconds through
the facilities of the Consolidated Tape Association an updated IOPV for the
Fund as calculated by an information provider or market data vendors. The Trust
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 a fixed-income component and a cash component. The fixed-income
values included in an IOPV are the values of the securities represented in the
Fund. 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.
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.
1
In addition to the fixed-income component described in the preceding paragraph,
the IOPV for the Fund includes a cash component consisting of estimated accrued
dividend and other income, less expenses.
The Trust 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 fixed-income
securities that comprise 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
representative sample of securities in the Underlying Index, selected by BGFA
to have a similar investment profile as the Underlying Index. Securities
selected have aggregate investment characteristics (based on market
capitalization and industry weightings), fundamental characteristics (such as
yield, credit ratings, maturity and duration) 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.
The Fund generally will invest at least 90% of its assets in the securities of
its Underlying Index. However, the Fund may at times invest up to 20% of its
assets in certain futures, options and swap contracts, cash and cash
equivalents, including money market funds advised by BGFA, as well as in high
yield corporate bonds not included in its Underlying Index, but which BGFA
believes will help the Fund track its Underlying Index. For example, the Fund
may invest in bonds not included in its Underlying Index in order to reflect
various corporate actions (such as mergers) and other changes in its Underlying
Index (such as reconstitutions, additions and deletions.)
Lack of Diversification of the Fund. The Fund is a non-diversified fund. 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 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.
In addition, the Fund may concentrate its investments in a particular industry
or group of industries, as noted in the description of the Fund. A foreign
government may be considered an "industry." This may adversely affect the
Fund's performance or subject the Fund's shares to greater price volatility
than that experienced by less concentrated 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 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. 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.
Bonds. The Fund invests a substantial portion of its assets in U.S.
dollar-denominated bonds issued by sovereign and quasi-sovereign entities of
emerging market countries. A bond is an interest-bearing security issued by a
company, governmental unit or, in some cases, a non-U.S. entity. The issuer of
a bond has a contractual obligation to pay interest at a stated rate on
specific dates and to repay principal (the bond's face value) periodically or
on a specified maturity date. Bonds generally are used by corporations and
governments to borrow money from investors.
An issuer may have the right to redeem or "call" a bond before maturity, in
which case the investor may have to reinvest the proceeds at lower market
rates. Most bonds bear interest income at a "coupon" rate that is fixed for the
life of the bond. The value of a fixed-rate bond usually rises when market
interest rates fall, and falls when market interest rates rise. Accordingly, a
fixed-rate bond's yield (income as a percent of the bond's current value) may
differ from its coupon rate as its value rises or falls. Other types of bonds
bear income at an interest rate that is adjusted periodically. Because of their
adjustable interest rates, the value of "floating-rate" or "variable-rate"
bonds fluctuates much less in response to market interest rate movements than
the value of fixed rate bonds. The Fund may treat some of these bonds as having
a shorter maturity for purposes of calculating the weighted average maturity of
its investment portfolio. Generally, prices of higher quality issues tend to
fluctuate more with changes in market interest rates than prices of lower
quality issues and prices of longer maturity issues tend to fluctuate more than
prices of shorter maturity issues. Bonds may be senior or subordinated
obligations. Senior obligations generally have the first claim on a
corporation's earnings and assets and, in the event of liquidation, are paid
before subordinated obligations. Bonds may be unsecured (backed only by the
issuer's general creditworthiness) or secured (also backed by specified
collateral).
2
Foreign Securities. The Fund invests in certain obligations or securities of
foreign issuers. An issuer of a security may be deemed to be located in a
particular country if: (i) the principal trading market for the security is in
such country, (ii) the issuer is organized under the laws of such country or
(iii) the issuer derives at least 50% of its revenues or profits from such
country or has at least 50% of its assets situated in such country.
Risks of Investing in Non-U.S. Debt Securities. An investment in the Fund
involves risks similar to those of investing in a broad-based portfolio of debt
securities traded on exchanges and over the counter in the respective countries
covered by the Fund. These risks include market fluctuations caused by such
factors as economic and political developments, changes in interest rates and
perceived trends in debt prices.
Investing in the Fund whose portfolio contains non-U.S. issuers involves
certain risks and considerations not typically associated with investing in the
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; lesser liquidity and significantly smaller market capitalization
of most non-U.S. securities markets; different accounting and disclosure
standards; lesser levels of regulation of the securities markets; more
substantial government interference with the economy; higher rates of
inflation; greater social, economic, and political uncertainty; and the risk of
nationalization or expropriation of assets and risk of war.
Emerging Market Securities. Investing in companies domiciled in emerging market
countries may be subject to potentially higher risks than investments in
developed countries. These risks include: (i) less social, political, and
economic stability; (ii) greater illiquidity and price volatility due to
smaller or limited local capital markets for such securities, or low
non-existent trading volumes; (iii) foreign exchanges and broker-dealers may be
subject to less scrutiny and regulation by local authorities; (iv) local
governments may decide to seize or confiscate securities held by foreign
investors and/or local governments may decide to suspend or limit an issuer's
ability to make dividend or interest payments; (v) local governments may limit
or entirely restrict repatriation of invested capital, profits, and dividends;
(vi) capital gains may be subject to local taxation, including on a retroactive
basis; (vii) issuers facing restrictions on dollar or euro payments imposed by
local governments may attempt to make dividend or interest payments to foreign
investors in the local currency; (viii) investors may experience difficulty in
enforcing legal claims related to the securities and/or local judges may favor
the interests of the issuer over those of foreign investors; (ix) bankruptcy
judgments may only be permitted to be paid in the local currency; (x) limited
public information regarding the issuer may result in greater difficulty in
determining market valuations of the securities, and (xi) lax financial
reporting on a regular basis, substandard disclosure and differences in
accounting standards may make it difficult to ascertain the financial health of
an issuer.
Emerging market securities markets are typically marked by a high concentration
of market capitalization and trading volume in a small number of issuers
representing a limited number of industries, as well as a high concentration of
ownership of such securities by a limited number of investors. Although some
emerging markets have become more established and tend to issue securities of
higher credit quality, the markets for securities in other emerging countries
are in the earliest stages of their development, and these countries issue
securities across the credit spectrum . Even the markets for relatively widely
traded securities in emerging countries may not be able to absorb, without
price disruptions, a significant increase in trading volume or trades of a size
customarily undertaken by institutional investors in the securities markets of
developed countries. The limited size of many of these securities markets can
cause prices to be erratic for reasons apart from factors that affect the
soundness and competitiveness of the securities issuers. For example, prices
may be unduly influenced by traders who control large positions in these
markets. Additionally, market making and arbitrage activities are generally
less extensive in such markets, which may contribute to increased volatility
and reduced liquidity of such markets. The limited liquidity of emerging
country securities may also affect the Fund's ability to accurately value its
portfolio securities or to acquire or dispose of securities at the price and
time it wishes to do so or in order to meet redemption requests.
Many emerging market countries suffer from uncertainty and corruption in their
legal frameworks. Legislation may be difficult to interpret and laws may be too
new to provide any precedential value. Laws regarding foreign investment and
private property may be weak or non-existent. Sudden changes in governments may
result in policies which are less favorable to investors such as policies
designed to expropriate or nationalize "sovereign" assets. Certain emerging
market countries in the past have expropriated large amounts of private
property, in many cases with little or no compensation, and there can be no
assurance that such expropriation will not occur in the future.
3
Foreign investment in the securities markets of certain emerging countries is
restricted or controlled to varying degrees. These restrictions may limit the
Fund's investment in certain emerging countries and may increase the expenses
of the Fund. Certain emerging countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only a
specified percentage of an issuer's outstanding securities or a specific class
of securities which may have less advantageous terms (including price) than
securities of the company available for purchase by nationals.
Many developing countries lack the social, political, and economic stability
characteristic of the U.S. Political instability among emerging market
countries can be common and may be caused by an uneven distribution of wealth,
social unrest, labor strikes, civil wars, and religious oppression. Economic
instability in emerging market countries may take the form of: (i) high
interest rates; (ii) high levels of inflation, including hyperinflation;
(iii) high levels of unemployment or underemployment; (iv) changes in
government economic and tax policies, including confiscatory taxation; and
(v) imposition of trade barriers.
Currencies of emerging market countries are subject to significantly greater
risks than currencies of developed countries. Many emerging market countries
have experienced steady declines or even sudden devaluations of their
currencies relative to the U.S. dollar. Some emerging market currencies may not
be internationally traded or may be subject to strict controls by local
governments, resulting in undervalued or overvalued currencies. Some emerging
market countries have experienced balance of payment deficits and shortages in
foreign exchange reserves. Governments have responded by restricting currency
conversions. Future restrictive exchange controls could prevent or restrict a
company's ability to make dividend or interest payments in the original
currency of the obligation (usually U.S. dollars). In addition, even though the
currencies of some emerging market countries may be convertible into U.S.
dollars, the conversion rates may be artificial to their actual market values.
The Fund's income and, in some cases, capital gains from foreign stocks and
securities will be subject to applicable taxation in certain of the countries
in which it invests, and treaties between the U.S. and such countries may not
be available in some cases to reduce the otherwise applicable tax rates.
Foreign markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions.
In the past, governments within the emerging markets have become overly reliant
on the international capital markets and other forms of foreign credit to
finance large public spending programs which cause huge budget deficits. Often,
interest payments have become too overwhelming for the government to meet,
representing a large percentage of total GDP. These foreign obligations have
become the subject of political debate and served as fuel for political parties
of the opposition, which pressure the government not to make payments to
foreign creditors, but instead to use these funds for social programs. Either
due to an inability to pay or submission to political pressure, foreign
governments have been forced to seek a restructuring of their loan and/or bond
obligations, have declared a temporary suspension of interest payments or have
defaulted. These events have adversely affected the values of securities issued
by foreign governments and corporations domiciled in those countries and have
negatively affected not only their cost of borrowing, but their ability to
borrow in the future as well.
Brady Bonds. Brady bonds are securities created through the exchange of
existing commercial bank loans to public and private entities in certain
emerging markets for new bonds in connection with debt restructurings. Brady
bonds have been issued since 1989. In light of the history of defaults of
countries issuing Brady bonds on their commercial bank loans, investments in
Brady bonds may be viewed as speculative and subject to the same risks as
emerging market securities. Brady bonds may be fully or partially
collateralized or uncollateralized, are issued in various currencies (but
primarily the U.S. dollar) and are actively traded in OTC secondary markets.
Incomplete collateralization of interest or principal payment obligations
results in increased credit risk. Dollar-denominated collateralized Brady
bonds, which may be either fixed-rate or floating rate bonds, are generally
collateralized by U.S. Treasury securities.
Sovereign Obligations. An investment in sovereign debt obligations involves
special risks not present in corporate debt obligations. Sovereign debt
includes investments in securities issued or guaranteed by a foreign sovereign
government. The issuer of the sovereign debt that controls the repayment of the
debt may be unable or unwilling to repay principal or interest when due, and a
Fund may have limited recourse in the event of a default. During periods of
economic uncertainty, the market prices of sovereign debt, and the Fund's NAV,
may be more volatile than prices of U.S. debt obligations. In the past, certain
emerging markets have encountered difficulties in servicing their debt
obligations, withheld payments of principal and interest and declared moratoria
on the payment of principal and interest on their sovereign debts.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local
4
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multilateral agencies and other
entities to reduce principal and interest arrears on their debt. The failure of
a sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.
High Yield Securities. Investment in high yield securities generally provides
greater income and increased opportunity for capital appreciation than
investments in higher quality securities, but they also typically entail
greater price volatility and credit risk. These high yield securities are
regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments. Analysis of the
creditworthiness of issuers of debt securities that are high yield may be more
complex than for issuers of higher quality debt securities. In addition, high
yield securities are often issued by smaller, less creditworthy companies or by
highly leveraged (indebted) firms, which are generally less able than more
financially stable firms to make scheduled payments of interest and principal.
The risks posed by securities issued under such circumstances are substantial.
Investing in high yield debt securities involves risks that are greater than
the risks of investing in higher quality debt securities. These risks include:
(i) changes in credit status, including weaker overall credit conditions of
issuers and risks of default; (ii) industry, market and economic risk; and
(iii) greater price variability and credit risks of certain high yield
securities such as zero coupon and payment-in-kind securities. While these
risks provide the opportunity for maximizing return over time, they may result
in greater volatility of the value of the Fund than a fund that invests in
higher-rated securities.
Furthermore, the value of high yield securities may be more susceptible to real
or perceived adverse economic, company or industry conditions than is the case
for higher quality securities. The market values of certain of these
lower-rated and unrated debt securities tend to reflect individual corporate
developments to a greater extent than do higher-rated securities which react
primarily to fluctuations in the general level of interest rates, and tend to
be more sensitive to economic conditions than are higher-rated securities.
Adverse market, credit or economic conditions could make it difficult at
certain times to sell certain high yield securities held by the Fund.
The secondary market on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading market could adversely affect the price at which the Fund
could sell a high yield security, and could adversely affect the daily net
asset value per share of the Fund. When secondary markets for high yield
securities are less liquid than the market for higher grade securities, it may
be more difficult to value the securities because there is less reliable,
objective data available.
The use of credit ratings as a principal method of selecting high yield
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may fail to change credit
ratings in a timely fashion to reflect events since the security was last rated.
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) Investors Service ("Moody's") or "A-1"
by Standard & Poor's(R) Rating Services, a division of 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 a 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.
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 respective Underlying Index, to facilitate
trading or to reduce transaction costs. The Fund will only enter into futures
contracts and options 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 Trust, on behalf of the Fund, has
5
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
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 liquid assets in the amount of the Fund's obligation under the
contract.
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 investments that reflect the market value of common stock of the firms
included in the investments. The Fund may enter into futures contracts to
purchase security investments when BGFA anticipates purchasing the underlying
securities and believes prices will rise before the purchase will be made.
Assets committed to futures contracts will be maintained to the extent required
by law.
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.
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 exchange traded 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.
Investment Companies. The Fund may invest in the securities of other investment
companies (including money market funds) to the extent allowed by law. Under
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 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.
Ratings. An investment-grade rating means the security or issuer is rated
investment-grade by Moody's, S&P, Fitch Inc., ("Fitch") Dominion Bond Rating
Service Limited, or another credit rating agency designated as a nationally
recognized statistical rating organization by the SEC, or is unrated but
considered to be of equivalent quality by BGFA. Bonds rated Baa and above by
Moody's or BBB and above by S&P or above are considered "investment grade"
securities; bonds rated Baa are considered medium grade obligations which lack
outstanding investment characteristics and have speculative characteristics,
while bonds rated BBB are regarded as having adequate capacity to pay principal
and interest.
Subsequent to purchase by the Fund, a rated security may cease to be rated or
its rating may be reduced below an investment grade rating. Bonds rated lower
than Baa3 by Moody's or BBB- by S&P are below investment grade quality and are
obligations of issuers that are considered predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal according
to the terms of the obligation and, therefore, carry greater investment risk,
including the possibility of issuer default and bankruptcy and increased market
price volatility. Such securities ("lower rated securities") are commonly
referred to as "junk bonds" and are subject to a substantial degree of credit
risk. Lower rated securities are often issued by smaller, less creditworthy
companies or by highly leveraged (indebted) firms, which are generally less
able than
6
more financially stable firms to make scheduled payments of interest and
principal. The risks posed by securities issued under such circumstances are
substantial. Bonds rated below investment grade tend to be less marketable than
higher-quality bonds because the market for them is less broad. The market for
unrated bonds is even narrower. Please see Appendix A of this SAI for a
description of each rating category of S&P, Moody's and Fitch.
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 loaned. 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
Trust's Board of Trustees (the "Board"). 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 in this regard.
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 only engage in repurchase agreements 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 only
advantageous if the Fund has an opportunity to earn a greater rate of interest
on the cash derived from these transactions 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.
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.
7
Proxy Voting Policy
The Trust has adopted as its proxy voting policies for the Fund the proxy
voting guidelines of BGFA, the investment adviser to the Fund. The Trust 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 on 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 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, 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 Fund proxies relating to portfolio
securities during the most recent 12-month period ended June 30 will be
available: (i) without charge, upon request, by calling 1-800-iShares 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 Trust's Board of Trustees (the "Board" or "Trustees") 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: (a) is consistent
with applicable legal requirements and in the best interests of the Fund's
respective shareholders; (b) does not put the interests of the Fund's
Investment Adviser, the Fund's Distributor, or any affiliated person of the
Fund, the Investment Adviser or the Distributor, above those of Fund
shareholders; (c) 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 discussed below; and (d) does not provide selective access to portfolio
holdings information except pursuant to the
8
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 (c) 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, Fund 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 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/or Authorized Participants, and (ii) to other personnel of
the Investment Adviser and other service providers, such as the Fund's
distributor, administrator, custodian and fund accountant, who deal directly
with, or assist in, functions related to investment management, 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 will disclose its portfolio holdings and the
percentages they represent of the Fund's net assets at least monthly, but as
often as each day the Fund is open. Information about this disclosure is
available at www.iShares.com.
From time to time, information concerning Fund portfolio holdings, other than
portfolio holdings information made available in connection with the
creation/redemption process, as discussed above, may also be provided to other
entities that provide additional services to the Fund, including, among others,
rating or ranking organizations, in the ordinary course of business, no earlier
than one business day following the date of the information. Portfolio holdings
information made available in connection with the creation/redemption process
may be provided to other entities that provide additional services to the Fund
in the ordinary course of business after it has been disseminated to the NSCC.
The Fund will disclose its complete portfolio holdings schedule in public
filings with the SEC on a quarterly basis, based on the Fund's fiscal year,
within 70 days after the end of the quarter, and will provide that information
to shareholders, as required by federal securities laws and regulations
thereunder. The Fund, however, may 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 in a contemporaneous
manner.
The Trust's Chief Compliance Officer may authorize disclosure of portfolio
holdings information pursuant to the above policy and procedures.
The Trust's Board reviews the policy and procedures for disclosure of portfolio
holdings information at least annually.
Construction and Maintenance Standards for the Underlying Index
The Fund invests substantially all of its assets in securities represented in
the JPMorgan EMBI Global Core Index.
A brief description of the Underlying Index is provided below.
The JPMorgan EMBI Global Core Index
Number of Components: approximately [ ]
Index Description, The JPMorgan EMBI Global Core Index (the "Underlying Index")
is a broad, comprehensive, market capitalization weighted index designed to
measure the performance of U.S. dollar denominated Brady bonds, Eurobonds,
9
traded loans, and securities issued by sovereign and quasi-sovereign entities
of emerging market countries. As of August 31, 2007, the index consisted of 26
countries including Argentina, Brazil, Bulgaria, China, Colombia, Ecuador,
Egypt, El Salvador, Hungary, Indonesia, Iraq, Lebanon, Malaysia, Mexico,
Panama, Peru, Philippines, Poland, Russia, Serbia, South Africa, Turkey,
Ukraine, Uruguay, and Venezuela.
Index Methodology, in order for a bond to be considered as eligible for
inclusion into the Underlying Index, the bond must be classified as emerging
market debt. Two criteria determine whether a country is defined as an emerging
market and, therefore, can be considered for inclusion into the Index. First, a
country must be classified as having a low or middle per capita income by the
World Bank for at least two consecutive years, based on data lagged one year.
The current source for these classifications is the World Bank publication
Global Development Finance. Published annually, this report reflects per capita
income brackets as of the previous year's close. Second, regardless of their
World-Bank-defined income level, countries that either have restructured their
external debt during the past 10 years or currently have restructured external
debt outstanding will also be considered for inclusion into the Index. Once the
universe of emerging markets countries has been defined, the eligible
securities from these countries must be selected for inclusion into the Index.
Component Selection Criteria, Securities that satisfy all the following defined
criteria will be eligible for inclusion into the Underlying Index: (i) can be
fixed or floating-rate (ii) must be issued by sovereign and quasi-sovereign
entities from index-eligible countries as noted above (iii) must be denominated
in U.S. dollars; (iv) must have a current face amount outstanding of $1 billion
or more; (v) must have at least 2 1/2 years until maturity; (vi) must be able
to settle internationally through Euroclear or another institution domiciled
outside the issuing country; and (viii) must be a security whose bid and offer
prices are available on a daily and timely basis--either from an inter-dealer
broker or JPMorgan. Convertible bonds, securities issued by municipalities or
provinces, and local law securities are all excluded from the Underlying Index.
Index Maintenance, The Index is a market capitalization weighted index. The
Index is priced at 3:00 pm Eastern Standard Time (EST) every business day of
the year as defined by the U.S. bond market calendar. Index securities are
priced using bid pricing each day. As of August 31, 2007 following emerging
market broker screens are used to compile best market bid (highest) and the
best market ask (lowest): Eurobrokers, Garban, GFI, Tullet & Tokyo, and
Tradition. For securities where there is not a valid price available at 3:00 pm
EST, the last available valid price is obtained from the market. As a last
resort, if there are no valid market prices for an instrument, JPMorgan traders
are asked to provide a market bid and ask. For those securities where pricing
is not available on a regular basis, the composition methodology ensures that
such securities are excluded from the Index.
The weight of each security in the Underlying Index is determined by dividing
the issue's market capitalization by the total market capitalization for all
securities in the Index. The result represents the weight of the issue
expressed as a percentage of the Underlying Index. Country weights are
calculated by aggregating the weights of the securities for each country.
The Index is generally rebalanced on a monthly basis. A new security that meets
the Underlying Index admission requirements is added to the Index on the first
month-end business date after its issuance, provided its issue date falls
before the 15th of the month. A new security whose settlement date falls on or
after the 15th of the month is added to the index on the last business day of
the next month. The following are the two exceptions to this rule: (i) the
first exception applies to new securities that are released as part of a debt
exchange program. For example, if a country exchanges a portion of its
outstanding debt for a new issue after the 15th of the month, at the month-end
rebalancing date immediately following this event the amount of debt retired in
this exchange would be removed from the Index. The new security would then be
added to the Index. (ii) The second exception concerns Regulation S securities.
A security that is issued solely in reliance on Regulation S of the U.S.
Securities Act of 1933 and not pursuant to Rule 144A will be ineligible for
inclusion in the Index until the expiration of the relevant Regulation S
restricted period. The date at which the restriction is lifted will effectively
be the new "issue" date, at which point the 15th of the month rule will apply.
In extreme cases, an intra-month rebalancing can occur when: (i) more than $6
billion of the face amount of Index eligible bonds are exchanged; (ii) more
than 2/3 of the face amount of any one of the most liquid Index bonds are
exchanged. If an announcement is made for a bond to be called, it is removed
from the Index on the month-end prior to its call date on the basis of having
less than 24 months remaining until maturity. However, if an announcement is
not made in time for the bond to be removed from the Index on the prior
month-end, it will be removed the first month-end following the announcement,
unless the amount to be called triggers an intra-month rebalancing.
10
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, or (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).
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 Securities Act, in disposing of portfolio securities.
In addition to the investment restrictions adopted as fundamental policies, set
forth above, the Fund, as non-fundamental policies, will 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. Except with regard to investment limitation
three above, 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.
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;
. 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).; 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).
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
11
purposes, in securities in the Fund's 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 Unit Aggregations of shares are created and traded
may raise certain issues under applicable securities laws. Because new Creation
Unit Aggregations of shares are issued and sold by the Fund on an ongoing
basis, at any point a "distribution," as such term is used in the Securities
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 which could render them
statutory underwriters and subject them to the prospectus delivery requirement
and liability provisions of the Securities Act.
For example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations 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 a
supply 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 Securities 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, are generally required to deliver a prospectus. This is
because the prospectus delivery exemption in Section 4(3) of the Securities 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
Securities Act, a prospectus delivery obligation under Section 5(b)(2) of the
Securities 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 only available with respect to transactions on an exchange.
Management
Trustees 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 Trustee serves until he or
she resigns, is removed, dies, retires or becomes incapacitated. Each Officer
serves until he or she resigns, is removed, dies, retires or becomes
disqualified.
iShares Trust, iShares, Inc., 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 to be members of the same fund complex, as defined in
Form N-1A under the 1940 Act. Each Trustee also serves as a Director for
iShares, Inc. and, as a result, oversees a total of [ ] Funds within the
fund complex. In addition, Lee T. Kranefuss serves as a Trustee for MIP, BGIF,
and BFIT and, as a result, oversees an additional [ ] portfolios within
the fund complex. The address of each Trustee 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 Trustee.
12
Principal Occupation(s) During the Other Directorships Held by
Name (Year of Birth) Position Past 5 Years Trustee
-------------------- -------------------- ---------------------------------- ---------------------------------
Interested Trustees
*Lee T. Kranefuss (1961) Trustee and Chairman Chief Executive Officer of the Director (since 2003) of iShares,
(since 2003) Intermediary Investor and Inc.; Trustee (since 2001) of
Exchange Traded Products Barclays Global Investors Funds
Business of BGI (since 2003); and Master Investment Portfolio;
Director of BGFA (since 2005); Trustee (since 2007) of BFIT;
Director, President and Chief Director (since 2003) of BGI
Executive Officer of Barclays Cayman Prime Money Market
Global Investors International, Fund, Ltd.
Inc. (since 2005); Director,
Chairman and Chief Executive
Officer of Barclays Global
Investors Services (since 2005);
Chief Executive Officer of the
Individual Investor Business of
BGI (1999-2003).
*John E. Martinez (1962) Trustee (since 2003) Co-Chief Executive Officer of Director (since 2003) of iShares,
Global Index and Markets Group Inc. Director (since 2005) of
of BGI (2001-2003); Chairman Real Estate Equity Exchange.
of Barclays Global Investors
Services (2000-2003).
--------
* Lee Kranefuss and John Martinez are deemed to be "interested persons" (as
defined in the 1940 Act) of the Trust 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.
Principal Occupation(s) During the Other Directorships Held by
Name (Year of Birth) Position Past 5 Years Trustee and Officer
-------------------- -------------------- ---------------------------------- ---------------------------------
Independent Trustees
George G.C. Parker (1939) Trustee (since 2000) Dean Witter Distinguished Director (since 2002) of iShares,
Lead Independent Professor of Finance, Emeritus Inc.; Director (since 1996) of
Trustee (since 2006) (since 1994); Formerly Senior Continental Airlines, Inc.;
Associate Dean for Academic Director (since 1995) of
Affairs, Director of MBA Community First Financial
Program, Stanford University: Group; Director (since 1999) of
Graduate School of Business Tejon Ranch Company; Director
(1993-2001). (since 2003) of First Republic
Bank; Director (since 2004) of
Threshold Pharmaceuticals;
Director (since 2007) of
NETGEAR, Inc.
Cecilia H. Herbert (1949) Trustee (since 2005) Member of Finance Council, Director (since 2005) of iShares,
Archdiocese of San Francisco Inc.
(1999-2006); Chair of
Investment Committee,
Archdiocese of San Francisco
(1994-2005); Director (since
1998) and President (since 2007)
of the Board of Directors,
Catholic Charities CYO; Trustee
(since 2004) of Pacific Select
Funds; Trustee (1992-2003) of
the Montgomery Funds; Trustee
(since 2005) and Chair of
Finance and Investment
Committee (since 2006) of the
Thacher School.
13
Principal Occupation(s) During the Other Directorships Held by
Name (Year of Birth) Position Past 5 Years Trustee and Officer
-------------------- -------------------- ---------------------------------- ---------------------------------
Charles A. Hurty (1943) Trustee (since 2005) Partner, KPMG, LLP (1968- Director (since 2005) of iShares,
2001). Inc.; 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 (1955) Trustee (since 2005) Chief Investment Officer, Santa Director (since 2005) of iShares,
Clara University (since 2002); Inc.; Member (since 2004) of
Managing Director, Merrill Advisory Council for Common
Lynch (1994-2002). fund Distressed Debt Partners II.
Robert H. Silver (1955) Trustee (since March President and Co-Founder of The Director (since March 2007) of
2007) Bravitas Group, Inc. (since iShares, Inc.; Director and
2006); Member, Non-Investor Member of the Audit and
Advisory Board of Russia Compensation Committee of
Partners II, LP (since 2006); EPAM Systems, Inc. (since
President and Chief Operating 2006).
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 Vice
Chairman of the YMCA of
Greater NYC (since 2001);
Broadway Producer (since
2006).
14
Principal Occupation(s) During the
Name (Year of Birth) Position Past 5 Years
-------------------- ------------------------ ----------------------------------
Officers
Michael A. Latham (1965) President (since 2007) Head of Americas iShares (since
2007); Chief Operating Officer
of the Intermediary Investors and
Exchange Traded Products
Business of BGI (since 2003-
2007); Director of Mutual Fund
Delivery in the U.S. Individual
Investor Business of BGI (2000-
2003); Head of Operations, BGI
Europe (1997-2000).
Geoffrey D. Flynn (1956) Treasurer and Chief Director, Mutual Fund
Financial Officer (since Operations, BGI (since 2007);
2007) President, Van Kampen
Investors Services (2003-2007);
Managing Director, Morgan
Stanley (2002-2007); President,
Morgan Stanley Trust, FSB
(2002-2007).
Eilleen M. Clavere (1952) Secretary (since 2007) Head of Legal Administration--
IIB, and BGI (since 2006); Legal
Counsel and Vice President of
Atlas Funds, Atlas Advisers, Inc.
and Atlas Securities, Inc. (2005-
2006); Counsel, Kirkpatrick &
Lockhart LLP (2001-2005).
Ira P. Shapiro (1963) Vice President and Associate General Counsel, BGI
Chief Legal Officer (since 2004); First Vice
(since 2007) President, Merrill Lynch
Investment Managers (1993-
2004).
Amy Schioldager (1962) Executive Vice Head of U.S. Indexing, BGI
President (since 2007) (since 2006); Head of Domestic
Equity Portfolio Management,
BGI (2001-2006).
H. Michael Williams (1960) Executive Vice Head, Global Index and Markets
President (since 2007) Group, BGI (since January
2006); Global Head of Securities
Lending, BGI (2002-2006).
Patrick O'Connor (1967) Vice President (since Head of iShares Portfolio
2007) Management, BGI (since 2006);
Senior Portfolio Manager, BGI
(since 1999).
15
Lee Sterne (1965) Vice President (since Senior Portfolio Manager, BGI
2007) (since 2004); Portfolio Manager,
BGI (2001-2004).
Matt Tucker (1972) Vice President (since Head of U.S. Fixed Income
2007) Investment Solutions, BGI (since
2005); Fixed Income Investment
Strategist, BGI (2003-2005);
Fixed Income Portfolio
Manager, BGI (1997-2003).
The following table sets forth, as of December 31, 2006, the dollar range of
equity securities beneficially owned by each Trustee in the Fund and in other
registered investment companies overseen by the Trustee within the same family
of investment companies as the Trust:
Aggregate Dollar Range of
Securities in All Registered
Dollar Range of Investment Companies Overseen By
Securities Trustee in Family of Investment
Name of Trustee* Name of iShares Index Fund in the Fund Companies
---------------- ------------------------------------- ---------------- --------------------------------
Lee T. Kranefuss iShares Lehman 1-3 Year Treasury Bond $50,001-$100,000 Over $100,000
iShares Russell 3000 Over $100,000
iShares iBoxx $ Investment Grade $10,001-$50,000
Corporate Bond $10,000-$50,000
iShares Dow Jones Select Dividend
John E. Martinez iShares MSCI EAFE Over $100,000 Over $100,000
iShares Russell 1000 Over $100,000
iShares Russell 1000 Value Over $100,000
iShares Russell 2000 Over $100,000
iShares S&P 500 Over $100,000
George G.C. Parker iShares Dow Jones Select Dividend Over $100,000 Over $100,000
iShares FTSE/Xinhua China 25 Over $100,000
iShares iBoxx $ Investment Grade Over $100,000
Corporate Bond $1-$10,000
iShares Lehman 1-3 Year Treasury Bond Over $100,000
iShares MSCI EAFE Over $100,000
iShares MSCI Emerging Markets Over $100,000
iShares MSCI Mexico Over $100,000
iShares Russell 1000 Value $50,001-$100,000
iShares Russell 2000 Over $100,000
iShares Russell 2000 Value Over $100,000
iShares S&P 100 Over $100,000
iShares S&P 500 $10,001-$50,000
iShares S&P 500 Growth Over $100,000
iShares S&P 500 Value Over $100,000
iShares S&P Midcap 400 Value $10,001-$50,000
iShares S&P Global 100
16
Aggregate Dollar Range of
Securities in All Registered
Dollar Range of Investment Companies Overseen By
Securities Trustee in Family of Investment
Name of Trustee* Name of iShares Index Fund in the Fund Companies
---------------- ---------------------------------------- --------------- --------------------------------
Cecilia H. Herbert iShares MSCI Hong Kong $10,001-$50,000 Over $100,000
iShares MSCI Japan $10,001-$50,000
iShares Dow Jones Consumer Goods Sector $10,001-$50,000
iShares FTSE/Xinhua China 25 $10,001-$50,000
iShares S&P 500 Over $100,000
Charles A. Hurty iShares S&P 500 $10,001-$50,000 Over $100,000
iShares FTSE/Xinhua China 25 $10,001-$50,000
iShares Dow Jones Financial Sector $10,001-$50,000
iShares Dow Jones U.S. Energy Sector $10,001-$50,000
iShares Dow Jones U.S. Technology Sector $10,001-$50,000
iShares MSCI EAFE $10,001-$50,000
iShares MSCI Japan $10,001-$50,000
John E. Kerrigan iShares Russell 1000 Over $100,000 Over $100,000
iShares MSCI Japan Over $100,000
iShares MSCI Pacific ex-Japan Over $100,000
iShares MSCI EAFE Over $100,000
--------
* The dollar range of equity securities beneficially owned by Robert H. Silver
is not reflected in the table because he was elected to serve as an
Independent Trustee of the Trust effective March 9, 2007.
As of December 31, 2006, none of the Trustees who are not interested persons
(as defined in the 1940 Act) of the Trust ("Independent Trustees") or their
immediate family members owned beneficially or of record any securities of BGFA
(the Fund's investment adviser), the Distributor (the Fund's distributor) or
any person controlling, controlled by or under control with BGFA or the
Distributor.
Committees of the Board of Trustees. Each Independent Trustee 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 Trust's accounting and financial reporting principles and policies and
related controls and procedures maintained by or on behalf of the Trust;
(ii) in its oversight of the Trust'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 Trust'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, 2006.
The Nominating and Governance Committee nominates individuals for Independent
Trustee 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 Trustee; (ii) recommending to the Board and current Independent
Trustees the nominee(s) for appointment as an Independent Trustee by the Board
and current Independent Trustees and/or for election as Independent Trustees by
shareholders to fill any vacancy for a position of Independent Trustee(s) on
the Board; (iii) recommending to the Board and current Independent Trustees the
size and composition of the Board and Board committees and whether they comply
with applicable laws and regulations; (iv) recommending a current Independent
Trustee to the Board and current Independent Trustees to serve as Lead
Independent Trustee; (v) periodic review of the Board's retirement policy; and
(vi) recommending an appropriate level of compensation for the Independent
Trustees for their services as Trustees, members or chairpersons of committees
of the Board, Lead Independent Trustee, Chairperson of the Board and any other
positions as the Nominating and Governance Committee considers appropriate. The
Nominating and Governance Committee is not required to consider Board
nomination(s) recommended by shareholders (acting solely in their capacity as a
shareholder and not in any other capacity). However, individual shareholder
nominees may be considered if the Nominating and Governance Committee deems it
appropriate. The Nominating and Governance Committee is comprised of all
members of the Board that are Independent Trustees. The Nominating and
Governance Committee met three times during the calendar year ended
December 31, 2006.
17
Remuneration of Trustees. Effective January 1, 2007, the Trust pays each
Independent Trustee and John Martinez, an Interested Trustee, an annual fee of
$75,000 for meetings of the Board attended by the Trustee; also the Trust 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 Trustee. During the period January 1,
2006 through December 31, 2006, the Trust paid each Independent Trustee and
John Martinez, an Interested Trustee, an annual fee of $60,000 for meetings of
the Board attended by the Trustee; also the Trust paid Charles Hurty an annual
fee of $12,500 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 Trustee. The Trust also reimburses each Trustee 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
Trustee for the calendar year ended December 31, 2006:
Pension or
Aggregate Retirement Total
Compensation Benefits Accrued As Estimated Annual Compensation
from the Part of Trust Benefits Upon From the Fund
Name of Interested Trustee Trust Expenses* Retirement* and Fund Complex**
-------------------------- ------------ ------------------- ---------------- ------------------
Lee T. Kranefuss***.... $ 0 Not Applicable Not Applicable $ 0
John E. Martinez....... $60,000 Not Applicable Not Applicable $120,000
--------
* No Trustee or Officer is entitled to any pension or retirement benefits from
the Trust.
** Includes compensation for service on the Board of Directors of iShares, Inc.
***Lee T. Kranefuss was not compensated by the Trust due to his employment with
BGI during the time period reflected in the table.
The table below sets forth the total compensation paid to each Independent
Trustee for the calendar year ended December 31, 2006:
Pension or
Aggregate Retirement Total
Compensation Benefits Accrued As Estimated Annual Compensation
from the Part of Trust Benefits Upon From the Fund
Name of Independent Trustee/3/ Trust Expenses* Retirement* and Fund Complex**
----------------------------- ------------ ------------------- ---------------- ------------------
Richard K. Lyons/1/...... $50,869 Not Applicable Not Applicable $154,413***
George G.C. Parker....... $85,000 Not Applicable Not Applicable $170,000
W. Allen Reed/2/......... $36,250 Not Applicable Not Applicable $ 72,500
Cecilia H. Herbert....... $60,000 Not Applicable Not Applicable $120,000
Charles A. Hurty......... $66,250 Not Applicable Not Applicable $132,500
John E. Kerrigan......... $60,000 Not Applicable Not Applicable $120,000
--------
/1/ Served as Trustee through November 6, 2006
/2/ Served as Trustee through June 30, 2006
/3/ Compensation is not shown for Robert H. Silver because he was elected to
serve as an Independent Trustee of the Trust effective March 9, 2007.
* No Trustee or Officer is entitled to any pension or retirement benefits from
the Trust.
** Includes compensation for service on the Board of Directors of iShares, Inc.
***Includes compensation as Trustee for BGIF and MIP, investment companies with
24 funds also advised by BGFA and/or for which BGFA provides administration
services.
The Trustees and officers of the Trust collectively owned less than 1% of each
of the Fund's outstanding shares as of [ ].
Investment Adviser. BGFA serves as investment adviser to the Fund pursuant to
an Investment Advisory Agreement between the Trust 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 Trust 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.
18
Under the Investment Advisory Agreement, BGFA is responsible for all expenses
of the Trust, including the cost of transfer agency, custody, fund
administration, legal, audit and other services, except expense interest, and
taxes, brokerage expenses, distribution fees or expenses and extraordinary
expenses. For its investment management services to the Fund, BGFA is paid a
management fee at the annual rates (as a percentage of the Fund's average net
assets) of:
Fund Management Fee
---- --------------
iShares JPMorgan USD Emerging Markets Bond
Fund........................................ [ ]%
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 federal banking laws and regulations (i) may
prohibit Barclays Bank PLC, BGI, and BGFA from controlling, or underwriting the
shares of the Trust, but (ii) would 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.
BGFA believes that it may perform advisory and related services for the Trust
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 Trust. 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
Trust. 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. The individuals named as Portfolio Managers in the
Prospectus are also primarily responsible for the day-to-day management of
certain types of other iShares Funds and certain other portfolios and/or
accounts in addition to the Fund, as indicated in the table below:/ 1/
John Sulski
Types of Accounts Number Total Assets
----------------- ------ ------------
Registered Investment Companies..............
Other Pooled Investment Vehicles.............
Other Accounts...............................
Accounts with Incentive-Based Fee
Arrangements...............................
Lee Sterne
Types of Accounts Number Total Assets
----------------- ------ ------------
Registered Investment Companies..............
Other Pooled Investment Vehicles.............
Other Accounts...............................
Accounts with Incentive-Based Fee
Arrangements...............................
--------
/1/ Information provided in the table is as of [ ].
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 compose
those indexes or through a representative sampling of the securities that
compose 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
19
will be allocated equitably among those portfolios and accounts, including the
Fund, 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 for 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. By their very nature,
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 Managers' favoring those
portfolios or accounts with incentive-based fee arrangements.
As of [ ], with respect to all iShares Funds and other portfolios and/or
accounts managed by the Portfolio Managers, on behalf of BGFA, each Portfolio
Manager receives a salary and is 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 is 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 [ ], John Sulski and Lee Sterne beneficially owned shares of the
Fund, for which they are primarily responsible for the day-to-day management,
in amounts reflected in the following table:
John Sulski
Dollar Range
------------------------------------------------------------------
$10,001 to $50,001 to $100,001 to $500,001 to over
Fund None $1 to $10k $50k $100k $500k $1m $1m
---- ---- ---------- ---------- ---------- ----------- ----------- ----
iShares JPMorgan USD Emerging Markets Bond Fund...
20
Lee Sterne
Dollar Range
------------------------------------------------------------------
$10,001 to $50,001 to $100,001 to $500,001 to over
Fund None $1 to $10k $50k $100k $500k $1m $1m
---- ---- ---------- ---------- ---------- ----------- ----------- ----
iShares JPMorgan USD Emerging Markets Bond Fund...
Codes of Ethics. The Trust, BGFA and the Distributor have adopted Codes of
Ethics pursuant to Rule 17j-1 under 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 Bank's principal address is 200 Clarendon Street,
Boston, MA 02116. Under the Administration Agreement with the Trust, State
Street Bank provides necessary administrative, legal, tax, accounting services
and financial reporting for the maintenance and operations of the Trust and the
Fund. In addition, State Street Bank makes available the office space,
equipment, personnel and facilities required to provide such services. Under
the Custodian Agreement with the Trust, State Street Bank maintains in separate
accounts cash, securities and other assets of the Trust and the Fund, keeps all
necessary accounts and records, and provides other services. State Street Bank
is required, upon the order of the Trust, to deliver securities held by State
Street Bank and to make payments for securities purchased by the Trust for the
Fund. Also, under a Delegation Agreement, State Street Bank 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 Trust, State Street Bank acts as a transfer agent
for the Fund's authorized and issued shares of beneficial interest, and as
dividend disbursing agent of the Trust. As compensation for the foregoing
services, State Street Bank 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 Trust 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 Unit Aggregations, as described in the Prospectus
and below in the Creation and Redemption of Creation Units Aggregations
section. Shares in less than Creation Unit Aggregations are not distributed by
the Distributor. The Distributor will deliver the Prospectus and, upon request,
the SAI to persons purchasing Creation Unit Aggregations 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 the 1934 Act and a
member of the National Association of Securities Dealers, Inc. ("NASD").
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 (i) by vote of a majority of the Independent
Trustees or (ii) by 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 Unit Aggregations
of shares. Such Soliciting Dealers may also be Authorized Participants (as
defined below), Depository Trust Company ("DTC") Participants (as defined
below) and/or Investor Services Organization.
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 bond market index compiled
by JPMorgan Chase & Co. JPMorgan Chase & Co. is not affiliated with the Trust
or with BGI or its affiliates. The Fund is entitled to use the Underlying Index
pursuant to a sub-licensing agreement with BGI, which in turn has a licensing
agreement with the Index Provider. BGI has provided the applicable sub-licenses
without charge to the Fund.
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
21
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 Trust 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.
Purchases and sales of fixed-income securities for the Fund usually are
principal transactions and ordinarily are purchased directly from the issuer or
from an underwriter or broker-dealer. The Fund does not usually pay brokerage
commissions in connection with such purchases and sales, but such transactions
may be subject to mark-ups or mark-downs.
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 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.
Additional Information Concerning the Trust
Shares. The Trust was established as a Delaware statutory trust on December 16,
1999. The Trust currently is comprised of over 100 Funds. The Trust issues
shares of beneficial interests in the Fund, with no par value. The Board may
designate additional funds. The Trust is currently registered with the SEC as
an open-end management investment company.
Each share issued by the Fund has a pro rata interest in the assets of the
Fund. 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 Fund, and
in the net distributable assets of the Fund on liquidation.
Each share has one vote with respect to matters upon which a shareholder vote
is required consistent with the requirements of the 1940 Act and the rules
promulgated thereunder. Shares of all funds vote together as a single class
except that, if the matter being voted on affects only a particular Fund, and,
if a matter affects a particular fund differently from other funds,
shareholders of that fund will vote separately on such matter.
Under Delaware law, the Trust is not required to hold an annual meeting of
shareholders unless required to do so under the 1940 Act. The policy of the
Trust is not to hold an annual meeting of shareholders unless required to do so
under the 1940 Act. All shares (regardless of the Fund) have noncumulative
voting rights for the Board. Under Delaware law, Trustees of the Trust may be
removed by vote of the shareholders.
Following the creation of the initial Creation Unit Aggregation(s) of shares of
the Fund and immediately prior to the commencement of trading in the Fund's
shares, a holder of shares may be a "control person" of the Fund, as defined in
the 1940 Act. The Fund cannot predict the length of time for which one or more
shareholders may remain a control person of the Fund.
Shareholders may make inquiries by writing to the Trust, c/o the Distributor,
SEI Investments Distribution Co., at One Freedom Valley Drive, Oaks, PA 19456.
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 Securities Exchange Act of 1934, as
amended ("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 Trustees 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.
22
Termination of the Trust or the Fund. The Trust or the Fund may be terminated
by a majority vote of the Board or the affirmative vote of a super majority of
the holders of the Trust or the Fund entitled to vote on termination. Although
the shares are not automatically redeemable upon the occurrence of any specific
event, the Trust's organizational documents provide that the Board will have
the unrestricted power to alter the number of shares in a Creation Unit
Aggregation. In the event of a termination of the Trust or the Fund, the Board,
in its sole discretion, could determine to permit the shares to be redeemable
in aggregations smaller than Creation Unit Aggregations or to be individually
redeemable. In such circumstance, the Trust may make redemptions in-kind, for
cash, or for a combination of cash or securities.
DTC as Securities Depository for the Shares of the Trust. 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 NYSE, the American Stock Exchange
and the NASD. 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
Trust and DTC, DTC is required to make available to the Trust upon request and
for a fee to be charged to the Trust a listing of the shares of the Fund held
by each DTC Participant. The Trust shall inquire of each such DTC Participant
as to the number of Beneficial Owners holding shares, directly or indirectly,
through such DTC Participant. The Trust 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 Trust 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 Trust. 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 Trust 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 Trust at any
time by giving reasonable notice to the Trust and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Trust shall take action to find a replacement for DTC to
perform its functions at a comparable cost.
23
Creation and Redemption of Creation Unit Aggregations
Creation. The Trust issues and sells shares of the Fund only in Creation Unit
Aggregations 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 "Business Day" with respect to the Fund is any day the Listing Exchange on
which the Fund is listed for trading is open for business. As of the date of
this SAI, the Listing Exchange observes the following holidays: 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.
Fund Deposit. The consideration for purchase of Creation Unit Aggregations of
the Fund generally consists of the in-kind deposit of a designated portfolio of
securities, the Deposit Securities, which constitutes a substantial
replication, or a portfolio sampling representation, of the securities involved
in the relevant 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 Aggregation of the Fund.
The Cash Component is sometimes also referred to as the "Balancing Amount." The
Cash Component serves the function of compensating for any differences between
the NAV per Creation Unit Aggregation and the Deposit Amount (as defined
below). The Cash Component is an amount equal to the difference between the NAV
of the shares (per Creation Unit Aggregation) and the "Deposit Amount," which
is an amount equal to the market value of the Deposit Securities. If the Cash
Component is a positive number (i.e., the NAV per Creation Unit Aggregation
exceeds the Deposit Amount), the creator will deliver the Cash Component. If
the Cash Component is a negative number (i.e., the NAV per Creation Unit
Aggregation is less than the Deposit Amount), the creator will receive the Cash
Component. Computation of the Cash Component excludes any stamp duty or other
similar fees and expenses payable upon transfer of beneficial ownership of the
Deposit Securities, which shall be the sole responsibility of the Authorized
Participant.
BGFA, through the NSCC, makes available on each Business Day, prior to the
opening of business on the applicable Listing Exchange (currently 9:30 a.m.,
Eastern time), the list of the names and the required number of shares (subject
to possible amendments or corrections) of each Deposit Security to be included
in the current Fund Deposit (based on information at the end of the previous
Business Day) for the Fund. Such Deposit Securities are applicable, subject to
any adjustments as described below, in order to effect creations of Creation
Unit Aggregations of a given Fund until such time as the next-announced
composition of the Deposit Securities is made available.
The identity and number of shares of the Deposit Securities required for a Fund
Deposit for the Fund changes as rebalancing adjustments, corporate action
events and interest payments on underlying bonds 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 Trust reserves the right to permit or require the substitution of an amount
of cash (i.e., 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 Trust also reserves the
right to permit or require a "cash in lieu" amount where the delivery of the
Deposit Security by the Authorized Participant (as described below) would be
restricted under the securities laws or where the delivery of the Deposit
Security to the Authorized Participant would result in the disposition of the
Deposit Security by the Authorized Participant becoming restricted under the
securities laws, or 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.
Procedures for Creation of Creation Unit Aggregations. To be eligible to place
orders with the Distributor and to create a Creation Unit Aggregation of the
Fund, an entity must be a DTC Participant (see the Book Entry Only System
section), and, in each case, must have executed an agreement with the
Distributor with respect to creations and redemptions of Creation Unit
Aggregations ("Participant Agreement") (see below). A Participating Party and
DTC Participant who has executed a Participant Agreement are collectively
referred to as an "Authorized Participant." Investors should contact the
Distributor for the names of Authorized Participants that have signed a
Participant Agreement. All shares of the Fund, however created, will be entered
on the records of DTC in the name of Cede & Co. for the account of a DTC
Participant.
24
All orders to create shares must be placed for one or more Creation Unit
Aggregations. Orders to create Creation Unit Aggregations of the Fund cannot be
placed through the Clearing Process. All orders to create Creation Unit
Aggregations, whether through the Clearing Process (through a Participating
Party) or outside the Clearing Process (through a DTC Participant), must be
received by the Distributor no later than the closing time of the regular
trading session on the Listing Exchange ("Closing Time") (ordinarily 4:00 p.m.,
Eastern time) in each case on the date such order is placed in order for
creation of Creation Unit Aggregations to be effected based on the NAV of
shares of the Fund as next determined on such date after receipt of the order
in proper form. The date on which an order to create Creation Unit Aggregations
(or an order to redeem Creation Unit Aggregations, as discussed below) is
placed is referred to as the "Transmittal Date." Orders must be transmitted by
an Authorized Participant by telephone or other transmission method acceptable
to the Distributor pursuant to procedures set forth in the Participant
Agreement, as described below. Economic or market disruptions or changes, or
telephone or other communication failure, may impede the ability to reach the
Distributor or an Authorized Participant.
All orders to create Creation Unit Aggregations on behalf of an investor shall
be placed with an Authorized Participant, as applicable, in the form required
by such Authorized Participant. In addition, the Authorized Participant may
request the investor to make certain representations or enter into agreements
with respect to the order, (e.g., to provide for payments of cash), when
required. Investors should be aware that their particular broker may not have
executed a Participant Agreement and, therefore, orders to create Creation Unit
Aggregations of the Fund have to be placed by the investor's broker through an
Authorized Participant that has executed a Participant Agreement. In such
cases, there may be additional charges to such investor. At any given time,
there may be only a limited number of broker-dealers that have executed a
Participant Agreement and, to the extent needed, only a small number of such
Authorized Participants may have international capabilities.
Placement of Creation Orders for Foreign Funds. Fund Deposits in connection
with the Fund will not be made either through the Clearing Process or through
DTC. For the Fund, State Street shall cause the sub-custodian 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 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 Trust.
Deposit Securities must be delivered to an account maintained at the applicable
local sub-custodian(s). Orders to purchase Creation Unit Aggregations must be
received by the Distributor from an Authorized Participant on its own or
another investor's behalf by the closing time of the regular trading session on
the applicable Listing Exchange on the relevant Business Day. However, when a
relevant local market is closed due to local market holidays, the local market
settlement process will not commence until the end of the local holiday period.
Settlement must occur by 2:00 p.m., Eastern Time, on the contractual settlement
date.
The Authorized Participant must also make available no later than 2:00 p.m.,
Eastern Time, on the contractual settlement date, by means satisfactory to the
Trust, immediately-available or same-day funds estimated by the Trust 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 Aggregation.
To the extent contemplated by the applicable Participant Agreement, Creation
Unit Aggregations of the Fund will be issued 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 consisting of cash in the form of U.S. dollars in
immediately available funds having a value (marked to market daily) at least
equal to 110%, which BGFA may change from time to time of the value of the
missing Deposit Securities. Such cash collateral must be delivered no later
than 2:00 p.m., Eastern Time, on the contractual settlement date. The
Participant Agreement will permit the Fund 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 Trust of purchasing such securities
and the value of the collateral.
Acceptance of Orders for Creation Unit Aggregations. The Trust reserves the
absolute right to reject 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 not as disseminated through the facilities of the NSCC for that
date 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 otherwise, in the discretion of the Trust or BGFA, have
an adverse effect on the Trust or the rights of beneficial owners; or (vii) in
the event that circumstances outside the control of the Trust, State Street,
the Distributor or BGFA makes it, for all practical purposes, impossible to
process creation orders. Examples of such circumstances include acts of God;
public service or utility problems such as fires, floods, extreme weather
conditions and power outages resulting in telephone, telecopy and computer
failures; market conditions or activities causing trading halts; systems
failures involving computer or other information systems
25
affecting the Trust, BGFA, the Distributor, DTC, NSCC, State Street or
sub-custodian or any other participant in the creation process; and similar
extraordinary events. The Distributor shall notify a prospective creator of a
Creation Unit and/or the Authorized Participant acting on behalf of the creator
of a Creation Unit Aggregation of its rejection of the order of such person.
The Trust, State Street, a sub-custodian 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 the failure to
give any such notification.
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 Trust, and the
Trust's determination shall be final and binding.
Creation 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 of shares. 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 of shares for cash are required to pay an
additional variable charge to compensate for brokerage and market impact
expenses. Where the Trust 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 will also bear the costs of
transferring the Deposit Securities to the Trust. Investors who use the
services of a broker or other such intermediary may be charged a fee for such
services.
The following table sets forth the standard and maximum creation transaction
fees for the Fund:
Standard Creation
Fund Transaction Fee*
---- -----------------
iShares JPMorgan USD Emerging Markets Bond
Fund....................................... $[ ]
--------
* If a Creation Unit is purchased outside the usual process through the NSCC
or for cash, a variable fee will be charged up to four times the standard
creation or redemption transaction fee.
Redemption of Shares in Creation Units Aggregations. Shares may be redeemed
only in Creation Unit Aggregations at their NAV next determined after receipt
of a redemption request in proper form by the Fund only on a Business Day. The
Fund will not redeem shares in amounts less than Creation Unit Aggregations.
Beneficial Owners must accumulate enough shares in the secondary market to
constitute a Creation Unit Aggregation in order to have such shares redeemed by
the Trust. 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 Aggregation. Investors should expect to incur brokerage and other
costs in connection with assembling a sufficient number of shares to constitute
a redeemable Creation Unit Aggregation.
With respect to the Fund, BGFA, through the NSCC, makes available immediately
prior to the opening of business on the applicable Listing Exchange (currently
9:30 a.m., Eastern time) on each Business Day, the identity of the fund
securities that will be applicable (subject to possible amendment or
correction) to redemption requests received in proper form (as described below)
on that day. Fund securities ("Fund Securities") received on redemption may not
be identical to Deposit Securities that are applicable to creations of Creation
Unit Aggregations.
Unless cash redemptions are available or specified for the Fund, the redemption
proceeds for a Creation Unit Aggregation generally consist of Fund
Securities--as announced on the Business Day of the request for redemption
received in proper form--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 (the "Cash
Redemption Amount"), less a redemption transaction fee listed below. In the
event that the Fund Securities have a value greater than the NAV of the shares,
a compensating cash payment equal to the difference is required to be made by
or through an Authorized Participant by the redeeming shareholder.
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 Unit
Aggregations for cash to the extent that the Trust 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 Aggregation 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 Securities Act to a redeeming
Beneficial Owner that is not a "qualified institutional buyer", as such term is
defined under Rule 144A of the Securities 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.
26
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 Listing Exchange is
closed (other than customary weekend and holiday closings); (ii) for any period
during which trading on the 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 or determination of the Fund's NAV is not
reasonably practicable; or (iv) in such other circumstances as is permitted by
the SEC.
Redemption Transaction Fee. 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. Investors will also bear the
costs of transferring the Fund Securities from the Trust to their account or on
their order. Investors who use the services of a broker or other such
intermediary may be charged a fee for such services. The following table sets
forth the standard creation Redemption fee for the Fund:
Standard Redemption
Fund Transaction Fee*
---- -------------------
iShares JPMorgan USD Emerging Markets Bond
Fund....................................... $[ ]
--------
* If a Creation Unit is redeemed outside the usual process through the NSCC or
for cash, a variable fee will be charged up to four times the standard
creation or redemption transaction fee.
Placement of Redemption Orders for Domestic Funds Using the Clearing Process.
Orders to redeem Creation Unit Aggregations of funds based on domestic indexes
through the Clearing Process must be delivered through a Participating Party
that has executed the Participant Agreement. An order to redeem Creation Unit
Aggregations using the Clearing Process is deemed received by the Trust on the
Transmittal Date if (i) such order is received by State Street not later than
the Closing Time on such Transmittal Date; and (ii) all other procedures set
forth in the Participant Agreement are properly followed. Such order will be
effected based on the NAV of the Fund as next determined. An order to redeem
Creation Unit Aggregations using the Clearing Process made in proper form but
received by the Trust after the Closing Time, will be deemed received on the
next Business Day immediately following the Transmittal Date and will be
effected at the NAV next determined on such Business Day. The requisite Fund
Securities and the Cash Redemption Amount will be transferred by the third NSCC
Business Day following the date on which such request for redemption is deemed
received.
Placement of Redemption Orders for Domestic Funds Outside the Clearing Process.
Orders to redeem Creation Unit Aggregations of funds based on domestic indexes
outside the Clearing Process must be delivered through a DTC Participant that
has executed the Participant Agreement. A DTC Participant who wishes to place
an order for redemption of Creation Unit Aggregations to be effected outside
the Clearing Process does not need to be a Participating Party, but such orders
must state that the DTC Participant is not using the Clearing Process and that
redemption of Creation Unit Aggregations will instead be effected through
transfer of shares directly through DTC. An order to redeem Creation Unit
Aggregations outside the Clearing Process is deemed received by the Trust on
the Transmittal Date if: (i) such order is received by State Street not later
than the Closing Time on such Transmittal Date; (ii) such order is accompanied
or followed by the requisite number of shares of the Fund specified in such
order, which delivery must be made through DTC to State Street no later than
11:00 a.m., Eastern Time, on the contracted settlement date; and (iii) all
other procedures set forth in the Participant Agreement are properly followed.
After the Trust has deemed an order for redemption outside the Clearing Process
received, the Trust will initiate procedures to transfer the requisite Fund
Securities which are expected to be delivered within three Business Days and
the Cash Redemption Amount to the Authorized Participant on behalf of the
redeeming Beneficial Owner by the Settlement Date. In certain cases Authorized
Participants will redeem and create Creation Unit Aggregations of the same Fund
on the same trade date. In these instances, the Trust reserves the right to
settle these transactions on a net basis.
Placement of Redemption Orders for Foreign Funds. Orders to redeem Creation
Unit Aggregations of the Fund must be delivered through an Authorized
Participant that has executed a Participant Agreement. Investors other than
Authorized Participants are responsible for making arrangements for a
redemption request to be made through an Authorized Participant. An order to
redeem Creation Unit Aggregations of the Fund is deemed received by the Trust
on the Transmittal Date if: (i) such order is received by State Street not
later than the Closing Time on the Transmittal Date; (ii) such order is
accompanied or followed by the requisite number of shares of the Fund specified
in such order, which delivery must be made through DTC to State Street no later
than 10:00 a.m., Eastern Time, on the next Business Day following the
Transmittal Date; and (iii) all other procedures set forth in the Participant
Agreement are properly followed. Deliveries of Fund Securities to redeeming
investors generally will be made within three Business Days. Due to the
schedule of holidays in certain countries, however, the delivery of in-kind
redemption proceeds for the Fund may take longer than three Business Days after
the day on which the redemption request is received in proper form. In such
cases, the local market settlement procedures will not commence until the end
of the local holiday periods.
27
In connection with taking delivery of shares of Fund Securities upon redemption
of shares of the Fund, a redeeming Beneficial Owner, or Authorized Participant
action 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 Fund Securities are customarily traded,
to which account such Fund Securities will be delivered.
To the extent contemplated by an Authorized Participant's agreement, in the
event the Authorized Participant has submitted a redemption request in proper
form but is unable to transfer all or part of the Creation Unit Aggregation to
be redeemed to the Fund's Transfer Agent, the Distributor will nonetheless
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 having a value (marked to market daily) at least
equal to 110%, which BGFA may change from time to time, of the value of the
missing shares.
The current procedures for collateralization of missing shares require, among
other things, that any cash collateral shall be in the form of U.S. dollars in
immediately-available funds and shall be held by State Street and marked to
market daily, and that the fees of State Street and any sub-custodians in
respect of the delivery, maintenance and redelivery of the cash collateral
shall be payable by the Authorized Participant. The Authorized Participant's
agreement will permit the Trust, on behalf of the affected Fund, to purchase
the missing shares or acquire the Deposit Securities and the Cash Component
underlying such shares at any time and will subject the Authorized Participant
to liability for any shortfall between the cost to the Trust of purchasing such
shares, Deposit Securities or Cash Component and the value of the collateral.
The calculation of the value of the Fund Securities and the Cash Redemption
Amount to be delivered upon redemption will be made by State Street on the
Business Day on which a redemption order is deemed received by the Trust.
Therefore, if a redemption order in proper form is submitted to State Street by
a DTC Participant not later than Closing Time on the Transmittal Date, and the
requisite number of shares of the Fund are delivered to State Street prior to
the DTC Cut-Off-Time, then the value of the Fund Securities and the Cash
Redemption Amount to be delivered will be determined by State Street on such
Transmittal Date. If, however, a redemption order is submitted to State Street
by a DTC Participant not later than the Closing Time on the Transmittal Date
but either (i) the requisite number of shares of the relevant Fund are not
delivered by the DTC Cut-Off-Time, as described above, on such Transmittal
Date, or (ii) the redemption order is not submitted in proper form, then the
redemption order will not be deemed received as of the Transmittal Date. In
such case, the value of the Fund Securities and the Cash Redemption Amount to
be delivered will be computed on the Business Day that such order is deemed
received by the Trust, (i.e., the Business Day on which the shares of the
relevant Fund are delivered through DTC to State Street by the DTC
Cut-Off-Time) on such Business Day pursuant to a properly submitted redemption
order.
If it is not possible to effect deliveries of the Fund Securities, the Trust
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 addition, an investor may request a redemption in cash
that the Fund may, in its sole discretion, permit. In either case, the investor
will receive a cash payment equal to the NAV of its shares based on the NAV of
shares of the relevant Fund next determined after the redemption request is
received in proper form (minus a redemption transaction fee and additional
charge for requested cash redemptions specified above, to offset the Trust's
brokerage and other transaction costs associated with the disposition of Fund
Securities). A Fund may also, in its sole discretion, upon request of a
shareholder, provide such redeemer a portfolio of securities that differs from
the exact composition of the Fund Securities but does not differ in NAV.
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 Unit
Aggregations for cash to the extent that the Trust 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 Aggregation may be paid an equivalent amount of
cash. 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.
Because the Portfolio Securities of the Fund may trade on the relevant
exchange(s) on days that the Listing Exchange for the Foreign Fund is closed or
are otherwise not Business Days for the Fund, stockholders may not be able to
redeem their shares of the Fund, or to purchase and sell shares of the Fund on
the Listing Exchange for the Fund, on days when the NAV of the Fund could be
significantly affected by events in the relevant foreign markets.
28
Taxes
Regulated Investment Company Qualifications. The Fund intends to qualify for
and to elect treatment as a 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 90% of its net tax-exempt income for the taxable
year 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 an interest in a qualified publicly
traded partnership; 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 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 the Fund holds
20% or more of the voting stock, and that are engaged in the same or similar
trades or businesses or related trades or businesses (other than U.S.
Government securities or the securities of other regulated investment
companies) or the securities of one or more qualified publicly traded
partnerships. 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. If the Fund fails to qualify for any taxable
year as a RIC, 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
tax-exempt income and net long-term capital gains, 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 qualify as qualified dividend income and distributions to corporate
shareholders generally should be eligible for the dividends-received deduction.
Although the Fund intends to distribute substantially all of its net investment
income and its capital gains for each taxable year, the Fund will be subject to
federal income taxation to the extent any such income or gains are not
distributed. If the Fund's distributions exceed its 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.
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 twelve 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.
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, all of its net tax-exempt 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
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
29
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.
However, any dividends paid by the Fund that are properly designated as
exempt-interest dividends will not be subject to regular federal income tax.
Shareholders will receive information after the end of each year setting forth
the amount of dividends and long-term capital gains distributed to them by the
Fund during the prior year, along with the alternative minimum tax, that the
Fund distributes will be reported and such income must be reported on the
shareholder's federal income tax return.
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.
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.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of the Fund will not be deductible for U.S. federal income tax purposes. If a
shareholder receives exempt-interest dividends with respect to any share of the
Fund and if the share is held by the shareholder for six months or less, then
any loss on the sale or exchange of the share may, to the extent of the
exempt-interest dividends, be disallowed. In addition, the IRC may require a
shareholder that receives exempt-interest dividends to treat as taxable income
a portion of certain otherwise non-taxable social security and railroad
retirement benefit payments. Furthermore, a portion of any exempt-interest
dividend paid by the Fund that represents income derived from certain revenue
or private activity bonds held by the Fund may not retain its tax-exempt status
in the hands of a shareholder who is a "substantial user" of a facility
financed by such bonds, or a "related person" thereof. In addition, the receipt
of dividends and distributions from the Fund may affect a foreign corporate
shareholder's federal "branch profits" tax liability and the federal "excess
net passive income" tax liability of a shareholder of a Subchapter S
corporation. Shareholders should consult their own tax advisors as to whether
they are (i) "substantial users" with respect to a facility or "related" to
such users within the meaning of the IRC or (ii) subject to the federal "branch
profits" tax, or the federal "excess net passive income" tax.
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).
30
Sections 351 and 362. The Trust, 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 Trust will exercise the right of
rejection except in a case where the Trust determines that accepting the order
could result in material adverse tax consequences to the Fund or its
shareholders. The Trust 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 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% (5% 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 and certain foreign corporations (e.g., foreign corporations
incorporated in a possession of the United States or in certain countries with
a comprehensive tax treaty with the United States, or the stock of which is
readily tradable on an established securities market in the United States). A
dividend 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
more than 60 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 in the case of certain preferred stock 91 days during the
181-day period beginning 90 days before such date (and the Fund also satisfies
those holding period requirements with respect to the securities it holds that
paid the dividends distributed to the shareholder), (ii) 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. 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. It is not expected that a
substantial portion of the Fund's dividends will be designated as qualified
dividend income. Distributions by the Fund of its net short-term capital gains
will generally be taxable as ordinary income. Capital gain distributions
consisting of the Fund's net capital gains will be taxable as long-term capital
gains.
If you lend your Fund shares pursuant to securities lending arrangements you
may lose the ability to treat Fund dividends (paid while the shares are held by
the borrower) as tax-exempt income or as qualified dividends. Consult your
financial intermediary or tax advisor. If you enter into a short sale with
respect to shares of the Fund, substitute payments made to the lender of such
shares may not be deductible. Consult your financial intermediary or tax
advisor.
Market Discount. Any market discount recognized on a bond is taxable as
ordinary income. A market discount bond is a bond acquired in the secondary
market at a price below redemption value or adjusted issue price if issued with
original issue discount. Absent an election by the fund to include the market
discount in income as it accrues, gain on the fund's disposition of such an
obligation will be treated as ordinary income rather than capital gain to the
extent of the accrued market discount.
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.
Federal Tax Treatment of Complex Securities. The Fund may invest in complex
securities. These investments may be subject to numerous special and complex
tax rules. These rules could affect whether gains and losses recognized by the
Fund are treated as ordinary income or capital gain, accelerate the recognition
of income to the Fund and/or defer the Fund's ability to recognize losses. In
turn, these rules may affect the amount, timing or character of the income
distributed to you by the Fund.
The Fund is required, for federal income tax purposes, to mark-to-market and
recognize as income for each taxable year its net unrealized gains and losses
on certain futures and options contracts as of the end of the year as well as
those actually realized during the year. Gain or loss from futures and options
contracts on broad-based investments required to be marked-to-market will be
60% long-term and 40% short-term capital gain or loss. Application of this rule
may alter the timing and character of distributions to shareholders. The Fund
may be required to defer the recognition of losses on futures contracts, option
contracts and swaps to the extent of any unrecognized gains on offsetting
positions held by the Fund.
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, if positive, will generally
constitute taxable ordinary income and, if negative, will reduce net tax-exempt
income, 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). The tax treatment of many types of
credit default swaps is uncertain.
31
It is anticipated that any net gain realized from the closing out of futures or
options contracts will be considered qualifying income for purposes of the 90%
requirement for the Fund to qualify as a RIC.
The Fund intends to distribute to shareholders annually any net capital gains
that have been recognized for federal income tax purposes (including unrealized
gains at the end of the Fund's fiscal year) on futures or options transactions.
Such distributions are combined with distributions of capital gains realized on
the Fund's other investments and shareholders are advised on the nature of the
distributions.
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
mutual 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 backup
withholding at the appropriate rate.
In general, U.S. 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.
For taxable years beginning before January 1, 2008, properly-designated
dividends are generally exempt from United States federal withholding tax where
they (i) are paid in respect of the Fund's "qualified net interest income"
(generally, the Fund's U.S. source interest income, other than certain
contingent interest and interest from obligations of a corporation or
partnership in which the Fund is at least a 10% shareholder, reduced by
expenses that are allocable to such income) or (ii) are paid in respect of the
Fund's "qualified short-term capital gains" (generally, the excess of the
Fund's net short-term capital gain over the Fund's long-term capital loss for
such taxable year). However, depending on its circumstances, the Fund may
designate all, some or none of its potentially eligible dividends as such
qualified net interest income or as qualified short-term capital gains, and/or
treat such dividends, in whole or in part, as ineligible for this exemption
from withholding. In order to qualify for this exemption from withholding, a
non-U.S. shareholder will need to comply with applicable certification
requirements relating to its non-U.S. status (including, in general, furnishing
an IRS Form W-8BEN or substitute Form). In the case of shares held through an
intermediary, the intermediary may withhold even if the Fund designates the
payment as qualified net interest income or qualified short-term capital gain.
Non-U.S. shareholders should contact their intermediaries with respect to the
application of these rules to their accounts.
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
32
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 real estate
investment company ("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.
A distribution paid prior to 2008 attributable to the Fund's sale of a REIT or
other U.S. real property holding company will also be treated as real property
gain if 50% or more of the value of the Fund's assets are invested in REITs and
other U.S. real property holding corporations and if the foreign shareholder
has held more than 5% of a class of stock at any time during the one-year
period ending on the date of the distribution.
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 under current guidance,
shareholders of a regulated investment company 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 Trust.
Independent Registered Public Accounting Firm.[ ], located at [ ],
serves as the Trust's independent registered public accounting firm, audits the
Fund's financial statements and may perform other services.
Shareholder Communication to the Board. 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 Trustees, 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: (a) the name and address of the shareholder; (b) the
number of shares owned by the shareholder; (c) the Fund or Funds of which the
shareholder owns shares; and (d) 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 Trust and reported to
the Board.
33
Appendix A
DESCRIPTION OF CORPORATE BOND RATINGS
The ratings indicated herein are believed to be the most recent ratings
available at the date of this SAI for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
ratings which would be given to these securities on a particular date.
Bonds which are unrated expose the investor to risks with respect to capacity
to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. Evaluation of these securities is dependent on
the investment adviser's judgment, analysis and experience in the evaluation of
such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
Moody's Ratings
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risk appear somewhat larger than the Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing
Absence of Rating: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
A-1
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to- date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
Short-Term Debt
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
one year.
Issuers rated Prime-1 or P-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
. Leading market positions in well established industries.
. High rates of return on funds employeds. Conservative capitalization
structure with moderate reliance on debt and ample asset protection.
Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
. Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 or P-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Standard & Poor's Ratings Group
AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: An obligation rated AA differs from the highest rated obligations only to a
small degree. The obligor's capacity to meet its financial commitment is very
strong.
A: An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity of the obligor to meet its financial commitment on the
obligation.
Obligations rated BB, B, CCC, CC, and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions.
BB: An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions that could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B: An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC: An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
A-2
C: The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken but payments on this obligation
are being continued. C is also used for a preferred stock that is in arrears
(as well as for junior debt of issuers rated CCC and CC).
D: The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred-and not where a default is only
expected. Plus (+) or Minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
Commercial Paper
A: S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
Fitch Ratings
Investment Grade Bond Ratings
AAA: Highest credit quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely
to be adversely affected by foreseeable events.
AA: Very high credit quality. "AA" ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A: High credit quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to changes in circumstances
or in economic conditions than is the case for higher ratings.
BBB: Good credit quality. "BBB" ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
High Yield Bond Ratings
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.
B: Highly speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, and C: High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of some
kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. The ratings of obligations in this category are based
on their prospects for achieving partial or full recovery in a reorganization
or liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve as
general guidelines. "DDD" obligations have the highest potential for recovery,
around 90%-100% of outstanding amounts and accrued interest. "DD" indicates
potential recoveries in the range of 50%-90% and "D" the lowest recovery
potential, i.e., below 50%.
A-3
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have
a poor prospect of repaying all obligations.
Investment Grade Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes
F-1: Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote any
exceptionally strong credit feature.
F-2: Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the case
of the higher ratings.
F-3: Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions
C: High default risk. Default is a real possibility Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business
and economic environment.
D: Default. Denotes actual or imminent payment default.
Notes to Long-term and Short-term ratings
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the "AAA" Long-term rating
category, to categories below "CCC", or to Short-term ratings other than "F-l".
"NR" indicates that Fitch does not rate the issuer or issue in question
"Withdrawn": A rating is withdrawn when Fitch deems the amount of information
available to be inadequate for rating purposes, or when an obligation matures,
is called, or refinanced.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
A-4
iShares Trust
File Nos. 333-92935 and 811-09729
Part C
Other Information
Item 23. Exhibits: PEA # 101
Exhibit
Number Description
------- ------------------------------------------------------------------------------------------------------------------------
(a) Agreement and Declaration of Trust, dated September 13, 2006, is incorporated herein by reference to Post-Effective
Amendment No. 53, filed September 19, 2006 ("PEA No. 53").
(a.1) Restated Certificate of Trust, dated September 13, 2006 is incorporated herein by reference to PEA No. 53.
(b) Amended and Restated By-Laws, dated December 8, 2006 are incorporated herein by reference to Post-Effective
Amendment No. 74, filed March 23, 2007 ("PEA No. 74").
(c) Not applicable.
(d.1) Investment Advisory Agreement between the Trust and Barclays Global Fund Advisors ("BGFA") is incorporated herein
by reference to Post-Effective Amendment No. 2, filed May 12, 2000 ("PEA No. 2").
(d.2) Schedule A to the Investment Advisory Agreement between the Trust and BGFA to be filed by amendment.
(d.3) Fee Waiver Agreement, dated August 30, 2007, between BGFA and the Trust with respect to the iShares S&P National
Municipal Bond Fund is herein incorporated by reference to Post-Effective Amendment No. 99, filed September 6, 2007
("PEA No. 99").
(e.1) Distribution Agreement between the Trust and SEI Investments Distribution Company ("SEI") is incorporated herein by
reference to PEA No. 2.
(e.2) Exhibit A to the Distribution Agreement between the Trust and SEI to be filed by amendment.
(f) Not applicable.
(g.1) Custodian Agreement between the Trust and Investors Bank & Trust Company ("IBT")/1/ is incorporated herein by
reference to PEA No. 2.
(g.2) Amendment, dated December 31, 2002, to the Custodian Agreement is incorporated herein by reference to Post-Effective
Amendment No. 45, filed June 28, 2006 ("PEA No. 45").
(g.3) Amendment, dated May 21, 2002, to the Custodian Agreement is incorporated herein by reference to PEA No. 45.
(g.4) Amendment, dated January 1, 2006, to the Custodian Agreement is incorporated herein by reference to PEA No. 45.
(g.5) Appendix A to the Custodian Agreement between the Trust and IBT/1/ to be filed by amendment.
(h.1) Securities Lending Agency Agreement, dated April 2, 2007, between the Trust and iShares, Inc. and Barclays Global
Investors (" BGI") is incorporated herein by reference to Post-Effective Amendment No. 78, filed April 23, 2007 ("PEA
No. 78").
(h.2) Appendix A to Securities Lending Agency Agreement between BGI and the Trust to be filed by amendment.
(h.3) Delegation Agreement between the Trust and IBT/1/ is incorporated herein by reference to Exhibit (g.3) to PEA No. 2.
(h.4) Administration Agreement between the Trust and IBT/1/ is incorporated herein by reference to Exhibit (h.1) to PEA No. 2.
(h.5) Appendix A to the Administration Agreement between the Trust and IBT/1/ to be filed by amendment.
(h.6) Amendment, dated May 21, 2002, to the Administration Agreement is incorporated herein by reference to PEA No. 45.
(h.7) Amendment, dated January 1, 2006, to the Administration Agreement is incorporated herein by reference to PEA No. 45.
(h.8) Amendment, dated January 1, 2007, to the Administration Agreement is incorporated herein by reference to Post-Effective
Amendment No. 75, filed March 26, 2007.
(h.9) Transfer Agency and Service Agreement between the Trust and IBT/1/ is incorporated herein by reference to Exhibit (h.2) to
PEA No. 2.
(h.10) Appendix A to the Transfer Agency and Service Agreement between the Trust and IBT/1/ to be filed by amendment.
(h.11) Amendment, dated May 21, 2002, to the Transfer Agency Agreement is incorporated herein by reference to PEA No. 45.
(h.12) Amendment, dated August 18, 2004, to the Transfer Agency Agreement is incorporated herein by reference to PEA No. 45.
(h.13) Amendment, dated January 1, 2006, to the Transfer Agency Agreement is incorporated herein by reference to PEA No. 45.
(h.14) Sublicense Agreement, dated April 25, 2000, between BGI and the Trust for iShares S&P Funds is incorporated herein by
reference to Exhibit (h.3.i) to PEA No. 2.
(h.15) Amendment to Sublicense Agreement between BGI and the Trust for the iShares S&P Funds is incorporated herein by
reference to PEA No. 99.
(h.16) Sublicense Agreement, dated April 25, 2000, between BGI and the Trust for iShares Dow Jones Funds is incorporated
herein by reference to Exhibit (h.7) to PEA No. 37.
(h.17) Exhibit A to the Sublicense Agreement, dated April 1, 2006, between BGI and the Trust for iShares Dow Jones Funds is
incorporated herein by reference to Exhibit (h.8) to Post-Effective Amendment No. 43, filed April 17, 2006
("PEA No. 43").
(h.18) Sublicense Agreement between BGI and the Trust for iShares Dow Jones Funds to be filed by amendment.
(h.19) Sublicense Agreement, dated April 25, 2000, between BGI and the Trust for iShares Russell Funds is incorporated herein
by reference to Exhibit (h.8) to PEA No. 37.
(h.20) Exhibit A to the Sublicense Agreement between BGI and the Trust for iShares Russell Funds to be filed by amendment.
(h.21) Sublicense Agreement between BGI and the Trust for iShares MSCI EAFE Index Fund is incorporated herein by reference
to Exhibit (h.9) to Post-Effective Amendment No. 10, filed June 1, 2001.
(h.22) Sublicense Agreement between BGI and the Trust for iShares Nasdaq Biotechnology Index Fund is incorporated herein by
reference to Exhibit (h.10) to Post-Effective Amendment No. 13, filed July 31, 2001.
(h.23) Sublicense Agreement between BGI and the Trust for iShares S&P GSSI/GSTI Funds to be filed by amendment.
(h.24) Sublicense Agreement between BGI and the Trust for iShares Lehman Brothers 1-3 year Treasury Index Fund, iShares
Lehman Brothers 7-10 year Treasury Index Fund, iShares Lehman Brothers 20+ year Treasury Index Fund, iShares Lehman
Brothers Treasury Index Fund, iShares Lehman Brothers Government/Credit Index Fund and iShares U.S. Credit Index
Fund is incorporated herein by reference to Exhibit (h.12) to PEA No. 16.
(h.25) Sublicense Agreement between BGI and the Trust for iShares iBoxx $ High Yield Corporate Bond Index Fund and iShares
iBoxx $ Investment Grade Corporate Bond Fund to be filed by amendment.
(h.26) Sublicense Agreement between BGI and the Trust for iShares Cohen & Steers Realty Majors Index Fund is incorporated
herein by reference to Exhibit (h.15) to PEA No. 37.
(h.27) Sublicense Agreement between BGI and the Trust for iShares Dow Jones Transportation Average Index Fund and iShares
Dow Jones Select Dividend Index Fund is incorporated herein by reference to Exhibit (h.17) to PEA No. 37.
(h.28) Sublicense Agreement between BGI and the Trust for iShares NYSE 100 Index Fund and iShares NYSE Composite Index
Fund is incorporated herein by reference to Exhibit (h.19) to PEA No. 37.
(h.29) Sublicense Agreement between BGI and the Trust for iShares FTSE/Xinhua China 25 Index Fund is incorporated herein by
reference to Exhibit (h.20) to PEA No. 37.
(h.30) Sublicense Agreement between BGI and the Trust for iShares Morningstar Funds is incorporated herein by reference to
Exhibit (h.21) to PEA No. 37.
(h.31) Sublicense Agreement between BGI and the Trust for iShares KLD Select Social Index Fund is incorporated herein by
reference to Exhibit (h.22) to PEA No. 37.
(h.32) Exhibit A to the Sublicense Agreement between BGI and the Trust for iShares KLD 400 Social Index Fund to be filed
by amendment.
(h.33) Exhibit A to the Sublicense Agreement between BGI and the Trust for iShares Lehman Brothers Funds is incorporated
herein by reference to Exhibit (h.32) to Post-Effective Amendment No. 67, filed January 5, 2007.
(h.34) Exhibit A to the Sublicense Agreement between BGI and the Trust for iShares MSCI EAFE Funds is incorporated herein by
reference to Exhibit (h.22) to Post-Effective Amendment No. 40, filed August 24, 2005.
(h.35) Exhibit A to the Sublicense Agreement between BGI and the Trust for iShares Dow Jones EPAC Select Dividend Index
Fund is incorporated herein by reference to Exhibit (h.38) to Post-Effective Amendment No. 93, filed July 30, 2007.
(h.36) Sublicense Agreement between BGI and the Trust for FTSE/NAREIT Funds to be filed by amendment.
(h.37) Sublicense Agreement between BGI and the Trust for iShares MSCI EAFE Small Cap Index Fund to be filed
by amendment.
(h.38) Sublicense Agreement between BGI and the Trust for iShares JPMorgan USD Emerging Markets Bond Fund is filed herein.
(i) Legal Opinion and Consent of Richards, Layton & Finger P.A. is filed herein.
(j) Consent of PricewaterhouseCoopers, LLP to be filed by amendment.
(k) Not applicable.
(l.1) Subscription Agreement between the Trust and SEI is incorporated herein by reference to PEA No. 2.
(l.2) Letter of Representations between the Trust and Depository Trust Company is incorporated herein by reference
to PEA No. 2.
(l.3) Amendment of Letter of Representations between the Trust and Depository Trust Company for iShares S&P Global 100
Index Fund and iShares Cohen & Steers Realty Majors Index Fund is incorporated herein by reference to Post-Effective
Amendment No. 11, filed July 2, 2001.
(m) Not applicable.
(n) Not applicable.
(o) Not applicable.
(p.1) iShares Trust Code of Ethics is incorporated herein by reference to Post-Effective Amendment No. 41, filed November 23,
2005.
(p.2) BGI Code of Ethics is incorporated herein by reference to PEA No. 39.
(p.3) Code of Ethics for SEI is incorporated herein by reference to PEA No. 45.
(q.1) Power of Attorney, dated April 19, 2007, for Robert H. Silver is incorporated herein by reference to Post-Effective
Amendment No. 79, filed April 27, 2007.
(q.2) Powers of Attorney, dated February 22, 2006, for Cecilia H. Herbert, John E. Kerrigan, John E. Martinez and George G.C.
Parker are incorporated herein by reference to PEA No. 43.
(q.3) Power of Attorney, dated February 25, 2006, for Charles A. Hurty is incorporated herein by reference to PEA No. 43.
(q.4) Power of Attorney, dated August 25, 2006, for Lee T. Kranefuss is incorporated herein by reference to PEA No. 53.
Item 24. Persons Controlled By or Under Common Control with Registrant:
Percentage of Ownership
-----------------------
iShares Dow Jones EPAC Select Dividend Index Fund
Goldman Sachs Execution & Clearing, L.P.................... 61.67%
iShares Dow Jones U.S. Aerospace & Defense Index Fund
Merrill Lynch Safekeeping.................................. 27.37%
iShares FTSE NAREIT Industrial/Office Index Fund
Fortis Clearing Americas LLC............................... 92.41%
iShares FTSE NAREIT Mortgage REITs Index Fund
Goldman Sachs Execution & Clearing, L.P.................... 66.71%
iShares FTSE NAREIT Real Estate 50 Index Fund
Credit Suisse Securities (USA) LLC......................... 35.94%
Goldman, Sachs & Co........................................ 44.36%
iShares FTSE NAREIT Residential Index Fund
Timber Hill LLC............................................ 98.55%
iShares FTSE NAREIT Retail Index Fund
Fortis Clearing Americas LLC............................... 91.01%
iShares iBoxx $ High Yield Corporate Bond Fund
First Clearing, LLC........................................ 33.65%
iShares Lehman 1-3 Year Treasury Bond Fund
Deutsche Bank Securities Inc./Cedear....................... 29.60%
iShares Lehman 3-7 Year Treasury Bond Fund
Northern Trust Company, The................................ 30.01%
iShares Lehman Credit Bond Fund
Merrill Lynch Safekeeping.................................. 50.72%
iShares Lehman Government/Credit Bond Index Fund
Citigroup Global Markets Inc............................... 81.85%
iShares Lehman Intermediate Credit Bond Fund
Citigroup Global Markets Inc............................... 25.42%
iShares Lehman MBS Fixed-Rate Bond Fund
Merrill Lynch, Pierce, Fenner & Smith Incorporated......... 26.98%
iShares Morningstar Mid Growth Index Fund
First Clearing, LLC........................................ 44.31%
iShares NYSE 100 Index Fund
First Clearing, LLC........................................ 80.27%
iShares Russell 1000 Index Fund
Charles Schwab & Co., Inc.................................. 27.18%
iShares Russell 2000 Index Fund
Barclays Global Investors, N.A............................. 58.18%
iShares S&P Global Consumer Discretionary Sector Index Fund
Goldman Sachs Execution & Clearing, L.P.................... 62.94%
iShares S&P Preferred Stock Index Fund
Charles Schwab & Co., Inc.................................. 28.73%
Item 25. Indemnification:
The Trust (also referred to in this section as the "Fund") is organized as a
Delaware statutory trust and is operated pursuant to an Agreement and
Declaration of Trust, (the "Declaration of Trust"), that permits the Trust to
indemnify its trustees and officers under certain circumstances. Such
indemnification, however, is subject to the limitations imposed by the
Securities Act of 1933, as amended (the "1933 Act"), and the Investment Company
Act of 1940 (the "1940 Act"). The Declaration of Trust provides that officers
and trustees of the Trust shall be indemnified by the Trust against liabilities
and expenses incurred or paid in connection with any claim, action, suit, or
proceedings against them by reason of the fact that they each serve as an
officer or trustee of the Trust or as an officer or trustee of another entity
at the request of the entity. This indemnification is subject to the following
conditions:
(a) no trustee or officer of the Trust is indemnified against any liability to
the Trust or its security holders that was the result of any willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office; and
(b) officers and trustees of the Trust are indemnified only for actions taken
in good faith that the officers and trustees believed were in or not opposed to
the best interests of the Trust.
The Declaration of Trust provides that if indemnification is not ordered by a
court, indemnification may be authorized upon determination by shareholders, or
by a majority vote of a quorum of the trustees who were not parties to the
proceedings or, if this quorum is not obtainable, if directed by a quorum of
disinterested trustees, or by independent legal counsel in a written opinion,
that the persons to be indemnified have met the applicable standard.
The Administration Agreement provides that IBT/1/ shall indemnify and hold the
Fund, its Board of Trustees, officers and employees and its agents harmless
from and against any and all Claims to the extent any such Claim arises out of
the negligent acts or omissions, bad faith, willful misconduct or material
breach of the Administration Agreement by IBT/1/, its officers, directors or
employees or any of its agents or subcustodians in connection with the
activities undertaken pursuant to the Administration Agreement, provided that
IBT's/1/ indemnification obligation with respect to the acts or omissions of
its subcustodians shall not exceed the indemnification provided by the
applicable subcustodian to IBT/1/.
The Custodian Agreement provides that IBT/1/ shall indemnify and hold the Fund,
its Board of Trustees, officers and employees and its agents harmless from and
against any and all Claims to the extent any such Claim arises out of the
negligent acts or omissions, bad faith, willful misconduct or material breach
of the Custodian Agreement by IBT/1/, its officers, directors or employees or
any of its agents or subcustodians in connection with the activities undertaken
pursuant to the Custodian Agreement, provided that IBT's/1/ indemnification
obligation with respect to the acts or omissions of its subcustodians shall not
exceed the indemnification provided by the applicable subcustodian to IBT/1/.
The Distribution Agreement provides that SEI agrees to indemnify, defend and
hold the Fund, its several officers and Board members, and any person who
controls the Fund within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Fund, its officers or Board members, or any such controlling person, may incur
under the 1933 Act, the 1940 Act, or under common law or otherwise, but only to
the extent that such liability or expense incurred by the Fund, its officers or
Board members, or such controlling person resulting from such claims or
demands, (a) shall arise out of or be based upon any information, statements or
representations made or provided SEI in any sales literature or advertisements,
or any Disqualifying Conduct by SEI in connection with the offering and sale of
any Shares, (b) shall arise out of or be based upon any untrue, or alleged
untrue, statement of a material fact contained in information furnished in
writing by SEI to the Fund specifically for use in the Fund's registration
statement and used in the answers to any of the items of the registration
statement or in the corresponding statements made in the prospectus or
statement of additional information, or shall arise out of or be based upon any
omission, or alleged omission, to state a material fact in connection with such
information furnished in writing by SEI to the Fund and required to be stated
in such answers or necessary to make such information not misleading,
(c) arising out of SEI's breach of any obligation, representation or warranty
pursuant to this Agreement, or (d) SEI's failure to comply in any material
respect with applicable securities laws.
The Authorized Participant Agreement provides that the Participant agrees to
indemnify and hold harmless the Fund and its respective subsidiaries,
affiliates, directors, officers, employees and agents, and each person, if any,
who controls such persons within the meaning of Section 15 of the 1933 Act
(each an "Indemnified Party") from and against any loss, liability, cost and
expense (including attorneys' fees) incurred by such Indemnified Party as a
result of (i) any breach by the Participant of any provision of the Authorized
Participant Agreement that relates to the Participant; (ii) any failure on the
part of the Participant to perform any of its obligations set forth in the
Authorized Participant Agreement; (iii) any failure by the Participant to
comply with applicable laws, including rules and regulations of self-regulatory
organizations; or (iv) actions of such Indemnified Party in reliance upon any
instructions issued in accordance with Annex II, III or IV (as each may be
amended from time to time) of the Authorized Participant Agreement reasonably
believed by the distributor and/or the transfer agent to be genuine and to have
been given by the Participant.
The Securities Lending Agency Agreement provides that BGI shall indemnify and
hold harmless each client, Lender, its Board of Trustees and its agents and
BGFA from any and all loss, liability, costs, damages, actions, and claims
("Loss") to the extent that any such Loss arises out of the material breach of
this Agreement by or negligent acts or omissions or willful misconduct of BGI,
its officers, directors or employees or any of its agents or subcustodians in
connection with the securities lending activities undertaken pursuant to this
Agreement, provided that BGI's indemnification obligation with respect to the
acts or omissions of its subcustodians shall not exceed the indemnification
provided by the applicable subcustodian to BGI.
Insofar as indemnification for liabilities arising under the 1940 Act may be
permitted to directors, officers and controlling persons of the Trust pursuant
to foregoing provisions, or otherwise, the Trust has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the 1940 Act and is, therefore,
unenforceable. In the event that a claim for Fund expenses incurred or paid by
a director, officer or controlling person of the Fund 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
Trust 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 of whether such indemnification by it is against public policy as
expressed in the 1940 Act and will be governed by the final adjudication of
such issue.
Item 26. (a) Business and Other Connections of the Investment Adviser:
The Trust is advised by BGFA, a wholly-owned subsidiary of 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.
Principal Business(es) During the
Name and Position Last Two Fiscal Years
----------------- -------------------------------------
Blake Grossman Director and Chairman of the Board of
Chairman Directors of BGFA and Chief Executive
Officer and Director of BGI, 45
Fremont Street, San Francisco, CA
94105
Frank Ryan Chief Financial Officer of BGFA and
Officer Chief Financial Officer and Cashier
of BGI, 45 Fremont Street, San
Francisco, CA 94105
Rohit Bhagat Director and Chief Operating Officer
Director of BGFA and BGI, 45 Fremont Street,
San Francisco, CA 94105
Item 27. Principal Underwriters:
(i)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
HighMark Funds February 15, 1997
Oak Associates Funds February 27, 1998
CNI Charter Funds April 1, 1999
iShares Inc. January 28, 2000
JohnsonFamily Funds, Inc. November 1, 2000
Causeway Capital Management Trust September 20, 2001
The Japan Fund, Inc. October 7, 2002
Barclays Global Investors Funds March 31, 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
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
Name Position and Office with Underwriter with 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 --
Mark McManus Vice President --
(c) Not applicable.
Item 28. Location of Accounts and Records:
(a) The Trust maintains accounts, books and other documents required by
Section 31(a) of the 1940 Act and the rules thereunder (collectively, the
"Records") at the offices of State Street Bank and Trust Company ("State
Street"), 200 Clarendon Street, Boston, MA 02116.
(b) BGFA maintains all Records relating to its services as investment adviser
at 45 Fremont Street, San Francisco, CA, 94105.
(c) SEI Investments Distribution Company maintains all Records relating to its
services as distributor at One Freedom Valley Drive, Oaks, PA 19456.
(d) State Street 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:
Not applicable.
--------
/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. 101 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 27th day of September, 2007.
By: /s/ Michael A. Latham
--- -----------------------------
Michael A. Latham
President
Date: September 27, 2007
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 101 to the Registration Statement has been signed
below by the following persons in the capacity and on the dates indicated.
By:
--- -----------------------------
Lee T. Kranefuss*
Trustee
Date: September 27, 2007
-----------------------------
John E. Martinez*
Trustee
Date: September 27, 2007
-----------------------------
George G. C. Parker*
Trustee
Date: September 27, 2007
-----------------------------
Cecilia H. Herbert*
Trustee
Date: September 27, 2007
-----------------------------
Charles A. Hurty*
Trustee
Date: September 27, 2007
-----------------------------
John E. Kerrigan*
Trustee
Date: September 27, 2007
-----------------------------
Robert H. Silver*
Trustee
Date: September 27, 2007
/s/ Michael A. Latham
------------------------------
Michael A. Latham
President
Date: September 27, 2007
/s/ Geoffrey D. Flynn
------------------------------
Geoffrey D. Flynn
Treasurer
Date: September 27, 2007
*BY: /s/ Michael A. Latham
------------------------------
Michael A. Latham
Attorney-in-fact
Date: September 27, 2007
--------
* Power of Attorney, dated April 19, 2007, for Robert H. Silver is incorporated
herein by reference to Post-Effective Amendment No. 79, filed April 27, 2007.
Power of Attorney, dated August 25, 2006, for Lee T. Kranefuss is
incorporated herein by reference to Post-Effective Amendment No. 53 filed
September 18, 2006. Powers of Attorney, dated February 22, 2006, for Cecilia
H. Herbert, John E. Kerrigan, John E. Martinez and George G.C. Parker are
incorporated herein by reference to Post-Effective Amendment No. 43, filed
April 17, 2006 ("PEA No. 43"). Power of Attorney, dated February 25, 2006,
for Charles A. Hurty is incorporated herein by reference to PEA No. 43.
Exhibit Index
(h.38) Sublicense Agreement between BGI and the Trust for iShares JPMorgan USD
Emerging Markets Bond Fund.
(i) Legal Opinion and Consent of Richards, Layton & Finger P.A.
EX-99.(H.38)
2
dex99h38.txt
SUBLICENSE AGREEMENT BETWEEN BGI AND THE TRUST FOR ISHARES JP MORGAN USD
Exhibit (h.38)
iSHARES TRUST SUBLICENSE AGREEMENT
This Sublicense Agreement (the "Agreement") is made as of September 19, 2007,
by and between Barclays Global Investors, N.A., a national banking association
organized under the laws of the United States ("BGI") and iShares Trust, a
statutory trust established under the laws of the State of Delaware.
RECITALS
WHEREAS, pursuant to that certain License Agreement dated September 5, 2007
(the "License Agreement"), between JPMorgan Chase & Co. ("JPMorgan") and BGI,
BGI obtained a license to use in connection with "BGI Funds" (as that term is
defined in the License Agreement) certain securities indexes owned and managed
by JPMorgan (each, an "Index"), along with associated marks (the "Marks"); and
WHEREAS, BGI has the right pursuant to the License Agreement to sublicense its
rights thereunder to iShares Trust; and
WHEREAS, iShares Trust wishes to use the Indexes and Marks in connection with
the establishment of certain new exchange traded funds (each, an "ETF"), each
based on an Index, in connection with the identification and marketing of the
ETFs and in connection with making disclosures about the ETFs under applicable
laws, rules and regulations; and
WHEREAS, BGI wishes to grant a sublicense to iShares Trust for the use of the
Indexes and Marks;
NOW THEREFORE, the parties agree as follows:
1. Grant of Sublicense. Subject to the terms and conditions of this Agreement,
BGI hereby grants to iShares Trust a sublicense to use the Indexes (and
associated data, information, and Marks) listed on Exhibit A in the manner
set forth in, and subject to the terms of, the License Agreement.
2. Performance of Obligations Under the License. iShares Trust will be
responsible for performing all of BGI's executory obligations under the
License Agreement (other than the payment of license fees), as such
obligations relate to use of the Indexes and Marks in connection with the
formation and operation of iShares Funds.
3. Fees. iShares Trust shall have no obligation to pay any sublicense fees to
BGI or JPMorgan under this sublicense agreement.
4. Termination. This Agreement shall terminate if (a) the License Agreement
terminates, or (b) BGI or a BGI Affiliate ceases to exercise investment
discretion over the iShares Trust in its capacity as manager, investment
adviser, trustee, or other comparable capacity. BGI shall notify iShares
Trust as soon as reasonably practicable of the occurrence of an event
described in (a) above. Upon termination of this Agreement, iShares Trust's
right to use the Indexes and the Marks shall terminate immediately.
5. Indemnification. iShares Trust shall indemnify and hold harmless BGI, its
officers, employees, agents, successors, and assigns against all judgments,
damages, costs or losses of any kind (including reasonable attorneys' and
experts' fees) resulting from any claim, action or proceeding (collectively
"claims") that arises out of or relates to (a) the creation, marketing,
advertising, selling, and operation of the iShares Trust or interests
therein, or (b) any breach by BGI of its covenants, representations, and
warranties under the License Agreement caused by the actions or inactions of
iShares Trust, or (c) errors in the calculation of any Index, or delays in
the dissemination of any Index, or (d) any violation of applicable laws
(including, but not limited to, banking, commodities, and securities laws)
arising out of the offer, sale, operation, or trading of the iShares Trust
or interests therein, except to the extent such claims result from the
negligence, gross negligence or willful misconduct of BGI or its affiliates.
The provisions of this section shall survive termination of this Agreement.
6. Assignment. iShares will not make, or purport to make, any assignment or
other transfer of this Agreement. BGI may assign its rights and obligations
under this Agreement effective upon the giving of written notice to iShares.
7. Amendment. No provision of this Agreement may be waived, altered, or amended
except by written agreement of the parties.
8. Entire Agreement. This Agreement constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof.
9. Construction. Headings used in this Agreement are for convenience only, and
shall not affect the construction or interpretation of any of its
provisions. Each of the provisions of this Agreement is severable, and the
invalidity or inapplicability of one or more provisions, in whole or in
part, shall not affect any other provision. To the extent not preempted by
federal law, this Agreement shall be construed and interpreted under the
laws of the State of California.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
10.Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts
together shall constitute only one instrument.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of
the date first above written, with intent to be bound hereby.
BARCLAYS GLOBAL INVESTORS, N.A. iSHARES TRUST
By: /s/ Michael A. Latham By: /s/ Michael A. Latham
---------------------------------- ---------------------------------
Authorized Signature Authorized Signature
Name: Michael A. Latham Name: Michael A. Latham
Title: Managing Director Title: President
By: /s/ Eilleen M. Clavere
----------------------------------
Authorized Signature
Name: Eilleen M. Clavere
Title: Principal
Exhibit A
JPMorgan EMBI Global Core Index
EX-99.(I)
3
dex99i.txt
LEGAL OPINION AND CONSENT OF RICHARDS, LAYTON & FINGER P.A.
Exhibit (i)
[LETTERHEAD OF RICHARDS, LAYTON & FINGER, P.A.]
September 21, 2007
iShares Trust
c/o Barclays Global Fund Advisors
45 Fremont Street
San Francisco, CA 94105
Re: iShares JPMorgan USD Emerging Markets Bond Fund
Ladies and Gentlemen:
We have acted as special Delaware counsel for iShares Trust, a Delaware
statutory trust (the "Trust"), in connection with the matters set forth herein.
At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our examination of
documents has been limited to the examination of originals or copies of the
following:
(a)The Certificate of Trust of the Trust, as filed with the office of the
Secretary of State of the State of Delaware (the "Secretary of State") on
December 16, 1999, as amended and restated by the Restated Certificate of
Trust of the Trust (the "Certificate of Trust"), as filed with the office of
the Secretary of State on September 15, 2006;
(b)The Agreement and Declaration of Trust, dated December 16, 1999, made by the
trustee named therein, as amended and restated by the Agreement and
Declaration of Trust (the "Trust Instrument"), dated September 13, 2006,
made by the trustees named therein;
(c)Post-Effective Amendment No. 101, to be filed with the Securities and
Exchange Commission (the "Amendment"), to the Trust's Registration Statement
on Form N-1A (File Nos. 333-92935 and 811-09729), filed with the Securities
and Exchange Commission on December 16, 1999 (as amended by the Amendment,
the "Registration Statement");
(d)The Amended and Restated By-Laws of the Trust in effect on the date hereof
as approved by the Board of Trustees of the Trust (the "Board") on
December 8, 2006;
iShares Trust
September 21, 2007
Page 2
(e)Copies of certain resolutions (the "Resolutions") adopted by the Board at
meetings held on March 8, 2007 and June 13-14, 2007, with respect to the
creation of that certain series of the Trust known as iShares JPMorgan USD
Emerging Markets Bond Fund (the "Fund") and the issuance of certain shares
of beneficial interest in such Fund (each, a "Share," and collectively, the
"Shares");
(f)A certificate of an Assistant Secretary of the Trust with respect to certain
matters, dated September 20, 2007; and
(g)A Certificate of Good Standing for the Trust, dated September 19, 2007,
obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are used as
defined in the Trust Instrument.
For purposes of this opinion, we have not reviewed any documents other than the
documents listed in paragraphs (a) through (g) above. In particular, we have
not reviewed any document (other than the documents listed in paragraphs
(a) through (g) above) that is referred to in or incorporated by reference into
the documents reviewed by us. We have assumed that there exists no provision in
any document that we have not reviewed that is inconsistent with the opinions
stated herein. We have conducted no independent factual investigation of our
own but rather have relied solely upon the foregoing documents, the statements
and information set forth therein and the additional matters recited or assumed
herein, all of which we have assumed to be true, complete and accurate in all
material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust Instrument
constitutes the entire agreement among the parties thereto with respect to the
subject matter thereof, including with respect to the creation, operation and
termination of the Trust, and that the Trust Instrument, the By-laws and the
Certificate of Trust are in full force and effect and will not be amended,
(ii) except to the extent provided in paragraph 1 below, the due organization
or due formation, as the case may be, and valid existence in good standing of
each party to the documents examined by us under the laws of the jurisdiction
governing its organization or formation, (iii) the legal capacity of natural
persons who are parties to the documents examined by us, (iv) that each of the
parties (other than the Trust) to the documents examined by us has the power
and authority to execute and deliver, and to perform its obligations under,
such documents, (v) the due authorization, execution and delivery by all
parties thereto of all documents examined by us, (vi) the payment by each
Person to whom a Share is to be issued by the Trust (collectively, the
"Shareholders") for such Share, in accordance with the Trust Instrument and the
Resolutions and as contemplated by the Registration Statement, and (vii) that
the Shares are issued and sold to the Shareholders in accordance with the Trust
Instrument and the Resolutions and as contemplated by the Registration
Statement. We have not participated in the preparation of the Registration
Statement and assume no responsibility for its contents.
iShares Trust
September 21, 2007
Page 3
This opinion is limited to the laws of the State of Delaware (excluding the
securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal
laws and rules and regulations relating thereto. Our opinions are rendered only
with respect to Delaware laws and rules, regulations and orders thereunder
which are currently in effect.
Based upon the foregoing, and upon our examination of such questions of law and
statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good standing as
a statutory trust under the Delaware Statutory Trust Act, 12 Del. C. (S)
3801, et. seq.
2. The Shares of the Trust have been duly authorized and, when issued, will be
validly issued, fully paid and nonassessable beneficial interests in the
Trust.
We consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement. In giving the foregoing
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ Richards, Layton & Finger, P.A.
CORRESP
4
filename4.txt
LOGO 1875 K Street, NW
Washington, DC 20006-1238
Tel: 202 303 1000
Fax: 202 303 2000
VIA EDGAR
September 27, 2007
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re:iShares Trust
File Nos. 333-92935, 811-09729
Post-Effective Amendment No. 101
Ladies and Gentlemen:
On behalf of the iShares Trust (the "Trust"), we hereby transmit for filing
with the Securities and Exchange Commission under the Securities Act of 1933
(the "1933 Act") and the Investment Company Act of 1940 (the "1940 Act"),
Post-Effective Amendment No. 101 to the Trust's Registration Statement on Form
N-1A.
The Amendment is being filed for the purpose of adding one new fund to the
Trust: iShares JPMorgan USD Emerging Markets Bond 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, but the Trust
expects to submit an acceleration request for an effective date on or about
November 26, 2007.
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 JPMorgan EMBI Global Core Index (the
"Index"). The Index is a liquid U.S. dollar emerging markets debt benchmark
which tracks the total return of actively traded external debt instruments
issued or guaranteed by sovereign entities in emerging markets. The composition
of the Index is based upon a methodology established by JPMorgan Chase & Co.
The Fund seeks results that correspond generally to the price and yield
performance, before fees and expenses, of the Index.
(2) Other Changes from Recent Filings
The Fund's description of its investment strategy (i.e., the Fund, using
representative sampling, will invest at least 90% of its assets in the
securities of the Index or in American Depositary Receipts, or other depositary
receipts representing securities in the Index) and risk factors are specific to
the Fund. The portfolio managers are also specific to the Fund.
(3) Prior Filings with Similar Disclosure
Much of the disclosure in the Amendment is substantially similar to that in
previous filings submitted by iShares Trust and reviewed by the Staff. In
particular, we invite your attention to Post-Effective Amendment No. 74, filed
pursuant to Rule 485(a) on March 23, 2007, relating to the iShares S&P World
ex-U.S. Property Index Fund (and the related amendment under Rule 485(b), filed
and effective on July 30, 2007).
The disclosures applicable to the Fund and iShares Trust 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," "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. Consequently, on behalf of the Trust, 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 concerning the Amendment, please call me
at (202) 303-1124.
Sincerely,
/s/ Benjamin J. Haskin
Benjamin J. Haskin