Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-09102
iShares, Inc.
(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 offices) (Zip code)
The Corporation Trust Incorporated
351 West Camden Street, Baltimore, MD 21201
(Name and address of agent for service)
Registrant’s telephone number, including area code: 1-800-474-2737
Date of fiscal year end: August 31, 2011
Date of reporting period: August 31, 2011
Table of Contents
| Item 1. Reports to Stockholders. |
|
August 31, 2011 | |
2011 Annual Report
iShares, Inc.
iShares MSCI Austria Investable Market Index Fund | EWO | NYSE Arca
iShares MSCI Belgium Investable Market Index Fund | EWK | NYSE Arca
iShares MSCI Emerging Markets Eastern Europe Index Fund | ESR | NYSE Arca
iShares MSCI EMU Index Fund | EZU | NYSE Arca
iShares MSCI France Index Fund | EWQ | NYSE Arca
iShares MSCI Germany Index Fund | EWG | NYSE Arca
iShares MSCI Italy Index Fund | EWI | NYSE Arca
iShares MSCI Netherlands Investable Market Index Fund | EWN | NYSE Arca
iShares MSCI Spain Index Fund | EWP | NYSE Arca
iShares MSCI Sweden Index Fund | EWD | NYSE Arca
iShares MSCI Switzerland Index Fund | EWL | NYSE Arca
iShares MSCI United Kingdom Index Fund | EWU | NYSE Arca
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| Board Review and Approval of Investment Advisory Contract (Unaudited) |
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Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI AUSTRIA INVESTABLE MARKET INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 10.92% | 11.43% | 11.17% | (6.61)% | (6.74)% | (7.48)% | 10.88% | 10.80% | 10.82% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 10.92% | 11.43% | 11.17% | (28.95)% | (29.44)% | (32.22)% | 180.88% | 178.99% | 179.26% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 5 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI AUSTRIA INVESTABLE MARKET INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Austria Investable Market Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Austria Investable Market IndexSM (the “Index”). The Index consists of stocks traded primarily on the Vienna Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 10.92%, net of fees, while the total return for the Index was 11.17%.
The Austrian stock market, as represented by the Index, climbed steadily from the beginning of the reporting period through mid-May 2011. However, heading into the summer, the stalled global economic recovery as well Europe’s debt crisis re-emerged as investor concerns, and the Index declined. Despite a sharp sell-off in August, the Index still posted double-digit returns for the reporting period.
During the reporting period, the Austrian economy was among the healthiest in the euro zone, with unemployment at just 4%. During the second quarter of 2011, gross domestic product (“GDP”) rose 3.7% compared to the second quarter of 2010. GDP in the first quarter of 2011 was up 4.2% over the first quarter of 2010. GDP growth for calendar 2010 was 2.1%. However, inflation increased sharply in the first half of 2011 to 3.5%, exceeding inflation in the euro zone during the same period by one percentage point.
Because Austria relies on its European neighbors for the preponderance of its exports, a downturn in the economic health of these countries causes investor concern. Austria’s exports were showing signs of weakness in the second quarter of 2011, as April’s exports were down more than 10% compared to the prior month. In particular, Austria is affected by the health of Germany’s economy, where GDP rose 2.8% in the second quarter of 2011 versus the same period in the prior year. Germany’s economic data was mixed during the reporting period. Exports, factory orders and industrial production showed strength as the reporting period came to a close. However, some major Germany companies reported disappointing second quarter earnings.
Meanwhile, investors continued to face uncertainty in the region. In mid-July, European Union leaders reached an agreement on a second rescue package for Greece which also strengthened the region’s bailout mechanism to offer protection to other euro-region nations in an effort to stop contagion from the debt crisis. Still, Spain, Portugal and Ireland’s debt were downgraded and investors continued to fear that Europe’s
| 6 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI AUSTRIA INVESTABLE MARKET INDEX FUND
debt crisis would spread to more countries. The International Monetary Fund, in its annual review of Austria’s economy, called for Austria to pay down its government debt, currently at 70% of GDP, through a combination of tax increases and spending cuts.
From a sector perspective, industrials, energy and materials posted the strongest contributions to the Index’s return for the reporting period, while health care and telecommunications services produced negative contributions.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 7 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI BELGIUM INVESTABLE MARKET INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 9.59% | 10.00% | 8.09% | (8.06)% | (8.19)% | (9.00)% | 3.99% | 3.97% | 2.52% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 9.59% | 10.00% | 8.09% | (34.29)% | (34.77)% | (37.58)% | 47.84% | 47.53% | 28.23% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| 8 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI BELGIUM INVESTABLE MARKET INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Belgium Investable Market Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Belgium Investable Market IndexSM (the “Index”). The Index consists of stocks traded primarily on the Brussels Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 9.59%, net of fees, while the total return for the Index was 8.09%.
The Belgium stock market, as represented by the Index, climbed from the beginning of the reporting period through November 2010, declining for a few weeks before resuming its ascent over the next several months. However, heading into the summer, the stalled global economic recovery as well Europe’s debt crisis re-emerged as investor concerns, and the Index fell along with other European markets. Despite a sharp sell-off in August, the Index still posted high single-digit returns for the reporting period.
The Belgian economy has generally outperformed the euro zone as a whole. According to the National Bank of Belgium, growth in gross domestic product (“GDP”) was 2.4% during the reporting period, slightly higher than the euro zone growth rate of approximately 1.8% over the same period. Unemployment ranged between 7-8%, significantly below the euro zone’s 10% rate. In addition, industrial production experienced steady growth through the reporting period, with monthly percentage gains ranging from 4 to 11% over the prior year period.
Because Belgium relies on its European neighbors for the preponderance of its exports, a downturn in the economic health of these countries can negatively impact the health of the Belgian economy. In particular, Belgium is affected by the health of Germany’s economy, where GDP rose 2.8% in the second quarter of 2011 versus the prior year period. Germany’s economic data was mixed during the reporting period. Exports, factory orders and industrial production showed strength as the reporting period came to a close. However, some major Germany companies reported disappointing second quarter earnings.
Meanwhile, investors continued to face uncertainty in the region. In mid-July, European Union leaders reached an agreement on a second rescue package for Greece which also strengthened the region’s bailout mechanism to offer protection to other euro-region nations in an effort to stop contagion from the debt crisis. Still, Spain, Portugal and Ireland’s debt were downgraded and investors continued to fear that Europe’s
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 9 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI BELGIUM INVESTABLE MARKET INDEX FUND
debt crisis would spread to more countries. The International Monetary Fund, in its annual review of Belgium’s economy, commended efforts to stabilize the country’s banking system as well as to pay down public debt relative to GDP.
From a sector perspective, consumer staples, materials and health care posted the strongest contributions to the Index’s return for the reporting period, while financials, energy and utilities produced negative contributions.
| 10 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI EMERGING MARKETS EASTERN EUROPE INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | Cumulative Total Return | |||||||||||||||
| Year Ended 8/31/11 | Inception to 8/31/11 | Inception to 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 15.86% | 14.95% | 17.66% | 10.57% | 9.96% | 11.28% | 21.29% | 20.00% | 22.73% | ||||||||
Total returns for the period since inception are calculated from the inception date of the Fund (9/30/09). “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (10/2/09), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 11 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS EASTERN EUROPE INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Emerging Markets Eastern Europe Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets Eastern Europe IndexSM (the “Index”). The Index is a free-float adjusted market capitalization index designed to measure equity market performance of the following four emerging market countries: the Czech Republic, Hungary, Poland and Russia. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 15.86%, net of fees, while the total return for the Index was 17.66%.
As represented by the Index, stock markets in Eastern Europe posted a double-digit gain for the reporting period. Despite some interim volatility, the Index enjoyed an extended rally from the beginning of the period through April 2011 as steadily improving economic data boosted investor confidence in a global economic recovery. Strong demand in Europe for exports from Eastern Europe helped boost equity markets in the region. From the beginning of the reporting period through its peak in mid-April 2011, the Index surged by more than 40%.
The Index gave back some ground during the last four months of the reporting period as an accumulation of global events – heightened political turmoil in the Middle East and North Africa, a worsening sovereign debt crisis in Europe, an earthquake and tsunami in Japan, and government infighting about the federal debt ceiling in the U.S. – cast doubts on the sustainability of the global recovery. The Index’s decline was especially severe in August 2011 as increasingly risk-averse investors shifted away from many emerging markets, causing the Index to fall by approximately 13% for the month.
The Index benefited from a decline in the U.S. dollar, which boosted international equity returns for U.S. investors. The dollar depreciated by 6% versus the Russian ruble, 9.5% against the Polish zloty, 15% versus the Czech koruna, and 17% against the Hungarian forint for the reporting period. The U.S. dollar’s decline resulted mainly from historically low U.S. interest rates and intensifying fiscal deficit concerns.
Russia, the largest country weighting in the Index (comprising more than 70% of the Index as of August 31, 2011), generated the best returns, advancing by nearly 20% for the reporting period. Russia’s economy benefited from a broad rise in commodity prices; in particular, Russia is a major energy exporter, and the price of oil increased by nearly 25% for the reporting period. Poland’s stock market, which made up approximately 18% of the Index, also posted solid gains thanks to improving economic conditions. The two smaller Index components, the
| 12 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS EASTERN EUROPE INDEX FUND
Czech Republic and Hungary, produced mixed results. The Czech stock market rallied as exports to Europe provided a lift to economic growth, but Hungarian stocks declined for the reporting period amid uncertainty regarding the country’s relatively high public debt levels.
Within the Index, the best-performing sector by far was the materials sector, which gained more than 50% for the reporting period thanks to a strong increase in demand for commodities and higher commodity prices. The energy and financials sectors, the two largest sector weightings in the Index (together comprising approximately two-thirds of the Index as of August 31, 2011), were also among the better-performing segments of the Index. The weaker-performing sectors were the smallest Index weightings – industrials, information technology, and health care.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 13 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI EMU INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 5.78% | 6.46% | 5.89% | (3.90)% | (3.97)% | (3.81)% | 3.52% | 3.45% | 3.67% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 5.78% | 6.46% | 5.89% | (18.04)% | (18.32)% | (17.64)% | 41.32% | 40.40% | 43.38% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| 14 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMU INDEX FUND
The iShares MSCI EMU Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI EMU IndexSM (the “Index”). The Index consists of stocks from Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal and Spain. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 5.78%, net of fees, while the total return for the Index was 5.89%.
The stock markets of the European Monetary Union (“EMU”), as represented by the Index, were volatile during the reporting period, declining between May and August, 2011. Heading into the summer, the stalled global economic recovery as well Europe’s debt crisis re-emerged as investor concerns, and the Index fell along with other international markets. Despite the declines near the end of the reporting period and a sell-off in August, the Index still posted a positive return for the reporting period.
EMU member countries are those members of the European Union that have adopted the euro as its currency. Despite Europe’s economic difficulties, its currency strengthened against the dollar during the reporting period. One euro equaled $1.47 on August 31, 2011, up from $1.27 at September 1, 2010.
From a country perspective, France, Germany and the Netherlands posted the strongest contributions to the Index’s return, while Greece and Italy produced negative contributions. After posting modest growth earlier in the reporting period, France, Germany and the Netherlands saw economic growth flatten to virtually zero in the second quarter of 2011. Meanwhile, in mid-July, European Union leaders reached an agreement on a second rescue package for Greece which also strengthened protection to other euro-region nations in an effort to stop contagion from the debt crisis. Still, Spain, Portugal and Ireland’s debt were downgraded and investors continued to fear that Europe’s debt crisis would spread to more countries.
In the midst of Europe’s struggle to contain its government debt crisis, European policy makers focused on strengthening the region’s banking system, as European bank shares fell to their lowest levels since March 2009. The European Central Bank (“ECB”) has opened new credit lines for banks that need funds, while the proposed Greek bailout would provide loans to countries that need to recapitalize their banks. In addition, the ECB bought Italian and Spanish government bonds from European banks, allowing them to reduce their portfolios of troubled assets.
American money market funds, a historically reliable source of funding, sharply cut their exposure to European banks. The ten largest U.S. money market funds cut their exposure to European banks by 9% in July 2011 after a reduction of 20% in June.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 15 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI FRANCE INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 10.24% | 11.06% | 10.37% | (3.18)% | (3.25)% | (3.02)% | 3.63% | 3.59% | 3.86% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 10.24% | 11.06% | 10.37% | (14.90)% | (15.23)% | (14.23)% | 42.89% | 42.29% | 46.01% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| 16 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI FRANCE INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI France Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI France IndexSM (the “Index”). The Index consists of stocks traded primarily on the Paris Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 10.24%, net of fees, while the total return for the Index was 10.37%.
Despite the slumping European economy, the stock market in France posted positive returns during the reporting period. The market, as represented by the Index, climbed from the beginning of the reporting period through November 2010. After pausing for a few weeks, the market resumed its mostly uninterrupted ascent over the next several months. However, heading into the summer, the stalled global economic recovery as well Europe’s debt crisis re-emerged as investor concerns, and the Index fell along with other European markets. Despite a sell-off in August, the Index still posted double-digit returns for the reporting period.
After showing a 4% annualized rate of growth in gross domestic product (“GDP”) during the first quarter of 2011, the French economy showed no growth in GDP during the second quarter of 2011, making it more difficult for the government to cut its substantial budget deficit.
Still, France’s economy had some positive fundamentals during the reporting period. France’s housing market was relatively healthy compared to other European countries. After a modest decline, home prices rebounded in mid-2009 and were near their pre-crisis peak at the end of the reporting period. Few houses have been built in recent years because of a scarcity of buildable land in metropolitan areas as well as regulatory barriers to new housing construction.
Meanwhile, investors continued to face uncertainty in the euro zone. In mid-July, European Union leaders reached an agreement on a second rescue package for Greece. Still, Spain, Portugal and Ireland’s debt were downgraded and investors continued to fear that Europe’s debt crisis would spread to more countries. The International Monetary Fund, in its annual review of France’s economy, said the Greece situation underlines the importance for France to continue to reduce its public debt relative to GDP.
From a sector perspective, consumer discretionary, industrials and health care posted the strongest contributions to the Index’s return for the reporting period, while financials and telecommunication services produced negative contributions.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 17 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI GERMANY INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 10.84% | 11.08% | 10.83% | 0.53% | 0.36% | 0.60% | 5.25% | 5.20% | 5.39% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 10.84% | 11.08% | 10.83% | 2.69% | 1.79% | 3.06% | 66.78% | 65.97% | 69.06% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| 18 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI GERMANY INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Germany Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Germany IndexSM (the “Index”). The Index consists of stocks traded primarily on the Frankfurt Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 10.84%, net of fees, while the total return for the Index was 10.83%.
Despite the slumping European economy, the stock market in Germany posted positive returns during the reporting period. The market, as represented by the Index, climbed from the beginning of the reporting period through May 2011. However, heading into the summer, the stalled global economic recovery as well Europe’s debt crisis re-emerged as investor concerns, and the Index fell along with other European markets. Despite a sharp sell-off in August, the Index still posted double-digit returns for the reporting period.
Germany’s economy slowed in the second quarter of 2011 amidst rising energy prices, with annualized growth in gross domestic product (“GDP”) at only 0.5%, down from 5.5% in the first quarter of 2011. The country’s finance ministry warned that Germany faced an “obvious slowdown” and that its economic recovery in the summer of 2011 was below expectations. The Japanese earthquake and tsunami, a spike in oil prices and the slowing U.S. economy were cited as reasons for the weaker performance.
Another factor that may have slowed growth was higher interest rates. The European Central Bank (“ECB”) raised interest rates twice during the reporting period. The ECB raised rates from 1% to 1.25% in April 2011, and then to 1.5% in July of 2011.
Since Germany makes up 30% of the GDP of the euro-zone countries, a weaker Germany has negative implications for the rest of the region and its ability to outgrow its debt woes. Countries such as Greece, Spain, Portugal and Ireland were still fragile, putting pressure on Germany to extend loans to crisis-hit countries. In mid-July, European Union leaders reached an agreement on a second rescue package for Greece. Spain, Portugal and Ireland’s debt were downgraded and investors continued to fear that Europe’s debt crisis would spread to more countries.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 19 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI GERMANY INDEX FUND
At the end of the reporting period, Reuters reported that approximately 75% of German voters oppose the expansion of Europe’s bailout fund, as Germany funds more than a quarter of the total amount. In another poll, more than two-thirds of German voters indicated that they thought parliament should not ratify more money for the bailout fund.
From a sector perspective, consumer discretionary, materials and industrials posted the strongest contributions to the Index’s return for the reporting period, while utilities and financials produced negative contributions.
| 20 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI ITALY INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (6.80)% | (5.75)% | (6.46)% | (11.44)% | (11.46)% | (11.36)% | 0.32% | 0.30% | 0.28% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (6.80)% | (5.75)% | (6.46)% | (45.52)% | (45.60)% | (45.27)% | 3.22% | 3.08% | 2.81% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 21 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI ITALY INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Italy Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Italy IndexSM (the “Index”). The Index consists of stocks traded primarily on the Milan Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was (6.80)%, net of fees, while the total return for the Index was (6.46)%.
The Italian stock market, as represented by the Index, rose gradually from the beginning of the reporting period through May 2011. However, it declined sharply over the next several months as the stalled global economic recovery, Europe’s re-emerging debt crisis as well as Italy’s fiscal problems came into focus. Because of a sharp sell-off during the summer, the Index posted a loss for the reporting period.
Italy’s economic growth was sluggish during the reporting period due to slowing exports and weak domestic demand. In the second quarter of 2011, the economy expanded 0.8% as compared to the second quarter of 2010. Meanwhile, gross domestic product (“GDP”) grew only 0.3% in the second quarter of 2011 versus the first quarter of 2011 after growing just 0.1% in the first quarter of 2011 versus the fourth quarter of 2010.
During the summer of 2011, investors feared that Italy could become engulfed in the European debt crisis that started with Greece and spread to Spain, Portugal and Ireland. As a result, bond yields on Italian government debt surged as the reporting period came to a close, as investors demanded more income to compensate for the additional risk. In response, the Italian government considered an austerity package aimed at balancing Italy’s budget. Italy’s national debt is 120% of GDP. In contrast, Germany’s debt is only 15% of GDP.
According to the International Monetary Fund, Italy’s economic growth has been consistently below the euro zone for the past ten years. Italian businesses are subject to high taxes and regulation, including tenured employees who receive generous benefits. In addition, because of the country’s high level of public debt, it was not able to provide fiscal stimulus to offset declining consumer demand. On the plus side, the Italian banking system remained relatively stable, primarily because it avoided some of the products and services, such as complex derivatives, that have plagued banks in other countries.
| 22 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI ITALY INDEX FUND
Meanwhile, investors continued to face uncertainty elsewhere in the euro zone region. In mid-July, European Union leaders reached an agreement on a second rescue package for Greece while Spain, Portugal and Ireland’s debt were downgraded.
From a sector perspective, financials and industrials contributed the most to the Index’s negative return for the reporting period, mitigated by the modest but positive contributions of the energy and consumer discretionary sectors.
| MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE | 23 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI NETHERLANDS INVESTABLE MARKET INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 5.44% | 6.17% | 5.80% | (2.03)% | (2.10)% | (1.46)% | 2.44% | 2.44% | 2.94% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 5.44% | 6.17% | 5.80% | (9.75)% | (10.06)% | (7.11)% | 27.30% | 27.21% | 33.65% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| 24 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI NETHERLANDS INVESTABLE MARKET INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Netherlands Investable Market Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Netherlands Investable Market IndexSM (the “Index”). The Index consists of stocks traded primarily on the Amsterdam Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 5.44%, net of fees, while the total return for the Index was 5.80%.
The Netherlands stock market, as represented by the Index, generally climbed from the beginning of the reporting period through mid-May 2011. However, heading into the summer, the stalled global economic recovery as well Europe’s debt crisis re-emerged as investor concerns, and the Index declined. Despite a sharp sell-off in August, the Index still posted single-digit returns for the reporting period.
During the reporting period, the economy in the Netherlands started strong but flattened in the second quarter of 2011, with gross domestic product (“GDP”) advancing just 0.1% over the first quarter of 2011. In contrast, the first quarter of 2011 and fourth quarter of 2010 posted GDP advances of 0.8% and 0.7%, respectively over the prior quarter. During the first half of the reporting period, a surge in residential and commercial building projects took place, aided by mild winter weather and pent-up demand.
However, as the economy throughout the euro zone was slowing, the European Central Bank increased short-term interest rates – from 1.0% to 1.25% in April 2011 and from 1.25% to 1.50% in July 2011 – in the second half of the reporting period.
Because the Netherlands relies on its European neighbors for the preponderance of its exports, a downturn in the economic health of these countries negatively impacts its own economic health. GDP growth in Europe slowed sharply in the second half of the reporting period. During the second quarter of 2011, GDP for the 17-member euro zone rose 0.2% versus the previous quarter while household consumption was down slightly, the first such decline since the third quarter of 2009. Inflation hit 2.8% in April 2011, the highest rate since October 2008.
| MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE | 25 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI NETHERLANDS INVESTABLE MARKET INDEX FUND
Meanwhile, investors continued to face uncertainty from the weaker countries in the euro zone. In mid-July, European Union leaders reached an agreement on a second rescue package for Greece. In addition, Spain, Portugal and Ireland’s debts were downgraded and investors continued to fear that Europe’s debt crisis would spread to more countries.
From a sector perspective, consumer staples and information technology posted the strongest positive contributions to the Index’s return for the reporting period, while industrials and financials produced negative contributions.
| 26 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI SPAIN INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 1.78% | 2.60% | (1.37)% | (0.20)% | (0.23)% | (0.61)% | 8.20% | 8.21% | 7.96% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 1.78% | 2.60% | (1.37)% | (1.00)% | (1.15)% | (3.00)% | 120.00% | 120.14% | 115.12% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE | 27 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI SPAIN INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Spain Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Spain IndexSM (the “Index”). The Index consists of stocks traded primarily on the Madrid Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 1.78%, net of fees, while the total return for the Index was (1.37)%.
The Spain stock market, as represented by the Index, rose from the beginning of the reporting period through November 2010 before declining sharply by the end of 2010. It rebounded through May but once again declined sharply over the next several months as the stalled global economic recovery, Europe’s re-emerging debt crisis and Spain’s fiscal problems came into focus. Because of a sharp sell-off during the summer, the Index posted a slight loss for the reporting period.
Spain’s modest economic recovery lost steam as the reporting period came to a close. The euro zone’s fourth largest economy grew at a quarterly rate of 0.2% during the second quarter of 2011 compared to the first quarter of 2011, down slightly from an increase of 0.3% in the first quarter of 2011 versus the fourth quarter of 2010. Consumer demand fell at an annual rate of 1.9% in the second quarter of 2011 compared to the prior quarter, as Spain grappled with a collapsed housing market. Among developed countries, Spain’s 21% unemployment rate is the highest in the world.
During the reporting period, investor attention focused on the ongoing European sovereign debt crisis, in particular a possible default by Greece, but also the potential that the crisis would spread to Italy and Spain. In July of 2011, European leaders reached an agreement on a second rescue package for Greece. Meanwhile, the credit ratings of Portugal, Ireland and Spain were downgraded.
During the summer, Spain saw its borrowing costs rise to a nine-year high, with yields on an 18-month bond reaching 3.9%. In response, the European Central Bank began buying government bonds of Italy and Spain in an effort to boost bond prices and reduce yields. Because Spain’s budget deficit as a percentage of GDP is among the highest in the world, the nation’s political leaders promised to pare public sector salaries and pensions. In addition, Spain’s government overwhelmingly approved a constitutional amendment to set maximum budget deficit levels and establish penalties for failure to comply.
| 28 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI SPAIN INDEX FUND
From a sector perspective, financials contributed the most to the Index’s negative return for the reporting period, offset by small positive gains from the energy, consumer discretionary and industrials sectors.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 29 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI SWEDEN INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 13.40% | 13.96% | 13.38% | 4.37% | 4.35% | 4.35% | 10.14% | 10.15% | 10.02% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 13.40% | 13.96% | 13.38% | 23.83% | 23.75% | 23.75% | 162.76% | 162.83% | 159.89% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| 30 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI SWEDEN INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Sweden Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Sweden IndexSM (the “Index”). The Index consists of stocks traded primarily on the Stockholm Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 13.40%, net of fees, while the total return for the Index was 13.38%.
Sweden’s stock market, as represented by the Index, generally increased from the beginning of the reporting period through mid-May 2011. However, at the beginning of the summer of 2011, the stalled global economic recovery as well Europe’s debt crisis re-emerged as investor concerns, and the Index declined over the remainder of the reporting period. Despite a sharp sell-off in August, the Index still posted double-digit returns for the reporting period.
Sweden’s economy was relatively strong during the reporting period, with second quarter 2011 gross domestic product (“GDP”) growth at 5.3% versus the second quarter of 2010. Meanwhile, unemployment ended the period at 7.5%. Inflation was 3.3% in July 2011, driven by higher energy and commodity prices. Consumer spending grew 2.3% during the second quarter of 2011 versus the same period in 2010, due to increased consumption of durable goods such as automobiles.
From Sweden’s perspective, economic risks were primarily outside its own borders. These developments are of concern to Sweden, since its economy is dependent upon exports to these markets. Despite slowing economies in Europe, the European Central Bank increased short-term interest rates from 1.0% to 1.25% in April 2011 and from 1.25% to 1.50% in July 2011. During the second quarter of 2011, GDP for the 17-member euro zone rose just 0.2% versus the previous quarter. In Germany, GDP rose just 0.1% in the second quarter of 2011 versus the prior quarter, while France’s GDP was flat over the same period.
At its most recent meeting, Sweden’s central bank chose to keep short-term interest rates at 2%, postponing any increases and reflecting the global slowdown. The rate had been 1% at the beginning of the reporting period, rising by 0.25 percentage points in December 2010, February 2011, April 2011 and June 2011. The bank indicates that the Swedish economy has outperformed economies in the euro area, while government budget deficits are modest, requiring little in the way of fiscal cutbacks.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 31 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI SWEDEN INDEX FUND
Meanwhile, investors continued to face uncertainty from the weaker countries in the euro zone. In mid-July, European Union leaders reached an agreement on a second rescue package for Greece. In addition, Spain, Portugal and Ireland’s debts were downgraded and investors continued to fear that Europe’s debt crisis would spread to more countries.
From a sector perspective, industrials, financials and information technology posted the strongest positive contributions to the Index’s return for the reporting period, while consumer discretionary was the only sector to produce a negative contribution.
| 32 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI SWITZERLAND INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 16.30% | 16.63% | 14.59% | 3.74% | 3.66% | 2.54% | 7.83% | 7.81% | 7.73% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 16.30% | 16.63% | 14.59% | 20.16% | 19.67% | 13.38% | 112.49% | 112.15% | 110.48% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 33 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI SWITZERLAND INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Switzerland Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Switzerland IndexSM (the “Index”). The Index consists of stocks traded primarily on the Zurich Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 16.30%, net of fees, while the total return for the Index was 14.59%.
The Swiss stock market, as represented by the Index, generally climbed from the beginning of the reporting period through May 2011. However, at the beginning of the summer, the stalled global economic recovery as well Europe’s debt crisis re-emerged as investor concerns, and the Index declined. Despite a sharp sell-off in August, the Index still posted double-digit returns for the reporting period.
Switzerland’s economy was relatively strong during the reporting period, with second quarter 2011 gross domestic product (“GDP”) growth at 2.3% versus the same period in the prior year. The unemployment rate declined from 3.8% to 2.8% during the reporting period, while inflation was under 1%. A strong Swiss franc crimped exports during the second quarter of 2011, resulting in a decline of 1.3%, reversing the first quarter’s gain of 3.4%, of total exports. Still, Switzerland posted a trade surplus (i.e., exports exceeded imports) during the reporting period. The countries in the European Union are its largest trading partners, accounting for about 62% of exports and 79% of imports.
From Switzerland’s perspective, economic risks were primarily outside its own borders. Despite slowing economies in Europe, the European Central Bank increased short-term interest rates from 1.0% to 1.25% in April 2011 and from 1.25% to 1.50% in July 2011. During the second quarter of 2011, GDP for the 17-member euro zone rose just 0.2% versus the previous quarter. In Germany, GDP rose just 0.1% in the second quarter of 2011 versus the prior quarter, while France’s GDP was flat over the same period.
At its most recent meeting, Switzerland’s central bank chose to cut the country’s short-term interest rate target from 0-0.75% to 0-0.25% in an effort to stem the rise in the value of the country’s currency. A lower interest rate makes Swiss francs less desirable as a savings vehicle for investors outside the country.
| 34 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI SWITZERLAND INDEX FUND
Meanwhile, investors continued to face uncertainty from the weaker countries in the euro zone. In mid-July, European Union leaders reached an agreement on a second rescue package for Greece. In addition, Spain, Portugal and Ireland’s debt were downgraded and investors continued to fear that Europe’s debt crisis would spread to more countries.
From a sector perspective, health care, consumer staples and consumer discretionary posted the strongest positive contributions to the Index’s return for the reporting period, while financials, energy and information technology produced negative contributions.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 35 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI UNITED KINGDOM INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 12.50% | 12.59% | 13.15% | (1.86)% | (2.04)% | (1.29)% | 4.06% | 3.98% | 4.75% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 12.50% | 12.59% | 13.15% | (8.95)% | (9.79)% | (6.27)% | 48.88% | 47.71% | 59.00% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| 36 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI UNITED KINGDOM INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI United Kingdom Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI United Kingdom IndexSM (the “Index”). The Index consists of stocks traded primarily on the London Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 12.50%, net of fees, while the total return for the Index was 13.15%.
The United Kingdom’s stock market, as represented by the Index, generally climbed from the beginning of the reporting period through May 2011. However, heading into the summer of 2011, the stalled global economic recovery as well Europe’s debt crisis re-emerged as investor concerns, and the Index declined. Despite a sell-off towards the end of the reporting period, the Index still posted double-digit returns for the reporting period.
The United Kingdom’s economy was sluggish in the second quarter of 2011, with gross domestic product (“GDP”) advancing just 0.2% compared to the prior quarter. The prior three quarters averaged the same level of GDP growth when compared to their immediately preceding quarters. The Bank of England maintained short-term interest rates at 0.5% during the reporting period, where the level has been since March 2009. Meanwhile, the unemployment rate reached 7.9% in the May-July 2011 period.
The U.K., which is the world’s fifth largest trading nation, continued to report a significant trade deficit (imports exceeding exports). In particular, the U.K. imports most of its copper, lead, zinc, rubber, cotton and much of its food. Therefore, inflation, which rose from 3.2% to 4.5% during the reporting period, was a significant concern.
Because the U.K. relies on its European neighbors for the preponderance of its trade, a downturn in the economic health of these countries can impact economic conditions in the U.K. Although economies were slowing in Europe, the European Central Bank increased short-term interest rates from 1% to 1.25% in April 2011 and from 1.25% to 1.50% in July 2011. During the second quarter of 2011, GDP for the 17-member euro zone rose just 0.2% versus the previous quarter. In Germany, GDP rose just 0.1% in the second quarter of 2011 versus the prior quarter, while France’s GDP was flat over the same period.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 37 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI UNITED KINGDOM INDEX FUND
Meanwhile, investors continued to face uncertainty from the weaker countries in the euro zone. In mid-July, European Union leaders reached an agreement on a second rescue package for Greece. In addition, Spain, Portugal and Ireland’s debt were downgraded and investors continued to fear that Europe’s debt crisis would spread to more countries.
From a sector perspective, energy, materials and consumer staples posted the strongest positive contributions to the Index’s return for the reporting period, while financials was the only sector to produce a negative contribution.
| 38 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Shareholder Expenses (Unaudited)
iSHARES®, INC.
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares and (2) ongoing costs, including management fees and other Fund expenses. The following Example is intended to help you understand your ongoing costs (in dollars and cents) of investing in a Fund and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from March 1, 2011 to August 31, 2011.
ACTUAL EXPENSES
The first line under each Fund in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line for your Fund under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line under each Fund in the table below provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line under each Fund in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| iShares MSCI Index Fund | Beginning Account Value (3/1/11) |
Ending Account Value (8/31/11) |
Annualized Expense Ratio |
Expenses Paid During Perioda (3/1/11 to 8/31/11) |
||||||||||||
| Austria Investable Market |
||||||||||||||||
| Actual |
$1,000.00 | $ 840.20 | 0.51 | % | $2.37 | |||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| Belgium Investable Market |
||||||||||||||||
| Actual |
1,000.00 | 930.30 | 0.51 | 2.48 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| Emerging Markets Eastern Europe |
||||||||||||||||
| Actual |
1,000.00 | 873.20 | 0.68 | 3.21 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,021.80 | 0.68 | 3.47 | ||||||||||||
| EMU |
||||||||||||||||
| Actual |
1,000.00 | 837.40 | 0.51 | 2.36 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| SHAREHOLDER EXPENSES | 39 |
Table of Contents
Shareholder Expenses (Unaudited) (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund | Beginning Account Value (3/1/11) |
Ending Account Value (8/31/11) |
Annualized Expense Ratio |
Expenses Paid During Perioda (3/1/11 to 8/31/11) |
||||||||||||
| France |
||||||||||||||||
| Actual |
$1,000.00 | $ 857.50 | 0.51 | % | $2.39 | |||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| Germany |
||||||||||||||||
| Actual |
1,000.00 | 830.40 | 0.51 | 2.35 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| Italy |
||||||||||||||||
| Actual |
1,000.00 | 748.80 | 0.51 | 2.25 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| Netherlands Investable Market |
||||||||||||||||
| Actual |
1,000.00 | 838.30 | 0.51 | 2.36 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| Spain |
||||||||||||||||
| Actual |
1,000.00 | 868.00 | 0.51 | 2.40 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| Sweden |
||||||||||||||||
| Actual |
1,000.00 | 864.90 | 0.51 | 2.40 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| Switzerland |
||||||||||||||||
| Actual |
1,000.00 | 982.00 | 0.51 | 2.55 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| United Kingdom |
||||||||||||||||
| Actual |
1,000.00 | 918.60 | 0.51 | 2.47 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| a | Expenses are calculated using each Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). |
| 40 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI AUSTRIA INVESTABLE MARKET INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 41 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI AUSTRIA INVESTABLE MARKET INDEX FUND
August 31, 2011
| 42 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI BELGIUM INVESTABLE MARKET INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 43 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI BELGIUM INVESTABLE MARKET INDEX FUND
August 31, 2011
| 44 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI EMERGING MARKETS EASTERN EUROPE INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 45 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS EASTERN EUROPE INDEX FUND
August 31, 2011
| 46 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI EMU INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 47 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI EMU INDEX FUND
August 31, 2011
| 48 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI EMU INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 49 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI EMU INDEX FUND
August 31, 2011
| 50 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI EMU INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 51 |
Table of Contents
iSHARES® MSCI FRANCE INDEX FUND
August 31, 2011
| 52 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI FRANCE INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 53 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI FRANCE INDEX FUND
August 31, 2011
| 54 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI GERMANY INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 55 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI GERMANY INDEX FUND
August 31, 2011
| 56 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI ITALY INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 57 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI ITALY INDEX FUND
August 31, 2011
| 58 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI NETHERLANDS INVESTABLE MARKET INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 59 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI NETHERLANDS INVESTABLE MARKET INDEX FUND
August 31, 2011
| 60 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI SPAIN INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 61 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI SPAIN INDEX FUND
August 31, 2011
| 62 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI SWEDEN INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 63 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI SWEDEN INDEX FUND
August 31, 2011
| 64 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI SWITZERLAND INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 65 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI SWITZERLAND INDEX FUND
August 31, 2011
| 66 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI UNITED KINGDOM INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 67 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI UNITED KINGDOM INDEX FUND
August 31, 2011
| 68 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI UNITED KINGDOM INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 69 |
Table of Contents
Statements of Assets and Liabilities
iSHARES®, INC.
August 31, 2011
| iShares MSCI Austria |
iShares MSCI Belgium |
iShares MSCI Emerging Markets Eastern Europe Index Fund |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 204,511,122 | $ | 50,238,435 | $ | 38,107,281 | ||||||
| Affiliated (Note 2) |
3,375,262 | 26,082 | 314,476 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 207,886,384 | $ | 50,264,517 | $ | 38,421,757 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 135,845,716 | $ | 30,459,566 | $ | 31,990,957 | ||||||
| Affiliated (Note 2) |
3,375,262 | 26,082 | 314,476 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
139,220,978 | 30,485,648 | 32,305,433 | |||||||||
| Foreign currencies, at valueb |
190,353 | 47,075 | 8,763 | |||||||||
| Cash |
– | – | 11,561 | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
651,697 | 517,933 | 900,946 | |||||||||
| Due from custodian (Note 4) |
– | – | 250,661 | |||||||||
| Dividends and interest |
827,562 | 754,324 | 72,948 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
140,890,590 | 31,804,980 | 33,550,312 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
558,618 | 514,211 | 1,318,939 | |||||||||
| Collateral for securities on loan (Note 5) |
3,298,364 | 21,122 | – | |||||||||
| Investment advisory fees (Note 2) |
59,401 | 13,812 | 19,848 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
3,916,383 | 549,145 | 1,338,787 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 136,974,207 | $ | 31,255,835 | $ | 32,211,525 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 264,142,067 | $ | 92,071,518 | $ | 38,879,373 | ||||||
| Undistributed net investment income |
111,146 | 709,744 | 129,787 | |||||||||
| Accumulated net realized loss |
(58,664,661 | ) | (41,692,788 | ) | (680,461 | ) | ||||||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(68,614,345 | ) | (19,832,639 | ) | (6,117,174 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 136,974,207 | $ | 31,255,835 | $ | 32,211,525 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingc |
7,300,000 | 2,480,000 | 1,100,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 18.76 | $ | 12.60 | $ | 29.28 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $3,177,737, $19,699 and $ –, respectively. See Note 5. |
| b | Cost of foreign currencies: $189,552, $46,906 and $8,659, respectively. |
| c | $0.001 par value, number of shares authorized: 100 million, 136.2 million and 200 million, respectively. |
See notes to financial statements.
| 70 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Assets and Liabilities (Continued)
iSHARES®, INC.
August 31, 2011
| iShares MSCI EMU Index Fund |
iShares MSCI France |
iShares MSCI Germany |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 1,138,409,522 | $ | 493,615,413 | $ | 3,355,266,431 | ||||||
| Affiliated (Note 2) |
6,669,258 | 51,845 | 8,244,334 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 1,145,078,780 | $ | 493,667,258 | $ | 3,363,510,765 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 736,511,517 | $ | 356,957,805 | $ | 2,755,675,140 | ||||||
| Affiliated (Note 2) |
6,669,258 | 51,845 | 8,244,334 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
743,180,775 | 357,009,650 | 2,763,919,474 | |||||||||
| Foreign currencies, at valueb |
613,847 | 335,589 | 1,346,083 | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
1,391,126 | 57,747 | 12,164,765 | |||||||||
| Dividends and interest |
1,388,355 | 54,062 | 11,880,368 | |||||||||
| Capital shares sold |
– | – | 28,440 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
746,574,103 | 357,457,048 | 2,789,339,130 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
1,428,981 | 153,185 | 11,899,831 | |||||||||
| Collateral for securities on loan (Note 5) |
6,515,350 | – | 7,988,683 | |||||||||
| Capital shares redeemed |
62,075 | – | – | |||||||||
| Investment advisory fees (Note 2) |
335,023 | 166,379 | 1,279,229 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
8,341,429 | 319,564 | 21,167,743 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 738,232,674 | $ | 357,137,484 | $ | 2,768,171,387 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 1,302,002,970 | $ | 518,331,928 | $ | 3,567,645,070 | ||||||
| Undistributed net investment income |
2,355,966 | 480,487 | – | |||||||||
| Accumulated net realized loss |
(164,218,609 | ) | (25,019,760 | ) | (199,863,233 | ) | ||||||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(401,907,653 | ) | (136,655,171 | ) | (599,610,450 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 738,232,674 | $ | 357,137,484 | $ | 2,768,171,387 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingc |
23,400,000 | 15,800,000 | 131,700,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 31.55 | $ | 22.60 | $ | 21.02 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $6,205,869, $ – and $7,788,533, respectively. See Note 5. |
| b | Cost of foreign currencies: $606,968, $333,152 and $1,343,221, respectively. |
| c | $0.001 par value, number of shares authorized: 1 billion, 340.2 million and 382.2 million, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS | 71 |
Table of Contents
Statements of Assets and Liabilities (Continued)
iSHARES®, INC.
August 31, 2011
| iShares MSCI Italy |
iShares MSCI Netherlands |
iShares MSCI Spain |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 211,126,142 | $ | 168,324,884 | $ | 291,059,154 | ||||||
| Affiliated (Note 2) |
1,024,154 | 457,923 | 12,572,498 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 212,150,296 | $ | 168,782,807 | $ | 303,631,652 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 144,466,528 | $ | 121,303,790 | $ | 180,072,376 | ||||||
| Affiliated (Note 2) |
1,024,154 | 457,923 | 12,572,498 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
145,490,682 | 121,761,713 | 192,644,874 | |||||||||
| Foreign currencies, at valueb |
61,507 | 269,295 | 181,187 | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
5,364,631 | 673,518 | – | |||||||||
| Due from custodian (Note 4) |
2,080,455 | – | – | |||||||||
| Dividends and interest |
2,868 | 300,395 | 114,649 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
153,000,143 | 123,004,921 | 192,940,710 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
7,349,591 | 755,824 | – | |||||||||
| Collateral for securities on loan (Note 5) |
986,232 | 455,367 | 12,501,089 | |||||||||
| Investment advisory fees (Note 2) |
52,338 | 53,324 | 79,996 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
8,388,161 | 1,264,515 | 12,581,085 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 144,611,982 | $ | 121,740,406 | $ | 180,359,625 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 258,826,292 | $ | 208,646,858 | $ | 325,587,282 | ||||||
| Undistributed net investment income |
14,337 | 557,254 | 4,152,024 | |||||||||
| Accumulated net realized loss |
(47,569,915 | ) | (40,447,533 | ) | (38,395,984 | ) | ||||||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(66,658,732 | ) | (47,016,173 | ) | (110,983,697 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 144,611,982 | $ | 121,740,406 | $ | 180,359,625 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingc |
10,650,000 | 6,600,000 | 5,025,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 13.58 | $ | 18.45 | $ | 35.89 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $983,841, $444,336 and $12,122,206, respectively. See Note 5. |
| b | Cost of foreign currencies: $60,625, $267,883 and $178,830, respectively. |
| c | $0.001 par value, number of shares authorized: 63.6 million, 255 million and 127.8 million, respectively. |
See notes to financial statements.
| 72 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Assets and Liabilities (Continued)
iSHARES®, INC.
August 31, 2011
| iShares MSCI Sweden |
iShares MSCI Switzerland |
iShares MSCI United Kingdom |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 399,403,671 | $ | 505,216,298 | $ | 1,347,898,532 | ||||||
| Affiliated (Note 2) |
152,431 | 147,358 | 436,918 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 399,556,102 | $ | 505,363,656 | $ | 1,348,335,450 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (Note 1): |
||||||||||||
| Unaffiliated |
$ | 329,774,799 | $ | 520,590,545 | $ | 1,190,244,819 | ||||||
| Affiliated (Note 2) |
152,431 | 147,358 | 436,918 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
329,927,230 | 520,737,903 | 1,190,681,737 | |||||||||
| Foreign currencies, at valuea |
140,518 | 56,754 | 1,668,676 | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
244,762 | – | 4,280,877 | |||||||||
| Dividends and interest |
564 | 3,589,673 | 8,056,176 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
330,313,074 | 524,384,330 | 1,204,687,466 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
256,730 | – | 4,847,914 | |||||||||
| Investment advisory fees (Note 2) |
169,160 | 225,495 | 506,759 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
425,890 | 225,495 | 5,354,673 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 329,887,184 | $ | 524,158,835 | $ | 1,199,332,793 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 436,124,057 | $ | 556,054,851 | $ | 1,479,156,736 | ||||||
| Undistributed net investment income |
– | 226,960 | 8,406,831 | |||||||||
| Accumulated net realized loss |
(36,608,856 | ) | (48,133,088 | ) | (130,541,173 | ) | ||||||
| Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies |
(69,628,017 | ) | 16,010,112 | (157,689,601 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 329,887,184 | $ | 524,158,835 | $ | 1,199,332,793 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingb |
12,300,000 | 21,250,000 | 73,000,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 26.82 | $ | 24.67 | $ | 16.43 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Cost of foreign currencies: $139,663, $57,016 and $1,679,810, respectively. |
| b | $0.001 par value, number of shares authorized: 63.6 million, 318.625 million and 934.2 million, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS | 73 |
Table of Contents
Statements of Operations
iSHARES®, INC.
Year ended August 31, 2011
| iShares MSCI Austria |
iShares MSCI Belgium |
iShares MSCI Emerging Markets Eastern Europe Index Fund |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends – unaffiliateda |
$ | 4,002,527 | $ | 1,659,219 | $ | 891,391 | ||||||
| Interest – unaffiliated |
21,604 | – | – | |||||||||
| Interest – affiliated (Note 2) |
48 | 21 | 37 | |||||||||
| Securities lending income – affiliated (Note 2) |
75,542 | 11,827 | 705 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
4,099,721 | 1,671,067 | 892,133 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
858,928 | 281,283 | 221,080 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
858,928 | 281,283 | 221,080 | |||||||||
| Less investment advisory fees waived (Note 2) |
– | – | (462 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Net expenses |
858,928 | 281,283 | 220,618 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
3,240,793 | 1,389,784 | 671,515 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments – unaffiliated |
(9,337,997 | ) | (9,376,066 | ) | (782,380 | ) | ||||||
| In-kind redemptions – unaffiliated |
13,257,213 | 4,706,937 | 5,295,226 | |||||||||
| Foreign currency transactions |
(28,237 | ) | 8,311 | (5,805 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain (loss) |
3,890,979 | (4,660,818 | ) | 4,507,041 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
5,346,302 | 8,442,788 | (5,856,318 | ) | ||||||||
| Translation of assets and liabilities in foreign currencies |
217,022 | 91,682 | (848 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
5,563,324 | 8,534,470 | (5,857,166 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain (loss) |
9,454,303 | 3,873,652 | (1,350,125 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | 12,695,096 | $ | 5,263,436 | $ | (678,610 | ) | |||||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $742,771, $274,329 and $153,428, respectively. |
See notes to financial statements.
| 74 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Operations (Continued)
iSHARES®, INC.
Year ended August 31, 2011
| iShares MSCI EMU |
iShares MSCI France |
iShares MSCI Germany |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends – unaffiliateda |
$ | 33,352,212 | $ | 13,528,698 | $ | 104,353,610 | ||||||
| Interest – unaffiliated |
459 | – | – | |||||||||
| Interest – affiliated (Note 2) |
358 | 100 | 430 | |||||||||
| Securities lending income – affiliated (Note 2) |
411,777 | 212,517 | 769,370 | |||||||||
|
|
|
|
|
|
|
|||||||
| 33,764,806 | 13,741,315 | 105,123,410 | ||||||||||
| Less: Other foreign taxes (Note 1) |
(2,613 | ) | (2,704 | ) | – | |||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
33,762,193 | 13,738,611 | 105,123,410 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
4,477,629 | 1,815,550 | 13,628,580 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
4,477,629 | 1,815,550 | 13,628,580 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
29,284,564 | 11,923,061 | 91,494,830 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments – unaffiliated |
(43,263,198 | ) | (9,789,479 | ) | (122,592,724 | ) | ||||||
| In-kind redemptions – unaffiliated |
33,287,765 | 6,884,632 | 227,714,896 | |||||||||
| Foreign currency transactions |
74,740 | 22,417 | 1,395,419 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain (loss) |
(9,900,693 | ) | (2,882,430 | ) | 106,517,591 | |||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
6,709,382 | (10,591,428 | ) | (323,251,545 | ) | |||||||
| Translation of assets and liabilities in foreign currencies |
67,734 | 1,849 | (39,130 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
6,777,116 | (10,589,579 | ) | (323,290,675 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized loss |
(3,123,577 | ) | (13,472,009 | ) | (216,773,084 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | 26,160,987 | $ | (1,548,948 | ) | $ | (125,278,254 | ) | ||||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $4,880,175, $2,016,603 and $15,760,667, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS | 75 |
Table of Contents
Statements of Operations (Continued)
iSHARES®, INC.
Year ended August 31, 2011
| iShares MSCI Italy |
iShares MSCI Netherlands Investable Market Index Fund |
iShares MSCI Spain Index Fund |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends – unaffiliateda |
$ | 4,253,366 | $ | 4,673,826 | $ | 11,937,574 | ||||||
| Interest – affiliated (Note 2) |
40 | 36 | 155 | |||||||||
| Securities lending income – affiliated (Note 2) |
68,631 | 20,487 | 211,412 | |||||||||
|
|
|
|
|
|
|
|||||||
| 4,322,037 | 4,694,349 | 12,149,141 | ||||||||||
| Less: Other foreign taxes (Note 1) |
(914 | ) | – | – | ||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
4,321,123 | 4,694,349 | 12,149,141 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
606,658 | 874,624 | 1,076,007 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
606,658 | 874,624 | 1,076,007 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
3,714,465 | 3,819,725 | 11,073,134 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments – unaffiliated |
(16,684,824 | ) | (3,074,450 | ) | (12,554,413 | ) | ||||||
| In-kind redemptions – unaffiliated |
8,652,731 | 11,117,913 | 12,035,521 | |||||||||
| Foreign currency transactions |
124,213 | (5,758 | ) | (65,078 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain (loss) |
(7,907,880 | ) | 8,037,705 | (583,970 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
(7,317,218 | ) | (620,186 | ) | (10,422,258 | ) | ||||||
| Translation of assets and liabilities in foreign currencies |
2,589 | 14,829 | 6,080 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
(7,314,629 | ) | (605,357 | ) | (10,416,178 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain (loss) |
(15,222,509 | ) | 7,432,348 | (11,000,148 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (11,508,044 | ) | $ | 11,252,073 | $ | 72,986 | |||||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $690,657, $713,423 and $1,390,794, respectively. |
See notes to financial statements.
| 76 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Operations (Continued)
iSHARES®, INC.
Year ended August 31, 2011
| iShares MSCI Sweden Index Fund |
iShares MSCI Switzerland Index Fund |
iShares MSCI United Kingdom Index Fund |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends – unaffiliateda |
$ | 21,278,452 | $ | 14,263,571 | $ | 43,238,416 | ||||||
| Interest – affiliated (Note 2) |
78 | 111 | 496 | |||||||||
| Securities lending income – affiliated (Note 2) |
5,508 | 2,867 | 5,047 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
21,284,038 | 14,266,549 | 43,243,959 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
2,536,271 | 2,569,744 | 6,213,817 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
2,536,271 | 2,569,744 | 6,213,817 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
18,747,767 | 11,696,805 | 37,030,142 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments – unaffiliated |
(9,266,642 | ) | (6,636,012 | ) | (23,990,702 | ) | ||||||
| In-kind redemptions – unaffiliated |
12,960,622 | 16,119,613 | 43,420,318 | |||||||||
| Foreign currency transactions |
(47,755 | ) | 487,754 | 65,670 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain |
3,646,225 | 9,971,355 | 19,495,286 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
(18,150,591 | ) | 38,919,069 | 45,620,844 | ||||||||
| Translation of assets and liabilities in foreign currencies |
(3,482 | ) | 415,463 | 124,463 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
(18,154,073 | ) | 39,334,532 | 45,745,307 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain (loss) |
(14,507,848 | ) | 49,305,887 | 65,240,593 | ||||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | 4,239,919 | $ | 61,002,692 | $ | 102,270,735 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $3,461,517, $2,068,639 and $507,666, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS | 77 |
Table of Contents
Statements of Changes in Net Assets
iSHARES®, INC.
| iShares MSCI Austria Investable Market Index Fund |
iShares MSCI Belgium Investable Market Index Fund |
|||||||||||||||
| Year ended August 31, 2011 |
Year ended August 31, 2010 |
Year ended August 31, 2011 |
Year ended August 31, 2010 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
| |||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 3,240,793 | $ | 3,373,743 | $ | 1,389,784 | $ | 1,126,180 | ||||||||
| Net realized gain (loss) |
3,890,979 | (8,201,889 | ) | (4,660,818 | ) | (10,076,096 | ) | |||||||||
| Net change in unrealized appreciation/depreciation |
5,563,324 | (14,419,288 | ) | 8,534,470 | 14,374,647 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
12,695,096 | (19,247,434 | ) | 5,263,436 | 5,424,731 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(3,303,650 | ) | (5,965,890 | ) | (1,401,041 | ) | (1,145,981 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(3,303,650 | ) | (5,965,890 | ) | (1,401,041 | ) | (1,145,981 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
153,911,553 | 154,605,120 | 70,362,308 | 122,747,250 | ||||||||||||
| Cost of shares redeemed |
(136,848,453 | ) | (178,538,062 | ) | (101,865,045 | ) | (121,172,070 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
17,063,100 | (23,932,942 | ) | (31,502,737 | ) | 1,575,180 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
26,454,546 | (49,146,266 | ) | (27,640,342 | ) | 5,853,930 | ||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
110,519,661 | 159,665,927 | 58,896,177 | 53,042,247 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 136,974,207 | $ | 110,519,661 | $ | 31,255,835 | $ | 58,896,177 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed net investment income included in net assets at end of year |
$ | 111,146 | $ | 197,221 | $ | 709,744 | $ | 75,785 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
| |||||||||||||||
| Shares sold |
7,100,000 | 7,600,000 | 4,920,000 | 10,160,000 | ||||||||||||
| Shares redeemed |
(6,200,000 | ) | (9,100,000 | ) | (7,440,000 | ) | (9,560,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
900,000 | (1,500,000 | ) | (2,520,000 | ) | 600,000 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| 78 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Changes in Net Assets (Continued)
iSHARES®, INC.
| iShares MSCI Emerging Markets Eastern Europe Index Fund |
iShares MSCI EMU Index Fund |
|||||||||||||||
| Year ended August 31, 2011 |
Period from to August 31, 2010 |
Year ended August 31, 2011 |
Year ended August 31, 2010 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
| |||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 671,515 | $ | 103,151 | $ | 29,284,564 | $ | 19,143,111 | ||||||||
| Net realized gain (loss) |
4,507,041 | (203,443 | ) | (9,900,693 | ) | (15,434,929 | ) | |||||||||
| Net change in unrealized appreciation/depreciation |
(5,857,166 | ) | (260,008 | ) | 6,777,116 | (93,999,959 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
(678,610 | ) | (360,300 | ) | 26,160,987 | (90,291,777 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(575,285 | ) | (64,350 | ) | (27,791,723 | ) | (21,378,328 | ) | ||||||||
| From net realized gain |
– | (4,842 | ) | – | – | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(575,285 | ) | (69,192 | ) | (27,791,723 | ) | (21,378,328 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
76,250,166 | 13,261,092 | 558,259,495 | 616,111,927 | ||||||||||||
| Cost of shares redeemed |
(55,616,346 | ) | – | (642,368,122 | ) | (421,739,675 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
20,633,820 | 13,261,092 | (84,108,627 | ) | 194,372,252 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
19,379,925 | 12,831,600 | (85,739,363 | ) | 82,702,147 | |||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of period |
12,831,600 | – | 823,972,037 | 741,269,890 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 32,211,525 | $ | 12,831,600 | $ | 738,232,674 | $ | 823,972,037 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed net investment income included in net assets at end of period |
$ | 129,787 | $ | 39,362 | $ | 2,355,966 | $ | 596,192 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
| |||||||||||||||
| Shares sold |
2,250,000 | 500,000 | 14,400,000 | 18,100,000 | ||||||||||||
| Shares redeemed |
(1,650,000 | ) | – | (17,800,000 | ) | (12,100,000 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
600,000 | 500,000 | (3,400,000 | ) | 6,000,000 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| a | Commencement of operations. |
See notes to financial statements.
| FINANCIAL STATEMENTS | 79 |
Table of Contents
Statements of Changes in Net Assets (Continued)
iSHARES®, INC.
| iShares MSCI France Index Fund |
iShares MSCI Germany Index Fund |
|||||||||||||||
| Year ended August 31, 2011 |
Year ended August 31, 2010 |
Year ended August 31, 2011 |
Year ended August 31, 2010 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
| |||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 11,923,061 | $ | 7,946,760 | $ | 91,494,830 | $ | 18,436,764 | ||||||||
| Net realized gain (loss) |
(2,882,430 | ) | (8,608,895 | ) | 106,517,591 | 2,496,753 | ||||||||||
| Net change in unrealized appreciation/depreciation |
(10,589,579 | ) | (40,527,838 | ) | (323,290,675 | ) | (95,695,088 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net decrease in net assets resulting from operations |
(1,548,948 | ) | (41,189,973 | ) | (125,278,254 | ) | (74,761,571 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(11,811,674 | ) | (8,068,942 | ) | (93,072,582 | ) | (20,484,235 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(11,811,674 | ) | (8,068,942 | ) | (93,072,582 | ) | (20,484,235 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
327,507,874 | 358,661,968 | 2,649,782,675 | 1,389,774,707 | ||||||||||||
| Cost of shares redeemed |
(196,716,202 | ) | (254,208,011 | ) | (1,151,141,454 | ) | (426,285,646 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase in net assets from capital share transactions |
130,791,672 | 104,453,957 | 1,498,641,221 | 963,489,061 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE IN NET ASSETS |
117,431,050 | 55,195,042 | 1,280,290,385 | 868,243,255 | ||||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
239,706,434 | 184,511,392 | 1,487,881,002 | 619,637,747 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 357,137,484 | $ | 239,706,434 | $ | 2,768,171,387 | $ | 1,487,881,002 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed net investment income included in net assets at end of year |
$ | 480,487 | $ | 346,395 | $ | – | $ | – | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
| |||||||||||||||
| Shares sold |
12,400,000 | 15,000,000 | 102,900,000 | 67,200,000 | ||||||||||||
| Shares redeemed |
(8,000,000 | ) | (11,200,000 | ) | (47,700,000 | ) | (20,400,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase in shares outstanding |
4,400,000 | 3,800,000 | 55,200,000 | 46,800,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| 80 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Changes in Net Assets (Continued)
iSHARES®, INC.
| iShares MSCI Italy Index Fund |
iShares MSCI Netherlands Investable Market Index Fund |
|||||||||||||||
| Year ended August 31, 2011 |
Year ended August 31, 2010 |
Year ended August 31, 2011 |
Year ended August 31, 2010 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
| |||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 3,714,465 | $ | 2,526,028 | $ | 3,819,725 | $ | 2,594,922 | ||||||||
| Net realized gain (loss) |
(7,907,880 | ) | (7,791,468 | ) | 8,037,705 | (4,073,218 | ) | |||||||||
| Net change in unrealized appreciation/depreciation |
(7,314,629 | ) | (14,934,273 | ) | (605,357 | ) | (4,949,050 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
(11,508,044 | ) | (20,199,713 | ) | 11,252,073 | (6,427,346 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(3,814,673 | ) | (3,028,440 | ) | (3,654,048 | ) | (2,418,715 | ) | ||||||||
| Return of capital |
– | (96,798 | ) | – | – | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(3,814,673 | ) | (3,125,238 | ) | (3,654,048 | ) | (2,418,715 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
233,854,014 | 87,900,548 | 63,107,207 | 94,430,557 | ||||||||||||
| Cost of shares redeemed |
(150,419,367 | ) | (113,791,470 | ) | (96,575,333 | ) | (21,325,132 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
83,434,647 | (25,890,922 | ) | (33,468,126 | ) | 73,105,425 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
68,111,930 | (49,215,873 | ) | (25,870,101 | ) | 64,259,364 | ||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
76,500,052 | 125,715,925 | 147,610,507 | 83,351,143 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 144,611,982 | $ | 76,500,052 | $ | 121,740,406 | $ | 147,610,507 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of year |
$ | 14,337 | $ | (452 | ) | $ | 557,254 | $ | 396,156 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
| |||||||||||||||
| Shares sold |
14,400,000 | 5,250,000 | 2,850,000 | 4,850,000 | ||||||||||||
| Shares redeemed |
(8,850,000 | ) | (6,750,000 | ) | (4,500,000 | ) | (1,100,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
5,550,000 | (1,500,000 | ) | (1,650,000 | ) | 3,750,000 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| FINANCIAL STATEMENTS | 81 |
Table of Contents
Statements of Changes in Net Assets (Continued)
iSHARES®, INC.
| iShares MSCI Spain Index Fund |
iShares MSCI Sweden Index Fund |
|||||||||||||||
| Year ended August 31, 2011 |
Year ended August 31, 2010 |
Year ended August 31, 2011 |
Year ended August 31, 2010 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
| |||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 11,073,134 | $ | 9,022,079 | $ | 18,747,767 | $ | 4,069,874 | ||||||||
| Net realized gain (loss) |
(583,970 | ) | (34,736,468 | ) | 3,646,225 | (2,661,078 | ) | |||||||||
| Net change in unrealized appreciation/depreciation |
(10,416,178 | ) | (22,172,420 | ) | (18,154,073 | ) | 9,087,749 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
72,986 | (47,886,809 | ) | 4,239,919 | 10,496,545 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(8,211,532 | ) | (11,300,415 | ) | (19,236,805 | ) | (4,773,557 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(8,211,532 | ) | (11,300,415 | ) | (19,236,805 | ) | (4,773,557 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
418,742,090 | 185,418,132 | 366,716,894 | 136,592,737 | ||||||||||||
| Cost of shares redeemed |
(424,605,441 | ) | (210,603,819 | ) | (271,324,012 | ) | (83,157,268 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
(5,863,351 | ) | (25,185,687 | ) | 95,392,882 | 53,435,469 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
(14,001,897 | ) | (84,372,911 | ) | 80,395,996 | 59,158,457 | ||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
194,361,522 | 278,734,433 | 249,491,188 | 190,332,731 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 180,359,625 | $ | 194,361,522 | $ | 329,887,184 | $ | 249,491,188 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of year |
$ | 4,152,024 | $ | 1,264,766 | $ | – | $ | (2,828 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
| |||||||||||||||
| Shares sold |
10,200,000 | 4,800,000 | 11,850,000 | 5,400,000 | ||||||||||||
| Shares redeemed |
(10,425,000 | ) | (5,400,000 | ) | (9,750,000 | ) | (3,525,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
(225,000 | ) | (600,000 | ) | 2,100,000 | 1,875,000 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| 82 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Changes in Net Assets (Continued)
iSHARES®, INC.
| iShares MSCI Switzerland Index Fund |
iShares MSCI United Kingdom Index Fund |
|||||||||||||||
| Year ended August 31, 2011 |
Year ended August 31, 2010 |
Year ended August 31, 2011 |
Year ended August 31, 2010 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
| |||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 11,696,805 | $ | 6,014,037 | $ | 37,030,142 | $ | 27,740,950 | ||||||||
| Net realized gain (loss) |
9,971,355 | (3,149,216 | ) | 19,495,286 | 3,681,580 | |||||||||||
| Net change in unrealized appreciation/depreciation |
39,334,532 | 13,666,076 | 45,745,307 | (20,637,671 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase in net assets resulting from operations |
61,002,692 | 16,530,897 | 102,270,735 | 10,784,859 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(11,911,242 | ) | (6,459,032 | ) | (33,922,128 | ) | (27,007,036 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(11,911,242 | ) | (6,459,032 | ) | (33,922,128 | ) | (27,007,036 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
136,480,631 | 150,874,722 | 406,184,764 | 352,106,687 | ||||||||||||
| Cost of shares redeemed |
(67,167,856 | ) | (27,046,917 | ) | (205,612,227 | ) | (144,597,222 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase in net assets from capital share transactions |
69,312,775 | 123,827,805 | 200,572,537 | 207,509,465 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE IN NET ASSETS |
118,404,225 | 133,899,670 | 268,921,144 | 191,287,288 | ||||||||||||
| NET ASSETS |
| |||||||||||||||
| Beginning of year |
405,754,610 | 271,854,940 | 930,411,649 | 739,124,361 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 524,158,835 | $ | 405,754,610 | $ | 1,199,332,793 | $ | 930,411,649 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed net investment income included in net assets at end of year |
$ | 226,960 | $ | – | $ | 8,406,831 | $ | 5,184,563 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
| |||||||||||||||
| Shares sold |
5,125,000 | 6,875,000 | 23,400,000 | 22,200,000 | ||||||||||||
| Shares redeemed |
(2,625,000 | ) | (1,250,000 | ) | (12,400,000 | ) | (9,400,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase in shares outstanding |
2,500,000 | 5,625,000 | 11,000,000 | 12,800,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| FINANCIAL STATEMENTS | 83 |
Table of Contents
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Austria Investable Market Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 17.27 | $ | 20.21 | $ | 29.78 | $ | 37.28 | $ | 31.08 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.42 | 0.43 | 0.51 | 0.56 | 0.51 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
1.53 | (2.62 | ) | (9.36 | ) | (6.98 | ) | 6.42 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
1.95 | (2.19 | ) | (8.85 | ) | (6.42 | ) | 6.93 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.46 | ) | (0.75 | ) | (0.72 | ) | (1.08 | ) | (0.73 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.46 | ) | (0.75 | ) | (0.72 | ) | (1.08 | ) | (0.73 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 18.76 | $ | 17.27 | $ | 20.21 | $ | 29.78 | $ | 37.28 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
10.92 | % | (11.07 | )% | (28.52 | )% | (17.64 | )% | 22.35 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 136,974 | $ | 110,520 | $ | 159,666 | $ | 193,602 | $ | 473,514 | ||||||||||
| Ratio of expenses to average net assets |
0.52 | % | 0.54 | % | 0.55 | % | 0.52 | % | 0.51 | % | ||||||||||
| Ratio of net investment income to average net assets |
1.95 | % | 2.20 | % | 3.25 | % | 1.57 | % | 1.36 | % | ||||||||||
| Portfolio turnover ratec |
12 | % | 11 | % | 26 | % | 26 | % | 21 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| 84 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Belgium Investable Market Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 11.78 | $ | 12.06 | $ | 17.64 | $ | 25.89 | $ | 22.83 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.35 | 0.19 | 0.22 | 0.78 | 0.76 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
0.80 | (0.27 | ) | (5.46 | ) | (7.27 | ) | 2.74 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
1.15 | (0.08 | ) | (5.24 | ) | (6.49 | ) | 3.50 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.33 | ) | (0.20 | ) | (0.34 | ) | (1.76 | ) | (0.44 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.33 | ) | (0.20 | ) | (0.34 | ) | (1.76 | ) | (0.44 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 12.60 | $ | 11.78 | $ | 12.06 | $ | 17.64 | $ | 25.89 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
9.59 | % | (0.60 | )% | (29.15 | )% | (26.21 | )% | 15.36 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 31,256 | $ | 58,896 | $ | 53,042 | $ | 119,955 | $ | 303,483 | ||||||||||
| Ratio of expenses to average net assets |
0.52 | % | 0.54 | % | 0.56 | % | 0.52 | % | 0.51 | % | ||||||||||
| Ratio of net investment income to average net assets |
2.56 | % | 1.55 | % | 2.23 | % | 3.32 | % | 2.90 | % | ||||||||||
| Portfolio turnover ratec |
12 | % | 17 | % | 33 | % | 31 | % | 12 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS | 85 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Emerging Markets Eastern Europe Index Fund | ||||
| Year ended Aug. 31, 2011 |
Period from Sep. 30, 2009a to Aug. 31, 2010 |
|||||||
| Net asset value, beginning of period |
$ | 25.66 | $ | 24.65 | ||||
|
|
|
|
|
|||||
| Income from investment operations: |
||||||||
| Net investment incomeb |
0.67 | 0.26 | ||||||
| Net realized and unrealized gainc |
3.45 | 0.89 | ||||||
|
|
|
|
|
|||||
| Total from investment operations |
4.12 | 1.15 | ||||||
|
|
|
|
|
|||||
| Less distributions from: |
||||||||
| Net investment income |
(0.50 | ) | (0.13 | ) | ||||
| Net realized gain |
– | (0.01 | ) | |||||
|
|
|
|
|
|||||
| Total distributions |
(0.50 | ) | (0.14 | ) | ||||
|
|
|
|
|
|||||
| Net asset value, end of period |
$ | 29.28 | $ | 25.66 | ||||
|
|
|
|
|
|||||
| Total return |
15.86 | % | 4.68 | %d | ||||
|
|
|
|
|
|||||
| Ratios/Supplemental data: |
||||||||
| Net assets, end of period (000s) |
$ | 32,212 | $ | 12,832 | ||||
| Ratio of expenses to average net assets prior to waived feese |
0.68 | % | 0.69 | % | ||||
| Ratio of expenses to average net assets after waived fees |
0.68 | % | n/a | |||||
| Ratio of net investment income to average net assetse |
2.06 | % | 1.05 | % | ||||
| Portfolio turnover ratef |
24 | % | 13 | % | ||||
| a | Commencement of operations. |
| b | Based on average shares outstanding throughout each period. |
| c | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| d | Not annualized. |
| e | Annualized for periods of less than one year. |
| f | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| 86 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI EMU Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year
ended Aug. 31, 2008a |
Year
ended Aug. 31, 2007a |
||||||||||||||||
| Net asset value, beginning of year |
$ | 30.75 | $ | 35.64 | $ | 45.97 | $ | 57.15 | $ | 46.14 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomeb |
1.23 | 0.80 | 0.93 | 1.71 | 1.40 | |||||||||||||||
| Net realized and unrealized gain (loss)c |
0.71 | (4.76 | ) | (9.97 | ) | (9.59 | ) | 10.54 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
1.94 | (3.96 | ) | (9.04 | ) | (7.88 | ) | 11.94 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(1.14 | ) | (0.93 | ) | (1.29 | ) | (3.30 | ) | (0.93 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(1.14 | ) | (0.93 | ) | (1.29 | ) | (3.30 | ) | (0.93 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 31.55 | $ | 30.75 | $ | 35.64 | $ | 45.97 | $ | 57.15 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
5.78 | % | (11.19 | )% | (19.05 | )% | (14.52 | )% | 26.10 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 738,233 | $ | 823,972 | $ | 741,270 | $ | 1,291,808 | $ | 2,971,565 | ||||||||||
| Ratio of expenses to average net assetsd |
0.52 | % | 0.54 | % | 0.56 | % | 0.52 | % | 0.51 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.38 | % | 2.29 | % | 3.07 | % | 3.06 | % | 2.60 | % | ||||||||||
| Portfolio turnover ratee |
8 | % | 5 | % | 8 | % | 27 | % | 5 | % | ||||||||||
| a | Per share amounts were adjusted to reflect a two-for-one stock split effective July 24, 2008. |
| b | Based on average shares outstanding throughout each period. |
| c | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| d | Ratios for prior periods have been recalculated, as necessary, to conform with the current period presentation of foreign taxes. |
| e | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS | 87 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI France Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 21.03 | $ | 24.28 | $ | 30.70 | $ | 36.53 | $ | 31.16 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.86 | 0.65 | 0.66 | 0.93 | 0.77 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
1.38 | (3.30 | ) | (6.13 | ) | (5.17 | ) | 5.06 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
2.24 | (2.65 | ) | (5.47 | ) | (4.24 | ) | 5.83 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.67 | ) | (0.60 | ) | (0.95 | ) | (1.59 | ) | (0.46 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.67 | ) | (0.60 | ) | (0.95 | ) | (1.59 | ) | (0.46 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 22.60 | $ | 21.03 | $ | 24.28 | $ | 30.70 | $ | 36.53 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
10.24 | % | (10.98 | )% | (17.11 | )% | (11.96 | )% | 18.83 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 357,137 | $ | 239,706 | $ | 184,511 | $ | 227,203 | $ | 445,696 | ||||||||||
| Ratio of expenses to average net assetsc |
0.52 | % | 0.53 | % | 0.55 | % | 0.52 | % | 0.51 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.38 | % | 2.71 | % | 3.18 | % | 2.60 | % | 2.17 | % | ||||||||||
| Portfolio turnover rated |
6 | % | 6 | % | 6 | % | 10 | % | 6 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Ratios for prior periods have been recalculated, as necessary, to conform with the current period presentation of foreign taxes. |
| d | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| 88 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Germany Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 19.45 | $ | 20.86 | $ | 27.55 | $ | 32.18 | $ | 23.68 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.86 | 0.38 | 0.58 | 0.88 | 0.68 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
1.38 | (1.49 | ) | (6.65 | ) | (3.84 | ) | 8.33 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
2.24 | (1.11 | ) | (6.07 | ) | (2.96 | ) | 9.01 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.67 | ) | (0.30 | ) | (0.62 | ) | (1.67 | ) | (0.51 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.67 | ) | (0.30 | ) | (0.62 | ) | (1.67 | ) | (0.51 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 21.02 | $ | 19.45 | $ | 20.86 | $ | 27.55 | $ | 32.18 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
10.84 | % | (5.35 | )% | (21.62 | )% | (9.81 | )% | 38.47 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 2,768,171 | $ | 1,487,881 | $ | 619,638 | $ | 669,452 | $ | 1,641,245 | ||||||||||
| Ratio of expenses to average net assets |
0.51 | % | 0.53 | % | 0.55 | % | 0.52 | % | 0.51 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.45 | % | 1.80 | % | 3.18 | % | 2.72 | % | 2.32 | % | ||||||||||
| Portfolio turnover ratec |
13 | % | 5 | % | 15 | % | 11 | % | 4 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS | 89 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Italy Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 15.00 | $ | 19.05 | $ | 25.04 | $ | 33.82 | $ | 30.48 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.54 | 0.39 | 0.47 | 1.53 | 1.35 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
(1.47 | ) | (3.99 | ) | (5.82 | ) | (7.71 | ) | 2.66 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(0.93 | ) | (3.60 | ) | (5.35 | ) | (6.18 | ) | 4.01 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.49 | ) | (0.44 | ) | (0.64 | ) | (2.60 | ) | (0.67 | ) | ||||||||||
| Return of capital |
– | (0.01 | ) | – | – | – | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.49 | ) | (0.45 | ) | (0.64 | ) | (2.60 | ) | (0.67 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 13.58 | $ | 15.00 | $ | 19.05 | $ | 25.04 | $ | 33.82 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(6.80 | )% | (19.11 | )% | (20.78 | )% | (19.43 | )% | 13.20 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 144,612 | $ | 76,500 | $ | 125,716 | $ | 244,154 | $ | 172,495 | ||||||||||
| Ratio of expenses to average net assetsc |
0.51 | % | 0.54 | % | 0.55 | % | 0.52 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.15 | % | 2.17 | % | 2.85 | % | 5.06 | % | 4.02 | % | ||||||||||
| Portfolio turnover rated |
16 | % | 12 | % | 18 | % | 29 | % | 16 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Ratios for prior periods have been recalculated, as necessary, to conform with the current period presentation of foreign taxes. |
| d | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| 90 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Netherlands Investable Market Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 17.89 | $ | 18.52 | $ | 24.38 | $ | 29.75 | $ | 24.17 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.48 | 0.45 | 0.35 | 1.10 | 0.98 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
0.55 | (0.70 | ) | (5.55 | ) | (4.68 | ) | 5.05 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
1.03 | (0.25 | ) | (5.20 | ) | (3.58 | ) | 6.03 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.47 | ) | (0.38 | ) | (0.66 | ) | (1.79 | ) | (0.45 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.47 | ) | (0.38 | ) | (0.66 | ) | (1.79 | ) | (0.45 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 18.45 | $ | 17.89 | $ | 18.52 | $ | 24.38 | $ | 29.75 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
5.44 | % | (1.44 | )% | (20.59 | )% | (12.67 | )% | 25.22 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 121,740 | $ | 147,611 | $ | 83,351 | $ | 209,653 | $ | 251,354 | ||||||||||
| Ratio of expenses to average net assets |
0.52 | % | 0.53 | % | 0.55 | % | 0.52 | % | 0.51 | % | ||||||||||
| Ratio of net investment income to average net assets |
2.26 | % | 2.31 | % | 2.24 | % | 3.86 | % | 3.50 | % | ||||||||||
| Portfolio turnover ratec |
6 | % | 9 | % | 15 | % | 26 | % | 8 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS | 91 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Spain Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31,2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 37.02 | $ | 47.65 | $ | 50.41 | $ | 58.06 | $ | 44.81 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
2.14 | 1.64 | 1.75 | 1.98 | 1.30 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
(1.36 | ) | (10.01 | ) | (2.14 | ) | (7.33 | ) | 12.33 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
0.78 | (8.37 | ) | (0.39 | ) | (5.35 | ) | 13.63 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(1.91 | ) | (2.26 | ) | (2.37 | ) | (2.30 | ) | (0.38 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(1.91 | ) | (2.26 | ) | (2.37 | ) | (2.30 | ) | (0.38 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 35.89 | $ | 37.02 | $ | 47.65 | $ | 50.41 | $ | 58.06 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
1.78 | % | (17.91 | )% | 0.64 | % | (9.76 | )% | 30.47 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 180,360 | $ | 194,362 | $ | 278,734 | $ | 321,349 | $ | 522,556 | ||||||||||
| Ratio of expenses to average net assets |
0.52 | % | 0.54 | % | 0.56 | % | 0.52 | % | 0.51 | % | ||||||||||
| Ratio of net investment income to average net assets |
5.31 | % | 3.72 | % | 4.70 | % | 3.28 | % | 2.36 | % | ||||||||||
| Portfolio turnover ratec |
14 | % | 9 | % | 19 | % | 22 | % | 12 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| 92 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Sweden Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 24.46 | $ | 22.86 | $ | 24.48 | $ | 34.57 | $ | 25.88 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
1.18 | 0.48 | 0.40 | 0.91 | 1.15 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
2.22 | 1.73 | (1.56 | ) | (8.63 | ) | 7.88 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
3.40 | 2.21 | (1.16 | ) | (7.72 | ) | 9.03 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(1.04 | ) | (0.61 | ) | (0.46 | ) | (2.37 | ) | (0.34 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(1.04 | ) | (0.61 | ) | (0.46 | ) | (2.37 | ) | (0.34 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 26.82 | $ | 24.46 | $ | 22.86 | $ | 24.48 | $ | 34.57 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
13.40 | % | 9.70 | % | (4.04 | )% | (23.16 | )% | 35.01 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 329,887 | $ | 249,491 | $ | 190,333 | $ | 227,654 | $ | 573,026 | ||||||||||
| Ratio of expenses to average net assets |
0.51 | % | 0.53 | % | 0.55 | % | 0.51 | % | 0.51 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.80 | % | 1.97 | % | 2.34 | % | 2.91 | % | 3.42 | % | ||||||||||
| Portfolio turnover ratec |
9 | % | 10 | % | 9 | % | 17 | % | 7 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS | 93 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Switzerland Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 21.64 | $ | 20.71 | $ | 23.09 | $ | 25.78 | $ | 22.49 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.59 | 0.39 | 0.25 | 0.49 | 0.36 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
2.97 | 0.90 | (2.30 | ) | (2.51 | ) | 3.12 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
3.56 | 1.29 | (2.05 | ) | (2.02 | ) | 3.48 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.53 | ) | (0.36 | ) | (0.33 | ) | (0.67 | ) | (0.19 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.53 | ) | (0.36 | ) | (0.33 | ) | (0.67 | ) | (0.19 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 24.67 | $ | 21.64 | $ | 20.71 | $ | 23.09 | $ | 25.78 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
16.30 | % | 6.35 | % | (8.63 | )% | (7.97 | )% | 15.53 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 524,159 | $ | 405,755 | $ | 271,855 | $ | 366,525 | $ | 318,998 | ||||||||||
| Ratio of expenses to average net assets |
0.52 | % | 0.53 | % | 0.56 | % | 0.52 | % | 0.51 | % | ||||||||||
| Ratio of net investment income to average net assets |
2.35 | % | 1.80 | % | 1.42 | % | 1.93 | % | 1.42 | % | ||||||||||
| Portfolio turnover ratec |
7 | % | 7 | % | 16 | % | 11 | % | 5 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| 94 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI United Kingdom Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 15.01 | $ | 15.02 | $ | 19.35 | $ | 24.73 | $ | 21.92 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.54 | 0.46 | 0.50 | 0.83 | 0.84 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
1.35 | (0.03 | ) | (4.26 | ) | (4.89 | ) | 2.78 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
1.89 | 0.43 | (3.76 | ) | (4.06 | ) | 3.62 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.47 | ) | (0.44 | ) | (0.57 | ) | (1.32 | ) | (0.81 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.47 | ) | (0.44 | ) | (0.57 | ) | (1.32 | ) | (0.81 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 16.43 | $ | 15.01 | $ | 15.02 | $ | 19.35 | $ | 24.73 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
12.50 | % | 2.87 | % | (18.68 | )% | (17.16 | )% | 16.77 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 1,199,333 | $ | 930,412 | $ | 739,124 | $ | 882,502 | $ | 1,127,738 | ||||||||||
| Ratio of expenses to average net assets |
0.52 | % | 0.53 | % | 0.55 | % | 0.52 | % | 0.51 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.07 | % | 2.98 | % | 3.90 | % | 3.64 | % | 3.51 | % | ||||||||||
| Portfolio turnover ratec |
4 | % | 7 | % | 11 | % | 14 | % | 8 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS | 95 |
Table of Contents
iSHARES®, INC.
iShares, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company was incorporated under the laws of the State of Maryland on September 1, 1994 pursuant to amended and restated Articles of Incorporation.
These financial statements relate only to the following funds (each, a “Fund,” collectively, the “Funds”):
Non-diversified funds generally hold securities of fewer issuers than diversified funds and may be more susceptible to the risks associated with these particular issuers, or to a single economic, political or regulatory occurrence affecting these issuers.
The investment objective of each Fund is to seek investment results that correspond generally to the price and yield performance, before fees and expenses, of its underlying index. The investment adviser uses a “passive” or index approach to try to achieve each Fund’s investment objective.
Each Fund invests in securities of non-U.S. issuers that may trade in non-U.S. markets. This may involve certain considerations and risks not typically associated with securities of U.S. issuers. Such risks include, but are 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 of the Funds; less publicly available information about issuers; the imposition of withholding or other taxes; higher transaction and custody costs; settlement delays and risk of loss attendant in settlement procedures; difficulties in enforcing contractual obligations; less regulation of securities markets; different accounting, disclosure and reporting requirements; more substantial governmental involvement in the economy; higher inflation rates; greater social, economic and political uncertainties; the risk of nationalization or expropriation of assets and the risk of war.
Pursuant to the Company’s organizational documents, the Funds’ officers and directors are indemnified against certain liabilities that may arise out of the performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts with service providers that contain general indemnification clauses. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred.
1. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are consistently followed by the Funds in the preparation of their financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
| 96 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
SECURITY VALUATION
The securities and other assets of each Fund are valued pursuant to the pricing policy and procedures approved by the Board of Directors of the Company (the “Board”) using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
| • | Level 1 – Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access at the measurement date (a “Level 1 Price”); |
| • | Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not considered to be active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (a “Level 2 Price”); and |
| • | Level 3 – Inputs that are unobservable for the asset or liability (a “Level 3 Price”). |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3 of the fair value hierarchy.
The level of a value determined for a financial instrument within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement in its entirety. The categorization of a value determined for a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Funds’ perceived risk of that instrument.
Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 Prices, include active listed equities. The Funds do not adjust the quoted price for such instruments, even in situations where the Funds hold a large position and a sale could reasonably impact the quoted price.
Investments that trade in markets that are not considered to be active, but whose values are based on inputs such as quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified within Level 2. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Investments whose values are classified as Level 3 Prices have significant unobservable inputs, as they may trade infrequently or not at all. Investments whose values are classified as Level 3 Prices may include unlisted securities related to corporate actions, securities whose trading have been suspended or which have been de-listed from their primary trading exchange, less liquid corporate debt securities (including distressed debt instruments), collateralized debt obligations, and less liquid mortgage securities (backed by either commercial or residential real estate). When observable prices are not available for these securities, the Funds use one or more valuation techniques (e.g., the market approach or the income approach) for which sufficient and reliable data is available. Within Level 3 of the fair value hierarchy, the use of the
| NOTES TO FINANCIAL STATEMENTS | 97 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
market approach generally consists of using comparable market transactions, while the use of the income approach generally consists of the net present value of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors.
The inputs used by the Funds in estimating the value of Level 3 Prices may include the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 Prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the Funds in the absence of market information. The fair value measurement of Level 3 Prices does not include transaction costs that may have been capitalized as part of the security’s cost basis. Assumptions used by the Funds due to the lack of observable inputs may significantly impact the resulting fair value and therefore the Funds’ results of operations.
Fair value pricing could result in a difference between the prices used to calculate a Fund’s net asset value and the prices used by the Fund’s underlying index, which in turn could result in a difference between the Fund’s performance and the performance of the Fund’s underlying index.
The following table summarizes the value of each of the Funds’ investments according to the fair value hierarchy as of August 31, 2011. The breakdown of each Fund’s investments into major categories is disclosed in its respective Schedule of Investments.
| Investments in Securities | ||||||||||||||||
| iShares MSCI Index Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Austria Investable Market |
||||||||||||||||
| Common Stocks |
$ | 135,845,443 | $ | – | $ | 273 | $ | 135,845,716 | ||||||||
| Short-Term Investments |
3,375,262 | – | – | 3,375,262 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 139,220,705 | $ | – | $ | 273 | $ | 139,220,978 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Belgium Investable Market |
||||||||||||||||
| Common Stocks |
$ | 30,459,566 | $ | – | $ | – | $ | 30,459,566 | ||||||||
| Short-Term Investments |
26,082 | – | – | 26,082 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 30,485,648 | $ | – | $ | – | $ | 30,485,648 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Emerging Markets Eastern Europe |
||||||||||||||||
| Common Stocks |
$ | 31,233,892 | $ | – | $ | – | $ | 31,233,892 | ||||||||
| Preferred Stocks |
757,065 | – | – | 757,065 | ||||||||||||
| Short-Term Investments |
314,476 | – | – | 314,476 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 32,305,433 | $ | – | $ | – | $ | 32,305,433 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| EMU |
||||||||||||||||
| Common Stocks |
$ | 721,708,744 | $ | – | $ | 89 | $ | 721,708,833 | ||||||||
| Preferred Stocks |
14,728,864 | – | – | 14,728,864 | ||||||||||||
| Rights |
73,820 | – | – | 73,820 | ||||||||||||
| Short-Term Investments |
6,669,258 | – | – | 6,669,258 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 743,180,686 | $ | – | $ | 89 | $ | 743,180,775 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 98 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| Investments in Securities | ||||||||||||||||
| iShares MSCI Index Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| France |
||||||||||||||||
| Common Stocks |
$ | 356,957,805 | $ | – | $ | – | $ | 356,957,805 | ||||||||
| Short-Term Investments |
51,845 | – | – | 51,845 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 357,009,650 | $ | – | $ | – | $ | 357,009,650 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Germany |
||||||||||||||||
| Common Stocks |
$ | 2,583,160,708 | $ | – | $ | – | $ | 2,583,160,708 | ||||||||
| Preferred Stocks |
172,514,432 | – | – | 172,514,432 | ||||||||||||
| Short-Term Investments |
8,244,334 | – | – | 8,244,334 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 2,763,919,474 | $ | – | $ | – | $ | 2,763,919,474 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Italy |
||||||||||||||||
| Common Stocks |
$ | 141,353,871 | $ | – | $ | – | $ | 141,353,871 | ||||||||
| Preferred Stocks |
3,112,657 | – | – | 3,112,657 | ||||||||||||
| Short-Term Investments |
1,024,154 | – | – | 1,024,154 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 145,490,682 | $ | – | $ | – | $ | 145,490,682 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Netherlands Investable Market |
||||||||||||||||
| Common Stocks |
$ | 121,303,790 | $ | – | $ | – | $ | 121,303,790 | ||||||||
| Short-Term Investments |
457,923 | – | – | 457,923 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 121,761,713 | $ | – | $ | – | $ | 121,761,713 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Spain |
||||||||||||||||
| Common Stocks |
$ | 179,839,496 | $ | – | $ | – | $ | 179,839,496 | ||||||||
| Rights |
232,880 | – | – | 232,880 | ||||||||||||
| Short-Term Investments |
12,572,498 | – | – | 12,572,498 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 192,644,874 | $ | – | $ | – | $ | 192,644,874 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Sweden |
||||||||||||||||
| Common Stocks |
$ | 329,774,799 | $ | – | $ | – | $ | 329,774,799 | ||||||||
| Short-Term Investments |
152,431 | – | – | 152,431 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 329,927,230 | $ | – | $ | – | $ | 329,927,230 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Switzerland |
||||||||||||||||
| Common Stocks |
$ | 520,590,545 | $ | – | $ | – | $ | 520,590,545 | ||||||||
| Short-Term Investments |
147,358 | – | – | 147,358 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 520,737,903 | $ | – | $ | – | $ | 520,737,903 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| United Kingdom |
||||||||||||||||
| Common Stocks |
$ | 1,190,244,819 | $ | – | $ | – | $ | 1,190,244,819 | ||||||||
| Short-Term Investments |
436,918 | – | – | 436,918 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 1,190,681,737 | $ | – | $ | – | $ | 1,190,681,737 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| NOTES TO FINANCIAL STATEMENTS | 99 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for on trade date. Dividend income is recognized on the ex-dividend date, net of any foreign taxes withheld at source. Any taxes withheld that are reclaimable from foreign tax authorities as of August 31, 2011 are reflected in dividends receivable. Non-cash dividends received in the form of stock in an elective dividend, if any, are recorded as dividend income at fair value. Distributions received by the Funds may include a return of capital that is estimated by management. Such amounts are recorded as a reduction of the cost of investments or reclassified to capital gains. Interest income is accrued daily. Realized gains and losses on investment transactions are determined using the specific identification method.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Funds are maintained in U.S. dollars. Foreign currencies, as well as investment securities and other assets and liabilities denominated in foreign currencies, are translated into U.S. dollars using exchange rates deemed appropriate by the investment adviser. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars on the respective dates of such transactions.
Each Fund does not isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of securities. Such fluctuations are reflected by the Funds as a component of realized and unrealized gains and losses from investments for financial reporting purposes.
FOREIGN TAXES
The Funds may be subject to foreign taxes (a portion of which may be reclaimable) on income, capital gains on investments, certain foreign currency transactions or other corporate events. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in the foreign jurisdictions in which the Funds invest. These foreign taxes, if any, are paid by the Funds and are reflected in their Statements of Operations as follows: foreign taxes withheld at source are presented as a reduction of income, foreign taxes on capital gains from sales of investments and foreign currency transactions are included in their respective net realized gain (loss) categories, and foreign taxes on other corporate events are reflected in “Other foreign taxes.” Foreign taxes payable as of August 31, 2011, if any, are disclosed in the Funds’ Statements of Assets and Liabilities.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends and distributions paid by each Fund are recorded on the ex-dividend dates. Distributions are determined on a tax basis and may differ from net investment income and net realized capital gains for financial reporting purposes. Dividends and distributions are paid in U.S. dollars and cannot be automatically reinvested in additional shares of the Funds.
As of August 31, 2011, the tax year-end of the Funds, the components of accumulated net earnings (losses) on a tax basis were as follows:
| iShares MSCI Index Fund | Undistributed Ordinary Income |
Unrealized Appreciation (Depreciation) |
Capital and Other Losses |
Accumulated Earnings |
||||||||||||
| Austria Investable Market |
$ | 111,419 | $ | (73,165,974 | ) | $ | (54,113,305 | ) | $ | (127,167,860 | ) | |||||
| Belgium Investable Market |
711,978 | (20,409,987 | ) | (41,117,674 | ) | (60,815,683 | ) | |||||||||
| Emerging Markets Eastern Europe |
129,787 | (6,414,719 | ) | (382,916 | ) | (6,667,848 | ) | |||||||||
| 100 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund | Undistributed Ordinary Income |
Unrealized Appreciation (Depreciation) |
Capital and Other Losses |
Accumulated Earnings |
||||||||||||
| EMU |
$ | 2,514,920 | $ | (422,171,311 | ) | $ | (144,113,905 | ) | $ | (563,770,296 | ) | |||||
| France |
480,487 | (145,068,067 | ) | (16,606,864 | ) | (161,194,444 | ) | |||||||||
| Germany |
– | (683,227,928 | ) | (116,245,755 | ) | (799,473,683 | ) | |||||||||
| Italy |
33,995 | (79,002,625 | ) | (35,245,680 | ) | (114,214,310 | ) | |||||||||
| Netherlands Investable Market |
557,254 | (49,509,596 | ) | (37,954,110 | ) | (86,906,452 | ) | |||||||||
| Spain |
4,152,024 | (113,480,083 | ) | (35,899,598 | ) | (145,227,657 | ) | |||||||||
| Sweden |
– | (72,285,988 | ) | (33,950,885 | ) | (106,236,873 | ) | |||||||||
| Switzerland |
363,315 | 5,939,893 | (38,199,224 | ) | (31,896,016 | ) | ||||||||||
| United Kingdom |
8,442,870 | (203,317,422 | ) | (84,949,391 | ) | (279,823,943 | ) | |||||||||
The difference between book-basis and tax-basis unrealized gains (losses) is attributable primarily to the tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains on investments in passive foreign investment companies.
The tax character of distributions paid during the years ended August 31, 2011 and August 31, 2010 were as follows:
| iShares MSCI Index Fund | 2011 | 2010 | ||||||
| Austria Investable Market |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 3,303,650 | $ | 5,965,890 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 3,303,650 | $ | 5,965,890 | ||||
|
|
|
|
|
|||||
| Belgium Investable Market |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 1,401,041 | $ | 1,145,981 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 1,401,041 | $ | 1,145,981 | ||||
|
|
|
|
|
|||||
| Emerging Markets Eastern Europea |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 575,285 | $ | 69,192 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 575,285 | $ | 69,192 | ||||
|
|
|
|
|
|||||
| EMU |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 27,791,723 | $ | 21,378,328 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 27,791,723 | $ | 21,378,328 | ||||
|
|
|
|
|
|||||
| France |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 11,811,674 | $ | 8,068,942 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 11,811,674 | $ | 8,068,942 | ||||
|
|
|
|
|
|||||
| NOTES TO FINANCIAL STATEMENTS | 101 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund | 2011 | 2010 | ||||||
| Germany |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 93,072,582 | $ | 20,484,235 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 93,072,582 | $ | 20,484,235 | ||||
|
|
|
|
|
|||||
| Italy |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 3,814,673 | $ | 3,028,440 | ||||
| Return of capital |
– | 96,798 | ||||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 3,814,673 | $ | 3,125,238 | ||||
|
|
|
|
|
|||||
| Netherlands Investable Market |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 3,654,048 | $ | 2,418,715 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 3,654,048 | $ | 2,418,715 | ||||
|
|
|
|
|
|||||
| Spain |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 8,211,532 | $ | 11,300,415 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 8,211,532 | $ | 11,300,415 | ||||
|
|
|
|
|
|||||
| Sweden |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 19,236,805 | $ | 4,773,557 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 19,236,805 | $ | 4,773,557 | ||||
|
|
|
|
|
|||||
| Switzerland |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 11,911,242 | $ | 6,459,032 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 11,911,242 | $ | 6,459,032 | ||||
|
|
|
|
|
|||||
| United Kingdom |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 33,922,128 | $ | 27,007,036 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 33,922,128 | $ | 27,007,036 | ||||
|
|
|
|
|
|||||
| a | Commencement of operations on September 30, 2009. |
FEDERAL INCOME TAXES
Each Fund is treated as an entity separate from the Company’s other funds for federal income tax purposes. It is the policy of each Fund to qualify as a regulated investment company by complying with the provisions applicable to regulated investment companies, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, and to annually distribute substantially all of its ordinary income and any net capital gains (taking into account any capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income and excise taxes. Accordingly, no provision for federal income taxes is required.
| 102 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
As permitted by tax regulations, the Funds have elected to defer net realized capital losses and net foreign currency losses incurred from November 1, 2010 to August 31, 2011 and treat them as arising in the year ending August 31, 2012, as follows:
The Funds had tax basis net capital loss carryforwards as of August 31, 2011, the tax year-end of the Funds, as follows:
| iShares MSCI Index Fund | Expiring 2012 |
Expiring 2013 |
Expiring 2014 |
Expiring 2015 |
Expiring 2016 |
Expiring 2017 |
Expiring 2018 |
Expiring 2019 |
Total | |||||||||||||||||||||||||||
| Austria Investable Market |
$ | 855,364 | $ | – | $ | – | $ | 9,795,917 | $ | 2,587,916 | $ | 7,102,366 | $ | 16,657,011 | $ | 13,826,937 | $ | 50,825,511 | ||||||||||||||||||
| Belgium Investable Market |
175,781 | 33,969 | – | – | 1,698,444 | 5,953,120 | 10,826,174 | 19,023,517 | 37,711,005 | |||||||||||||||||||||||||||
| Emerging Markets Eastern Europe |
– | – | – | – | – | – | – | 204,914 | 204,914 | |||||||||||||||||||||||||||
| EMU |
659,648 | 1,873,963 | – | – | – | 26,644,200 | 68,035,542 | 30,230,739 | 127,444,092 | |||||||||||||||||||||||||||
| France |
2,400,550 | – | – | 158,472 | 335,795 | 3,408,374 | 7,008,530 | 2,858,814 | 16,170,535 | |||||||||||||||||||||||||||
| Germany |
8,656,712 | 2,241,687 | – | 4,227,713 | 3,394,735 | 27,790,050 | 28,490,949 | 32,215,954 | 107,017,800 | |||||||||||||||||||||||||||
| Italy |
541,980 | 527,327 | – | – | 472,268 | 2,743,650 | 18,169,627 | 9,459,662 | 31,914,514 | |||||||||||||||||||||||||||
| Netherlands Investable Market |
2,481,175 | 129,137 | 403,525 | 260,715 | 1,195,162 | 5,819,153 | 22,256,170 | 2,329,005 | 34,874,042 | |||||||||||||||||||||||||||
| Spain |
995,671 | – | – | – | – | 5,946,927 | 15,120,672 | 8,619,903 | 30,683,173 | |||||||||||||||||||||||||||
| Sweden |
1,149,514 | – | 107,613 | – | 100,015 | 13,686,746 | 8,483,510 | 5,244,977 | 28,772,375 | |||||||||||||||||||||||||||
| Switzerland |
2,149,171 | 354,252 | – | – | – | 2,837,786 | 22,569,380 | 6,955,758 | 34,866,347 | |||||||||||||||||||||||||||
| United Kingdom |
4,272,059 | 1,517,783 | 7,063,063 | – | 261,754 | 16,140,312 | 23,559,917 | 22,514,433 | 75,329,321 | |||||||||||||||||||||||||||
Net capital loss carryforwards may be applied against any net realized taxable gains in each succeeding year or until their respective expiration dates, whichever occurs first.
Under the recently enacted Regulated Investment Company Modernization Act of 2010, capital losses incurred by funds for taxable years beginning after December 22, 2010 will not be subject to expiration. In addition, such losses must be utilized prior to the losses incurred in the tax years preceding enactment.
The Funds may own shares in certain foreign investment entities, referred to, under U.S. tax law, as “passive foreign investment companies.” The Funds may elect to mark-to-market annually the shares of each passive foreign investment company and would be required to distribute to shareholders any such marked-to-market gains.
| NOTES TO FINANCIAL STATEMENTS | 103 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
As of August 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:
| iShares MSCI Index Fund | Tax Cost | Gross Unrealized Appreciation |
Gross Unrealized Depreciation |
Net Unrealized |
||||||||||||
| Austria Investable Market |
$ | 212,438,013 | $ | 1,394,372 | $ | (74,611,407 | ) | $ | (73,217,035 | ) | ||||||
| Belgium Investable Market |
50,841,865 | – | (20,356,217 | ) | (20,356,217 | ) | ||||||||||
| Emerging Markets Eastern Europe |
38,719,302 | 174,259 | (6,588,128 | ) | (6,413,869 | ) | ||||||||||
| EMU |
1,165,342,438 | 6,667,984 | (428,829,647 | ) | (422,161,663 | ) | ||||||||||
| France |
502,080,154 | 2,973,180 | (148,043,684 | ) | (145,070,504 | ) | ||||||||||
| Germany |
3,447,128,243 | 32,966,039 | (716,174,808 | ) | (683,208,769 | ) | ||||||||||
| Italy |
224,494,189 | 18,218 | (79,021,725 | ) | (79,003,507 | ) | ||||||||||
| Netherlands Investable Market |
171,276,230 | 1,903,204 | (51,417,721 | ) | (49,514,517 | ) | ||||||||||
| Spain |
306,128,038 | 317,577 | (113,800,741 | ) | (113,483,164 | ) | ||||||||||
| Sweden |
402,214,073 | 3,087,397 | (75,374,240 | ) | (72,286,843 | ) | ||||||||||
| Switzerland |
515,433,875 | 52,423,313 | (47,119,285 | ) | 5,304,028 | |||||||||||
| United Kingdom |
1,393,963,271 | 57,331,907 | (260,613,441 | ) | (203,281,534 | ) | ||||||||||
Management has reviewed the tax positions as of August 31, 2011, inclusive of the open tax return years, and has determined that no provision for income tax is required in the Funds’ financial statements.
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These differences are reclassified by each Fund at the end of its tax year and are primarily attributable to the expiration of capital loss carryforwards, distributions paid in excess of taxable income, passive foreign investment companies, and realized gains (losses) from foreign currency transactions and in-kind redemptions. As of August 31, 2011, the Funds made the following reclassifications, which have no effect on net assets or net asset values per share:
| iShares MSCI Index Fund | Paid-in Capital |
Undistributed Net Investment |
Undistributed Net Realized Gain/ Accumulated Net Realized Loss |
|||||||||
| Austria Investable Market |
$ | 10,177,918 | $ | (23,218 | ) | $ | (10,154,700 | ) | ||||
| Belgium Investable Market |
1,141,666 | 645,216 | (1,786,882 | ) | ||||||||
| Emerging Markets Eastern Europe |
4,984,461 | (5,805 | ) | (4,978,656 | ) | |||||||
| EMU |
14,136,773 | 266,933 | (14,403,706 | ) | ||||||||
| France |
990,770 | 22,705 | (1,013,475 | ) | ||||||||
| Germany |
181,252,187 | 1,577,752 | (182,829,939 | ) | ||||||||
| Italy |
1,831,047 | 114,997 | (1,946,044 | ) | ||||||||
| Netherlands Investable Market |
8,762,447 | (4,579 | ) | (8,757,868 | ) | |||||||
| Spain |
5,179,710 | 25,656 | (5,205,366 | ) | ||||||||
| Sweden |
4,683,025 | 491,866 | (5,174,891 | ) | ||||||||
| Switzerland |
13,826,378 | 441,397 | (14,267,775 | ) | ||||||||
| United Kingdom |
13,960,299 | 114,254 | (14,074,553 | ) | ||||||||
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Notes to Financial Statements (Continued)
iSHARES®, INC.
RECENT ACCOUNTING STANDARD
In May 2011, the Financial Accounting Standards Board issued amended guidance to improve disclosure about fair value measurements which will require the following disclosures for fair value measurements categorized as Level 3: quantitative information about the unobservable inputs and assumptions used in the fair value measurement, a description of the valuation policies and procedures and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, the amounts and reasons for all transfers in and out of Level 1 and Level 2 will be required to be disclosed. The amended guidance is effective for financial statements for fiscal years beginning after December 15, 2011, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Funds’ financial statements and disclosures.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Investment Advisory Agreement with the Company, BlackRock Fund Advisors (“BFA”) manages the investment of each Fund’s assets. BFA is a California corporation indirectly owned by BlackRock, Inc. (“BlackRock”). Under the Investment Advisory Agreement, BFA is responsible for substantially all expenses of the Funds, except interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution fees, litigation expenses and any extraordinary expenses.
For its investment advisory services to each Fund, except for the iShares MSCI Emerging Markets Eastern Europe Index Fund, BFA is entitled to an annual investment advisory fee based on each Fund’s allocable portion of the aggregate of the average daily net assets of the Fund and certain other iShares funds, as follows:
| Investment Advisory Fee | Aggregate Average Daily Net Assets | |
| 0.59% | First $7 billion | |
| 0.54 | Over $7 billion, up to and including $11 billion | |
| 0.49 | Over $11 billion, up to and including $24 billion | |
| 0.44 | Over $24 billion, up to and including $48 billion | |
| 0.40 | Over $48 billion |
For its investment advisory services to the iShares MSCI Emerging Markets Eastern Europe Index Fund, BFA is entitled to an annual investment advisory fee based on the Fund’s allocable portion of the aggregate of the average daily net assets of the Fund and certain other iShares funds, as follows:
| Investment Advisory Fee | Aggregate Average Daily Net Assets | |
| 0.75% | First $14 billion | |
| 0.68 | Over $14 billion, up to and including $28 billion | |
| 0.61 | Over $28 billion, up to and including $42 billiona | |
| 0.56 | Over $42 billion, up to and including $56 billiona | |
| 0.50 | Over $56 billion, up to and including $70 billiona | |
| 0.45 | Over $70 billion, up to and including $84 billiona | |
| 0.40 | Over $84 billiona |
| a | Breakpoint level was modified or added, effective January 1, 2011. |
BFA has voluntarily waived a portion of its investment advisory fee for the iShares MSCI Emerging Markets Eastern Europe Index Fund in the amount of $462.
| NOTES TO FINANCIAL STATEMENTS | 105 |
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Notes to Financial Statements (Continued)
iSHARES®, INC.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BlackRock Institutional Trust Company, N.A. (“BTC”) to serve as securities lending agent for the Funds, subject to applicable conditions. BTC is an affiliate of BFA, the Funds’ investment adviser. As securities lending agent, BTC receives, as fees, a share of the combined income earned from the investment of cash collateral received for the loan of securities and any fees paid by borrowers. For the year ended August 31, 2011, BTC earned securities lending agent fees from the Funds as follows:
Each Fund may invest its positive cash balances in certain money market funds managed by BFA or an affiliate. The income earned on these temporary cash investments is included in “Interest – affiliated” in the Statements of Operations.
The PNC Financial Services Group, Inc. (“PNC”) and Barclays PLC (“Barclays”) are the largest stockholders of BlackRock. Due to the ownership structure, PNC is an affiliate of the Funds for 1940 Act purposes, but Barclays is not.
Certain directors and officers of the Company are also officers of BTC and/or BFA.
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments (excluding in-kind transactions and short-term investments) for the year ended August 31, 2011 were as follows:
| iShares MSCI Index Fund | Purchases | Sales | ||||||
| Austria Investable Market |
$ | 19,449,004 | $ | 19,066,533 | ||||
| Belgium Investable Market |
7,122,825 | 6,474,376 | ||||||
| Emerging Markets Eastern Europe |
7,794,304 | 8,477,927 | ||||||
| EMU |
70,418,262 | 68,922,189 | ||||||
| France |
24,702,790 | 21,611,055 | ||||||
| Germany |
330,020,970 | 338,066,361 | ||||||
| Italy |
20,262,441 | 19,402,323 | ||||||
| Netherlands Investable Market |
9,594,171 | 9,593,961 | ||||||
| Spain |
30,011,691 | 28,172,106 | ||||||
| Sweden |
44,897,246 | 43,919,863 | ||||||
| Switzerland |
38,094,845 | 34,423,286 | ||||||
| United Kingdom |
55,175,941 | 53,462,944 | ||||||
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Notes to Financial Statements (Continued)
iSHARES®, INC.
In-kind transactions (see Note 4) for the year ended August 31, 2011 were as follows:
| iShares MSCI Index Fund | In-kind Purchases |
In-kind Sales |
||||||
| Austria Investable Market |
$ | 153,097,946 | $ | 136,145,489 | ||||
| Belgium Investable Market |
66,068,449 | 98,164,171 | ||||||
| Emerging Markets Eastern Europe |
75,626,264 | 54,321,595 | ||||||
| EMU |
550,456,378 | 634,068,345 | ||||||
| France |
324,238,814 | 196,107,183 | ||||||
| Germany |
2,638,735,363 | 1,140,977,837 | ||||||
| Italy |
231,485,004 | 148,909,888 | ||||||
| Netherlands Investable Market |
62,894,846 | 96,030,899 | ||||||
| Spain |
416,573,405 | 421,513,894 | ||||||
| Sweden |
365,274,048 | 271,089,815 | ||||||
| Switzerland |
133,438,652 | 66,244,921 | ||||||
| United Kingdom |
403,357,693 | 204,076,954 | ||||||
4. CAPITAL SHARE TRANSACTIONS
Capital shares are issued and redeemed by each Fund only in aggregations of a specified number of shares or multiples thereof (“Creation Units”) at net asset value. Except when aggregated in Creation Units, shares of each Fund are not redeemable. Transactions in capital shares for each Fund are disclosed in detail in the Statements of Changes in Net Assets.
The consideration for the purchase of Creation Units of a fund in the Company generally consists of the in-kind deposit of a designated portfolio of securities, which constitutes an optimized representation of the securities of that fund’s underlying index, and an amount of cash. Certain funds in the Company may be offered in Creation Units solely or partially for cash in U.S. dollars. Investors purchasing and redeeming Creation Units may pay a purchase transaction fee and a redemption transaction fee directly to State Street Bank and Trust Company, the Company’s administrator, to offset transfer and other transaction costs associated with the issuance and redemption of Creation Units, including Creation Units for cash. Investors transacting in Creation Units for cash pay an additional variable charge to compensate the relevant fund for certain transaction costs (i.e., stamp taxes, taxes on currency or other financial transactions, and brokerage costs) and market impact expenses relating to investing in portfolio securities.
From time to time, settlement of securities related to in-kind contributions or in-kind redemptions may be delayed. In such cases, securities related to in-kind contributions are reflected as “Due from custodian” and securities related to in-kind redemptions are reflected as “Securities related to in-kind transactions” in the Statements of Assets and Liabilities.
5. LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its investment securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. government. The initial collateral received by each Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current value of the securities on loan. The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. Any securities lending cash collateral
| NOTES TO FINANCIAL STATEMENTS | 107 |
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Notes to Financial Statements (Continued)
iSHARES®, INC.
may be reinvested in certain short-term instruments either directly on behalf of a fund or through one or more joint accounts or money market funds, including those managed by BFA or its affiliates; such reinvestments are subject to investment risk.
As of August 31, 2011, any securities on loan were collateralized by cash. The cash collateral received was invested in money market funds managed by BFA. The value of the securities on loan as of August 31, 2011 and the value of the related collateral are disclosed in the Statements of Assets and Liabilities. Securities lending income, as disclosed in the Statements of Operations, represents the income earned from the investment of the cash collateral, plus any fees paid by borrowers and less the fees paid to BTC as securities lending agent which are subject to adjustments pursuant to the securities lending agreement.
6. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were available to be issued and has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements.
| 108 | |
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
iShares, Inc.:
In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the iShares MSCI Austria Investable Market Index Fund, iShares Belgium Investable Market Index Fund, iShares MSCI Emerging Markets Eastern Europe Index Fund, iShares MSCI EMU Index Fund, iShares MSCI France Index Fund, iShares MSCI Germany Index Fund, iShares MSCI Italy Index Fund, iShares MSCI Netherlands Investable Market Index Fund, iShares MSCI Spain Index Fund, iShares MSCI Sweden Index Fund, iShares MSCI Switzerland Index Fund and iShares MSCI United Kingdom Index Fund, each a portfolio on the iShares MSCI series (the “Funds”), at August 31, 2011, the results of each of their operations, the changes in each of their net assets and their financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2011 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 21, 2011
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 109 |
Table of Contents
iSHARES®, INC.
For corporate shareholders, 0.76% of the income dividends paid by the iShares MSCI Switzerland Index Fund during the fiscal year ended August 31, 2011 qualified for the dividends-received deduction.
For the fiscal year ended August 31, 2011, the Funds earned foreign source income and paid foreign taxes which they intend to pass through to their shareholders pursuant to Section 853 of the Internal Revenue Code (the “Code”) as follows:
| iShares MSCI Index Fund | Foreign Source Income Earned |
Foreign Taxes Paid |
||||||
| Austria Investable Market |
$ | 4,745,298 | $ | 742,361 | ||||
| Belgium Investable Market |
1,933,548 | 272,809 | ||||||
| Emerging Markets Eastern Europe |
1,044,819 | 153,214 | ||||||
| EMU |
38,232,387 | 4,820,707 | ||||||
| France |
15,545,301 | 2,018,648 | ||||||
| Germany |
120,114,277 | 15,752,158 | ||||||
| Italy |
4,944,023 | 686,301 | ||||||
| Netherlands Investable Market |
5,387,249 | 709,428 | ||||||
| Spain |
13,328,368 | 1,379,323 | ||||||
| Sweden |
24,739,969 | 3,461,517 | ||||||
| Switzerland |
16,241,411 | 2,067,803 | ||||||
| United Kingdom |
43,746,082 | 507,301 | ||||||
Under Section 854(b)(2) of the Code, the Funds hereby designate the following maximum amounts as qualified dividend income for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended August 31, 2011:
In February 2012, shareholders will receive Form 1099-DIV which will include their share of qualified dividend income distributed during the calendar year 2011. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their income tax returns.
| 110 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited)
iSHARES® , INC.
Under Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), the Company’s Board of Directors (the “Board”), including a majority of Directors who are not “interested persons” of the Company (as that term is defined in the 1940 Act) (the “Independent Directors”), is required annually to consider the Investment Advisory Contract between the Company and BFA (the “Advisory Contract”) on behalf of the Funds. As required by Section 15(c), the Board requested and BFA provided such information as the Board, with advice from independent counsel, deemed reasonably necessary to evaluate the Advisory Contract. An ad-hoc sub-committee of the Independent Directors (the “Ad-Hoc Sub-Committee”), with independent counsel, met with management on April 19, 2011, and April 26, 2011, to discuss the types of information the Board required and the manner in which management would organize and present such information. At a meeting held on May 16, 2011, management presented information to the Board relating to the continuance of the Advisory Contract and the Board reviewed and discussed such information at length. The Board also requested from management certain additional information. At a meeting held on June 22-23, 2011, the Board reviewed additional information provided by management in response to the Board’s requests. The Board approved the selection of BFA and the continuance of the Advisory Contract for the Funds, based on its review of qualitative and quantitative information provided by BFA, including its review of supplemental information management provided at the request of the Board. The Board noted its satisfaction with the extent and quality of information, and detailed responses, provided by BFA. The Independent Directors were advised by their independent counsel throughout the process. In selecting BFA and approving the Advisory Contract for the Funds, the Board, including the Independent Directors, considered the following factors, no one of which was controlling, and made the following conclusions:
Nature, Extent and Quality of Services Provided by BFA – Based on management’s representations, the Board expected that there would be no diminution in the scope of services required of or provided by BFA under the Advisory Contract for the coming year as compared to the scope of services provided by BFA over prior years. In reviewing the scope of these services, the Board considered BFA’s investment philosophy and experience, noting that BFA and its affiliates have committed significant resources over time, including during the past year, supporting the Funds and their shareholders. The Board noted that BFA became an indirect wholly-owned subsidiary of BlackRock Inc. (“BlackRock”) in December 2009. The Board acknowledged that additional resources to support the Funds and their shareholders were added in 2010, for example, in such areas as investor education, product management, and capital markets support. The Board also considered BFA’s compliance program and its compliance record with respect to the Funds. In that regard, the Board noted that BFA reports to the Board about portfolio management and compliance matters on a periodic basis in connection with regularly scheduled meetings of the Board, and on other occasions as necessary and appropriate, and has provided information and made appropriate officers available as needed to provide further assistance with these matters. The Board also reviewed the background and experience of the persons responsible for the day-to-day management of the Funds. In addition to the above considerations, the Board reviewed and considered BFA’s investment processes and strategies, and matters related to BFA’s portfolio compliance policies and procedures. The Board noted that each Fund had met its investment objective consistently since its respective inception date. Based on review of this information, the Board concluded that the nature, extent and quality of services to be provided by BFA to the Funds under the Advisory Contract supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Expenses and Performance of the Funds – The Board reviewed statistical information prepared by Lipper Inc. (“Lipper”), an independent provider of investment company data, regarding the expense ratio components, including actual advisory fees, waivers/reimbursements, and gross and net total expenses of each Fund in comparison with the same information for other registered investment companies objectively selected by Lipper as comprising such Fund’s applicable peer group pursuant to Lipper’s proprietary methodology and any registered funds that would otherwise have been excluded from Lipper’s comparison group because of their size or other differentiating factors, but were nonetheless included at the request of BFA (the “Lipper Group”). Because there are few, if any, exchange traded funds or index funds that track indexes similar to those tracked by the Funds, the Lipper Group included in part mutual funds, closed-end funds, exchange traded funds, or funds with differing investment objective classifications, investment focuses and other characteristics (e.g., actively managed funds and funds sponsored by “at cost” service providers), as applicable. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the applicable Lipper Groups and to prepare this information. The Board
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT | 111 |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
further noted that due to the limitations in providing comparable funds in the various Lipper Groups, the statistical information may or may not provide meaningful direct comparisons to the Funds.
The Board also noted that the investment advisory fees and overall expenses for the Funds compared favorably to the investment advisory fee rates and overall expenses of the funds in their respective Lipper Group.
In addition, the Board reviewed statistical information prepared by Lipper regarding the performance of each Fund for the one-, three-, five-, ten-year, and since inception periods, as applicable, and the “last quarter” period ended December 31, 2010, and a comparison of each Fund’s performance to its performance benchmark index for the same periods. To the extent that any of the comparison funds included in the Lipper Group track the same index as any particular Fund, Lipper also provided, and the Board reviewed, a comparison of such Fund’s performance to that of such relevant comparison funds for the same periods. The Board noted that the Funds generally performed in line with their respective performance benchmark indexes over the relevant periods. In considering this information, the Board noted that the Lipper Group includes funds that may have different investment objectives and/or benchmarks from the Funds. In addition, the Board noted that each Fund seeks to track its benchmark index and that, during the prior year, the Board received periodic reports on the Funds’ performance in comparison with their relevant benchmark indexes. Such comparative performance information was also considered by the Board.
Based on this review, the Board concluded that the investment advisory fees and expense levels and the historical performance of each Fund, as compared to the investment advisory fees and expense levels and performance of the funds in the relevant Lipper Group, supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Costs of Services Provided to Funds and Profits Realized by BFA and Affiliates – The Board reviewed information about the profitability to BFA of the Funds based on the fees payable to BFA and its affiliates (including fees under the Advisory Contract), and all other sources of revenue and expense to BFA and its affiliates from the Funds’ operations for the last calendar year. The Board reviewed BlackRock’s profitability methodology for the iShares Funds and how such profitability methodology differed from the methodology used to calculate profitability prior to the acquisition of BFA by BlackRock, noting that such matters were focused on by the Ad-Hoc Sub-Committee during its meetings and addressed by management. The Board discussed the sources of direct and ancillary revenue with management, including the revenues to BTC from securities lending by the Funds. The Board also discussed BFA’s profit margin as reflected in the Funds’ profitability analysis and reviewed information regarding economies of scale (as discussed below). Based on this review, the Board concluded that the profits realized by BFA and its affiliates under the Advisory Contract and from other relationships between the Funds and BFA and/or its affiliates, if any, were within a reasonable range in light of the factors considered.
Economies of Scale – In connection with its review of the Funds’ profitability analysis, the Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Funds’ assets. The Board noted that the Advisory Contract for the Funds’ already provided for breakpoints in the Funds’ investment advisory fee rates as the assets of the Funds, on an aggregated basis with the assets of certain other iShares funds, increase, and that the Board had approved additional breakpoints in a previous year. The Board also reviewed BFA’s historic profitability as investment adviser to the iShares fund complex and noted that BFA and BlackRock had continued to make significant investments in the iShares fund complex and the infrastructure supporting the iShares funds. Based on this review, as well as the discussions described above in connection with the Lipper Group and performance benchmark comparisons, the Board, recognizing its responsibility to consider this issue at least annually, concluded that the structure of the investment advisory fees reflects appropriate sharing of potential economies of scale with the Funds’ shareholders and supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by BFA and its Affiliates – The Board received and considered information regarding the investment advisory/management fee rates for other funds/accounts in the U.S. for which BFA (or its
| 112 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
affiliates) provides investment advisory/management services, including open-end and closed-end funds registered under the 1940 Act (including sub-advised funds), collective trust funds and institutional separate accounts (together, the “Other Accounts”). The Board noted that BFA and its affiliates do not manage Other Accounts with substantially similar investment objectives and strategies as any of the Funds, except for iShares MSCI EMU Index Fund, iShares MSCI Sweden Index Fund, iShares MSCI Switzerland Index Fund, and iShares MSCI United Kingdom Index Fund. The Board further noted that BFA provided the Board with detailed information regarding how the Other Accounts (particularly institutional clients) generally differ from the Funds, including in terms of the different services provided as well as other significant differences in the approach of BFA and its affiliates to the Funds, on one hand, and Other Accounts, on the other. In that regard, the Board considered that the pricing of services to institutional clients is typically based on a number of factors beyond the nature and extent of the specific services to be provided and often depends on the overall relationship between the client and its affiliates and the adviser and its affiliates. In addition, the Board considered the relative complexity and inherent risks of managing and providing other services to the Funds, as publicly traded exchanged traded funds, as compared to the Other Accounts that are institutional clients in light of differing regulatory requirements and client-imposed mandates. The Board noted that the investment advisory fee rates under the Advisory Contract for the Funds were generally higher than the investment advisory/management fee rates for the Other Accounts that are institutional clients of BFA (or its affiliates) and concluded that the differences appeared to be consistent with the factors discussed.
Other Benefits to BFA and/or its Affiliates – The Board reviewed any ancillary revenue received by BFA and/or its affiliates in connection with the services provided to the Funds by BFA, such as any payment of revenue to BTC, the Funds’ securities lending agent, for loaning any portfolio securities, and payment of advisory fees and/or administration fees to BFA and BTC (or their affiliates) in connection with any investments by the Funds in other funds for which BFA (or its affiliates) provides investment advisory services and/or administration services. The Board noted that BFA does not use soft dollars or consider the value of research or other services that may be provided to BFA (including its affiliates) in selecting brokers for portfolio transactions for the Funds. The Board further noted that any portfolio transactions on behalf of the Funds placed through a BFA affiliate or purchased from an underwriting syndicate in which a BFA affiliate participates, are reported to the Board pursuant to Rule 17e-1 or Rule 10f-3, as applicable, under the 1940 Act. The Board concluded that any such ancillary benefits would not be disadvantageous to the Funds’ shareholders.
Based on the considerations described above, the Board determined that the investment advisory fee rates under the Advisory Contract do not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bargaining and concluded that it is in the best interest of the Funds and their shareholders to approve the continuance of the Advisory Contract for the coming year.
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT | 113 |
Table of Contents
Supplemental Information (Unaudited)
iSHARES® , INC.
Premium/Discount Information
The tables that follow present information about the differences between the daily market price on secondary markets for shares of a Fund and that Fund’s net asset value. Net asset value, or “NAV,” is the price per share at which each Fund issues and redeems shares. It is calculated in accordance with the standard formula for valuing mutual fund shares. The “Market Price” of each Fund generally is determined using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of such Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Each Fund’s Market Price may be at, above or below its NAV. The NAV of each Fund will fluctuate with changes in the fair value of its portfolio holdings. The Market Price of each Fund will fluctuate in accordance with changes in its NAV, as well as market supply and demand.
Premiums or discounts are the differences (expressed as a percentage) between the NAV and Market Price of a Fund on a given day, generally at the time NAV is calculated. A premium is the amount that a Fund is trading above the reported NAV, expressed as a percentage of the NAV. A discount is the amount that a Fund is trading below the reported NAV, expressed as a percentage of the NAV.
The following information shows the frequency distributions of premiums and discounts for each of the Funds included in this report. The information shown for each Fund is for five calendar years (or for each full calendar quarter completed after the inception date of such Fund if less than five years) through the date of the most recent quarter-end. The specific periods covered for each Fund are disclosed in the table for such Fund.
Each line in the table shows the number of trading days in which the Fund traded within the premium/discount range indicated. The number of trading days in each premium/discount range is also shown as a percentage of the total number of trading days in the period covered by each table. All data presented here represents past performance, which cannot be used to predict future results.
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Supplemental Information (Unaudited) (Continued)
iSHARES® , INC.
iShares MSCI Austria Investable Market Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.5% |
6 | 0.43 | % | |||||
| Greater than 5.0% and Less than 5.5% |
1 | 0.07 | ||||||
| Greater than 4.5% and Less than 5.0% |
2 | 0.14 | ||||||
| Greater than 4.0% and Less than 4.5% |
1 | 0.07 | ||||||
| Greater than 3.5% and Less than 4.0% |
4 | 0.29 | ||||||
| Greater than 3.0% and Less than 3.5% |
3 | 0.22 | ||||||
| Greater than 2.5% and Less than 3.0% |
3 | 0.22 | ||||||
| Greater than 2.0% and Less than 2.5% |
12 | 0.87 | ||||||
| Greater than 1.5% and Less than 2.0% |
22 | 1.59 | ||||||
| Greater than 1.0% and Less than 1.5% |
78 | 5.64 | ||||||
| Greater than 0.5% and Less than 1.0% |
205 | 14.83 | ||||||
| Between 0.5% and -0.5% |
736 | 53.23 | ||||||
| Less than -0.5% and Greater than -1.0% |
148 | 10.70 | ||||||
| Less than -1.0% and Greater than -1.5% |
80 | 5.78 | ||||||
| Less than -1.5% and Greater than -2.0% |
36 | 2.60 | ||||||
| Less than -2.0% and Greater than -2.5% |
22 | 1.59 | ||||||
| Less than -2.5% and Greater than -3.0% |
5 | 0.36 | ||||||
| Less than -3.0% and Greater than -3.5% |
7 | 0.51 | ||||||
| Less than -3.5% and Greater than -4.0% |
5 | 0.36 | ||||||
| Less than -4.0% and Greater than -4.5% |
2 | 0.14 | ||||||
| Less than -4.5% |
5 | 0.36 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION | 115 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Belgium Investable Market Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 4.5% |
4 | 0.29 | % | |||||
| Greater than 4.0% and Less than 4.5% |
3 | 0.22 | ||||||
| Greater than 3.5% and Less than 4.0% |
1 | 0.07 | ||||||
| Greater than 3.0% and Less than 3.5% |
4 | 0.29 | ||||||
| Greater than 2.5% and Less than 3.0% |
6 | 0.43 | ||||||
| Greater than 2.0% and Less than 2.5% |
10 | 0.72 | ||||||
| Greater than 1.5% and Less than 2.0% |
24 | 1.74 | ||||||
| Greater than 1.0% and Less than 1.5% |
62 | 4.48 | ||||||
| Greater than 0.5% and Less than 1.0% |
198 | 14.33 | ||||||
| Between 0.5% and -0.5% |
805 | 58.20 | ||||||
| Less than -0.5% and Greater than -1.0% |
148 | 10.70 | ||||||
| Less than -1.0% and Greater than -1.5% |
65 | 4.70 | ||||||
| Less than -1.5% and Greater than -2.0% |
27 | 1.95 | ||||||
| Less than -2.0% and Greater than -2.5% |
7 | 0.51 | ||||||
| Less than -2.5% and Greater than -3.0% |
6 | 0.43 | ||||||
| Less than -3.0% and Greater than -3.5% |
4 | 0.29 | ||||||
| Less than -3.5% and Greater than -4.0% |
4 | 0.29 | ||||||
| Less than -4.0% |
5 | 0.36 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
iShares MSCI Emerging Market Eastern Europe Index Fund
Period Covered: October 1, 2009 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 3.0% |
2 | 0.46 | % | |||||
| Greater than 2.5% and Less than 3.0% |
1 | 0.23 | ||||||
| Greater than 2.0% and Less than 2.5% |
1 | 0.23 | ||||||
| Greater than 1.5% and Less than 2.0% |
16 | 3.63 | ||||||
| Greater than 1.0% and Less than 1.5% |
30 | 6.80 | ||||||
| Greater than 0.5% and Less than 1.0% |
122 | 27.66 | ||||||
| Between 0.5% and -0.5% |
207 | 46.93 | ||||||
| Less than -0.5% and Greater than -1.0% |
28 | 6.35 | ||||||
| Less than -1.0% and Greater than -1.5% |
17 | 3.85 | ||||||
| Less than -1.5% and Greater than -2.0% |
12 | 2.72 | ||||||
| Less than -2.0% and Greater than -2.5% |
3 | 0.68 | ||||||
| Less than -2.5% and Greater than -3.0% |
1 | 0.23 | ||||||
| Less than -3.0% and Greater than -3.5% |
1 | 0.23 | ||||||
|
|
|
|
|
|||||
| 441 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 116 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI EMU Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 3.5% |
12 | 0.87 | % | |||||
| Greater than 3.0% and Less than 3.5% |
5 | 0.36 | ||||||
| Greater than 2.5% and Less than 3.0% |
3 | 0.22 | ||||||
| Greater than 2.0% and Less than 2.5% |
9 | 0.65 | ||||||
| Greater than 1.5% and Less than 2.0% |
25 | 1.81 | ||||||
| Greater than 1.0% and Less than 1.5% |
62 | 4.48 | ||||||
| Greater than 0.5% and Less than 1.0% |
199 | 14.39 | ||||||
| Between 0.5% and -0.5% |
820 | 59.29 | ||||||
| Less than -0.5% and Greater than -1.0% |
137 | 9.91 | ||||||
| Less than -1.0% and Greater than -1.5% |
63 | 4.56 | ||||||
| Less than -1.5% and Greater than -2.0% |
23 | 1.66 | ||||||
| Less than -2.0% and Greater than -2.5% |
8 | 0.58 | ||||||
| Less than -2.5% and Greater than -3.0% |
6 | 0.43 | ||||||
| Less than -3.0% and Greater than -3.5% |
4 | 0.29 | ||||||
| Less than -3.5% and Greater than -4.0% |
1 | 0.07 | ||||||
| Less than -4.0% and Greater than -4.5% |
3 | 0.22 | ||||||
| Less than -4.5% and Greater than -5.0% |
1 | 0.07 | ||||||
| Less than -5.0% |
2 | 0.14 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION | 117 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI France Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.0% |
5 | 0.36 | % | |||||
| Greater than 4.5% and Less than 5.0% |
1 | 0.07 | ||||||
| Greater than 4.0% and Less than 4.5% |
4 | 0.29 | ||||||
| Greater than 3.5% and Less than 4.0% |
1 | 0.07 | ||||||
| Greater than 3.0% and Less than 3.5% |
2 | 0.14 | ||||||
| Greater than 2.5% and Less than 3.0% |
6 | 0.43 | ||||||
| Greater than 2.0% and Less than 2.5% |
8 | 0.58 | ||||||
| Greater than 1.5% and Less than 2.0% |
25 | 1.81 | ||||||
| Greater than 1.0% and Less than 1.5% |
67 | 4.84 | ||||||
| Greater than 0.5% and Less than 1.0% |
188 | 13.60 | ||||||
| Between 0.5% and -0.5% |
838 | 60.60 | ||||||
| Less than -0.5% and Greater than -1.0% |
129 | 9.34 | ||||||
| Less than -1.0% and Greater than -1.5% |
57 | 4.12 | ||||||
| Less than -1.5% and Greater than -2.0% |
26 | 1.88 | ||||||
| Less than -2.0% and Greater than -2.5% |
9 | 0.65 | ||||||
| Less than -2.5% and Greater than -3.0% |
8 | 0.58 | ||||||
| Less than -3.0% and Greater than -3.5% |
1 | 0.07 | ||||||
| Less than -3.5% and Greater than -4.0% |
3 | 0.22 | ||||||
| Less than -4.0% and Greater than -4.5% |
2 | 0.14 | ||||||
| Less than -4.5% and Greater than -5.0% |
2 | 0.14 | ||||||
| Less than -5.0% and Greater than -5.5% |
1 | 0.07 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 118 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Germany Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.0% |
6 | 0.43 | % | |||||
| Greater than 4.5% and Less than 5.0% |
2 | 0.14 | ||||||
| Greater than 4.0% and Less than 4.5% |
1 | 0.07 | ||||||
| Greater than 3.5% and Less than 4.0% |
2 | 0.14 | ||||||
| Greater than 3.0% and Less than 3.5% |
3 | 0.22 | ||||||
| Greater than 2.5% and Less than 3.0% |
4 | 0.29 | ||||||
| Greater than 2.0% and Less than 2.5% |
12 | 0.87 | ||||||
| Greater than 1.5% and Less than 2.0% |
13 | 0.94 | ||||||
| Greater than 1.0% and Less than 1.5% |
62 | 4.48 | ||||||
| Greater than 0.5% and Less than 1.0% |
181 | 13.09 | ||||||
| Between 0.5% and -0.5% |
875 | 63.29 | ||||||
| Less than -0.5% and Greater than -1.0% |
129 | 9.34 | ||||||
| Less than -1.0% and Greater than -1.5% |
58 | 4.19 | ||||||
| Less than -1.5% and Greater than -2.0% |
14 | 1.01 | ||||||
| Less than -2.0% and Greater than -2.5% |
10 | 0.72 | ||||||
| Less than -2.5% and Greater than -3.0% |
3 | 0.22 | ||||||
| Less than -3.0% and Greater than -3.5% |
2 | 0.14 | ||||||
| Less than -3.5% and Greater than -4.0% |
2 | 0.14 | ||||||
| Less than -4.0% and Greater than -4.5% |
2 | 0.14 | ||||||
| Less than -4.5% and Greater than -5.0% |
2 | 0.14 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION | 119 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Italy Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.5% |
3 | 0.22 | % | |||||
| Greater than 5.0% and Less than 5.5% |
1 | 0.07 | ||||||
| Greater than 4.5% and Less than 5.0% |
3 | 0.22 | ||||||
| Greater than 4.0% and Less than 4.5% |
2 | 0.14 | ||||||
| Greater than 3.5% and Less than 4.0% |
2 | 0.14 | ||||||
| Greater than 3.0% and Less than 3.5% |
4 | 0.29 | ||||||
| Greater than 2.5% and Less than 3.0% |
3 | 0.22 | ||||||
| Greater than 2.0% and Less than 2.5% |
11 | 0.80 | ||||||
| Greater than 1.5% and Less than 2.0% |
26 | 1.88 | ||||||
| Greater than 1.0% and Less than 1.5% |
77 | 5.57 | ||||||
| Greater than 0.5% and Less than 1.0% |
181 | 13.09 | ||||||
| Between 0.5% and -0.5% |
807 | 58.34 | ||||||
| Less than -0.5% and Greater than -1.0% |
146 | 10.56 | ||||||
| Less than -1.0% and Greater than -1.5% |
63 | 4.56 | ||||||
| Less than -1.5% and Greater than -2.0% |
25 | 1.81 | ||||||
| Less than -2.0% and Greater than -2.5% |
11 | 0.80 | ||||||
| Less than -2.5% and Greater than -3.0% |
5 | 0.36 | ||||||
| Less than -3.0% and Greater than -3.5% |
6 | 0.43 | ||||||
| Less than -3.5% and Greater than -4.0% |
2 | 0.14 | ||||||
| Less than -4.0% and Greater than -4.5% |
4 | 0.29 | ||||||
| Less than -4.5% |
1 | 0.07 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 120 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Netherlands Investable Market Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.0% |
4 | 0.29 | % | |||||
| Greater than 4.5% and Less than 5.0% |
2 | 0.14 | ||||||
| Greater than 4.0% and Less than 4.5% |
1 | 0.07 | ||||||
| Greater than 3.5% and Less than 4.0% |
2 | 0.14 | ||||||
| Greater than 3.0% and Less than 3.5% |
2 | 0.14 | ||||||
| Greater than 2.5% and Less than 3.0% |
6 | 0.43 | ||||||
| Greater than 2.0% and Less than 2.5% |
11 | 0.80 | ||||||
| Greater than 1.5% and Less than 2.0% |
19 | 1.37 | ||||||
| Greater than 1.0% and Less than 1.5% |
66 | 4.77 | ||||||
| Greater than 0.5% and Less than 1.0% |
197 | 14.25 | ||||||
| Between 0.5% and -0.5% |
804 | 58.15 | ||||||
| Less than -0.5% and Greater than -1.0% |
153 | 11.07 | ||||||
| Less than -1.0% and Greater than -1.5% |
66 | 4.77 | ||||||
| Less than -1.5% and Greater than -2.0% |
21 | 1.52 | ||||||
| Less than -2.0% and Greater than -2.5% |
9 | 0.65 | ||||||
| Less than -2.5% and Greater than -3.0% |
7 | 0.51 | ||||||
| Less than -3.0% and Greater than -3.5% |
6 | 0.43 | ||||||
| Less than -3.5% and Greater than -4.0% |
2 | 0.14 | ||||||
| Less than -4.0% and Greater than -4.5% |
2 | 0.14 | ||||||
| Less than -4.5% |
3 | 0.22 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION | 121 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Spain Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 3.5% |
11 | 0.80 | % | |||||
| Greater than 3.0% and Less than 3.5% |
2 | 0.14 | ||||||
| Greater than 2.5% and Less than 3.0% |
4 | 0.29 | ||||||
| Greater than 2.0% and Less than 2.5% |
14 | 1.01 | ||||||
| Greater than 1.5% and Less than 2.0% |
27 | 1.95 | ||||||
| Greater than 1.0% and Less than 1.5% |
70 | 5.06 | ||||||
| Greater than 0.5% and Less than 1.0% |
186 | 13.45 | ||||||
| Between 0.5% and -0.5% |
795 | 57.49 | ||||||
| Less than -0.5% and Greater than -1.0% |
154 | 11.14 | ||||||
| Less than -1.0% and Greater than -1.5% |
64 | 4.63 | ||||||
| Less than -1.5% and Greater than -2.0% |
28 | 2.02 | ||||||
| Less than -2.0% and Greater than -2.5% |
12 | 0.87 | ||||||
| Less than -2.5% and Greater than -3.0% |
7 | 0.51 | ||||||
| Less than -3.0% and Greater than -3.5% |
2 | 0.14 | ||||||
| Less than -3.5% and Greater than -4.0% |
3 | 0.22 | ||||||
| Less than -4.0% and Greater than -4.5% |
1 | 0.07 | ||||||
| Less than -4.5% and Greater than -5.0% |
2 | 0.14 | ||||||
| Less than -5.0% |
1 | 0.07 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 122 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES® , INC.
iShares MSCI Sweden Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 6.0% |
3 | 0.22 | % | |||||
| Greater than 5.5% and Less than 6.0% |
2 | 0.14 | ||||||
| Greater than 5.0% and Less than 5.5% |
3 | 0.22 | ||||||
| Greater than 4.5% and Less than 5.0% |
1 | 0.07 | ||||||
| Greater than 4.0% and Less than 4.5% |
2 | 0.14 | ||||||
| Greater than 3.5% and Less than 4.0% |
3 | 0.22 | ||||||
| Greater than 3.0% and Less than 3.5% |
5 | 0.36 | ||||||
| Greater than 2.5% and Less than 3.0% |
9 | 0.65 | ||||||
| Greater than 2.0% and Less than 2.5% |
12 | 0.87 | ||||||
| Greater than 1.5% and Less than 2.0% |
35 | 2.53 | ||||||
| Greater than 1.0% and Less than 1.5% |
90 | 6.51 | ||||||
| Greater than 0.5% and Less than 1.0% |
218 | 15.77 | ||||||
| Between 0.5% and -0.5% |
702 | 50.75 | ||||||
| Less than -0.5% and Greater than -1.0% |
146 | 10.56 | ||||||
| Less than -1.0% and Greater than -1.5% |
69 | 4.99 | ||||||
| Less than -1.5% and Greater than -2.0% |
37 | 2.68 | ||||||
| Less than -2.0% and Greater than -2.5% |
18 | 1.30 | ||||||
| Less than -2.5% and Greater than -3.0% |
9 | 0.65 | ||||||
| Less than -3.0% and Greater than -3.5% |
5 | 0.36 | ||||||
| Less than -3.5% and Greater than -4.0% |
4 | 0.29 | ||||||
| Less than -4.0% and Greater than -4.5% |
3 | 0.22 | ||||||
| Less than -4.5% and Greater than -5.0% |
3 | 0.22 | ||||||
| Less than -5.0% and Greater than -5.5% |
2 | 0.14 | ||||||
| Less than -5.5% and Greater than -6.0% |
1 | 0.07 | ||||||
| Less than -6.0% |
1 | 0.07 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION | 123 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES® , INC.
iShares MSCI Switzerland Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 4.0% |
7 | 0.51 | % | |||||
| Greater than 3.5% and Less than 4.0% |
3 | 0.22 | ||||||
| Greater than 3.0% and Less than 3.5% |
5 | 0.36 | ||||||
| Greater than 2.5% and Less than 3.0% |
1 | 0.07 | ||||||
| Greater than 2.0% and Less than 2.5% |
5 | 0.36 | ||||||
| Greater than 1.5% and Less than 2.0% |
21 | 1.52 | ||||||
| Greater than 1.0% and Less than 1.5% |
51 | 3.69 | ||||||
| Greater than 0.5% and Less than 1.0% |
235 | 16.99 | ||||||
| Between 0.5% and -0.5% |
856 | 61.90 | ||||||
| Less than -0.5% and Greater than -1.0% |
112 | 8.10 | ||||||
| Less than -1.0% and Greater than -1.5% |
49 | 3.54 | ||||||
| Less than -1.5% and Greater than -2.0% |
14 | 1.01 | ||||||
| Less than -2.0% and Greater than -2.5% |
14 | 1.01 | ||||||
| Less than -2.5% and Greater than -3.0% |
4 | 0.29 | ||||||
| Less than -3.0% |
6 | 0.43 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 124 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES® , INC.
iShares MSCI United Kingdom Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 4.5% |
5 | 0.36 | % | |||||
| Greater than 4.0% and Less than 4.5% |
5 | 0.36 | ||||||
| Greater than 3.5% and Less than 4.0% |
4 | 0.29 | ||||||
| Greater than 3.0% and Less than 3.5% |
1 | 0.07 | ||||||
| Greater than 2.5% and Less than 3.0% |
3 | 0.22 | ||||||
| Greater than 2.0% and Less than 2.5% |
13 | 0.94 | ||||||
| Greater than 1.5% and Less than 2.0% |
38 | 2.75 | ||||||
| Greater than 1.0% and Less than 1.5% |
128 | 9.26 | ||||||
| Greater than 0.5% and Less than 1.0% |
383 | 27.70 | ||||||
| Between 0.5% and -0.5% |
630 | 45.56 | ||||||
| Less than -0.5% and Greater than -1.0% |
93 | 6.72 | ||||||
| Less than -1.0% and Greater than -1.5% |
40 | 2.89 | ||||||
| Less than -1.5% and Greater than -2.0% |
18 | 1.30 | ||||||
| Less than -2.0% and Greater than -2.5% |
5 | 0.36 | ||||||
| Less than -2.5% and Greater than -3.0% |
7 | 0.51 | ||||||
| Less than -3.0% and Greater than -3.5% |
4 | 0.29 | ||||||
| Less than -3.5% and Greater than -4.0% |
2 | 0.14 | ||||||
| Less than -4.0% and Greater than -4.5% |
1 | 0.07 | ||||||
| Less than -4.5% and Greater than -5.0% |
2 | 0.14 | ||||||
| Less than -5.0% |
1 | 0.07 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION | 125 |
Table of Contents
Director and Officer Information (Unaudited)
iSHARES®, INC.
The Board of Directors has responsibility for the overall management and operations of the Company, including general supervision of the duties performed by BFA and other service providers. Each Officer serves until he or she resigns, is removed, dies, retires or becomes incapacitated. The President, Treasurer and Secretary shall each hold office until their successors are chosen and qualified and all other officers shall hold office until he or she resigns or is removed. Directors who are not interested persons (as defined in the 1940 Act) are referred to as Independent Directors.
The registered investment companies advised by BFA or its affiliates are organized into one complex of closed-end funds, two complexes of open-end funds and one complex of exchange-traded funds (“Exchange-Traded Fund Complex”) (each, a “BlackRock Fund Complex”). Each Fund is included in the BlackRock Fund Complex referred to as the Exchange-Traded Fund Complex. Each Director of iShares, Inc. also serves as a Trustee of iShares Trust and a Director of iShares MSCI Russia Capped Index Fund, Inc. and, as a result, oversees a total of 224 funds within the Exchange-Traded Fund Complex. With the exception of Robert S. Kapito, the address of each Director and Officer is c/o BlackRock, Inc., 400 Howard Street, San Francisco, CA 94105. The address of Mr. Kapito is c/o BlackRock, Inc., Park Avenue Plaza, 55 East 52nd Street, New York, NY 10055. The Board has designated George G.C. Parker as its Independent Chairman. Additional information about the Funds’ Directors and Officers may be found in the Funds’ combined Statement of Additional Information, which is available without charge, upon request, by calling toll-free 1-800-474-2737.
Interested Directors and Officers
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| Robert S. Kapitoa (54) |
Director (since 2009). |
President and Director, BlackRock, Inc. (since 2006 and 2007, respectively); Vice Chairman of BlackRock, Inc. and Head of BlackRock’s Portfolio Management Group (since its formation in 1998) and BlackRock’s predecessor entities (since 1988); Trustee, University of Pennsylvania (since 2009); President of Board of Directors, Hope & Heroes Children’s Cancer Fund (since 2002); President of the Board of Directors, Periwinkle Theatre for Youth (since 1983). | Trustee of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of BlackRock, Inc. (since 2007). | |||
| Michael Lathamb (46) |
Director (since 2010); President (since 2007). |
Chairman of iShares, BTC (since 2011); Global Chief Executive Officer of iShares, BTC (2010-2011); Managing Director, BTC (since 2009); Head of Americas iShares, Barclays Global Investors (“BGI”) (2007-2009); Director and Chief Financial Officer of Barclays Global Investors International, Inc. (2005-2009); Chief Operating Officer of the Intermediary Investor and Exchange Traded Products Business of BGI (2003-2007). | Trustee of iShares Trust (since 2010); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| a | Robert S. Kapito is deemed to be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. |
| b | Michael Latham is deemed to be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. and its affiliates. |
| 126 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® , INC.
| Independent Directors
| ||||||
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| George G.C. Parker (72) |
Director (since 2000); Independent Chairman (since 2010). |
Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University: Graduate School of Business (since 1994). | Trustee of iShares Trust (since 2002); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Independent Chairman of iShares Trust (since 2010); Independent Chairman of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of Tejon Ranch Company (since 1999); Director of Threshold Pharmaceuticals (since 2004); Director of Colony Financial, Inc. (since 2009); Director of First Republic Bank (since 2010). | |||
| Cecilia H. Herbert (62) |
Director (since 2005). |
Director (since 1998) and President (2007-2010) of the Board of Directors, Catholic Charities CYO; Trustee of Pacific Select Funds (2004-2005); Trustee (since 2002) and Chair of the Finance Committee (2006-2009) and Investment Committee (since 2006) of the Thacher School; Member (since 1994) and Chair (1994-2005) of Investment Committee, Archdiocese of San Francisco. | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director, Forward Funds (35 portfolios) (since 2009). | |||
| Charles A. Hurty (68) |
Director (since 2005). |
Retired; Partner, KPMG LLP (1968-2001). | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002); Director of Skybridge Multi-Adviser Hedge Fund Portfolios LLC (1 portfolio) (since 2002). | |||
| John E. Kerrigan (56) |
Director (since 2005). |
Chief Investment Officer, Santa Clara University (since 2002). | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| John E. Martinez (50) |
Director (since 2003). |
Director of EquityRock, Inc. (since 2005). | Trustee of iShares Trust (since 2003); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| DIRECTOR AND OFFICER INFORMATION | 127 |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® , INC.
Independent Directors (Continued)
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| Madhav V. Rajan (47) |
Director (since 2011). |
Gregor G. Peterson Professor of Accounting and Senior Associate Dean for Academic Affairs, Stanford University: Graduate School of Business (since 2001); Professor of Law (by courtesy), Stanford Law School (since 2005); Visiting Professor, University of Chicago (Winter 2007-2008). | Trustee of iShares Trust (since 2011); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2011). | |||
| Robert H. Silver (56) |
Director (since 2007). |
President and Co-Founder of The Bravitas Group, Inc. (since 2006); Member, Non- Investor Advisory Board of Russia Partners II, LP (since 2006); Director and Vice Chairman of the YMCA of Greater NYC (since 2001); Broadway Producer (since 2006); Co-Founder and Vice President of Parentgiving Inc. (since 2008); Director and Member of the Audit and Compensation Committee of EPAM Systems, Inc. (2006-2009). | Trustee of iShares Trust (since 2007); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| 128 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® , INC.
Officers
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years | ||
| Geoffrey D. Flynn (54) |
Executive Vice President and Chief Operating Officer (since 2008). |
Managing Director, BTC (since 2009); Chief Operating Officer, U.S. iShares, BGI (2007-2009); President, Van Kampen Investors Services (2003-2007); Managing Director, Morgan Stanley (2002-2007); President, Morgan Stanley Trust, FSB (2002-2007). | ||
| Eilleen M. Clavere (59) |
Secretary (since 2007). |
Director, BTC (since 2009); Director of Legal Administration of Intermediary Investor Business of BGI (2006-2009); Legal Counsel and Vice President of Atlas Funds, Atlas Advisers, Inc. and Atlas Securities, Inc. (2005-2006). | ||
| Jack Gee (52) |
Treasurer and Chief Financial Officer (since 2008). |
Managing Director, BTC (since 2009); Senior Director of Fund Administration of Intermediary Investor Business of BGI (2009); Director of Fund Administration of Intermediary Investor Business of BGI (2004-2009). | ||
| Amy Schioldager (49) |
Executive Vice President (since 2007). |
Managing Director, BTC (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008); Head of Domestic Equity Portfolio Management, BGI (2001-2006). | ||
| Ira P. Shapiro (48) |
Vice President and Chief Legal Officer (since 2007). |
Managing Director, BTC (since 2009); Associate General Counsel, BGI (2004-2009). | ||
| Matt Tucker (39) |
Vice President (since 2007). |
Managing Director, BTC (since 2009); Director of Fixed Income Investment Strategy, BGI (2009); Head of U.S. Fixed Income Investment Solutions, BGI (2005-2008). | ||
| DIRECTOR AND OFFICER INFORMATION | 129 |
Table of Contents
Notes:
| 130 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
For more information visit www.iShares.com
or call 1-800-474-2737
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iS-AR-82-0811
Table of Contents
|
August 31, 2011 | |
2011 Annual Report
iShares, Inc.
iShares MSCI Brazil Index Fund | EWZ | NYSE Arca
iShares MSCI Canada Index Fund | EWC | NYSE Arca
iShares MSCI Chile Investable Market Index Fund | ECH | NYSE Arca
iShares MSCI Israel Capped Investable Market Index Fund | EIS | NYSE Arca
iShares MSCI Mexico Investable Market Index Fund | EWW | NYSE Arca
iShares MSCI South Africa Index Fund | EZA | NYSE Arca
iShares MSCI Turkey Investable Market Index Fund | TUR | NYSE Arca
iShares MSCI USA Index Fund | EUSA | NYSE Arca
Table of Contents
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| Board Review and Approval of Investment Advisory Contract (Unaudited) |
91 | |||
| 94 | ||||
| 101 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI BRAZIL INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 0.36% | 1.53% | 0.68% | 14.82% | 14.78% | 15.47% | 22.25% | 22.42% | 23.90% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 0.36% | 1.53% | 0.68% | 99.54% | 99.18% | 105.27% | 645.69% | 655.79% | 752.58% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 5 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI BRAZIL INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Brazil Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Brazil IndexSM (the “Index”). The Index consists of stocks traded primarily on the BM&FBOVESPA (the Brazilian exchange). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 0.36%, net of fees, while the total return for the Index was 0.68%.
As represented by the Index, the Brazilian stock market was largely unchanged for the reporting period, advancing by less than 1%. The period began on a positive note, with Brazil’s equity market rallying sharply along with many of the world’s stock markets as steadily improving economic data boosted investor confidence in a global economic recovery. Brazil in particular benefited from a marked increase in demand for raw materials, as the country is a major exporter of commodities such as energy and metals. However, the rally in Brazilian stocks was short-lived – the Index peaked in November and generally declined over the remainder of the reporting period as day-to-day volatility increased. One contributing factor was a sharp increase in the inflation rate, which rose from 4.5% to 7.2% during the reporting period. In response, the Brazilian central bank raised its benchmark interest rate from 10.75% to 12.50% before lowering it back to 12% at the end of the reporting period. The higher borrowing costs created headwinds for the Brazilian economy, which grew by 3.1% for the 12 months ended June 30, 2011, down from an 8.8% growth rate for the prior 12 month period. Rapidly rising inflation and a slowing economy put downward pressure on Brazil’s stock market.
Brazilian stocks were also buffeted by a series of global events that unsettled financial markets across the globe – heightened political turmoil in the Middle East and North Africa, an earthquake and tsunami in Japan, a worsening sovereign debt crisis in Europe, and fiscal deficit issues in the U.S. Taken together, these developments cast doubts on the sustainability of the global recovery, which presented another potential roadblock for Brazil’s economy in the form of weaker exports.
The Index posted a fractionally positive return despite benefiting from a decline in the U.S. dollar, which boosted Brazilian equity returns for U.S. investors. The dollar depreciated by 9% against the Brazilian real for the reporting period as U.S. interest rates remained near historically low levels and fiscal deficit concerns intensified. In local currency, the Index returned a (8.84)% for the reporting period.
| 6 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI BRAZIL INDEX FUND
Within the Index, the best-performing sector was consumer staples, which gained more than 30% for the reporting period. Consumer staples is considered a defensive sector that holds up well as economic growth slows. Other top-performing sectors included utilities (another defensive sector) and telecommunication services. On the downside, the only sector to post a double-digit decline was energy, which tumbled as demand waned over the last half of the reporting period. The financials sector – the largest sector weighting in the Index during the reporting period – and the consumer discretionary sector also posted negative returns.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 7 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI CANADA INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 16.50% | 16.43% | 16.97% | 5.66% | 5.54% | 5.93% | 12.17% | 12.06% | 12.55% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 16.50% | 16.43% | 16.97% | 31.71% | 30.97% | 33.39% | 215.44% | 212.12% | 226.10% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| 8 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI CANADA INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Canada Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Canada IndexSM (the “Index”). The Index consists of stocks traded primarily on the Toronto Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 16.50%, net of fees, while the total return for the Index was 16.97%.
As represented by the Index, the Canadian stock market posted a double-digit gain for the reporting period. Canadian stocks enjoyed an extended rally from the beginning of the period through April 2011, joining a broad increase in equity markets worldwide as steadily improving economic data boosted investor confidence in a global economic recovery. The Canadian economy benefited from growing demand for commodities; Canada is a net exporter of energy and other raw materials, and the country’s exports grew sharply in late 2010 and early 2011, reaching their highest levels in nearly three years. However, rising commodity prices led to an increase in Canada’s inflation rate, which increased from 1.8% to 2.7% for the reporting period.
Canadian stocks gave back some ground over the last four months of the reporting period as an accumulation of global events – heightened political turmoil in the Middle East and North Africa, a worsening sovereign debt crisis in Europe, an earthquake and tsunami in Japan, and government infighting about the federal debt ceiling in the U.S. – cast doubts on the sustainability of the global recovery. The Canadian economy gradually slowed as the reporting period progressed – Canada’s economy grew by 2.2% for the 12 months ended June 30, 2011, down from a 3.5% growth rate for the prior 12 month period. The economic slowdown in Canada reflected a decline in exports, which peaked in February 2011. Economic weakness in the U.S. – by far Canada’s largest trading partner – was a major contributor to the decline in Canadian exports.
Canadian stocks benefited from a decline in the U.S. dollar, which boosted Canadian equity returns for U.S. investors. The dollar depreciated by 8% versus the Canadian dollar for the reporting period as U.S. interest rates remained near historically low levels and fiscal deficit concerns intensified. In local currency, the Index returned 7.26% for the reporting period.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 9 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI CANADA INDEX FUND
The Index is dominated by three sectors – financials, energy, and materials, which together comprised approximately 80% of the Index for the reporting period. All three sectors posted double-digit returns that were in line with the overall performance of the Index. Excluding the health care sector, which made up less than 1% of the Index, the best-performing sectors were utilities and telecommunication services. Both sectors tend to pay out relatively high dividend yields, so they are considered more defensive segments of the market. The consumer discretionary and information technology sectors, both economically sensitive segments of the Index, lagged.
| 10 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI CHILE INVESTABLE MARKET INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | Cumulative Total Returns | |||||||||||||||
| Year Ended 8/31/11 | Inception to 8/31/11 | Inception to 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 0.93% | 1.15% | 2.61% | 10.17% | 10.33% | 10.93% | 44.55% | 45.39% | 48.31% | ||||||||
Total returns for the period since inception are calculated from the inception date of the Fund (11/12/07). “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (11/16/07), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 11 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI CHILE INVESTABLE MARKET INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Chile Investable Market Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Chile Investable Market IndexSM (the “Index”). The Index is a free float-adjusted market capitalization index that is designed to measure broad based equity market performance in Chile. The Index consists of stocks traded primarily on the Santiago Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 0.93%, net of fees, while the total return for the Index was 2.61%.
As represented by the Index, the Chilean stock market posted a modestly positive return for the reporting period. The period began on a positive note, with Chile’s equity market rallying along with many of the world’s stock markets as steadily improving economic data boosted investor confidence in a global economic recovery. Chile’s economy benefited from a marked increase in demand for raw materials, as the country is the world’s largest exporter of copper. Demand for commodities helped boost Chile’s economy, which grew by 6.8% for the 12 months ended June 30, 2011, up slightly from the 6.5% growth rate for the prior 12 month period.
The rally in Chilean stocks was short-lived – the Index peaked in December and then declined during the first quarter of 2011. The catalyst for the decline was a series of interest rate increases by the Chilean central bank that were designed to keep inflation in check. The central bank, which raised rates from 2.00% to 5.25% during the reporting period, was generally successful – the inflation rate rose from 2.6% to 2.9% during the reporting period, just under the central bank’s 3% target. Nonetheless, the higher borrowing costs reduced economic activity, which in turn put downward pressure on the Chilean equity market.
Chile’s stock market rebounded briefly in April 2011 but then fell back over the remainder of the reporting period as an accumulation of global events – heightened political turmoil in the Middle East and North Africa, a worsening sovereign debt crisis in Europe, an earthquake and tsunami in Japan, and government infighting about the federal debt ceiling in the U.S. – cast doubts on the sustainability of the global recovery. These developments led to concerns about weaker exports in Chile.
| 12 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI CHILE INVESTABLE MARKET INDEX FUND
The Index benefited from a decline in the U.S. dollar, which boosted Chilean equity returns for U.S. investors. The dollar depreciated by more than 8% against the Chilean peso for the reporting period as U.S. interest rates remained near historically low levels and fiscal deficit concerns intensified.
Within the Index, the top-performing sectors for the reporting period were information technology and telecommunication services, but these two sectors comprised just 3.5% of the Index. The largest sectors in the Index were utilities, industrials, and materials; of these three, materials stocks were the best performers, generating double-digit gains as a group. In contrast, industrials and consumer discretionary were the two sectors in the Index that declined for the reporting period, while utilities stocks were largely unchanged.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 13 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI ISRAEL CAPPED INVESTABLE MARKET INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | Cumulative Total Returns | |||||||||||||||
| Year Ended 8/31/11 | Inception to 8/31/11 | Inception to 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (4.26)% | (4.40)% | (3.79)% | (0.07)% | (0.11)% | 0.76% | (0.24)% | (0.38)% | 2.64% | ||||||||
Total returns for the period since inception are calculated from the inception date of the Fund (3/26/08). “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (3/28/08), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| 14 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI ISRAEL CAPPED INVESTABLE MARKET INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Israel Capped Investable Market Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Israel Capped Investable Market IndexSM (the “Index”). The Index is a custom, free float-adjusted market capitalization index designed to measure broad based equity market performance in Israel. The Index consists of stocks traded primarily on the Tel Aviv Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was (4.26)%, net of fees, while the total return for the Index was (3.79)%.
As represented by the Index, the Israel stock market declined for the reporting period. The period began on a positive note, with Israel’s equity market rallying along with many of the world’s stock markets as steadily improving economic data boosted investor confidence in a global economic recovery. Israel’s economy benefited from better economic conditions worldwide as demand for exports – a meaningful component of the country’s gross domestic product (GDP) – increased markedly. The Israeli economy grew by 5% for the 12 months ended June 30, 2011, up slightly from the 4.2% growth rate for the prior 12 month period. The inflation rate in Israel also rose, increasing from 2.5% to 3.4% during the reporting period as commodity prices increased broadly (Israel is dependent on imports for crude oil, grains, and other raw materials). In response, the Israeli central bank raised its benchmark interest rate from 1.75% to 3.25% during the reporting period.
Higher borrowing costs in Israel led to a slowdown in economic activity in the first half of 2011. As a result, the Israeli stock market peaked in mid-January and then declined steadily over the remainder of the reporting period. In addition to weaker economic growth, Israel was buffeted by heightened political turmoil as several governments in the Middle East and North Africa were toppled in early 2011, leading to uncertainty and destabilization in the region. Other global events – including a worsening sovereign debt crisis in Europe, an earthquake and tsunami in Japan, and government infighting about the federal debt ceiling in the U.S. – cast doubts on the sustainability of the global recovery and further contributed to the decline in Israel’s stock market.
The negative return for the Index during the reporting period would have been worse without a decline in the U.S. dollar, which boosted Israeli equity returns for U.S. investors. The dollar depreciated by approximately 6.5% against the Israeli shekel for the reporting period as U.S. interest rates remained near historically low levels and fiscal deficit concerns intensified.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 15 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI ISRAEL CAPPED INVESTABLE MARKET INDEX FUND
Within the Index, the two largest sector weightings during the reporting period were financials and health care, which together comprised just over half of the Index as of August 31, 2011. In the financials sector, the country’s banks came under pressure amid weaker profits and struggles to maintain adequate capital ratios. The Index’s health care sector consisted almost entirely of its biggest individual stock, which fell sharply during the reporting period in an increasingly challenging competitive environment. In contrast, the materials sector – the Index’s third-largest sector weighting – benefited from strong demand, especially in the first half of the reporting period.
| 16 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI MEXICO INVESTABLE MARKET INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 22.67% | 23.69% | 21.59% | 8.95% | 9.07% | 8.28% | 16.18% | 16.26% | 15.82% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 22.67% | 23.69% | 21.59% | 53.54% | 54.37% | 48.87% | 347.90% | 351.10% | 334.41% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 17 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI MEXICO INVESTABLE MARKET INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Mexico Investable Market Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Mexico Investable Market IndexSM (the “Index”). The Index consists of stocks traded primarily on the Mexican Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 22.67%, net of fees, while the total return for the Index was 21.59%.
As represented by the Index, the Mexican stock market produced a robust return for the reporting period. Mexico’s equity market rallied sharply from the beginning of the period through the end of 2010 as steadily improving economic data boosted investor confidence in a global economic recovery. Better economic conditions worldwide led to a marked increase in demand for commodities and other raw materials, including oil, which remains Mexico’s largest export despite production declines in recent years. Oil prices rose by approximately 25% for the reporting period, helping boost the state-owned oil company. Exports in Mexico also recovered fully from the recession in 2009, and although the U.S. remains by far the country’s largest trading partner, Mexico has continued to diversify its exports. Sales to Asia and elsewhere in Latin America are growing at twice the rate as those to the U.S.
The Mexican equity market declined in the first quarter of 2011, buffeted by a series of global events, including heightened political turmoil in the Middle East and North Africa, as well as an earthquake and tsunami in Japan. Although Mexico’s stock market rebounded in April, it gave back some ground over the last four months of the period as a worsening sovereign debt crisis in Europe and government infighting about the federal debt ceiling in the U.S. cast doubts on the sustainability of the global recovery. In particular, weaker economic growth in the U.S. put downward pressure on Mexico’s exports. The Mexican economy gradually slowed as the reporting period progressed – Mexico’s economy grew by 3.3% for the 12 months ended June 30, 2011, down from a 7.6% growth rate for the prior 12 month period. However, inflation also declined, falling from 3.8% to 3.4% for the reporting period, allowing Mexico’s central bank to hold its benchmark interest rate steady at a historic low of 4.5%.
| 18 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI MEXICO INVESTABLE MARKET INDEX FUND
Mexican stocks also benefited from a decline in the U.S. dollar, which boosted Mexican equity returns for U.S. investors. The dollar depreciated by 6% versus the Mexican peso for the reporting period as U.S. interest rates remained near historically low levels and fiscal deficit concerns intensified.
Every sector within the Index posted double-digit gains for the reporting period, led by the most economically sensitive sectors – industrials, materials, and consumer discretionary. The consumer staples sector – the Index’s largest sector weighting as of August 31, 2011 – also posted strong returns for the reporting period. The weakest-performing sectors included telecommunication services, the Index’s second-largest sector weighting, and financials.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 19 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI SOUTH AFRICA INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Inception to 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 21.58% | 21.88% | 22.29% | 10.97% | 10.68% | 12.00% | 19.20% | 19.15% | 20.46% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Inception to 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 21.58% | 21.88% | 22.29% | 68.29% | 66.07% | 76.20% | 350.97% | 349.38% | 393.29% | ||||||||
Total returns for the period since inception are calculated from the inception date of the Fund (2/3/03). “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (2/7/03), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| 20 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI SOUTH AFRICA INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI South Africa Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI South Africa IndexSM (the “Index”). The Index consists of stocks traded primarily on the Johannesburg Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 21.58%, net of fees, while the total return for the Index was 22.29%.
As represented by the Index, the South African stock market posted a robust return for the reporting period. South African stocks rallied sharply from the beginning of the period through the end of 2010, joining a broad increase in equity markets worldwide as steadily improving economic data boosted investor confidence in a global economic recovery. The South African economy benefited from a marked increase in demand for commodities, which are a major component of the country’s exports. South Africa is the world’s largest producer and exporter of gold and platinum, and coal and diamonds are also major exports for the country. South African exports continued to recover from the recession in 2009, reaching their highest levels in nearly three years. However, rising commodity prices contributed to an increase in South Africa’s inflation rate, which rose from 4.2% to 5.3% for the reporting period.
South African stocks declined in the first quarter of 2011, buffeted by a series of global events, including heightened political turmoil in the Middle East and North Africa, as well as an earthquake and tsunami in Japan. South Africa’s stock market rebounded to reach new highs in April 2011, but it gave back some ground over the last four months of the reporting period as a worsening sovereign debt crisis in Europe and government infighting about the federal debt ceiling in the U.S. cast doubts on the sustainability of the global recovery. In South Africa, concerns grew that slowing global growth could adversely impact the country’s exports. Nonetheless, the South African economy grew at a steady pace during the reporting period, growing by 3% for the 12 months ended June 30, 2011, matching the 3% growth rate for the prior 12 month period.
South African stocks benefited from a decline in the U.S. dollar, which boosted South African equity returns for U.S. investors. The dollar depreciated by 5% versus the South African rand for the reporting period as U.S. interest rates remained near historically low levels and fiscal deficit concerns intensified. In local currency, the Index returned 16.04% for the reporting period.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 21 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI SOUTH AFRICA INDEX FUND
Every sector within the Index advanced for the reporting period. The best-performing sectors in the Index included consumer discretionary, telecommunication services, and energy, each of which returned more than 30% for the reporting period. The Index’s two largest sector weightings were financials and materials, which together comprised approximately half of the Index as of August 31, 2011. These two sectors posted double-digit gains for the reporting period but trailed the overall performance of the Index. The weakest-performing sectors of the Index were also the two smallest sector weightings – industrials and health care.
| 22 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI TURKEY INVESTABLE MARKET INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | Cumulative Total Returns | |||||||||||||||
| Year Ended 8/31/11 | Inception to 8/31/11 | Inception to 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (19.74)% | (16.54)% | (19.25)% | 0.67% | 1.69% | 1.03% | 2.33% | 5.92% | 3.57% | ||||||||
Total returns for the period since inception are calculated from the inception date of the Fund (3/26/08). “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (3/28/08), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 23 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI TURKEY INVESTABLE MARKET INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Turkey Investable Market Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Turkey Investable Market IndexSM (the “Index”). The Index is a free float-adjusted market capitalization index designed to measure broad-based equity market performance in Turkey. The Index consists of stocks traded primarily on the Istanbul Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was (19.74)%, net of fees, while the total return for the Index was (19.25)%.
As represented by the Index, the Turkish stock market declined sharply for the reporting period. The period began on a positive note, with Turkey’s equity market rallying along with many of the world’s stock markets as steadily improving economic data boosted investor confidence in a global economic recovery. However, the rally in Turkish stocks was short-lived – the Index peaked in November 2010 and generally declined over the remainder of the reporting period. One key factor behind the decline in Turkey’s stock market was the country’s trade imbalance. Although Turkey’s exports have been growing, its dependence on imports has been growing even faster, resulting in a significant current-account deficit. For the 12 months ended June 30, 2011, Turkey’s current-account deficit reached an all-time high of $72.5 billion.
Several global events also contributed to Turkey’s widening trade deficit. Turkey’s largest trading partner is Europe, which receives approximately 60% of Turkey’s exports. Europe faced a worsening sovereign debt crisis resulting in the bailout of Greece and the credit downgrading of several countries in the European Union (including Spain, Ireland, and Portugal during the reporting period), and these debt problems weighed on the Continent’s economic growth, leading to lower demand for exports. In addition, several governments in the Middle East and North Africa – another destination of Turkish exports – were toppled in early 2011, leading to a sharp decline in export demand.
Turkey’s record trade deficit had a negative impact on the country’s domestic economy, its financial system, and its currency during the reporting period. At a time when most of the world’s currencies appreciated versus the U.S. dollar, the Turkish lira slumped by 12.5% against the American currency during the reporting period. The deterioration in the Turkish currency magnified the country’s stock market losses.
| 24 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI TURKEY INVESTABLE MARKET INDEX FUND
From an economic perspective, the Turkish economy grew by 8.8% for the 12 months ended June 30, 2011. This growth rate, although robust in absolute terms, represents a decline in economic activity; in the prior 12-month period, the Turkish economy grew by 10.3%. In addition, inflation declined from 7.9% to 6.6% during the reporting period. As a result, Turkey’s central bank lowered its benchmark interest rate in January 2011 and again in August 2011, reducing the rate from 7.00% to 5.75%.
Within the Index, the financials sector is by far the largest sector weighting, comprising just under half of the Index as of August 31, 2011. This sector was one of the weaker-performing segments of the Index, declining by more than 25% for the reporting period. The industrials and telecommunication services sectors of the Index also posted double-digit declines. The consumer staples sector, the second-largest sector weighting in the Index, was one of only two sectors to generate a positive return for the reporting period. The other sector posting a positive return was information technology, the smallest sector weighting in the Index.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 25 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI USA INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | Cumulative Total Returns | |||||||||||||||
| Year Ended 8/31/11 | Inception to 8/31/11 | Inception to 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 18.89% | 18.90% | 19.12% | 5.79% | 5.76% | 5.98% | 7.75% | 7.71% | 7.97% | ||||||||
Total returns for the period since inception are calculated from the inception date of the Fund (5/5/10). “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (5/7/10), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| 26 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI USA INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI USA Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI USA IndexSM (the “Index”). The Index is a market capitalization weighted index designed to measure the performance of equity securities in the top 85% by market capitalization of equity securities listed on stock exchanges in the United States. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 18.89%, net of fees, while the total return for the Index was 19.12%.
As represented by the Index, the U.S. stock market posted a robust return for the reporting period. U.S. stocks enjoyed an extended rally from the beginning of the period through April 2011 as steadily improving economic news boosted investor confidence in an economic recovery, both domestically and on a global basis. Within the U.S., employment data turned positive in late 2010, bringing the unemployment rate down to approximately 9% by the end of the reporting period (after peaking above 10% in late 2009). The U.S. economy also benefited from a second round of quantitative easing measures by the Federal Reserve (the U.S. central bank) and the extension of several expiring federal tax breaks in late 2010. The end result was an annualized economic growth rate of 2.6% in the third quarter of 2010 and 3.1% in the fourth quarter of the year.
U.S. economic growth stalled in the first half of 2011, growing at a 0.7% annual rate for the first two quarters of the year. Meanwhile, rising commodity prices in late 2010 and early 2011 caused the U.S. inflation rate to rise to a three-year high of 3.8% by the end of the reporting period. Furthermore, an accumulation of global events – heightened political turmoil in the Middle East and North Africa, a worsening sovereign debt crisis in Europe, and an earthquake and tsunami in Japan – cast doubts on the sustainability of the global economic recovery.
Consequently, U.S. stocks peaked in early May 2011 and then gave back some ground over the last four months of the reporting period. The decline in the U.S. equity market was especially severe in August 2011, when the U.S. received a credit rating downgrade for the first time in the country’s history, and government infighting about raising the federal debt ceiling led to concerns about a possible default on U.S. Treasury securities. Although lawmakers eventually came to an agreement on the debt ceiling, it did not alleviate investor concerns, and the Index tumbled by nearly 6% in the final month of the reporting period.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 27 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI USA INDEX FUND
Every sector within the Index advanced for the reporting period. Energy was the top-performing sector, gaining more than 30% for the reporting period as a result of a sharp increase in the price of oil. Information technology – the largest sector weighting in the portfolio during the reporting period – and consumer discretionary were also among the best-performing sectors in the Index. The weakest-performing sector was financials, which posted a fractional gain for the reporting period as financial companies continued to struggle with the fallout from the credit crisis and housing market downturn. The more defensive utilities and telecommunication services sectors also lagged for the reporting period.
| 28 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Shareholder Expenses (Unaudited)
iSHARES®, INC.
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares and (2) ongoing costs, including management fees and other Fund expenses. The following Example is intended to help you understand your ongoing costs (in dollars and cents) of investing in a Fund and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from March 1, 2011 to August 31, 2011.
ACTUAL EXPENSES
The first line under each Fund in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line for your Fund under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line under each Fund in the table below provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line under each Fund in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| iShares MSCI Index Fund | Beginning Account Value (3/1/11) |
Ending Account Value (8/31/11) |
Annualized Expense Ratio |
Expenses Paid During Perioda (3/1/11 to 8/31/11) |
||||||||||||
| Brazil |
||||||||||||||||
| Actual |
$1,000.00 | $ 893.50 | 0.58 | % | $2.77 | |||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.30 | 0.58 | 2.96 | ||||||||||||
| Canada |
||||||||||||||||
| Actual |
1,000.00 | 896.80 | 0.51 | 2.44 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| Chile Investable Market |
||||||||||||||||
| Actual |
1,000.00 | 977.20 | 0.58 | 2.89 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.30 | 0.58 | 2.96 | ||||||||||||
| Israel Capped Investable Market |
||||||||||||||||
| Actual |
1,000.00 | 821.60 | 0.58 | 2.66 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.30 | 0.58 | 2.96 | ||||||||||||
| SHAREHOLDER EXPENSES | 29 |
Table of Contents
Shareholder Expenses (Unaudited) (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund | Beginning Account Value (3/1/11) |
Ending Account Value (8/31/11) |
Annualized Expense Ratio |
Expenses Paid During Perioda (3/1/11 to 8/31/11) |
||||||||||||
| Mexico Investable Market |
||||||||||||||||
| Actual |
$1,000.00 | $ 964.90 | 0.51 | % | $2.53 | |||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| South Africa |
||||||||||||||||
| Actual |
1,000.00 | 1,005.90 | 0.58 | 2.93 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.30 | 0.58 | 2.96 | ||||||||||||
| Turkey Investable Market |
||||||||||||||||
| Actual |
1,000.00 | 829.30 | 0.58 | 2.67 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.30 | 0.58 | 2.96 | ||||||||||||
| USA |
||||||||||||||||
| Actual |
1,000.00 | 929.40 | 0.15 | 0.73 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,024.40 | 0.15 | 0.77 | ||||||||||||
| a | Expenses are calculated using each Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). |
| 30 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI BRAZIL INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 31 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI BRAZIL INDEX FUND
August 31, 2011
| 32 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI BRAZIL INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 33 |
Table of Contents
iSHARES® MSCI CANADA INDEX FUND
August 31, 2011
| 34 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI CANADA INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 35 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI CANADA INDEX FUND
August 31, 2011
| 36 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI CHILE INVESTABLE MARKET INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 37 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI CHILE INVESTABLE MARKET INDEX FUND
August 31, 2011
| 38 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI ISRAEL CAPPED INVESTABLE MARKET INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 39 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI ISRAEL CAPPED INVESTABLE MARKET INDEX FUND
August 31, 2011
| 40 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI ISRAEL CAPPED INVESTABLE MARKET INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 41 |
Table of Contents
iSHARES® MSCI MEXICO INVESTABLE MARKET INDEX FUND
August 31, 2011
| 42 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI MEXICO INVESTABLE MARKET INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 43 |
Table of Contents
iSHARES® MSCI SOUTH AFRICA INDEX FUND
August 31, 2011
| 44 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI SOUTH AFRICA INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 45 |
Table of Contents
iSHARES® MSCI TURKEY INVESTABLE MARKET INDEX FUND
August 31, 2011
| 46 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI TURKEY INVESTABLE MARKET INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 47 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI TURKEY INVESTABLE MARKET INDEX FUND
August 31, 2011
| 48 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI USA INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 49 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2011
| 50 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 51 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2011
| 52 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 53 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2011
| 54 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 55 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2011
| 56 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 57 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2011
NVS – Non-Voting Shares
| a | Non-income earning security. |
| b | Affiliated issuer. See Note 2. |
| c | All or a portion of this security represents a security on loan. See Note 5. |
| d | The rate quoted is the annualized seven-day yield of the fund at period end. |
| e | All or a portion of this security represents an investment of securities lending collateral. See Note 5. |
See notes to financial statements.
| 58 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Assets and Liabilities
iSHARES®, INC.
August 31, 2011
| iShares MSCI Brazil Index Fund |
iShares MSCI Index Fund |
iShares MSCI Investable Market |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 8,059,302,075 | $ | 5,141,729,136 | $ | 531,132,101 | ||||||
| Affiliated (Note 2) |
5,434,287 | 24,813,255 | 578,354 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 8,064,736,362 | $ | 5,166,542,391 | $ | 531,710,455 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 11,238,311,437 | $ | 5,085,803,595 | $ | 707,324,521 | ||||||
| Affiliated (Note 2) |
5,434,287 | 24,813,255 | 578,354 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
11,243,745,724 | 5,110,616,850 | 707,902,875 | |||||||||
| Foreign currencies, at valueb |
68,190,315 | 8,305,087 | 69,561 | |||||||||
| Cash |
– | 2,397 | – | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
– | 35,866,766 | 28,897,321 | |||||||||
| Dividends and interest |
58,583,032 | 5,989,061 | 86,700 | |||||||||
| Capital shares sold |
– | 291,726 | – | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
11,370,519,071 | 5,161,071,887 | 736,956,457 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
32,947,680 | 41,877,967 | 28,582,911 | |||||||||
| Collateral for securities on loan (Note 5) |
– | 24,486,823 | – | |||||||||
| Investment advisory fees (Note 2) |
5,449,930 | 2,160,563 | 355,581 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
38,397,610 | 68,525,353 | 28,938,492 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 11,332,121,461 | $ | 5,092,546,534 | $ | 708,017,965 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 9,078,372,839 | $ | 5,374,302,708 | $ | 571,097,266 | ||||||
| Undistributed (distributions in excess of) net investment income |
(237,401,416 | ) | 15,657,081 | (2,119 | ) | |||||||
| Accumulated net realized loss |
(690,697,655 | ) | (241,569,337 | ) | (39,266,796 | ) | ||||||
| Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies |
3,181,847,693 | (55,843,918 | ) | 176,189,614 | ||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 11,332,121,461 | $ | 5,092,546,534 | $ | 708,017,965 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingc |
174,350,000 | 170,400,000 | 10,550,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 65.00 | $ | 29.89 | $ | 67.11 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $ –, $18,792,388 and $ –, respectively. See Note 5. |
| b | Cost of foreign currencies: $67,694,550, $8,250,563 and $68,978, respectively. |
| c | $0.001 par value, number of shares authorized: 500 million, 340.2 million and 200 million, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS | 59 |
Table of Contents
Statements of Assets and Liabilities (Continued)
iSHARES®, INC.
August 31, 2011
| iShares MSCI Israel Capped Investable Market Index Fund |
iShares MSCI Investable Market |
iShares MSCI South Africa Index Fund |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 104,926,470 | $ | 1,341,415,537 | $ | 494,302,581 | ||||||
| Affiliated (Note 2) |
1,428,746 | 40,711,700 | 17,026 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 106,355,216 | $ | 1,382,127,237 | $ | 494,319,607 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 77,826,401 | $ | 1,243,195,445 | $ | 503,166,582 | ||||||
| Affiliated (Note 2) |
1,428,746 | 40,711,700 | 17,026 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
79,255,147 | 1,283,907,145 | 503,183,608 | |||||||||
| Foreign currencies, at valueb |
112,721 | 1,449,167 | 921,003 | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
937,449 | 12,205,528 | – | |||||||||
| Due from custodian (Note 4) |
37,605 | – | – | |||||||||
| Dividends and interest |
55,364 | 25,436 | 346,885 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
80,398,286 | 1,297,587,276 | 504,451,496 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
858,769 | 12,678,883 | 96,241 | |||||||||
| Collateral for securities on loan (Note 5) |
1,365,832 | 40,629,524 | – | |||||||||
| Capital shares redeemed |
107,990 | – | – | |||||||||
| Investment advisory fees (Note 2) |
48,182 | 548,048 | 253,006 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
2,380,773 | 53,856,455 | 349,247 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 78,017,513 | $ | 1,243,730,821 | $ | 504,102,249 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 126,863,218 | $ | 1,394,666,107 | $ | 549,802,434 | ||||||
| Undistributed (distributions in excess of) net investment income |
(151,592 | ) | 3,926,939 | (2,758,650 | ) | |||||||
| Undistributed net realized gain (accumulated net realized loss) |
(21,594,751 | ) | (56,617,041 | ) | (51,821,485 | ) | ||||||
| Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies |
(27,099,362 | ) | (98,245,184 | ) | 8,879,950 | |||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 78,017,513 | $ | 1,243,730,821 | $ | 504,102,249 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingc |
1,700,000 | 21,300,000 | 7,300,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 45.89 | $ | 58.39 | $ | 69.06 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $1,345,883, $39,427,340 and $ –, respectively. See Note 5. |
| b | Cost of foreign currencies: $112,387, $1,474,259 and $906,366, respectively. |
| c | $0.001 par value, number of shares authorized: 500 million, 255 million and 400 million, respectively. |
See notes to financial statements.
| 60 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Assets and Liabilities (Continued)
iSHARES®, INC.
August 31, 2011
| iShares MSCI Investable Market |
iShares MSCI USA Index Fund |
|||||||
| ASSETS |
||||||||
| Investments, at cost: |
||||||||
| Unaffiliated |
$ | 612,471,623 | $ | 5,056,692 | ||||
| Affiliated (Note 2) |
33,135,424 | 51,971 | ||||||
|
|
|
|
|
|||||
| Total cost of investments |
$ | 645,607,047 | $ | 5,108,663 | ||||
|
|
|
|
|
|||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||
| Unaffiliated |
$ | 449,713,009 | $ | 5,204,791 | ||||
| Affiliated (Note 2) |
33,135,424 | 51,038 | ||||||
|
|
|
|
|
|||||
| Total fair value of investments |
482,848,433 | 5,255,829 | ||||||
| Foreign currencies, at valueb |
139,969 | – | ||||||
| Receivables: |
||||||||
| Investment securities sold |
1,092,173 | 105,887 | ||||||
| Dividends and interest |
45,369 | 8,029 | ||||||
|
|
|
|
|
|||||
| Total Assets |
484,125,944 | 5,369,745 | ||||||
|
|
|
|
|
|||||
| LIABILITIES |
||||||||
| Payables: |
||||||||
| Investment securities purchased |
2,131,308 | 115,174 | ||||||
| Collateral for securities on loan (Note 5) |
33,090,024 | 20,714 | ||||||
| Investment advisory fees (Note 2) |
227,650 | 376 | ||||||
|
|
|
|
|
|||||
| Total Liabilities |
35,448,982 | 136,264 | ||||||
|
|
|
|
|
|||||
| NET ASSETS |
$ | 448,676,962 | $ | 5,233,481 | ||||
|
|
|
|
|
|||||
| Net assets consist of: |
||||||||
| Paid-in capital |
$ | 634,158,901 | $ | 5,086,597 | ||||
| Undistributed (distributions in excess of) net investment income |
(695,924 | ) | 10,966 | |||||
| Undistributed net realized gain |
(22,014,620 | ) | (11,248 | ) | ||||
| Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities in |
(162,771,395 | ) | 147,166 | |||||
|
|
|
|
|
|||||
| NET ASSETS |
$ | 448,676,962 | $ | 5,233,481 | ||||
|
|
|
|
|
|||||
| Shares outstandingc |
9,400,000 | 200,000 | ||||||
|
|
|
|
|
|||||
| Net asset value per share |
$ | 47.73 | $ | 26.17 | ||||
|
|
|
|
|
|||||
| a | Securities on loan with values of $31,787,325 and $20,323, respectively. See Note 5. |
| b | Cost of foreign currencies: $143,270 and $ –, respectively. |
| c | $0.001 par value, number of shares authorized: 200 million and 500 million, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS | 61 |
Table of Contents
Statements of Operations
iSHARES®, INC.
Year ended August 31, 2011
| iShares MSCI Index Fund |
iShares MSCI Index Fund |
iShares MSCI Investable Market |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends – unaffiliateda |
$ | 437,936,890 | $ | 112,147,088 | $ | 16,534,431 | ||||||
| Interest – affiliated (Note 2) |
11,824 | 2,295 | 951 | |||||||||
| Securities lending income – affiliated (Note 2) |
1,392 | 240,228 | – | |||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
437,950,106 | 112,389,611 | 16,535,382 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
70,082,394 | 26,198,533 | 5,158,425 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
70,082,394 | 26,198,533 | 5,158,425 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
367,867,712 | 86,191,078 | 11,376,957 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments – unaffiliated |
7,033,814 | (91,023,222 | ) | (12,834,946 | ) | |||||||
| In-kind redemptions – unaffiliated |
– | 273,518,007 | – | |||||||||
| Foreign currency transactions |
6,679,221 | 539,819 | (13,185 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain (loss) |
13,713,035 | 183,034,604 | (12,848,131 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
(649,466,410 | ) | 228,754,738 | (7,546,542 | ) | |||||||
| Translation of assets and liabilities in foreign currencies |
1,584,147 | 277,185 | (2,329 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
(647,882,263 | ) | 229,031,923 | (7,548,871 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain (loss) |
(634,169,228 | ) | 412,066,527 | (20,397,002 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (266,301,516 | ) | $ | 498,257,605 | $ | (9,020,045 | ) | ||||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $37,314,025, $18,536,922 and $5,562,793, respectively. |
See notes to financial statements.
| 62 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Operations (Continued)
iSHARES®, INC.
Year ended August 31, 2011
| iShares MSCI Israel Capped Investable Market Index Fund |
iShares MSCI Mexico Investable Market Index Fund |
iShares MSCI South Africa Index Fund |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends – unaffiliateda |
$ | 3,841,790 | $ | 29,020,621 | $ | 18,375,546 | ||||||
| Interest – affiliated (Note 2) |
62 | 380 | 212 | |||||||||
| Securities lending income – affiliated (Note 2) |
54,464 | 506,551 | 65,315 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
3,896,316 | 29,527,552 | 18,441,073 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
743,548 | 8,188,227 | 3,648,638 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
743,548 | 8,188,227 | 3,648,638 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
3,152,768 | 21,339,325 | 14,792,435 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments – unaffiliated |
(3,395,215 | ) | (16,642,582 | ) | (7,560,055 | ) | ||||||
| In-kind redemptions – unaffiliated |
2,659,067 | 196,250,437 | 50,669,633 | |||||||||
| Foreign currency transactions |
22,369 | (22,104 | ) | 107,130 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain (loss) |
(713,779 | ) | 179,585,751 | 43,216,708 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
(3,186,260 | ) | 111,496,211 | 45,020,073 | ||||||||
| Translation of assets and liabilities in foreign currencies |
863 | 41,393 | 15,280 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
(3,185,397 | ) | 111,537,604 | 45,035,353 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain (loss) |
(3,899,176 | ) | 291,123,355 | 88,252,061 | ||||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (746,408 | ) | $ | 312,462,680 | $ | 103,044,496 | |||||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $779,750, $ – and $ –, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS | 63 |
Table of Contents
Statements of Operations (Continued)
iSHARES®, INC.
Year ended August 31, 2011
| iShares MSCI Investable Market |
iShares MSCI Index Fund |
|||||||
| NET INVESTMENT INCOME |
||||||||
| Dividends – unaffiliateda |
$ | 12,373,264 | $ | 38,788 | ||||
| Dividends – affiliated (Note 2) |
– | 173 | ||||||
| Interest – affiliated (Note 2) |
368 | 2 | ||||||
| Securities lending income – affiliated (Note 2) |
553,611 | 93 | ||||||
|
|
|
|
|
|||||
| Total investment income |
12,927,243 | 39,056 | ||||||
|
|
|
|
|
|||||
| EXPENSES |
||||||||
| Investment advisory fees (Note 2) |
4,021,933 | 2,853 | ||||||
|
|
|
|
|
|||||
| Total expenses |
4,021,933 | 2,853 | ||||||
|
|
|
|
|
|||||
| Net investment income |
8,905,310 | 36,203 | ||||||
|
|
|
|
|
|||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||
| Net realized gain (loss) from: |
||||||||
| Investments – unaffiliated |
(11,831,411 | ) | (10,478 | ) | ||||
| In-kind redemptions – unaffiliated |
82,935,549 | 22,019 | ||||||
| In-kind redemptions – affiliated (Note 2) |
– | (662 | ) | |||||
| Foreign currency transactions |
137,136 | – | ||||||
|
|
|
|
|
|||||
| Net realized gain |
71,241,274 | 10,879 | ||||||
|
|
|
|
|
|||||
| Net change in unrealized appreciation/depreciation on: |
||||||||
| Investments |
(215,324,265 | ) | 393,770 | |||||
| Translation of assets and liabilities in foreign currencies |
(19,438 | ) | – | |||||
|
|
|
|
|
|||||
| Net change in unrealized appreciation/depreciation |
(215,343,703 | ) | 393,770 | |||||
|
|
|
|
|
|||||
| Net realized and unrealized gain (loss) |
(144,102,429 | ) | 404,649 | |||||
|
|
|
|
|
|||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (135,197,119 | ) | $ | 440,852 | |||
|
|
|
|
|
|||||
| a | Net of foreign withholding tax of $1,996,476 and $2, respectively. |
See notes to financial statements.
| 64 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Changes in Net Assets
iSHARES®, INC.
| iShares MSCI Brazil Index Fund |
iShares MSCI Canada Index Fund |
|||||||||||||||
| Year ended August 31, 2011 |
Year ended August 31, 2010 |
Year ended August 31, 2011 |
Year ended August 31, 2010 |
|||||||||||||
|
|
||||||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
|
|||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 367,867,712 | $ | 228,419,252 | $ | 86,191,078 | $ | 51,900,908 | ||||||||
| Net realized gain |
13,713,035 | 372,816,382 | 183,034,604 | 109,004,495 | ||||||||||||
| Net change in unrealized appreciation/depreciation |
(647,882,263 | ) | 1,246,032,535 | 229,031,923 | 93,342,915 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
(266,301,516 | ) | 1,847,268,169 | 498,257,605 | 254,248,318 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
|
|||||||||||||||
| From net investment income |
(577,419,673 | ) | (384,786,885 | ) | (84,459,614 | ) | (50,623,009 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(577,419,673 | ) | (384,786,885 | ) | (84,459,614 | ) | (50,623,009 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
|
|||||||||||||||
| Proceeds from shares sold |
2,935,390,134 | 6,659,059 | 2,412,404,012 | 1,858,101,617 | ||||||||||||
| Cost of shares redeemed |
– | (1,006,054,310 | ) | (1,180,897,966 | ) | (1,008,121,985 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
2,935,390,134 | (999,395,251 | ) | 1,231,506,046 | 849,979,632 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE IN NET ASSETS |
2,091,668,945 | 463,086,033 | 1,645,304,037 | 1,053,604,941 | ||||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
9,240,452,516 | 8,777,366,483 | 3,447,242,497 | 2,393,637,556 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 11,332,121,461 | $ | 9,240,452,516 | $ | 5,092,546,534 | $ | 3,447,242,497 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of year |
$ | (237,401,416 | ) | $ | (43,826,642 | ) | $ | 15,657,081 | $ | 11,237,296 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
|
|||||||||||||||
| Shares sold |
38,600,000 | 100,000 | 76,300,000 | 69,800,000 | ||||||||||||
| Shares redeemed |
– | (15,000,000 | ) | (38,000,000 | ) | (38,700,000 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
38,600,000 | (14,900,000 | ) | 38,300,000 | 31,100,000 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| FINANCIAL STATEMENTS | 65 |
Table of Contents
Statements of Changes in Net Assets (Continued)
iSHARES®, INC.
| iShares MSCI Chile Investable Market Index Fund |
iShares MSCI Israel Capped Investable Market Index Fund |
|||||||||||||||
| Year ended August 31, 2011 |
Year ended August 31, 2010 |
Year ended August 31, 2011 |
Year ended August 31, 2010 |
|||||||||||||
|
|
||||||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
|
|||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 11,376,957 | $ | 3,713,462 | $ | 3,152,768 | $ | 4,797,060 | ||||||||
| Net realized gain (loss) |
(12,848,131 | ) | (2,840,935 | ) | (713,779 | ) | 70,349 | |||||||||
| Net change in unrealized appreciation/depreciation |
(7,548,871 | ) | 149,610,800 | (3,185,397 | ) | (1,531,719 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
(9,020,045 | ) | 150,483,327 | (746,408 | ) | 3,335,690 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
|
|||||||||||||||
| From net investment income |
(11,314,677 | ) | (4,266,725 | ) | (3,733,516 | ) | (5,130,542 | ) | ||||||||
| Return of capital |
(9,331 | ) | (214,415 | ) | – | – | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(11,324,008 | ) | (4,481,140 | ) | (3,733,516 | ) | (5,130,542 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
288,309,806 | 378,631,231 | 46,097,654 | 136,885,872 | ||||||||||||
| Cost of shares redeemed |
(230,298,194 | ) | (117,487,891 | ) | (92,072,921 | ) | (114,410,341 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
58,011,612 | 261,143,340 | (45,975,267 | ) | 22,475,531 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
37,667,559 | 407,145,527 | (50,455,191 | ) | 20,680,679 | |||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
670,350,406 | 263,204,879 | 128,472,704 | 107,792,025 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 708,017,965 | $ | 670,350,406 | $ | 78,017,513 | $ | 128,472,704 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of year |
$ | (2,119 | ) | $ | – | $ | (151,592 | ) | $ | 236,701 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
3,950,000 | 6,350,000 | 850,000 | 2,550,000 | ||||||||||||
| Shares redeemed |
(3,350,000 | ) | (2,300,000 | ) | (1,750,000 | ) | (2,250,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
600,000 | 4,050,000 | (900,000 | ) | 300,000 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| 66 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Changes in Net Assets (Continued)
iSHARES®, INC.
| iShares MSCI Mexico Investable Market Index Fund |
iShares MSCI South Africa Index Fund |
|||||||||||||||
| Year ended August 31, 2011 |
Year ended August 31, 2010 |
Year ended August 31, 2011 |
Year ended August 31, 2010 |
|||||||||||||
|
|
||||||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
|
|||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 21,339,325 | $ | 17,453,662 | $ | 14,792,435 | $ | 10,783,825 | ||||||||
| Net realized gain |
179,585,751 | 29,433,811 | 43,216,708 | 30,902,311 | ||||||||||||
| Net change in unrealized appreciation/depreciation |
111,537,604 | (1,696,792 | ) | 45,035,353 | 23,527,386 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase in net assets resulting from operations |
312,462,680 | 45,190,681 | 103,044,496 | 65,213,522 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
|
|||||||||||||||
| From net investment income |
(19,365,342 | ) | (18,506,573 | ) | (21,537,358 | ) | (12,009,132 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(19,365,342 | ) | (18,506,573 | ) | (21,537,358 | ) | (12,009,132 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
|
|||||||||||||||
| Proceeds from shares sold |
737,959,537 | 1,412,598,195 | 174,104,575 | 215,358,696 | ||||||||||||
| Cost of shares redeemed |
(1,237,364,625 | ) | (683,521,351 | ) | (256,700,202 | ) | (252,100,617 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
(499,405,088 | ) | 729,076,844 | (82,595,627 | ) | (36,741,921 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
(206,307,750 | ) | 755,760,952 | (1,088,489 | ) | 16,462,469 | ||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
1,450,038,571 | 694,277,619 | 505,190,738 | 488,728,269 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 1,243,730,821 | $ | 1,450,038,571 | $ | 504,102,249 | $ | 505,190,738 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment |
$ | 3,926,939 | $ | 1,975,060 | $ | (2,758,650 | ) | $ | 1,244,736 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
|
|||||||||||||||
| Shares sold |
12,300,000 | 28,100,000 | 2,500,000 | 3,800,000 | ||||||||||||
| Shares redeemed |
(21,100,000 | ) | (14,300,000 | ) | (3,800,000 | ) | (4,600,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
(8,800,000 | ) | 13,800,000 | (1,300,000 | ) | (800,000 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| FINANCIAL STATEMENTS | 67 |
Table of Contents
Statements of Changes in Net Assets (Continued)
iSHARES®, INC.
| iShares MSCI Turkey Investable Market Index Fund |
iShares MSCI USA Index Fund |
|||||||||||||||
| Year ended August 31, 2011 |
Year ended August 31, 2010 |
Year ended August 31, 2011 |
Period from to August 31, 2010 |
|||||||||||||
|
|
||||||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 8,905,310 | $ | 7,418,467 | $ | 36,203 | $ | 16,601 | ||||||||
| Net realized gain (loss) |
71,241,274 | 25,274,469 | 10,879 | (2,434 | ) | |||||||||||
| Net change in unrealized appreciation/depreciation |
(215,343,703 | ) | 46,433,957 | 393,770 | (246,604 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
(135,197,119 | ) | 79,126,893 | 440,852 | (232,437 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
|
|||||||||||||||
| From net investment income |
(13,656,029 | ) | (8,702,771 | ) | (35,212 | ) | (6,626 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(13,656,029 | ) | (8,702,771 | ) | (35,212 | ) | (6,626 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
|
|||||||||||||||
| Proceeds from shares sold |
431,490,354 | 471,556,198 | 3,846,426 | 2,482,623 | ||||||||||||
| Cost of shares redeemed |
(435,948,383 | ) | (182,426,990 | ) | (1,262,145 | ) | – | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
(4,458,029 | ) | 289,129,208 | 2,584,281 | 2,482,623 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
(153,311,177 | ) | 359,553,330 | 2,989,921 | 2,243,560 | |||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of period |
601,988,139 | 242,434,809 | 2,243,560 | – | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 448,676,962 | $ | 601,988,139 | $ | 5,233,481 | $ | 2,243,560 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of period |
$ | (695,924 | ) | $ | (557,958 | ) | $ | 10,966 | $ | 9,975 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
|
|||||||||||||||
| Shares sold |
6,400,000 | 8,350,000 | 150,000 | 100,000 | ||||||||||||
| Shares redeemed |
(6,900,000 | ) | (3,500,000 | ) | (50,000 | ) | – | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
(500,000 | ) | 4,850,000 | 100,000 | 100,000 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| a | Commencement of operations. |
See notes to financial statements.
| 68 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Brazil Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
|
|
||||||||||||||||||||
| Net asset value, beginning of year |
$ | 68.07 | $ | 58.26 | $ | 73.27 | $ | 61.59 | $ | 39.09 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
2.24 | 1.56 | 1.56 | 1.93 | 1.09 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
(1.69 | ) | 10.83 | (14.63 | ) | 11.59 | 22.35 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
0.55 | 12.39 | (13.07 | ) | 13.52 | 23.44 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(3.62 | ) | (2.58 | ) | (1.94 | ) | (1.41 | ) | (0.94 | ) | ||||||||||
| Net realized gain |
– | – | – | (0.43 | ) | – | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(3.62 | ) | (2.58 | ) | (1.94 | ) | (1.84 | ) | (0.94 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 65.00 | $ | 68.07 | $ | 58.26 | $ | 73.27 | $ | 61.59 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
0.36 | % | 21.12 | % | (16.05 | )% | 21.58 | % | 60.82 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 11,332,121 | $ | 9,240,453 | $ | 8,777,366 | $ | 7,242,260 | $ | 4,434,334 | ||||||||||
| Ratio of expenses to average net assetsc |
0.59 | % | 0.61 | % | 0.65 | % | 0.63 | % | 0.69 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.08 | % | 2.24 | % | 3.38 | % | 2.37 | % | 2.17 | % | ||||||||||
| Portfolio turnover rated |
11 | % | 13 | % | 30 | % | 30 | % | 22 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Ratios for prior periods have been recalculated, as necessary, to conform with the current period presentation of foreign taxes. |
| d | Portfolio turnover rates include portfolio transactions that are executed as a result of the Fund processing capital share transactions in Creation Units solely for cash in U.S. dollars. Excluding such transactions, the portfolio turnover rate for the years ended August 31, 2011, August 31, 2010, August 31, 2009, August 31, 2008 and August 31, 2007 would have been 11%, 13%, 14%, 19% and 6%, respectively. See Note 4. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS | 69 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Canada Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
|
|
||||||||||||||||||||
| Net asset value, beginning of year |
$ | 26.10 | $ | 23.70 | $ | 30.55 | $ | 29.87 | $ | 24.69 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.53 | 0.43 | 0.41 | 0.47 | 0.35 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
3.78 | 2.39 | (6.84 | ) | 0.72 | 5.11 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
4.31 | 2.82 | (6.43 | ) | 1.19 | 5.46 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.52 | ) | (0.42 | ) | (0.42 | ) | (0.51 | ) | (0.28 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.52 | ) | (0.42 | ) | (0.42 | ) | (0.51 | ) | (0.28 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 29.89 | $ | 26.10 | $ | 23.70 | $ | 30.55 | $ | 29.87 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
16.50 | % | 11.91 | % | (20.51 | )% | 3.88 | % | 22.33 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 5,092,547 | $ | 3,447,242 | $ | 2,393,638 | $ | 2,071,061 | $ | 1,323,122 | ||||||||||
| Ratio of expenses to average net assetsc |
0.52 | % | 0.53 | % | 0.55 | % | 0.52 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
1.70 | % | 1.63 | % | 2.00 | % | 1.46 | % | 1.32 | % | ||||||||||
| Portfolio turnover rated |
8 | % | 6 | % | 6 | % | 11 | % | 8 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Ratios for prior periods have been recalculated, as necessary, to conform with the current period presentation of foreign taxes. |
| d | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| 70 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Chile Investable Market Index Fund | ||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Period from Nov. 12, 2007a to Aug. 31, 2008 |
|||||||||||||
|
|
||||||||||||||||
| Net asset value, beginning of period |
$ | 67.37 | $ | 44.61 | $ | 44.80 | $ | 48.84 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income from investment operations: |
||||||||||||||||
| Net investment incomeb |
0.95 | 0.59 | 0.76 | 0.92 | ||||||||||||
| Net realized and unrealized gain (loss)c |
(0.23 | ) | 22.86 | (0.42 | ) | (4.38 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total from investment operations |
0.72 | 23.45 | 0.34 | (3.46 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Less distributions from: |
||||||||||||||||
| Net investment income |
(0.98 | ) | (0.66 | ) | (0.53 | ) | (0.58 | ) | ||||||||
| Return of capital |
(0.00 | )d | (0.03 | ) | – | – | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions |
(0.98 | ) | (0.69 | ) | (0.53 | ) | (0.58 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net asset value, end of period |
$ | 67.11 | $ | 67.37 | $ | 44.61 | $ | 44.80 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total return |
0.93 | % | 52.88 | % | 0.89 | % | (7.15 | )%e | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Ratios/Supplemental data: |
||||||||||||||||
| Net assets, end of period (000s) |
$ | 708,018 | $ | 670,350 | $ | 263,205 | $ | 76,158 | ||||||||
| Ratio of expenses to average net assetsf |
0.59 | % | 0.61 | % | 0.65 | % | 0.63 | % | ||||||||
| Ratio of net investment income to average net assetsf |
1.30 | % | 1.05 | % | 1.98 | % | 2.38 | % | ||||||||
| Portfolio turnover rateg |
38 | % | 42 | % | 53 | % | 16 | % | ||||||||
| a | Commencement of operations. |
| b | Based on average shares outstanding throughout each period. |
| c | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| d | Rounds to less than $0.01. |
| e | Not annualized. |
| f | Annualized for periods of less than one year. |
| g | Portfolio turnover rates include portfolio transactions that are executed as a result of the Fund processing capital share transactions in Creation Units solely for cash in U.S. dollars. Excluding such transactions, the portfolio turnover rate for the years ended August 31, 2011, August 31, 2010, August 31, 2009 and the period ended August 31, 2008 would have been 12%, 9%, 14% and 16%, respectively. See Note 4. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS | 71 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Israel Capped Investable Market Index Fund | ||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Period from Aug. 31, 2008 |
|||||||||||||
|
|
||||||||||||||||
| Net asset value, beginning of period |
$ | 49.41 | $ | 46.87 | $ | 48.62 | $ | 50.33 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income from investment operations: |
||||||||||||||||
| Net investment incomeb |
1.39 | 1.40 | 0.98 | 0.21 | ||||||||||||
| Net realized and unrealized gain (loss)c |
(3.18 | ) | 2.63 | (1.75 | ) | (1.92 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total from investment operations |
(1.79 | ) | 4.03 | (0.77 | ) | (1.71 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Less distributions from: |
||||||||||||||||
| Net investment income |
(1.73 | ) | (1.49 | ) | (0.98 | ) | – | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions |
(1.73 | ) | (1.49 | ) | (0.98 | ) | – | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net asset value, end of period |
$ | 45.89 | $ | 49.41 | $ | 46.87 | $ | 48.62 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total return |
(4.26 | )% | 8.57 | % | (0.63 | )% | (3.40 | )%d | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Ratios/Supplemental data: |
||||||||||||||||
| Net assets, end of period (000s) |
$ | 78,018 | $ | 128,473 | $ | 107,792 | $ | 204,201 | ||||||||
| Ratio of expenses to average net assetse |
0.59 | % | 0.61 | % | 0.66 | % | 0.63 | % | ||||||||
| Ratio of net investment income to average net assetse |
2.49 | % | 2.64 | % | 2.66 | % | 0.93 | % | ||||||||
| Portfolio turnover ratef |
17 | % | 21 | % | 27 | % | 8 | % | ||||||||
| a | Commencement of operations. |
| b | Based on average shares outstanding throughout each period. |
| c | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| d | Not annualized. |
| e | Annualized for periods of less than one year. |
| f | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| 72 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Mexico Investable Market Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
|
|
||||||||||||||||||||
| Net asset value, beginning of year |
$ | 48.17 | $ | 42.59 | $ | 51.94 | $ | 58.35 | $ | 41.30 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.80 | 0.72 | 0.43 | 1.40 | 0.64 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
10.15 | 5.61 | (9.17 | ) | (6.21 | ) | 16.87 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
10.95 | 6.33 | (8.74 | ) | (4.81 | ) | 17.51 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.73 | ) | (0.75 | ) | (0.61 | ) | (1.60 | ) | (0.46 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.73 | ) | (0.75 | ) | (0.61 | ) | (1.60 | ) | (0.46 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 58.39 | $ | 48.17 | $ | 42.59 | $ | 51.94 | $ | 58.35 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
22.67 | % | 14.83 | % | (16.50 | )% | (8.44 | )% | 42.58 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 1,243,731 | $ | 1,450,039 | $ | 694,278 | $ | 955,684 | $ | 1,382,810 | ||||||||||
| Ratio of expenses to average net assets |
0.52 | % | 0.53 | % | 0.55 | % | 0.52 | % | 0.51 | % | ||||||||||
| Ratio of net investment income to average net assets |
1.35 | % | 1.46 | % | 1.25 | % | 2.42 | % | 1.19 | % | ||||||||||
| Portfolio turnover ratec |
5 | % | 11 | % | 13 | % | 13 | % | 14 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS | 73 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI South Africa Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008a |
Year ended Aug. 31, 2007a |
||||||||||||||||
|
|
||||||||||||||||||||
| Net asset value, beginning of year |
$ | 58.74 | $ | 51.99 | $ | 55.80 | $ | 62.26 | $ | 48.84 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomeb |
1.65 | 1.18 | 1.94 | 2.28 | 1.50 | |||||||||||||||
| Net realized and unrealized gain (loss)c |
11.08 | 6.92 | (3.84 | ) | (6.02 | ) | 13.18 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
12.73 | 8.10 | (1.90 | ) | (3.74 | ) | 14.68 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(2.41 | ) | (1.35 | ) | (1.91 | ) | (2.72 | ) | (1.26 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(2.41 | ) | (1.35 | ) | (1.91 | ) | (2.72 | ) | (1.26 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 69.06 | $ | 58.74 | $ | 51.99 | $ | 55.80 | $ | 62.26 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
21.58 | % | 15.80 | % | (2.23 | )% | (6.18 | )% | 30.34 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 504,102 | $ | 505,191 | $ | 488,728 | $ | 429,655 | $ | 466,940 | ||||||||||
| Ratio of expenses to average net assets |
0.59 | % | 0.61 | % | 0.66 | % | 0.63 | % | 0.68 | % | ||||||||||
| Ratio of net investment income to average net assets |
2.38 | % | 2.09 | % | 4.81 | % | 3.61 | % | 2.58 | % | ||||||||||
| Portfolio turnover rated |
4 | % | 5 | % | 16 | % | 21 | % | 8 | % | ||||||||||
| a | Per share amounts were adjusted to reflect a two-for-one stock split effective July 24, 2008. |
| b | Based on average shares outstanding throughout each period. |
| c | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| d | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| 74 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Turkey Investable Market Index Fund | ||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Period from Aug. 31, 2008 |
|||||||||||||
|
|
||||||||||||||||
| Net asset value, beginning of period |
$ | 60.81 | $ | 48.01 | $ | 52.42 | $ | 50.30 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income from investment operations: |
||||||||||||||||
| Net investment incomeb |
0.84 | 1.00 | 0.78 | 0.83 | ||||||||||||
| Net realized and unrealized gain (loss)c |
(12.59 | ) | 13.02 | (4.22 | ) | 1.29 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total from investment operations |
(11.75 | ) | 14.02 | (3.44 | ) | 2.12 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Less distributions from: |
||||||||||||||||
| Net investment income |
(1.33 | ) | (1.22 | ) | (0.97 | ) | – | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions |
(1.33 | ) | (1.22 | ) | (0.97 | ) | – | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net asset value, end of period |
$ | 47.73 | $ | 60.81 | $ | 48.01 | $ | 52.42 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total return |
(19.74 | )% | 29.55 | % | (5.56 | )% | 4.22 | %d | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Ratios/Supplemental data: |
||||||||||||||||
| Net assets, end of period (000s) |
$ | 448,677 | $ | 601,988 | $ | 242,435 | $ | 152,021 | ||||||||
| Ratio of expenses to average net assetse |
0.59 | % | 0.61 | % | 0.65 | % | 0.63 | % | ||||||||
| Ratio of net investment income to average net assetse |
1.30 | % | 1.81 | % | 2.39 | % | 3.78 | % | ||||||||
| Portfolio turnover ratef |
12 | % | 13 | % | 16 | % | 27 | % | ||||||||
| a | Commencement of operations. |
| b | Based on average shares outstanding throughout each period. |
| c | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| d | Not annualized. |
| e | Annualized for periods of less than one year. |
| f | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS | 75 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI USA Index Fund | ||||||||
| Year ended Aug. 31, 2011 |
Period from to Aug. 31, 2010 |
|||||||
|
|
||||||||
| Net asset value, beginning of period |
$ | 22.44 | $ | 24.83 | ||||
|
|
|
|
|
|||||
| Income from investment operations: |
||||||||
| Net investment incomeb |
0.51 | 0.17 | ||||||
| Net realized and unrealized gain (loss)c |
3.73 | (2.49 | ) | |||||
|
|
|
|
|
|||||
| Total from investment operations |
4.24 | (2.32 | ) | |||||
|
|
|
|
|
|||||
| Less distributions from: |
||||||||
| Net investment income |
(0.51 | ) | (0.07 | ) | ||||
|
|
|
|
|
|||||
| Total distributions |
(0.51 | ) | (0.07 | ) | ||||
|
|
|
|
|
|||||
| Net asset value, end of period |
$ | 26.17 | $ | 22.44 | ||||
|
|
|
|
|
|||||
| Total return |
18.89 | % | (9.37 | )%d | ||||
|
|
|
|
|
|||||
| Ratios/Supplemental data: |
||||||||
| Net assets, end of period (000s) |
$ | 5,233 | $ | 2,244 | ||||
| Ratio of expenses to average net assetse |
0.15 | % | 0.15 | % | ||||
| Ratio of net investment income to average net assetse |
1.90 | % | 2.21 | % | ||||
| Portfolio turnover ratef |
8 | % | 1 | % | ||||
| a | Commencement of operations. |
| b | Based on average shares outstanding throughout each period. |
| c | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| d | Not annualized. |
| e | Annualized for periods of less than one year. |
| f | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| 76 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® , INC.
iShares, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company was incorporated under the laws of the State of Maryland on September 1, 1994 pursuant to amended and restated Articles of Incorporation.
These financial statements relate only to the following funds (each, a “Fund,” collectively, the “Funds”):
Non-diversified funds generally hold securities of fewer issuers than diversified funds and may be more susceptible to the risks associated with these particular issuers, or to a single economic, political or regulatory occurrence affecting these issuers.
The investment objective of each Fund is to seek investment results that correspond generally to the price and yield performance, before fees and expenses, of its underlying index. The investment adviser uses a “passive” or index approach to try to achieve each Fund’s investment objective.
Certain Funds may invest in securities of non-U.S. issuers that may trade in non-U.S. markets. This may involve certain considerations and risks not typically associated with securities of U.S. issuers. Such risks include, but are 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 of the Funds; less publicly available information about issuers; the imposition of withholding or other taxes; higher transaction and custody costs; settlement delays and risk of loss attendant in settlement procedures; difficulties in enforcing contractual obligations; less regulation of securities markets; different accounting, disclosure and reporting requirements; more substantial governmental involvement in the economy; higher inflation rates; greater social, economic and political uncertainties; the risk of nationalization or expropriation of assets and the risk of war.
Pursuant to the Company’s organizational documents, the Funds’ officers and directors are indemnified against certain liabilities that may arise out of the performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts with service providers that contain general indemnification clauses. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred.
1. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are consistently followed by the Funds in the preparation of their financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
| NOTES TO FINANCIAL STATEMENTS | 77 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® , INC.
SECURITY VALUATION
The securities and other assets of each Fund are valued pursuant to the pricing policy and procedures approved by the Board of Directors of the Company (the “Board”) using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
| • | Level 1 – Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access at the measurement date (a “Level 1 Price”); |
| • | Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not considered to be active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (a “Level 2 Price”); and |
| • | Level 3 – Inputs that are unobservable for the asset or liability (a “Level 3 Price”). |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3 of the fair value hierarchy.
The level of a value determined for a financial instrument within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement in its entirety. The categorization of a value determined for a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Funds’ perceived risk of that instrument.
Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 Prices, include active listed equities. The Funds do not adjust the quoted price for such instruments, even in situations where the Funds hold a large position and a sale could reasonably impact the quoted price.
Investments that trade in markets that are not considered to be active, but whose values are based on inputs such as quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified within Level 2. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Investments whose values are classified as Level 3 Prices have significant unobservable inputs, as they may trade infrequently or not at all. Investments whose values are classified as Level 3 Prices may include unlisted securities related to corporate actions, securities whose trading have been suspended or which have been de-listed from their primary trading exchange, less liquid corporate debt securities (including distressed debt instruments), collateralized debt obligations, and less liquid mortgage securities (backed by either commercial or residential real estate). When observable prices are not available for these securities, the Funds use one or more valuation techniques (e.g., the market approach or the income approach) for which sufficient and reliable data is available. Within Level 3 of the fair value hierarchy, the use of the
| 78 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® , INC.
market approach generally consists of using comparable market transactions, while the use of the income approach generally consists of the net present value of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors.
The inputs used by the Funds in estimating the value of Level 3 Prices may include the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 Prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the Funds in the absence of market information. The fair value measurement of Level 3 Prices does not include transaction costs that may have been capitalized as part of the security’s cost basis. Assumptions used by the Funds due to the lack of observable inputs may significantly impact the resulting fair value and therefore the Funds’ results of operations.
Fair value pricing could result in a difference between the prices used to calculate a Fund’s net asset value and the prices used by the Fund’s underlying index, which in turn could result in a difference between the Fund’s performance and the performance of the Fund’s underlying index.
The following table summarizes the value of each of the Funds’ investments according to the fair value hierarchy as of August 31, 2011. The breakdown of each Fund’s investments into major categories is disclosed in its respective Schedule of Investments.
| Investments in Securities | ||||||||||||||||
| iShares MSCI Index Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Brazil |
||||||||||||||||
| Common Stocks |
$ | 5,249,853,045 | $ | – | $ | – | $ | 5,249,853,045 | ||||||||
| Preferred Stocks |
5,986,753,337 | – | 1,705,055 | 5,988,458,392 | ||||||||||||
| Short-Term Investments |
5,434,287 | – | – | 5,434,287 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 11,242,040,669 | $ | – | $ | 1,705,055 | $ | 11,243,745,724 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Canada |
||||||||||||||||
| Common Stocks |
$ | 5,085,793,587 | $ | – | $ | 10,008 | $ | 5,085,803,595 | ||||||||
| Short-Term Investments |
24,813,255 | – | – | 24,813,255 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 5,110,606,842 | $ | – | $ | 10,008 | $ | 5,110,616,850 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Chile Investable Market |
||||||||||||||||
| Common Stocks |
$ | 707,324,521 | $ | – | $ | – | $ | 707,324,521 | ||||||||
| Rights |
– | – | 0 | a | 0 | a | ||||||||||
| Short-Term Investments |
578,354 | – | – | 578,354 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 707,902,875 | $ | – | $ | 0 | a | $ | 707,902,875 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Israel Capped Investable Market |
||||||||||||||||
| Common Stocks |
$ | 77,364,718 | $ | – | $ | 439,589 | $ | 77,804,307 | ||||||||
| Rights |
– | – | 22,094 | 22,094 | ||||||||||||
| Short-Term Investments |
1,428,746 | – | – | 1,428,746 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 78,793,464 | $ | – | $ | 461,683 | $ | 79,255,147 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mexico Investable Market |
||||||||||||||||
| Common Stocks |
$ | 1,243,195,445 | $ | – | $ | – | $ | 1,243,195,445 | ||||||||
| Short-Term Investments |
40,711,700 | – | – | 40,711,700 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 1,283,907,145 | $ | – | $ | – | $ | 1,283,907,145 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| NOTES TO FINANCIAL STATEMENTS | 79 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® , INC.
| Investments in Securities | ||||||||||||||||
| iShares MSCI Index Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| South Africa |
||||||||||||||||
| Common Stocks |
$ | 503,166,582 | $ | – | $ | – | $ | 503,166,582 | ||||||||
| Short-Term Investments |
17,026 | – | – | 17,026 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 503,183,608 | $ | – | $ | – | $ | 503,183,608 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Turkey Investable Market |
||||||||||||||||
| Common Stocks |
$ | 449,713,009 | $ | – | $ | – | $ | 449,713,009 | ||||||||
| Short-Term Investments |
33,135,424 | – | – | 33,135,424 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 482,848,433 | $ | – | $ | – | $ | 482,848,433 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| USA |
||||||||||||||||
| Common Stocks |
$ | 5,223,544 | $ | – | $ | – | $ | 5,223,544 | ||||||||
| Short-Term Investments |
32,285 | – | – | 32,285 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 5,255,829 | $ | – | $ | – | $ | 5,255,829 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| a | Rounds to less than $1. |
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for on trade date. Dividend income is recognized on the ex-dividend date, net of any foreign taxes withheld at source. Any taxes withheld that are reclaimable from foreign tax authorities as of August 31, 2011 are reflected in dividends receivable. Non-cash dividends received in the form of stock in an elective dividend, if any, are recorded as dividend income at fair value. Distributions received by the Funds may include a return of capital that is estimated by management. Such amounts are recorded as a reduction of the cost of investments or reclassified to capital gains. Interest income is accrued daily. Realized gains and losses on investment transactions are determined using the specific identification method.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Funds are maintained in U.S. dollars. Foreign currencies, as well as investment securities and other assets and liabilities denominated in foreign currencies, are translated into U.S. dollars using exchange rates deemed appropriate by the investment adviser. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars on the respective dates of such transactions.
Each Fund does not isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of securities. Such fluctuations are reflected by the Funds as a component of realized and unrealized gains and losses from investments for financial reporting purposes.
FOREIGN TAXES
The Funds (except for the iShares MSCI USA Index Fund) may be subject to foreign taxes (a portion of which may be reclaimable) on income, capital gains on investments, certain foreign currency transactions or other corporate events. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in the foreign jurisdictions in which the Funds invest. These foreign taxes, if any, are paid by the Funds and are reflected in their Statements of Operations as follows: foreign taxes withheld at source are presented as a reduction
| 80 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® , INC.
of income, foreign taxes on capital gains from sales of investments and foreign currency transactions are included in their respective net realized gain (loss) categories, and foreign taxes on other corporate events are reflected in “Other foreign taxes.” Foreign taxes payable as of August 31, 2011, if any, are disclosed in the Funds’ Statements of Assets and Liabilities.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends and distributions paid by each Fund are recorded on the ex-dividend dates. Distributions are determined on a tax basis and may differ from net investment income and net realized capital gains for financial reporting purposes. Dividends and distributions are paid in U.S. dollars and cannot be automatically reinvested in additional shares of the Funds.
As of August 31, 2011, the tax year-end of the Funds, the components of accumulated net earnings (losses) on a tax basis were as follows:
| iShares MSCI Index Fund | Undistributed Ordinary Income |
Undistributed Long-Term Capital Gains |
Unrealized Appreciation (Depreciation) |
Capital and Other Losses |
Accumulated Earnings |
|||||||||||||||
| Brazil |
$ | – | $ | – | $ | 2,543,613,764 | $ | (289,865,142 | ) | $ | 2,253,748,622 | |||||||||
| Canada |
23,952,351 | – | (149,319,299 | ) | (156,389,226 | ) | (281,756,174 | ) | ||||||||||||
| Chile Investable Market |
– | – | 158,842,526 | (21,921,827 | ) | 136,920,699 | ||||||||||||||
| Israel Capped Investable Market |
– | – | (28,004,290 | ) | (20,841,415 | ) | (48,845,705 | ) | ||||||||||||
| Mexico Investable Market |
3,926,939 | – | (109,003,899 | ) | (45,858,326 | ) | (150,935,286 | ) | ||||||||||||
| South Africa |
– | – | (985,797 | ) | (44,714,388 | ) | (45,700,185 | ) | ||||||||||||
| Turkey Investable Market |
– | – | (169,478,278 | ) | (16,003,661 | ) | (185,481,939 | ) | ||||||||||||
| USA |
10,966 | 51 | 135,867 | – | 146,884 | |||||||||||||||
The difference between book-basis and tax-basis unrealized gains (losses) is attributable primarily to the tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains on investments in passive foreign investment companies.
The tax character of distributions paid during the years ended August 31, 2011 and August 31, 2010 were as follows:
| iShares MSCI Index Fund | 2011 | 2010 | ||||||
| Brazil |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 577,419,673 | $ | 384,786,885 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 577,419,673 | $ | 384,786,885 | ||||
|
|
|
|
|
|||||
| Canada |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 84,459,614 | $ | 50,623,009 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 84,459,614 | $ | 50,623,009 | ||||
|
|
|
|
|
|||||
| Chile Investable Market |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 11,314,677 | $ | 4,266,725 | ||||
| Return of capital |
9,331 | 214,415 | ||||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 11,324,008 | $ | 4,481,140 | ||||
|
|
|
|
|
|||||
| NOTES TO FINANCIAL STATEMENTS | 81 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund | 2011 | 2010 | ||||||
| Israel Capped Investable Market |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 3,733,516 | $ | 5,130,542 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 3,733,516 | $ | 5,130,542 | ||||
|
|
|
|
|
|||||
| Mexico Investable Market |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 19,365,342 | $ | 18,506,573 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 19,365,342 | $ | 18,506,573 | ||||
|
|
|
|
|
|||||
| South Africa |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 21,537,358 | $ | 12,009,132 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 21,537,358 | $ | 12,009,132 | ||||
|
|
|
|
|
|||||
| Turkey Investable Market |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 13,656,029 | $ | 8,702,771 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 13,656,029 | $ | 8,702,771 | ||||
|
|
|
|
|
|||||
| USA |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 35,212 | $ | 6,626 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 35,212 | $ | 6,626 | ||||
|
|
|
|
|
|||||
FEDERAL INCOME TAXES
Each Fund is treated as an entity separate from the Company’s other funds for federal income tax purposes. It is the policy of each Fund to qualify as a regulated investment company by complying with the provisions applicable to regulated investment companies, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, and to annually distribute substantially all of its ordinary income and any net capital gains (taking into account any capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income and excise taxes. Accordingly, no provision for federal income taxes is required.
As permitted by tax regulations, certain Funds have elected to defer net realized capital losses incurred from November 1, 2010 to August 31, 2011 and treat them as arising in the year ending August 31, 2012, as follows:
| iShares MSCI Index Fund |
Deferred Net Realized |
|||
| Brazil |
$ | 91,638,832 | ||
| Canada |
31,267,337 | |||
| Chile Investable Market |
7,345,865 | |||
| Israel Capped Investable Market |
2,125,496 | |||
| 82 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund | Deferred Net Realized Capital Losses |
|||
| Mexico Investable Market |
$ | 6,596,203 | ||
| South Africa |
5,013,197 | |||
| Turkey Investable Market |
5,441,104 | |||
Certain Funds had tax basis net capital loss carryforwards as of August 31, 2011, the tax year-end of the Funds, as follows:
| iShares MSCI Index Fund | Expiring 2012 |
Expiring 2013 |
Expiring 2014 |
Expiring 2015 |
Expiring 2016 |
Expiring 2017 |
Expiring 2018 |
Expiring 2019 |
Total | |||||||||||||||||||||||||||
| Brazil |
$ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 198,226,310 | $ | – | $ | 198,226,310 | ||||||||||||||||||
| Canada |
– | 2,931,648 | – | 5,363,291 | 5,107,471 | 27,886,883 | 68,928,677 | 14,903,919 | 125,121,889 | |||||||||||||||||||||||||||
| Chile Investable Market |
– | – | – | – | – | 1,886,881 | 11,712,090 | 976,991 | 14,575,962 | |||||||||||||||||||||||||||
| Israel Capped Investable Market |
– | – | – | – | – | 784,479 | 10,801,191 | 7,130,249 | 18,715,919 | |||||||||||||||||||||||||||
| Mexico Investable Market |
3,136,171 | 12,912 | 632,766 | – | 853,150 | 8,973,988 | 2,789,471 | 22,863,665 | 39,262,123 | |||||||||||||||||||||||||||
| South Africa |
527,613 | – | 260,738 | 1,607,845 | 972,024 | 15,339,464 | 14,856,365 | 6,137,142 | 39,701,191 | |||||||||||||||||||||||||||
| Turkey Investable Market |
– | – | – | – | – | 720,636 | 5,982,737 | 3,859,184 | 10,562,557 | |||||||||||||||||||||||||||
Net capital loss carryforwards may be applied against any net realized taxable gains in each succeeding year or until their respective expiration dates, whichever occurs first.
Under the recently enacted Regulated Investment Company Modernization Act of 2010, capital losses incurred by funds for taxable years beginning after December 22, 2010 will not be subject to expiration. In addition, such losses must be utilized prior to the losses incurred in the tax years preceding enactment.
The Funds may own shares in certain foreign investment entities, referred to, under U.S. tax law, as “passive foreign investment companies.” The Funds may elect to mark-to-market annually the shares of each passive foreign investment company and would be required to distribute to shareholders any such marked-to-market gains.
As of August 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:
| iShares MSCI Index Fund | Tax Cost | Gross Unrealized Appreciation |
Gross Unrealized Depreciation |
Net Unrealized |
||||||||||||
| Brazil |
$ | 8,702,970,291 | $ | 3,440,904,244 | $ | (900,128,811 | ) | $ | 2,540,775,433 | |||||||
| Canada |
5,260,017,772 | 402,866,219 | (552,267,141 | ) | (149,400,922 | ) | ||||||||||
| Chile Investable Market |
549,057,543 | 196,281,617 | (37,436,285 | ) | 158,845,332 | |||||||||||
| Israel Capped Investable Market |
107,260,144 | 472,467 | (28,477,464 | ) | (28,004,997 | ) | ||||||||||
| Mexico Investable Market |
1,392,885,952 | 70,878,446 | (179,857,253 | ) | (108,978,807 | ) | ||||||||||
| South Africa |
504,185,354 | 54,095,431 | (55,097,177 | ) | (1,001,746 | ) | ||||||||||
| Turkey Investable Market |
652,313,930 | 4,937,114 | (174,402,611 | ) | (169,465,497 | ) | ||||||||||
| USA |
5,119,962 | 238,346 | (102,479 | ) | 135,867 | |||||||||||
| NOTES TO FINANCIAL STATEMENTS | 83 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
Management has reviewed the tax positions as of August 31, 2011, inclusive of the open tax return years, and has determined that no provision for income tax is required in the Funds’ financial statements.
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These differences are reclassified by each Fund at the end of its tax year and are primarily attributable to passive foreign investment companies, the expiration of capital loss carryforwards, distributions paid in excess of taxable income, and realized gains (losses) from foreign currency transactions and in-kind redemptions. As of August 31, 2011, the Funds made the following reclassifications, which have no effect on net assets or net asset values per share:
| iShares MSCI Index Fund | Paid-in Capital |
Undistributed Income/Distributions in Excess of Net Investment Income |
Undistributed Accumulated Net Realized Loss |
|||||||||
| Brazil |
$ | – | $ | 15,977,187 | $ | (15,977,187 | ) | |||||
| Canada |
228,501,668 | 2,688,321 | (231,189,989 | ) | ||||||||
| Chile Investable Market |
– | (64,399 | ) | 64,399 | ||||||||
| Israel Capped Investable Market |
907,010 | 192,455 | (1,099,465 | ) | ||||||||
| Mexico Investable Market |
175,805,779 | (22,104 | ) | (175,783,675 | ) | |||||||
| South Africa |
42,923,847 | 2,741,537 | (45,665,384 | ) | ||||||||
| Turkey Investable Market |
73,954,856 | 4,612,753 | (78,567,609 | ) | ||||||||
| USA |
19,693 | – | (19,693 | ) | ||||||||
RECENT ACCOUNTING STANDARD
In May 2011, the Financial Accounting Standards Board issued amended guidance to improve disclosure about fair value measurements which will require the following disclosures for fair value measurements categorized as Level 3: quantitative information about the unobservable inputs and assumptions used in the fair value measurement, a description of the valuation policies and procedures and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, the amounts and reasons for all transfers in and out of Level 1 and Level 2 will be required to be disclosed. The amended guidance is effective for financial statements for fiscal years beginning after December 15, 2011, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Funds’ financial statements and disclosures.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Investment Advisory Agreement with the Company, BlackRock Fund Advisors (“BFA”) manages the investment of each Fund’s assets. BFA is a California corporation indirectly owned by BlackRock, Inc. (“BlackRock”). Under the Investment Advisory Agreement, BFA is responsible for substantially all expenses of the Funds, except interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution fees, litigation expenses and any extraordinary expenses.
| 84 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
For its investment advisory services to each of the iShares MSCI Canada and iShares MSCI Mexico Investable Market Index Funds, BFA is entitled to an annual investment advisory fee based on each Fund’s allocable portion of the aggregate of the average daily net assets of the Fund and certain other iShares funds, as follows:
| Investment Advisory Fee | Aggregate Average Daily Net Assets | |
| 0.59% | First $7 billion | |
| 0.54 | Over $7 billion, up to and including $11 billion | |
| 0.49 | Over $11 billion, up to and including $24 billion | |
| 0.44 | Over $24 billion, up to and including $48 billion | |
| 0.40 | Over $48 billion |
For its investment advisory services to each of the iShares MSCI Brazil, iShares MSCI Chile Investable Market, iShares MSCI Israel Capped Investable Market, iShares MSCI South Africa and iShares MSCI Turkey Investable Market Index Funds, BFA is entitled to an annual investment advisory fee based on each Fund’s allocable portion of the aggregate of the average daily net assets of the Fund and certain other iShares funds, as follows:
| Investment Advisory Fee | Aggregate Average Daily Net Assets | |
| 0.74% | First $2 billion | |
| 0.69 | Over $2 billion, up to and including $4 billion | |
| 0.64 | Over $4 billion, up to and including $8 billion | |
| 0.57 | Over $8 billion, up to and including $16 billion | |
| 0.51 | Over $16 billion, up to and including $32 billiona | |
| 0.45 | Over $32 billiona |
| a | Breakpoint level was modified or added, effective January 1, 2011. |
For its investment advisory services to the iShares MSCI USA Index Fund, BFA is entitled to an annual investment advisory fee of 0.15% based on the average daily net assets of the Fund.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BlackRock Institutional Trust Company, N.A. (“BTC”) to serve as securities lending agent for the Funds, subject to applicable conditions. BTC is an affiliate of BFA, the Funds’ investment adviser. As securities lending agent, BTC receives, as fees, a share of the combined income earned from the investment of cash collateral received for the loan of securities and any fees paid by borrowers. For the year ended August 31, 2011, BTC earned securities lending agent fees from the Funds as follows:
| iShares MSCI Index Fund |
Securities Lending Agent Fees |
|||
| Brazil |
$ | 749 | ||
| Canada |
128,923 | |||
| Israel Capped Investable Market |
28,621 | |||
| Mexico Investable Market |
269,393 | |||
| South Africa |
35,075 | |||
| Turkey Investable Market |
295,274 | |||
| USA |
50 | |||
| NOTES TO FINANCIAL STATEMENTS | 85 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
Each Fund may invest its positive cash balances in certain money market funds managed by BFA or an affiliate. The income earned on these temporary cash investments is included in “Interest – affiliated” in the Statements of Operations.
The PNC Financial Services Group, Inc. (“PNC”) and Barclays PLC (“Barclays”) are the largest stockholders of BlackRock. Due to the ownership structure, PNC is an affiliate of the Funds for 1940 Act purposes, but Barclays is not.
Investments in issuers considered to be affiliates of the Funds (excluding short-term investments) during the year ended August 31, 2011, for purposes of Section 2(a)(3) of the 1940 Act, were as follows:
| iShares Index Fund and Name of Affiliated Issuer |
Number of Shares Held Beginning of Year |
Gross Additions |
Gross Reductions |
Number of Shares Held End of Year |
Value at End of Year |
Dividend Income |
Net Realized Gain (Loss) |
|||||||||||||||||||||
| MSCI USA |
||||||||||||||||||||||||||||
| BlackRock Inc. |
8 | 44 | (10 | ) | 42 | $ | 6,920 | $ | 93 | $ | 45 | |||||||||||||||||
| PNC Financial Services Group Inc. (The) |
118 | 177 | (59 | ) | 236 | 11,833 | 80 | (707 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||
| $ | 18,753 | $ | 173 | $ | (662 | ) | ||||||||||||||||||||||
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Certain directors and officers of the Company are also officers of BTC and/or BFA.
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments (excluding in-kind transactions and short-term investments) for the year ended August 31, 2011 were as follows:
| iShares MSCI Index Fund | Purchases | Sales | ||||||
| Brazil |
$ | 4,028,817,274 | $ | 1,292,686,110 | ||||
| Canada |
386,817,422 | 382,219,030 | ||||||
| Chile Investable Market |
384,433,723 | 327,246,921 | ||||||
| Israel Capped Investable Market |
20,992,283 | 21,909,434 | ||||||
| Mexico Investable Market |
127,022,706 | 76,827,909 | ||||||
| South Africa |
41,028,825 | 46,094,224 | ||||||
| Turkey Investable Market |
90,499,630 | 78,236,406 | ||||||
| USA |
168,307 | 163,140 | ||||||
| 86 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
In-kind transactions (see Note 4) for the year ended August 31, 2011 were as follows:
| iShares MSCI Index Fund | In-kind Purchases |
In-kind Sales |
||||||
| Canada |
$ | 2,396,546,774 | $ | 1,171,825,760 | ||||
| Israel Capped Investable Market |
45,789,856 | 91,447,146 | ||||||
| Mexico Investable Market |
687,038,407 | 1,233,797,096 | ||||||
| South Africa |
172,453,674 | 256,425,209 | ||||||
| Turkey Investable Market |
413,366,967 | 433,236,598 | ||||||
| USA |
3,831,389 | 1,252,897 | ||||||
4. CAPITAL SHARE TRANSACTIONS
Capital shares are issued and redeemed by each Fund only in aggregations of a specified number of shares or multiples thereof (“Creation Units”) at net asset value. Except when aggregated in Creation Units, shares of each Fund are not redeemable. Transactions in capital shares for each Fund are disclosed in detail in the Statements of Changes in Net Assets.
The consideration for the purchase of Creation Units of a fund in the Company generally consists of the in-kind deposit of a designated portfolio of securities, which constitutes an optimized representation of the securities of that fund’s underlying index, and an amount of cash. Certain funds in the Company may be offered in Creation Units solely or partially for cash in U.S. dollars. Investors purchasing and redeeming Creation Units may pay a purchase transaction fee and a redemption transaction fee directly to State Street Bank and Trust Company, the Company’s administrator, to offset transfer and other transaction costs associated with the issuance and redemption of Creation Units, including Creation Units for cash. Investors transacting in Creation Units for cash pay an additional variable charge to compensate the relevant fund for certain transaction costs (i.e., stamp taxes, taxes on currency or other financial transactions, and brokerage costs) and market impact expenses relating to investing in portfolio securities.
From time to time, settlement of securities related to in-kind contributions or in-kind redemptions may be delayed. In such cases, securities related to in-kind contributions are reflected as “Due from custodian” and securities related to in-kind redemptions are reflected as “Securities related to in-kind transactions” in the Statements of Assets and Liabilities.
5. LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its investment securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. government. The initial collateral received by each Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current value of the securities on loan. The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. Any securities lending cash collateral may be reinvested in certain short-term instruments either directly on behalf of a fund or through one or more joint accounts or money market funds, including those managed by BFA or its affiliates; such reinvestments are subject to investment risk.
As of August 31, 2011, any securities on loan were collateralized by cash. The cash collateral received was invested in money market funds managed by BFA. The value of the securities on loan as of August 31, 2011 and the value of the related collateral are disclosed in the Statements of Assets and Liabilities. Securities lending income, as disclosed in the Statements of Operations, represents the income earned
| NOTES TO FINANCIAL STATEMENTS | 87 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
from the investment of the cash collateral, plus any fees paid by borrowers and less the fees paid to BTC as securities lending agent which are subject to adjustments pursuant to the securities lending agreement.
6. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were available to be issued and has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements.
| 88 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
iShares, Inc.
In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the iShares MSCI Brazil Index Fund, iShares MSCI Canada Index Fund, iShares MSCI Chile Investable Market Index Fund, iShares MSCI Israel Capped Investable Market Index Fund, iShares MSCI Mexico Investable Market Index Fund, iShares MSCI South Africa Index Fund, iShares MSCI Turkey Investable Market Index Fund and iShares MSCI USA Index Fund, each a portfolio of the iShares MSCI Series (the “Funds”), at August 31, 2011, the results of each of their operations, the changes in each of their net assets and their financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2011 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 21, 2011
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 89 |
Table of Contents
iSHARES® , INC.
For corporate shareholders, 100% of the income dividends paid by the iShares MSCI USA Index Fund during the fiscal year ended August 31, 2011 qualified for the dividends-received deduction.
For the fiscal year ended August 31, 2011, certain Funds earned foreign source income and paid foreign taxes which they intend to pass through to their shareholders pursuant to Section 853 of the Internal Revenue Code (the “Code”) as follows:
| iShares MSCI Index Fund |
Foreign Source Income Earned |
Foreign Taxes Paid |
||||||
| Brazil |
$ | 475,250,914 | $ | 37,265,836 | ||||
| Canada |
130,684,010 | 18,494,350 | ||||||
| Chile Investable Market |
22,097,224 | 5,547,786 | ||||||
| Israel Capped Investable Market |
4,621,540 | 771,122 | ||||||
| Mexico Investable Market |
29,020,621 | – | ||||||
| South Africa |
18,375,546 | – | ||||||
| Turkey Investable Market |
14,369,740 | 1,990,626 | ||||||
Under Section 854(b)(2) of the Code, the Funds hereby designate the following maximum amounts as qualified dividend income for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended August 31, 2011:
In February 2012, shareholders will receive Form 1099-DIV which will include their share of qualified dividend income distributed during the calendar year 2011. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their income tax returns.
| 90 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited)
iSHARES® , INC.
Under Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), the Company’s Board of Directors (the “Board”), including a majority of Directors who are not “interested persons” of the Company (as that term is defined in the 1940 Act) (the “Independent Directors”), is required annually to consider the Investment Advisory Contract between the Company and BFA (the “Advisory Contract”) on behalf of the Funds. As required by Section 15(c), the Board requested and BFA provided such information as the Board, with advice from independent counsel, deemed reasonably necessary to evaluate the Advisory Contract. An ad-hoc sub-committee of the Independent Directors (the “Ad-Hoc Sub-Committee”), with independent counsel, met with management on April 19, 2011, and April 26, 2011, to discuss the types of information the Board required and the manner in which management would organize and present such information. At a meeting held on May 16, 2011, management presented information to the Board relating to the continuance of the Advisory Contract and the Board reviewed and discussed such information at length. The Board also requested from management certain additional information. At a meeting held on June 22-23, 2011, the Board reviewed additional information provided by management in response to the Board’s requests. The Board approved the selection of BFA and the continuance of the Advisory Contract for the Funds, based on its review of qualitative and quantitative information provided by BFA, including its review of supplemental information management provided at the request of the Board. The Board noted its satisfaction with the extent and quality of information, and detailed responses, provided by BFA. The Independent Directors were advised by their independent counsel throughout the process. In selecting BFA and approving the Advisory Contract for the Funds, the Board, including the Independent Directors, considered the following factors, no one of which was controlling, and made the following conclusions:
Nature, Extent and Quality of Services Provided by BFA – Based on management’s representations, the Board expected that there would be no diminution in the scope of services required of or provided by BFA under the Advisory Contract for the coming year as compared to the scope of services provided by BFA over prior years. In reviewing the scope of these services, the Board considered BFA’s investment philosophy and experience, noting that BFA and its affiliates have committed significant resources over time, including during the past year, supporting the Funds and their shareholders. The Board noted that BFA became an indirect wholly-owned subsidiary of BlackRock Inc. (“BlackRock”) in December 2009. The Board acknowledged that additional resources to support the Funds and their shareholders were added in 2010, for example, in such areas as investor education, product management, and capital markets support. The Board also considered BFA’s compliance program and its compliance record with respect to the Funds. In that regard, the Board noted that BFA reports to the Board about portfolio management and compliance matters on a periodic basis in connection with regularly scheduled meetings of the Board, and on other occasions as necessary and appropriate, and has provided information and made appropriate officers available as needed to provide further assistance with these matters. The Board also reviewed the background and experience of the persons responsible for the day-to-day management of the Funds. In addition to the above considerations, the Board reviewed and considered BFA’s investment processes and strategies, and matters related to BFA’s portfolio compliance policies and procedures. The Board noted that each Fund had met its investment objective consistently since its respective inception date. Based on review of this information, the Board concluded that the nature, extent and quality of services to be provided by BFA to the Funds under the Advisory Contract supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Expenses and Performance of the Funds – The Board reviewed statistical information prepared by Lipper Inc. (“Lipper”), an independent provider of investment company data, regarding the expense ratio components, including actual advisory fees, waivers/reimbursements, and gross and net total expenses of each Fund in comparison with the same information for other registered investment companies objectively selected by Lipper as comprising such Fund’s applicable peer group pursuant to Lipper’s proprietary methodology and any registered funds that would otherwise have been excluded from Lipper’s comparison group because of their size or other differentiating factors, but were nonetheless included at the request of BFA (the “Lipper Group”). Because there are few, if any, exchange traded funds or index funds that track indexes similar to those tracked by the Funds, the Lipper Group included in part mutual funds, closed-end funds, exchange traded funds, or funds with differing investment objective classifications, investment focuses and other characteristics (e.g., actively managed funds and funds sponsored by “at cost” service providers), as applicable. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the applicable Lipper Groups and to prepare this information. The Board
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT | 91 |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES® , INC.
further noted that due to the limitations in providing comparable funds in the various Lipper Groups, the statistical information may or may not provide meaningful direct comparisons to the Funds.
The Board also noted that the investment advisory fees and overall expenses for the Funds compared favorably to the investment advisory fee rates and overall expenses of the funds in their respective Lipper Group.
In addition, the Board reviewed statistical information prepared by Lipper regarding the performance of each Fund for the one-, three-, five-, ten-year, and since inception periods, as applicable, and the “last quarter” period ended December 31, 2010, and a comparison of each Fund’s performance to its performance benchmark index for the same periods. To the extent that any of the comparison funds included in the Lipper Group track the same index as any particular Fund, Lipper also provided, and the Board reviewed, a comparison of such Fund’s performance to that of such relevant comparison funds for the same periods. The Board noted that the Funds generally performed in line with their respective performance benchmark indexes over the relevant periods. In considering this information, the Board noted that the Lipper Group includes funds that may have different investment objectives and/or benchmarks from the Funds. In addition, the Board noted that each Fund seeks to track its benchmark index and that, during the prior year, the Board received periodic reports on the Funds’ performance in comparison with their relevant benchmark indexes. Such comparative performance information was also considered by the Board.
Based on this review, the Board concluded that the investment advisory fees and expense levels and the historical performance of each Fund, as compared to the investment advisory fees and expense levels and performance of the funds in the relevant Lipper Group, supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Costs of Services Provided to Funds and Profits Realized by BFA and Affiliates – The Board reviewed information about the profitability to BFA of the Funds based on the fees payable to BFA and its affiliates (including fees under the Advisory Contract), and all other sources of revenue and expense to BFA and its affiliates from the Funds’ operations for the last calendar year. The Board reviewed BlackRock’s profitability methodology for the iShares Funds and how such profitability methodology differed from the methodology used to calculate profitability prior to the acquisition of BFA by BlackRock, noting that such matters were focused on by the Ad-Hoc Sub-Committee during its meetings and addressed by management. The Board discussed the sources of direct and ancillary revenue with management, including the revenues to BTC from securities lending by the Funds. The Board also discussed BFA’s profit margin as reflected in the Funds’ profitability analysis and reviewed information regarding economies of scale (as discussed below). Based on this review, the Board concluded that the profits realized by BFA and its affiliates under the Advisory Contract and from other relationships between the Funds and BFA and/or its affiliates, if any, were within a reasonable range in light of the factors considered.
Economies of Scale – In connection with its review of the Funds’ profitability analysis, the Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Funds’ assets. The Board noted that the Advisory Contract for the Funds, with the exception of the iShares MSCI USA Index Fund, already provided for breakpoints in such Funds’ investment advisory fee rates as the assets of such Funds, on an aggregated basis with the assets of certain other iShares funds, increase, and that the Board had approved additional breakpoints in a previous year. The Board noted that the Advisory Contract for the iShares MSCI USA Index Fund did not provide for any breakpoints in the Fund’s investment advisory rate as the assets of the Fund increase. However, the Board further noted management’s assertion that future economies of scale for the Fund had been taken into consideration by fixing the investment advisory fee rate at the low end of the market place, effectively giving Fund shareholders, from inception, the benefits of lower fees. The Board also reviewed BFA’s historic profitability as investment adviser to the iShares fund complex and noted that BFA and BlackRock had continued to make significant investments in the iShares fund complex and the infrastructure supporting the iShares funds. Based on this review, as well as the discussions described above in connection with the Lipper Group and performance benchmark comparisons, the Board, recognizing its responsibility to consider this issue at least annually, concluded that the structure of the investment advisory fees reflects appropriate sharing of potential
| 92 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES® , INC.
economies of scale with the Funds’ shareholders and supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by BFA and its Affiliates – The Board received and considered information regarding the investment advisory/management fee rates for other funds/accounts in the U.S. for which BFA (or its affiliates) provides investment advisory/management services, including open-end and closed-end funds registered under the 1940 Act (including sub-advised funds), collective trust funds and institutional separate accounts (together, the “Other Accounts”). The Board noted that BFA and its affiliates do not manage Other Accounts with substantially similar investment objectives and strategies as any of the Funds, except for iShares MSCI Brazil Index Fund, iShares MSCI Canada Index Fund, iShares MSCI South Africa Index Fund, and iShares MSCI USA Index Fund. The Board further noted that BFA provided the Board with detailed information regarding how the Other Accounts (particularly institutional clients) generally differ from the Funds, including in terms of the different services provided as well as other significant differences in the approach of BFA and its affiliates to the Funds, on one hand, and Other Accounts, on the other. In that regard, the Board considered that the pricing of services to institutional clients is typically based on a number of factors beyond the nature and extent of the specific services to be provided and often depends on the overall relationship between the client and its affiliates and the adviser and its affiliates. In addition, the Board considered the relative complexity and inherent risks of managing and providing other services to the Funds, as publicly traded exchanged traded funds, as compared to the Other Accounts that are institutional clients in light of differing regulatory requirements and client-imposed mandates. The Board noted that the investment advisory fee rates under the Advisory Contract for the Funds were generally higher than the investment advisory/management fee rates for the Other Accounts that are institutional clients of BFA (or its affiliates) and concluded that the differences appeared to be consistent with the factors discussed.
Other Benefits to BFA and/or its Affiliates – The Board reviewed any ancillary revenue received by BFA and/or its affiliates in connection with the services provided to the Funds by BFA, such as any payment of revenue to BTC, the Funds’ securities lending agent, for loaning any portfolio securities, and payment of advisory fees and/or administration fees to BFA and BTC (or their affiliates) in connection with any investments by the Funds in other funds for which BFA (or its affiliates) provides investment advisory services and/or administration services. The Board noted that BFA does not use soft dollars or consider the value of research or other services that may be provided to BFA (including its affiliates) in selecting brokers for portfolio transactions for the Funds. The Board further noted that any portfolio transactions on behalf of the Funds placed through a BFA affiliate or purchased from an underwriting syndicate in which a BFA affiliate participates, are reported to the Board pursuant to Rule 17e-1 or Rule 10f-3, as applicable, under the 1940 Act. The Board concluded that any such ancillary benefits would not be disadvantageous to the Funds’ shareholders.
Based on the considerations described above, the Board determined that the investment advisory fee rates under the Advisory Contract do not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bargaining and concluded that it is in the best interest of the Funds and their shareholders to approve the continuance of the Advisory Contract for the coming year.
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT | 93 |
Table of Contents
Supplemental Information (Unaudited)
iSHARES®, INC.
Section 19(a) Notices
The amounts and sources of distributions reported are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon each Fund’s investment experience during the year and may be subject to changes based on the tax regulations. Shareholders will receive a Form 1099-DIV each calendar year that will inform them how to report distributions for federal income tax purposes.
| Total Cumulative Distributions for the Fiscal Year |
% Breakdown of the Total Cumulative Distributions for the Fiscal Year |
|||||||||||||||||||||||||||||||
| Net Investment Income |
Net Realized Capital Gains |
Return of Capital |
Total Per Share |
Net Investment Income |
Net Realized Capital Gains |
Return of Capital |
Total Per Share |
|||||||||||||||||||||||||
| iShares MSCI USA Index Fund |
$ | 0.50778 | $ | – | $ | 0.00351 | $ | 0.51129 | 99 | % | – | % | 1 | % | 100 | % | ||||||||||||||||
Premium/Discount Information
The tables that follow present information about the differences between the daily market price on secondary markets for shares of a Fund and that Fund’s net asset value. Net asset value, or “NAV,” is the price per share at which each Fund issues and redeems shares. It is calculated in accordance with the standard formula for valuing mutual fund shares. The “Market Price” of each Fund generally is determined using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of such Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Each Fund’s Market Price may be at, above or below its NAV. The NAV of each Fund will fluctuate with changes in the fair value of its portfolio holdings. The Market Price of each Fund will fluctuate in accordance with changes in its NAV, as well as market supply and demand.
Premiums or discounts are the differences (expressed as a percentage) between the NAV and Market Price of a Fund on a given day, generally at the time NAV is calculated. A premium is the amount that a Fund is trading above the reported NAV, expressed as a percentage of the NAV. A discount is the amount that a Fund is trading below the reported NAV, expressed as a percentage of the NAV.
The following information shows the frequency distributions of premiums and discounts for each of the Funds included in this report. The information shown for each Fund is for five calendar years (or for each full calendar quarter completed after the inception date of such Fund if less than five years) through the date of the most recent quarter-end. The specific periods covered for each Fund are disclosed in the table for such Fund.
| 94 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
Each line in the table shows the number of trading days in which the Fund traded within the premium/discount range indicated. The number of trading days in each premium/discount range is also shown as a percentage of the total number of trading days in the period covered by each table. All data presented here represents past performance, which cannot be used to predict future results.
iShares MSCI Brazil Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 4.0% |
3 | 0.22 | % | |||||
| Greater than 3.5% and Less than 4.0% |
1 | 0.07 | ||||||
| Greater than 3.0% and Less than 3.5% |
3 | 0.22 | ||||||
| Greater than 2.5% and Less than 3.0% |
12 | 0.87 | ||||||
| Greater than 2.0% and Less than 2.5% |
33 | 2.39 | ||||||
| Greater than 1.5% and Less than 2.0% |
67 | 4.84 | ||||||
| Greater than 1.0% and Less than 1.5% |
95 | 6.87 | ||||||
| Greater than 0.5% and Less than 1.0% |
142 | 10.27 | ||||||
| Between 0.5% and -0.5% |
905 | 65.44 | ||||||
| Less than -0.5% and Greater than -1.0% |
77 | 5.57 | ||||||
| Less than -1.0% and Greater than -1.5% |
15 | 1.08 | ||||||
| Less than -1.5% and Greater than -2.0% |
11 | 0.80 | ||||||
| Less than -2.0% and Greater than -2.5% |
7 | 0.51 | ||||||
| Less than -2.5% and Greater than -3.0% |
2 | 0.14 | ||||||
| Less than -3.0% and Greater than -3.5% |
1 | 0.07 | ||||||
| Less than -3.5% and Greater than -4.0% |
4 | 0.29 | ||||||
| Less than -4.0% and Greater than -4.5% |
1 | 0.07 | ||||||
| Less than -4.5% and Greater than -5.0% |
2 | 0.14 | ||||||
| Less than -5.0% |
2 | 0.14 | ||||||
|
|
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|
|
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| 1,383 | 100.00 | % | ||||||
|
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|
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|
|||||
| SUPPLEMENTAL INFORMATION | 95 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Canada Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 4.0% |
1 | 0.07 | % | |||||
| Greater than 3.5% and Less than 4.0% |
1 | 0.07 | ||||||
| Greater than 3.0% and Less than 3.5% |
1 | 0.07 | ||||||
| Greater than 2.5% and Less than 3.0% |
2 | 0.14 | ||||||
| Greater than 2.0% and Less than 2.5% |
3 | 0.22 | ||||||
| Greater than 1.5% and Less than 2.0% |
3 | 0.22 | ||||||
| Greater than 1.0% and Less than 1.5% |
23 | 1.66 | ||||||
| Greater than 0.5% and Less than 1.0% |
106 | 7.67 | ||||||
| Between 0.5% and -0.5% |
1,122 | 81.14 | ||||||
| Less than -0.5% and Greater than -1.0% |
93 | 6.72 | ||||||
| Less than -1.0% and Greater than -1.5% |
22 | 1.59 | ||||||
| Less than -1.5% and Greater than -2.0% |
3 | 0.22 | ||||||
| Less than -2.0% and Greater than -2.5% |
1 | 0.07 | ||||||
| Less than -2.5% |
2 | 0.14 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
iShares MSCI Chile Investable Market Index Fund
Period Covered: January 1, 2008 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 4.0% |
4 | 0.45 | % | |||||
| Greater than 3.5% and Less than 4.0% |
2 | 0.23 | ||||||
| Greater than 3.0% and Less than 3.5% |
1 | 0.11 | ||||||
| Greater than 2.5% and Less than 3.0% |
4 | 0.45 | ||||||
| Greater than 2.0% and Less than 2.5% |
7 | 0.79 | ||||||
| Greater than 1.5% and Less than 2.0% |
13 | 1.48 | ||||||
| Greater than 1.0% and Less than 1.5% |
45 | 5.11 | ||||||
| Greater than 0.5% and Less than 1.0% |
198 | 22.48 | ||||||
| Between 0.5% and -0.5% |
445 | 50.52 | ||||||
| Less than -0.5% and Greater than -1.0% |
114 | 12.94 | ||||||
| Less than -1.0% and Greater than -1.5% |
23 | 2.61 | ||||||
| Less than -1.5% and Greater than -2.0% |
12 | 1.36 | ||||||
| Less than -2.0% and Greater than -2.5% |
3 | 0.34 | ||||||
| Less than -2.5% and Greater than -3.0% |
4 | 0.45 | ||||||
| Less than -3.0% |
6 | 0.68 | ||||||
|
|
|
|
|
|||||
| 881 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 96 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Israel Capped Investable Market Index Fund
Period Covered: April 1, 2008 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.0% |
3 | 0.37 | % | |||||
| Greater than 4.5% and Less than 5.0% |
1 | 0.12 | ||||||
| Greater than 4.0% and Less than 4.5% |
3 | 0.37 | ||||||
| Greater than 3.5% and Less than 4.0% |
1 | 0.12 | ||||||
| Greater than 3.0% and Less than 3.5% |
5 | 0.61 | ||||||
| Greater than 2.5% and Less than 3.0% |
5 | 0.61 | ||||||
| Greater than 2.0% and Less than 2.5% |
10 | 1.22 | ||||||
| Greater than 1.5% and Less than 2.0% |
24 | 2.93 | ||||||
| Greater than 1.0% and Less than 1.5% |
54 | 6.59 | ||||||
| Greater than 0.5% and Less than 1.0% |
137 | 16.71 | ||||||
| Between 0.5% and -0.5% |
385 | 46.95 | ||||||
| Less than -0.5% and Greater than -1.0% |
80 | 9.76 | ||||||
| Less than -1.0% and Greater than -1.5% |
52 | 6.34 | ||||||
| Less than -1.5% and Greater than -2.0% |
32 | 3.90 | ||||||
| Less than -2.0% and Greater than -2.5% |
7 | 0.85 | ||||||
| Less than -2.5% and Greater than -3.0% |
7 | 0.85 | ||||||
| Less than -3.0% and Greater than -3.5% |
3 | 0.37 | ||||||
| Less than -3.5% and Greater than -4.0% |
1 | 0.12 | ||||||
| Less than -4.0% and Greater than -4.5% |
1 | 0.12 | ||||||
| Less than -4.5% and Greater than -5.0% |
3 | 0.37 | ||||||
| Less than -5.0% and Greater than -5.5% |
2 | 0.24 | ||||||
| Less than -5.5% and Greater than -6.0% |
2 | 0.24 | ||||||
| Less than -6.0% |
2 | 0.24 | ||||||
|
|
|
|
|
|||||
| 820 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION | 97 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Mexico Investable Market Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 3.5% |
2 | 0.14 | % | |||||
| Greater than 3.0% and Less than 3.5% |
3 | 0.22 | ||||||
| Greater than 2.5% and Less than 3.0% |
3 | 0.22 | ||||||
| Greater than 2.0% and Less than 2.5% |
1 | 0.07 | ||||||
| Greater than 1.5% and Less than 2.0% |
11 | 0.80 | ||||||
| Greater than 1.0% and Less than 1.5% |
22 | 1.59 | ||||||
| Greater than 0.5% and Less than 1.0% |
95 | 6.87 | ||||||
| Between 0.5% and -0.5% |
1,009 | 72.97 | ||||||
| Less than -0.5% and Greater than -1.0% |
168 | 12.15 | ||||||
| Less than -1.0% and Greater than -1.5% |
41 | 2.96 | ||||||
| Less than -1.5% and Greater than -2.0% |
14 | 1.01 | ||||||
| Less than -2.0% and Greater than -2.5% |
5 | 0.36 | ||||||
| Less than -2.5% and Greater than -3.0% |
6 | 0.43 | ||||||
| Less than -3.0% and Greater than -3.5% |
2 | 0.14 | ||||||
| Less than -3.5% |
1 | 0.07 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 98 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI South Africa Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 4.5% |
10 | 0.72 | % | |||||
| Greater than 4.0% and Less than 4.5% |
4 | 0.29 | ||||||
| Greater than 3.5% and Less than 4.0% |
3 | 0.22 | ||||||
| Greater than 3.0% and Less than 3.5% |
12 | 0.87 | ||||||
| Greater than 2.5% and Less than 3.0% |
13 | 0.94 | ||||||
| Greater than 2.0% and Less than 2.5% |
45 | 3.25 | ||||||
| Greater than 1.5% and Less than 2.0% |
70 | 5.06 | ||||||
| Greater than 1.0% and Less than 1.5% |
127 | 9.18 | ||||||
| Greater than 0.5% and Less than 1.0% |
232 | 16.78 | ||||||
| Between 0.5% and -0.5% |
497 | 35.94 | ||||||
| Less than -0.5% and Greater than -1.0% |
139 | 10.05 | ||||||
| Less than -1.0% and Greater than -1.5% |
81 | 5.86 | ||||||
| Less than -1.5% and Greater than -2.0% |
63 | 4.56 | ||||||
| Less than -2.0% and Greater than -2.5% |
32 | 2.31 | ||||||
| Less than -2.5% and Greater than -3.0% |
14 | 1.01 | ||||||
| Less than -3.0% and Greater than -3.5% |
19 | 1.37 | ||||||
| Less than -3.5% and Greater than -4.0% |
4 | 0.29 | ||||||
| Less than -4.0% and Greater than -4.5% |
4 | 0.29 | ||||||
| Less than -4.5% and Greater than -5.0% |
1 | 0.07 | ||||||
| Less than -5.0% and Greater than -5.5% |
2 | 0.14 | ||||||
| Less than -5.5% and Greater than -6.0% |
3 | 0.22 | ||||||
| Less than -6.0% |
8 | 0.58 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION | 99 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Turkey Investable Market Index Fund
Period Covered: April 1, 2008 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 6.0% |
7 | 0.85 | % | |||||
| Greater than 5.5% and Less than 6.0% |
3 | 0.37 | ||||||
| Greater than 5.0% and Less than 5.5% |
1 | 0.12 | ||||||
| Greater than 4.5% and Less than 5.0% |
2 | 0.24 | ||||||
| Greater than 4.0% and Less than 4.5% |
3 | 0.37 | ||||||
| Greater than 3.5% and Less than 4.0% |
1 | 0.12 | ||||||
| Greater than 3.0% and Less than 3.5% |
8 | 0.98 | ||||||
| Greater than 2.5% and Less than 3.0% |
15 | 1.83 | ||||||
| Greater than 2.0% and Less than 2.5% |
19 | 2.32 | ||||||
| Greater than 1.5% and Less than 2.0% |
29 | 3.54 | ||||||
| Greater than 1.0% and Less than 1.5% |
97 | 11.83 | ||||||
| Greater than 0.5% and Less than 1.0% |
137 | 16.71 | ||||||
| Between 0.5% and -0.5% |
277 | 33.78 | ||||||
| Less than -0.5% and Greater than -1.0% |
77 | 9.39 | ||||||
| Less than -1.0% and Greater than -1.5% |
58 | 7.07 | ||||||
| Less than -1.5% and Greater than -2.0% |
30 | 3.66 | ||||||
| Less than -2.0% and Greater than -2.5% |
16 | 1.95 | ||||||
| Less than -2.5% and Greater than -3.0% |
11 | 1.34 | ||||||
| Less than -3.0% and Greater than -3.5% |
7 | 0.85 | ||||||
| Less than -3.5% and Greater than -4.0% |
5 | 0.61 | ||||||
| Less than -4.0% and Greater than -4.5% |
3 | 0.37 | ||||||
| Less than -4.5% and Greater than -5.0% |
2 | 0.24 | ||||||
| Less than -5.0% and Greater than -5.5% |
1 | 0.12 | ||||||
| Less than -5.5% and Greater than -6.0% |
4 | 0.49 | ||||||
| Less than -6.0% |
7 | 0.85 | ||||||
|
|
|
|
|
|||||
| 820 | 100.00 | % | ||||||
|
|
|
|
|
|||||
iShares MSCI USA Index Fund
Period Covered: July 1, 2010 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 1.5% |
1 | 0.40 | % | |||||
| Greater than 1.0% and Less than 1.5% |
2 | 0.79 | ||||||
| Greater than 0.5% and Less than 1.0% |
6 | 2.37 | ||||||
| Between 0.5% and -0.5% |
239 | 94.46 | ||||||
| Less than -0.5% and Greater than -1.0% |
5 | 1.98 | ||||||
|
|
|
|
|
|||||
| 253 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 100 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Director and Officer Information (Unaudited)
iSHARES®, INC.
The Board of Directors has responsibility for the overall management and operations of the Company, including general supervision of the duties performed by BFA and other service providers. Each Officer serves until he or she resigns, is removed, dies, retires or becomes incapacitated. The President, Treasurer and Secretary shall each hold office until their successors are chosen and qualified and all other officers shall hold office until he or she resigns or is removed. Directors who are not interested persons (as defined in the 1940 Act) are referred to as Independent Directors.
The registered investment companies advised by BFA or its affiliates are organized into one complex of closed-end funds, two complexes of open-end funds and one complex of exchange-traded funds (“Exchange-Traded Fund Complex”) (each, a “BlackRock Fund Complex”). Each Fund is included in the BlackRock Fund Complex referred to as the Exchange-Traded Fund Complex. Each Director of iShares, Inc. also serves as a Trustee of iShares Trust and a Director of iShares MSCI Russia Capped Index Fund, Inc. and, as a result, oversees a total of 224 funds within the Exchange-Traded Fund Complex. With the exception of Robert S. Kapito, the address of each Director and Officer is c/o BlackRock, Inc., 400 Howard Street, San Francisco, CA 94105. The address of Mr. Kapito is c/o BlackRock, Inc., Park Avenue Plaza, 55 East 52nd Street, New York, NY 10055. The Board has designated George G.C. Parker as its Independent Chairman. Additional information about the Funds’ Directors and Officers may be found in the Funds’ combined Statement of Additional Information, which is available without charge, upon request, by calling toll-free 1-800-474-2737.
Interested Directors and Officers
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| Robert S. Kapitoa (54) |
Director (since 2009). |
President and Director, BlackRock, Inc. (since 2006 and 2007, respectively); Vice Chairman of BlackRock, Inc. and Head of BlackRock’s Portfolio Management Group (since its formation in 1998) and BlackRock’s predecessor entities (since 1988); Trustee, University of Pennsylvania (since 2009); President of Board of Directors, Hope & Heroes Children’s Cancer Fund (since 2002); President of the Board of Directors, Periwinkle Theatre for Youth (since 1983). | Trustee of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of BlackRock, Inc. (since 2007). | |||
| Michael Lathamb (46) |
Director (since 2010); President (since 2007). |
Chairman of iShares, BTC (since 2011); Global Chief Executive Officer of iShares, BTC (2010-2011); Managing Director, BTC (since 2009); Head of Americas iShares, Barclays Global Investors (“BGI”) (2007-2009); Director and Chief Financial Officer of Barclays Global Investors International, Inc. (2005-2009); Chief Operating Officer of the Intermediary Investor and Exchange Traded Products Business of BGI (2003-2007). | Trustee of iShares Trust (since 2010); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| a | Robert S. Kapito is deemed to be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. |
| b | Michael Latham is deemed to be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. and its affiliates. |
| DIRECTOR AND OFFICER INFORMATION | 101 |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES®, INC.
Independent Directors
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| George G.C. Parker (72) |
Director (since 2000); Independent Chairman (since 2010). |
Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University: Graduate School of Business (since 1994). | Trustee of iShares Trust (since 2002); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Independent Chairman of iShares Trust (since 2010); Independent Chairman of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of Tejon Ranch Company (since 1999); Director of Threshold Pharmaceuticals (since 2004); Director of Colony Financial, Inc. (since 2009); Director of First Republic Bank (since 2010). | |||
| Cecilia H. Herbert (62) |
Director (since 2005). |
Director (since 1998) and President (2007-2010) of the Board of Directors, Catholic Charities CYO; Trustee of Pacific Select Funds (2004-2005); Trustee (since 2002) and Chair of the Finance Committee (2006-2009) and Investment Committee (since 2006) of the Thacher School; Member (since 1994) and Chair (1994-2005) of Investment Committee, Archdiocese of San Francisco. | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director, Forward Funds (35 portfolios) (since 2009). | |||
| Charles A. Hurty (68) |
Director (since 2005). |
Retired; Partner, KPMG LLP (1968-2001). | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002); Director of Skybridge Multi-Adviser Hedge Fund Portfolios LLC (1 portfolio) (since 2002). | |||
| John E. Kerrigan (56) |
Director (since 2005). |
Chief Investment Officer, Santa Clara University (since 2002). | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| John E. Martinez (50) |
Director (since 2003). |
Director of EquityRock, Inc. (since 2005). | Trustee of iShares Trust (since 2003); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| 102 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES®, INC.
Independent Directors (Continued)
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| Madhav V. Rajan (47) |
Director (since 2011). |
Gregor G. Peterson Professor of Accounting and Senior Associate Dean for Academic Affairs, Stanford University: Graduate School of Business (since 2001); Professor of Law (by courtesy), Stanford Law School (since 2005); Visiting Professor, University of Chicago (Winter 2007-2008). | Trustee of iShares Trust (since 2011); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2011). | |||
| Robert H. Silver (56) |
Director (since 2007). |
President and Co-Founder of The Bravitas Group, Inc. (since 2006); Member, Non- Investor Advisory Board of Russia Partners II, LP (since 2006); Director and Vice Chairman of the YMCA of Greater NYC (since 2001); Broadway Producer (since 2006); Co-Founder and Vice President of Parentgiving Inc. (since 2008); Director and Member of the Audit and Compensation Committee of EPAM Systems, Inc. (2006-2009). | Trustee of iShares Trust (since 2007); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| DIRECTOR AND OFFICER INFORMATION | 103 |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES®, INC.
Officers
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years | ||
| Geoffrey D. Flynn (54) |
Executive Vice President and Chief Operating Officer (since 2008). |
Managing Director, BTC (since 2009); Chief Operating Officer, U.S. iShares, BGI (2007-2009); President, Van Kampen Investors Services (2003-2007); Managing Director, Morgan Stanley (2002-2007); President, Morgan Stanley Trust, FSB (2002-2007). | ||
| Eilleen M. Clavere (59) |
Secretary (since 2007). |
Director, BTC (since 2009); Director of Legal Administration of Intermediary Investor Business of BGI (2006-2009); Legal Counsel and Vice President of Atlas Funds, Atlas Advisers, Inc. and Atlas Securities, Inc. (2005-2006). | ||
| Jack Gee (52) |
Treasurer and Chief Financial Officer (since 2008). |
Managing Director, BTC (since 2009); Senior Director of Fund Administration of Intermediary Investor Business of BGI (2009); Director of Fund Administration of Intermediary Investor Business of BGI (2004-2009). | ||
| Amy Schioldager (49) |
Executive Vice President (since 2007). |
Managing Director, BTC (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008); Head of Domestic Equity Portfolio Management, BGI (2001-2006). | ||
| Ira P. Shapiro (48) |
Vice President and Chief Legal Officer (since 2007). |
Managing Director, BTC (since 2009); Associate General Counsel, BGI (2004-2009). | ||
| Matt Tucker (39) |
Vice President (since 2007). |
Managing Director, BTC (since 2009); Director of Fixed Income Investment Strategy, BGI (2009); Head of U.S. Fixed Income Investment Solutions, BGI (2005-2008). | ||
| 104 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes:
| NOTES | 105 |
Table of Contents
Notes:
| 106 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
For more information visit www.iShares.com
or call 1-800-474-2737
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iS-AR-84-0811
Table of Contents
|
August 31, 2011 | |
2011 Annual Report
iShares, Inc.
iShares MSCI Australia Index Fund | EWA | NYSE Arca
iShares MSCI Hong Kong Index Fund | EWH | NYSE Arca
iShares MSCI Japan Small Cap Index Fund | SCJ | NYSE Arca
iShares MSCI Malaysia Index Fund | EWM | NYSE Arca
iShares MSCI Pacific ex-Japan Index Fund | EPP | NYSE Arca
iShares MSCI Singapore Index Fund | EWS | NYSE Arca
iShares MSCI South Korea Index Fund | EWY | NYSE Arca
iShares MSCI Taiwan Index Fund | EWT | NYSE Arca
iShares MSCI Thailand Investable Market Index Fund | THD | NYSE Arca
Table of Contents
| 5 | ||||
| 24 | ||||
| 26 | ||||
| 26 | ||||
| 29 | ||||
| 31 | ||||
| 42 | ||||
| 44 | ||||
| 47 | ||||
| 49 | ||||
| 52 | ||||
| 55 | ||||
| 58 | ||||
| 69 | ||||
| 78 | ||||
| 90 | ||||
| 91 | ||||
| Board Review and Approval of Investment Advisory Contract (Unaudited) |
92 | |||
| 95 | ||||
| 105 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI AUSTRALIA INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 20.54% | 20.48% | 21.15% | 7.36% | 7.57% | 7.29% | 14.34% | 14.29% | 14.09% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 20.54% | 20.48% | 21.15% | 42.65% | 44.05% | 42.14% | 281.92% | 280.22% | 273.64% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 5 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI AUSTRALIA INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Australia Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Australia IndexSM (the “Index”). The Index consists of stocks traded primarily on the Australian Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 20.54%, net of fees, while the total return for the Index was 21.15%.
Although the Australian market delivered solid returns for the reporting period, performance weakened over the course of the period. The mining industry-led economy, which had benefited from high commodity prices, slowed and Australian equities reversed course for the final months of the period. Declining consumer confidence, weak retail sales, deepening concerns about the global debt crisis, and slowing growth in China – Australia’s largest trading partner – led to concerns that Australia’s economic recovery might be more prolonged than had been anticipated early in the period. In July, Australian consumer confidence dropped 8.3%, its largest month-over-month decline since 2008. Also in July, Australia’s central bank left its benchmark rate unchanged at 4.75% for the seventh consecutive month, and stated that the nation’s growth rate might be weaker than previously thought.
Some bright spots in the economy did appear, including a better-than-expected employment report for June. Second quarter 2011 consumer price index levels rose 0.9% over the first quarter of 2011, reducing expectations of a cut in the benchmark interest rate and placing pressure on the country’s central bank to tighten monetary policy. It also helped the Australian dollar to appreciate against the U.S. dollar.
Every major industry sector delivered positive results during the reporting period. The financial sector, which comprises approximately 42% of the Index, posted solid results and contributed meaningfully to performance. The materials sector, which benefited from high commodity prices during the reporting period, also logged strong gains. Other notable contributors to Index returns included the consumer staples and industrials sectors. The utilities sector, which represents less than 1% of the Index, contributed only slightly to performance, although utilities generated strong gains in absolute terms.
| 6 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI HONG KONG INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 12.27% | 12.79% | 12.90% | 7.62% | 7.74% | 8.24% | 9.66% | 9.62% | 10.40% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 12.27% | 12.79% | 12.90% | 44.38% | 45.20% | 48.56% | 151.37% | 150.48% | 168.88% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 7 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI HONG KONG INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Hong Kong Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Hong Kong IndexSM (the “Index”). The Index consists of stocks traded primarily on the Stock Exchange of Hong Kong Limited. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 12.27%, net of fees, while the total return for the Index was 12.90%.
The Hong Kong equity market delivered positive results for the reporting period, but lagged the performance of the broader international market. Gross domestic product increased 0.5% in the second quarter of 2011 as compared to the second quarter of the previous year. Grappling with the effects of a weak global economy and the aftermath of the earthquake and tsunami in Japan, the Hong Kong economy suffered a slowdown in export trade, but received a boost from retail consumer demand. Demand from mainland China comprised a key part of consumer demand. As the yuan gained ground against the Hong Kong dollar, which is pegged to the U.S. dollar, the spending power of shoppers from China improved. Domestic retail demand was also healthy, as the unemployment rate fell to a 2 1/2 year low of 3.5% in May 2011.
During the reporting period, inflation emerged as a new threat for the Hong Kong economy. On the rise throughout the period, the consumer price index climbed to 7.9% in July 2011, the highest since November 1995. Key contributors to inflation, food and housing, were expected to continue experiencing supply constraints.
Every major sector within the Index except the energy sector delivered positive results during the reporting period. The largest sector at approximately 62% of the Index, the financials sector registered gains and was the largest single sector contributor to Index gains. The utilities sector registered solid gains and also contributed meaningfully to Index returns, as did the industrials sector. Although the telecommunications services sector delivered strong results, it only represented less than 1% of the Index. The energy sector suffered a substantial decline, but, at less than 1% of the Index, its impact on Index performance was negligible.
| 8 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | Cumulative Total Returns | |||||||||||||||
| Year Ended 8/31/11 | Inception to 8/31/11 | Inception to 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 16.38% | 17.47% | 16.92% | 0.37% | 0.57% | 0.70% | 1.39% | 2.13% | 2.60% | ||||||||
Total returns for the period since inception are calculated from the inception date of the Fund (12/20/07). “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (12/21/07), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 9 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Japan Small Cap Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Japan Small Cap IndexSM (the “Index”). The Index targets 40% of the eligible small-cap universe within each industry group in the MSCI Japan Index, which consists of stocks traded primarily on the Tokyo Stock Exchange. MSCI defines the small-cap universe as all listed securities that have a market capitalization in the range of $186 – $1,787 million. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 16.38%, net of fees, while the total return for the Index was 16.92%.
Japanese equity markets delivered modest results, as the country struggled to recover from the effects of the earthquake and tsunami that struck during the reporting period. Already grappling with weak global economic conditions, Japanese equities declined amid concerns surrounding production outages in the aftermath of the earthquake, tsunami and nuclear accident which struck the country in the spring. Japan’s industrial output weakened immediately following the March incident, and recovered at a slower pace than had been anticipated, suggesting the country’s manufacturers continued to deal with supply chain disruptions. In April, exports declined 5.5%, largely due to supply constraints. Energy import levels rose, reflecting the country’s increased reliance on foreign energy due to its nuclear generation situation. Investors remained focused on the toll that production outages would take on corporate earnings, particularly for automakers.
In July, Japan showed signs of recovering from the earthquake-induced economic contraction: the industrial production index for June rose 3.9%, with particular strength in the electronics sector. Of the Japanese industrial firms surveyed in June, 60% had restored production to full capacity, triple the level recorded for April.
Every major sector within the Index except for the utilities sector delivered positive results during the reporting period. The consumer discretionary sector added the most meaningfully to Index returns. The industrials sector, the largest sector at approximately 22% of the Index, posted solid results and contributed significantly to performance, as did the materials sector, which benefited from high commodity prices during the reporting period. Other notable contributors to Index returns included the financials and information technology sectors. The utilities sector suffered losses in the wake of the Fukushima nuclear accident. However, because it represents less than 1% of the Index, its impact on Index performance was negligible.
| 10 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI MALAYSIA INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 10.19% | 13.34% | 10.92% | 16.07% | 16.68% | 16.65% | 13.49% | 14.09% | 14.28% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 10.19% | 13.34% | 10.92% | 110.65% | 116.28% | 116.02% | 254.58% | 273.78% | 279.81% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. As the Fund has a NAV which is determined prior to the opening of the regular trading day on the primary stock exchange on which it is listed, the market value is calculated using the midpoint of the bid/ask spread as of the opening of regular trading on the exchange. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 11 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI MALAYSIA INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Malaysia Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Malaysia IndexSM (the “Index”). The Index consists of stocks traded primarily on the Kuala Lumpur Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 10.19%, net of fees, while the total return for the Index was 10.92%.
The Malaysian equity market delivered positive results for the reporting period, but lagged the performance of the broader international market. Economic growth was solid, as measured by gross domestic product growth for the second quarter of 2011 of 4.4%. As a key exporter of natural rubber, palm oil, logs and timber, and cocoa, Malaysia is somewhat reliant on its trading partners for its economic growth. The country’s export levels grew during the reporting period due largely to demand from its Asian neighbors.
As with many Asian countries, Malaysia has developed a growing middle class as it has developed into a wealthier nation. A strong infrastructure, healthy banking system, and domestic economy have reduced Malaysia’s dependence on international trade. During the reporting period, the Malaysian government continued efforts that it initiated in 2010 to improve domestic demand in an ongoing attempt to wean the country from its dependence on exports. The plan calls for a focus on private-sector jobs in the areas of financial services, agriculture, tourism, and green technology. With a low unemployment rate of 3.2%, domestic demand remained healthy for the reporting period, lessening the country’s vulnerability to the economic well-being of its trading partners.
Every major sector within the Index except the utilities sector delivered positive results during the reporting period. The largest sector at approximately 32% of the Index, the financials sector registered gains and was the largest single sector contributor to Index gains. The materials sector, which benefited from high commodity prices during the reporting period, also contributed meaningfully to Index returns, as did the consumer discretionary and industrials sectors. The energy sector registered robust gains, but, at less than 1% of the Index, made only a small contribution to Index returns. The utilities sector declined, detracting modestly from performance for the Index.
| 12 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI PACIFIC EX-JAPAN INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Inception to 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 17.61% | 18.00% | 18.16% | 7.90% | 8.03% | 7.98% | 14.11% | 14.15% | 14.12% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Inception to 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 17.61% | 18.00% | 18.16% | 46.24% | 47.17% | 46.79% | 267.11% | 268.47% | 267.36% | ||||||||
Total returns for the period since inception are calculated from the inception date of the Fund (10/25/01). “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (10/26/01), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 13 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI PACIFIC EX-JAPAN INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Pacific ex-Japan Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Pacific ex-Japan IndexSM (the “Index”). The Index consists of stocks from Australia, Hong Kong, New Zealand and Singapore. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 17.61%, net of fees, while the total return for the Index was 18.16%.
At the end of the reporting period, the majority of the Fund was invested in three countries: Australia, Hong Kong, and Singapore. All markets delivered positive performance for the period, but lagged the broader international markets.
Although the Australian market delivered solid returns for the reporting period, performance weakened over the course of the period. The mining industry-led economy, which had benefited from high commodity prices, slowed and Australian equities reversed course for the final months of the reporting period. Declining consumer confidence, weak retail sales, deepening concerns about the global debt crisis, and slowing growth in China – Australia’s largest trading partner – led to concerns that Australia’s economic recovery might be more prolonged than had been anticipated early in the reporting period. In July, Australian consumer confidence dropped 8.3%, its largest month-over-month decline since 2008.
Economic growth in Hong Kong was positive, as measured by gross domestic product (“GDP”) growth for the second quarter of 2011 of 0.5% versus the second quarter of the previous year. Grappling with the effects of a weak global economy and the aftermath of the earthquake and tsunami in Japan, the Hong Kong economy suffered a slowdown in export trade, but received a boost from retail consumer demand. During the reporting period, inflation emerged as a new threat for the Hong Kong economy. On the rise throughout the period, the consumer price index climbed to 7.9% in July 2011, its highest level since November 1995.
As an exporter of manufactured goods, Singapore is heavily reliant on the economic strength of its trading partners for its economic health. One of the hardest hit economies by the global financial crisis, Singapore’s economy had rebounded sharply in the previous reporting period. During
| 14 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI PACIFIC EX-JAPAN INDEX FUND
the most recent reporting period, growth was more moderate, but cooled late in the period to a modest 0.90% GDP growth rate in the second quarter of 2011 as manufacturing levels slowed.
Every major sector within the Index delivered positive results during the reporting period. The largest sector at approximately 46% of the Index, the financials sector registered modest gains and was the largest single sector contributor to Index gains. Benefiting from high commodity prices during the reporting period, the materials sector also logged solid absolute gains and contributed substantially to Index returns. The consumer staples and industrials sectors both added meaningfully to Index performance. The health care sector, the smallest at 2% of the Index, made the most modest contribution to returns.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 15 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI SINGAPORE INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 11.27% | 11.10% | 11.05% | 11.74% | 11.76% | 11.91% | 12.87% | 12.94% | 12.79% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 11.27% | 11.10% | 11.05% | 74.23% | 74.39% | 75.56% | 235.51% | 237.55% | 233.26% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| 16 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI SINGAPORE INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Singapore Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Singapore IndexSM (the “Index”). The Index consists of stocks traded primarily on the Singapore Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 11.27%, net of fees, while the total return for the Index was 11.05%.
The Singapore equity market delivered positive results for the reporting period, but lagged the performance of the broader international market. As an exporter of manufactured goods, Singapore is heavily reliant on the economic strength of its trading partners for its economic health. One of the hardest hit economies by the global financial crisis, Singapore’s economy had rebounded sharply in the previous reporting period. During the most recent reporting period, growth was more moderate, but cooled late in the period to a modest 0.90% gross domestic product growth rate in the second quarter of 2011 as manufacturing levels slowed. The sovereign debt crisis in Europe and economic sluggishness in the United States translated into reduced demand for exports from Asia, and the Singapore export market was one of the most severely affected by the shrinking demand. In an effort to reduce the economy’s dependence on export trade, the Singaporean government enacted measures to boost tourism and financial services.
The Singapore dollar, one of the strongest currencies in Asia, climbed to unprecedented highs after the central bank, which uses the exchange rate to manage inflation, indicated in April that it would allow additional appreciation of the currency to rein in price gains.
As inflation levels rose during the reporting period, the central bank tightened monetary policy, raising interest rates in April for the third time in 12 months. By July 2011, the consumer price index steadied at 5.4%, following a peak of 5.7% in January.
Every major sector within the Index delivered positive results during the reporting period. The largest sector at approximately 46% of the Index, the financials sector registered gains and was the largest single sector contributor to Index returns. The telecommunications services sector logged solid absolute gains and contributed meaningfully to Index returns, as did the industrials sector. The consumer staples sector was the most modest contributor to positive performance for the reporting period.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 17 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI SOUTH KOREA INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 19.76% | 19.57% | 20.41% | 5.39% | 5.46% | 5.71% | 16.49% | 16.45% | 17.71% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 19.76% | 19.57% | 20.41% | 30.03% | 30.43% | 31.98% | 360.14% | 358.51% | 410.64% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. As the Fund has a NAV which is determined prior to the opening of the regular trading day on the primary stock exchange on which it is listed, the market value is calculated using the midpoint of the bid/ask spread as of the opening of regular trading on the exchange. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| 18 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI SOUTH KOREA INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI South Korea Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Korea IndexSM (the “Index”). The Index consists of stocks traded primarily on the Stock Market Division of the Korean Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 19.76%, net of fees, while the total return for the Index was 20.41%.
The South Korean equity market delivered solid returns for the reporting period. Given the country’s reliance on manufacturing exports for its economic growth, South Korean equities are typically considered an indicator of global economic conditions. During the reporting period, South Korean exporters continued to win market share in foreign markets, with export levels rising 27% on an annualized basis in July 2011. Supported by strong export earnings and a reduction in imported energy expenses, South Korea’s trade surplus reached a record high in July. Domestic demand also remained healthy, driven in part by a low unemployment rate of 3.3% in June 2011.
Potential signs of an overheating economy could be seen in rising household debt levels, a trend noted by policy makers as a concern. Inflation remained a threat for the South Korean economy, with the June 2011 consumer price index of 4.4% registering significantly above the central bank’s target rate. Perhaps more concerning, is South Korea’s core inflation for June, which climbed to 3.7%, the highest level in more than two years.
Every major sector within the Index except for the utilities sector delivered positive results during the reporting period. Benefiting from strong domestic demand, the consumer discretionary sector delivered robust absolute gains and was the largest contributing sector to Index returns. The industrials sector made significant contributions to Index gains, as did the information technology sector, the largest sector at approximately 26% of the Index. The energy sector enjoyed the largest absolute gain among all sectors as energy prices climbed, and added modestly to Index performance. The utilities sector was the sole sector to suffer a decline for the reporting period. Because it represents less than 2% of the Index, though, its impact on Index performance was minimal.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 19 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI TAIWAN INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 15.24% | 15.35% | 15.39% | 5.25% | 5.25% | 5.76% | 6.28% | 6.32% | 7.12% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 15.24% | 15.35% | 15.39% | 29.19% | 29.18% | 32.29% | 83.83% | 84.58% | 98.94% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. As the Fund has a NAV which is determined prior to the opening of the regular trading day on the primary stock exchange on which it is listed, the market value is calculated using the midpoint of the bid/ask spread as of the opening of regular trading on the exchange. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| 20 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI TAIWAN INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Taiwan Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Taiwan IndexSM (the “Index”). The Index consists of stocks traded primarily on the Taiwan Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 15.24%, net of fees, while the total return for the Index was 15.39%.
The Taiwan market delivered positive results for the reporting period, although it struggled with a number of challenges. The devastating earthquake and tsunami that struck Japan in March 2011 resulted in a supply chain disruption for Taiwan’s manufacturers, reducing its export levels. Key Taiwanese export markets, including the United States and China, remained weak. China, in particular, enacted economic cooling measures that translated into reduced demand for Taiwanese goods. Although Taiwan’s second quarter 2011 gross domestic product growth of 4.9% exceeded expectations, the level represented the slowest pace of economic growth for the country since 2009, as economic growth slowed across Asia.
Countering those challenges, domestic demand increased, with private consumption growing 3.2% in the second quarter of 2011. Inflation levels continued to be muted in Taiwan compared with its Asian neighbors, and the government reduced its consumer price index forecast late in the period from 2.1% to 1.9%. As expected, though, the Taiwan central bank raised its borrowing costs for the fifth straight quarter in June, and the bank is expected to maintain a gradual tightening cycle. As an industrial economy that is heavily reliant on imported fuel, decreasing energy prices late in the reporting period had a positive impact on performance. Corporate earnings growth also helped Taiwanese equities late in the period.
Every major sector within the Index delivered positive results during the reporting period. The largest sector at approximately 56% of the Index, the information technology sector registered only moderate gains but was the largest single sector contributor to Index gains. The materials sector, which benefited from high commodity prices during the reporting period, also contributed meaningfully to Index returns, as did the financials and telecommunications services sectors. The industrials sector added only modestly to returns.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 21 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI THAILAND INVESTABLE MARKET INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | Cumulative Total Returns | |||||||||||||||
| Year Ended 8/31/11 | Inception to 8/31/11 | Inception to 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 23.33% | 22.95% | 24.27% | 11.68% | 11.72% | 12.25% | 46.16% | 46.36% | 48.63% | ||||||||
Total returns for the period since inception are calculated from the inception date of the Fund (3/26/08). “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (3/28/08), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| 22 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI THAILAND INVESTABLE MARKET INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Thailand Investable Market Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Thailand Investable Market IndexSM (the “Index”). The Index is a free float-adjusted market capitalization index designed to measure broad based equity market performance in Thailand. The Index consists of stocks traded primarily on the Stock Exchange of Thailand. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 23.33%, net of fees, while the total return for the Index was 24.27%.
The Thailand equity market delivered solid results for the reporting period, surpassing the performance of the broader international market. Thailand’s exports represent more than 2/3 of gross domestic product (“GDP”), making the country heavily reliant on the economic strength of its trading partners for its own economic health. As the reporting period began, Thailand was rebounding sharply from the global financial crisis. During the course of the reporting period, the sovereign debt crisis in Europe and slow economic recovery in the United States translated into reduced demand for exports from Thailand. The earthquake and tsunami in Japan in March 2011 led to concerns of supply chain disruptions, which would also impede exports. Consequently, economic growth slowed somewhat, and annual GDP growth as of the second quarter of 2011 was a moderate, but healthy, 2.6% versus the second quarter of the previous year.
As with other Asian countries, Thailand experienced a rise in food and energy prices during the reporting period, which led to inflation. As inflation levels rose during the reporting period, the central bank tightened monetary policy, raising interest rates six times in the reporting period. By July 2011, the consumer price index appeared to level off at 4.3%.
The Thai baht appreciated against the U.S. dollar during the reporting period, as investors sought economies with strong prospects for growth. The tightening monetary policy also contributed to the strengthening currency.
In this environment, eight of the ten major sectors within the Index delivered positive results during the reporting period. One of the largest sectors at approximately 31% of the Index, the energy sector registered solid gains and was the largest single sector contributor to Index returns. The largest sector at approximately 33% of the Index, the financials sector also added substantially to Index performance. The consumer staples and telecommunications services sectors were meaningful contributors to the Index’s gains for the period. Both the industrials and information technology sectors suffered declines for the reporting period. Because their representation in the Index is small, the impact on returns was minimal.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE | 23 |
Table of Contents
Shareholder Expenses (Unaudited)
iSHARES® , INC.
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares and (2) ongoing costs, including management fees and other Fund expenses. The following Example is intended to help you understand your ongoing costs (in dollars and cents) of investing in a Fund and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from March 1, 2011 to August 31, 2011.
ACTUAL EXPENSES
The first line under each Fund in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line for your Fund under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line under each Fund in the table below provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line under each Fund in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| iShares MSCI Index Fund |
Beginning Account Value (3/1/11) |
Ending Account Value (8/31/11) |
Annualized Expense Ratio |
Expenses Paid During Perioda (3/1/11 to 8/31/11) |
||||||||||||
| Australia |
||||||||||||||||
| Actual |
$1,000.00 | $ 947.90 | 0.51 | % | $2.50 | |||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| Hong Kong |
||||||||||||||||
| Actual |
1,000.00 | 957.80 | 0.51 | 2.52 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| Japan Small Cap |
||||||||||||||||
| Actual |
1,000.00 | 955.40 | 0.51 | 2.51 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| Malaysia |
||||||||||||||||
| Actual |
1,000.00 | 1,001.60 | 0.51 | 2.57 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| 24 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Shareholder Expenses (Unaudited) (Continued)
iSHARES® , INC.
| iShares MSCI Index Fund | Beginning Account Value (3/1/11) |
Ending Account Value (8/31/11) |
Annualized Expense Ratio |
Expenses Paid During Perioda (3/1/11 to 8/31/11) |
||||||||||||
| Pacific ex-Japan |
||||||||||||||||
| Actual |
$1,000.00 | $ 960.20 | 0.50 | % | $2.47 | |||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.70 | 0.50 | 2.55 | ||||||||||||
| Singapore |
||||||||||||||||
| Actual |
1,000.00 | 1,015.80 | 0.51 | 2.59 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| South Korea |
||||||||||||||||
| Actual |
1,000.00 | 989.80 | 0.58 | 2.91 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.30 | 0.58 | 2.96 | ||||||||||||
| Taiwan |
||||||||||||||||
| Actual |
1,000.00 | 943.20 | 0.58 | 2.84 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.30 | 0.58 | 2.96 | ||||||||||||
| Thailand Investable Market |
||||||||||||||||
| Actual |
1,000.00 | 1,097.20 | 0.58 | 3.07 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.30 | 0.58 | 2.96 | ||||||||||||
| a | Expenses are calculated using each Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). |
| SHAREHOLDER EXPENSES | 25 |
Table of Contents
iSHARES® MSCI AUSTRALIA INDEX FUND
August 31, 2011
| 26 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI AUSTRALIA INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 27 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI AUSTRALIA INDEX FUND
August 31, 2011
| 28 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI HONG KONG INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 29 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI HONG KONG INDEX FUND
August 31, 2011
| 30 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 31 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2011
| 32 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 33 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2011
| 34 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 35 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2011
| 36 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 37 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2011
| 38 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 39 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2011
| 40 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 41 |
Table of Contents
Schedule of Investments
iSHARES® MSCI MALAYSIA INDEX FUND
August 31, 2011
| 42 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI MALAYSIA INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 43 |
Table of Contents
Schedule of Investments
iSHARES® MSCI PACIFIC EX-JAPAN INDEX FUND
August 31, 2011
| 44 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI PACIFIC EX-JAPAN INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 45 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI PACIFIC EX-JAPAN INDEX FUND
August 31, 2011
| 46 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI SINGAPORE INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 47 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI SINGAPORE INDEX FUND
August 31, 2011
| 48 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI SOUTH KOREA INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 49 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI SOUTH KOREA INDEX FUND
August 31, 2011
| 50 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI SOUTH KOREA INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 51 |
Table of Contents
Schedule of Investments
iSHARES® MSCI TAIWAN INDEX FUND
August 31, 2011
| 52 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI TAIWAN INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 53 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI TAIWAN INDEX FUND
August 31, 2011
| 54 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI THAILAND INVESTABLE MARKET INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 55 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI THAILAND INVESTABLE MARKET INDEX FUND
August 31, 2011
| 56 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI THAILAND INVESTABLE MARKET INDEX FUND
August 31, 2011
| SCHEDULES OF INVESTMENTS | 57 |
Table of Contents
Statements of Assets and Liabilities
iSHARES® , INC.
August 31, 2011
| iShares MSCI Index Fund |
iShares MSCI Hong Kong Index Fund |
iShares MSCI Japan Small Cap Index Fund |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 3,001,306,848 | $ | 1,757,314,913 | $ | 71,663,469 | ||||||
| Affiliated (Note 2) |
8,283,496 | 141,026,189 | 2,005,186 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 3,009,590,344 | $ | 1,898,341,102 | $ | 73,668,655 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 3,056,734,732 | $ | 1,601,605,782 | $ | 74,209,147 | ||||||
| Affiliated (Note 2) |
8,283,496 | 141,026,189 | 2,005,186 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
3,065,018,228 | 1,742,631,971 | 76,214,333 | |||||||||
| Foreign currencies, at valueb |
7,110,097 | 1,716,032 | 77,703 | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
6,006,601 | 15,238,735 | – | |||||||||
| Dividends and interest |
25,959,034 | 5,258,416 | 122,042 | |||||||||
| Capital shares sold |
156,927 | – | – | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
3,104,250,887 | 1,764,845,154 | 76,414,078 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
5,996,995 | 15,296,315 | – | |||||||||
| Collateral for securities on loan (Note 5) |
6,548,063 | 140,821,015 | 1,995,132 | |||||||||
| Capital shares redeemed |
52,309 | – | – | |||||||||
| Investment advisory fees (Note 2) |
1,228,892 | 745,372 | 32,149 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
13,826,259 | 156,862,702 | 2,027,281 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 3,090,424,628 | $ | 1,607,982,452 | $ | 74,386,797 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 3,201,501,922 | $ | 2,010,551,064 | $ | 73,342,645 | ||||||
| Undistributed (distributions in excess of) net investment income |
18,032,011 | 3,722,047 | (75,439 | ) | ||||||||
| Accumulated net realized loss |
(185,102,264 | ) | (250,585,360 | ) | (1,429,055 | ) | ||||||
| Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies |
55,992,959 | (155,705,299 | ) | 2,548,646 | ||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 3,090,424,628 | $ | 1,607,982,452 | $ | 74,386,797 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingc |
127,800,000 | 91,425,000 | 1,600,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 24.18 | $ | 17.59 | $ | 46.49 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $6,237,568, $133,671,417 and $1,892,154, respectively. See Note 5. |
| b | Cost of foreign currencies: $7,085,556, $1,715,952 and $77,595, respectively. |
| c | $0.001 par value, number of shares authorized: 627.8 million, 250 million and 500 million, respectively. |
See notes to financial statements.
| 58 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Assets and Liabilities (Continued)
iSHARES® , INC.
August 31, 2011
| iShares MSCI Index Fund |
iShares MSCI Pacific ex-Japan Index Fund |
iShares MSCI Index Fund |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 582,658,200 | $ | 2,993,843,331 | $ | 1,563,837,902 | ||||||
| Affiliated (Note 2) |
149,530 | 147,808,066 | 192,386,360 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 582,807,730 | $ | 3,141,651,397 | $ | 1,756,224,262 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 976,774,359 | $ | 3,517,369,041 | $ | 1,701,315,058 | ||||||
| Affiliated (Note 2) |
149,530 | 147,808,066 | 192,386,360 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
976,923,889 | 3,665,177,107 | 1,893,701,418 | |||||||||
| Foreign currencies, at valueb |
3,138,392 | 10,636,149 | 14,444,610 | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
6,181,385 | 10,682,831 | 11,062,178 | |||||||||
| Dividends and interest |
894,459 | 25,702,655 | 10,447,239 | |||||||||
| Capital shares sold |
– | – | 28,722 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
987,138,125 | 3,712,198,742 | 1,929,684,167 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
8,284,895 | 14,277,009 | 23,440,635 | |||||||||
| Collateral for securities on loan (Note 5) |
– | 147,571,528 | 192,294,159 | |||||||||
| Investment advisory fees (Note 2) |
450,948 | 1,482,800 | 750,109 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
8,735,843 | 163,331,337 | 216,484,903 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 978,402,282 | $ | 3,548,867,405 | $ | 1,713,199,264 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 657,621,726 | $ | 3,419,692,287 | $ | 1,792,180,869 | ||||||
| Undistributed net investment income |
4,891,859 | 12,091,695 | 8,735,601 | |||||||||
| Accumulated net realized loss |
(78,217,027 | ) | (406,912,309 | ) | (225,321,403 | ) | ||||||
| Net unrealized appreciation on investments and translation of assets and |
394,105,724 | 523,995,732 | 137,604,197 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 978,402,282 | $ | 3,548,867,405 | $ | 1,713,199,264 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingc |
70,275,000 | 79,800,000 | 131,300,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 13.92 | $ | 44.47 | $ | 13.05 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $ –, $139,689,221 and $182,029,928, respectively. See Note 5. |
| b | Cost of foreign currencies: $3,145,246, $10,608,922 and $14,389,202, respectively. |
| c | $0.001 par value, number of shares authorized: 300 million, 1 billion and 300 million, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS | 59 |
Table of Contents
Statements of Assets and Liabilities (Continued)
iSHARES® , INC.
August 31, 2011
| iShares MSCI South Korea Index Fund |
iShares MSCI Taiwan Index Fund |
iShares MSCI Thailand Investable Market Index Fund |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 2,234,093,965 | $ | 1,866,173,754 | $ | 556,829,715 | ||||||
| Affiliated (Note 2) |
189,739,236 | 457,058,589 | 594,796 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 2,423,833,201 | $ | 2,323,232,343 | $ | 557,424,511 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 4,067,855,478 | $ | 2,829,873,217 | $ | 628,764,540 | ||||||
| Affiliated (Note 2) |
189,739,236 | 457,058,589 | 594,796 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
4,257,594,714 | 3,286,931,806 | 629,359,336 | |||||||||
| Foreign currencies, at valueb |
– | 12,270,029 | 1,083,597 | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
21,394,556 | – | 7,774,028 | |||||||||
| Dividends and interest |
255,893 | 19,999,406 | 2,759,601 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
4,279,245,163 | 3,319,201,241 | 640,976,562 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
20,681,672 | 12,988,166 | 7,003,361 | |||||||||
| Collateral for securities on loan (Note 5) |
185,244,719 | 444,612,200 | – | |||||||||
| Foreign taxes (Note 1) |
– | 2,581,156 | – | |||||||||
| Securities related to in-kind transactions (Note 4) |
– | – | 808,157 | |||||||||
| Investment advisory fees (Note 2) |
2,094,181 | 1,507,837 | 325,310 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
208,020,572 | 461,689,359 | 8,136,828 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 4,071,224,591 | $ | 2,857,511,882 | $ | 632,839,734 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 3,413,998,726 | $ | 2,876,939,334 | $ | 566,327,076 | ||||||
| Undistributed (distributions in excess of) net investment income |
(13,854,595 | ) | 84,856,114 | 3,277,303 | ||||||||
| Accumulated net realized loss |
(1,162,681,287 | ) | (1,067,933,308 | ) | (8,690,223 | ) | ||||||
| Net unrealized appreciation on investments and translation of assets and liabilities in foreign currencies |
1,833,761,747 | 963,649,742 | 71,925,578 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 4,071,224,591 | $ | 2,857,511,882 | $ | 632,839,734 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingc |
71,750,000 | 207,400,000 | 9,550,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 56.74 | $ | 13.78 | $ | 66.27 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $177,281,276, $425,852,739 and $ –, respectively. See Note 5. |
| b | Cost of foreign currencies: $ –, $12,269,660 and $1,083,597, respectively. |
| c | $0.001 par value, number of shares authorized: 200 million, 900 million and 200 million, respectively. |
See notes to financial statements.
| 60 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Operations
iSHARES®, INC.
Year ended August 31, 2011
| iShares MSCI Index Fund |
iShares MSCI Hong Kong Index Fund |
iShares MSCI Japan Small Cap Index Fund |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends – unaffiliateda |
$ | 133,915,236 | $ | 55,769,081 | $ | 1,153,828 | ||||||
| Interest – affiliated (Note 2) |
843 | 1,004 | 16 | |||||||||
| Securities lending income – affiliated (Note 2) |
119,253 | 342,303 | 17,724 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
134,035,332 | 56,112,388 | 1,171,568 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
15,491,910 | 10,481,935 | 270,288 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
15,491,910 | 10,481,935 | 270,288 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
118,543,422 | 45,630,453 | 901,280 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments – unaffiliated |
(55,515,659 | ) | (71,866,665 | ) | (571,827 | ) | ||||||
| In-kind redemptions – unaffiliated |
158,901,648 | 156,020,321 | 2,064,217 | |||||||||
| Foreign currency transactions |
3,318,640 | (20,225 | ) | 18,259 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain |
106,704,629 | 84,133,431 | 1,510,649 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
256,311,179 | 91,537,781 | 5,914,810 | |||||||||
| Translation of assets and liabilities in foreign currencies |
676,561 | 5,784 | (757 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
256,987,740 | 91,543,565 | 5,914,053 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain |
363,692,369 | 175,676,996 | 7,424,702 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | 482,235,791 | $ | 221,307,449 | $ | 8,325,982 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $943,893, $ – and $86,613, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS | 61 |
Table of Contents
Statements of Operations (Continued)
iSHARES®, INC.
Year ended August 31, 2011
| iShares MSCI Malaysia Index Fund |
iShares MSCI Pacific ex-Japan Index Fund |
iShares MSCI Singapore Index Fund |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends – unaffiliateda |
$ | 33,418,153 | $ | 161,738,066 | $ | 74,612,539 | ||||||
| Interest – affiliated (Note 2) |
513 | 2,305 | 1,495 | |||||||||
| Securities lending income – affiliated (Note 2) |
– | 754,771 | 1,890,096 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
33,418,666 | 162,495,142 | 76,504,130 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
5,141,467 | 20,163,744 | 10,268,194 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
5,141,467 | 20,163,744 | 10,268,194 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
28,277,199 | 142,331,398 | 66,235,936 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments – unaffiliated |
7,783,323 | (66,196,709 | ) | (17,750,372 | ) | |||||||
| In-kind redemptions – unaffiliated |
– | 353,310,254 | 133,939,863 | |||||||||
| Foreign currency transactions |
299,129 | 2,019,033 | 977,929 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain |
8,082,452 | 289,132,578 | 117,167,420 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
41,316,262 | 182,563,757 | 18,077,156 | |||||||||
| Translation of assets and liabilities in foreign currencies |
(16,920 | ) | 616,378 | 112,117 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
41,299,342 | 183,180,135 | 18,189,273 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain |
49,381,794 | 472,312,713 | 135,356,693 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | 77,658,993 | $ | 614,644,111 | $ | 201,592,629 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $3,230,748, $986,842 and $318,684, respectively. |
See notes to financial statements.
| 62 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Operations (Continued)
iSHARES®, INC.
Year ended August 31, 2011
| iShares MSCI South Korea Index Fund |
iShares MSCI Index Fund |
iShares MSCI Thailand Investable Market Index Fund |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends – unaffiliateda |
$ | 43,747,590 | $ | 107,290,400 | $ | 20,456,985 | ||||||
| Interest – unaffiliated |
988 | 159 | – | |||||||||
| Interest – affiliated (Note 2) |
4,155 | 4,880 | 1,121 | |||||||||
| Securities lending income – affiliated (Note 2) |
3,469,638 | 2,003,143 | b | – | ||||||||
|
|
|
|
|
|
|
|||||||
| 47,222,371 | 109,298,582 | 20,458,106 | ||||||||||
| Less: Other foreign taxes (Note 1) |
(1,035 | ) | (3,072,437 | ) | (32,476 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
47,221,336 | 106,226,145 | 20,425,630 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
25,850,014 | 19,324,501 | 3,807,783 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
25,850,014 | 19,324,501 | 3,807,783 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
21,371,322 | 86,901,644 | 16,617,847 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments – unaffiliated |
(61,929,575 | ) | (7,957,752 | ) | (4,344,536 | ) | ||||||
| In-kind redemptions – unaffiliated |
– | – | 88,583,150 | |||||||||
| Foreign currency transactions |
1,732,075 | (146,652 | ) | 16,913 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain (loss) |
(60,197,500 | ) | (8,104,404 | ) | 84,255,527 | |||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
636,030,536 | 293,403,072 | 9,087,546 | |||||||||
| Translation of assets and liabilities in foreign currencies |
(52,883 | ) | 46,580 | (28,593 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
635,977,653 | 293,449,652 | 9,058,953 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain |
575,780,153 | 285,345,248 | 93,314,480 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | 597,151,475 | $ | 372,246,892 | $ | 109,932,327 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $8,453,544, $22,561,198 and $2,287,949, respectively. |
| b | Net of foreign tax paid of $460,505. |
See notes to financial statements.
| FINANCIAL STATEMENTS | 63 |
Table of Contents
Statements of Changes in Net Assets
iSHARES®, INC.
| iShares MSCI Australia Index Fund |
iShares MSCI Hong Kong Index Fund |
|||||||||||||||
| Year ended August 31, 2011 |
Year ended August 31, 2010 |
Year ended August 31, 2011 |
Year ended August 31, 2010 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
| |||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 118,543,422 | $ | 74,772,713 | $ | 45,630,453 | $ | 48,983,169 | ||||||||
| Net realized gain |
106,704,629 | 146,569,966 | 84,133,431 | 54,878,193 | ||||||||||||
| Net change in unrealized appreciation/depreciation |
256,987,740 | (209,874,740 | ) | 91,543,565 | 112,823,832 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase in net assets resulting from operations |
482,235,791 | 11,467,939 | 221,307,449 | 216,685,194 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
| |||||||||||||||
| From net investment income |
(126,555,555 | ) | (86,675,542 | ) | (46,031,342 | ) | (51,090,437 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(126,555,555 | ) | (86,675,542 | ) | (46,031,342 | ) | (51,090,437 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
| |||||||||||||||
| Proceeds from shares sold |
1,069,986,680 | 1,343,260,266 | 712,651,212 | 906,802,573 | ||||||||||||
| Cost of shares redeemed |
(532,059,432 | ) | (664,911,916 | ) | (1,256,261,691 | ) | (1,047,857,371 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
537,927,248 | 678,348,350 | (543,610,479 | ) | (141,054,798 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
893,607,484 | 603,140,747 | (368,334,372 | ) | 24,539,959 | |||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
2,196,817,144 | 1,593,676,397 | 1,976,316,824 | 1,951,776,865 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 3,090,424,628 | $ | 2,196,817,144 | $ | 1,607,982,452 | $ | 1,976,316,824 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed net investment income included in net assets at end of year |
$ | 18,032,011 | $ | 14,570,669 | $ | 3,722,047 | $ | 2,742,569 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
| |||||||||||||||
| Shares sold |
43,800,000 | 58,000,000 | 37,275,000 | 56,325,000 | ||||||||||||
| Shares redeemed |
(21,000,000 | ) | (31,400,000 | ) | (69,225,000 | ) | (68,625,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
22,800,000 | 26,600,000 | (31,950,000 | ) | (12,300,000 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| 64 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Changes in Net Assets (Continued)
iSHARES® , INC.
| iShares MSCI Japan Small Cap Index Fund |
iShares MSCI Malaysia Index Fund |
|||||||||||||||
| Year ended August 31, 2011 |
Year ended August 31, 2010 |
Year ended August 31, 2011 |
Year ended August 31, 2010 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
| |||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 901,280 | $ | 485,039 | $ | 28,277,199 | $ | 12,702,745 | ||||||||
| Net realized gain |
1,510,649 | 731,166 | 8,082,452 | 9,173,736 | ||||||||||||
| Net change in unrealized appreciation/depreciation |
5,914,053 | (3,559,226 | ) | 41,299,342 | 157,413,356 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
8,325,982 | (2,343,021 | ) | 77,658,993 | 179,289,837 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(1,015,659 | ) | (721,861 | ) | (26,214,422 | ) | (12,611,955 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(1,015,659 | ) | (721,861 | ) | (26,214,422 | ) | (12,611,955 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
39,895,589 | 8,487,461 | 475,718,489 | 215,972,540 | ||||||||||||
| Cost of shares redeemed |
(9,483,428 | ) | (4,314,452 | ) | (342,902,968 | ) | (101,507,881 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase in net assets from capital share transactions |
30,412,161 | 4,173,009 | 132,815,521 | 114,464,659 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE IN NET ASSETS |
37,722,484 | 1,108,127 | 184,260,092 | 281,142,541 | ||||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
36,664,313 | 35,556,186 | 794,142,190 | 512,999,649 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 74,386,797 | $ | 36,664,313 | $ | 978,402,282 | $ | 794,142,190 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of year |
$ | (75,439 | ) | $ | (75,394 | ) | $ | 4,891,859 | $ | 2,529,953 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
900,000 | 200,000 | 32,925,000 | 18,150,000 | ||||||||||||
| Shares redeemed |
(200,000 | ) | (100,000 | ) | (23,850,000 | ) | (9,375,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase in shares outstanding |
700,000 | 100,000 | 9,075,000 | 8,775,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| FINANCIAL STATEMENTS | 65 |
Table of Contents
Statements of Changes in Net Assets (Continued)
iSHARES® , INC.
| iShares MSCI Pacific ex-Japan Index Fund |
iShares MSCI Singapore Index Fund |
|||||||||||||||
| Year ended August 31, 2011 |
Year ended August 31, 2010 |
Year ended August 31, 2011 |
Year ended August 31, 2010 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
| |||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 142,331,398 | $ | 116,593,834 | $ | 66,235,936 | $ | 41,418,493 | ||||||||
| Net realized gain |
289,132,578 | 157,973,599 | 117,167,420 | 10,055,486 | ||||||||||||
| Net change in unrealized appreciation/depreciation |
183,180,135 | 44,872,924 | 18,189,273 | 241,937,285 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase in net assets resulting from operations |
614,644,111 | 319,440,357 | 201,592,629 | 293,411,264 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
| |||||||||||||||
| From net investment income |
(153,265,871 | ) | (128,810,457 | ) | (74,873,803 | ) | (48,264,119 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(153,265,871 | ) | (128,810,457 | ) | (74,873,803 | ) | (48,264,119 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
| |||||||||||||||
| Proceeds from shares sold |
433,392,558 | 357,007,662 | 315,210,889 | 360,350,218 | ||||||||||||
| Cost of shares redeemed |
(784,052,063 | ) | (492,042,511 | ) | (458,731,234 | ) | (169,535,152 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
(350,659,505 | ) | (135,034,849 | ) | (143,520,345 | ) | 190,815,066 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
110,718,735 | 55,595,051 | (16,801,519 | ) | 435,962,211 | |||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
3,438,148,670 | 3,382,553,619 | 1,730,000,783 | 1,294,038,572 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 3,548,867,405 | $ | 3,438,148,670 | $ | 1,713,199,264 | $ | 1,730,000,783 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed net investment income included in net assets at end of year |
$ | 12,091,695 | $ | 10,259,102 | $ | 8,735,601 | $ | 8,927,555 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
9,300,000 | 8,700,000 | 23,500,000 | 30,800,000 | ||||||||||||
| Shares redeemed |
(17,100,000 | ) | (12,900,000 | ) | (34,300,000 | ) | (15,000,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
(7,800,000 | ) | (4,200,000 | ) | (10,800,000 | ) | 15,800,000 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| 66 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Changes in Net Assets (Continued)
iSHARES® , INC.
| iShares MSCI South Korea Index Fund |
iShares MSCI Taiwan Index Fund |
|||||||||||||||
| Year ended August 31, 2011 |
Year ended August 31, 2010 |
Year ended August 31, 2011 |
Year ended August 31, 2010 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
| |||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 21,371,322 | $ | 20,724,754 | $ | 86,901,644 | $ | 61,190,834 | ||||||||
| Net realized loss |
(60,197,500 | ) | (73,908,563 | ) | (8,104,404 | ) | (21,282,333 | ) | ||||||||
| Net change in unrealized appreciation/depreciation |
635,977,653 | 389,247,673 | 293,449,652 | 349,112,650 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase in net assets resulting from operations |
597,151,475 | 336,063,864 | 372,246,892 | 389,021,151 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
| |||||||||||||||
| From net investment income |
(31,827,218 | ) | (25,921,316 | ) | (61,236,384 | ) | (57,723,897 | ) | ||||||||
| Return of capital |
(4,789,805 | ) | – | – | – | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(36,617,023 | ) | (25,921,316 | ) | (61,236,384 | ) | (57,723,897 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
| |||||||||||||||
| Proceeds from shares sold |
805,031,141 | 828,063,901 | 504,845,705 | 147,898,696 | ||||||||||||
| Cost of shares redeemed |
(549,508,621 | ) | (281,588,841 | ) | (679,782,864 | ) | (793,088,733 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
255,522,520 | 546,475,060 | (174,937,159 | ) | (645,190,037 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
816,056,972 | 856,617,608 | 136,073,349 | (313,892,783 | ) | |||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
3,255,167,619 | 2,398,550,011 | 2,721,438,533 | 3,035,331,316 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 4,071,224,591 | $ | 3,255,167,619 | $ | 2,857,511,882 | $ | 2,721,438,533 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of year |
$ | (13,854,595 | ) | $ | (5,138,651 | ) | $ | 84,856,114 | $ | 59,235,519 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
| |||||||||||||||
| Shares sold |
13,050,000 | 17,150,000 | 33,200,000 | 12,000,000 | ||||||||||||
| Shares redeemed |
(9,450,000 | ) | (6,100,000 | ) | (49,000,000 | ) | (66,200,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
3,600,000 | 11,050,000 | (15,800,000 | ) | (54,200,000 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| FINANCIAL STATEMENTS | 67 |
Table of Contents
Statements of Changes in Net Assets (Continued)
iSHARES® , INC.
| iShares MSCI Thailand Investable Market Index Fund |
||||||||
| Year ended August 31, 2011 |
Year ended August 31, 2010 |
|||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||
| OPERATIONS: |
||||||||
| Net investment income |
$ | 16,617,847 | $ | 8,070,335 | ||||
| Net realized gain |
84,255,527 | 23,735,613 | ||||||
| Net change in unrealized appreciation/depreciation |
9,058,953 | 63,106,858 | ||||||
|
|
|
|
|
|||||
| Net increase in net assets resulting from operations |
109,932,327 | 94,912,806 | ||||||
|
|
|
|
|
|||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||
| From net investment income |
(15,281,425 | ) | (6,685,017 | ) | ||||
|
|
|
|
|
|||||
| Total distributions to shareholders |
(15,281,425 | ) | (6,685,017 | ) | ||||
|
|
|
|
|
|||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||
| Proceeds from shares sold |
335,427,814 | 553,374,038 | ||||||
| Cost of shares redeemed |
(317,542,787 | ) | (215,318,898 | ) | ||||
|
|
|
|
|
|||||
| Net increase in net assets from capital share transactions |
17,885,027 | 338,055,140 | ||||||
|
|
|
|
|
|||||
| INCREASE IN NET ASSETS |
112,535,929 | 426,282,929 | ||||||
| NET ASSETS |
||||||||
| Beginning of year |
520,303,805 | 94,020,876 | ||||||
|
|
|
|
|
|||||
| End of year |
$ | 632,839,734 | $ | 520,303,805 | ||||
|
|
|
|
|
|||||
| Undistributed net investment income included in net assets at end of year |
$ | 3,277,303 | $ | 1,923,968 | ||||
|
|
|
|
|
|||||
| SHARES ISSUED AND REDEEMED |
||||||||
| Shares sold |
5,150,000 | 11,950,000 | ||||||
| Shares redeemed |
(5,050,000 | ) | (5,050,000 | ) | ||||
|
|
|
|
|
|||||
| Net increase in shares outstanding |
100,000 | 6,900,000 | ||||||
|
|
|
|
|
|||||
See notes to financial statements.
| 68 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Australia Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 20.92 | $ | 20.33 | $ | 23.96 | $ | 27.62 | $ | 21.59 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.99 | 0.72 | 0.78 | 0.96 | 0.89 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
3.33 | 0.69 | (3.47 | ) | (3.34 | ) | 6.24 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
4.32 | 1.41 | (2.69 | ) | (2.38 | ) | 7.13 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(1.06 | ) | (0.82 | ) | (0.94 | ) | (1.28 | ) | (1.10 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(1.06 | ) | (0.82 | ) | (0.94 | ) | (1.28 | ) | (1.10 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 24.18 | $ | 20.92 | $ | 20.33 | $ | 23.96 | $ | 27.62 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
20.54 | % | 6.86 | % | (8.91 | )% | (9.25 | )% | 33.97 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 3,090,425 | $ | 2,196,817 | $ | 1,593,676 | $ | 1,059,092 | $ | 1,464,112 | ||||||||||
| Ratio of expenses to average net assets |
0.52 | % | 0.53 | % | 0.55 | % | 0.52 | % | 0.51 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.95 | % | 3.24 | % | 4.92 | % | 3.38 | % | 3.46 | % | ||||||||||
| Portfolio turnover ratec |
9 | % | 8 | % | 14 | % | 10 | % | 10 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS | 69 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Hong Kong Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 16.02 | $ | 14.39 | $ | 15.87 | $ | 18.30 | $ | 14.20 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.42 | 0.42 | 0.52 | 0.45 | 0.47 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
1.56 | 1.69 | (1.46 | ) | (2.25 | ) | 3.94 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
1.98 | 2.11 | (0.94 | ) | (1.80 | ) | 4.41 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.41 | ) | (0.48 | ) | (0.54 | ) | (0.63 | ) | (0.31 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.41 | ) | (0.48 | ) | (0.54 | ) | (0.63 | ) | (0.31 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 17.59 | $ | 16.02 | $ | 14.39 | $ | 15.87 | $ | 18.30 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
12.27 | % | 14.85 | % | (4.77 | )% | (10.54 | )% | 31.44 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 1,607,982 | $ | 1,976,317 | $ | 1,951,777 | $ | 1,675,184 | $ | 1,445,309 | ||||||||||
| Ratio of expenses to average net assets |
0.52 | % | 0.53 | % | 0.55 | % | 0.52 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
2.25 | % | 2.67 | % | 4.29 | % | 2.34 | % | 2.92 | % | ||||||||||
| Portfolio turnover ratec |
15 | % | 5 | % | 9 | % | 17 | % | 9 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| 70 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Japan Small Cap Index Fund | ||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Period from Aug. 31, 2008 |
|||||||||||||
| Net asset value, beginning of period |
$ | 40.74 | $ | 44.45 | $ | 43.24 | $ | 48.85 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income from investment operations: |
||||||||||||||||
| Net investment incomeb |
0.78 | 0.61 | 0.60 | 0.29 | ||||||||||||
| Net realized and unrealized gain (loss)c |
5.87 | (3.39 | ) | 1.29 | (5.74 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total from investment operations |
6.65 | (2.78 | ) | 1.89 | (5.45 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Less distributions from: |
||||||||||||||||
| Net investment income |
(0.90 | ) | (0.93 | ) | (0.68 | ) | (0.16 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions |
(0.90 | ) | (0.93 | ) | (0.68 | ) | (0.16 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net asset value, end of period |
$ | 46.49 | $ | 40.74 | $ | 44.45 | $ | 43.24 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total return |
16.38 | % | (6.25 | )% | 4.62 | % | (11.19 | )%d | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Ratios/Supplemental data: |
||||||||||||||||
| Net assets, end of period (000s) |
$ | 74,387 | $ | 36,664 | $ | 35,556 | $ | 34,594 | ||||||||
| Ratio of expenses to average net assetse |
0.51 | % | 0.53 | % | 0.56 | % | 0.53 | % | ||||||||
| Ratio of net investment income to average net assetse |
1.72 | % | 1.46 | % | 1.59 | % | 0.93 | % | ||||||||
| Portfolio turnover ratef |
10 | % | 7 | % | 7 | % | 7 | % | ||||||||
| a | Commencement of operations. |
| b | Based on average shares outstanding throughout each period. |
| c | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| d | Not annualized. |
| e | Annualized for periods of less than one year. |
| f | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS | 71 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Malaysia Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 12.98 | $ | 9.79 | $ | 9.39 | $ | 10.97 | $ | 7.75 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.41 | 0.24 | 0.28 | 0.34 | 0.34 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
0.92 | 3.20 | 0.40 | (1.31 | ) | 3.08 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
1.33 | 3.44 | 0.68 | (0.97 | ) | 3.42 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.39 | ) | (0.25 | ) | (0.28 | ) | (0.61 | ) | (0.20 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.39 | ) | (0.25 | ) | (0.28 | ) | (0.61 | ) | (0.20 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 13.92 | $ | 12.98 | $ | 9.79 | $ | 9.39 | $ | 10.97 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
10.19 | % | 35.76 | % | 8.00 | % | (9.86 | )% | 44.64 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 978,402 | $ | 794,142 | $ | 513,000 | $ | 473,091 | $ | 741,440 | ||||||||||
| Ratio of expenses to average net asset |
0.52 | % | 0.53 | % | 0.56 | % | 0.52 | % | 0.51 | % | ||||||||||
| Ratio of net investment income to average net assets |
2.84 | % | 2.17 | % | 3.45 | % | 2.84 | % | 3.21 | % | ||||||||||
| Portfolio turnover ratec |
49 | % | 29 | % | 52 | % | 92 | % | 87 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Portfolio turnover rates include portfolio transactions that are executed as a result of the Fund processing capital share transactions in Creation Units solely for cash in U.S. dollars. Excluding such transactions, the portfolio turnover rate for years ended August 31, 2011, August 31, 2010, August 31, 2009, August 31, 2008 and August 31, 2007 would have been 14%, 10%, 12%, 16% and 3%, respectively. See Note 4. |
See notes to financial statements.
| 72 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Pacific ex-Japan Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008a |
Year ended Aug. 31, 2007a |
||||||||||||||||
| Net asset value, beginning of year |
$ | 39.25 | $ | 36.85 | $ | 41.37 | $ | 48.31 | $ | 37.34 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomeb |
1.64 | 1.25 | 1.38 | 1.64 | 1.52 | |||||||||||||||
| Net realized and unrealized gain (loss)c |
5.31 | 2.52 | (4.79 | ) | (6.01 | ) | 11.18 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
6.95 | 3.77 | (3.41 | ) | (4.37 | ) | 12.70 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(1.73 | ) | (1.37 | ) | (1.11 | ) | (2.51 | ) | (1.73 | ) | ||||||||||
| Net realized gain |
– | – | – | (0.06 | ) | – | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(1.73 | ) | (1.37 | ) | (1.11 | ) | (2.57 | ) | (1.73 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 44.47 | $ | 39.25 | $ | 36.85 | $ | 41.37 | $ | 48.31 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
17.61 | % | 10.27 | % | (7.23 | )% | (9.87 | )% | 34.86 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 3,548,867 | $ | 3,438,149 | $ | 3,382,554 | $ | 3,263,971 | $ | 3,536,295 | ||||||||||
| Ratio of expenses to average net assets |
0.50 | % | 0.50 | % | 0.50 | % | 0.50 | % | 0.50 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.53 | % | 3.09 | % | 4.83 | % | 3.35 | % | 3.43 | % | ||||||||||
| Portfolio turnover rated |
10 | % | 7 | % | 10 | % | 14 | % | 11 | % | ||||||||||
| a | Per share amounts were adjusted to reflect a three-for-one stock split effective July 24, 2008. |
| b | Based on average shares outstanding throughout each period. |
| c | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| d | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS | 73 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Singapore Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 12.17 | $ | 10.25 | $ | 11.44 | $ | 13.28 | $ | 9.11 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.45 | 0.32 | 0.32 | 0.47 | 0.47 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
0.92 | 1.97 | (1.16 | ) | (1.67 | ) | 4.01 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
1.37 | 2.29 | (0.84 | ) | (1.20 | ) | 4.48 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.49 | ) | (0.37 | ) | (0.35 | ) | (0.64 | ) | (0.31 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.49 | ) | (0.37 | ) | (0.35 | ) | (0.64 | ) | (0.31 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 13.05 | $ | 12.17 | $ | 10.25 | $ | 11.44 | $ | 13.28 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
11.27 | % | 22.68 | % | (5.87 | )% | (9.55 | )% | 49.92 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 1,713,199 | $ | 1,730,001 | $ | 1,294,039 | $ | 1,476,968 | $ | 1,669,210 | ||||||||||
| Ratio of expenses to average net assets |
0.52 | % | 0.53 | % | 0.55 | % | 0.52 | % | 0.51 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.34 | % | 2.80 | % | 3.97 | % | 3.56 | % | 3.80 | % | ||||||||||
| Portfolio turnover ratec |
10 | % | 9 | % | 15 | % | 16 | % | 8 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| 74 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI South Korea Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 47.76 | $ | 42.01 | $ | 43.55 | $ | 63.60 | $ | 46.00 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.29 | 0.32 | 0.30 | 0.80 | 0.51 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
9.19 | 5.82 | (1.45 | ) | (19.87 | ) | 17.42 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
9.48 | 6.14 | (1.15 | ) | (19.07 | ) | 17.93 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.43 | ) | (0.39 | ) | (0.39 | ) | (0.98 | ) | (0.33 | ) | ||||||||||
| Return of capital |
(0.07 | ) | – | – | – | – | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.50 | ) | (0.39 | ) | (0.39 | ) | (0.98 | ) | (0.33 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 56.74 | $ | 47.76 | $ | 42.01 | $ | 43.55 | $ | 63.60 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
19.76 | % | 14.65 | % | (2.31 | )% | (30.35 | )% | 39.18 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 4,071,225 | $ | 3,255,168 | $ | 2,398,550 | $ | 1,985,763 | $ | 2,429,453 | ||||||||||
| Ratio of expenses to average net assetsc |
0.59 | % | 0.61 | % | 0.65 | % | 0.63 | % | 0.68 | % | ||||||||||
| Ratio of net investment income to average net assets |
0.49 | % | 0.67 | % | 0.91 | % | 1.35 | % | 0.96 | % | ||||||||||
| Portfolio turnover rated |
18 | % | 14 | % | 62 | % | 42 | % | 20 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Ratios for prior periods have been recalculated, as necessary, to conform with the current period presentation of foreign taxes. |
| d | Portfolio turnover rates include portfolio transactions that are executed as a result of the Fund processing capital share transactions in Creation Units solely for cash in U.S. dollars. Excluding such transactions, the portfolio turnover rate for years ended August 31, 2011, August 31, 2010, August 31, 2009, August 31, 2008, and August 31, 2007 would have been 6%, 6%, 8%, 15%, and 6%, respectively. See Note 4. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS | 75 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Taiwan Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 12.19 | $ | 10.94 | $ | 13.13 | $ | 15.99 | $ | 12.57 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.39 | 0.23 | 0.30 | 0.54 | 0.38 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
1.49 | 1.23 | (1.89 | ) | (3.01 | ) | 3.34 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
1.88 | 1.46 | (1.59 | ) | (2.47 | ) | 3.72 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.29 | ) | (0.21 | ) | (0.60 | ) | (0.39 | ) | (0.30 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.29 | ) | (0.21 | ) | (0.60 | ) | (0.39 | ) | (0.30 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 13.78 | $ | 12.19 | $ | 10.94 | $ | 13.13 | $ | 15.99 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
15.24 | % | 13.30 | % | (9.67 | )% | (15.69 | )% | 29.91 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 2,857,512 | $ | 2,721,439 | $ | 3,035,331 | $ | 2,918,008 | $ | 2,769,764 | ||||||||||
| Ratio of expenses to average net assetsc |
0.59 | % | 0.61 | % | 0.65 | % | 0.63 | % | 0.68 | % | ||||||||||
| Ratio of net investment income to average net assets |
2.64 | % | 1.90 | % | 3.18 | % | 3.54 | % | 2.61 | % | ||||||||||
| Portfolio turnover rated |
23 | % | 9 | % | 52 | % | 33 | % | 35 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Ratios for prior periods have been recalculated, as necessary, to conform with the current period presentation of foreign taxes. |
| d | Portfolio turnover rates include portfolio transactions that are executed as a result of the Fund processing capital share transactions in Creation Units solely for cash in U.S. dollars. Excluding such transactions, the portfolio turnover rate for years ended August 31, 2011, August 31, 2010, August 31, 2009, August 31, 2008, and August 31, 2007 would have been 8%, 4%, 14%, 11% and 12%, respectively. See Note 4. |
See notes to financial statements.
| 76 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Thailand Investable Market Index Fund | ||||||||||||||||
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Period from Mar. 26, 2008a to Aug. 31, 2008 |
|||||||||||||
| Net asset value, beginning of period |
$ | 55.06 | $ | 36.87 | $ | 38.83 | $ | 50.03 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income from investment operations: |
||||||||||||||||
| Net investment incomeb |
1.65 | 1.44 | 1.17 | 0.32 | ||||||||||||
| Net realized and unrealized gain (loss)c |
11.10 | 17.95 | (1.88 | ) | (11.52 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total from investment operations |
12.75 | 19.39 | (0.71 | ) | (11.20 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Less distributions from: |
||||||||||||||||
| Net investment income |
(1.54 | ) | (1.20 | ) | (1.25 | ) | – | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions |
(1.54 | ) | (1.20 | ) | (1.25 | ) | – | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net asset value, end of period |
$ | 66.27 | $ | 55.06 | $ | 36.87 | $ | 38.83 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total return |
23.33 | % | 53.19 | % | (0.33 | )% | (22.39 | )%d | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Ratios/Supplemental data: |
||||||||||||||||
| Net assets, end of period (000s) |
$ | 632,840 | $ | 520,304 | $ | 94,021 | $ | 58,248 | ||||||||
| Ratio of expenses to average net assetse,f |
0.59 | % | 0.61 | % | 0.65 | % | 0.63 | % | ||||||||
| Ratio of net investment income to average net assetse |
2.56 | % | 3.22 | % | 4.00 | % | 1.68 | % | ||||||||
| Portfolio turnover rateg |
22 | % | 14 | % | 15 | % | 19 | % | ||||||||
| a | Commencement of operations. |
| b | Based on average shares outstanding throughout each period. |
| c | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| d | Not annualized. |
| e | Annualized for periods of less than one year. |
| f | Ratios for prior periods have been recalculated, as necessary, to conform with the current period presentation of foreign taxes. |
| g | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS | 77 |
Table of Contents
iSHARES® , INC.
iShares, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company was incorporated under the laws of the State of Maryland on September 1, 1994 pursuant to amended and restated Articles of Incorporation.
These financial statements relate only to the following funds (each, a “Fund,” collectively, the “Funds”):
Non-diversified funds generally hold securities of fewer issuers than diversified funds and may be more susceptible to the risks associated with these particular issuers, or to a single economic, political or regulatory occurrence affecting these issuers.
The investment objective of each Fund is to seek investment results that correspond generally to the price and yield performance, before fees and expenses, of its underlying index. The investment adviser uses a “passive” or index approach to try to achieve each Fund’s investment objective.
Each Fund invests in securities of non-U.S. issuers that may trade in non-U.S. markets. This may involve certain considerations and risks not typically associated with securities of U.S. issuers. Such risks include, but are 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 of the Funds; less publicly available information about issuers; the imposition of withholding or other taxes; higher transaction and custody costs; settlement delays and risk of loss attendant in settlement procedures; difficulties in enforcing contractual obligations; less regulation of securities markets; different accounting, disclosure and reporting requirements; more substantial governmental involvement in the economy; higher inflation rates; greater social, economic and political uncertainties; the risk of nationalization or expropriation of assets and the risk of war.
Pursuant to the Company’s organizational documents, the Funds’ officers and directors are indemnified against certain liabilities that may arise out of the performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts with service providers that contain general indemnification clauses. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred.
1. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are consistently followed by the Funds in the preparation of their financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
| 78 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® , INC.
SECURITY VALUATION
The securities and other assets of each Fund are valued pursuant to the pricing policy and procedures approved by the Board of Directors of the Company (the “Board”) using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
| • | Level 1 – Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access at the measurement date (a “Level 1 Price”); |
| • | Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not considered to be active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (a “Level 2 Price”); and |
| • | Level 3 – Inputs that are unobservable for the asset or liability (a “Level 3 Price”). |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3 of the fair value hierarchy.
The level of a value determined for a financial instrument within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement in its entirety. The categorization of a value determined for a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Funds’ perceived risk of that instrument.
Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 Prices, include active listed equities. The Funds do not adjust the quoted price for such instruments, even in situations where the Funds hold a large position and a sale could reasonably impact the quoted price.
Investments that trade in markets that are not considered to be active, but whose values are based on inputs such as quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified within Level 2. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Investments whose values are classified as Level 3 Prices have significant unobservable inputs, as they may trade infrequently or not at all. Investments whose values are classified as Level 3 Prices may include unlisted securities related to corporate actions, securities whose trading have been suspended or which have been de-listed from their primary trading exchange, less liquid corporate debt securities (including distressed debt instruments), collateralized debt obligations, and less liquid mortgage securities (backed by either commercial or residential real estate). When observable prices are not available for these securities, the Funds use one or more valuation techniques (e.g., the market approach or the income approach) for which sufficient and reliable data is available. Within Level 3 of the fair value hierarchy, the use of the
| NOTES TO FINANCIAL STATEMENTS | 79 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® , INC.
market approach generally consists of using comparable market transactions, while the use of the income approach generally consists of the net present value of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors.
The inputs used by the Funds in estimating the value of Level 3 Prices may include the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 Prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the Funds in the absence of market information. The fair value measurement of Level 3 Prices does not include transaction costs that may have been capitalized as part of the security’s cost basis. Assumptions used by the Funds due to the lack of observable inputs may significantly impact the resulting fair value and therefore the Funds’ results of operations.
Fair value pricing could result in a difference between the prices used to calculate a Fund’s net asset value and the prices used by the Fund’s underlying index, which in turn could result in a difference between the Fund’s performance and the performance of the Fund’s underlying index.
The following table summarizes the value of each of the Funds’ investments according to the fair value hierarchy as of August 31, 2011. The breakdown of each Fund’s investments into major categories is disclosed in its respective Schedule of Investments.
| Investments in Securities | ||||||||||||||||
| iShares MSCI Index Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Australia |
||||||||||||||||
| Common Stocks |
$ | 3,056,732,012 | $ | – | $ | 2,720 | $ | 3,056,734,732 | ||||||||
| Short-Term Investments |
8,283,496 | – | – | 8,283,496 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 3,065,015,508 | $ | – | $ | 2,720 | $ | 3,065,018,228 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Hong Kong |
||||||||||||||||
| Common Stocks |
$ | 1,601,605,782 | $ | – | $ | – | $ | 1,601,605,782 | ||||||||
| Short-Term Investments |
141,026,189 | – | – | 141,026,189 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 1,742,631,971 | $ | – | $ | – | $ | 1,742,631,971 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Japan Small Cap |
||||||||||||||||
| Common Stocks |
$ | 74,209,147 | $ | – | $ | – | $ | 74,209,147 | ||||||||
| Short-Term Investments |
2,005,186 | – | – | 2,005,186 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 76,214,333 | $ | – | $ | – | $ | 76,214,333 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Malaysia |
||||||||||||||||
| Common Stocks |
$ | 976,774,359 | $ | – | $ | – | $ | 976,774,359 | ||||||||
| Short-Term Investments |
149,530 | – | – | 149,530 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 976,923,889 | $ | – | $ | – | $ | 976,923,889 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Pacific ex-Japan |
||||||||||||||||
| Common Stocks |
$ | 3,517,365,153 | $ | – | $ | 3,888 | $ | 3,517,369,041 | ||||||||
| Short-Term Investments |
147,808,066 | – | – | 147,808,066 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 3,665,173,219 | $ | – | $ | 3,888 | $ | 3,665,177,107 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 80 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® , INC.
| Investments in Securities | ||||||||||||||||
| iShares MSCI Index Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Singapore |
||||||||||||||||
| Common Stocks |
$ | 1,701,315,058 | $ | – | $ | – | $ | 1,701,315,058 | ||||||||
| Short-Term Investments |
192,386,360 | – | – | 192,386,360 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 1,893,701,418 | $ | – | $ | – | $ | 1,893,701,418 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| South Korea |
||||||||||||||||
| Common Stocks |
$ | 3,949,336,194 | $ | – | $ | – | $ | 3,949,336,194 | ||||||||
| Preferred Stocks |
118,519,284 | – | – | 118,519,284 | ||||||||||||
| Short-Term Investments |
189,739,236 | – | – | 189,739,236 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 4,257,594,714 | $ | – | $ | – | $ | 4,257,594,714 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Taiwan |
||||||||||||||||
| Common Stocks |
$ | 2,829,873,193 | $ | – | $ | 24 | $ | 2,829,873,217 | ||||||||
| Short-Term Investments |
457,058,589 | – | – | 457,058,589 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 3,286,931,782 | $ | – | $ | 24 | $ | 3,286,931,806 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Thailand Investable Market |
||||||||||||||||
| Common Stocks |
$ | 628,656,969 | $ | – | $ | – | $ | 628,656,969 | ||||||||
| Warrants |
107,571 | – | – | 107,571 | ||||||||||||
| Short-Term Investments |
594,796 | – | – | 594,796 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 629,359,336 | $ | – | $ | – | $ | 629,359,336 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for on trade date. Dividend income is recognized on the ex-dividend date, net of any foreign taxes withheld at source. Any taxes withheld that are reclaimable from foreign tax authorities as of August 31, 2011 are reflected in dividends receivable. Non-cash dividends received in the form of stock in an elective dividend, if any, are recorded as dividend income at fair value. Distributions received by the Funds may include a return of capital that is estimated by management. Such amounts are recorded as a reduction of the cost of investments or reclassified to capital gains. Interest income is accrued daily. Realized gains and losses on investment transactions are determined using the specific identification method.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Funds are maintained in U.S. dollars. Foreign currencies, as well as investment securities and other assets and liabilities denominated in foreign currencies, are translated into U.S. dollars using exchange rates deemed appropriate by the investment adviser. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars on the respective dates of such transactions.
Each Fund does not isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of securities. Such fluctuations are reflected by the Funds as a component of realized and unrealized gains and losses from investments for financial reporting purposes.
| NOTES TO FINANCIAL STATEMENTS | 81 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® , INC.
FOREIGN TAXES
The Funds may be subject to foreign taxes (a portion of which may be reclaimable) on income, capital gains on investments, certain foreign currency transactions or other corporate events. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in the foreign jurisdictions in which the Funds invest. These foreign taxes, if any, are paid by the Funds and are reflected in their Statements of Operations as follows: foreign taxes withheld at source are presented as a reduction of income, foreign taxes on securities lending income are presented as a reduction of securities lending income, foreign taxes on capital gains from sales of investments and foreign currency transactions are included in their respective net realized gain (loss) categories, and foreign taxes on other corporate events are reflected in “Other foreign taxes.” Foreign taxes payable as of August 31, 2011, if any, are disclosed in the Funds’ Statements of Assets and Liabilities.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends and distributions paid by each Fund are recorded on the ex-dividend dates. Distributions are determined on a tax basis and may differ from net investment income and net realized capital gains for financial reporting purposes. Dividends and distributions are paid in U.S. dollars and cannot be automatically reinvested in additional shares of the Funds.
As of August 31, 2011, the tax year-end of the Funds, the components of accumulated net earnings (losses) on a tax basis were as follows:
| iShares MSCI Index Fund | Undistributed Ordinary Income |
Unrealized Appreciation (Depreciation) |
Capital and Other Losses |
Accumulated Earnings |
||||||||||||
| Australia |
$ | 31,990,700 | $ | (58,723,360 | ) | $ | (84,344,634 | ) | $ | (111,077,294 | ) | |||||
| Hong Kong |
3,722,047 | (182,328,925 | ) | (223,961,734 | ) | (402,568,612 | ) | |||||||||
| Japan Small Cap |
512,998 | 1,900,382 | (1,369,228 | ) | 1,044,152 | |||||||||||
| Malaysia |
5,857,207 | 358,351,407 | (43,428,058 | ) | 320,780,556 | |||||||||||
| Pacific ex-Japan |
36,081,303 | 360,070,347 | (266,976,532 | ) | 129,175,118 | |||||||||||
| Singapore |
20,869,498 | 80,134,790 | (179,985,893 | ) | (78,981,605 | ) | ||||||||||
| South Korea |
– | 1,270,149,956 | (612,924,091 | ) | 657,225,865 | |||||||||||
| Taiwan |
87,330,615 | 736,661,792 | (843,419,859 | ) | (19,427,452 | ) | ||||||||||
| Thailand Investable Market |
3,277,303 | 68,649,052 | (5,413,697 | ) | 66,512,658 | |||||||||||
The difference between book-basis and tax-basis unrealized gains (losses) is attributable primarily to the tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains on investments in passive foreign investment companies.
The tax character of distributions paid during the years ended August 31, 2011 and August 31, 2010 were as follows:
| iShares MSCI Index Fund | 2011 | 2010 | ||||||
| Australia |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 126,555,555 | $ | 86,675,542 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 126,555,555 | $ | 86,675,542 | ||||
|
|
|
|
|
|||||
| 82 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® , INC.
| iShares MSCI Index Fund | 2011 | 2010 | ||||||
| Hong Kong |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 46,031,342 | $ | 51,090,437 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 46,031,342 | $ | 51,090,437 | ||||
|
|
|
|
|
|||||
| Japan Small Cap |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 1,015,659 | $ | 721,861 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 1,015,659 | $ | 721,861 | ||||
|
|
|
|
|
|||||
| Malaysia |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 26,214,422 | $ | 12,611,955 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 26,214,422 | $ | 12,611,955 | ||||
|
|
|
|
|
|||||
| Pacific ex-Japan |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 153,265,871 | $ | 128,810,457 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 153,265,871 | $ | 128,810,457 | ||||
|
|
|
|
|
|||||
| Singapore |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 74,873,803 | $ | 48,264,119 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 74,873,803 | $ | 48,264,119 | ||||
|
|
|
|
|
|||||
| South Korea |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 31,827,218 | $ | 25,921,316 | ||||
| Return of capital |
4,789,805 | – | ||||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 36,617,023 | $ | 25,921,316 | ||||
|
|
|
|
|
|||||
| Taiwan |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 61,236,384 | $ | 57,723,897 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 61,236,384 | $ | 57,723,897 | ||||
|
|
|
|
|
|||||
| Thailand Investable Market |
||||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 15,281,425 | $ | 6,685,017 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 15,281,425 | $ | 6,685,017 | ||||
|
|
|
|
|
|||||
FEDERAL INCOME TAXES
Each Fund is treated as an entity separate from the Company’s other funds for federal income tax purposes. It is the policy of each Fund to qualify as a regulated investment company by complying with the provisions applicable to regulated investment companies, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, and to annually distribute substantially all of its ordinary income and any net capital gains (taking into account any capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income and excise taxes. Accordingly, no provision for federal income taxes is required.
| NOTES TO FINANCIAL STATEMENTS | 83 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® , INC.
As permitted by tax regulations, the Funds have elected to defer any net realized capital losses incurred from November 1, 2010 to August 31, 2011 and treat them as arising in the year ending August 31, 2012, as follows:
The Funds had tax basis net capital loss carryforwards as of August 31, 2011, the tax year-end of the Funds, as follows:
| iShares MSCI Index Fund | Expiring 2012 |
Expiring 2013 |
Expiring 2014 |
Expiring 2015 |
Expiring 2016 |
Expiring 2017 |
Expiring 2018 |
Expiring 2019 |
Total | |||||||||||||||||||||||||||
| Australia |
$ | 596,240 | $ | 384,424 | $ | – | $ | 7,066 | $ | 529,868 | $ | 24,006,125 | $ | 23,348,244 | $ | 12,127,364 | $ | 60,999,331 | ||||||||||||||||||
| Hong Kong |
2,330,414 | 468,716 | 425,440 | 2,899,247 | 3,185,408 | 29,235,556 | 114,836,904 | 34,565,959 | 187,947,644 | |||||||||||||||||||||||||||
| Japan Small Cap |
– | – | – | – | – | 131,718 | 541,322 | 203,697 | 876,737 | |||||||||||||||||||||||||||
| Malaysia |
– | – | – | 774,158 | 1,127,892 | 40,223,530 | – | – | 42,125,580 | |||||||||||||||||||||||||||
| Pacific ex-Japan |
– | – | – | – | – | 66,207,828 | 104,799,503 | 36,600,987 | 207,608,318 | |||||||||||||||||||||||||||
| Singapore |
4,256,421 | 2,558,348 | – | – | 807,115 | 15,680,510 | 132,420,824 | 11,588,528 | 167,311,746 | |||||||||||||||||||||||||||
| South Korea |
3,363,449 | 11,590,303 | 3,172,573 | 38,097,223 | – | 178,889,302 | 226,591,665 | 78,503,704 | 540,208,219 | |||||||||||||||||||||||||||
| Taiwan |
9,129,874 | 12,022,719 | 14,435,986 | 64,999,586 | 16,734,578 | 343,375,145 | 363,052,013 | 19,669,958 | 843,419,859 | |||||||||||||||||||||||||||
| Thailand Investable Market |
– | – | – | – | – | 555,444 | 2,321,428 | 1,304,910 | 4,181,782 | |||||||||||||||||||||||||||
Net capital loss carryforwards may be applied against any net realized taxable gains in each succeeding year or until their respective expiration dates, whichever occurs first.
Under the recently enacted Regulated Investment Company Modernization Act of 2010, capital losses incurred by Funds for taxable years beginning after December 22, 2010 will not be subject to expiration. In addition, such losses must be utilized prior to the losses incurred in the tax years preceding enactment.
The Funds may own shares in certain foreign investment entities, referred to, under U.S. tax law, as “passive foreign investment companies.” The Funds may elect to mark-to-market annually the shares of each passive foreign investment company and would be required to distribute to shareholders any such marked-to-market gains.
As of August 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:
| iShares MSCI Index Fund | Tax Cost |
Gross Unrealized Appreciation |
Gross Unrealized Depreciation |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| Australia |
$ | 3,124,306,663 | $ | 205,531,249 | $ | (264,819,684 | ) | $ | (59,288,435 | ) | ||||||
| Hong Kong |
1,924,964,728 | 92,518,563 | (274,851,320 | ) | (182,332,757 | ) | ||||||||||
| Japan Small Cap |
74,316,919 | 6,987,128 | (5,089,714 | ) | 1,897,414 | |||||||||||
| Malaysia |
618,562,047 | 399,267,802 | (40,905,960 | ) | 358,361,842 | |||||||||||
| 84 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® , INC.
| iShares MSCI Index Fund | Tax Cost |
Gross Unrealized Appreciation |
Gross Unrealized Depreciation |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| Pacific ex-Japan |
$ | 3,305,576,782 | $ | 689,733,803 | $ | (330,133,478 | ) | $ | 359,600,325 | |||||||
| Singapore |
1,813,693,669 | 202,526,266 | (122,518,517 | ) | 80,007,749 | |||||||||||
| South Korea |
2,987,444,992 | 1,886,573,896 | (616,424,174 | ) | 1,270,149,722 | |||||||||||
| Taiwan |
2,550,220,293 | 1,082,891,716 | (346,180,203 | ) | 736,711,513 | |||||||||||
| Thailand Investable Market |
560,701,037 | 87,392,465 | (18,734,166 | ) | 68,658,299 | |||||||||||
Management has reviewed the tax positions as of August 31, 2011, inclusive of the open tax return years, and has determined that no provision for income tax is required in the Funds’ financial statements.
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These differences are reclassified by each Fund at the end of its tax year and are primarily attributable to the expiration of capital loss carryforwards, passive foreign investment companies, and realized gains (losses) from foreign currency transactions and in-kind redemptions. As of August 31, 2011, the Funds made the following reclassifications, which have no effect on net assets or net asset values per share:
| iShares MSCI Index Fund | Paid-in Capital |
Undistributed Net Investment Income/Distributions in Excess of Net Investment Income |
Undistributed Net Realized Gain/ Accumulated Net Realized Loss |
|||||||||
| Australia |
$ | 127,645,207 | $ | 11,473,475 | $ | (139,118,682 | ) | |||||
| Hong Kong |
115,341,730 | 1,380,367 | (116,722,097 | ) | ||||||||
| Japan Small Cap |
1,940,758 | 114,334 | (2,055,092 | ) | ||||||||
| Malaysia |
– | 299,129 | (299,129 | ) | ||||||||
| Pacific ex-Japan |
310,609,072 | 12,767,066 | (323,376,138 | ) | ||||||||
| Singapore |
104,314,758 | 8,445,913 | (112,760,671 | ) | ||||||||
| South Korea |
(504,041 | ) | 1,739,952 | (1,235,911 | ) | |||||||
| Taiwan |
(8,689,663 | ) | (44,665 | ) | 8,734,328 | |||||||
| Thailand Investable Market |
86,909,627 | 16,913 | (86,926,540 | ) | ||||||||
RECENT ACCOUNTING STANDARD
In May 2011, the Financial Accounting Standards Board issued amended guidance to improve disclosure about fair value measurements which will require the following disclosures for fair value measurements categorized as Level 3: quantitative information about the unobservable inputs and assumptions used in the fair value measurement, a description of the valuation policies and procedures and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, the amounts and reasons for all transfers in and out of Level 1 and Level 2 will be required to be disclosed. The amended guidance is effective for financial statements for fiscal years beginning after December 15, 2011, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Funds’ financial statements and disclosures.
| NOTES TO FINANCIAL STATEMENTS | 85 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® , INC.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Investment Advisory Agreement with the Company, BlackRock Fund Advisors (“BFA”) manages the investment of each Fund’s assets. BFA is a California corporation indirectly owned by BlackRock, Inc. (“BlackRock”). Under the Investment Advisory Agreement, BFA is responsible for substantially all expenses of the Funds, except interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution fees, litigation expenses and any extraordinary expenses.
For its investment advisory services to each of the iShares MSCI Australia, iShares MSCI Hong Kong, iShares MSCI Japan Small Cap, iShares MSCI Malaysia and iShares MSCI Singapore Index Funds, BFA is entitled to an annual investment advisory fee based on each Fund’s allocable portion of the aggregate of the average daily net assets of the Fund and certain other iShares funds, as follows:
| Investment Advisory Fee | Aggregate Average Daily Net Assets | |
| 0.59% | First $7 billion | |
| 0.54 | Over $7 billion, up to and including $11 billion | |
| 0.49 | Over $11 billion, up to and including $24 billion | |
| 0.44 | Over $24 billion, up to and including $48 billion | |
| 0.40 | Over $48 billion |
For its investment advisory services to each of the iShares MSCI South Korea, iShares MSCI Taiwan and iShares MSCI Thailand Investable Market Index Funds, BFA is entitled to an annual investment advisory fee based on each Fund’s allocable portion of the aggregate of the average daily net assets of the Fund and certain other iShares funds, as follows:
| Investment Advisory Fee | Aggregate Average Daily Net Assets | |
| 0.74% | First $2 billion | |
| 0.69 | Over $2 billion, up to and including $4 billion | |
| 0.64 | Over $4 billion, up to and including $8 billion | |
| 0.57 | Over $8 billion, up to and including $16 billion | |
| 0.51 | Over $16 billion, up to and including $32 billiona | |
| 0.45 | Over $32 billiona |
| a | Breakpoint level was modified or added, effective January 1, 2011. |
For its investment advisory services to the iShares MSCI Pacific ex-Japan Index Fund, BFA is entitled to an annual investment advisory fee of 0.50% based on the average daily net assets of the Fund.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BlackRock Institutional Trust Company, N.A. (“BTC”) to serve as securities lending agent for the Funds, subject to applicable conditions. BTC is an affiliate of BFA, the Funds’ investment adviser. As securities lending agent, BTC receives, as fees, a share of the combined income earned from the investment of cash collateral
| 86 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® , INC.
received for the loan of securities and any fees paid by borrowers. For the year ended August 31, 2011, BTC earned securities lending agent fees from certain Funds as follows:
| iShares MSCI Index Fund | Securities Lending Agent Fees |
|||
| Australia |
$ | 64,127 | ||
| Hong Kong |
183,512 | |||
| Japan Small Cap |
9,400 | |||
| Pacific ex-Japan |
397,165 | |||
| Singapore |
970,058 | |||
| South Korea |
1,851,946 | |||
| Taiwan |
1,239,821 | |||
For the year ended August 31, 2011, BTC, the Funds’ securities lending agent, has agreed to voluntarily reimburse the iShares MSCI Taiwan Index Fund in the amount of $161,177 related to the foreign tax on the securities lending income. Such reimbursement is included in the “Securities lending income – affiliated” in the Fund’s Statement of Operations.
Each Fund may invest its positive cash balances in certain money market funds managed by BFA or an affiliate. The income earned on these temporary cash investments is included in “Interest – affiliated” in the Statements of Operations.
The PNC Financial Services Group, Inc. (“PNC”) and Barclays PLC (“Barclays”) are the largest stockholders of BlackRock. Due to the ownership structure, PNC is an affiliate of the Funds for 1940 Act purposes, but Barclays is not.
Certain directors and officers of the Company are also officers of BTC and/or BFA.
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments (excluding in-kind transactions and short-term investments) for the year ended August 31, 2011 were as follows:
| iShares MSCI Index Fund | Purchases | Sales | ||||||
| Australia |
$ | 268,321,492 | $ | 280,227,100 | ||||
| Hong Kong |
304,238,220 | 308,824,252 | ||||||
| Japan Small Cap |
5,550,579 | 5,536,319 | ||||||
| Malaysia |
611,765,515 | 476,381,304 | ||||||
| Pacific ex-Japan |
392,709,318 | 404,295,429 | ||||||
| Singapore |
196,793,820 | 205,263,579 | ||||||
| South Korea |
1,018,396,040 | 772,091,146 | ||||||
| Taiwan |
736,335,994 | 880,053,222 | ||||||
| Thailand Investable Market |
173,394,099 | 140,444,168 | ||||||
| NOTES TO FINANCIAL STATEMENTS | 87 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® , INC.
In-kind transactions (see Note 4) for the year ended August 31, 2011 were as follows:
| iShares MSCI Index Fund | In-kind Purchases |
In-kind Sales |
||||||
| Australia |
$ | 1,062,926,428 | $ | 528,887,658 | ||||
| Hong Kong |
699,056,548 | 1,236,011,980 | ||||||
| Japan Small Cap |
39,679,756 | 9,443,797 | ||||||
| Pacific ex-Japan |
430,282,983 | 780,243,002 | ||||||
| Singapore |
310,316,036 | 450,645,570 | ||||||
| Thailand Investable Market |
300,575,318 | 315,632,112 | ||||||
4. CAPITAL SHARE TRANSACTIONS
Capital shares are issued and redeemed by each Fund only in aggregations of a specified number of shares or multiples thereof (“Creation Units”) at net asset value. Except when aggregated in Creation Units, shares of each Fund are not redeemable. Transactions in capital shares for each Fund are disclosed in detail in the Statements of Changes in Net Assets.
The consideration for the purchase of Creation Units of a fund in the Company generally consists of the in-kind deposit of a designated portfolio of securities, which constitutes an optimized representation of the securities of that fund’s underlying index, and an amount of cash. Certain funds in the Company may be offered in Creation Units solely or partially for cash in U.S. dollars. Investors purchasing and redeeming Creation Units may pay a purchase transaction fee and a redemption transaction fee directly to State Street Bank and Trust Company, the Company’s administrator, to offset transfer and other transaction costs associated with the issuance and redemption of Creation Units, including Creation Units for cash. Investors transacting in Creation Units for cash pay an additional variable charge to compensate the relevant fund for certain transaction costs (i.e., stamp taxes, taxes on currency or other financial transactions, and brokerage costs) and market impact expenses relating to investing in portfolio securities.
From time to time, settlement of securities related to in-kind contributions or in-kind redemptions may be delayed. In such cases, securities related to in-kind contributions are reflected as “Due from custodian” and securities related to in-kind redemptions are reflected as “Securities related to in-kind transactions” in the Statements of Assets and Liabilities.
5. LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its investment securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. government. The initial collateral received by each Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current value of the securities on loan. The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. Any securities lending cash collateral may be reinvested in certain short-term instruments either directly on behalf of a fund or through one or more joint accounts or money market funds, including those managed by BFA or its affiliates; such reinvestments are subject to investment risk.
As of August 31, 2011, any securities on loan were collateralized by cash. The cash collateral received was invested in money market funds managed by BFA. The value of the securities on loan as of August 31, 2011 and the value of the related collateral are disclosed in the Statements of Assets and Liabilities. Securities lending income, as disclosed in the Statements of Operations, represents the income earned
| 88 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® , INC.
from the investment of the cash collateral, plus any fees paid by borrowers and less the fees paid to BTC as securities lending agent which are subject to adjustments pursuant to the securities lending agreement.
6. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were available to be issued and has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements.
| NOTES TO FINANCIAL STATEMENTS | 89 |
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
iShares, Inc.:
In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the iShares MSCI Australia Index Fund, iShares MSCI Hong Kong Index Fund, iShares MSCI Japan Small Cap Index Fund, iShares MSCI Malaysia Index Fund, iShares MSCI Pacific ex-Japan Index Fund, iShares MSCI Singapore Index Fund, iShares MSCI South Korea Index Fund, iShares MSCI Taiwan Index Fund and iShares MSCI Thailand Investable Market Index Fund, each a portfolio of the iShares MSCI Series (the “Funds”), at August 31, 2011, the results of each of their operations, the changes in each of their net assets and their financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2011 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 21, 2011
| 90 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® , INC.
For the fiscal year ended August 31, 2011, the Funds earned foreign source income and paid foreign taxes which they intend to pass through to their shareholders pursuant to Section 853 of the Internal Revenue Code (the “Code”) as follows:
| iShares MSCI Index Fund | Foreign Source Income Earned |
Foreign Taxes Paid |
||||||
| Australia |
$ | 134,859,129 | $ | 943,073 | ||||
| Hong Kong |
55,769,081 | – | ||||||
| Japan Small Cap |
1,240,441 | 86,572 | ||||||
| Malaysia |
36,648,901 | – | ||||||
| Pacific ex-Japan |
162,724,908 | 986,136 | ||||||
| Singapore |
74,931,223 | 317,991 | ||||||
| South Korea |
52,201,134 | 8,451,258 | ||||||
| Taiwan |
129,851,598 | 26,055,787 | ||||||
| Thailand Investable Market |
22,744,934 | 2,293,102 | ||||||
Under Section 854(b)(2) of the Code, certain Funds hereby designate the following maximum amounts as qualified dividend income for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended August 31, 2011:
| iShares MSCI Index Fund | Qualified Dividend Income |
|||
| Australia |
$ | 123,265,618 | ||
| Japan Small Cap |
1,057,682 | |||
| Pacific ex-Japan |
108,997,211 | |||
| South Korea |
40,278,476 | |||
| Thailand Investable Market |
17,574,527 | |||
In February 2012, shareholders will receive Form 1099-DIV which will include their share of qualified dividend income distributed during the calendar year 2011. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their income tax returns.
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT | 91 |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited)
iSHARES® , INC.
Under Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), the Company’s Board of Directors (the “Board”), including a majority of Directors who are not “interested persons” of the Company (as that term is defined in the 1940 Act) (the “Independent Directors”), is required annually to consider the Investment Advisory Contract between the Company and BFA (the “Advisory Contract”) on behalf of the Funds. As required by Section 15(c), the Board requested and BFA provided such information as the Board, with advice from independent counsel, deemed reasonably necessary to evaluate the Advisory Contract. An ad-hoc sub-committee of the Independent Directors (the “Ad-Hoc Sub-Committee”), with independent counsel, met with management on April 19, 2011, and April 26, 2011, to discuss the types of information the Board required and the manner in which management would organize and present such information. At a meeting held on May 16, 2011, management presented information to the Board relating to the continuance of the Advisory Contract and the Board reviewed and discussed such information at length. The Board also requested from management certain additional information. At a meeting held on June 22-23, 2011, the Board reviewed additional information provided by management in response to the Board’s requests. The Board approved the selection of BFA and the continuance of the Advisory Contract for the Funds, based on its review of qualitative and quantitative information provided by BFA, including its review of supplemental information management provided at the request of the Board. The Board noted its satisfaction with the extent and quality of information, and detailed responses, provided by BFA. The Independent Directors were advised by their independent counsel throughout the process. In selecting BFA and approving the Advisory Contract for the Funds, the Board, including the Independent Directors, considered the following factors, no one of which was controlling, and made the following conclusions:
Nature, Extent and Quality of Services Provided by BFA – Based on management’s representations, the Board expected that there would be no diminution in the scope of services required of or provided by BFA under the Advisory Contract for the coming year as compared to the scope of services provided by BFA over prior years. In reviewing the scope of these services, the Board considered BFA’s investment philosophy and experience, noting that BFA and its affiliates have committed significant resources over time, including during the past year, supporting the Funds and their shareholders. The Board noted that BFA became an indirect wholly-owned subsidiary of BlackRock Inc. (“BlackRock”) in December 2009. The Board acknowledged that additional resources to support the Funds and their shareholders were added in 2010, for example, in such areas as investor education, product management, and capital markets support. The Board also considered BFA’s compliance program and its compliance record with respect to the Funds. In that regard, the Board noted that BFA reports to the Board about portfolio management and compliance matters on a periodic basis in connection with regularly scheduled meetings of the Board, and on other occasions as necessary and appropriate, and has provided information and made appropriate officers available as needed to provide further assistance with these matters. The Board also reviewed the background and experience of the persons responsible for the day-to-day management of the Funds. In addition to the above considerations, the Board reviewed and considered BFA’s investment processes and strategies, and matters related to BFA’s portfolio compliance policies and procedures. The Board noted that each Fund had met its investment objective consistently since its respective inception date. Based on review of this information, the Board concluded that the nature, extent and quality of services to be provided by BFA to the Funds under the Advisory Contract supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Expenses and Performance of the Funds – The Board reviewed statistical information prepared by Lipper Inc. (“Lipper”), an independent provider of investment company data, regarding the expense ratio components, including actual advisory fees, waivers/reimbursements, and gross and net total expenses of each Fund in comparison with the same information for other registered investment companies objectively selected by Lipper as comprising such Fund’s applicable peer group pursuant to Lipper’s proprietary methodology and any registered funds that would otherwise have been excluded from Lipper’s comparison group because of their size or other differentiating factors, but were nonetheless included at the request of BFA (the “Lipper Group”). Because there are few, if any, exchange traded funds or index funds that track indexes similar to those tracked by the Funds, the Lipper Group included in part mutual funds, closed-end funds, exchange traded funds, or funds with differing investment objective classifications, investment focuses and other characteristics (e.g., actively managed funds and funds sponsored by “at cost” service providers), as applicable. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the applicable Lipper Groups and to prepare this information. The Board
| 92 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES® , INC.
further noted that due to the limitations in providing comparable funds in the various Lipper Groups, the statistical information may or may not provide meaningful direct comparisons to the Funds.
The Board also noted that the investment advisory fees and overall expenses for the Funds compared favorably to the investment advisory fee rates and overall expenses of the funds in their respective Lipper Group.
In addition, the Board reviewed statistical information prepared by Lipper regarding the performance of each Fund for the one-, three-, five-, ten-year, and since inception periods, as applicable, and the “last quarter” period ended December 31, 2010, and a comparison of each Fund’s performance to its performance benchmark index for the same periods. To the extent that any of the comparison funds included in the Lipper Group track the same index as any particular Fund, Lipper also provided, and the Board reviewed, a comparison of such Fund’s performance to that of such relevant comparison funds for the same periods. The Board noted that the Funds generally performed in line with their respective performance benchmark indexes over the relevant periods. In considering this information, the Board noted that the Lipper Group includes funds that may have different investment objectives and/or benchmarks from the Funds. In addition, the Board noted that each Fund seeks to track its benchmark index and that, during the prior year, the Board received periodic reports on the Funds’ performance in comparison with their relevant benchmark indexes. Such comparative performance information was also considered by the Board.
Based on this review, the Board concluded that the investment advisory fees and expense levels and the historical performance of each Fund, as compared to the investment advisory fees and expense levels and performance of the funds in the relevant Lipper Group, supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Costs of Services Provided to Funds and Profits Realized by BFA and Affiliates – The Board reviewed information about the profitability to BFA of the Funds based on the fees payable to BFA and its affiliates (including fees under the Advisory Contract), and all other sources of revenue and expense to BFA and its affiliates from the Funds’ operations for the last calendar year. The Board reviewed BlackRock’s profitability methodology for the iShares Funds and how such profitability methodology differed from the methodology used to calculate profitability prior to the acquisition of BFA by BlackRock, noting that such matters were focused on by the Ad-Hoc Sub-Committee during its meetings and addressed by management. The Board discussed the sources of direct and ancillary revenue with management, including the revenues to BTC from securities lending by the Funds. The Board also discussed BFA’s profit margin as reflected in the Funds’ profitability analysis and reviewed information regarding economies of scale (as discussed below). Based on this review, the Board concluded that the profits realized by BFA and its affiliates under the Advisory Contract and from other relationships between the Funds and BFA and/or its affiliates, if any, were within a reasonable range in light of the factors considered.
Economies of Scale – In connection with its review of the Funds’ profitability analysis, the Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Funds’ assets. The Board noted that the Advisory Contract for the Funds, with the exception of the iShares MSCI Pacific ex-Japan Index Fund, already provided for breakpoints in such Funds’ investment advisory fee rates as the assets of such Funds, on an aggregated basis with the assets of certain other iShares funds, increase, and that the Board had approved additional breakpoints in a previous year. The Board noted that the Advisory Contract for the iShares MSCI Pacific ex-Japan Index Fund did not provide for any breakpoints in the Fund’s investment advisory rate as the assets of the Fund increase. However, the Board noted that should material economies of scale exist in the future, a breakpoint structure for this Fund may be appropriate. The Board also reviewed BFA’s historic profitability as investment adviser to the iShares fund complex and noted that BFA and BlackRock had continued to make significant investments in the iShares fund complex and the infrastructure supporting the iShares funds. Based on this review, as well as the discussions described above in connection with the Lipper Group and performance benchmark comparisons, the Board, recognizing its responsibility to consider this issue at least annually, concluded that the structure of the investment advisory fees reflects appropriate sharing of potential economies of scale with the Funds’ shareholders and supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT | 93 |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by BFA and its Affiliates – The Board received and considered information regarding the investment advisory/management fee rates for other funds/accounts in the U.S. for which BFA (or its affiliates) provides investment advisory/management services, including open-end and closed-end funds registered under the 1940 Act (including sub-advised funds), collective trust funds and institutional separate accounts (together, the “Other Accounts”). The Board noted that BFA and its affiliates do not manage Other Accounts with substantially similar investment objectives and strategies as any of the Funds, except for iShares MSCI Australia Index Fund, iShares MSCI Hong Kong Index Fund, iShares MSCI Malaysia Index Fund, iShares MSCI Pacific ex-Japan Index Fund, iShares MSCI South Korea Index Fund, and iShares MSCI Taiwan Index Fund. The Board further noted that BFA provided the Board with detailed information regarding how the Other Accounts (particularly institutional clients) generally differ from the Funds, including in terms of the different services provided as well as other significant differences in the approach of BFA and its affiliates to the Funds, on one hand, and Other Accounts, on the other. In that regard, the Board considered that the pricing of services to institutional clients is typically based on a number of factors beyond the nature and extent of the specific services to be provided and often depends on the overall relationship between the client and its affiliates and the adviser and its affiliates. In addition, the Board considered the relative complexity and inherent risks of managing and providing other services to the Funds, as publicly traded exchanged traded funds, as compared to the Other Accounts that are institutional clients in light of differing regulatory requirements and client-imposed mandates. The Board noted that the investment advisory fee rates under the Advisory Contract for the Funds were generally higher than the investment advisory/management fee rates for the Other Accounts that are institutional clients of BFA (or its affiliates) and concluded that the differences appeared to be consistent with the factors discussed.
Other Benefits to BFA and/or its Affiliates – The Board reviewed any ancillary revenue received by BFA and/or its affiliates in connection with the services provided to the Funds by BFA, such as any payment of revenue to BTC, the Funds’ securities lending agent, for loaning any portfolio securities, and payment of advisory fees and/or administration fees to BFA and BTC (or their affiliates) in connection with any investments by the Funds in other funds for which BFA (or its affiliates) provides investment advisory services and/or administration services. The Board noted that BFA does not use soft dollars or consider the value of research or other services that may be provided to BFA (including its affiliates) in selecting brokers for portfolio transactions for the Funds. The Board further noted that any portfolio transactions on behalf of the Funds placed through a BFA affiliate or purchased from an underwriting syndicate in which a BFA affiliate participates, are reported to the Board pursuant to Rule 17e-1 or Rule 10f-3, as applicable, under the 1940 Act. The Board concluded that any such ancillary benefits would not be disadvantageous to the Funds’ shareholders.
Based on the considerations described above, the Board determined that the investment advisory fee rates under the Advisory Contract do not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bargaining and concluded that it is in the best interest of the Funds and their shareholders to approve the continuance of the Advisory Contract for the coming year.
| 94 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited)
iSHARES® , INC.
Premium/Discount Information
The tables that follow present information about the differences between the daily market price on secondary markets for shares of a Fund and that Fund’s net asset value. Net asset value, or “NAV,” is the price per share at which each Fund issues and redeems shares. It is calculated in accordance with the standard formula for valuing mutual fund shares. The “Market Price” of each Fund generally is determined using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of such Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Each Fund’s Market Price may be at, above or below its NAV. The NAV of each Fund will fluctuate with changes in the fair value of its portfolio holdings. The Market Price of each Fund will fluctuate in accordance with changes in its NAV, as well as market supply and demand.
Premiums or discounts are the differences (expressed as a percentage) between the NAV and Market Price of a Fund on a given day, generally at the time NAV is calculated. A premium is the amount that a Fund is trading above the reported NAV, expressed as a percentage of the NAV. A discount is the amount that a Fund is trading below the reported NAV, expressed as a percentage of the NAV.
The following information shows the frequency distributions of premiums and discounts for each of the Funds included in this report. The information shown for each Fund is for five calendar years (or for each full calendar quarter completed after the inception date of such Fund if less than five years) through the date of the most recent quarter-end. The specific periods covered for each Fund are disclosed in the table for such Fund.
| SUPPLEMENTAL INFORMATION | 95 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
Each line in the table shows the number of trading days in which the Fund traded within the premium/discount range indicated. The number of trading days in each premium/discount range is also shown as a percentage of the total number of trading days in the period covered by each table. All data presented here represents past performance, which cannot be used to predict future results.
iShares MSCI Australia Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.0% |
5 | 0.36 | % | |||||
| Greater than 4.5% and Less than 5.0% |
3 | 0.22 | ||||||
| Greater than 4.0% and Less than 4.5% |
4 | 0.29 | ||||||
| Greater than 3.5% and Less than 4.0% |
7 | 0.51 | ||||||
| Greater than 3.0% and Less than 3.5% |
12 | 0.87 | ||||||
| Greater than 2.5% and Less than 3.0% |
19 | 1.37 | ||||||
| Greater than 2.0% and Less than 2.5% |
24 | 1.74 | ||||||
| Greater than 1.5% and Less than 2.0% |
62 | 4.48 | ||||||
| Greater than 1.0% and Less than 1.5% |
120 | 8.68 | ||||||
| Greater than 0.5% and Less than 1.0% |
246 | 17.79 | ||||||
| Between 0.5% and -0.5% |
530 | 38.31 | ||||||
| Less than -0.5% and Greater than -1.0% |
124 | 8.97 | ||||||
| Less than -1.0% and Greater than -1.5% |
95 | 6.87 | ||||||
| Less than -1.5% and Greater than -2.0% |
44 | 3.18 | ||||||
| Less than -2.0% and Greater than -2.5% |
33 | 2.39 | ||||||
| Less than -2.5% and Greater than -3.0% |
23 | 1.66 | ||||||
| Less than -3.0% and Greater than -3.5% |
9 | 0.65 | ||||||
| Less than -3.5% and Greater than -4.0% |
7 | 0.51 | ||||||
| Less than -4.0% and Greater than -4.5% |
1 | 0.07 | ||||||
| Less than -4.5% and Greater than -5.0% |
3 | 0.22 | ||||||
| Less than -5.0% and Greater than -5.5% |
5 | 0.36 | ||||||
| Less than -5.5% and Greater than -6.0% |
2 | 0.14 | ||||||
| Less than -6.0% |
5 | 0.36 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 96 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES® , INC.
iShares MSCI Hong Kong Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.0% |
7 | 0.51 | % | |||||
| Greater than 4.5% and Less than 5.0% |
2 | 0.14 | ||||||
| Greater than 4.0% and Less than 4.5% |
5 | 0.36 | ||||||
| Greater than 3.5% and Less than 4.0% |
4 | 0.29 | ||||||
| Greater than 3.0% and Less than 3.5% |
10 | 0.72 | ||||||
| Greater than 2.5% and Less than 3.0% |
17 | 1.23 | ||||||
| Greater than 2.0% and Less than 2.5% |
30 | 2.17 | ||||||
| Greater than 1.5% and Less than 2.0% |
48 | 3.47 | ||||||
| Greater than 1.0% and Less than 1.5% |
98 | 7.09 | ||||||
| Greater than 0.5% and Less than 1.0% |
217 | 15.69 | ||||||
| Between 0.5% and -0.5% |
586 | 42.37 | ||||||
| Less than -0.5% and Greater than -1.0% |
137 | 9.91 | ||||||
| Less than -1.0% and Greater than -1.5% |
83 | 6.00 | ||||||
| Less than -1.5% and Greater than -2.0% |
53 | 3.83 | ||||||
| Less than -2.0% and Greater than -2.5% |
34 | 2.46 | ||||||
| Less than -2.5% and Greater than -3.0% |
19 | 1.37 | ||||||
| Less than -3.0% and Greater than -3.5% |
12 | 0.87 | ||||||
| Less than -3.5% and Greater than -4.0% |
3 | 0.22 | ||||||
| Less than -4.0% and Greater than -4.5% |
4 | 0.29 | ||||||
| Less than -4.5% and Greater than -5.0% |
5 | 0.36 | ||||||
| Less than -5.0% and Greater than -5.5% |
3 | 0.22 | ||||||
| Less than -5.5% and Greater than -6.0% |
1 | 0.07 | ||||||
| Less than -6.0% |
5 | 0.36 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION | 97 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES® , INC.
iShares MSCI Japan Small Cap Index Fund
Period Covered: January 1, 2008 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.0% |
12 | 1.36 | % | |||||
| Greater than 4.5% and Less than 5.0% |
3 | 0.34 | ||||||
| Greater than 4.0% and Less than 4.5% |
3 | 0.34 | ||||||
| Greater than 3.5% and Less than 4.0% |
5 | 0.57 | ||||||
| Greater than 3.0% and Less than 3.5% |
10 | 1.14 | ||||||
| Greater than 2.5% and Less than 3.0% |
12 | 1.36 | ||||||
| Greater than 2.0% and Less than 2.5% |
19 | 2.16 | ||||||
| Greater than 1.5% and Less than 2.0% |
53 | 6.02 | ||||||
| Greater than 1.0% and Less than 1.5% |
88 | 9.98 | ||||||
| Greater than 0.5% and Less than 1.0% |
137 | 15.54 | ||||||
| Between 0.5% and -0.5% |
324 | 36.77 | ||||||
| Less than -0.5% and Greater than -1.0% |
77 | 8.74 | ||||||
| Less than -1.0% and Greater than -1.5% |
42 | 4.77 | ||||||
| Less than -1.5% and Greater than -2.0% |
33 | 3.75 | ||||||
| Less than -2.0% and Greater than -2.5% |
19 | 2.16 | ||||||
| Less than -2.5% and Greater than -3.0% |
13 | 1.48 | ||||||
| Less than -3.0% and Greater than -3.5% |
12 | 1.36 | ||||||
| Less than -3.5% and Greater than -4.0% |
5 | 0.57 | ||||||
| Less than -4.0% and Greater than -4.5% |
3 | 0.34 | ||||||
| Less than -4.5% and Greater than -5.0% |
2 | 0.23 | ||||||
| Less than -5.0% and Greater than -5.5% |
3 | 0.34 | ||||||
| Less than -5.5% and Greater than -6.0% |
3 | 0.34 | ||||||
| Less than -6.0% |
3 | 0.34 | ||||||
|
|
|
|
|
|||||
| 881 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 98 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES® , INC.
iShares MSCI Malaysia Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 6.0% |
2 | 0.14 | % | |||||
| Greater than 5.5% and Less than 6.0% |
2 | 0.14 | ||||||
| Greater than 5.0% and Less than 5.5% |
2 | 0.14 | ||||||
| Greater than 4.5% and Less than 5.0% |
1 | 0.07 | ||||||
| Greater than 4.0% and Less than 4.5% |
1 | 0.07 | ||||||
| Greater than 3.5% and Less than 4.0% |
1 | 0.07 | ||||||
| Greater than 3.0% and Less than 3.5% |
6 | 0.43 | ||||||
| Greater than 2.5% and Less than 3.0% |
3 | 0.22 | ||||||
| Greater than 2.0% and Less than 2.5% |
15 | 1.08 | ||||||
| Greater than 1.5% and Less than 2.0% |
36 | 2.60 | ||||||
| Greater than 1.0% and Less than 1.5% |
93 | 6.72 | ||||||
| Greater than 0.5% and Less than 1.0% |
218 | 15.77 | ||||||
| Between 0.5% and -0.5% |
605 | 43.77 | ||||||
| Less than -0.5% and Greater than -1.0% |
198 | 14.33 | ||||||
| Less than -1.0% and Greater than -1.5% |
91 | 6.58 | ||||||
| Less than -1.5% and Greater than -2.0% |
41 | 2.96 | ||||||
| Less than -2.0% and Greater than -2.5% |
34 | 2.46 | ||||||
| Less than -2.5% and Greater than -3.0% |
14 | 1.01 | ||||||
| Less than -3.0% and Greater than -3.5% |
7 | 0.51 | ||||||
| Less than -3.5% and Greater than -4.0% |
3 | 0.22 | ||||||
| Less than -4.0% and Greater than -4.5% |
6 | 0.43 | ||||||
| Less than -4.5% and Greater than -5.0% |
2 | 0.14 | ||||||
| Less than -5.0% and Greater than -5.5% |
2 | 0.14 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION | 99 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES® , INC.
iShares MSCI Pacific ex-Japan Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 4.5% |
8 | 0.58 | % | |||||
| Greater than 4.0% and Less than 4.5% |
3 | 0.22 | ||||||
| Greater than 3.5% and Less than 4.0% |
8 | 0.58 | ||||||
| Greater than 3.0% and Less than 3.5% |
9 | 0.65 | ||||||
| Greater than 2.5% and Less than 3.0% |
11 | 0.80 | ||||||
| Greater than 2.0% and Less than 2.5% |
27 | 1.95 | ||||||
| Greater than 1.5% and Less than 2.0% |
51 | 3.69 | ||||||
| Greater than 1.0% and Less than 1.5% |
127 | 9.18 | ||||||
| Greater than 0.5% and Less than 1.0% |
235 | 16.99 | ||||||
| Between 0.5% and -0.5% |
565 | 40.85 | ||||||
| Less than -0.5% and Greater than -1.0% |
117 | 8.46 | ||||||
| Less than -1.0% and Greater than -1.5% |
91 | 6.58 | ||||||
| Less than -1.5% and Greater than -2.0% |
53 | 3.83 | ||||||
| Less than -2.0% and Greater than -2.5% |
23 | 1.66 | ||||||
| Less than -2.5% and Greater than -3.0% |
21 | 1.52 | ||||||
| Less than -3.0% and Greater than -3.5% |
11 | 0.80 | ||||||
| Less than -3.5% and Greater than -4.0% |
6 | 0.43 | ||||||
| Less than -4.0% and Greater than -4.5% |
4 | 0.29 | ||||||
| Less than -4.5% and Greater than -5.0% |
3 | 0.22 | ||||||
| Less than -5.0% and Greater than -5.5% |
3 | 0.22 | ||||||
| Less than -5.5% and Greater than -6.0% |
2 | 0.14 | ||||||
| Less than -6.0% |
5 | 0.36 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 100 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES® , INC.
iShares MSCI Singapore Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 4.5% |
6 | 0.43 | % | |||||
| Greater than 4.0% and Less than 4.5% |
3 | 0.22 | ||||||
| Greater than 3.5% and Less than 4.0% |
4 | 0.29 | ||||||
| Greater than 3.0% and Less than 3.5% |
2 | 0.14 | ||||||
| Greater than 2.5% and Less than 3.0% |
11 | 0.80 | ||||||
| Greater than 2.0% and Less than 2.5% |
31 | 2.24 | ||||||
| Greater than 1.5% and Less than 2.0% |
37 | 2.68 | ||||||
| Greater than 1.0% and Less than 1.5% |
103 | 7.45 | ||||||
| Greater than 0.5% and Less than 1.0% |
233 | 16.85 | ||||||
| Between 0.5% and -0.5% |
616 | 44.54 | ||||||
| Less than -0.5% and Greater than -1.0% |
142 | 10.27 | ||||||
| Less than -1.0% and Greater than -1.5% |
82 | 5.93 | ||||||
| Less than -1.5% and Greater than -2.0% |
45 | 3.25 | ||||||
| Less than -2.0% and Greater than -2.5% |
31 | 2.24 | ||||||
| Less than -2.5% and Greater than -3.0% |
12 | 0.87 | ||||||
| Less than -3.0% and Greater than -3.5% |
8 | 0.58 | ||||||
| Less than -3.5% and Greater than -4.0% |
4 | 0.29 | ||||||
| Less than -4.0% and Greater than -4.5% |
6 | 0.43 | ||||||
| Less than -4.5% and Greater than -5.0% |
3 | 0.22 | ||||||
| Less than -5.0% and Greater than -5.5% |
2 | 0.14 | ||||||
| Less than -5.5% |
2 | 0.14 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION | 101 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES® , INC.
iShares MSCI South Korea Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.5% |
9 | 0.65 | % | |||||
| Greater than 5.0% and Less than 5.5% |
1 | 0.07 | ||||||
| Greater than 4.5% and Less than 5.0% |
4 | 0.29 | ||||||
| Greater than 4.0% and Less than 4.5% |
4 | 0.29 | ||||||
| Greater than 3.5% and Less than 4.0% |
8 | 0.58 | ||||||
| Greater than 3.0% and Less than 3.5% |
12 | 0.87 | ||||||
| Greater than 2.5% and Less than 3.0% |
20 | 1.45 | ||||||
| Greater than 2.0% and Less than 2.5% |
39 | 2.82 | ||||||
| Greater than 1.5% and Less than 2.0% |
66 | 4.77 | ||||||
| Greater than 1.0% and Less than 1.5% |
103 | 7.45 | ||||||
| Greater than 0.5% and Less than 1.0% |
209 | 15.10 | ||||||
| Between 0.5% and -0.5% |
469 | 33.90 | ||||||
| Less than -0.5% and Greater than -1.0% |
165 | 11.93 | ||||||
| Less than -1.0% and Greater than -1.5% |
93 | 6.72 | ||||||
| Less than -1.5% and Greater than -2.0% |
53 | 3.83 | ||||||
| Less than -2.0% and Greater than -2.5% |
38 | 2.75 | ||||||
| Less than -2.5% and Greater than -3.0% |
33 | 2.39 | ||||||
| Less than -3.0% and Greater than -3.5% |
16 | 1.16 | ||||||
| Less than -3.5% and Greater than -4.0% |
11 | 0.80 | ||||||
| Less than -4.0% and Greater than -4.5% |
7 | 0.51 | ||||||
| Less than -4.5% and Greater than -5.0% |
4 | 0.29 | ||||||
| Less than -5.0% and Greater than -5.5% |
3 | 0.22 | ||||||
| Less than -5.5% and Greater than -6.0% |
5 | 0.36 | ||||||
| Less than -6.0% |
11 | 0.80 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 102 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES® , INC.
iShares MSCI Taiwan Index Fund
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.0% |
7 | 0.51 | % | |||||
| Greater than 4.5% and Less than 5.0% |
9 | 0.65 | ||||||
| Greater than 4.0% and Less than 4.5% |
5 | 0.36 | ||||||
| Greater than 3.5% and Less than 4.0% |
9 | 0.65 | ||||||
| Greater than 3.0% and Less than 3.5% |
12 | 0.87 | ||||||
| Greater than 2.5% and Less than 3.0% |
13 | 0.94 | ||||||
| Greater than 2.0% and Less than 2.5% |
26 | 1.88 | ||||||
| Greater than 1.5% and Less than 2.0% |
52 | 3.76 | ||||||
| Greater than 1.0% and Less than 1.5% |
100 | 7.23 | ||||||
| Greater than 0.5% and Less than 1.0% |
203 | 14.68 | ||||||
| Between 0.5% and -0.5% |
513 | 37.09 | ||||||
| Less than -0.5% and Greater than -1.0% |
192 | 13.88 | ||||||
| Less than -1.0% and Greater than -1.5% |
94 | 6.80 | ||||||
| Less than -1.5% and Greater than -2.0% |
51 | 3.69 | ||||||
| Less than -2.0% and Greater than -2.5% |
33 | 2.39 | ||||||
| Less than -2.5% and Greater than -3.0% |
19 | 1.37 | ||||||
| Less than -3.0% and Greater than -3.5% |
21 | 1.52 | ||||||
| Less than -3.5% and Greater than -4.0% |
7 | 0.51 | ||||||
| Less than -4.0% and Greater than -4.5% |
2 | 0.14 | ||||||
| Less than -4.5% and Greater than -5.0% |
3 | 0.22 | ||||||
| Less than -5.0% and Greater than -5.5% |
2 | 0.14 | ||||||
| Less than -5.5% and Greater than -6.0% |
2 | 0.14 | ||||||
| Less than -6.0% |
8 | 0.58 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION | 103 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES® , INC.
iShares MSCI Thailand Investable Market Index Fund
Period Covered: April 1, 2008 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.0% |
1 | 0.12 | % | |||||
| Greater than 4.5% and Less than 5.0% |
2 | 0.24 | ||||||
| Greater than 4.0% and Less than 4.5% |
3 | 0.37 | ||||||
| Greater than 3.5% and Less than 4.0% |
3 | 0.37 | ||||||
| Greater than 3.0% and Less than 3.5% |
5 | 0.61 | ||||||
| Greater than 2.5% and Less than 3.0% |
15 | 1.83 | ||||||
| Greater than 2.0% and Less than 2.5% |
18 | 2.20 | ||||||
| Greater than 1.5% and Less than 2.0% |
45 | 5.49 | ||||||
| Greater than 1.0% and Less than 1.5% |
106 | 12.92 | ||||||
| Greater than 0.5% and Less than 1.0% |
147 | 17.92 | ||||||
| Between 0.5% and -0.5% |
264 | 32.19 | ||||||
| Less than -0.5% and Greater than -1.0% |
78 | 9.51 | ||||||
| Less than -1.0% and Greater than -1.5% |
54 | 6.59 | ||||||
| Less than -1.5% and Greater than -2.0% |
28 | 3.41 | ||||||
| Less than -2.0% and Greater than -2.5% |
18 | 2.20 | ||||||
| Less than -2.5% and Greater than -3.0% |
9 | 1.10 | ||||||
| Less than -3.0% and Greater than -3.5% |
9 | 1.10 | ||||||
| Less than -3.5% and Greater than -4.0% |
2 | 0.24 | ||||||
| Less than -4.0% and Greater than -4.5% |
2 | 0.24 | ||||||
| Less than -4.5% and Greater than -5.0% |
3 | 0.37 | ||||||
| Less than -5.0% and Greater than -5.5% |
3 | 0.37 | ||||||
| Less than -5.5% and Greater than -6.0% |
1 | 0.12 | ||||||
| Less than -6.0% |
4 | 0.49 | ||||||
|
|
|
|
|
|||||
| 820 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 104 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Director and Officer Information (Unaudited)
iSHARES®, INC.
The Board of Directors has responsibility for the overall management and operations of the Company, including general supervision of the duties performed by BFA and other service providers. Each Officer serves until he or she resigns, is removed, dies, retires or becomes incapacitated. The President, Treasurer and Secretary shall each hold office until their successors are chosen and qualified and all other officers shall hold office until he or she resigns or is removed. Directors who are not interested persons (as defined in the 1940 Act) are referred to as Independent Directors.
The registered investment companies advised by BFA or its affiliates are organized into one complex of closed-end funds, two complexes of open-end funds and one complex of exchange-traded funds (“Exchange-Traded Fund Complex”) (each, a “BlackRock Fund Complex”). Each Fund is included in the BlackRock Fund Complex referred to as the Exchange-Traded Fund Complex. Each Director of iShares, Inc. also serves as a Trustee of iShares Trust and a Director of iShares MSCI Russia Capped Index Fund, Inc. and, as a result, oversees a total of 224 funds within the Exchange-Traded Fund Complex. With the exception of Robert S. Kapito, the address of each Director and Officer is c/o BlackRock, Inc., 400 Howard Street, San Francisco, CA 94105. The address of Mr. Kapito is c/o BlackRock, Inc., Park Avenue Plaza, 55 East 52nd Street, New York, NY 10055. The Board has designated George G.C. Parker as its Independent Chairman. Additional information about the Funds’ Directors and Officers may be found in the Funds’ combined Statement of Additional Information, which is available without charge, upon request, by calling toll-free 1-800-474-2737.
Interested Directors and Officers
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| Robert S. Kapitoa (54) |
Director (since 2009). |
President and Director, BlackRock, Inc. (since 2006 and 2007, respectively); Vice Chairman of BlackRock, Inc. and Head of BlackRock’s Portfolio Management Group (since its formation in 1998) and BlackRock’s predecessor entities (since 1988); Trustee, University of Pennsylvania (since 2009); President of Board of Directors, Hope & Heroes Children’s Cancer Fund (since 2002); President of the Board of Directors, Periwinkle Theatre for Youth (since 1983). | Trustee of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of BlackRock, Inc. (since 2007). | |||
| Michael Lathamb (46) |
Director (since 2010); President (since 2007). |
Chairman of iShares, BTC (since 2011); Global Chief Executive Officer of iShares, BTC (2010-2011); Managing Director, BTC (since 2009); Head of Americas iShares, Barclays Global Investors (“BGI”) (2007-2009); Director and Chief Financial Officer of Barclays Global Investors International, Inc. (2005-2009); Chief Operating Officer of the Intermediary Investor and Exchange Traded Products Business of BGI (2003-2007). | Trustee of iShares Trust (since 2010); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| a | Robert S. Kapito is deemed to be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. |
| b | Michael Latham is deemed to be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. and its affiliates. |
| DIRECTOR AND OFFICER INFORMATION | 105 |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® , INC.
Independent Directors
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| George G.C. Parker (72) |
Director (since 2000); Independent Chairman (since 2010). |
Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University: Graduate School of Business (since 1994). | Trustee of iShares Trust (since 2002); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Independent Chairman of iShares Trust (since 2010); Independent Chairman of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of Tejon Ranch Company (since 1999); Director of Threshold Pharmaceuticals (since 2004); Director of Colony Financial, Inc. (since 2009); Director of First Republic Bank (since 2010). | |||
| Cecilia H. Herbert (62) |
Director (since 2005). |
Director (since 1998) and President (2007-2010) of the Board of Directors, Catholic Charities CYO; Trustee of Pacific Select Funds (2004-2005); Trustee (since 2002) and Chair of the Finance Committee (2006-2009) and Investment Committee (since 2006) of the Thacher School; Member (since 1994) and Chair (1994-2005) of Investment Committee, Archdiocese of San Francisco. | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director, Forward Funds (35 portfolios) (since 2009). | |||
| Charles A. Hurty (68) |
Director (since 2005). |
Retired; Partner, KPMG LLP (1968-2001). | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002); Director of Skybridge Multi-Adviser Hedge Fund Portfolios LLC (1 portfolio) (since 2002). | |||
| John E. Kerrigan (56) |
Director (since 2005). |
Chief Investment Officer, Santa Clara University (since 2002). | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| John E. Martinez (50) |
Director (since 2003). |
Director of EquityRock, Inc. (since 2005). | Trustee of iShares Trust (since 2003); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| 106 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® , INC.
Independent Directors (Continued)
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| Madhav V. Rajan (47) |
Director (since 2011). |
Gregor G. Peterson Professor of Accounting and Senior Associate Dean for Academic Affairs, Stanford University: Graduate School of Business (since 2001); Professor of Law (by courtesy), Stanford Law School (since 2005); Visiting Professor, University of Chicago (Winter 2007-2008). | Trustee of iShares Trust (since 2011); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2011). | |||
| Robert H. Silver (56) |
Director (since 2007). |
President and Co-Founder of The Bravitas Group, Inc. (since 2006); Member, Non-Investor Advisory Board of Russia Partners II, LP (since 2006); Director and Vice Chairman of the YMCA of Greater NYC (since 2001); Broadway Producer (since 2006); Co-Founder and Vice President of Parentgiving Inc. (since 2008); Director and Member of the Audit and Compensation Committee of EPAM Systems, Inc. (2006-2009). | Trustee of iShares Trust (since 2007); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| DIRECTOR AND OFFICER INFORMATION | 107 |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® , INC.
Officers
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years | ||
| Geoffrey D. Flynn (54) |
Executive Vice President and Chief Operating Officer (since 2008). |
Managing Director, BTC (since 2009); Chief Operating Officer, U.S. iShares, BGI (2007-2009); President, Van Kampen Investors Services (2003-2007); Managing Director, Morgan Stanley (2002-2007); President, Morgan Stanley Trust, FSB (2002-2007). | ||
| Eilleen M. Clavere (59) |
Secretary (since 2007). |
Director, BTC (since 2009); Director of Legal Administration of Intermediary Investor Business of BGI (2006-2009); Legal Counsel and Vice President of Atlas Funds, Atlas Advisers, Inc. and Atlas Securities, Inc. (2005-2006). | ||
| Jack Gee (52) |
Treasurer and Chief Financial Officer (since 2008). |
Managing Director, BTC (since 2009); Senior Director of Fund Administration of Intermediary Investor Business of BGI (2009); Director of Fund Administration of Intermediary Investor Business of BGI (2004-2009). | ||
| Amy Schioldager (49) |
Executive Vice President (since 2007). |
Managing Director, BTC (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008); Head of Domestic Equity Portfolio Management, BGI (2001-2006). | ||
| Ira P. Shapiro (48) |
Vice President and Chief Legal Officer (since 2007). |
Managing Director, BTC (since 2009); Associate General Counsel, BGI (2004-2009). | ||
| Matt Tucker (39) |
Vice President (since 2007). |
Managing Director, BTC (since 2009); Director of Fixed Income Investment Strategy, BGI (2009); Head of U.S. Fixed Income Investment Solutions, BGI (2005-2008). | ||
| 108 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes:
| NOTES | 109 |
Table of Contents
Notes:
| 110 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
For more information visit www.iShares.com
or call 1-800-474-2737
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| It’s Fast, Convenient, and Timely! |
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iS-AR-83-0811
Table of Contents
|
August 31, 2011 | |
2011 Annual Report
iShares, Inc.
iShares MSCI Japan Index Fund | EWJ | NYSE Arca
Table of Contents
| 5 | ||||
| 7 | ||||
| 8 | ||||
| 14 | ||||
| 17 | ||||
| 18 | ||||
| 25 | ||||
| 26 | ||||
| Board Review and Approval of Investment Advisory Contract (Unaudited) |
27 | |||
| 30 | ||||
| 32 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI JAPAN INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 5.54% | 6.76% | 6.23% | (5.35)% | (5.13)% | (4.89)% | 1.55% | 1.56% | 2.09% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Ten Years Ended 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 5.54% | 6.76% | 6.23% | (24.03)% | (23.15)% | (22.19)% | 16.58% | 16.76% | 22.99% | ||||||||
“Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE | 5 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI JAPAN INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Japan Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Japan IndexSM (the “Index”). The Index consists of stocks traded primarily on the Tokyo Stock Exchange. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 5.54%, net of fees, while the total return for the Index was 6.23%.
Japanese equity markets delivered modest positive results, as the country struggled to recover from the effects of the earthquake and tsunami that struck during the reporting period. Already grappling with weak global economic conditions, Japanese equities declined amid concerns surrounding production outages in the aftermath of the earthquake, tsunami and nuclear accident which struck the country in the spring. Japan’s industrial output weakened immediately following the March incident, and recovered at a slower pace than had been anticipated, suggesting the country’s manufacturers continued to deal with supply chain disruptions. In April, exports declined 5.5%, largely due to supply constraints. Energy import levels rose, reflecting the country’s increased reliance on foreign energy due to its nuclear generation situation. Investors remained focused on the toll that production outages would take on corporate earnings, particularly for automakers.
In July, Japan showed signs of recovering from the earthquake-induced contraction: the industrial production index for June rose 3.9%, with particular strength in the electronics sector. Of the firms surveyed in June, 60% had restored production to full capacity, triple the level recorded for April.
Every major sector within the Index except for the utilities sector delivered positive results during the reporting period. The industrials sector, the largest sector at approximately 20% of the Index, posted solid results and contributed significantly to performance. The consumer discretionary sector added meaningfully to Index returns, as did the materials sector, which benefited from high commodity prices during the reporting period. Other notable contributors to Index returns included the consumer staples and telecommunications services sectors. The utilities sector, which represents less than 5% of the Index, suffered losses in the wake of the Fukushima nuclear accident and detracted substantially from Index returns for the reporting period.
| 6 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Shareholder Expenses (Unaudited)
iSHARES® MSCI JAPAN INDEX FUND
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares and (2) ongoing costs, including management fees and other Fund expenses. The following Example is intended to help you understand your ongoing costs (in dollars and cents) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from March 1, 2011 to August 31, 2011.
ACTUAL EXPENSES
The first line in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value (3/1/11) |
Ending Account Value (8/31/11) |
Annualized Expense Ratio |
Expenses Paid During Perioda (3/1/11 to 8/31/11) |
|||||||||||||
| Actual |
$1,000.00 | $ 862.60 | 0.51 | % | $2.39 | |||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.51 | 2.60 | ||||||||||||
| a | Expenses are calculated using the Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). |
| SHAREHOLDER EXPENSES | 7 |
Table of Contents
iSHARES® MSCI JAPAN INDEX FUND
August 31, 2011
| 8 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN INDEX FUND
August 31, 2011
| SCHEDULE OF INVESTMENTS | 9 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN INDEX FUND
August 31, 2011
| 10 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN INDEX FUND
August 31, 2011
| SCHEDULE OF INVESTMENTS | 11 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN INDEX FUND
August 31, 2011
| 12 | |
2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
|
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN INDEX FUND
August 31, 2011
| SCHEDULE OF INVESTMENTS | 13 |
Table of Contents
Statement of Assets and Liabilities
iSHARES® MSCI JAPAN INDEX FUND
August 31, 2011
| ASSETS |
||||
| Investments, at cost: |
||||
| Unaffiliated |
$ | 8,817,408,045 | ||
| Affiliated (Note 2) |
38,435,394 | |||
|
|
|
|||
| Total cost of investments |
$ | 8,855,843,439 | ||
|
|
|
|||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||
| Unaffiliated |
$ | 7,185,036,027 | ||
| Affiliated (Note 2) |
38,435,394 | |||
|
|
|
|||
| Total fair value of investments |
7,223,471,421 | |||
| Foreign currencies, at valueb |
7,670,014 | |||
| Receivables: |
||||
| Investment securities sold |
5,799,216 | |||
| Dividends and interest |
4,981,611 | |||
|
|
|
|||
| Total Assets |
7,241,922,262 | |||
|
|
|
|||
| LIABILITIES |
||||
| Payables: |
||||
| Investment securities purchased |
5,859,343 | |||
| Collateral for securities on loan (Note 5) |
37,901,550 | |||
| Capital shares redeemed |
430,360 | |||
| Investment advisory fees (Note 2) |
3,222,121 | |||
|
|
|
|||
| Total Liabilities |
47,413,374 | |||
|
|
|
|||
| NET ASSETS |
$ | 7,194,508,888 | ||
|
|
|
|||
| Net assets consist of: |
||||
| Paid-in capital |
$ | 9,596,160,981 | ||
| Undistributed net investment income |
3,196,412 | |||
| Accumulated net realized loss |
(772,647,743 | ) | ||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(1,632,200,762 | ) | ||
|
|
|
|||
| NET ASSETS |
$ | 7,194,508,888 | ||
|
|
|
|||
| Shares outstandingc |
734,400,000 | |||
|
|
|
|||
| Net asset value per share |
$ | 9.80 | ||
|
|
|
|||
| a | Securities on loan with a value of $36,041,285. See Note 5. |
| b | Cost of foreign currencies: $7,657,985. |
| c | $0.001 par value, number of shares authorized: 2,124,600,000. |
See notes to financial statements.
| 14 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statement of Operations
iSHARES® MSCI JAPAN INDEX FUND
Year ended August 31, 2011
| NET INVESTMENT INCOME |
||||
| Dividends – unaffiliateda |
$ | 119,958,426 | ||
| Interest – affiliated (Note 2) |
2,256 | |||
| Securities lending income – affiliated (Note 2) |
592,919 | |||
|
|
|
|||
| Total investment income |
120,553,601 | |||
|
|
|
|||
| EXPENSES |
||||
| Investment advisory fees (Note 2) |
30,400,171 | |||
|
|
|
|||
| Total expenses |
30,400,171 | |||
|
|
|
|||
| Net investment income |
90,153,430 | |||
|
|
|
|||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||
| Net realized gain (loss) from: |
||||
| Investments – unaffiliated |
(169,365,711 | ) | ||
| In-kind redemptions – unaffiliated |
131,723,807 | |||
| Foreign currency transactions |
2,734,550 | |||
|
|
|
|||
| Net realized loss |
(34,907,354 | ) | ||
|
|
|
|||
| Net change in unrealized appreciation/depreciation on: |
||||
| Investments |
(73,442,418 | ) | ||
| Translation of assets and liabilities in foreign currencies |
6,779 | |||
|
|
|
|||
| Net change in unrealized appreciation/depreciation |
(73,435,639 | ) | ||
|
|
|
|||
| Net realized and unrealized loss |
(108,342,993 | ) | ||
|
|
|
|||
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (18,189,563 | ) | |
|
|
|
|||
| a | Net of foreign withholding tax of $8,992,712. |
See notes to financial statements.
| FINANCIAL STATEMENTS | 15 |
Table of Contents
Statements of Changes in Net Assets
iSHARES® MSCI JAPAN INDEX FUND
| Year ended August 31, 2011 |
Year ended August 31, 2010 |
|||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||
| OPERATIONS: |
||||||||
| Net investment income |
$ | 90,153,430 | $ | 61,244,311 | ||||
| Net realized loss |
(34,907,354 | ) | (48,426,200 | ) | ||||
| Net change in unrealized appreciation/depreciation |
(73,435,639 | ) | (368,908,167 | ) | ||||
|
|
|
|
|
|||||
| Net decrease in net assets resulting from operations |
(18,189,563 | ) | (356,090,056 | ) | ||||
|
|
|
|
|
|||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||
| From net investment income |
(93,105,502 | ) | (77,025,449 | ) | ||||
|
|
|
|
|
|||||
| Total distributions to shareholders |
(93,105,502 | ) | (77,025,449 | ) | ||||
|
|
|
|
|
|||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||
| Proceeds from shares sold |
4,949,223,864 | 1,380,264,536 | ||||||
| Cost of shares redeemed |
(1,586,188,582 | ) | (3,168,550,601 | ) | ||||
|
|
|
|
|
|||||
| Net increase (decrease) in net assets from capital share transactions |
3,363,035,282 | (1,788,286,065 | ) | |||||
|
|
|
|
|
|||||
| INCREASE (DECREASE) IN NET ASSETS |
3,251,740,217 | (2,221,401,570 | ) | |||||
| NET ASSETS |
||||||||
| Beginning of year |
3,942,768,671 | 6,164,170,241 | ||||||
|
|
|
|
|
|||||
| End of year |
$ | 7,194,508,888 | $ | 3,942,768,671 | ||||
|
|
|
|
|
|||||
| Undistributed net investment income included in net assets at end of year |
$ | 3,196,412 | $ | 3,270,048 | ||||
|
|
|
|
|
|||||
| SHARES ISSUED AND REDEEMED |
||||||||
| Shares sold |
471,600,000 | 137,400,000 | ||||||
| Shares redeemed |
(155,400,000 | ) | (321,000,000 | ) | ||||
|
|
|
|
|
|||||
| Net increase (decrease) in shares outstanding |
316,200,000 | (183,600,000 | ) | |||||
|
|
|
|
|
|||||
See notes to financial statements.
| 16 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI JAPAN INDEX FUND
(For a share outstanding throughout each period)
| Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
Year ended Aug. 31, 2007 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 9.43 | $ | 10.24 | $ | 11.62 | $ | 14.07 | $ | 13.80 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.16 | 0.12 | 0.13 | 0.14 | 0.10 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
0.37 | (0.77 | ) | (1.39 | ) | (2.39 | ) | 0.27 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
0.53 | (0.65 | ) | (1.26 | ) | (2.25 | ) | 0.37 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.16 | ) | (0.16 | ) | (0.12 | ) | (0.20 | ) | (0.10 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.16 | ) | (0.16 | ) | (0.12 | ) | (0.20 | ) | (0.10 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 9.80 | $ | 9.43 | $ | 10.24 | $ | 11.62 | $ | 14.07 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
5.54 | % | (6.41 | )% | (10.68 | )% | (16.13 | )% | 2.68 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 7,194,509 | $ | 3,942,769 | $ | 6,164,170 | $ | 7,499,536 | $ | 11,780,006 | ||||||||||
| Ratio of expenses to average net assets |
0.51 | % | 0.54 | % | 0.56 | % | 0.52 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
1.53 | % | 1.20 | % | 1.46 | % | 1.11 | % | 0.68 | % | ||||||||||
| Portfolio turnover ratec |
4 | % | 5 | % | 4 | % | 4 | % | 3 | % | ||||||||||
| a | Based on average shares outstanding throughout each period. |
| b | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| c | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS |
17 |
Table of Contents
iSHARES® MSCI JAPAN INDEX FUND
iShares, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company was incorporated under the laws of the State of Maryland on September 1, 1994 pursuant to amended and restated Articles of Incorporation.
These financial statements relate only to the following fund (the “Fund”):
| iShares MSCI Index Fund | Diversification Classification |
|||
| Japan |
Non-diversified | |||
Non-diversified funds generally hold securities of fewer issuers than diversified funds and may be more susceptible to the risks associated with these particular issuers, or to a single economic, political or regulatory occurrence affecting these issuers.
The investment objective of the Fund is to seek investment results that correspond generally to the price and yield performance, before fees and expenses, of its underlying index. The investment adviser uses a “passive” or index approach to try to achieve the Fund’s investment objective.
The Fund invests in securities of non-U.S. issuers that may trade in non-U.S. markets. This may involve certain considerations and risks not typically associated with securities of U.S. issuers. Such risks include, but are 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 of the Fund; less publicly available information about issuers; the imposition of withholding or other taxes; higher transaction and custody costs; settlement delays and risk of loss attendant in settlement procedures; difficulties in enforcing contractual obligations; less regulation of securities markets; different accounting, disclosure and reporting requirements; more substantial governmental involvement in the economy; higher inflation rates; greater social, economic and political uncertainties; the risk of nationalization or expropriation of assets and the risk of war.
Pursuant to the Company’s organizational documents, the Fund’s officers and directors are indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred.
1. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are consistently followed by the Fund in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
SECURITY VALUATION
The securities and other assets of the Fund are valued pursuant to the pricing policy and procedures approved by the Board of Directors of the Company (the “Board”) using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). The
| 18 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® MSCI JAPAN INDEX FUND
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
| • | Level 1 – Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access at the measurement date (a “Level 1 Price”); |
| • | Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not considered to be active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (a “Level 2 Price”); and |
| • | Level 3 – Inputs that are unobservable for the asset or liability (a “Level 3 Price”). |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3 of the fair value hierarchy.
The level of a value determined for a financial instrument within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement in its entirety. The categorization of a value determined for a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Fund’s perceived risk of that instrument.
Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 Prices, include active listed equities. The Fund does not adjust the quoted price for such instruments, even in situations where the Fund holds a large position and a sale could reasonably impact the quoted price.
Investments that trade in markets that are not considered to be active, but whose values are based on inputs such as quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified within Level 2. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Investments whose values are classified as Level 3 Prices have significant unobservable inputs, as they may trade infrequently or not at all. Investments whose values are classified as Level 3 Prices may include unlisted securities related to corporate actions, securities whose trading have been suspended or which have been de-listed from their primary trading exchange, less liquid corporate debt securities (including distressed debt instruments), collateralized debt obligations, and less liquid mortgage securities (backed by either commercial or residential real estate). When observable prices are not available for these securities, the Fund uses one or more valuation techniques (e.g., the market approach or the income approach) for which sufficient and reliable data is available. Within Level 3 of the fair value hierarchy, the use of the market approach generally consists of using comparable market transactions, while the use of the income approach generally consists of the net present value of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors.
The inputs used by the Fund in estimating the value of Level 3 Prices may include the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in
| NOTES TO FINANCIAL STATEMENTS | 19 |
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Notes to Financial Statements (Continued)
iSHARES® MSCI JAPAN INDEX FUND
financial ratios or cash flows. Level 3 Prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the Fund in the absence of market information. The fair value measurement of Level 3 Prices does not include transaction costs that may have been capitalized as part of the security’s cost basis. Assumptions used by the Fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the Fund’s results of operations.
Fair value pricing could result in a difference between the prices used to calculate the Fund’s net asset value and the prices used by the Fund’s underlying index, which in turn could result in a difference between the Fund’s performance and the performance of the Fund’s underlying index.
The following table summarizes the value of each of the Fund’s investments according to the fair value hierarchy as of August 31, 2011. The breakdown of the Fund’s investments into major categories is disclosed in its Schedule of Investments.
| Investments in Securities | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Common Stocks |
$ | 7,178,233,364 | $ | – | $ | 6,802,663 | $ | 7,185,036,027 | ||||||||
| Short-Term Investments |
38,435,394 | – | – | 38,435,394 | ||||||||||||
|
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|
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|
|
|
|
|
|||||||||
| $ | 7,216,668,758 | $ | – | $ | 6,802,663 | $ | 7,223,471,421 | |||||||||
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SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for on trade date. Dividend income is recognized on the ex-dividend date, net of any foreign taxes withheld at source. Any taxes withheld that are reclaimable from foreign tax authorities as of August 31, 2011 are reflected in dividends receivable. Non-cash dividends received in the form of stock in an elective dividend, if any, are recorded as dividend income at fair value. Distributions received by the Fund may include a return of capital that is estimated by management. Such amounts are recorded as a reduction of the cost of investments or reclassified to capital gains. Interest income is accrued daily. Realized gains and losses on investment transactions are determined using the specific identification method.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. Foreign currencies, as well as investment securities and other assets and liabilities denominated in foreign currencies, are translated into U.S. dollars using exchange rates deemed appropriate by the investment adviser. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars on the respective dates of such transactions.
The Fund does not isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of securities. Such fluctuations are reflected by the Fund as a component of realized and unrealized gains and losses from investments for financial reporting purposes.
FOREIGN TAXES
The Fund may be subject to foreign taxes (a portion of which may be reclaimable) on income, capital gains on investments, certain foreign currency transactions or other corporate events. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in the foreign jurisdictions in which the Fund invest. These foreign taxes, if any, are paid by the Fund and are reflected in its Statement of Operations as follows: foreign taxes withheld at source are presented as a reduction of income, foreign taxes on capital gains from sales of investments and foreign currency transactions are included in their respective net realized gain (loss) categories, and foreign taxes on
| 20 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® MSCI JAPAN INDEX FUND
other corporate events are reflected in “Other foreign taxes.” Foreign taxes payable as of August 31, 2011, if any, are disclosed in the Fund’s Statement of Assets and Liabilities.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. Distributions are determined on a tax basis and may differ from net investment income and net realized capital gains for financial reporting purposes. Dividends and distributions are paid in U.S. dollars and cannot be automatically reinvested in additional shares of the Fund.
As of August 31, 2011, the tax year-end of the Fund, the components of accumulated net earnings (losses) on a tax basis consisted of undistributed ordinary income of $5,664,222, unrealized depreciation of $1,729,882,458, and capital and other losses of $677,433,857, for accumulated net losses of $2,401,652,093. The difference between book-basis and tax-basis unrealized gains (losses) is attributable primarily to the tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains on investments in passive foreign investment companies.
The tax character of distributions paid during the years ended August 31, 2011 and August 31, 2010 were as follows:
| 2011 | 2010 | |||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 93,105,502 | $ | 77,025,449 | ||||
|
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| Total distributions |
$ | 93,105,502 | $ | 77,025,449 | ||||
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FEDERAL INCOME TAXES
The Fund is treated as an entity separate from the Company’s other funds for federal income tax purposes. It is the policy of the Fund to qualify as a regulated investment company by complying with the provisions applicable to regulated investment companies, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, and to annually distribute substantially all of its ordinary income and any net capital gains (taking into account any capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income and excise taxes. Accordingly, no provision for federal income taxes is required.
As permitted by tax regulations, the Fund has elected to defer net realized capital losses incurred from November 1, 2010 to August 31, 2011 of $93,620,481 and treat them as arising in the year ending August 31, 2012.
The Fund had tax basis net capital loss carryforwards as of August 31, 2011, the tax year-end of the Fund, as follows:
| Expiring 2012 |
Expiring 2013 |
Expiring 2014 |
Expiring 2015 |
Expiring 2016 |
Expiring 2017 |
Expiring 2018 |
Expiring 2019 |
Total | ||||||||||||||||||||||||
| $5,594,562 |
$ | 8,733,802 | $ | 68,122,871 | $ | 27,817,841 | $ | 44,443,527 | $ | 116,295,478 | $ | 173,577,101 | $ | 139,228,194 | $ | 583,813,376 | ||||||||||||||||
Net capital loss carryforwards may be applied against any net realized taxable gains in each succeeding year or until their respective expiration dates, whichever occurs first.
Under the recently enacted Regulated Investment Company Modernization Act of 2010, capital losses incurred by funds for taxable years beginning after December 22, 2010 will not be subject to expiration. In addition, such losses must be utilized prior to the losses incurred in the tax years preceding enactment.
The Fund may own shares in certain foreign investment entities, referred to, under U.S. tax law, as “passive foreign investment companies.” The Fund may elect to mark-to-market annually the shares of each passive foreign investment company and would be required to distribute to shareholders any such marked-to-market gains.
| NOTES TO FINANCIAL STATEMENTS | 21 |
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Notes to Financial Statements (Continued)
iSHARES® MSCI JAPAN INDEX FUND
As of August 31, 2011, the cost of investments for federal income tax purposes was $8,953,525,135. Net unrealized depreciation was $1,730,053,714, of which $167,335,431 represented gross unrealized appreciation on securities and $1,897,389,145 represented gross unrealized depreciation on securities.
Management has reviewed the tax positions as of August 31, 2011, inclusive of the open tax return years, and has determined that no provision for income tax is required in the Fund’s financial statements.
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These differences are reclassified by the Fund at the end of its tax year and are primarily attributable to passive foreign investment companies, the expiration of capital loss carryforwards, and realized gains (losses) from foreign currency transactions and in-kind redemptions. As of August 31, 2011, the Fund made the following reclassifications, which have no effect on net assets or net asset values per share:
| Paid-in Capital |
Undistributed Net Investment Income/Distributions in Excess of Net Investment Income |
Undistributed Net Realized Gain/ Accumulated Net Realized Loss |
||||||
| $104,025,431 | $ | 2,878,436 | $ | (106,903,867 | ) | |||
RECENT ACCOUNTING STANDARD
In May 2011, the Financial Accounting Standards Board issued amended guidance to improve disclosure about fair value measurements which will require the following disclosures for fair value measurements categorized as Level 3: quantitative information about the unobservable inputs and assumptions used in the fair value measurement, a description of the valuation policies and procedures and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, the amounts and reasons for all transfers in and out of Level 1 and Level 2 will be required to be disclosed. The amended guidance is effective for financial statements for fiscal years beginning after December 15, 2011, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Fund’s financial statements and disclosures.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Investment Advisory Agreement with the Company, BlackRock Fund Advisors (“BFA”) manages the investment of the Fund’s assets. BFA is a California corporation indirectly owned by BlackRock, Inc. (“BlackRock”). Under the Investment Advisory Agreement, BFA is responsible for substantially all expenses of the Fund, except interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution fees, litigation expenses and any extraordinary expenses.
For its investment advisory services to the Fund, BFA is entitled to an annual investment advisory fee based on the Fund’s allocable portion of the aggregate of the average daily net assets of the Fund and certain other iShares funds, as follows:
| Investment Advisory Fee | Aggregate Average Daily Net Assets | |
| 0.59% | First $7 billion | |
| 0.54 | Over $7 billion, up to and including $11 billion | |
| 0.49 | Over $11 billion, up to and including $24 billion | |
| 0.44 | Over $24 billion, up to and including $48 billion | |
| 0.40 | Over $48 billion |
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BlackRock Institutional Trust Company, N.A. (“BTC”) to serve as securities lending agent for the Fund, subject to applicable conditions. BTC is an affiliate of BFA, the Fund’s investment adviser. As securities lending agent, BTC receives, as fees, a share of the income earned on investment of the cash collateral received for the
| 22 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® MSCI JAPAN INDEX FUND
loan of securities and any fees paid by borrowers. For the year ended August 31, 2011, BTC earned securities lending agent fees from the Fund of $315,393.
The Fund may invest its positive cash balances in certain money market funds managed by BFA or an affiliate. The income earned on these temporary cash investments is included in “Interest – affiliated” in the Statement of Operations.
The PNC Financial Services Group, Inc. (“PNC”) and Barclays PLC (“Barclays”) are the largest stockholders of BlackRock. Due to the ownership structure, PNC is an affiliate of the Fund for 1940 Act purposes, but Barclays is not.
Certain directors and officers of the Company are also officers of BTC and/or BFA.
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments (excluding in-kind transactions and short-term investments) for the year ended August 31, 2011, aggregated $251,854,126 and $227,942,166, respectively.
In-kind purchases and sales (see Note 4) for the year ended August 31, 2011, aggregated $4,896,506,057 and $1,564,252,852, respectively.
4. CAPITAL SHARE TRANSACTIONS
Capital shares are issued and redeemed by the Fund only in aggregations of a specified number of shares or multiples thereof (“Creation Units”) at net asset value. Except when aggregated in Creation Units, shares of the Fund are not redeemable. Transactions in capital shares for the Fund are disclosed in detail in the Statements of Changes in Net Assets.
The consideration for the purchase of Creation Units of a fund in the Company generally consists of the in-kind deposit of a designated portfolio of securities, which constitutes an optimized representation of the securities of that fund’s underlying index, and an amount of cash. Certain funds in the Company may be offered in Creation Units solely or partially for cash in U.S. dollars. Investors purchasing and redeeming Creation Units may pay a purchase transaction fee and a redemption transaction fee directly to State Street Bank and Trust Company, the Company’s administrator, to offset transfer and other transaction costs associated with the issuance and redemption of Creation Units, including Creation Units for cash. Investors transacting in Creation Units for cash pay an additional variable charge to compensate the relevant fund for certain transaction costs (i.e., stamp taxes, taxes on currency or other financial transactions, and brokerage costs) and market impact expenses relating to investing in portfolio securities.
5. LOANS OF PORTFOLIO SECURITIES
The Fund may lend its investment securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current value of the securities on loan. The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. Any securities lending cash collateral may be reinvested in certain short-term instruments either directly on behalf of a fund or through one or more joint accounts or money market funds, including those managed by BFA or its affiliates; such reinvestments are subject to investment risk.
As of August 31, 2011, any securities on loan were collateralized by cash. The cash collateral received was invested in money market funds managed by BFA. The value of the securities on loan as of August 31, 2011 and the value of the related collateral are disclosed in the Statement
| NOTES TO FINANCIAL STATEMENTS | 23 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® MSCI JAPAN INDEX FUND
of Assets and Liabilities. Securities lending income, as disclosed in the Statement of Operations, represents the income earned from the investment of the cash collateral, plus any fees paid by borrowers and less the fees paid to BTC as securities lending agent which are subject to adjustments pursuant to the securities lending agreement.
6. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were available to be issued and has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements.
| 24 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
iShares, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the iShares MSCI Japan Index Fund, a portfolio on the iShares MSCI series (the “Fund”), at August 31, 2011, the results of its operations, the changes in its net assets and its financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2011 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 21, 2011
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 25 |
Table of Contents
iSHARES® MSCI JAPAN INDEX FUND
For the fiscal year ended August 31, 2011, the Fund earned foreign source income of $128,951,138 and paid foreign taxes of $8,887,568 which it intends to pass through to its shareholders pursuant to Section 853 of the Internal Revenue Code (the “Code”).
Under Section 854(b)(2) of the Code, the Fund hereby designates the maximum amount of $101,993,070 as qualified dividend income for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended August 31, 2011.
In February 2012, shareholders will receive Form 1099-DIV which will include their share of qualified dividend income distributed during the calendar year 2011. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their income tax returns.
| 26 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited)
iSHARES® MSCI JAPAN INDEX FUND
Under Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), the Company’s Board of Directors (the “Board”), including a majority of Directors who are not “interested persons” of the Company (as that term is defined in the 1940 Act) (the “Independent Directors”), is required annually to consider the Investment Advisory Contract between the Company and BFA (the “Advisory Contract”) on behalf of the Fund. As required by Section 15(c), the Board requested and BFA provided such information as the Board, with advice from independent counsel, deemed reasonably necessary to evaluate the Advisory Contract. An ad-hoc sub-committee of the Independent Directors (the “Ad-Hoc Sub-Committee”), with independent counsel, met with management on April 19, 2011, and April 26, 2011, to discuss the types of information the Board required and the manner in which management would organize and present such information. At a meeting held on May 16, 2011, management presented information to the Board relating to the continuance of the Advisory Contract and the Board reviewed and discussed such information at length. The Board also requested from management certain additional information. At a meeting held on June 22-23, 2011, the Board reviewed additional information provided by management in response to the Board’s requests. The Board approved the selection of BFA and the continuance of the Advisory Contract for the Fund, based on its review of qualitative and quantitative information provided by BFA, including its review of supplemental information management provided at the request of the Board. The Board noted its satisfaction with the extent and quality of information, and detailed responses, provided by BFA. The Independent Directors were advised by their independent counsel throughout the process. In selecting BFA and approving the Advisory Contract for the Fund, the Board, including the Independent Directors, considered the following factors, no one of which was controlling, and made the following conclusions:
Nature, Extent and Quality of Services Provided by BFA – Based on management’s representations, the Board expected that there would be no diminution in the scope of services required of or provided by BFA under the Advisory Contract for the coming year as compared to the scope of services provided by BFA over prior years. In reviewing the scope of these services, the Board considered BFA’s investment philosophy and experience, noting that BFA and its affiliates have committed significant resources over time, including during the past year, supporting the Fund and its shareholders. The Board acknowledged that additional resources to support the Fund and its shareholders were added in 2010, for example, in such areas as investor education, product management, and capital markets support. The Board also considered BFA’s compliance program and its compliance record with respect to the Fund. In that regard, the Board noted that BFA reports to the Board about portfolio management and compliance matters on a periodic basis in connection with regularly scheduled meetings of the Board, and on other occasions as necessary and appropriate, and has provided information and made appropriate officers available as needed to provide further assistance with these matters. The Board also reviewed the background and experience of the persons responsible for the day-to-day management of the Fund. In addition to the above considerations, the Board reviewed and considered BFA’s investment processes and strategies, and matters related to BFA’s portfolio compliance policies and procedures. The Board noted that the Fund had met its investment objective consistently since its respective inception date. Based on review of this information, the Board concluded that the nature, extent and quality of services to be provided by BFA to the Fund under the Advisory Contract supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Expenses and Performance of the Fund – The Board reviewed statistical information prepared by Lipper Inc. (“Lipper”), an independent provider of investment company data, regarding the expense ratio components, including actual advisory fees, waivers/reimbursements, and gross and net total expenses of the Fund in comparison with the same information for other registered investment companies objectively selected by Lipper as comprising the Fund’s applicable peer group pursuant to Lipper’s proprietary methodology and any registered funds that would otherwise have been excluded from Lipper’s comparison group because of their size or other differentiating factors, but were nonetheless included at the request of BFA (the “Lipper Group”). Because there are few, if any, exchange traded funds or index funds that track an index similar to that tracked by the Fund, the Lipper Group included in part mutual funds, closed-end funds, exchange traded funds, or funds with differing investment objective classifications, investment focuses and other characteristics (e.g., actively managed funds and funds sponsored by “at cost” service providers), as applicable. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the applicable Lipper Groups and to prepare this information. The Board further noted that due to the limitations in providing comparable funds in the various Lipper Groups, the statistical information may or may not provide meaningful direct comparisons to the Fund.
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT | 27 |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES® MSCI JAPAN INDEX FUND
The Board also noted that the investment advisory fee and overall expenses for the Fund compared favorably to the investment advisory fee rates and overall expenses of the funds in their respective Lipper Group.
In addition, the Board reviewed statistical information prepared by Lipper regarding the performance of the Fund for the one-, three-, five-, ten-year, and since inception periods, as applicable, and the “last quarter” period ended December 31, 2010, and a comparison of the Fund’s performance to its performance benchmark index for the same periods. To the extent that any of the comparison funds included in the Lipper Group track the same index as the Fund, Lipper also provided, and the Board reviewed, a comparison of the Fund’s performance to that of such relevant comparison funds for the same periods. The Board noted that the Fund generally performed in line with its performance benchmark index over the relevant periods. In considering this information, the Board noted that the Lipper Group includes funds that may have different investment objectives and/or benchmarks from the Fund. In addition, the Board noted that the Fund seeks to track its benchmark index and that, during the prior year, the Board received periodic reports on the Fund’s performance in comparison with its relevant benchmark index. Such comparative performance information was also considered by the Board.
Based on this review, the Board concluded that the investment advisory fee and expense level and the historical performance of the Fund, as compared to the investment advisory fees and expense levels and performance of the funds in the relevant Lipper Group, supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Costs of Services Provided to Fund and Profits Realized by BFA and Affiliates – The Board reviewed information about the profitability to BFA of the Fund based on the fees payable to BFA and its affiliates (including fees under the Advisory Contract), and all other sources of revenue and expense to BFA and its affiliates from the Fund’s operations for the last calendar year. The Board reviewed BlackRock’s profitability methodology for the iShares Funds and how such profitability methodology differed from the methodology used to calculate profitability prior to the acquisition of BFA by BlackRock, noting that such matters were focused on by the Ad-Hoc Sub-Committee during its meetings and addressed by management. The Board discussed the sources of direct and ancillary revenue with management, including the revenues to BTC from securities lending by the Fund. The Board also discussed BFA’s profit margin as reflected in the Fund’s profitability analysis and reviewed information regarding economies of scale (as discussed below). Based on this review, the Board concluded that the profits realized by BFA and its affiliates under the Advisory Contract and from other relationships between the Fund and BFA and/or its affiliates, if any, supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Economies of Scale – In connection with its review of the Fund’s profitability analysis, the Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Fund’s assets. The Board noted that the Advisory Contract for the Fund already provided for breakpoints in the Fund’s investment advisory fee rate as the assets of the Fund, on an aggregated basis with the assets of certain other iShares funds, increase, and that the Board had approved additional breakpoints in a previous year. The Board also reviewed BFA’s historic profitability as investment adviser to the iShares fund complex and noted that BFA and BlackRock had continued to make significant investments in the iShares fund complex and the infrastructure supporting the iShares funds. Based on this review, as well as the discussions described above in connection with the Lipper Group and performance benchmark comparisons, the Board, recognizing its responsibility to consider this issue at least annually, concluded that the structure of the investment advisory fees reflects appropriate sharing of potential economies of scale with the Fund’s shareholders and supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by BFA and its Affiliates – The Board received and considered information regarding the investment advisory/management fee rates for other funds/accounts in the U.S. for which BFA (or its affiliates) provides investment advisory/management services, including open-end and closed-end funds registered under the 1940 Act (including sub-advised funds), collective trust funds and institutional separate accounts (together, the “Other Accounts”). The Board noted that BFA and its affiliates do manage Other Accounts with a substantially similar investment objective and strategy as the Fund. The Board further
| 28 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES® MSCI JAPAN INDEX FUND
noted that BFA provided the Board with detailed information regarding how the Other Accounts (particularly institutional clients) generally differ from the Fund, including in terms of the different services provided as well as other significant differences in the approach of BFA and its affiliates to the Fund, on one hand, and Other Accounts, on the other. In that regard, the Board considered that the pricing of services to institutional clients is typically based on a number of factors beyond the nature and extent of the specific services to be provided and often depends on the overall relationship between the client and its affiliates and the adviser and its affiliates. In addition, the Board considered the relative complexity and inherent risks of managing and providing other services to the Fund, as a publicly traded exchanged traded fund, as compared to the Other Accounts that are institutional clients in light of differing regulatory requirements and client-imposed mandates. The Board noted that the investment advisory fee rates under the Advisory Contract for the Fund were generally higher than the investment advisory/management fee rates for the Other Accounts that are institutional clients of BFA (or its affiliates) and concluded that the differences appeared to be consistent with the factors discussed.
Other Benefits to BFA and/or its Affiliates – The Board reviewed any ancillary revenue received by BFA and/or its affiliates in connection with the services provided to the Fund by BFA, such as any payment of revenue to BTC, the Fund’s securities lending agent, for loaning any portfolio securities, and payment of advisory fees and/or administration fees to BFA and BTC (or their affiliates) in connection with any investments by the Fund in other funds for which BFA (or its affiliates) provides investment advisory services and/or administration services. The Board noted that BFA does not use soft dollars or consider the value of research or other services that may be provided to BFA (including its affiliates) in selecting brokers for portfolio transactions for the Fund. The Board further noted that any portfolio transactions on behalf of the Fund placed through a BFA affiliate or purchased from an underwriting syndicate in which a BFA affiliate participates, are reported to the Board pursuant to Rule 17e-1 or Rule 10f-3, as applicable, under the 1940 Act. The Board concluded that any such ancillary benefits would not be disadvantageous to the Fund’s shareholders.
Based on the considerations described above, the Board determined that the investment advisory fee rates under the Advisory Contract do not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bargaining and concluded that it is in the best interest of the Fund and its shareholders to approve the continuance of the Advisory Contract for the coming year.
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT | 29 |
Table of Contents
Supplemental Information (Unaudited)
iSHARES® MSCI JAPAN INDEX FUND
Premium/Discount Information
The table that follows presents information about the differences between the daily market price on secondary markets for shares of the Fund and the Fund’s net asset value. Net asset value, or “NAV,” is the price per share at which the Fund issues and redeems shares. It is calculated in accordance with the standard formula for valuing mutual fund shares. The “Market Price” of the Fund generally is determined using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the Fund are listed for trading, as of the time the Fund’s NAV is calculated. The Fund’s Market Price may be at, above or below its NAV. The NAV of the Fund will fluctuate with changes in the fair value of its portfolio holdings. The Market Price of the Fund will fluctuate in accordance with changes in its NAV, as well as market supply and demand.
Premiums or discounts are the differences (expressed as a percentage) between the NAV and Market Price of the Fund on a given day, generally at the time NAV is calculated. A premium is the amount that the Fund is trading above the reported NAV, expressed as a percentage of the NAV. A discount is the amount that the Fund is trading below the reported NAV, expressed as a percentage of the NAV.
The following information shows the frequency distributions of premiums and discounts for the Fund included in this report. The information shown for the Fund is for five calendar years through the date of the most recent calendar quarter-end. The specific period covered for the Fund is disclosed in the table.
| 30 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES® MSCI JAPAN INDEX FUND
Each line in the table shows the number of trading days in which the Fund traded within the premium/discount range indicated. The number of trading days in each premium/discount range is also shown as a percentage of the total number of trading days in the period covered by the table. All data presented here represents past performance, which cannot be used to predict future results.
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 6.0% |
3 | 0.22 | % | |||||
| Greater than 5.5% and Less than 6.0% |
1 | 0.07 | ||||||
| Greater than 5.0% and Less than 5.5% |
3 | 0.22 | ||||||
| Greater than 4.5% and Less than 5.0% |
3 | 0.22 | ||||||
| Greater than 4.0% and Less than 4.5% |
4 | 0.29 | ||||||
| Greater than 3.5% and Less than 4.0% |
8 | 0.58 | ||||||
| Greater than 3.0% and Less than 3.5% |
5 | 0.36 | ||||||
| Greater than 2.5% and Less than 3.0% |
15 | 1.08 | ||||||
| Greater than 2.0% and Less than 2.5% |
20 | 1.45 | ||||||
| Greater than 1.5% and Less than 2.0% |
45 | 3.25 | ||||||
| Greater than 1.0% and Less than 1.5% |
97 | 7.01 | ||||||
| Greater than 0.5% and Less than 1.0% |
231 | 16.70 | ||||||
| Between 0.5% and –0.5% |
563 | 40.71 | ||||||
| Less than –0.5% and Greater than –1.0% |
149 | 10.77 | ||||||
| Less than –1.0% and Greater than –1.5% |
94 | 6.80 | ||||||
| Less than –1.5% and Greater than –2.0% |
58 | 4.19 | ||||||
| Less than –2.0% and Greater than –2.5% |
29 | 2.10 | ||||||
| Less than –2.5% and Greater than –3.0% |
20 | 1.45 | ||||||
| Less than –3.0% and Greater than –3.5% |
11 | 0.80 | ||||||
| Less than –3.5% and Greater than –4.0% |
6 | 0.43 | ||||||
| Less than –4.0% and Greater than –4.5% |
6 | 0.43 | ||||||
| Less than –4.5% and Greater than –5.0% |
3 | 0.22 | ||||||
| Less than –5.0% and Greater than –5.5% |
4 | 0.29 | ||||||
| Less than –5.5% |
5 | 0.36 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION | 31 |
Table of Contents
Director and Officer Information (Unaudited)
iSHARES®, INC.
The Board of Directors has responsibility for the overall management and operations of the Company, including general supervision of the duties performed by BFA and other service providers. Each Officer serves until he or she resigns, is removed, dies, retires or becomes incapacitated. The President, Treasurer and Secretary shall each hold office until their successors are chosen and qualified and all other officers shall hold office until he or she resigns or is removed. Directors who are not interested persons (as defined in the 1940 Act) are referred to as Independent Directors.
The registered investment companies advised by BFA or its affiliates are organized into one complex of closed-end funds, two complexes of open-end funds and one complex of exchange-traded funds (“Exchange-Traded Fund Complex”) (each, a “BlackRock Fund Complex”). Each Fund is included in the BlackRock Fund Complex referred to as the Exchange-Traded Fund Complex. Each Director of iShares, Inc. also serves as a Trustee of iShares Trust and a Director of iShares MSCI Russia Capped Index Fund, Inc. and, as a result, oversees a total of 224 funds within the Exchange-Traded Fund Complex. With the exception of Robert S. Kapito, the address of each Director and Officer is c/o BlackRock, Inc., 400 Howard Street, San Francisco, CA 94105. The address of Mr. Kapito is c/o BlackRock, Inc., Park Avenue Plaza, 55 East 52nd Street, New York, NY 10055. The Board has designated George G.C. Parker as its Independent Chairman. Additional information about the Funds’ Directors and Officers may be found in the Funds’ combined Statement of Additional Information, which is available without charge, upon request, by calling toll-free 1-800-474-2737.
Interested Directors and Officers
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| Robert S. Kapitoa (54) |
Director (since 2009). |
President and Director, BlackRock, Inc. (since 2006 and 2007, respectively); Vice Chairman of BlackRock, Inc. and Head of BlackRock’s Portfolio Management Group (since its formation in 1998) and BlackRock’s predecessor entities (since 1988); Trustee, University of Pennsylvania (since 2009); President of Board of Directors, Hope & Heroes Children’s Cancer Fund (since 2002); President of the Board of Directors, Periwinkle Theatre for Youth (since 1983). | Trustee of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of BlackRock, Inc. (since 2007). | |||
| Michael Lathamb (46) |
Director (since 2010); President (since 2007). |
Chairman of iShares, BTC (since 2011); Global Chief Executive Officer of iShares, BTC (2010-2011); Managing Director, BTC (since 2009); Head of Americas iShares, Barclays Global Investors (“BGI”) (2007-2009); Director and Chief Financial Officer of Barclays Global Investors International, Inc. (2005-2009); Chief Operating Officer of the Intermediary Investor and Exchange Traded Products Business of BGI (2003-2007). | Trustee of iShares Trust (since 2010); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| a | Robert S. Kapito is deemed to be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. |
| b | Michael Latham is deemed to be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. and its affiliates. |
| 32 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® , INC.
Independent Directors
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| George G.C. Parker (72) |
Director (since 2000); Independent Chairman (since 2010). |
Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University: Graduate School of Business (since 1994). | Trustee of iShares Trust (since 2002); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Independent Chairman of iShares Trust (since 2010); Independent Chairman of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of Tejon Ranch Company (since 1999); Director of Threshold Pharmaceuticals (since 2004); Director of Colony Financial, Inc. (since 2009); Director of First Republic Bank (since 2010). | |||
| Cecilia H. Herbert (62) |
Director (since 2005). |
Director (since 1998) and President (2007-2010) of the Board of Directors, Catholic Charities CYO; Trustee of Pacific Select Funds (2004-2005); Trustee (since 2002) and Chair of the Finance Committee (2006-2009) and Investment Committee (since 2006) of the Thacher School; Member (since 1994) and Chair (1994-2005) of Investment Committee, Archdiocese of San Francisco. | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director, Forward Funds (35 portfolios) (since 2009). | |||
| Charles A. Hurty (68) |
Director (since 2005). |
Retired; Partner, KPMG LLP (1968-2001). | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002); Director of Skybridge Multi-Adviser Hedge Fund Portfolios LLC (1 portfolio) (since 2002). | |||
| John E. Kerrigan (56) |
Director (since 2005). |
Chief Investment Officer, Santa Clara University (since 2002). | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| John E. Martinez (50) |
Director (since 2003). |
Director of EquityRock, Inc. (since 2005). | Trustee of iShares Trust (since 2003); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| DIRECTOR AND OFFICER INFORMATION | 33 |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® , INC.
Independent Directors (Continued)
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| Madhav V. Rajan (47) |
Director (since 2011). |
Gregor G. Peterson Professor of Accounting and Senior Associate Dean for Academic Affairs, Stanford University: Graduate School of Business (since 2001); Professor of Law (by courtesy), Stanford Law School (since 2005); Visiting Professor, University of Chicago (Winter 2007-2008). | Trustee of iShares Trust (since 2011); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2011). | |||
| Robert H. Silver (56) |
Director (since 2007). |
President and Co-Founder of The Bravitas Group, Inc. (since 2006); Member, Non- Investor Advisory Board of Russia Partners II, LP (since 2006); Director and Vice Chairman of the YMCA of Greater NYC (since 2001); Broadway Producer (since 2006); Co-Founder and Vice President of Parentgiving Inc. (since 2008); Director and Member of the Audit and Compensation Committee of EPAM Systems, Inc. (2006-2009). | Trustee of iShares Trust (since 2007); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| 34 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® , INC.
| Officers
| ||||
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years | ||
| Geoffrey D. Flynn (54) |
Executive Vice President and Chief Operating Officer (since 2008). |
Managing Director, BTC (since 2009); Chief Operating Officer, U.S. iShares, BGI (2007-2009); President, Van Kampen Investors Services (2003-2007); Managing Director, Morgan Stanley (2002-2007); President, Morgan Stanley Trust, FSB (2002-2007). | ||
| Eilleen M. Clavere (59) |
Secretary (since 2007). | Director, BTC (since 2009); Director of Legal Administration of Intermediary Investor Business of BGI (2006-2009); Legal Counsel and Vice President of Atlas Funds, Atlas Advisers, Inc. and Atlas Securities, Inc. (2005-2006). | ||
| Jack Gee (52) |
Treasurer and Chief Financial Officer (since 2008). |
Managing Director, BTC (since 2009); Senior Director of Fund Administration of Intermediary Investor Business of BGI (2009); Director of Fund Administration of Intermediary Investor Business of BGI (2004-2009). | ||
| Amy Schioldager (49) |
Executive Vice President (since 2007). | Managing Director, BTC (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008); Head of Domestic Equity Portfolio Management, BGI (2001-2006). | ||
| Ira P. Shapiro (48) |
Vice President and Chief Legal Officer (since 2007). | Managing Director, BTC (since 2009); Associate General Counsel, BGI (2004-2009). | ||
| Matt Tucker (39) |
Vice President (since 2007). | Managing Director, BTC (since 2009); Director of Fixed Income Investment Strategy, BGI (2009); Head of U.S. Fixed Income Investment Solutions, BGI (2005-2008). | ||
| DIRECTOR AND OFFICER INFORMATION | 35 |
Table of Contents
Notes:
| 36 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes:
| NOTES | 37 |
Table of Contents
Notes:
| 38 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
For more information visit www.iShares.com
or call 1-800-474-2737
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iS-AR-81-0811
Table of Contents
|
August 31, 2011 | |
2011 Annual Report
iShares, Inc.
iShares MSCI Emerging Markets Index Fund | EEM | NYSE Arca
Table of Contents
| 5 | ||||
| 8 | ||||
| 9 | ||||
| 24 | ||||
| 27 | ||||
| 28 | ||||
| 36 | ||||
| 37 | ||||
| Board Review and Approval of Investment Advisory Contract (Unaudited) |
38 | |||
| 41 | ||||
| 42 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI EMERGING MARKETS INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Inception to 8/31/2011 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 8.23% | 8.73% | 9.07% | 7.62% | 7.60% | 8.40% | 18.91% | 18.93% | 19.31% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/11 | Five Years Ended 8/31/11 | Inception to 8/31/2011 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 8.23% | 8.73% | 9.07% | 44.39% | 44.26% | 49.69% | 328.72% | 329.07% | 340.35% | ||||||||
Total returns for the period since inception are calculated from the inception date of the Fund (4/7/03). “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (4/11/03), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE | 5 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Emerging Markets Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets IndexSM (the “Index”). The Index is designed to measure equity market performance in the global emerging markets. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 8.23%, net of fees, while the total return for the Index was 9.07%.
As represented by the Index, emerging markets stocks posted solid gains for the reporting period. The period began on a positive note, with equity markets worldwide rallying sharply as steadily improving economic data boosted investor confidence in a global economic recovery. However, while stock markets in developed nations extended their rally into early 2011, emerging markets grew increasingly volatile, with a modest downward trajectory. Several of the largest emerging markets – including China, India, and Brazil – raised interest rates to keep rapidly rising inflation in check, and the higher borrowing costs put downward pressure on their respective economies and stock markets. Emerging markets were also buffeted by a series of global events in early 2011, including heightened political turmoil in the Middle East and North Africa, and an earthquake and tsunami in Japan.
Emerging markets stocks resumed their rally in March and April 2011, but then fell back for the remainder of the reporting period as a worsening sovereign debt crisis in Europe and government infighting about the federal debt ceiling in the U.S. cast doubts on the sustainability of the global recovery. The decline was especially severe in August 2011 as increasingly risk-averse investors shifted away from emerging markets, causing the Index to fall by 9% for the month – the Index’s worst monthly performance since October 2008.
The performance of emerging markets stocks was also impacted by a decline in the U.S. dollar, which boosted international equity returns for U.S. investors. The dollar depreciated by 6% versus the Chinese yuan and 9% against the Brazilian real for the reporting period; these countries were the largest components of the Index as of August 31, 2011. The U.S. dollar also fell by 11% against the South Korean won and 9.5% versus the Taiwan dollar during the reporting period. The U.S. dollar’s decline resulted mainly from historically low U.S. interest rates and intensifying fiscal deficit concerns.
| 6 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
On a regional basis, Eastern European markets fared the best, led by strong returns in Russia and the Czech Republic. Emerging markets in Asia also performed well, despite modest declines in the two largest markets in the region – China and India. The top-performing countries in Asia included Thailand, Indonesia, and South Korea, all of which benefited from strong export growth. Latin American stocks produced the smallest gains as Brazil – the largest market in the region – was one of the weakest performers among emerging markets.
From a sector perspective, consumer stocks were the best-performing segments of the Index, reflecting the robust growth in domestic consumption in many emerging markets. The economically sensitive materials and energy sectors also posted double-digit gains for the reporting period. On the downside, the utilities sector was the only segment of the Index to decline for the reporting period. Financials, the largest sector weighting in the Index, was also one of the weaker-performing segments of the Index, posting a modestly positive return overall.
| MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE | 7 |
Table of Contents
Shareholder Expenses (Unaudited)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares and (2) ongoing costs, including management fees and other Fund expenses. The following Example is intended to help you understand your ongoing costs (in dollars and cents) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from March 1, 2011 to August 31, 2011.
ACTUAL EXPENSES
The first line in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
|
Beginning Account Value (3/1/11) |
Ending Account Value (8/31/11) |
Annualized Expense Ratio |
Expenses Paid During Perioda (3/1/11 to 8/31/11) |
|||||||||||||
| Actual |
$1,000.00 | $ 941.90 | 0.68 | % | $3.33 | |||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,021.80 | 0.68 | 3.47 | ||||||||||||
| a | Expenses are calculated using the Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). |
| 8 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2011
| CONSOLIDATED SCHEDULE OF INVESTMENTS | 9 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2011
| 10 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2011
| CONSOLIDATED SCHEDULE OF INVESTMENTS | 11 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2011
| 12 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2011
| CONSOLIDATED SCHEDULE OF INVESTMENTS | 13 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2011
| 14 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2011
| CONSOLIDATED SCHEDULE OF INVESTMENTS | 15 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2011
| 16 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2011
| CONSOLIDATED SCHEDULE OF INVESTMENTS | 17 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2011
| 18 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2011
| CONSOLIDATED SCHEDULE OF INVESTMENTS | 19 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2011
| 20 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2011
| CONSOLIDATED SCHEDULE OF INVESTMENTS | 21 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2011
| 22 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2011
| CONSOLIDATED SCHEDULE OF INVESTMENTS | 23 |
Table of Contents
Consolidated Statement of Assets and Liabilities
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2011
| ASSETS |
||||
| Investments, at cost: |
||||
| Unaffiliated |
$ | 33,460,014,732 | ||
| Affiliated (Note 2) |
1,438,351,876 | |||
|
|
|
|||
| Total cost of investments |
$ | 34,898,366,608 | ||
|
|
|
|||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||
| Unaffiliated |
$ | 33,361,549,830 | ||
| Affiliated (Note 2) |
1,438,416,492 | |||
|
|
|
|||
| Total fair value of investments |
34,799,966,322 | |||
| Foreign currencies, at valueb |
50,366,478 | |||
| Cash |
718,127 | |||
| Receivables: |
||||
| Investment securities sold |
190,453,028 | |||
| Dividends and interest |
86,137,912 | |||
|
|
|
|||
| Total Assets |
35,127,641,867 | |||
|
|
|
|||
| LIABILITIES |
||||
| Payables: |
||||
| Investment securities purchased |
152,860,300 | |||
| Collateral for securities on loan (Note 5) |
1,346,105,650 | |||
| Capital shares redeemed |
103,735,362 | |||
| Foreign taxes (Note 1) |
2,322,086 | |||
| Securities related to in-kind transactions (Note 4) |
6,775,479 | |||
| Investment advisory fees (Note 2) |
19,294,079 | |||
|
|
|
|||
| Total Liabilities |
1,631,092,956 | |||
|
|
|
|||
| NET ASSETS |
$ | 33,496,548,911 | ||
|
|
|
|||
| Net assets consist of: |
||||
| Paid-in capital |
$ | 36,775,822,481 | ||
| Undistributed net investment income |
84,964,451 | |||
| Accumulated net realized loss |
(3,265,704,815 | ) | ||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(98,533,206 | ) | ||
|
|
|
|||
| NET ASSETS |
$ | 33,496,548,911 | ||
|
|
|
|||
| Shares outstandingc |
784,350,000 | |||
|
|
|
|||
| Net asset value per share |
$ | 42.71 | ||
|
|
|
|||
| a | Securities on loan with a value of $1,273,963,057. See Note 5. |
| b | Cost of foreign currencies: $50,169,227. |
| c | $0.001 par value, number of shares authorized: 2,000,000,000. |
See notes to consolidated financial statements.
| 24 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Statement of Operations
iSHARES® MSCI EMERGING MARKETS INDEX FUND
Year ended August 31, 2011
| NET INVESTMENT INCOME |
||||
| Dividends – unaffiliateda |
$ | 988,070,711 | ||
| Dividends – affiliatedb (Note 2) |
3,278,535 | |||
| Interest – unaffiliated |
1,259 | |||
| Interest – affiliated (Note 2) |
60,769 | |||
| Securities lending income – affiliated (Note 2) |
18,636,666 | |||
|
|
|
|||
| 1,010,047,940 | ||||
| Less: Other foreign taxes (Note 1) |
(3,249,177 | ) | ||
|
|
|
|||
| Total investment income |
1,006,798,763 | |||
|
|
|
|||
| EXPENSES |
||||
| Investment advisory fees (Note 2) |
279,756,799 | |||
|
|
|
|||
| Total expenses |
279,756,799 | |||
| Less investment advisory fees waived (Note 2) |
(2,250,096 | ) | ||
|
|
|
|||
| Net expenses |
277,506,703 | |||
|
|
|
|||
| Net investment income |
729,292,060 | |||
|
|
|
|||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||
| Net realized gain (loss) from: |
||||
| Investments – unaffiliated |
(747,630,425 | ) | ||
| Investments – affiliated (Note 2) |
17,297,857 | |||
| In-kind redemptions – unaffiliated |
3,674,708,854 | |||
| In-kind redemptions – affiliated (Note 2) |
61,691,574 | |||
| Foreign currency transactions |
(20,666,581 | ) | ||
|
|
|
|||
| Net realized gain |
2,985,401,279 | |||
|
|
|
|||
| Net change in unrealized appreciation/depreciation on: |
||||
| Investments |
63,719,358 | |||
| Translation of assets and liabilities in foreign currencies |
(55,380 | ) | ||
|
|
|
|||
| Net change in unrealized appreciation/depreciation |
63,663,978 | |||
|
|
|
|||
| Net realized and unrealized gain |
3,049,065,257 | |||
|
|
|
|||
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | 3,778,357,317 | ||
|
|
|
|||
| a | Net of foreign withholding tax of $114,774,820. |
| b | Net of foreign withholding tax of $441,604. |
See notes to consolidated financial statements.
| CONSOLIDATED FINANCIAL STATEMENTS | 25 |
Table of Contents
Statements of Changes in Net Assets
iSHARES® MSCI EMERGING MARKETS INDEX FUND
| Year ended August 31, 2011 |
Year ended August 31, 2010 |
|||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||
| OPERATIONS: |
||||||||
| Net investment income |
$ | 729,292,060 | $ | 520,250,863 | ||||
| Net realized gain |
2,985,401,279 | 1,299,482,089 | ||||||
| Net change in unrealized appreciation/depreciation |
63,663,978 | 2,361,536,205 | ||||||
|
|
|
|
|
|||||
| Net increase in net assets resulting from operations |
3,778,357,317 | 4,181,269,157 | ||||||
|
|
|
|
|
|||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||
| From net investment income |
(763,134,134 | ) | (551,986,882 | ) | ||||
|
|
|
|
|
|||||
| Total distributions to shareholders |
(763,134,134 | ) | (551,986,882 | ) | ||||
|
|
|
|
|
|||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||
| Proceeds from shares sold |
5,567,132,618 | 13,614,469,565 | ||||||
| Cost of shares redeemed |
(14,852,761,754 | ) | (7,744,918,384 | ) | ||||
|
|
|
|
|
|||||
| Net increase (decrease) in net assets from capital share transactions |
(9,285,629,136 | ) | 5,869,551,181 | |||||
|
|
|
|
|
|||||
| INCREASE (DECREASE) IN NET ASSETS |
(6,270,405,953 | ) | 9,498,833,456 | |||||
| NET ASSETS |
||||||||
| Beginning of year |
39,766,954,864 | 30,268,121,408 | ||||||
|
|
|
|
|
|||||
| End of year |
$ | 33,496,548,911 | $ | 39,766,954,864 | ||||
|
|
|
|
|
|||||
| Undistributed net investment income included in net assets at end of year |
$ | 84,964,451 | $ | 129,955,696 | ||||
|
|
|
|
|
|||||
| SHARES ISSUED AND REDEEMED |
||||||||
| Shares sold |
118,800,000 | 337,050,000 | ||||||
| Shares redeemed |
(324,000,000 | ) | (200,700,000 | ) | ||||
|
|
|
|
|
|||||
| Net increase (decrease) in shares outstanding |
(205,200,000 | ) | 136,350,000 | |||||
|
|
|
|
|
|||||
See notes to consolidated financial statements.
| 26 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI EMERGING MARKETS INDEX FUND
(For a share outstanding throughout each period)
| Year ended Aug. 31, 2011 (Consolidated) |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year
ended Aug. 31, 2008a |
Year
ended Aug. 31, 2007a |
||||||||||||||||
| Net asset value, beginning of year |
$ | 40.19 | $ | 35.48 | $ | 40.07 | $ | 44.78 | $ | 32.48 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomeb |
0.81 | 0.58 | 0.66 | 1.10 | 0.63 | |||||||||||||||
| Net realized and unrealized gain (loss)c |
2.56 | 4.73 | (4.66 | ) | (4.64 | ) | 12.19 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
3.37 | 5.31 | (4.00 | ) | (3.54 | ) | 12.82 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.85 | ) | (0.60 | ) | (0.59 | ) | (1.17 | ) | (0.52 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.85 | ) | (0.60 | ) | (0.59 | ) | (1.17 | ) | (0.52 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 42.71 | $ | 40.19 | $ | 35.48 | $ | 40.07 | $ | 44.78 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
8.23 | % | 14.97 | % | (9.47 | )% | (8.36 | )% | 39.86 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 33,496,549 | $ | 39,766,955 | $ | 30,268,121 | $ | 20,302,756 | $ | 18,198,371 | ||||||||||
| Ratio of expenses to average net assets prior to waived feesd |
0.67 | % | 0.68 | % | 0.72 | % | 0.72 | % | 0.74 | % | ||||||||||
| Ratio of expenses to average net assets after waived feesd |
0.67 | % | 0.68 | % | 0.72 | % | 0.72 | % | 0.74 | % | ||||||||||
| Ratio of net investment income to average net assets |
1.76 | % | 1.45 | % | 2.32 | % | 2.32 | % | 1.63 | % | ||||||||||
| Portfolio turnover ratee |
17 | % | 14 | % | 5 | % | 11 | % | 5 | % | ||||||||||
| a | Per share amounts were adjusted to reflect a three-for-one stock split effective July 24, 2008. |
| b | Based on average shares outstanding throughout each period. |
| c | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| d | Ratios for prior periods have been recalculated, as necessary, to conform with the current period presentation of foreign taxes. |
| e | Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to consolidated financial statements.
| FINANCIAL HIGHLIGHTS | 27 |
Table of Contents
Notes to Consolidated Financial Statements
iSHARES® MSCI EMERGING MARKETS INDEX FUND
iShares, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company was incorporated under the laws of the State of Maryland on September 1, 1994 pursuant to amended and restated Articles of Incorporation.
These consolidated financial statements relate only to the following fund (the “Fund”):
Non-diversified funds generally hold securities of fewer issuers than diversified funds and may be more susceptible to the risks associated with these particular issuers, or to a single economic, political or regulatory occurrence affecting these issuers.
The investment objective of the Fund is to seek investment results that correspond generally to the price and yield performance, before fees and expenses, of its underlying index. The investment adviser uses a “passive” or index approach to try to achieve the Fund’s investment objective.
The Fund carries out its investment strategies associated with investment in Indian securities by investing in a wholly-owned subsidiary in the Republic of Mauritius (the “Subsidiary”), which in turn invests in Indian securities included in the underlying index. The investment adviser of the Fund also serves as the investment adviser to the Subsidiary. Through this investment structure, the Fund expects to obtain certain benefits under a current tax treaty between Mauritius and India. The accompanying consolidated financial statements include the accounts of the Subsidiary.
The Fund invests in securities of non-U.S. issuers that may trade in non-U.S. markets. This may involve certain considerations and risks not typically associated with securities of U.S. issuers. Such risks include, but are 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 of the Fund; less publicly available information about issuers; the imposition of withholding or other taxes; higher transaction and custody costs; settlement delays and risk of loss attendant in settlement procedures; difficulties in enforcing contractual obligations; less regulation of securities markets; different accounting, disclosure and reporting requirements; more substantial governmental involvement in the economy; higher inflation rates; greater social, economic and political uncertainties; the risk of nationalization or expropriation of assets and the risk of war.
Pursuant to the Company’s organizational documents, the Fund’s officers and directors are indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred.
1. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are consistently followed by the Fund in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
| 28 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
SECURITY VALUATION
The securities and other assets of the Fund are valued pursuant to the pricing policy and procedures approved by the Board of Directors of the Company (the “Board”) using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
| • | Level 1 – Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access at the measurement date (a “Level 1 Price”); |
| • | Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not considered to be active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (a “Level 2 Price”); and |
| • | Level 3 – Inputs that are unobservable for the asset or liability (a “Level 3 Price”). |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3 of the fair value hierarchy.
The level of a value determined for a financial instrument within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement in its entirety. The categorization of a value determined for a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Fund’s perceived risk of that instrument.
Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 Prices, include active listed equities. The Fund does not adjust the quoted price for such instruments, even in situations where the Fund holds a large position and a sale could reasonably impact the quoted price.
Investments that trade in markets that are not considered to be active, but whose values are based on inputs such as quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified within Level 2. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Investments whose values are classified as Level 3 Prices have significant unobservable inputs, as they may trade infrequently or not at all. Investments whose values are classified as Level 3 Prices may include unlisted securities related to corporate actions, securities whose trading have been suspended or which have been de-listed from their primary trading exchange, less liquid corporate debt securities (including distressed debt instruments), collateralized debt obligations, and less liquid mortgage securities (backed by either commercial or residential real estate). When observable prices are not available for these securities, the Fund uses one or more valuation techniques (e.g., the market approach or the income approach) for which sufficient and reliable data is available. Within Level 3 of the fair value hierarchy, the use of the
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 29 |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
market approach generally consists of using comparable market transactions, while the use of the income approach generally consists of the net present value of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors.
The inputs used by the Fund in estimating the value of Level 3 Prices may include the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 Prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the Fund in the absence of market information. The fair value measurement of Level 3 Prices does not include transaction costs that may have been capitalized as part of the security’s cost basis. Assumptions used by the Fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the Fund’s results of operations.
Fair value pricing could result in a difference between the prices used to calculate the Fund’s net asset value and the prices used by the Fund’s underlying index, which in turn could result in a difference between the Fund’s performance and the performance of the Fund’s underlying index.
The following table summarizes the value of each of the Fund’s investments according to the fair value hierarchy as of August 31, 2011. The breakdown of the Fund’s investments into major categories is disclosed in its Consolidated Schedule of Investments.
| Investments in Securities | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Common Stocks |
$ | 30,865,102,860 | $ | – | $ | – | $ | 30,865,102,860 | ||||||||
| Exchange-Traded Funds |
4,975,109 | – | – | 4,975,109 | ||||||||||||
| Preferred Stocks |
2,495,646,867 | – | 800,103 | 2,496,446,970 | ||||||||||||
| Short-Term Investments |
1,433,441,383 | – | – | 1,433,441,383 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 34,799,166,219 | $ | – | $ | 800,103 | $ | 34,799,966,322 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for on trade date. Dividend income is recognized on the ex-dividend date, net of any foreign taxes withheld at source. Any taxes withheld that are reclaimable from foreign tax authorities as of August 31, 2011 are reflected in dividends receivable. Non-cash dividends received in the form of stock in an elective dividend, if any, are recorded as dividend income at fair value. Distributions received by the Fund may include a return of capital that is estimated by management. Such amounts are recorded as a reduction of the cost of investments or reclassified to capital gains. Interest income is accrued daily. Realized gains and losses on investment transactions are determined using the specific identification method.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. Foreign currencies, as well as investment securities and other assets and liabilities denominated in foreign currencies, are translated into U.S. dollars using exchange rates deemed appropriate by the investment adviser. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars on the respective dates of such transactions.
The Fund does not isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of securities. Such fluctuations are reflected by the Fund as a component of realized and unrealized gains and losses from investments for financial reporting purposes.
| 30 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
FOREIGN TAXES
The Fund may be subject to foreign taxes (a portion of which may be reclaimable) on income, capital gains on investments, certain foreign currency transactions or other corporate events. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in the foreign jurisdictions in which the Fund invest. These foreign taxes, if any, are paid by the Fund and are reflected in its Consolidated Statement of Operations as follows: foreign taxes withheld at source are presented as a reduction of income, foreign taxes on capital gains from sales of investments and foreign currency transactions are included in their respective net realized gain (loss) categories, and foreign taxes on other corporate events are reflected in “Other foreign taxes.” Foreign taxes payable as of August 31, 2011, if any, are disclosed in the Fund’s Consolidated Statement of Assets and Liabilities.
The Subsidiary is subject to tax in Mauritius on its net income. See the “Income Taxes” section for further information.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. Distributions are determined on a tax basis and may differ from net investment income and net realized capital gains for financial reporting purposes. Dividends and distributions are paid in U.S. dollars and cannot be automatically reinvested in additional shares of the Fund.
As of August 31, 2011, the tax year-end of the Fund, the components of accumulated net earnings (losses) on a tax basis consisted of undistributed ordinary income of $101,317,425, unrealized depreciation of $380,545,201, and capital and other losses of $3,000,045,794 for accumulated net losses of $3,279,273,570. The difference between book-basis and tax-basis unrealized gains (losses) is attributable primarily to the tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains on investments in passive foreign investment companies.
The tax character of distributions paid during the years ended August 31, 2011 and August 31, 2010 were as follows:
| 2011 | 2010 | |||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 763,134,134 | $ | 551,986,882 | ||||
|
|
|
|
|
|||||
| Total Distributions |
$ | 763,134,134 | $ | 551,986,882 | ||||
|
|
|
|
|
|||||
INCOME TAXES
The Fund is treated as an entity separate from the Company’s other funds for federal income tax purposes. It is the policy of the Fund to qualify as a regulated investment company by complying with the provisions applicable to regulated investment companies, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, and to annually distribute substantially all of its ordinary income and any net capital gains (taking into account any capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income and excise taxes. Accordingly, no provision for federal income taxes is required.
As permitted by tax regulations, the Fund has elected to defer net realized capital losses incurred from November 1, 2010 to August 31, 2011 of $621,120,314 and treat them as arising in the year ending August 31, 2012.
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 31 |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
The Fund had tax basis net capital loss carryforwards as of August 31, 2011, the tax year-end of the Fund, as follows:
| Expiring 2012 |
Expiring 2013 |
Expiring 2014 |
Expiring 2015 |
Expiring 2016 |
Expiring 2017 |
Expiring 2018 |
Expiring 2019 |
Total | ||||||||||||||||||||||||||
| $ 840,778 | $ | 20,296,564 | $ | 11,239,258 | $ | 29,973,301 | $ | 13,844,901 | $ | 228,196,854 | $ | 1,201,366,175 | $ | 873,167,649 | $ | 2,378,925,480 | ||||||||||||||||||
Net capital loss carryforwards may be applied against any net realized taxable gains in each succeeding year or until their respective expiration dates, whichever occurs first.
Under the recently enacted Regulated Investment Company Modernization Act of 2010, capital losses incurred by funds for taxable years beginning after December 22, 2010 will not be subject to expiration. In addition, such losses must be utilized prior to the losses incurred in the tax years preceding enactment.
The Fund may own shares in certain foreign investment entities, referred to, under U.S. tax law, as “passive foreign investment companies.” The Fund may elect to mark-to-market annually the shares of each passive foreign investment company and would be required to distribute to shareholders any such marked-to-market gains.
As of August 31, 2011, the cost of investments for federal income tax purposes was $35,180,378,603. Net unrealized depreciation was $380,412,281, of which $4,416,038,496 represented gross unrealized appreciation on securities and $4,796,450,777 represented gross unrealized depreciation on securities.
Management has reviewed the tax positions as of August 31, 2011, inclusive of the open tax return years, and has determined that no provision for income tax is required in the Fund’s consolidated financial statements.
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These differences are reclassified by the Fund at the end of its tax year and are primarily attributable to passive foreign investment companies and realized gains (losses) from foreign currency transactions and in-kind redemptions. As of August 31, 2011, the Fund made the following reclassifications, which have no effect on net assets or net asset values per share:
|
Paid-in Capital |
Undistributed Net Investment Income/Distributions in Excess of Net Investment Income |
Undistributed Net Realized Gain/ Accumulated Net |
||||||||
| $ 3,568,523,487 | $ | (11,149,171 | ) | $ | (3,557,374,316 | ) | ||||
The Fund conducts its investment activities in India through the Subsidiary and expects to obtain benefits under the Double Tax Avoidance Agreement (“DTAA”). In order to be eligible to claim benefits under the DTAA, the Subsidiary must satisfy certain conditions, including the establishment and maintenance of valid tax residence in Mauritius. The Subsidiary is subject to tax in Mauritius on its net income at the rate of 15%. However, a system of foreign tax credits effectively reduces the Mauritius income tax rate to a maximum of 3%. These income taxes, if any, are paid by the Fund and are disclosed in the Consolidated Statement of Operations. Further, the Subsidiary is not subject to capital gains tax in Mauritius nor is it subject to tax in Mauritius on any gains from the sale of securities. Any dividends paid by the Subsidiary to the Fund will also be exempt from tax in Mauritius. The foregoing is based upon current interpretation and practice and is subject to future changes in the tax laws of India or Mauritius and in the DTAA.
| 32 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
RECENT ACCOUNTING STANDARD
In May 2011, the Financial Accounting Standards Board issued amended guidance to improve disclosure about fair value measurements which will require the following disclosures for fair value measurements categorized as Level 3: quantitative information about the unobservable inputs and assumptions used in the fair value measurement, a description of the valuation policies and procedures and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, the amounts and reasons for all transfers in and out of Level 1 and Level 2 will be required to be disclosed. The amended guidance is effective for financial statements for fiscal years beginning after December 15, 2011, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Fund’s consolidated financial statements and disclosures.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Investment Advisory Agreement with the Company, BlackRock Fund Advisors (“BFA”) manages the investment of the Fund’s assets. BFA is a California corporation indirectly owned by BlackRock, Inc. (“BlackRock”). Under the Investment Advisory Agreement, BFA is responsible for substantially all expenses of the Fund, except interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution fees, litigation expenses and any extraordinary expenses.
The Subsidiary has entered into a separate contract with BFA under which BFA provides investment advisory services to the Subsidiary but does not receive separate compensation from the Subsidiary for providing it with such services. The Subsidiary has also entered into separate arrangements that provide for the provision of other services to the Subsidiary (including administrative, custody, transfer agency and other services), and BFA pays the costs and expenses related to the provision of those services.
For its investment advisory services to the Fund, BFA is entitled to an annual investment advisory fee based on the Fund’s allocable portion of the aggregate of the average daily net assets of the Fund and certain other iShares funds, as follows:
| Investment Advisory Fee | Aggregate Average Daily Net Assets | |
| 0.75% | First $14 billion | |
| 0.68 | Over $14 billion, up to and including $28 billion | |
| 0.61 | Over $28 billion, up to and including $42 billiona | |
| 0.56 | Over $42 billion, up to and including $56 billiona | |
| 0.50 | Over $56 billion, up to and including $70 billiona | |
| 0.45 | Over $70 billion, up to and including $84 billiona | |
| 0.40 | Over $84 billiona |
| a | Breakpoint level was modified or added, effective January 1, 2011. |
BFA has voluntarily waived a portion of its investment advisory fees for the Fund in the amount of $1,753,488.
BFA has contractually agreed to waive a portion of its investment advisory fees for the Fund through June 30, 2013 in an amount equal to the investment advisory fees payable on the amount of the Fund’s investment in other iShares funds. In association with this agreement, for the year ended August 31, 2011, BFA waived its investment advisory fees for the Fund in the amount of $496,608.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BlackRock Institutional Trust Company, N.A. (“BTC”) to serve as securities lending agent for the Fund, subject to applicable conditions. BTC is an affiliate of BFA, the Fund’s investment adviser. As securities lending agent, BTC receives, as fees, a share of the income earned on investment of the cash collateral received for the
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 33 |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
loan of securities and any fees paid by borrowers. For the year ended August 31, 2011, BTC earned securities lending agent fees from the Fund of $9,953,736.
The Fund may invest its positive cash balances in certain money market funds managed by BFA or an affiliate. The income earned on these temporary cash investments is included in “Interest – affiliated” in the Consolidated Statement of Operations.
The PNC Financial Services Group, Inc. (“PNC”) and Barclays PLC (“Barclays”) are the largest stockholders of BlackRock. Due to the ownership structure, PNC is an affiliate of the Fund for 1940 Act purposes, but Barclays is not.
The Fund, in order to improve its portfolio liquidity and its ability to track its underlying index, may invest in shares of other iShares funds that invest in securities in the Fund’s underlying index.
Investments in issuers considered to be affiliates of the Fund (excluding short-term investments) during the year ended August 31, 2011, for purposes of Section 2(a)(3) of the 1940 Act, were as follows:
| Name of Affiliated Issuer | Number of Shares Held Beginning of Year |
Gross Additions |
Gross Reductions |
Number of Shares Held End of Year |
Value at End of Year |
Dividend Income |
Net Realized Gain |
|||||||||||||||||||||
| iShares MSCI Malaysia |
1,314,976 | 363,085 | (1,328,194 | ) | 349,867 | $ | 4,975,109 | $ | 430,882 | $ | 6,706,008 | |||||||||||||||||
| iShares MSCI South Korea |
1,623,064 | 48,236 | (1,671,300 | ) | – | – | 269,616 | 18,147,665 | ||||||||||||||||||||
| iShares MSCI Taiwan |
6,577,720 | – | (6,577,720 | ) | – | – | 1,547,628 | 17,759,179 | ||||||||||||||||||||
| Jollibee Foods Corp.a |
61,761,000 | 2,150,140 | (49,468,631 | ) | 14,442,509 | 29,713,232 | 1,030,409 | b | 36,376,579 | |||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||
| $ | 34,688,341 | $ | 3,278,535 | $ | 78,989,431 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||
| a | Not an affiliate at the end of the year. |
| b | Net of foreign withholding tax of $441,604. |
Certain directors and officers of the Company are also officers of BTC and/or BFA.
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments (excluding in-kind transactions and short-term investments) for the year ended August 31, 2011, aggregated $7,871,736,616 and $7,155,563,530, respectively.
In-kind purchases and sales (see Note 4) for the year ended August 31, 2011, aggregated $2,391,409,329 and $12,379,145,499, respectively.
4. CAPITAL SHARE TRANSACTIONS
Capital shares are issued and redeemed by the Fund only in aggregations of a specified number of shares or multiples thereof (“Creation Units”) at net asset value. Except when aggregated in Creation Units, shares of the Fund are not redeemable. Transactions in capital shares for the Fund are disclosed in detail in the Consolidated Statements of Changes in Net Assets.
The consideration for the purchase of Creation Units of a fund in the Company generally consists of the in-kind deposit of a designated portfolio of securities, which constitutes an optimized representation of the securities of that fund’s underlying index, and an amount of cash. Certain funds in the Company may be offered in Creation Units solely or partially for cash in U.S. dollars. Investors purchasing and redeeming Creation
| 34 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
Units may pay a purchase transaction fee and a redemption transaction fee directly to State Street Bank and Trust Company, the Company’s administrator, to offset transfer and other transaction costs associated with the issuance and redemption of Creation Units, including Creation Units for cash. Investors transacting in Creation Units for cash pay an additional variable charge to compensate the relevant fund for certain transaction costs (i.e., stamp taxes, taxes on currency or other financial transactions, and brokerage costs) and market impact expenses relating to investing in portfolio securities.
From time to time, settlement of securities related to in-kind contributions or in-kind redemptions may be delayed. In such cases, securities related to in-kind contributions are reflected as “Due from custodian” and securities related to in-kind redemptions are reflected as “Securities related to in-kind transactions” in the Consolidated Statement of Assets and Liabilities.
5. LOANS OF PORTFOLIO SECURITIES
The Fund may lend its investment securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current value of the securities on loan. The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. Any securities lending cash collateral may be reinvested in certain short-term instruments either directly on behalf of a fund or through one or more joint accounts or money market funds, including those managed by BFA or its affiliates; such reinvestments are subject to investment risk.
As of August 31, 2011, any securities on loan were collateralized by cash. The cash collateral received was invested in money market funds managed by BFA. The value of the securities on loan as of August 31, 2011 and the value of the related collateral are disclosed in the Consolidated Statement of Assets and Liabilities. Securities lending income, as disclosed in the Consolidated Statement of Operations, represents the income earned from the investment of the cash collateral, plus any fees paid by borrowers and less the fees paid to BTC as securities lending agent which are subject to adjustments pursuant to the securities lending agreement.
6. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were available to be issued and has determined that there were no subsequent events requiring adjustment or disclosure in the consolidated financial statements.
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 35 |
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
iShares, Inc.:
In our opinion, the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, and the related consolidated statement of operations and statements of changes in net assets and the financial highlights present fairly, in all material respects, the consolidated financial position of the iShares MSCI Emerging Markets Index Fund and its subsidiary, (collectively the “Fund”), at August 31, 2011, the results of its operations, the changes in its net assets and its financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These consolidated financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2011 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 21, 2011
| 36 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI EMERGING MARKETS INDEX FUND
For the fiscal year ended August 31, 2011, the Fund earned foreign source income of $1,104,317,544 and paid foreign taxes of $115,324,311 which it intends to pass through to its shareholders pursuant to Section 853 of the Internal Revenue Code (the “Code”).
Under Section 854(b)(2) of the Code, the Fund hereby designates the maximum amount of $701,228,285 as qualified dividend income for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended August 31, 2011.
In February 2012, shareholders will receive Form 1099-DIV which will include their share of qualified dividend income distributed during the calendar year 2011. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their income tax returns.
| TAX INFORMATION | 37 |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
Under Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), the Company’s Board of Directors (the “Board”), including a majority of Directors who are not “interested persons” of the Company (as that term is defined in the 1940 Act) (the “Independent Directors”), is required annually to consider the Investment Advisory Contract between the Company and BFA (the “Advisory Contract”) on behalf of the Fund. As required by Section 15(c), the Board requested and BFA provided such information as the Board, with advice from independent counsel, deemed reasonably necessary to evaluate the Advisory Contract. An ad-hoc sub-committee of the Independent Directors (the “Ad-Hoc Sub-Committee”), with independent counsel, met with management on April 19, 2011, and April 26, 2011, to discuss the types of information the Board required and the manner in which management would organize and present such information. At a meeting held on May 16, 2011, management presented information to the Board relating to the continuance of the Advisory Contract and the Board reviewed and discussed such information at length. The Board also requested from management certain additional information. At a meeting held on June 22-23, 2011, the Board reviewed additional information provided by management in response to the Board’s requests. The Board approved the selection of BFA and the continuance of the Advisory Contract for the Fund, based on its review of qualitative and quantitative information provided by BFA, including its review of supplemental information management provided at the request of the Board. The Board noted its satisfaction with the extent and quality of information, and detailed responses, provided by BFA. The Independent Directors were advised by their independent counsel throughout the process. In selecting BFA and approving the Advisory Contract for the Fund, the Board, including the Independent Directors, considered the following factors, no one of which was controlling, and made the following conclusions:
Nature, Extent and Quality of Services Provided by BFA – Based on management’s representations, the Board expected that there would be no diminution in the scope of services required of or provided by BFA under the Advisory Contract for the coming year as compared to the scope of services provided by BFA over prior years. In reviewing the scope of these services, the Board considered BFA’s investment philosophy and experience, noting that BFA and its affiliates have committed significant resources over time, including during the past year, supporting the Fund and its shareholders. The Board acknowledged that additional resources to support the Fund and its shareholders were added in 2010, for example, in such areas as investor education, product management, and capital markets support. The Board also considered BFA’s compliance program and its compliance record with respect to the Fund. In that regard, the Board noted that BFA reports to the Board about portfolio management and compliance matters on a periodic basis in connection with regularly scheduled meetings of the Board, and on other occasions as necessary and appropriate, and has provided information and made appropriate officers available as needed to provide further assistance with these matters. The Board also reviewed the background and experience of the persons responsible for the day-to-day management of the Fund. In addition to the above considerations, the Board reviewed and considered BFA’s investment processes and strategies, and matters related to BFA’s portfolio compliance policies and procedures. The Board noted that the Fund had met its investment objective consistently since its respective inception date. Based on review of this information, the Board concluded that the nature, extent and quality of services to be provided by BFA to the Fund under the Advisory Contract supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Expenses and Performance of the Fund – The Board reviewed statistical information prepared by Lipper Inc. (“Lipper”), an independent provider of investment company data, regarding the expense ratio components, including actual advisory fees, waivers/reimbursements, and gross and net total expenses of the Fund in comparison with the same information for other registered investment companies objectively selected by Lipper as comprising the Fund’s applicable peer group pursuant to Lipper’s proprietary methodology and any registered funds that would otherwise have been excluded from Lipper’s comparison group because of their size or other differentiating factors, but were nonetheless included at the request of BFA (the “Lipper Group”). Because there are few, if any, exchange traded funds or index funds that track an index similar to that tracked by the Fund, the Lipper Group included in part mutual funds, closed-end funds, exchange traded funds, or funds with differing investment objective classifications, investment focuses and other characteristics (e.g., actively managed funds and funds sponsored by “at cost” service providers), as applicable. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the applicable Lipper Groups and to prepare this information. The Board further noted that due to the limitations in providing comparable funds in the various Lipper Groups, the statistical information may or may not provide meaningful direct comparisons to the Fund.
| 38 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
The Board also noted that the investment advisory fee and overall expenses for the Fund compared favorably to the investment advisory fee rates and overall expenses of the funds in their respective Lipper Group.
In addition, the Board reviewed statistical information prepared by Lipper regarding the performance of the Fund for the one-, three-, five-, ten-year, and since inception periods, as applicable, and the “last quarter” period ended December 31, 2010, and a comparison of the Fund’s performance to its performance benchmark index for the same periods. To the extent that any of the comparison funds included in the Lipper Group track the same index as the Fund, Lipper also provided, and the Board reviewed, a comparison of the Fund’s performance to that of such relevant comparison funds for the same periods. The Board noted that the Fund generally performed in line with its performance benchmark index over the relevant periods. In considering this information, the Board noted that the Lipper Group includes funds that may have different investment objectives and/or benchmarks from the Fund. In addition, the Board noted that the Fund seeks to track its benchmark index and that, during the prior year, the Board received periodic reports on the Fund’s performance in comparison with its relevant benchmark index. Such comparative performance information was also considered by the Board.
Based on this review, the Board concluded that the investment advisory fee and expense level and the historical performance of the Fund, as compared to the investment advisory fees and expense levels and performance of the funds in the relevant Lipper Group, supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Costs of Services Provided to Fund and Profits Realized by BFA and Affiliates – The Board reviewed information about the profitability to BFA of the Fund based on the fees payable to BFA and its affiliates (including fees under the Advisory Contract), and all other sources of revenue and expense to BFA and its affiliates from the Fund’s operations for the last calendar year. The Board reviewed BlackRock’s profitability methodology for the iShares Funds and how such profitability methodology differed from the methodology used to calculate profitability prior to the acquisition of BFA by BlackRock, noting that such matters were focused on by the Ad-Hoc Sub-Committee during its meetings and addressed by management. The Board discussed the sources of direct and ancillary revenue with management, including the revenues to BTC from securities lending by the Fund. The Board also discussed BFA’s profit margin as reflected in the Fund’s profitability analysis and reviewed information regarding economies of scale (as discussed below). Based on this review, the Board concluded that the profits realized by BFA and its affiliates under the Advisory Contract and from other relationships between the Fund and BFA and/or its affiliates, if any, supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Economies of Scale – In connection with its review of the Fund’s profitability analysis, the Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Fund’s assets. The Board noted that the Advisory Contract for the Fund already provided for breakpoints in the Fund’s investment advisory fee rate as the assets of the Fund, on an aggregated basis with the assets of certain other iShares funds, increase, and that the Board had approved additional breakpoints in a previous year. The Board also reviewed BFA’s historic profitability as investment adviser to the iShares fund complex and noted that BFA and BlackRock had continued to make significant investments in the iShares fund complex and the infrastructure supporting the iShares funds. Based on this review, as well as the discussions described above in connection with the Lipper Group and performance benchmark comparisons, the Board, recognizing its responsibility to consider this issue at least annually, concluded that the structure of the investment advisory fees reflects appropriate sharing of potential economies of scale with the Fund’s shareholders and supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by BFA and its Affiliates – The Board received and considered information regarding the investment advisory/management fee rates for other funds/accounts in the U.S. for which BFA (or its affiliates) provides investment advisory/management services, including open-end and closed-end funds registered under the 1940 Act (including sub-advised funds), collective trust funds and institutional separate accounts (together, the “Other Accounts”). The Board noted that BFA and its affiliates do manage Other Accounts with a substantially similar investment objective and strategy as the Fund. The Board further
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT | 39 |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
noted that BFA provided the Board with detailed information regarding how the Other Accounts (particularly institutional clients) generally differ from the Fund, including in terms of the different services provided as well as other significant differences in the approach of BFA and its affiliates to the Fund, on one hand, and Other Accounts, on the other. In that regard, the Board considered that the pricing of services to institutional clients is typically based on a number of factors beyond the nature and extent of the specific services to be provided and often depends on the overall relationship between the client and its affiliates and the adviser and its affiliates. In addition, the Board considered the relative complexity and inherent risks of managing and providing other services to the Fund, as a publicly traded exchanged traded fund, as compared to the Other Accounts that are institutional clients in light of differing regulatory requirements and client-imposed mandates. The Board noted that the investment advisory fee rates under the Advisory Contract for the Fund were generally higher than the investment advisory/management fee rates for the Other Accounts that are institutional clients of BFA (or its affiliates) and concluded that the differences appeared to be consistent with the factors discussed.
Other Benefits to BFA and/or its Affiliates – The Board reviewed any ancillary revenue received by BFA and/or its affiliates in connection with the services provided to the Fund by BFA, such as any payment of revenue to BTC, the Fund’s securities lending agent, for loaning any portfolio securities, and payment of advisory fees and/or administration fees to BFA and BTC (or their affiliates) in connection with any investments by the Fund in other funds for which BFA (or its affiliates) provides investment advisory services and/or administration services. The Board noted that BFA does not use soft dollars or consider the value of research or other services that may be provided to BFA (including its affiliates) in selecting brokers for portfolio transactions for the Fund. The Board further noted that any portfolio transactions on behalf of the Fund placed through a BFA affiliate or purchased from an underwriting syndicate in which a BFA affiliate participates, are reported to the Board pursuant to Rule 17e-1 or Rule 10f-3, as applicable, under the 1940 Act. The Board concluded that any such ancillary benefits would not be disadvantageous to the Fund’s shareholders.
Based on the considerations described above, the Board determined that the investment advisory fee rates under the Advisory Contract do not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bargaining and concluded that it is in the best interest of the Fund and its shareholders to approve the continuance of the Advisory Contract for the coming year.
| 40 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
Premium/Discount Information
The table that follows presents information about the differences between the daily market price on secondary markets for shares of the Fund and the Fund’s net asset value. Net asset value, or “NAV,” is the price per share at which the Fund issues and redeems shares. It is calculated in accordance with the standard formula for valuing mutual fund shares. The “Market Price” of the Fund generally is determined using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the Fund are listed for trading, as of the time the Fund’s NAV is calculated. The Fund’s Market Price may be at, above or below its NAV. The NAV of the Fund will fluctuate with changes in the fair value of its portfolio holdings. The Market Price of the Fund will fluctuate in accordance with changes in its NAV, as well as market supply and demand.
Premiums or discounts are the differences (expressed as a percentage) between the NAV and Market Price of the Fund on a given day, generally at the time NAV is calculated. A premium is the amount that the Fund is trading above the reported NAV, expressed as a percentage of the NAV. A discount is the amount that the Fund is trading below the reported NAV, expressed as a percentage of the NAV.
The following information shows the frequency distributions of premiums and discounts for the Fund included in this report. The information shown for the Fund is for five calendar years through the date of the most recent calendar quarter-end.
Each line in the table shows the number of trading days in which the Fund traded within the premium/discount range indicated. The number of trading days in each premium/discount range is also shown as a percentage of the total number of trading days in the period covered by the table. All data presented here represents past performance, which cannot be used to predict future results.
Period Covered: January 1, 2006 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 4.0% |
4 | 0.29 | % | |||||
| Greater than 3.5% and Less than 4.0% |
3 | 0.22 | ||||||
| Greater than 3.0% and Less than 3.5% |
1 | 0.07 | ||||||
| Greater than 2.5% and Less than 3.0% |
8 | 0.58 | ||||||
| Greater than 2.0% and Less than 2.5% |
10 | 0.72 | ||||||
| Greater than 1.5% and Less than 2.0% |
27 | 1.95 | ||||||
| Greater than 1.0% and Less than 1.5% |
58 | 4.19 | ||||||
| Greater than 0.5% and Less than 1.0% |
236 | 17.06 | ||||||
| Between 0.5% and -0.5% |
727 | 52.57 | ||||||
| Less than -0.5% and Greater than -1.0% |
169 | 12.22 | ||||||
| Less than -1.0% and Greater than -1.5% |
82 | 5.93 | ||||||
| Less than -1.5% and Greater than -2.0% |
31 | 2.24 | ||||||
| Less than -2.0% and Greater than -2.5% |
12 | 0.87 | ||||||
| Less than -2.5% and Greater than -3.0% |
3 | 0.22 | ||||||
| Less than -3.0% and Greater than -3.5% |
4 | 0.29 | ||||||
| Less than -3.5% and Greater than -4.0% |
1 | 0.07 | ||||||
| Less than -4.0% and Greater than -4.5% |
4 | 0.29 | ||||||
| Less than -4.5% |
3 | 0.22 | ||||||
|
|
|
|
|
|||||
| 1,383 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION | 41 |
Table of Contents
Director and Officer Information (Unaudited)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
The Board of Directors has responsibility for the overall management and operations of the Company, including general supervision of the duties performed by BFA and other service providers. Each Officer serves until he or she resigns, is removed, dies, retires or becomes incapacitated. The President, Treasurer and Secretary shall each hold office until their successors are chosen and qualified and all other officers shall hold office until he or she resigns or is removed. Directors who are not interested persons (as defined in the 1940 Act) are referred to as Independent Directors.
The registered investment companies advised by BFA or its affiliates are organized into one complex of closed-end funds, two complexes of open-end funds and one complex of exchange-traded funds (“Exchange-Traded Fund Complex”) (each, a “BlackRock Fund Complex”). Each Fund is included in the BlackRock Fund Complex referred to as the Exchange-Traded Fund Complex. Each Director of iShares, Inc. also serves as a Trustee of iShares Trust and a Director of iShares MSCI Russia Capped Index Fund, Inc. and, as a result, oversees a total of 224 funds within the Exchange-Traded Fund Complex. With the exception of Robert S. Kapito, the address of each Director and Officer is c/o BlackRock, Inc., 400 Howard Street, San Francisco, CA 94105. The address of Mr. Kapito is c/o BlackRock, Inc., Park Avenue Plaza, 55 East 52nd Street, New York, NY 10055. The Board has designated George G.C. Parker as its Independent Chairman. Additional information about the Funds’ Directors and Officers may be found in the Funds’ combined Statement of Additional Information, which is available without charge, upon request, by calling toll-free 1-800-474-2737.
Interested Directors and Officers
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| Robert S. Kapitoa (54) |
Director (since 2009). |
President and Director, BlackRock, Inc. (since 2006 and 2007, respectively); Vice Chairman of BlackRock, Inc. and Head of BlackRock’s Portfolio Management Group (since its formation in 1998) and BlackRock’s predecessor entities (since 1988); Trustee, University of Pennsylvania (since 2009); President of Board of Directors, Hope & Heroes Children’s Cancer Fund (since 2002); President of the Board of Directors, Periwinkle Theatre for Youth (since 1983). | Trustee of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of BlackRock, Inc. (since 2007). | |||
| Michael Lathamb (46) |
Director (since 2010); President (since 2007). |
Chairman of iShares, BTC (since 2011); Global Chief Executive Officer of iShares, BTC (2010-2011); Managing Director, BTC (since 2009); Head of Americas iShares, Barclays Global Investors (“BGI”) (2007- 2009); Director and Chief Financial Officer of Barclays Global Investors International, Inc. (2005-2009); Chief Operating Officer of the Intermediary Investor and Exchange Traded Products Business of BGI (2003-2007). | Trustee of iShares Trust (since 2010); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| a | Robert S. Kapito is deemed to be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. |
| b | Michael Latham is deemed to be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. and its affiliates. |
| 42 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
Independent Directors
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| George G.C. Parker (72) |
Director (since 2000); Independent Chairman (since 2010). |
Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University: Graduate School of Business (since 1994). | Trustee of iShares Trust (since 2002); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Independent Chairman of iShares Trust (since 2010); Independent Chairman of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of Tejon Ranch Company (since 1999); Director of Threshold Pharmaceuticals (since 2004); Director of Colony Financial, Inc. (since 2009); Director of First Republic Bank (since 2010). | |||
| Cecilia H. Herbert (62) |
Director (since 2005). |
Director (since 1998) and President (2007-2010) of the Board of Directors, Catholic Charities CYO; Trustee of Pacific Select Funds (2004-2005); Trustee (since 2002) and Chair of the Finance Committee (2006-2009) and Investment Committee (since 2006) of the Thacher School; Member (since 1994) and Chair (1994- 2005) of Investment Committee, Archdiocese of San Francisco. | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director, Forward Funds (35 portfolios) (since 2009). | |||
| Charles A. Hurty (68) |
Director (since 2005). |
Retired; Partner, KPMG LLP (1968-2001). | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002); Director of Skybridge Multi-Adviser Hedge Fund Portfolios LLC (1 portfolio) (since 2002). | |||
| John E. Kerrigan (56) |
Director (since 2005). |
Chief Investment Officer, Santa Clara University (since 2002). | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| John E. Martinez (50) |
Director (since 2003). |
Director of EquityRock, Inc. (since 2005). | Trustee of iShares Trust (since 2003); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| DIRECTOR AND OFFICER INFORMATION | 43 |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
Independent Directors (Continued)
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| Madhav V. Rajan (47) |
Director (since 2011). |
Gregor G. Peterson Professor of Accounting and Senior Associate Dean for Academic Affairs, Stanford University: Graduate School of Business (since 2001); Professor of Law (by courtesy), Stanford Law School (since 2005); Visiting Professor, University of Chicago (Winter 2007-2008). | Trustee of iShares Trust (since 2011); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2011). | |||
| Robert H. Silver (56) |
Director (since 2007). |
President and Co-Founder of The Bravitas Group, Inc. (since 2006); Member, Non-Investor Advisory Board of Russia Partners II, LP (since 2006); Director and Vice Chairman of the YMCA of Greater NYC (since 2001); Broadway Producer (since 2006); Co-Founder and Vice President of Parentgiving Inc. (since 2008); Director and Member of the Audit and Compensation Committee of EPAM Systems, Inc. (2006-2009). | Trustee of iShares Trust (since 2007); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| 44 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
Officers
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years | ||
| Geoffrey D. Flynn (54) |
Executive Vice President and Chief Operating Officer (since 2008). | Managing Director, BTC (since 2009); Chief Operating Officer, U.S. iShares, BGI (2007- 2009); President, Van Kampen Investors Services (2003-2007); Managing Director, Morgan Stanley (2002-2007); President, Morgan Stanley Trust, FSB (2002-2007). | ||
| Eilleen M. Clavere (59) |
Secretary (since 2007). | Director, BTC (since 2009); Director of Legal Administration of Intermediary Investor Business of BGI (2006-2009); Legal Counsel and Vice President of Atlas Funds, Atlas Advisers, Inc. and Atlas Securities, Inc. (2005-2006). | ||
| Jack Gee (52) |
Treasurer and Chief Financial Officer (since 2008). | Managing Director, BTC (since 2009); Senior Director of Fund Administration of Intermediary Investor Business of BGI (2009); Director of Fund Administration of Intermediary Investor Business of BGI (2004-2009). | ||
| Amy Schioldager (49) |
Executive Vice President (since 2007). | Managing Director, BTC (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008); Head of Domestic Equity Portfolio Management, BGI (2001-2006). | ||
| Ira P. Shapiro (48) |
Vice President and Chief Legal Officer (since 2007). | Managing Director, BTC (since 2009); Associate General Counsel, BGI (2004-2009). | ||
| Matt Tucker (39) |
Vice President (since 2007). | Managing Director, BTC (since 2009); Director of Fixed Income Investment Strategy, BGI (2009); Head of U.S. Fixed Income Investment Solutions, BGI (2005-2008). | ||
| DIRECTOR AND OFFICER INFORMATION | 45 |
Table of Contents
Notes:
| 46 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
For more information visit www.iShares.com
or call 1-800-474-2737
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iS-AR-85-0811
Table of Contents
|
August 31, 2011 | |
2011 Annual Report
iShares, Inc.
iShares MSCI BRIC Index Fund | BKF | NYSE Arca
Table of Contents
| 5 | ||||
| 8 | ||||
| 9 | ||||
| 14 | ||||
| 17 | ||||
| 18 | ||||
| 26 | ||||
| 27 | ||||
| Board Review and Approval of Investment Advisory Contract (Unaudited) |
28 | |||
| 31 | ||||
| 32 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI BRIC INDEX FUND
Performance as of August 31, 2011
| Average Annual Total Returns | Cumulative Total Returns | |||||||||||||||
| Year Ended 8/31/11 | Inception to 8/31/11 | Inception to 8/31/11 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 0.49% | (0.55)% | 1.43% | (5.89)% | (6.04)% | (5.84)% | (20.64)% | (21.12)% | (20.43)% | ||||||||
Total returns for the period since inception are calculated from the inception date of the Fund (11/12/07). “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (11/16/07), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
| MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE | 5 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI BRIC INDEX FUND
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI BRIC Index Fund (the “Fund”) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI BRIC IndexSM (the “Index”). The Index is a free-float-adjusted market capitalization index that is designed to measure the combined equity market performance in Brazil, Russia, India and China (“BRIC”). The Index consists of stocks traded primarily on the BM&FBOVESPA (the Brazilian exchange), Russian Trading System Stock Exchange, Moscow Interbank Currency Exchange, National Stock Exchange of India, Shangai Stock Exchange, Shenzen Stock Exchange and the Stock Exchange of Hong Kong. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended August 31, 2011 (“the reporting period”), the total return for the Fund was 0.49%, net of fees, while the total return for the Index was 1.43%.
As represented by the Index, the stock markets in the BRIC countries posted a modestly positive return as a group for the reporting period. The period began on a positive note, with equity markets worldwide rallying sharply as steadily improving economic data boosted investor confidence in a global economic recovery. However, the Index declined in late 2010 and early 2011 as central banks in China, India, and Brazil raised interest rates to keep rapidly rising inflation in check. While economic growth picked up in many regions of the world, the higher borrowing costs in these three countries put downward pressure on their respective economies and stock markets. Equity markets around the world were also buffeted by a series of global events in early 2011, including heightened political turmoil in the Middle East and North Africa, and an earthquake and tsunami in Japan.
The Index rebounded briefly in the spring of 2011, but then fell back for the remainder of the reporting period as a worsening sovereign debt crisis in Europe and fiscal deficit issues in the U.S. cast doubts on the sustainability of the global recovery, which would negatively impact exports in BRIC countries. The Index’s decline was especially severe in August 2011 as increasingly risk-averse investors shifted away from many emerging markets, causing the Index to fall by more than 9% for the month.
The Index benefited from a decline in the U.S. dollar, which boosted international equity returns for U.S. investors. The dollar depreciated by 9% against the Brazilian real, 6% versus the Russian ruble, 2% against the Indian rupee, and 6% versus the Chinese yuan for the reporting period. The U.S. dollar’s decline resulted mainly from historically low U.S. interest rates and intensifying fiscal deficit concerns.
| 6 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI BRIC INDEX FUND
Russia, the smallest country weighting in the Index, generated the best returns, advancing by nearly 20% for the reporting period. Russia’s economy benefited from a broad rise in commodity prices; in particular, Russia is a major energy exporter, and the price of oil increased by nearly 25% for the reporting period. Brazil’s stock market eked out a fractionally positive return as its economy grew by 3.1% for the 12 months ended June 30, 2011 (down from an 8.8% growth rate for the prior 12 months), while its inflation rate surged above 7%. To counter rising inflation, Brazil’s central bank raised interest rates five times during the reporting period.
China, the Index’s largest country weighting during the reporting period, saw its equity market decline slightly. Although the country’s economy expanded by 9.5%, this represented a decline from the previous year, and its inflation rate rose to its highest level in more than three years, prompting China’s central bank to raise interest rates three times in the first half of 2011. India was the weakest performer in the Index, declining by about 7% for the reporting period. India’s economic growth rate of 7.7% was its lowest in more than two years.
From a sector perspective, consumer staples stocks were by far the best performers in the Index, followed by information technology and energy. On the downside, the industrials sector posted the largest decline.
| MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE | 7 |
Table of Contents
Shareholder Expenses (Unaudited)
iSHARES® MSCI BRIC INDEX FUND
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares and (2) ongoing costs, including management fees and other Fund expenses. The following Example is intended to help you understand your ongoing costs (in dollars and cents) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from March 1, 2011 to August 31, 2011.
ACTUAL EXPENSES
The first line in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value (3/1/11) |
Ending Account Value (8/31/11) |
Annualized Expense Ratio |
Expenses Paid During Perioda (3/1/11 to 8/31/11) |
|||||||||||||
| Actual |
$1,000.00 | $ 895.70 | 0.68 | % | $3.25 | |||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,021.80 | 0.68 | 3.47 | ||||||||||||
| a | Expenses are calculated using the Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). |
| 8 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments
iSHARES® MSCI BRIC INDEX FUND
August 31, 2011
| CONSOLIDATED SCHEDULE OF INVESTMENTS | 9 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI BRIC INDEX FUND
August 31, 2011
| 10 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI BRIC INDEX FUND
August 31, 2011
| CONSOLIDATED SCHEDULE OF INVESTMENTS | 11 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI BRIC INDEX FUND
August 31, 2011
| 12 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI BRIC INDEX FUND
August 31, 2011
| CONSOLIDATED SCHEDULE OF INVESTMENTS | 13 |
Table of Contents
Consolidated Statement of Assets and Liabilities
iSHARES® MSCI BRIC INDEX FUND
August 31, 2011
| ASSETS |
||||
| Investments, at cost: |
||||
| Unaffiliated |
$ | 851,934,298 | ||
| Affiliated (Note 2) |
54,133,329 | |||
|
|
|
|||
| Total cost of investments |
$ | 906,067,627 | ||
|
|
|
|||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||
| Unaffiliated |
$ | 863,465,733 | ||
| Affiliated (Note 2) |
54,133,329 | |||
|
|
|
|||
| Total fair value of investments |
917,599,062 | |||
| Foreign currencies, at valueb |
3,223,203 | |||
| Cash |
169,441 | |||
| Receivables: |
||||
| Investment securities sold |
1,943,219 | |||
| Dividends and interest |
1,734,568 | |||
|
|
|
|||
| Total Assets |
924,669,493 | |||
|
|
|
|||
| LIABILITIES |
||||
| Payables: |
||||
| Investment securities purchased |
4,502,134 | |||
| Collateral for securities on loan (Note 5) |
52,615,587 | |||
| Securities related to in-kind transactions (Note 4) |
850,864 | |||
| Investment advisory fees (Note 2) |
506,964 | |||
|
|
|
|||
| Total Liabilities |
58,475,549 | |||
|
|
|
|||
| NET ASSETS |
$ | 866,193,944 | ||
|
|
|
|||
| Net assets consist of: |
||||
| Paid-in capital |
$ | 907,123,596 | ||
| Distributions in excess of net investment income |
(1,686,142 | ) | ||
| Accumulated net realized loss |
(50,880,925 | ) | ||
| Net unrealized appreciation on investments and translation of assets and liabilities in foreign currencies |
11,637,415 | |||
|
|
|
|||
| NET ASSETS |
$ | 866,193,944 | ||
|
|
|
|||
| Shares outstandingc |
20,500,000 | |||
|
|
|
|||
| Net asset value per share |
$ | 42.25 | ||
|
|
|
|||
| a | Securities on loan with a value of $49,274,353. See Note 5. |
| b | Cost of foreign currencies: $3,194,001. |
| c | $0.001 par value, number of shares authorized: 500 million. |
See notes to consolidated financial statements.
| 14 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Statement of Operations
iSHARES® MSCI BRIC INDEX FUND
Year ended August 31, 2011
| NET INVESTMENT INCOME |
||||
| Dividends – unaffiliateda |
$ | 27,319,948 | ||
| Interest – affiliated (Note 2) |
698 | |||
| Securities lending income – affiliated (Note 2) |
513,891 | |||
|
|
|
|||
| Total investment income |
27,834,537 | |||
|
|
|
|||
| EXPENSES |
||||
| Investment advisory fees (Note 2) |
7,422,667 | |||
|
|
|
|||
| Total expenses |
7,422,667 | |||
| Less investment advisory fees waived (Note 2) |
(31,041 | ) | ||
|
|
|
|||
| Net expenses |
7,391,626 | |||
|
|
|
|||
| Net investment income |
20,442,911 | |||
|
|
|
|||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||
| Net realized gain (loss) from: |
||||
| Investments – unaffiliated |
(20,685,606 | ) | ||
| In-kind redemptions – unaffiliated |
38,901,759 | |||
| Foreign currency transactions |
(26,471 | ) | ||
|
|
|
|||
| Net realized gain |
18,189,682 | |||
|
|
|
|||
| Net change in unrealized appreciation/depreciation on: |
||||
| Investments |
(29,691,729 | ) | ||
| Translation of assets and liabilities in foreign currencies |
68,824 | |||
|
|
|
|||
| Net change in unrealized appreciation/depreciation |
(29,622,905 | ) | ||
|
|
|
|||
| Net realized and unrealized loss |
(11,433,223 | ) | ||
|
|
|
|||
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | 9,009,688 | ||
|
|
|
|||
| a | Net of foreign withholding tax of $2,384,604. |
See notes to consolidated financial statements.
| CONSOLIDATED FINANCIAL STATEMENTS | 15 |
Table of Contents
Statements of Changes in Net Assets
iSHARES® MSCI BRIC INDEX FUND
| Year ended August 31, 2011 (Consolidated) |
Year ended August 31, 2010 |
|||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||
| OPERATIONS: |
||||||||
| Net investment income |
$ | 20,442,911 | $ | 12,434,508 | ||||
| Net realized gain (loss) |
18,189,682 | (12,482,457 | ) | |||||
| Net change in unrealized appreciation/depreciation |
(29,622,905 | ) | 63,820,880 | |||||
|
|
|
|
|
|||||
| Net increase in net assets resulting from operations |
9,009,688 | 63,772,931 | ||||||
|
|
|
|
|
|||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||
| From net investment income |
(22,858,814 | ) | (12,829,123 | ) | ||||
|
|
|
|
|
|||||
| Total distributions to shareholders |
(22,858,814 | ) | (12,829,123 | ) | ||||
|
|
|
|
|
|||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||
| Proceeds from shares sold |
111,929,766 | 398,031,773 | ||||||
| Cost of shares redeemed |
(178,701,150 | ) | – | |||||
|
|
|
|
|
|||||
| Net increase (decrease) in net assets from capital share transactions |
(66,771,384 | ) | 398,031,773 | |||||
|
|
|
|
|
|||||
| INCREASE (DECREASE) IN NET ASSETS |
(80,620,510 | ) | 448,975,581 | |||||
| NET ASSETS |
||||||||
| Beginning of year |
946,814,454 | 497,838,873 | ||||||
|
|
|
|
|
|||||
| End of year |
$ | 866,193,944 | $ | 946,814,454 | ||||
|
|
|
|
|
|||||
| Undistributed (distributions in excess of) net investment income included in net assets |
$ | (1,686,142 | ) | $ | 617,952 | |||
|
|
|
|
|
|||||
| SHARES ISSUED AND REDEEMED |
||||||||
| Shares sold |
2,300,000 | 8,800,000 | ||||||
| Shares redeemed |
(3,850,000 | ) | – | |||||
|
|
|
|
|
|||||
| Net increase (decrease) in shares outstanding |
(1,550,000 | ) | 8,800,000 | |||||
|
|
|
|
|
|||||
See notes to consolidated financial statements.
| 16 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI BRIC INDEX FUND
(For a share outstanding throughout each period)
| Year ended Aug. 31, 2011 (Consolidated) |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Period from Aug. 31, 2008 |
|||||||||||||
| Net asset value, beginning of period |
$ | 42.94 | $ | 37.57 | $ | 44.13 | $ | 56.50 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income from investment operations: |
||||||||||||||||
| Net investment incomeb |
0.89 | 0.66 | 0.58 | 0.72 | ||||||||||||
| Net realized and unrealized gain (loss)c |
(0.58 | ) | 5.35 | (6.60 | ) | (12.93 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total from investment operations |
0.31 | 6.01 | (6.02 | ) | (12.21 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Less distributions from: |
||||||||||||||||
| Net investment income |
(1.00 | ) | (0.64 | ) | (0.54 | ) | (0.16 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions |
(1.00 | ) | (0.64 | ) | (0.54 | ) | (0.16 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net asset value, end of period |
$ | 42.25 | $ | 42.94 | $ | 37.57 | $ | 44.13 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total return |
0.49 | % | 15.95 | % | (13.08 | )% | (21.65 | )%d | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Ratios/Supplemental data: |
||||||||||||||||
| Net assets, end of period (000s) |
$ | 866,194 | $ | 946,814 | $ | 497,839 | $ | 161,092 | ||||||||
| Ratio of expenses to average net assets prior to waived feese,f |
0.67 | % | 0.69 | % | 0.72 | % | 0.72 | % | ||||||||
| Ratio of expenses to average net assets after waived fees |
0.67 | % | n/a | n/a | n/a | |||||||||||
| Ratio of net investment income to average net assetse |
1.86 | % | 1.52 | % | 1.87 | % | 1.74 | % | ||||||||
| Portfolio turnover rateg |
13 | % | 9 | % | 7 | % | 9 | % | ||||||||
| a | Commencement of operations. |
| b | Based on average shares outstanding throughout each period. |
| c | The amounts reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| d | Not annualized. |
| e | Annualized for periods of less than one year. |
| f | Ratios for prior periods have been recalculated, as necessary, to conform with the current period presentation of foreign taxes. |
| g | Portfolio turnover rates exclude portfolio securities received or delivered in Creation Units but include portfolio transactions that are executed as a result of the Fund processing capital share transactions in Creation Units partially for cash in U.S. dollars. Excluding such cash transactions, the portfolio turnover rate for the years ended August 31, 2011, August 31, 2010, August 31, 2009 and the period ended August 31, 2008 would have been 10%, 8%, 6% and 2%, respectively. See Note 4. |
See notes to consolidated financial statements.
| CONSOLIDATED FINANCIAL HIGHLIGHTS | 17 |
Table of Contents
Notes to Consolidated Financial Statements
iSHARES® MSCI BRIC INDEX FUND
iShares, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company was incorporated under the laws of the State of Maryland on September 1, 1994 pursuant to amended and restated Articles of Incorporation.
These consolidated financial statements relate only to the following fund (the “Fund”):
| iShares MSCI Index Fund | Diversification Classification |
|||
| BRIC |
Non-diversified | |||
Non-diversified funds generally hold securities of fewer issuers than diversified funds and may be more susceptible to the risks associated with these particular issuers, or to a single economic, political or regulatory occurrence affecting these issuers.
The investment objective of the Fund is to seek investment results that correspond generally to the price and yield performance, before fees and expenses, of its underlying index. The investment adviser uses a “passive” or index approach to try to achieve the Fund’s investment objective.
The Fund carries out its investment strategies associated with investment in Indian securities by investing in a wholly-owned subsidiary in the Republic of Mauritius (the “Subsidiary”), which in turn invests in Indian securities included in the underlying index. The investment adviser of the Fund also serves as the investment adviser to the Subsidiary. Through this investment structure, the Fund expects to obtain certain benefits under a current tax treaty between Mauritius and India. The accompanying consolidated financial statements include the accounts of the Subsidiary.
The Fund invests in securities of non-U.S. issuers that may trade in non-U.S. markets. This may involve certain considerations and risks not typically associated with securities of U.S. issuers. Such risks include, but are 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 of the Fund; less publicly available information about issuers; the imposition of withholding or other taxes; higher transaction and custody costs; settlement delays and risk of loss attendant in settlement procedures; difficulties in enforcing contractual obligations; less regulation of securities markets; different accounting, disclosure and reporting requirements; more substantial governmental involvement in the economy; higher inflation rates; greater social, economic and political uncertainties; the risk of nationalization or expropriation of assets and the risk of war.
Pursuant to the Company’s organizational documents, the Fund’s officers and directors are indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred.
1. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are consistently followed by the Fund in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
| 18 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI BRIC INDEX FUND
SECURITY VALUATION
The securities and other assets of the Fund are valued pursuant to the pricing policy and procedures approved by the Board of Directors of the Company (the “Board”) using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
| • | Level 1 – Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access at the measurement date (a “Level 1 Price”); |
| • | Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not considered to be active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (a “Level 2 Price”); and |
| • | Level 3 – Inputs that are unobservable for the asset or liability (a “Level 3 Price”). |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3 of the fair value hierarchy.
The level of a value determined for a financial instrument within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement in its entirety. The categorization of a value determined for a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Fund’s perceived risk of that instrument.
Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 Prices, include active listed equities. The Fund does not adjust the quoted price for such instruments, even in situations where the Fund holds a large position and a sale could reasonably impact the quoted price.
Investments that trade in markets that are not considered to be active, but whose values are based on inputs such as quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified within Level 2. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Investments whose values are classified as Level 3 Prices have significant unobservable inputs, as they may trade infrequently or not at all. Investments whose values are classified as Level 3 Prices may include unlisted securities related to corporate actions, securities whose trading have been suspended or which have been de-listed from their primary trading exchange, less liquid corporate debt securities (including distressed debt instruments), collateralized debt obligations, and less liquid mortgage securities (backed by either commercial or residential real estate). When observable prices are not available for these securities, the Fund uses one or more valuation techniques (e.g., the market approach or the income approach) for which sufficient and reliable data is available. Within Level 3 of the fair value hierarchy, the use of the
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 19 |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI BRIC INDEX FUND
market approach generally consists of using comparable market transactions, while the use of the income approach generally consists of the net present value of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors.
The inputs used by the Fund in estimating the value of Level 3 Prices may include the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 Prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the Fund in the absence of market information. The fair value measurement of Level 3 Prices does not include transaction costs that may have been capitalized as part of the security’s cost basis. Assumptions used by the Fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the Fund’s results of operations.
Fair value pricing could result in a difference between the prices used to calculate the Fund’s net asset value and the prices used by the Fund’s underlying index, which in turn could result in a difference between the Fund’s performance and the performance of the Fund’s underlying index.
The following table summarizes the value of each of the Fund’s investments according to the fair value hierarchy as of August 31, 2011. The breakdown of the Fund’s investments into major categories is disclosed in its Consolidated Schedule of Investments.
| Investments in Securities | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Common Stocks |
$ | 699,135,875 | $ | – | $ | – | $ | 699,135,875 | ||||||||
| Preferred Stocks |
164,210,483 | – | 119,375 | 164,329,858 | ||||||||||||
| Short-Term Investments |
54,133,329 | – | – | 54,133,329 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 917,479,687 | $ | – | $ | 119,375 | $ | 917,599,062 | |||||||||
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SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for on trade date. Dividend income is recognized on the ex-dividend date, net of any foreign taxes withheld at source. Any taxes withheld that are reclaimable from foreign tax authorities as of August 31, 2011 are reflected in dividends receivable. Non-cash dividends received in the form of stock in an elective dividend, if any, are recorded as dividend income at fair value. Distributions received by the Fund may include a return of capital that is estimated by management. Such amounts are recorded as a reduction of the cost of investments or reclassified to capital gains. Interest income is accrued daily. Realized gains and losses on investment transactions are determined using the specific identification method.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. Foreign currencies, as well as investment securities and other assets and liabilities denominated in foreign currencies, are translated into U.S. dollars using exchange rates deemed appropriate by the investment adviser. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars on the respective dates of such transactions.
The Fund does not isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of securities. Such fluctuations are reflected by the Fund as a component of realized and unrealized gains and losses from investments for financial reporting purposes.
| 20 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI BRIC INDEX FUND
FOREIGN TAXES
The Fund may be subject to foreign taxes (a portion of which may be reclaimable) on income, capital gains on investments, certain foreign currency transactions or other corporate events. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in the foreign jurisdictions in which the Fund invests. These foreign taxes, if any, are paid by the Fund and are reflected in its Consolidated Statement of Operations as follows: foreign taxes withheld at source are presented as a reduction of income, foreign taxes on capital gains from sales of investments and foreign currency transactions are included in their respective net realized gain (loss) categories, and foreign taxes on other corporate events are reflected in “Other foreign taxes.” Foreign taxes payable as of August 31, 2011, if any, are disclosed in the Fund’s Consolidated Statement of Assets and Liabilities.
The Subsidiary is subject to tax in Mauritius on its net income. See the “Income Taxes” section for further information.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. Distributions are determined on a tax basis and may differ from net investment income and net realized capital gains for financial reporting purposes. Dividends and distributions are paid in U.S. dollars and cannot be automatically reinvested in additional shares of the Fund.
As of August 31, 2011, the tax year-end of the Fund, the components of accumulated net earnings (losses) on a tax basis consisted of undistributed ordinary income of $26,008, unrealized appreciation of $598,738, and capital and other losses of $41,554,398, for accumulated net losses of $40,929,652. The difference between book-basis and tax-basis unrealized gains (losses) is attributable primarily to the tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains on investments in passive foreign investment companies.
The tax character of distributions paid during the years ended August 31, 2011 and August 31, 2010 were as follows:
| 2011 | 2010 | |||||||
| Distributions paid from: |
||||||||
| Ordinary income |
$ | 22,858,814 | $ | 12,829,123 | ||||
|
|
|
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| Total Distributions |
$ | 22,858,814 | $ | 12,829,123 | ||||
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|
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INCOME TAXES
The Fund is treated as an entity separate from the Company’s other funds for federal income tax purposes. It is the policy of the Fund to qualify as a regulated investment company by complying with the provisions applicable to regulated investment companies, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, and to annually distribute substantially all of its ordinary income and any net capital gains (taking into account any capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income and excise taxes. Accordingly, no provision for federal income taxes is required.
As permitted by tax regulations, the Fund has elected to defer net realized capital losses incurred from November 1, 2010 to August 31, 2011 of $20,985,014 and treat them as arising in the year ending August 31, 2012.
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 21 |
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Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI BRIC INDEX FUND
The Fund had tax basis net capital loss carryforwards as of August 31, 2011, the tax year-end of the Fund, as follows:
| Expiring 2017 |
Expiring 2018 |
Expiring 2019 |
Total | |||||||||||
| $ | 1,540,740 | $ | 11,268,086 | $ | 7,760,558 | $ | 20,569,384 | |||||||
Net capital loss carryforwards may be applied against any net realized taxable gains in each succeeding year or until their respective expiration dates, whichever occurs first.
Under the recently enacted Regulated Investment Company Modernization Act of 2010, capital losses incurred by funds for taxable years beginning after December 22, 2010 will not be subject to expiration. In addition, such losses must be utilized prior to the losses incurred in the tax years preceding enactment.
The Fund may own shares in certain foreign investment entities, referred to, under U.S. tax law, as “passive foreign investment companies.” The Fund may elect to mark-to-market annually the shares of each passive foreign investment company and would be required to distribute to shareholders any such marked-to-market gains.
As of August 31, 2011, the cost of investments for federal income tax purposes was $917,106,304. Net unrealized appreciation was $492,758, of which $116,027,263 represented gross unrealized appreciation on securities and $115,534,505 represented gross unrealized depreciation on securities.
Management has reviewed the tax positions as of August 31, 2011, inclusive of the open tax return years, and has determined that no provision for income tax is required in the Fund’s consolidated financial statements.
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These differences are reclassified by the Fund at the end of its tax year and are primarily attributable to passive foreign investment companies and realized gains (losses) from foreign currency transactions and in-kind redemptions. As of August 31, 2011, the Fund made the following reclassifications, which have no effect on net assets or net asset values per share:
| Paid-in Capital |
Undistributed Net Investment Income/Distributions in Excess of Net Investment Income |
Undistributed Net Realized Gain/ Accumulated Net Realized Loss |
||||||||
| $37,549,724 | $ | 111,809 | $ | (37,661,533 | ) | |||||
The Fund conducts its investment activities in India through the Subsidiary and expects to obtain benefits under the Double Tax Avoidance Agreement (“DTAA”). In order to be eligible to claim benefits under the DTAA, the Subsidiary must satisfy certain conditions, including the establishment and maintenance of valid tax residence in Mauritius. The Subsidiary is subject to tax in Mauritius on its net income at the rate of 15%. However, a system of foreign tax credits effectively reduces the Mauritius income tax rate to a maximum of 3%. These income taxes, if any, are paid by the Fund and are disclosed in the Consolidated Statement of Operations. Further, the Subsidiary is not subject to capital gains tax in Mauritius nor is it subject to tax in Mauritius on any gains from the sale of securities. Any dividends paid by the Subsidiary to the Fund will also be exempt from tax in Mauritius. The foregoing is based upon current interpretation and practice and is subject to future changes in the tax laws of India or Mauritius and in the DTAA.
| 22 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI BRIC INDEX FUND
RECENT ACCOUNTING STANDARD
In May 2011, the Financial Accounting Standards Board issued amended guidance to improve disclosure about fair value measurements which will require the following disclosures for fair value measurements categorized as Level 3: quantitative information about the unobservable inputs and assumptions used in the fair value measurement, a description of the valuation policies and procedures and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, the amounts and reasons for all transfers in and out of Level 1 and Level 2 will be required to be disclosed. The amended guidance is effective for financial statements for fiscal years beginning after December 15, 2011, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Fund’s consolidated financial statements and disclosures.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Investment Advisory Agreement with the Company, BlackRock Fund Advisors (“BFA”) manages the investment of the Fund’s assets. BFA is a California corporation indirectly owned by BlackRock, Inc. (“BlackRock”). Under the Investment Advisory Agreement, BFA is responsible for substantially all expenses of the Fund, except interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution fees, litigation expenses and any extraordinary expenses.
The Subsidiary has entered into a separate contract with BFA under which BFA provides investment advisory services to the Subsidiary but does not receive separate compensation from the Subsidiary for providing it with such services. The Subsidiary has also entered into separate arrangements that provide for the provision of other services to the Subsidiary (including administrative, custody, transfer agency and other services), and BFA pays the costs and expenses related to the provision of those services.
For its investment advisory services to the Fund, BFA is entitled to an annual investment advisory fee based on the Fund’s allocable portion of the aggregate of the average daily net assets of the Fund (including the assets invested in the Subsidiary) and certain other iShares funds, as follows:
| Investment Advisory Fee | Aggregate Average Daily Net Assets | |
| 0.75% | First $14 billion | |
| 0.68 | Over $14 billion, up to and including $28 billion | |
| 0.61 | Over $28 billion, up to and including $42 billiona | |
| 0.56 | Over $42 billion, up to and including $56 billiona | |
| 0.50 | Over $56 billion, up to and including $70 billiona | |
| 0.45 | Over $70 billion, up to and including $84 billiona | |
| 0.40 | Over $84 billiona |
| a | Breakpoint level was modified or added, effective January 1, 2011. |
BFA has voluntarily waived a portion of its investment advisory fees for the Fund in the amount of $31,041.
The U.S. Securities and Exchange Commission has issued an exemptive order which permits BlackRock Institutional Trust Company, N.A. (“BTC”) to serve as securities lending agent for the Fund, subject to applicable conditions. BTC is an affiliate of BFA, the Fund’s investment adviser. As securities lending agent, BTC receives, as fees, a share of the income earned on investment of the cash collateral received for the loan of securities and any fees paid by borrowers. For the year ended August 31, 2011, BTC earned securities lending agent fees from the Fund of $275,172.
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 23 |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI BRIC INDEX FUND
The Fund may invest its positive cash balances in certain money market funds managed by BFA or an affiliate. The income earned on these temporary cash investments is included in “Interest – affiliated” in the Consolidated Statement of Operations.
The PNC Financial Services Group, Inc. (“PNC”) and Barclays PLC (“Barclays”) are the largest stockholders of BlackRock. Due to the ownership structure, PNC is an affiliate of the Fund for 1940 Act purposes, but Barclays is not.
Certain directors and officers of the Company are also officers of BTC and/or BFA.
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments (excluding in-kind transactions and short-term investments) for the year ended August 31, 2011, aggregated $137,538,282 and $161,270,904, respectively.
In-kind purchases and sales (see Note 4) for the year ended August 31, 2011, aggregated $73,505,568 and $117,027,863, respectively.
4. CAPITAL SHARE TRANSACTIONS
Capital shares are issued and redeemed by the Fund only in aggregations of a specified number of shares or multiples thereof (“Creation Units”) at net asset value. Except when aggregated in Creation Units, shares of the Fund are not redeemable. Transactions in capital shares for the Fund are disclosed in detail in the Statements of Changes in Net Assets.
The consideration for the purchase of Creation Units of a fund in the Company generally consists of the in-kind deposit of a designated portfolio of securities, which constitutes an optimized representation of the securities of that fund’s underlying index, and an amount of cash. Certain funds in the Company may be offered in Creation Units solely or partially for cash in U.S. dollars. Investors purchasing and redeeming Creation Units may pay a purchase transaction fee and a redemption transaction fee directly to State Street Bank and Trust Company, the Company’s administrator, to offset transfer and other transaction costs associated with the issuance and redemption of Creation Units, including Creation Units for cash. Investors transacting in Creation Units for cash pay an additional variable charge to compensate the relevant fund for certain transaction costs (i.e., stamp taxes, taxes on currency or other financial transactions, and brokerage costs) and market impact expenses relating to investing in portfolio securities.
From time to time, settlement of securities related to in-kind contributions or in-kind redemptions may be delayed. In such cases, securities related to in-kind contributions are reflected as “Due from custodian” and securities related to in-kind redemptions are reflected as “Securities related to in-kind transactions” in the Consolidated Statement of Assets and Liabilities.
5. LOANS OF PORTFOLIO SECURITIES
The Fund may lend its investment securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current value of the securities on loan. The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. Any securities lending cash collateral may be reinvested in certain short-term instruments either directly on behalf of a fund or through one or more joint accounts or money market funds, including those managed by BFA or its affiliates; such reinvestments are subject to investment risk.
| 24 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI BRIC INDEX FUND
As of August 31, 2011, any securities on loan were collateralized by cash. The cash collateral received was invested in money market funds managed by BFA. The value of the securities on loan as of August 31, 2011 and the value of the related collateral are disclosed in the Consolidated Statement of Assets and Liabilities. Securities lending income, as disclosed in the Consolidated Statement of Operations, represents the income earned from the investment of the cash collateral, plus any fees paid by borrowers and less the fees paid to BTC as securities lending agent which are subject to adjustments pursuant to the securities lending agreement.
6. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through the date the consolidated financial statements were available to be issued and has determined that there were no subsequent events requiring adjustment or disclosure in the consolidated financial statements.
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 25 |
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
iShares, Inc.:
In our opinion, the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, and the related consolidated statement of operations and statements of changes in net assets and the financial highlights present fairly, in all material respects, the consolidated financial position of the iShares MSCI BRIC Index Fund and its subsidiary, (collectively the “Fund”), at August 31, 2011, the results of its operations, the changes in its net assets and its financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These consolidated financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2011 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 21, 2011
| 26 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI BRIC INDEX FUND
For the fiscal year ended August 31, 2011, the Fund earned foreign source income of $29,704,552 and paid foreign taxes of $2,380,047 which it intends to pass through to its shareholders pursuant to Section 853 of the Internal Revenue Code (the “Code”).
Under Section 854(b)(2) of the Code, the Fund hereby designate the maximum amount of $11,499,700 as qualified dividend income for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended August 31, 2011.
In February 2012, shareholders will receive Form 1099-DIV which will include their share of qualified dividend income distributed during the calendar year 2011. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their income tax returns.
| TAX INFORMATION | 27 |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited)
iSHARES® MSCI BRIC INDEX FUND
Under Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), the Company’s Board of Directors (the “Board”), including a majority of Directors who are not “interested persons” of the Company (as that term is defined in the 1940 Act) (the “Independent Directors”), is required annually to consider the Investment Advisory Contract between the Company and BFA (the “Advisory Contract”) on behalf of the Fund. As required by Section 15(c), the Board requested and BFA provided such information as the Board, with advice from independent counsel, deemed reasonably necessary to evaluate the Advisory Contract. An ad-hoc sub-committee of the Independent Directors (the “Ad-Hoc Sub-Committee”), with independent counsel, met with management on April 19, 2011, and April 26, 2011, to discuss the types of information the Board required and the manner in which management would organize and present such information. At a meeting held on May 16, 2011, management presented information to the Board relating to the continuance of the Advisory Contract and the Board reviewed and discussed such information at length. The Board also requested from management certain additional information. At a meeting held on June 22-23, 2011, the Board reviewed additional information provided by management in response to the Board’s requests. The Board approved the selection of BFA and the continuance of the Advisory Contract for the Fund, based on its review of qualitative and quantitative information provided by BFA, including its review of supplemental information management provided at the request of the Board. The Board noted its satisfaction with the extent and quality of information, and detailed responses, provided by BFA. The Independent Directors were advised by their independent counsel throughout the process. In selecting BFA and approving the Advisory Contract for the Fund, the Board, including the Independent Directors, considered the following factors, no one of which was controlling, and made the following conclusions:
Nature, Extent and Quality of Services Provided by BFA – Based on management’s representations, the Board expected that there would be no diminution in the scope of services required of or provided by BFA under the Advisory Contract for the coming year as compared to the scope of services provided by BFA over prior years. In reviewing the scope of these services, the Board considered BFA’s investment philosophy and experience, noting that BFA and its affiliates have committed significant resources over time, including during the past year, supporting the Fund and its shareholders. The Board acknowledged that additional resources to support the Fund and its shareholders were added in 2010, for example, in such areas as investor education, product management, and capital markets support. The Board also considered BFA’s compliance program and its compliance record with respect to the Fund. In that regard, the Board noted that BFA reports to the Board about portfolio management and compliance matters on a periodic basis in connection with regularly scheduled meetings of the Board, and on other occasions as necessary and appropriate, and has provided information and made appropriate officers available as needed to provide further assistance with these matters. The Board also reviewed the background and experience of the persons responsible for the day-to-day management of the Fund. In addition to the above considerations, the Board reviewed and considered BFA’s investment processes and strategies, and matters related to BFA’s portfolio compliance policies and procedures. The Board noted that the Fund had met its investment objective consistently since its respective inception date. Based on review of this information, the Board concluded that the nature, extent and quality of services to be provided by BFA to the Fund under the Advisory Contract supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Expenses and Performance of the Fund – The Board reviewed statistical information prepared by Lipper Inc. (“Lipper”), an independent provider of investment company data, regarding the expense ratio components, including actual advisory fees, waivers/reimbursements, and gross and net total expenses of the Fund in comparison with the same information for other registered investment companies objectively selected by Lipper as comprising the Fund’s applicable peer group pursuant to Lipper’s proprietary methodology and any registered funds that would otherwise have been excluded from Lipper’s comparison group because of their size or other differentiating factors, but were nonetheless included at the request of BFA (the “Lipper Group”). Because there are few, if any, exchange traded funds or index funds that track an index similar to that tracked by the Fund, the Lipper Group included in part mutual funds, closed-end funds, exchange traded funds, or funds with differing investment objective classifications, investment focuses and other characteristics (e.g., actively managed funds and funds sponsored by “at cost” service providers), as applicable. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the applicable Lipper Groups and to prepare this information. The Board further noted that due to the limitations in providing comparable funds in the various Lipper Groups, the statistical information may or may not provide meaningful direct comparisons to the Fund.
| 28 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES® MSCI BRIC INDEX FUND
The Board also noted that the investment advisory fee and overall expenses for the Fund compared favorably to the investment advisory fee rates and overall expenses of the funds in their respective Lipper Group.
In addition, the Board reviewed statistical information prepared by Lipper regarding the performance of the Fund for the one-, three-, five-, ten-year, and since inception periods, as applicable, and the “last quarter” period ended December 31, 2010, and a comparison of the Fund’s performance to its performance benchmark index for the same periods. To the extent that any of the comparison funds included in the Lipper Group track the same index as the Fund, Lipper also provided, and the Board reviewed, a comparison of the Fund’s performance to that of such relevant comparison funds for the same periods. The Board noted that the Fund generally performed in line with its performance benchmark index over the relevant periods. In considering this information, the Board noted that the Lipper Group includes funds that may have different investment objectives and/or benchmarks from the Fund. In addition, the Board noted that the Fund seeks to track its benchmark index and that, during the prior year, the Board received periodic reports on the Fund’s performance in comparison with its relevant benchmark index. Such comparative performance information was also considered by the Board.
Based on this review, the Board concluded that the investment advisory fee and expense level and the historical performance of the Fund, as compared to the investment advisory fees and expense levels and performance of the funds in the relevant Lipper Group, supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Costs of Services Provided to Fund and Profits Realized by BFA and Affiliates – The Board reviewed information about the profitability to BFA of the Fund based on the fees payable to BFA and its affiliates (including fees under the Advisory Contract), and all other sources of revenue and expense to BFA and its affiliates from the Fund’s operations for the last calendar year. The Board reviewed BlackRock’s profitability methodology for the iShares Funds and how such profitability methodology differed from the methodology used to calculate profitability prior to the acquisition of BFA by BlackRock, noting that such matters were focused on by the Ad-Hoc Sub-Committee during its meetings and addressed by management. The Board discussed the sources of direct and ancillary revenue with management, including the revenues to BTC from securities lending by the Fund. The Board also discussed BFA’s profit margin as reflected in the Fund’s profitability analysis and reviewed information regarding economies of scale (as discussed below). Based on this review, the Board concluded that the profits realized by BFA and its affiliates under the Advisory Contract and from other relationships between the Fund and BFA and/or its affiliates, if any, were within a reasonable range in light of the factors considered.
Economies of Scale – In connection with its review of the Fund’s profitability analysis, the Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Fund’s assets. The Board noted that the Advisory Contract for the Fund already provided for breakpoints in the Fund’s investment advisory fee rate as the assets of the Fund, on an aggregated basis with the assets of certain other iShares funds, increase, and that the Board had approved additional breakpoints in a previous year. The Board also reviewed BFA’s historic profitability as investment adviser to the iShares fund complex and noted that BFA and BlackRock had continued to make significant investments in the iShares fund complex and the infrastructure supporting the iShares funds. Based on this review, as well as the discussions described above in connection with the Lipper Group and performance benchmark comparisons, the Board, recognizing its responsibility to consider this issue at least annually, concluded that the structure of the investment advisory fees reflects appropriate sharing of potential economies of scale with the Fund’s shareholders and supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by BFA and its Affiliates – The Board received and considered information regarding the investment advisory/management fee rates for other funds/accounts in the U.S. for which BFA (or its affiliates) provides investment advisory/management services, including open-end and closed-end funds registered under the 1940 Act (including sub-advised funds), collective trust funds and institutional separate accounts (together, the “Other Accounts”). The Board noted that BFA and its affiliates do not manage Other Accounts with a substantially similar investment objective and strategy as the Fund. The Board
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT | 29 |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES® MSCI BRIC INDEX FUND
further noted that BFA provided the Board with detailed information regarding how the Other Accounts (particularly institutional clients) generally differ from the Fund, including in terms of the different services provided as well as other significant differences in the approach of BFA and its affiliates to the Fund, on one hand, and Other Accounts, on the other. In that regard, the Board considered that the pricing of services to institutional clients is typically based on a number of factors beyond the nature and extent of the specific services to be provided and often depends on the overall relationship between the client and its affiliates and the adviser and its affiliates. In addition, the Board considered the relative complexity and inherent risks of managing and providing other services to the Fund, as a publicly traded exchanged traded fund, as compared to the Other Accounts that are institutional clients in light of differing regulatory requirements and client-imposed mandates. The Board noted that the investment advisory fee rates under the Advisory Contract for the Fund were generally higher than the investment advisory/management fee rates for the Other Accounts that are institutional clients of BFA (or its affiliates) and concluded that the differences appeared to be consistent with the factors discussed.
Other Benefits to BFA and/or its Affiliates – The Board reviewed any ancillary revenue received by BFA and/or its affiliates in connection with the services provided to the Fund by BFA, such as any payment of revenue to BTC, the Fund’s securities lending agent, for loaning any portfolio securities, and payment of advisory fees and/or administration fees to BFA and BTC (or their affiliates) in connection with any investments by the Fund in other funds for which BFA (or its affiliates) provides investment advisory services and/or administration services. The Board noted that BFA does not use soft dollars or consider the value of research or other services that may be provided to BFA (including its affiliates) in selecting brokers for portfolio transactions for the Fund. The Board further noted that any portfolio transactions on behalf of the Fund placed through a BFA affiliate or purchased from an underwriting syndicate in which a BFA affiliate participates, are reported to the Board pursuant to Rule 17e-1 or Rule 10f-3, as applicable, under the 1940 Act. The Board concluded that any such ancillary benefits would not be disadvantageous to the Fund’s shareholders.
Based on the considerations described above, the Board determined that the investment advisory fee rates under the Advisory Contract do not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bargaining and concluded that it is in the best interest of the Fund and its shareholders to approve the continuance of the Advisory Contract for the coming year.
| 30 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited)
iSHARES® MSCI BRIC INDEX FUND
Premium/Discount Information
The table that follows presents information about the differences between the daily market price on secondary markets for shares of the Fund and the Fund’s net asset value. Net asset value, or “NAV,” is the price per share at which the Fund issues and redeems shares. It is calculated in accordance with the standard formula for valuing mutual fund shares. The “Market Price” of the Fund generally is determined using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the Fund are listed for trading, as of the time the Fund’s NAV is calculated. The Fund’s Market Price may be at, above or below its NAV. The NAV of the Fund will fluctuate with changes in the fair value of its portfolio holdings. The Market Price of the Fund will fluctuate in accordance with changes in its NAV, as well as market supply and demand.
Premiums or discounts are the differences (expressed as a percentage) between the NAV and Market Price of the Fund on a given day, generally at the time NAV is calculated. A premium is the amount that the Fund is trading above the reported NAV, expressed as a percentage of the NAV. A discount is the amount that the Fund is trading below the reported NAV, expressed as a percentage of the NAV.
The following information shows the frequency distributions of premiums and discounts for the Fund included in this report. The information shown for the Fund is each full calendar quarter completed after the inception date of the Fund through the date of the most recent calendar quarter-end.
Each line in the table shows the number of trading days in which the Fund traded within the premium/discount range indicated. The number of trading days in each premium/discount range is also shown as a percentage of the total number of trading days in the period covered by the table. All data presented here represents past performance, which cannot be used to predict future results.
Period Covered: January 1, 2008 through June 30, 2011
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.5% |
3 | 0.34 | % | |||||
| Greater than 5.0% and Less than 5.5% |
1 | 0.11 | ||||||
| Greater than 4.5% and Less than 5.0% |
3 | 0.34 | ||||||
| Greater than 4.0% and Less than 4.5% |
2 | 0.23 | ||||||
| Greater than 3.5% and Less than 4.0% |
2 | 0.23 | ||||||
| Greater than 3.0% and Less than 3.5% |
5 | 0.57 | ||||||
| Greater than 2.5% and Less than 3.0% |
8 | 0.91 | ||||||
| Greater than 2.0% and Less than 2.5% |
22 | 2.50 | ||||||
| Greater than 1.5% and Less than 2.0% |
50 | 5.68 | ||||||
| Greater than 1.0% and Less than 1.5% |
155 | 17.59 | ||||||
| Greater than 0.5% and Less than 1.0% |
188 | 21.33 | ||||||
| Between 0.5% and -0.5% |
305 | 34.61 | ||||||
| Less than -0.5% and Greater than -1.0% |
80 | 9.08 | ||||||
| Less than -1.0% and Greater than -1.5% |
28 | 3.18 | ||||||
| Less than -1.5% and Greater than -2.0% |
10 | 1.14 | ||||||
| Less than -2.0% and Greater than -2.5% |
8 | 0.91 | ||||||
| Less than -2.5% and Greater than -3.0% |
1 | 0.11 | ||||||
| Less than -3.0% |
10 | 1.14 | ||||||
|
|
|
|
|
|||||
| 881 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION | 31 |
Table of Contents
Director and Officer Information (Unaudited)
iSHARES®, INC.
The Board of Directors has responsibility for the overall management and operations of the Company, including general supervision of the duties performed by BFA and other service providers. Each Officer serves until he or she resigns, is removed, dies, retires or becomes incapacitated. The President, Treasurer and Secretary shall each hold office until their successors are chosen and qualified and all other officers shall hold office until he or she resigns or is removed. Directors who are not interested persons (as defined in the 1940 Act) are referred to as Independent Directors.
The registered investment companies advised by BFA or its affiliates are organized into one complex of closed-end funds, two complexes of open-end funds and one complex of exchange-traded funds (“Exchange-Traded Fund Complex”) (each, a “BlackRock Fund Complex”). Each Fund is included in the BlackRock Fund Complex referred to as the Exchange-Traded Fund Complex. Each Director of iShares, Inc. also serves as a Trustee of iShares Trust and a Director of iShares MSCI Russia Capped Index Fund, Inc. and, as a result, oversees a total of 224 funds within the Exchange-Traded Fund Complex. With the exception of Robert S. Kapito, the address of each Director and Officer is c/o BlackRock, Inc., 400 Howard Street, San Francisco, CA 94105. The address of Mr. Kapito is c/o BlackRock, Inc., Park Avenue Plaza, 55 East 52nd Street, New York, NY 10055. The Board has designated George G.C. Parker as its Independent Chairman. Additional information about the Funds’ Directors and Officers may be found in the Funds’ combined Statement of Additional Information, which is available without charge, upon request, by calling toll-free 1-800-474-2737.
Interested Directors and Officers
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| Robert S. Kapitoa (54) |
Director (since 2009). |
President and Director, BlackRock, Inc. (since 2006 and 2007, respectively); Vice Chairman of BlackRock, Inc. and Head of BlackRock’s Portfolio Management Group (since its formation in 1998) and BlackRock’s predecessor entities (since 1988); Trustee, University of Pennsylvania (since 2009); President of Board of Directors, Hope & Heroes Children’s Cancer Fund (since 2002); President of the Board of Directors, Periwinkle Theatre for Youth (since 1983). | Trustee of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of BlackRock, Inc. (since 2007). | |||
| Michael Lathamb (46) |
Director (since 2010); President (since 2007). |
Chairman of iShares, BTC (since 2011); Global Chief Executive Officer of iShares, BTC (2010-2011); Managing Director, BTC (since 2009); Head of Americas iShares, Barclays Global Investors (“BGI”) (2007-2009); Director and Chief Financial Officer of Barclays Global Investors International, Inc. (2005-2009); Chief Operating Officer of the Intermediary Investor and Exchange Traded Products Business of BGI (2003-2007). | Trustee of iShares Trust (since 2010); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| a | Robert S. Kapito is deemed to be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. |
| b | Michael Latham is deemed to be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. and its affiliates. |
| 32 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® , INC.
Independent Directors
| Name, Age | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| George G.C. Parker (72) |
Director (since 2000); Independent Chairman (since 2010). |
Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University: Graduate School of Business (since 1994). | Trustee of iShares Trust (since 2002); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Independent Chairman of iShares Trust (since 2010); Independent Chairman of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of Tejon Ranch Company (since 1999); Director of Threshold Pharmaceuticals (since 2004); Director of Colony Financial, Inc. (since 2009); Director of First Republic Bank (since 2010). | |||
| Cecilia H. Herbert (62) |
Director (since 2005). |
Director (since 1998) and President (2007-2010) of the Board of Directors, Catholic Charities CYO; Trustee of Pacific Select Funds (2004-2005); Trustee (since 2002) and Chair of the Finance Committee (2006-2009) and Investment Committee (since 2006) of the Thacher School; Member (since 1994) and Chair (1994-2005) of Investment Committee, Archdiocese of San Francisco. | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director, Forward Funds (35 portfolios) (since 2009). | |||
| Charles A. Hurty (68) |
Director (since 2005). |
Retired; Partner, KPMG LLP (1968-2001). | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002); Director of Skybridge Multi-Adviser Hedge Fund Portfolios LLC (1 portfolio) (since 2002). | |||
| John E. Kerrigan (56) |
Director (since 2005). |
Chief Investment Officer, Santa Clara University (since 2002). | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| John E. Martinez (50) |
Director (since 2003). |
Director of EquityRock, Inc. (since 2005). | Trustee of iShares Trust (since 2003); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| DIRECTOR AND OFFICER INFORMATION | 33 |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® , INC.
Independent Directors (Continued)
| Name, Age | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| Madhav V. Rajan (47) |
Director (since 2011). |
Gregor G. Peterson Professor of Accounting and Senior Associate Dean for Academic Affairs, Stanford University: Graduate School of Business (since 2001); Professor of Law (by courtesy), Stanford Law School (since 2005); Visiting Professor, University of Chicago (Winter 2007-2008). | Trustee of iShares Trust (since 2011); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2011). | |||
| Robert H. Silver (56) |
Director (since 2007). |
President and Co-Founder of The Bravitas Group, Inc. (since 2006); Member, Non- Investor Advisory Board of Russia Partners II, LP (since 2006); Director and Vice Chairman of the YMCA of Greater NYC (since 2001); Broadway Producer (since 2006); Co-Founder and Vice President of Parentgiving Inc. (since 2008); Director and Member of the Audit and Compensation Committee of EPAM Systems, Inc. (2006-2009). | Trustee of iShares Trust (since 2007); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| 34 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® , INC.
Officers
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years | ||
| Geoffrey D. Flynn (54) |
Executive Vice President and Chief Operating Officer (since 2008). |
Managing Director, BTC (since 2009); Chief Operating Officer, U.S. iShares, BGI (2007-2009); President, Van Kampen Investors Services (2003-2007); Managing Director, Morgan Stanley (2002-2007); President, Morgan Stanley Trust, FSB (2002-2007). | ||
| Eilleen M. Clavere (59) |
Secretary (since 2007). |
Director, BTC (since 2009); Director of Legal Administration of Intermediary Investor Business of BGI (2006-2009); Legal Counsel and Vice President of Atlas Funds, Atlas Advisers, Inc. and Atlas Securities, Inc. (2005-2006). | ||
| Jack Gee (52) |
Treasurer and Chief Financial Officer (since 2008). |
Managing Director, BTC (since 2009); Senior Director of Fund Administration of Intermediary Investor Business of BGI (2009); Director of Fund Administration of Intermediary Investor Business of BGI (2004-2009). | ||
| Amy Schioldager (49) |
Executive Vice President (since 2007). |
Managing Director, BTC (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008); Head of Domestic Equity Portfolio Management, BGI (2001-2006). | ||
| Ira P. Shapiro (48) |
Vice President and Chief Legal Officer (since 2007). |
Managing Director, BTC (since 2009); Associate General Counsel, BGI (2004-2009). | ||
| Matt Tucker (39) |
Vice President (since 2007). |
Managing Director, BTC (since 2009); Director of Fixed Income Investment Strategy, BGI (2009); Head of U.S. Fixed Income Investment Solutions, BGI (2005-2008). | ||
| DIRECTOR AND OFFICER INFORMATION | 35 |
Table of Contents
Notes:
| 36 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes:
| NOTES | 37 |
Table of Contents
Notes:
| 38 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
For more information visit www.iShares.com
or call 1-800-474-2737
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iS-AR-87-0811
Table of Contents
|
August 31, 2011 | |
2011 Annual Report
iShares, Inc.
iShares MSCI Emerging Markets Small Cap Index Fund | EEMS | NYSE Arca
Table of Contents
| 5 | ||||
| 7 | ||||
| 8 | ||||
| 18 | ||||
| 21 | ||||
| 22 | ||||
| 29 | ||||
| 30 | ||||
| Board Review and Approval of Investment Advisory Contract (Unaudited) |
31 | |||
| 34 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
Performance as of August 31, 2011
| Cumulative Total Returns | ||||
| Inception to 8/31/11 | ||||
| NAV | MARKET | INDEX | ||
| (1.86)% | (0.58)% | (1.74)% | ||
“Cumulative Total Returns” represent the total change in value of an investment over the period indicated and are calculated from an inception date of 8/16/11.
The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (8/18/11), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The performance shown above assumes reinvestment of all dividends and capital gain distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.
For the fiscal period ended 8/31/2011, the Fund did not have six months of performance and therefore line graphs are not presented.
| * | Sector classifications used to describe the Fund’s portfolio allocation may differ from sector classifications used to describe the Fund’s corresponding index in management’s commentary. As a result, sector allocation percentages for the Fund may differ from those referenced for the Index in the commentary. |
The iShares MSCI Emerging Markets Small Cap Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets Small Cap IndexSM (the “Index”). The Index measures the performance of equity securities of small capitalization companies, whose market capitalization represents the bottom 14% of companies in emerging market countries, as measured by market capitalization. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the period from August 16, 2011 (inception date of the Fund) through August 31, 2011, the total return for the Fund was (1.86)%, net of fees, while the total return for the Index was (1.74)%.
| MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE |
5 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
As represented by the Index, small-cap stocks in emerging markets declined modestly for the reporting period. The two-week period covered by this report was a tumultuous time in the global equity markets. A sovereign debt crisis in Europe, which began in mid-2010 and grew increasingly problematic in 2011, and government infighting about the federal debt ceiling in the U.S. cast doubts on the sustainability of a developing global economic recovery. In addition, fallout from heightened political turmoil in the Middle East and supply disruptions resulting from a severe earthquake and tsunami in Japan created more headwinds for economic growth. As a result, stock markets around the world, including both developed and emerging markets, declined during the last two weeks of August.
On a regional basis, small-cap stocks in Latin America generated the best results for the reporting period, led by Brazil and Peru, both of which gained more than 5%. Small-cap stocks in Eastern Europe and the Middle East also advanced for the reporting period, with Morocco and the Czech Republic delivering the highest returns in the regions. On the downside, Asian small-cap stocks, which made up nearly three-quarters of the Index as of the end of the reporting period, posted negative returns as a group. The biggest decliners included Taiwan, the largest individual country weighting in the Index, and Malaysia, both of which fell by more than 5% during the reporting period.
From a sector perspective, eight of the ten sectors in the Index declined for the reporting period, with information technology stocks suffering the largest losses. Other economically sensitive sectors, such as materials and consumer discretionary, were also among the weaker performing segments of the Index. The only two sectors of the Index to advance for the reporting period were telecommunication services and utilities, both of which are considered defensive sectors that typically hold up well when economic growth wanes.
| 6 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Shareholder Expenses (Unaudited)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares and (2) ongoing costs, including management fees and other Fund expenses. The following Example is intended to help you understand your ongoing costs (in dollars and cents) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from August 16, 2011 (commencement of operations) to August 31, 2011.
ACTUAL EXPENSES
The first line in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value (8/16/11)a |
Ending Account Value (8/31/11) |
Annualized Expense Ratio |
Expenses Paid During Periodb (8/16/11 to 8/31/11) |
|||||||||||||
| Actual |
$1,000.00 | $ 981.40 | 0.69 | % | $0.28 | |||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,021.70 | 0.69 | 3.52 | ||||||||||||
| a | Commencement of operations. |
| b | Actual expenses for the Fund, which commenced operations on August 16, 2011, are calculated using the Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (15 days) and divided by the number of days in the year (365 days). Hypothetical expenses, which are based on a hypothetical half year, are calculated using the Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). |
| SHAREHOLDER EXPENSES | 7 |
Table of Contents
Consolidated Schedule of Investments
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2011
| 8 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2011
| CONSOLIDATED SCHEDULE OF INVESTMENTS | 9 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2011
| 10 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2011
| CONSOLIDATED SCHEDULE OF INVESTMENTS | 11 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2011
| 12 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2011
| CONSOLIDATED SCHEDULE OF INVESTMENTS | 13 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2011
| 14 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2011
| CONSOLIDATED SCHEDULE OF INVESTMENTS | 15 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2011
| 16 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2011
| CONSOLIDATED SCHEDULE OF INVESTMENTS | 17 |
Table of Contents
Consolidated Statement of Assets and Liabilities
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2011
| ASSETS |
||||
| Investments, at cost: |
||||
| Unaffiliated |
$ | 70,852,984 | ||
| Affiliated (Note 2) |
2,552 | |||
|
|
|
|||
| Total cost of investments |
$ | 70,855,536 | ||
|
|
|
|||
| Investments in securities, at fair value (Note 1): |
||||
| Unaffiliated |
$ | 69,466,192 | ||
| Affiliated (Note 2) |
2,552 | |||
|
|
|
|||
| Total fair value of investments |
69,468,744 | |||
| Foreign currencies, at valuea |
84,385 | |||
| Receivables: |
||||
| Investment securities sold |
1,033,160 | |||
| Dividends |
104,247 | |||
|
|
|
|||
| Total Assets |
70,690,536 | |||
|
|
|
|||
| LIABILITIES |
||||
| Payables: |
||||
| Investment securities purchased |
1,225,315 | |||
| Foreign taxes (Note 1) |
2,532 | |||
| Investment advisory fees (Note 2) |
19,301 | |||
|
|
|
|||
| Total Liabilities |
1,247,148 | |||
|
|
|
|||
| NET ASSETS |
$ | 69,443,388 | ||
|
|
|
|||
| Net assets consist of: |
||||
| Paid-in capital |
$ | 70,832,414 | ||
| Undistributed net investment income |
62,835 | |||
| Accumulated net realized loss |
(64,021 | ) | ||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(1,387,840 | ) | ||
|
|
|
|||
| NET ASSETS |
$ | 69,443,388 | ||
|
|
|
|||
| Shares outstandingb |
1,400,000 | |||
|
|
|
|||
| Net asset value per share |
$ | 49.60 | ||
|
|
|
|||
| a | Cost of foreign currencies: $84,348. |
| b | $0.001 par value, number of shares authorized: 500 million. |
See notes to consolidated financial statements.
| 18 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Statement of Operations
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
Period from August 16, 2011 (commencement of operations) through August 31, 2011
| NET INVESTMENT INCOME |
||||
| Dividends – unaffiliateda |
$ | 114,506 | ||
|
|
|
|||
| 114,506 | ||||
| Less: Other foreign taxes (Note 1) |
(2,532 | ) | ||
|
|
|
|||
| Total investment income |
111,974 | |||
|
|
|
|||
| EXPENSES |
||||
| Investment advisory fees (Note 2) |
19,301 | |||
|
|
|
|||
| Total expenses |
19,301 | |||
|
|
|
|||
| Net investment income |
92,673 | |||
|
|
|
|||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||
| Net realized gain (loss) from: |
||||
| Investments – unaffiliated |
(63,961 | ) | ||
| Foreign currency transactions |
(29,898 | ) | ||
|
|
|
|||
| Net realized loss |
(93,859 | ) | ||
|
|
|
|||
| Net change in unrealized appreciation/depreciation on: |
||||
| Investments |
(1,386,792 | ) | ||
| Translation of assets and liabilities in foreign currencies |
(1,048 | ) | ||
|
|
|
|||
| Net change in unrealized appreciation/depreciation |
(1,387,840 | ) | ||
|
|
|
|||
| Net realized and unrealized loss |
(1,481,699 | ) | ||
|
|
|
|||
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (1,389,026 | ) | |
|
|
|
|||
| a | Net of foreign withholding tax of $16,561. |
See notes to consolidated financial statements.
| CONSOLIDATED FINANCIAL STATEMENTS | 19 |
Table of Contents
Consolidated Statement of Changes in Net Assets
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
| Period
from August 16, 2011a to August 31, 2011 |
||||
| INCREASE (DECREASE) IN NET ASSETS |
||||
| OPERATIONS: |
||||
| Net investment income |
$ | 92,673 | ||
| Net realized loss |
(93,859 | ) | ||
| Net change in unrealized appreciation/depreciation |
(1,387,840 | ) | ||
|
|
|
|||
| Net decrease in net assets resulting from operations |
(1,389,026 | ) | ||
|
|
|
|||
| CAPITAL SHARE TRANSACTIONS: |
||||
| Proceeds from shares sold |
70,832,414 | |||
|
|
|
|||
| Net increase in net assets from capital share transactions |
70,832,414 | |||
|
|
|
|||
| INCREASE IN NET ASSETS |
69,443,388 | |||
| NET ASSETS |
||||
| Beginning of period |
– | |||
|
|
|
|||
| End of period |
$ | 69,443,388 | ||
|
|
|
|||
| Undistributed net investment income included in net assets at end of period |
$ | 62,835 | ||
|
|
|
|||
| SHARES ISSUED |
||||
| Shares sold |
1,400,000 | |||
|
|
|
|||
| Net increase in shares outstanding |
1,400,000 | |||
|
|
|
|||
| a | Commencement of operations. |
See notes to consolidated financial statements.
| 20 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Financial Highlights
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
(For a share outstanding throughout the period)
| Period from Aug. 31, 2011 |
||||
| Net asset value, beginning of period |
$ | 50.54 | ||
|
|
|
|||
| Income from investment operations: |
||||
| Net investment incomeb |
0.07 | |||
| Net realized and unrealized lossc |
(1.01 | ) | ||
|
|
|
|||
| Total from investment operations |
(0.94 | ) | ||
|
|
|
|||
| Net asset value, end of period |
$ | 49.60 | ||
|
|
|
|||
| Total return |
(1.86 | )%d | ||
|
|
|
|||
| Ratios/Supplemental data: |
||||
| Net assets, end of period (000s) |
$ | 69,443 | ||
| Ratio of expenses to average net assetse |
0.69 | % | ||
| Ratio of net investment income to average net assetse |
3.33 | % | ||
| Portfolio turnover ratef |
2 | % | ||
| a | Commencement of operations. |
| b | Based on average shares outstanding throughout the period. |
| c | The amount reported for a share outstanding may not accord with the change in aggregate gains and losses in securities for the fiscal period due to the timing of capital share transactions in relation to the fluctuating market values of the Fund’s underlying securities. |
| d | Not annualized. |
| e | Annualized for periods of less than one year. |
| f | Portfolio turnover rate excludes portfolio securities received or delivered in Creation Units but includes portfolio transactions that are executed as a result of the Fund processing capital share transactions in Creation Units partially for cash in U.S. dollars. Excluding such cash transactions, the portfolio turnover rate for the period ended August 31, 2011 would have been 2%. See Note 4. |
See notes to consolidated financial statements.
| CONSOLIDATED FINANCIAL HIGHLIGHTS | 21 |
Table of Contents
Notes to Consolidated Financial Statements
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
iShares, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company was incorporated under the laws of the State of Maryland on September 1, 1994 pursuant to amended and restated Articles of Incorporation.
These consolidated financial statements relate only to the following fund (the “Fund”):
| iShares MSCI Index Fund | Diversification Classification |
|||
| Emerging Markets Small Capa |
Non-diversified | |||
| a | The Fund commenced operations on August 16, 2011. |
Non-diversified funds generally hold securities of fewer issuers than diversified funds and may be more susceptible to the risks associated with these particular issuers, or to a single economic, political or regulatory occurrence affecting these issuers.
The investment objective of the Fund is to seek investment results that correspond generally to the price and yield performance, before fees and expenses, of its underlying index. The investment adviser uses a “passive” or index approach to try to achieve the Fund’s investment objective.
The Fund carries out its investment strategies associated with investment in Indian securities by investing in a wholly-owned subsidiary in the Republic of Mauritius (the “Subsidiary”), which in turn invests in Indian securities included in the underlying index. The investment adviser of the Fund also serves as the investment adviser to the Subsidiary. Through this investment structure, the Fund expects to obtain certain benefits under a current tax treaty between Mauritius and India. The accompanying consolidated financial statements include the accounts of the Subsidiary.
The Fund invests in securities of non-U.S. issuers that may trade in non-U.S. markets. This may involve certain considerations and risks not typically associated with securities of U.S. issuers. Such risks include, but are 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 of the Fund; less publicly available information about issuers; the imposition of withholding or other taxes; higher transaction and custody costs; settlement delays and risk of loss attendant in settlement procedures; difficulties in enforcing contractual obligations; less regulation of securities markets; different accounting, disclosure and reporting requirements; more substantial governmental involvement in the economy; higher inflation rates; greater social, economic and political uncertainties; the risk of nationalization or expropriation of assets and the risk of war.
Pursuant to the Company’s organizational documents, the Fund’s officers and directors are indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred.
1. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are consistently followed by the Fund in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and
| 22 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
SECURITY VALUATION
The securities and other assets of the Fund are valued pursuant to the pricing policy and procedures approved by the Board of Directors of the Company (the “Board”) using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
| • | Level 1 – Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access at the measurement date (a “Level 1 Price”); |
| • | Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not considered to be active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (a “Level 2 Price”); and |
| • | Level 3 – Inputs that are unobservable for the asset or liability (a “Level 3 Price”). |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3 of the fair value hierarchy.
The level of a value determined for a financial instrument within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement in its entirety. The categorization of a value determined for a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Fund’s perceived risk of that instrument.
Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 Prices, include active listed equities. The Fund does not adjust the quoted price for such instruments, even in situations where the Fund holds a large position and a sale could reasonably impact the quoted price.
Investments that trade in markets that are not considered to be active, but whose values are based on inputs such as quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified within Level 2. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Investments whose values are classified as Level 3 Prices have significant unobservable inputs, as they may trade infrequently or not at all. Investments whose values are classified as Level 3 Prices may include unlisted securities related to corporate actions, securities whose trading have been suspended or which have been de-listed from their primary trading exchange, less liquid corporate debt securities (including
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 23 |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
distressed debt instruments), collateralized debt obligations, and less liquid mortgage securities (backed by either commercial or residential real estate). When observable prices are not available for these securities, the Fund uses one or more valuation techniques (e.g., the market approach or the income approach) for which sufficient and reliable data is available. Within Level 3 of the fair value hierarchy, the use of the market approach generally consists of using comparable market transactions, while the use of the income approach generally consists of the net present value of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors.
The inputs used by the Fund in estimating the value of Level 3 Prices may include the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 Prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the Fund in the absence of market information. The fair value measurement of Level 3 Prices does not include transaction costs that may have been capitalized as part of the security’s cost basis. Assumptions used by the Fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the Fund’s results of operations.
Fair value pricing could result in a difference between the prices used to calculate the Fund’s net asset value and the prices used by the Fund’s underlying index, which in turn could result in a difference between the Fund’s performance and the performance of the Fund’s underlying index.
The following table summarizes the value of each of the Fund’s investments according to the fair value hierarchy as of August 31, 2011. The breakdown of the Fund’s investments into major categories is disclosed in its Consolidated Schedule of Investments.
| Investments in Securities | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Common Stocks |
$ | 68,363,330 | $ | – | $ | – | $ | 68,363,330 | ||||||||
| Preferred Stocks |
1,098,125 | – | – | 1,098,125 | ||||||||||||
| Rights |
– | – | 4,737 | 4,737 | ||||||||||||
| Short-Term Investments |
2,552 | – | – | 2,552 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 69,464,007 | $ | – | $ | 4,737 | $ | 69,468,744 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for on trade date. Dividend income is recognized on the ex-dividend date, net of any foreign taxes withheld at source. Any taxes withheld that are reclaimable from foreign tax authorities as of August 31, 2011 are reflected in dividends receivable. Non-cash dividends received in the form of stock in an elective dividend, if any, are recorded as dividend income at fair value. Distributions received by the Fund may include a return of capital that is estimated by management. Such amounts are recorded as a reduction of the cost of investments or reclassified to capital gains. Interest income is accrued daily. Realized gains and losses on investment transactions are determined using the specific identification method.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. Foreign currencies, as well as investment securities and other assets and liabilities denominated in foreign currencies, are translated into U.S. dollars using exchange rates deemed appropriate by the investment adviser. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars on the respective dates of such transactions.
| 24 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
The Fund does not isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of securities. Such fluctuations are reflected by the Fund as a component of realized and unrealized gains and losses from investments for financial reporting purposes.
FOREIGN TAXES
The Fund may be subject to foreign taxes (a portion of which may be reclaimable) on income, capital gains on investments, certain foreign currency transactions or other corporate events. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in the foreign jurisdictions in which the Fund invest. These foreign taxes, if any, are paid by the Fund and are reflected in its Consolidated Statement of Operations as follows: foreign taxes withheld at source are presented as a reduction of income, foreign taxes on capital gains from sales of investments and foreign currency transactions are included in their respective net realized gain (loss) categories, and foreign taxes on other corporate events are reflected in “Other foreign taxes.” Foreign taxes payable as of August 31, 2011, if any, are disclosed in the Fund’s Consolidated Statement of Assets and Liabilities.
The Subsidiary is subject to tax in Mauritius on its net income. See the “Income Taxes” section for further information.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. Distributions are determined on a tax basis and may differ from net investment income and net realized capital gains for financial reporting purposes. Dividends and distributions are paid in U.S. dollars and cannot be automatically reinvested in additional shares of the Fund.
As of August 31, 2011, the tax year-end of the Fund, the components of accumulated net earnings (losses) on a tax basis consisted of undistributed ordinary income of $166,550, unrealized depreciation of $1,491,555 and capital and other losses of $64,021, for accumulated net losses of $1,389,026. The difference between book-basis and tax-basis unrealized gains (losses) is attributable primarily to the realization for tax purposes of unrealized gains on investments in passive foreign investment companies.
INCOME TAXES
The Fund is treated as an entity separate from the Company’s other funds for federal income tax purposes. It is the policy of the Fund to qualify as a regulated investment company by complying with the provisions applicable to regulated investment companies, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, and to annually distribute substantially all of its ordinary income and any net capital gains (taking into account any capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income and excise taxes. Accordingly, no provision for federal income taxes is required.
As permitted by tax regulations, the Fund has elected to defer net realized capital losses incurred from August 16, 2011 (commencement of operations) to August 31, 2011 of $64,021 and treat them as arising in the year ending August 31, 2012.
Under the recently enacted Regulated Investment Company Modernization Act of 2010, capital losses incurred by funds for taxable years beginning after December 22, 2010 will not be subject to expiration. The Fund had no non-expiring tax basis net capital loss carryforward as of August 31, 2011, the tax year-end of the Fund. Net capital loss carryforwards may be applied against any net realized taxable gains in each succeeding year.
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 25 |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
The Fund may own shares in certain foreign investment entities, referred to, under U.S. tax law, as “passive foreign investment companies.” The Fund may elect to mark-to-market annually the shares of each passive foreign investment company and would be required to distribute to shareholders any such marked-to-market gains.
As of August 31, 2011, the cost of investments for federal income tax purposes was $70,959,251. Net unrealized depreciation was $1,490,507, of which $1,355,893 represented gross unrealized appreciation on securities and $2,846,400 represented gross unrealized depreciation on securities.
Management has reviewed the tax positions as of August 31, 2011, and has determined that no provision for income tax is required in the Fund’s consolidated financial statements.
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These differences are reclassified by the Fund at the end of its tax year and are primarily attributable to passive foreign investment companies and realized gains (losses) from foreign currency transactions. As of August 31, 2011, the Fund made the following reclassifications, which have no effect on net assets or net asset values per share:
| Paid-in Capital | Undistributed Net Investment Income/Distributions in Excess of Net Investment Income |
Undistributed Net Realized Gain/ Accumulated Net Realized Loss |
||||||||
| $ | – | $ | (29,838 | ) | $ | 29,838 | ||||
The Fund conducts certain of its investment activities in India through the Subsidiary and expects to obtain benefits under the Double Tax Avoidance Agreement (“DTAA”). In order to be eligible to claim benefits under the DTAA, the Subsidiary must satisfy certain conditions, including the establishment and maintenance of valid tax residence in Mauritius. The Subsidiary is subject to tax in Mauritius on its net income at the rate of 15%. However, a system of foreign tax credits effectively reduces the Mauritius income tax rate to a maximum of 3%. These income taxes, if any, are paid by the Fund and are disclosed in the Consolidated Statement of Operations. Further, the Subsidiary is not subject to capital gains tax in Mauritius nor is it subject to tax in Mauritius on any gains from the sale of securities. Any dividends paid by the Subsidiary to the Fund will also be exempt from tax in Mauritius. The foregoing is based upon current interpretation and practice and is subject to future changes in the tax laws of India or Mauritius and in the DTAA.
RECENT ACCOUNTING STANDARD
In May 2011, the Financial Accounting Standards Board issued amended guidance to improve disclosure about fair value measurements which will require the following disclosures for fair value measurements categorized as Level 3: quantitative information about the unobservable inputs and assumptions used in the fair value measurement, a description of the valuation policies and procedures and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, the amounts and reasons for all transfers in and out of Level 1 and Level 2 will be required to be disclosed. The amended guidance is effective for financial statements for fiscal years beginning after December 15, 2011, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Fund’s consolidated financial statements and disclosures.
| 26 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Investment Advisory Agreement with the Company, BlackRock Fund Advisors (“BFA”) manages the investment of the Fund’s assets. BFA is a California corporation indirectly owned by BlackRock, Inc. (“BlackRock”). Under the Investment Advisory Agreement, BFA is responsible for substantially all expenses of the Fund, except interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution fees, litigation expenses and any extraordinary expenses.
The Subsidiary has entered into a separate contract with BFA under which BFA provides investment advisory services to the Subsidiary but does not receive separate compensation from the Subsidiary for providing it with such services. The Subsidiary has also entered into separate arrangements that provide for the provision of other services to the Subsidiary (including administrative, custody, transfer agency and other services), and BFA pays the costs and expenses related to the provision of those services.
For its investment advisory services to the Fund, BFA is entitled to an annual investment advisory fee based on the Fund’s allocable portion of the aggregate of the average daily net assets of the Fund (including the assets invested in the Subsidiary) and certain other iShares funds, as follows:
| Investment Advisory Fee | Aggregate Average Daily Net Assets | |
| 0.75% | First $14 billion | |
| 0.68 | Over $14 billion, up to and including $28 billion | |
| 0.61 | Over $28 billion, up to and including $42 billion | |
| 0.56 | Over $42 billion, up to and including $56 billion | |
| 0.50 | Over $56 billion, up to and including $70 billion | |
| 0.45 | Over $70 billion, up to and including $84 billion | |
| 0.40 | Over $84 billion |
The Fund may invest its positive cash balances in certain money market funds managed by BFA or an affiliate. The income earned on these temporary cash investments is included in “Interest – affiliated” in the Consolidated Statement of Operations.
The PNC Financial Services Group, Inc. (“PNC”) and Barclays PLC (“Barclays”) are the largest stockholders of BlackRock. Due to the ownership structure, PNC is an affiliate of the Fund for 1940 Act purposes, but Barclays is not.
Certain directors and officers of the Company are also officers of BlackRock Institutional Trust Company, N.A. (“BTC”) and/or BFA.
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments (excluding in-kind transactions and short-term investments) for the period ended August 31, 2011, aggregated $54,577,394 and $1,236,137, respectively.
In-kind purchases and sales (see Note 4) for the period ended August 31, 2011, aggregated $17,575,688 and $–, respectively.
4. CAPITAL SHARE TRANSACTIONS
Capital shares are issued and redeemed by the Fund only in aggregations of a specified number of shares or multiples thereof (“Creation Units”) at net asset value. Except when aggregated in Creation Units, shares of the Fund are not redeemable. Transactions in capital shares for the Fund are disclosed in detail in the Consolidated Statements of Changes in Net Assets.
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 27 |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
The consideration for the purchase of Creation Units of a fund in the Company generally consists of the in-kind deposit of a designated portfolio of securities, which constitutes an optimized representation of the securities of that fund’s underlying index, and an amount of cash. Certain funds in the Company may be offered in Creation Units solely or partially for cash in U.S. dollars. Investors purchasing and redeeming Creation Units may pay a purchase transaction fee and a redemption transaction fee directly to State Street Bank and Trust Company, the Company’s administrator, to offset transfer and other transaction costs associated with the issuance and redemption of Creation Units, including Creation Units for cash. Investors transacting in Creation Units for cash pay an additional variable charge to compensate the relevant fund for certain transaction costs (i.e., stamp taxes, taxes on currency or other financial transactions, and brokerage costs) and market impact expenses relating to investing in portfolio securities.
5. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through the date the consolidated financial statements were available to be issued and has determined that there were no subsequent events requiring adjustment or disclosure in the consolidated financial statements.
| 28 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
iShares, Inc.:
In our opinion, the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, and the related consolidated statements of operations and of changes in net assets and the consolidated financial highlights present fairly, in all material respects, the consolidated financial position of the iShares MSCI Emerging Markets Small Cap Index Fund and its subsidiary, (collectively the “Fund”), at August 31, 2011, the results of its operations, the changes in its net assets and its financial highlights for the period presented, in conformity with accounting principles generally accepted in the United States of America. These consolidated financial statements and consolidated financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2011 by correspondence with the custodian, transfer agent and brokers, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 21, 2011
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 29 |
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iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
For the period ended August 31, 2011, the Fund earned foreign source income of $131,067 and paid foreign taxes of $17,955 which it intends to pass through to its shareholders pursuant to Section 853 of the Internal Revenue Code (the “Code”).
Under Section 854(b)(2) of the Code, the Fund hereby designates the maximum amount of $17,955 as qualified dividend income for purposes of the maximum rate under Section 1(h)(11) of the Code for the period ended August 31, 2011.
In February 2012, shareholders will receive Form 1099-DIV which will include their share of qualified dividend income distributed during the calendar year 2011. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their income tax returns.
| 30 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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Board Review and Approval of Investment Advisory
Contract (Unaudited)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
Under Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), the Company’s Board of Directors (the “Board”), including a majority of Directors who are not “interested persons” of the Company (as that term is defined in the 1940 Act) (the “Independent Directors”), is required to consider and approve the proposed Investment Advisory Contract between the Company and BFA on behalf of the Fund (the “Advisory Contract”). As required by Section 15(c), the Board requested, and BFA provided, such information as the Board, with advice from independent counsel, deemed reasonably necessary to evaluate the terms of the proposed Advisory Contract.
At a meeting held on August 4, 2011, the Board approved the selection of BFA and the Advisory Contract for the Fund, based on its review of qualitative and quantitative information provided by BFA. The Board also considered information previously provided by BFA, BlackRock Institutional Trust Company, N.A. (“BTC”), and BlackRock, Inc. (“BlackRock”), as applicable, at prior Board meetings in connection with the Board’s consideration and approval of new investment advisory contracts between other iShares funds and BFA, which took effect upon the consummation of the acquisition by BlackRock of BTC’s asset management business (the “Transaction”) in December 2009. The Independent Directors were advised by their independent counsel throughout the process.
In selecting BFA and approving the Advisory Contract for the Fund, the Board, including the Independent Directors, considered the following factors, no one of which was controlling, and made the following conclusions:
Nature, Extent and Quality of Services to be Provided by BFA – The Board reviewed the scope of services to be required of or provided by BFA under the Advisory Contract. In reviewing the scope of these services, the Board considered BFA’s investment philosophy and experience as well as the resources expected to be available from BFA and its affiliates for the support of the Fund and its shareholders. The Board considered in particular that BFA’s services for other iShares funds reflect BFA’s core competencies, including BFA’s effective use of its proprietary investment systems analyzing securities market risk, asset class correlations and expected returns. The Board also considered services provided by BFA and its affiliates to other iShares funds in connection with the review of counterparty and issuer credit risk and securities lending opportunities and the oversight of intermediaries that provide shareholder support and processing functions. The Board considered representations by BFA, BTC, and BlackRock that the scope and quality of services to be provided to the Fund would be similar to the scope and quality of services provided to other iShares funds.
The Board also considered BFA’s compliance program and its compliance record with respect to other iShares funds. The Board noted that BFA reports to the Board about portfolio management and compliance matters on a periodic basis in connection with regularly scheduled meetings of the Board, and on other occasions as necessary and appropriate, and has provided information and made appropriate officers available as needed to provide further assistance with these matters. The Board also reviewed the background and experience of the persons who will be responsible for the day-to-day management of the Fund. In addition to the above considerations, the Board reviewed and considered BFA’s investment and risk management processes and strategies, and matters related to BFA’s portfolio compliance policies and procedures.
The Board took into account prior discussions at Board meetings held during 2009, 2010, and 2011, including representations by management regarding the resources and strengths of BFA in managing the iShares funds after the Transaction and the financial condition of BFA and BlackRock.
Based on review of this information, the Board concluded that the nature, extent and quality of services to be provided by BFA to the Fund under the Advisory Contract supported the Board’s approval of the Advisory Contract.
Fund Expenses – The Board reviewed statistical information prepared by Lipper Inc. (“Lipper”), an independent provider of investment company data, regarding the expense ratio components, including actual advisory fees, waivers/reimbursements, and gross and net total expenses of the Fund in comparison with the same information for other registered investment companies objectively selected by Lipper as comprising the Fund’s applicable peer group pursuant to Lipper’s proprietary methodology (the “Lipper Group”). Because there are few, if any, exchange traded funds or index funds that track an index similar to that tracked by the Fund, the Lipper Group included in part mutual funds,
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT | 31 |
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Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
closed-end funds, exchange traded funds, or funds with differing investment objective classifications, investment focuses and other characteristics (e.g., actively managed funds and funds sponsored by “at-cost” service providers). In support of its review of the statistical information, the Board was provided with a description of the methodology used by Lipper to determine the applicable Lipper Group and to prepare this information. The Board further noted that due to the limitations in providing comparable funds in the Lipper Group, the statistical information may or may not provide meaningful direct comparisons to the Fund. The Board also noted that the proposed investment advisory fee rate and overall expenses for the Fund compared favorably to the investment advisory fee rate and overall expenses of the funds in the Lipper Group.
Based on this review, the Board concluded that the proposed investment advisory fees and expense levels of the Fund, as compared to the investment advisory fees and expense levels of the funds in the Lipper Group, supported the Board’s approval of the Advisory Contract.
Costs of Services to be Provided to the Fund and Profits to be Realized by BFA and Affiliates – The Board did not consider the profitability of the Fund to BFA based on the fees payable under the Advisory Contract or revenue to be received by BFA or its affiliates in connection with services to be provided to the Fund since the proposed relationships had not yet commenced. The Board noted that it expects to receive profitability information from BFA on at least an annual basis and will thus be in a position to evaluate whether, following the expiration of the Advisory Contract’s initial two year term, any adjustments in Fund fees would be appropriate.
Economies of Scale – The Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Fund’s assets. The Board noted that the Advisory Contract already provided for breakpoints in the Fund’s investment advisory fee rate as the assets of the Fund, on an aggregated basis with the assets of certain other iShares funds, increase. The Board also noted that at previous Board meetings it reviewed BFA’s historic profitability as investment adviser to the iShares fund complex and noted that BFA and BlackRock had continued to make significant investments in the iShares fund complex and the infrastructure supporting the iShares funds.
Based on this review, as well as the discussions described above in connection with the Lipper Group comparisons, the Board, recognizing its responsibility to consider this issue at least annually following an initial two-year period, concluded that the structure of the investment advisory fees reflects appropriate sharing of potential economies of scale with the Fund’s shareholders and supported the Board’s approval of the Advisory Contract.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by BFA and its Affiliates – The Board considered certain information regarding the investment advisory/management fee rate for other funds/accounts in the U.S. for which BFA (or its affiliates) provides investment advisory/management services, including open-end and closed-end funds registered under the 1940 Act, collective trust funds, and institutional separate accounts (together, the “Other Accounts”). The Board noted that BFA and its affiliates manage Other Accounts with a substantially similar investment objective and strategy as the Fund. The Board further noted that at previous Board meetings BFA provided the Board with detailed information regarding how Other Accounts (particularly institutional clients) generally differ from the Fund, including in terms of the different services provided as well as other significant differences in the approach of BFA and its affiliates to the Fund, on one hand, and Other Accounts, on the other. In that regard, the Board considered that the pricing of services to institutional clients is typically based on a number of factors beyond the nature and extent of the specific services to be provided and often depends on the overall relationship between the client and its affiliates and the adviser and its affiliates. In addition, the Board considered the relative complexity and inherent risks of managing and providing other services to the Fund, as a publicly traded exchanged traded fund, as compared to Other Accounts that are institutional clients in light of differing regulatory requirements and client-imposed mandates. The Board noted that the investment advisory fee rate under the Advisory Contract for the Fund was generally higher than the investment advisory/management fee rates for Other Accounts that are institutional clients of BFA (or its affiliates), and concluded that the differences appeared to be consistent with the factors discussed.
| 32 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
Other Benefits to BFA and/or its Affiliates – Except as noted below, the Board did not consider any ancillary revenue to be received by BFA and/or its affiliates in connection with the services to be provided to the Fund by BFA since the proposed relationship had not yet commenced. However, the Board noted that BFA would not use soft dollars or consider the value of research or other services that may be provided to BFA (including its affiliates) in selecting brokers for portfolio transactions for the Fund. The Board considered the potential payment of advisory fees and/or administration fees to BFA and BTC (or their affiliates) in connection with any investments by the Fund in other funds for which BFA (or its affiliates) provides investment advisory services and/or administration services. The Board also considered the potential for revenue to BTC, the Fund’s securities lending agent, for loaning any portfolio securities. The Board further noted that any portfolio transactions on behalf of the Fund placed through a BFA affiliate or purchased from an underwriting syndicate in which a BFA affiliate participates, are reported to the Board pursuant to Rule 17e-1 or Rule 10f-3, as applicable, under the 1940 Act. The Board concluded that any such ancillary benefits would not be disadvantageous to the Fund’s shareholders.
Based on the considerations described above, the Board determined that the investment advisory fee rate under the Advisory Contract does not constitute a fee that is so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bargaining and concluded that it is in the best interest of the Fund and its shareholders to approve the Advisory Contract.
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT | 33 |
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Director and Officer Information (Unaudited)
iSHARES®, INC.
The Board of Directors has responsibility for the overall management and operations of the Company, including general supervision of the duties performed by BFA and other service providers. Each Officer serves until he or she resigns, is removed, dies, retires or becomes incapacitated. The President, Treasurer and Secretary shall each hold office until their successors are chosen and qualified and all other officers shall hold office until he or she resigns or is removed. Directors who are not interested persons (as defined in the 1940 Act) are referred to as Independent Directors.
The registered investment companies advised by BFA or its affiliates are organized into one complex of closed-end funds, two complexes of open-end funds and one complex of exchange-traded funds (“Exchange-Traded Fund Complex”) (each, a “BlackRock Fund Complex”). Each Fund is included in the BlackRock Fund Complex referred to as the Exchange-Traded Fund Complex. Each Director of iShares, Inc. also serves as a Trustee of iShares Trust and a Director of iShares MSCI Russia Capped Index Fund, Inc. and, as a result, oversees a total of 224 funds within the Exchange-Traded Fund Complex. With the exception of Robert S. Kapito, the address of each Director and Officer is c/o BlackRock, Inc., 400 Howard Street, San Francisco, CA 94105. The address of Mr. Kapito is c/o BlackRock, Inc., Park Avenue Plaza, 55 East 52nd Street, New York, NY 10055. The Board has designated George G.C. Parker as its Independent Chairman. Additional information about the Funds’ Directors and Officers may be found in the Funds’ combined Statement of Additional Information, which is available without charge, upon request, by calling toll-free 1-800-474-2737.
Interested Directors and Officers
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| Robert S. Kapitoa (54) |
Director (since 2009). |
President and Director, BlackRock, Inc. (since 2006 and 2007, respectively); Vice Chairman of BlackRock, Inc. and Head of BlackRock’s Portfolio Management Group (since its formation in 1998) and BlackRock’s predecessor entities (since 1988); Trustee, University of Pennsylvania (since 2009); President of Board of Directors, Hope & Heroes Children’s Cancer Fund (since 2002); President of the Board of Directors, Periwinkle Theatre for Youth (since 1983). |
Trustee of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of BlackRock, Inc. (since 2007). | |||
| Michael Lathamb (46) |
Director (since 2010); President (since 2007). |
Chairman of iShares, BTC (since 2011); Global Chief Executive Officer of iShares, BTC (2010-2011); Managing Director, BTC (since 2009); Head of Americas iShares, Barclays Global Investors (“BGI”) (2007- 2009); Director and Chief Financial Officer of Barclays Global Investors International, Inc. (2005-2009); Chief Operating Officer of the Intermediary Investor and Exchange Traded Products Business of BGI (2003-2007). |
Trustee of iShares Trust (since 2010); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| a | Robert S. Kapito is deemed to be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. |
| b | Michael Latham is deemed to be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. and its affiliates. |
| 34 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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Director and Officer Information (Unaudited) (Continued)
iSHARES®, INC.
Independent Directors
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| George G.C. Parker (72) |
Director (since 2000); Independent Chairman (since 2010). |
Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University: Graduate School of Business (since 1994). |
Trustee of iShares Trust (since 2002); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Independent Chairman of iShares Trust (since 2010); Independent Chairman of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of Tejon Ranch Company (since 1999); Director of Threshold Pharmaceuticals (since 2004); Director of Colony Financial, Inc. (since 2009); Director of First Republic Bank (since 2010). | |||
| Cecilia H. Herbert (62) |
Director (since 2005). |
Director (since 1998) and President (2007-2010) of the Board of Directors, Catholic Charities CYO; Trustee of Pacific Select Funds (2004-2005); Trustee (since 2002) and Chair of the Finance Committee (2006-2009) and Investment Committee (since 2006) of the Thacher School; Member (since 1994) and Chair (1994-2005) of Investment Committee, Archdiocese of San Francisco. | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director, Forward Funds (35 portfolios) (since 2009). | |||
| Charles A. Hurty (68) |
Director (since 2005). |
Retired; Partner, KPMG LLP (1968-2001). |
Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002); Director of Skybridge Multi-Adviser Hedge Fund Portfolios LLC (1 portfolio) (since 2002). | |||
| John E. Kerrigan (56) |
Director (since 2005). |
Chief Investment Officer, Santa Clara University (since 2002). | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| John E. Martinez (50) |
Director (since 2003). |
Director of EquityRock, Inc. (since 2005). |
Trustee of iShares Trust (since 2003); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| DIRECTOR AND OFFICER INFORMATION | 35 |
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Director and Officer Information (Unaudited) (Continued)
iSHARES®, INC.
Independent Directors (Continued)
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| Madhav V. Rajan (47) |
Director (since 2011). |
Gregor G. Peterson Professor of Accounting and Senior Associate Dean for Academic Affairs, Stanford University: Graduate School of Business (since 2001); Professor of Law (by courtesy), Stanford Law School (since 2005); Visiting Professor, University of Chicago (Winter 2007-2008). | Trustee of iShares Trust (since 2011); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2011). | |||
| Robert H. Silver (56) |
Director (since 2007). |
President and Co-Founder of The Bravitas Group, Inc. (since 2006); Member, Non- Investor Advisory Board of Russia Partners II, LP (since 2006); Director and Vice Chairman of the YMCA of Greater NYC (since 2001); Broadway Producer (since 2006); Co-Founder and Vice President of Parentgiving Inc. (since 2008); Director and Member of the Audit and Compensation Committee of EPAM Systems, Inc. (2006-2009). | Trustee of iShares Trust (since 2007); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). | |||
| 36 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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Director and Officer Information (Unaudited) (Continued)
iSHARES®, INC.
Officers
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years | ||
| Geoffrey D. Flynn (54) |
Executive Vice President and Chief Operating Officer (since 2008). |
Managing Director, BTC (since 2009); Chief Operating Officer, U.S. iShares, BGI (2007- 2009); President, Van Kampen Investors Services (2003-2007); Managing Director, Morgan Stanley (2002-2007); President, Morgan Stanley Trust, FSB (2002-2007). | ||
| Eilleen M. Clavere (59) |
Secretary (since 2007). |
Director, BTC (since 2009); Director of Legal Administration of Intermediary Investor Business of BGI (2006-2009); Legal Counsel and Vice President of Atlas Funds, Atlas Advisers, Inc. and Atlas Securities, Inc. (2005-2006). | ||
| Jack Gee (52) |
Treasurer and Chief Financial Officer (since 2008). |
Managing Director, BTC (since 2009); Senior Director of Fund Administration of Intermediary Investor Business of BGI (2009); Director of Fund Administration of Intermediary Investor Business of BGI (2004-2009). | ||
| Amy Schioldager (49) |
Executive Vice President (since 2007). |
Managing Director, BTC (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008); Head of Domestic Equity Portfolio Management, BGI (2001-2006). | ||
| Ira P. Shapiro (48) |
Vice President and Chief Legal Officer (since 2007). |
Managing Director, BTC (since 2009); Associate General Counsel, BGI (2004-2009). | ||
| Matt Tucker (39) |
Vice President (since 2007). | Managing Director, BTC (since 2009); Director of Fixed Income Investment Strategy, BGI (2009); Head of U.S. Fixed Income Investment Solutions, BGI (2005-2008). | ||
| DIRECTOR AND OFFICER INFORMATION | 37 |
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Notes:
| 38 | 2011 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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For more information visit www.iShares.com
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iS-AR-88-0811
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| Item 2. | Code of Ethics. |
iShares, Inc. (the “Registrant”) adopted a new code of ethics on July 1, 2011 that applies to persons appointed by the Registrant’s Board of Directors as the President and/or Chief Financial Officer, and any persons performing similar functions. For the fiscal year ended August 31, 2011, there were no amendments to any provision of the former and new codes of ethics, nor were there any waivers granted from any provision of the former and new codes of ethics. A copy of the new code of ethics is filed with this Form N-CSR under Item 12(a)(1).
| Item 3. | Audit Committee Financial Expert. |
The Registrant’s Board of Directors has determined that the Registrant has more than one audit committee financial expert, as that term is defined under Item 3(b) and 3(c), serving on its audit committee. The audit committee financial experts serving on the Registrant’s audit committee are Charles A. Hurty, John E. Kerrigan, George G.C. Parker and Robert H. Silver, all of whom are independent, as that term is defined under Item 3(a)(2).
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| Item 4. | Principal Accountant Fees and Services. |
| (a) | Audit Fees – The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the Registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years, were $483,283 for the fiscal year ended August 31, 2010 and $498,227 for the fiscal year ended August 31, 2011. |
| (b) | Audit-Related Fees – There were no fees billed for the fiscal years ended August 31, 2010 and August 31, 2011 for assurance and related services by the principal accountant that were reasonably related to the performance of the audit of the Registrant’s financial statements and are not reported under (a) of this Item. |
| (c) | Tax Fees – The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for the review of the Registrant’s tax returns and excise tax calculations, were $146,080 for the fiscal year ended August 31, 2010 and $161,600 for the fiscal year ended August 31, 2011. |
| (d) | All Other Fees – There were no other fees billed for the fiscal years ended August 31, 2010 and August 31, 2011 for products and services provided by the principal accountant, other than the services reported in (a) through (c) of this Item. |
| (e) | (1) The Registrant’s audit committee charter, as amended, provides that the audit committee is responsible for the approval, prior to appointment, of the engagement of the principal accountant to annually audit and provide their opinion on the Registrant’s financial statements. The audit committee must also approve, prior to appointment, the engagement of the principal accountant to provide non-audit services to the Registrant or to any entity controlling, controlled by or under common control with the Registrant’s investment adviser (“Adviser Affiliate”) that provides ongoing services to the Registrant, if the engagement relates directly to the operations and financial reporting of the Registrant. |
(2) There were no services described in (b) through (d) above (including services required by the audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X) that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
| (f) | None of the hours expended on the principal accountant’s engagement to audit the Registrant’s financial statements for the fiscal year ended August 31, 2011 were attributable to work performed by persons other than the principal accountant’s full-time, permanent employees. |
| (g) | The aggregate non-audit fees billed by the Registrant’s principal accountant for services rendered to the Registrant’s, and rendered to the Registrant’s investment adviser, and any Adviser Affiliate that provides ongoing services to the Registrant for the last two fiscal years, were $4,199,105 for the fiscal year ended August 31, 2010 and $2,611,296 for the fiscal year ended August 31, 2011. |
| (h) | The Registrant’s audit committee has considered whether the provision of non-audit services rendered to the Registrant’s investment adviser and any Adviser Affiliate that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, if any, are compatible with maintaining the principal accountant’s independence, and has determined that the provision of these services do not compromise the principal accountant’s independence. |
| Item 5. | Audit Committee of Listed Registrants. |
The Registrant is a listed issuer as defined in Rule 10A-3 under the Exchange Act and has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Registrant’s audit committee members are George G.C. Parker, Cecilia H. Herbert, Charles A. Hurty, John E. Kerrigan, Robert H. Silver, John E. Martinez and Madhav V. Rajan.
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| Item 6. | Schedule of Investments. |
(a) Schedules of investments are included as part of the reports to shareholders filed under Item 1 of this Form.
(b) Not applicable.
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable to the Registrant.
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
Not applicable to the Registrant.
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable to the Registrant.
| Item 10. | Submission of Matters to a Vote of Security Holders. |
There were no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Directors.
| Item 11. | Controls and Procedures. |
(a) The President (the Registrant’s Principal Executive Officer) and Chief Financial Officer (the Registrant’s Principal Financial Officer) have concluded that, based on their evaluation as of a date within 90 days of the filing date of this report, the disclosure controls and procedures of the Registrant (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) are reasonably designed to achieve the purposes described in Section 4(a) of the attached certification.
(b) There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant’s second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
| Item 12. | Exhibits. |
(a) (1) Code of Ethics for Senior Officers that is the subject of Item 2 is attached.
(a) (2) Section 302 Certifications are attached.
(a) (3) Not applicable to the Registrant.
(b) Section 906 Certifications are attached.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| iShares, Inc. | ||
| By: | /s/ Michael Latham | |
| Michael Latham, President (Principal Executive Officer) | ||
| Date: October 21, 2011 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| By: | /s/ Michael Latham | |
| Michael Latham, President (Principal Executive Officer) | ||
| Date: October 21, 2011 |
| By: | /s/ Jack Gee | |
| Jack Gee, Treasurer and Chief Financial Officer (Principal Financial Officer) | ||
| Date: October 21, 2011 |