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, 2012
Date of reporting period: August 31, 2012
Table of Contents
| Item 1. Reports to Stockholders. |
|
August 31, 2012 |
2012 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, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (5.96)% | (6.12)% | (5.50)% | (7.00)% | (6.87)% | (6.51)% | 2.50% | 2.47% | 3.02% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (5.96)% | (6.12)% | (5.50)% | (30.42)% | (29.94)% | (28.57)% | 27.97% | 27.68% | 34.70% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
“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 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, 2012 (the “reporting period”), the total return for the Fund was (5.96)%, net of fees, while the total return for the Index was (5.50)%.
Japanese equity markets, as represented by the Index, declined during the reporting period, as the country continued to recover from the effects of the earthquake and tsunami that struck in March 2011 while grappling with a sluggish global economic environment.
Investment related to reconstruction spending in the country’s disaster-struck regions largely drove economic recovery for much of the reporting period. For the first quarter of 2012, annual gross domestic product (“GDP”) expanded 4.7%, surpassing estimates of 3.5% and exceeding economic growth rates in the U.S. and Europe. In the final months of the period, though, reconstruction spending slowed, and economic recovery stalled in Japan. Tepid economic growth in Europe and the U.S. translated into slow demand for exports from Japan. In July 2012, export levels, which have historically been the main driver of Japan’s economic growth, experienced their sharpest annual decline in six months. For the second quarter of 2012, annual GDP growth dropped to a slight 0.7%. Government debt at the end of the reporting period represented 211% of GDP, the largest ratio of government debt to GDP for all industrial countries, even above the levels for the troubled eurozone countries of Spain and Greece.
Sector performance within the Index was mixed for the reporting period. The information technology sector was the most significant detractor from Index returns. The economically sensitive industrials sector, the largest sector at 21% of the Index on average, declined during the reporting period and hurt Index performance. Other sectors that are sensitive to economic conditions include materials and consumer discretionary, and these both declined during the reporting period. The utilities sector also detracted from results, due largely to the destruction caused by the nuclear disaster following the March 2011 earthquake and tsunami. On the positive side, the traditionally economically defensive consumer staples sector gained ground and contributed to Index returns. The health care sector was also a meaningful contributor to Index performance.
| 6 | 2012 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, 2012 to August 31, 2012.
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 (3/1/12) |
Ending Account Value (8/31/12) |
Annualized Expense Ratio |
Expenses Paid During Period a |
|||||||||||||
| Actual |
$ | 1,000.00 | $ | 909.80 | 0.53 | % | $ | 2.54 | ||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| 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 (366 days). |
| SHAREHOLDER EXPENSES |
7 |
Table of Contents
iSHARES® MSCI JAPAN INDEX FUND
August 31, 2012
| 8 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN INDEX FUND
August 31, 2012
| SCHEDULE OF INVESTMENTS |
9 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN INDEX FUND
August 31, 2012
| 10 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN INDEX FUND
August 31, 2012
| SCHEDULE OF INVESTMENTS |
11 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN INDEX FUND
August 31, 2012
| 12 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN INDEX FUND
August 31, 2012
| SCHEDULE OF INVESTMENTS |
13 |
Table of Contents
Statement of Assets and Liabilities
iSHARES® MSCI JAPAN INDEX FUND
August 31, 2012
| ASSETS |
||||
| Investments, at cost: |
||||
| Unaffiliated |
$ | 6,518,910,851 | ||
| Affiliated (Note 2) |
66,970,353 | |||
|
|
|
|||
| Total cost of investments |
$ | 6,585,881,204 | ||
|
|
|
|||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||
| Unaffiliated |
$ | 4,619,774,099 | ||
| Affiliated (Note 2) |
66,970,353 | |||
|
|
|
|||
| Total fair value of investments |
4,686,744,452 | |||
| Foreign currencies, at valueb |
5,115,398 | |||
| Cash held at broker, at valuec |
3,238,570 | |||
| Receivables: |
||||
| Dividends and interest |
4,183,161 | |||
|
|
|
|||
| Total Assets |
4,699,281,581 | |||
|
|
|
|||
| LIABILITIES |
||||
| Payables: |
||||
| Collateral for securities on loan (Note 5) |
66,446,112 | |||
| Capital shares redeemed |
1,467,555 | |||
| Futures variation margin |
168,072 | |||
| Investment advisory fees (Note 2) |
2,165,474 | |||
|
|
|
|||
| Total Liabilities |
70,247,213 | |||
|
|
|
|||
| NET ASSETS |
$ | 4,629,034,368 | ||
|
|
|
|||
| Net assets consist of: |
||||
| Paid-in capital |
$ | 7,398,500,833 | ||
| Undistributed net investment income |
3,443,177 | |||
| Accumulated net realized loss |
(873,742,171 | ) | ||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(1,899,167,471 | ) | ||
|
|
|
|||
| NET ASSETS |
$ | 4,629,034,368 | ||
|
|
|
|||
| Shares outstandingd |
513,000,000 | |||
|
|
|
|||
| Net asset value per share |
$ | 9.02 | ||
|
|
|
|||
| a | Securities on loan with a value of $63,157,973. See Note 5. |
| b | Cost of foreign currencies: $5,087,019. |
| c | Cost of cash held at broker: $3,178,498. |
| d | $0.001 par value, number of shares authorized: 2,124,600,000. |
See notes to financial statements.
| 14 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statement of Operations
iSHARES® MSCI JAPAN INDEX FUND
Year ended August 31, 2012
| NET INVESTMENT INCOME |
||||
| Dividends — unaffiliateda |
$ | 134,515,381 | ||
| Interest — affiliated (Note 2) |
1,047 | |||
| Securities lending income — affiliated (Note 2) |
1,259,601 | |||
|
|
|
|||
| Total investment income |
135,776,029 | |||
|
|
|
|||
| EXPENSES |
||||
| Investment advisory fees (Note 2) |
28,798,955 | |||
|
|
|
|||
| Total expenses |
28,798,955 | |||
|
|
|
|||
| Net investment income |
106,977,074 | |||
|
|
|
|||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||
| Net realized gain (loss) from: |
||||
| Investments — unaffiliated |
(163,584,584 | ) | ||
| In-kind redemptions — unaffiliated |
(101,785,274 | ) | ||
| Futures contracts |
1,173,245 | |||
| Foreign currency transactions |
986,925 | |||
|
|
|
|||
| Net realized loss |
(263,209,688 | ) | ||
|
|
|
|||
| Net change in unrealized appreciation/depreciation on: |
||||
| Investments |
(266,764,734 | ) | ||
| Futures contracts |
(168,072 | ) | ||
| Translation of assets and liabilities in foreign currencies |
(33,903 | ) | ||
|
|
|
|||
| Net change in unrealized appreciation/depreciation |
(266,966,709 | ) | ||
|
|
|
|||
| Net realized and unrealized loss |
(530,176,397 | ) | ||
|
|
|
|||
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (423,199,323 | ) | |
|
|
|
|||
| a | Net of foreign withholding tax of $10,094,180. |
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, 2012 |
Year ended August 31, 2011 |
|||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||
| OPERATIONS: |
||||||||
| Net investment income |
$ | 106,977,074 | $ | 90,153,430 | ||||
| Net realized loss |
(263,209,688 | ) | (34,907,354 | ) | ||||
| Net change in unrealized appreciation/depreciation |
(266,966,709 | ) | (73,435,639 | ) | ||||
|
|
|
|
|
|||||
| Net decrease in net assets resulting from operations |
(423,199,323 | ) | (18,189,563 | ) | ||||
|
|
|
|
|
|||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||
| From net investment income |
(109,422,889 | ) | (93,105,502 | ) | ||||
|
|
|
|
|
|||||
| Total distributions to shareholders |
(109,422,889 | ) | (93,105,502 | ) | ||||
|
|
|
|
|
|||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||
| Proceeds from shares sold |
758,956,904 | 4,949,223,864 | ||||||
| Cost of shares redeemed |
(2,791,809,212 | ) | (1,586,188,582 | ) | ||||
|
|
|
|
|
|||||
| Net increase (decrease) in net assets from capital share transactions |
(2,032,852,308 | ) | 3,363,035,282 | |||||
|
|
|
|
|
|||||
| INCREASE (DECREASE) IN NET ASSETS |
(2,565,474,520 | ) | 3,251,740,217 | |||||
| NET ASSETS |
||||||||
| Beginning of year |
7,194,508,888 | 3,942,768,671 | ||||||
|
|
|
|
|
|||||
| End of year |
$ | 4,629,034,368 | $ | 7,194,508,888 | ||||
|
|
|
|
|
|||||
| Undistributed net investment income included in net assets at end of year |
$ | 3,443,177 | $ | 3,196,412 | ||||
|
|
|
|
|
|||||
| SHARES ISSUED AND REDEEMED |
||||||||
| Shares sold |
76,800,000 | 471,600,000 | ||||||
| Shares redeemed |
(298,200,000 | ) | (155,400,000 | ) | ||||
|
|
|
|
|
|||||
| Net increase (decrease) in shares outstanding |
(221,400,000 | ) | 316,200,000 | |||||
|
|
|
|
|
|||||
See notes to financial statements.
| 16 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI JAPAN INDEX FUND
(For a share outstanding throughout each period)
| Year ended Aug. 31, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 9.80 | $ | 9.43 | $ | 10.24 | $ | 11.62 | $ | 14.07 | ||||||||||
|
|
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|
|
|
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|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.18 | 0.16 | 0.12 | 0.13 | 0.14 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
(0.77 | ) | 0.37 | (0.77 | ) | (1.39 | ) | (2.39 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(0.59 | ) | 0.53 | (0.65 | ) | (1.26 | ) | (2.25 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.19 | ) | (0.16 | ) | (0.16 | ) | (0.12 | ) | (0.20 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.19 | ) | (0.16 | ) | (0.16 | ) | (0.12 | ) | (0.20 | ) | ||||||||||
|
|
|
|
|
|
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|
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|
|
|||||||||||
| Net asset value, end of year |
$ | 9.02 | $ | 9.80 | $ | 9.43 | $ | 10.24 | $ | 11.62 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(5.96 | )% | 5.54 | % | (6.41 | )% | (10.68 | )% | (16.13 | )% | ||||||||||
|
|
|
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|
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|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 4,629,034 | $ | 7,194,509 | $ | 3,942,769 | $ | 6,164,170 | $ | 7,499,536 | ||||||||||
| Ratio of expenses to average net assets |
0.53 | % | 0.51 | % | 0.54 | % | 0.56 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
1.95 | % | 1.53 | % | 1.20 | % | 1.46 | % | 1.11 | % | ||||||||||
| Portfolio turnover ratec |
3 | % | 4 | % | 5 | % | 4 | % | 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 |
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 |
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 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 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 Fund’s investments are valued at fair value each day that the Fund’s listing exchange is open. U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) provides oversight of the valuation of
| 18 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® MSCI JAPAN INDEX FUND
investments for the Fund. The investments of the Fund are valued pursuant to policies and procedures developed by the Global Valuation Committee and approved by the Board of Directors of the Company (the “Board”).
| • | Equity investments traded on a recognized securities exchange are valued at that day’s last reported trade price or the official closing price, as applicable, on the exchange where the stock is primarily traded. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last traded price. |
| • | Open-end U.S. mutual funds are valued at that day’s published net asset value (NAV). |
| • | Financial futures contracts are valued at that day’s last reported settlement price on the exchange where the contract is traded. |
In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the fair value of such investment or if a price is not available, the investment will be valued based upon other available factors deemed relevant by the Global Valuation Committee, in accordance with policies approved by the Board. These factors include but are not limited to (i) attributes specific to the investment; (ii) the principal market for the investment; (iii) the customary participants in the principal market for the investment; (iv) data assumptions by market participants for the investment, if reasonably available; (v) quoted prices for similar investments in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and/or other default rates. Valuations based on such factors are reported to the Board on a quarterly basis.
The Global Valuation Committee employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Company’s pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values, and reviews of market related activity.
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.
Various inputs are used in determining the fair value of financial instruments. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting purposes. 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. The three levels of the fair value hierarchy are as follows:
| • | Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities; |
| • | 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 (such as exchange rates, financing terms, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs; and |
| • | Level 3 — Unobservable inputs for the asset or liability, including the Fund’s assumptions used in determining the fair value of investments. |
| NOTES TO FINANCIAL STATEMENTS |
19 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® MSCI JAPAN INDEX FUND
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. In accordance with the Company’s policy, transfers between different levels of the fair value hierarchy are deemed to have occurred as of the beginning of the reporting period.
As of August 31, 2012, the value of each of the Fund’s investments was classified as Level 1. The breakdown of the Fund’s investments into major categories is disclosed in its Schedule of Investments.
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, 2012 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 invests. 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 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, 2012, 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.
| 20 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® MSCI JAPAN INDEX FUND
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.
| 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. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, and any fees or other payments to and from borrowers of securities. The Fund retains 65% of securities lending income and pays a fee to BTC equal to 35% of such income. As securities lending agent, BTC is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BTC is also responsible for fees and expenses incurred by the Fund as a result of the investment of cash collateral received for securities on loan in a money market fund managed by BFA or an affiliate.
For the year ended August 31, 2012, BTC earned securities lending agent fees of $678,247 from the Fund.
At a special meeting of the Board held on January 5, 2012, the directors approved a new distribution agreement with BlackRock Investments, LLC (“BRIL”). BRIL is an affiliate of BFA. Effective April 1, 2012, BRIL replaced SEI Investments Distribution Co. as the distributor for the Fund. Pursuant to the new distribution agreement, BFA is responsible for any fees or expenses for distribution services provided to the 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 Statement of Operations.
The PNC Financial Services Group, Inc. is the largest stockholder of BlackRock and is considered to be an affiliate of the Fund for 1940 Act purposes.
| NOTES TO FINANCIAL STATEMENTS |
21 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® MSCI JAPAN INDEX FUND
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, 2012, aggregated $148,910,146 and $177,908,708, respectively.
In-kind purchases and sales (see Note 4) for the year ended August 31, 2012, aggregated $748,187,939 and $2,752,316,713, 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 a specified 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. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the value of the cash collateral received.
As of August 31, 2012, 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, 2012 and the value of the related collateral are disclosed in the Statement 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, net of fees and other payments to and from borrowers, and less the fees paid to BTC as securities lending agent.
| 22 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® MSCI JAPAN INDEX FUND
| 6. | INCOME TAX INFORMATION |
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of August 31, 2012, attributable to passive foreign investment companies, the expiration of capital loss carryforwards, foreign currency transactions and realized gains (losses) from in-kind redemptions, were reclassified to the following accounts:
| Paid-in Capital | Undistributed Net Investment Income/Distributions in Excess of Net Investment Income |
Undistributed Net Realized Gain/Accumulated Net Realized Loss |
||||||
| $(164,807,840) | $ | 2,692,580 | $ | 162,115,260 | ||||
The tax character of distributions paid during the years ended August 31, 2012 and August 31, 2011 was as follows:
| 2012 | 2011 | |||||||
| Ordinary income |
$ | 109,422,889 | $ | 93,105,502 | ||||
|
|
|
|
|
|||||
As of August 31, 2012, the tax components of accumulated net earnings (losses) were as follows:
| Undistributed Ordinary Income |
Capital Loss Carryforwards |
Net Unrealized Gains (Losses) a |
Qualified Late-Year Losses b |
Total | ||||||||||||
| $8,602,016 | $ | (697,166,401 | ) | $ | (1,958,284,365 | ) | $ | (122,617,715 | ) | $ | (2,769,466,465 | ) | ||||
| a | The difference between book-basis and tax-basis unrealized gains (losses) was 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. |
| b | The Fund has elected to defer certain qualified late-year losses and recognize such losses in the year ending August 31, 2013. |
As of August 31, 2012, the Fund had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:
| Non- Expiring a |
Expiring 2013 |
Expiring 2014 |
Expiring 2015 |
Expiring 2016 |
Expiring 2017 |
Expiring 2018 |
Expiring 2019 |
Total | ||||||||||||||||||||||||||||
| $ | 118,947,587 | $ | 8,733,802 | $ | 68,122,871 | $ | 27,817,841 | $ | 44,443,527 | $ | 116,295,478 | $ | 173,577,101 | $ | 139,228,194 | $ | 697,166,401 | |||||||||||||||||||
| a | Must be utilized prior to losses subject to expiration. |
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, 2012, the cost of investments for federal income tax purposes was $6,644,998,098. Net unrealized depreciation was $1,958,253,646, of which $146,956,758 represented gross unrealized appreciation on securities and $2,105,210,404 represented gross unrealized depreciation on securities.
| NOTES TO FINANCIAL STATEMENTS |
23 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES® MSCI JAPAN INDEX FUND
Management has reviewed the tax positions as of August 31, 2012, inclusive of the open tax return years, and has determined that no provision for income tax is required in the Fund’s financial statements.
| 7. | FINANCIAL FUTURES CONTRACTS |
The Fund may purchase or sell financial futures contracts in an effort to help the Fund track its underlying index. A futures contract is a standardized, exchange-traded agreement to buy and sell a financial instrument at a set price on a future date. Upon entering into a futures contract, the Fund is required to pledge to the executing broker which holds segregated from its own assets, an amount of cash, U.S. government securities or other high-quality debt and equity securities equal to the minimum initial margin requirements of the exchange on which the contract is traded. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as margin variation and are recorded by the Fund as unrealized appreciation or depreciation. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Losses may arise if the value of a futures contract decreases due to an unfavorable change in the market rates or values of the underlying instrument during the term of the contract or if the counterparty does not perform under the contract. The use of futures contracts also involves the risk of an imperfect correlation in the movements in the price of futures contracts and the assets underlying such contracts.
The following table shows the value of futures contracts held as of August 31, 2012 and the related locations in the Statement of Assets and Liabilities, presented by risk exposure category:
| Liabilities | ||||
| Equity contracts: |
||||
| Variation margin/Net assets consist of – net unrealized appreciation (depreciation)a |
$ | (168,072 | ) | |
|
|
|
|||
| a | Represents cumulative depreciation of futures contracts as reported in the Schedule of Investments. |
The following table shows the realized and unrealized gains (losses) on futures contracts held during the year ended August 31, 2012 and the related locations in the Statement of Operations, presented by risk exposure category:
| Net Realized Gain (Loss) |
Net Change in
Unrealized Appreciation/Depreciation |
|||||||
| Equity contracts: |
||||||||
| Futures contracts |
$ | 1,173,245 | $ | (168,072 | ) | |||
|
|
|
|
|
|||||
For the year ended August 31, 2012, the average quarter-end number of contracts and notional value of open futures contracts for the Fund were 247 and $23,488,330, respectively.
| 8. | 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 | 2012 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 (the “Fund”), at August 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended 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, 2012 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 23, 2012
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
25 |
Table of Contents
iSHARES® MSCI JAPAN INDEX FUND
For the fiscal year ended August 31, 2012, the Fund earned foreign source income of $144,609,561 and paid foreign taxes of $10,091,119 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 $119,514,008 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, 2012.
In February 2013, shareholders will receive Form 1099-DIV which will include their share of qualified dividend income distributed during the calendar year 2012. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their income tax returns.
| 26 | 2012 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. The Independent Directors requested, and BFA provided, such information as the Independent Directors, with advice from independent counsel, deemed reasonably necessary to evaluate the Advisory Contract. A committee of Independent Directors (the “15(c) Committee”), with independent counsel, met with management on April 19, 2012, April 27, 2012, and May 16, 2012, to discuss the types of information the Independent Directors required and the manner in which management would organize and present such information. At a meeting held on May 17, 2012, management presented information to the Board relating to the continuance of the Advisory Contract, and the Board, including the Independent Directors, reviewed and discussed such information at length. The Independent Directors requested from management certain additional information, and the 15(c) Committee met with management on June 8, 2012, to discuss the additional requests. At a meeting held on June 20-21, 2012, the Board, including the Independent Directors, reviewed additional information provided by management in response to these requests. The Board, including a majority of the Independent Directors, approved the continuance of the Advisory Contract for the Fund, based on a review of qualitative and quantitative information provided by BFA, including a review of supplemental information management provided at the request of the Independent Directors. 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 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:
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, sponsor, inception date, or other differentiating factors, but that 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 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), 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 also received a detailed explanation from BFA regarding its rationale for including funds that had been excluded from Lipper’s consideration due to Lipper’s methodology parameters, as well as information showing the effect of including these additional funds in the analysis. 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.
The Board also noted that the investment advisory fees and overall expenses for the Fund compared favorably to the investment advisory fee rates and overall expenses of the funds in the 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, 2011, 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
| 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
track its benchmark index and that, during the prior year, the Board received periodic reports on the Fund’s performance in comparison with its benchmark index. Such periodic comparative performance information was also considered by the Board.
Based on this review, the other factors considered at the meeting, and their general knowledge of mutual fund pricing, the Board concluded that the investment advisory fees and expense levels and the historical performance of the Fund supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
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, to supporting the Fund and its 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 Fund and its shareholders have been added or enhanced since then, including in such areas as investor education, product management, customized portfolio consulting support, 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 and risk management 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 inception date.
Based on review of this information, and the performance information discussed above, the Board concluded that the nature, extent and quality of services 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.
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, noting that the 15(c) Committee had focused on the methodology and proposed presentation during its meetings. 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 — The Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Fund’s assets, noting that the issue of economies of scale had been focused on extensively by the 15(c) Committee during its meetings and addressed by management. The Board and the 15(c) Committee reviewed information provided by BFA regarding scale benefits shared with the iShares funds through breakpoints, waivers, or other fee reductions, as well as through additional investment in the iShares business and the provision of improved or additional infrastructure and services to the iShares funds and their shareholders. The Board and the 15(c) Committee received information regarding BFA’s historical profitability, including BFA’s and its affiliates’ costs in providing
| 28 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES® MSCI JAPAN INDEX FUND
services. The cost information distinguished between fixed and variable costs, and explained how the nature of such costs may impact the existence of scale benefits. The Board noted that the Advisory Contract for the Fund already provided for breakpoints in the Fund’s investment advisory fee rates as the assets of the Fund, on an aggregated basis with the assets of certain other iShares funds, increase. The Board noted that it would continue to monitor the sharing of economies of scale to determine the appropriateness of adding new or revised breakpoints in the future. Based on this review, as well as the other factors considered at the meeting, 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 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 generally more extensive 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 exchange traded fund, as compared to the Other Accounts that are institutional clients in light of differing regulatory requirements and client-imposed mandates. The Board also considered the “all-inclusive” nature of the Fund’s advisory fee structure, and the Fund expenses borne by BFA under this arrangement. 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 ancillary revenue received by BFA and/or its affiliates in connection with the services provided to the Fund by BFA, such as payment of revenue to BTC, the Fund’s securities lending agent, for loaning portfolio securities (which was included in the profit margins reviewed by the Board pursuant to BFA’s profitability methodology), 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 generally 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 and thus would not alter the Board’s conclusion with respect to the appropriateness of approving the continuance of the Advisory Contract for the coming year.
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
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 the 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 |
|||||||||||||||||||||||
| $ | 0.19385 | $ | — | $ | — | $0.19385 | 100 | % | — | % | — | % | 100 | % | ||||||||||||||||
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 stock exchange on which the shares of the Fund are listed for trading, as of the time that 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 market 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 | 2012 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, 2007 through June 30, 2012
| 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% |
3 | 0.22 | ||||||
| Greater than 2.5% and Less than 3.0% |
17 | 1.23 | ||||||
| Greater than 2.0% and Less than 2.5% |
18 | 1.30 | ||||||
| Greater than 1.5% and Less than 2.0% |
47 | 3.40 | ||||||
| Greater than 1.0% and Less than 1.5% |
99 | 7.15 | ||||||
| Greater than 0.5% and Less than 1.0% |
223 | 16.10 | ||||||
| Between 0.5% and –0.5% |
550 | 39.73 | ||||||
| Less than –0.5% and Greater than –1.0% |
154 | 11.13 | ||||||
| Less than –1.0% and Greater than –1.5% |
93 | 6.72 | ||||||
| Less than –1.5% and Greater than –2.0% |
67 | 4.84 | ||||||
| Less than –2.0% and Greater than –2.5% |
35 | 2.53 | ||||||
| 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% |
7 | 0.51 | ||||||
| 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 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
31 |
Table of Contents
Director and Officer Information (Unaudited)
iSHARES® MSCI JAPAN 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 Director 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, a Director of iShares MSCI Russia Capped Index Fund, Inc. and a Trustee of iShares U.S. ETF Trust and, as a result, oversees a total of 276 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 Robert H. Silver 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-iShares (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 (55) |
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). | Director of BlackRock, Inc. (since 2007); Trustee of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| Michael Lathamb (47) |
Director (since 2010); President (since 2007). | Chairman of iShares, BlackRock (since 2011); Global Chief Executive Officer of iShares, BlackRock (2010-2011); Managing Director, BlackRock (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, BGI (2003-2007). | Trustee of iShares Trust (since 2010); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| a | Robert S. Kapito is deemed to be an “interested person” (as defined in the 1940 Act) of the Trust 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 Trust due to his affiliations with BlackRock, Inc. and its affiliates. |
| 32 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® MSCI JAPAN INDEX FUND
Independent Directors
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| Robert H. Silver (57) |
Director (since 2007); Independent Chairman (since 2012). | President and Co-Founder of The Bravitas Group, Inc. (since 2006); Director and Vice Chairman of the YMCA of Greater NYC (2001-2011); Broadway Producer (2006-2011); 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); President and Chief Operating Officer of UBS Financial Services Inc. (formerly Pain Webber Inc.) (2004-2005) and various executive positions with UBS and its affiliates (1988-2005); CPA and Audit Manager of KPMG, LLP (formerly Peat Marwick Mitchell) (1977-1983). | Trustee of iShares Trust (since 2007); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Independent Chairman of iShares, Inc., iShares MSCI Russia Capped Index Fund, Inc. and iShares U.S. ETF Trust (since 2012). | |||
| Cecilia H. Herbert (63) |
Director (since 2005); Nominating and Governance Committee Chair and Equity Plus Committee Chair (since 2012). | Director (since 1998) and President (2007-2011) of the Board of Directors, Catholic Charities CYO; Trustee (since 2002) and Chair of the Finance Committee (2006-2009) and Investment Committee (since 2006), The Thacher School; Trustee of Pacific Select Funds (2004-2005); Member (since 1994) and Chair (1994-2005) of the Investment Committee, Archdiocese of San Francisco. |
Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Director of Forward Funds (35 portfolios) (since 2009). | |||
| Charles A. Hurty (69) |
Director (since 2005); Audit Committee Chair (since 2006). | Retired; Partner, KPMG LLP (1968-2001). |
Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002); Director of SkyBridge Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC (1 portfolio) (since 2002). | |||
| John E. Kerrigan (57) |
Director (since 2005); Fixed Income Plus Committee Chair (since 2012). | 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); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| DIRECTOR AND OFFICER INFORMATION |
33 |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® MSCI JAPAN INDEX FUND
Independent Directors (Continued)
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| John E. Martinez (51) |
Director (since 2003); Securities Lending Committee Chair (since 2012). | Director of FirstREX Agreement Corp. (formerly EquityRock, Inc.) (since 2005). | Trustee of iShares Trust (since 2003); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| George G.C. Parker (73) |
Director (since 2002). | Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University Graduate School of Business (Professor since 1973; Emeritus since 2006). | Trustee of iShares Trust (since 2002); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); 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). | |||
| Madhav V. Rajan (48) |
Director (since 2011); 15(c) Committee Chair (since 2012). | Robert K. Jaedicke Professor of Accounting and Senior Associate Dean for Academic Affairs and Head of MBA Program, 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); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| 34 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® MSCI JAPAN INDEX FUND
Officers
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years | ||
| Edward B. Baer (44) |
Vice President and Chief Legal Officer (since 2012). |
Managing Director, BlackRock (since 2006). | ||
| Eilleen M. Clavere (60) |
Secretary (since 2007). |
Director, BlackRock (since 2009); Director of Legal Administration of Intermediary Investor Business, BGI (2006-2009). | ||
| Jack Gee (53) |
Treasurer and Chief Financial Officer (since 2008). |
Managing Director, BlackRock (since 2009); Senior Director of Fund Administration of Intermediary Investor Business, BGI (2009); Director of Fund Administration of Intermediary Investor Business, BGI (2004-2009). | ||
| Amy Schioldager (50) |
Executive Vice President (since 2007). |
Managing Director, BlackRock (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008). | ||
| Ira P. Shapiro (49) |
Vice President (since 2007). | Managing Director, BlackRock (since 2009); Chief Legal Officer, Exchange-Traded Funds Complex (2007-2012); Associate General Counsel, BGI (2004-2009). | ||
| Scott Radell (43) |
Executive Vice President (since 2012). |
Managing Director, BlackRock (since 2009); Head of Portfolio Solutions, BGI (2007-2009); Credit Portfolio Manager, BGI (2005-2007). | ||
| DIRECTOR AND OFFICER INFORMATION |
35 |
Table of Contents
Notes:
| 36 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes:
| NOTES |
37 |
Table of Contents
Notes:
| 38 | 2012 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-81-0812
Table of Contents
|
August 31, 2012 |
2012 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
Table of Contents
| 5 | ||||
| 33 | ||||
| 35 | ||||
| 35 | ||||
| 37 | ||||
| 39 | ||||
| 41 | ||||
| 45 | ||||
| 48 | ||||
| 50 | ||||
| 52 | ||||
| 54 | ||||
| 56 | ||||
| 58 | ||||
| 60 | ||||
| 63 | ||||
| 77 | ||||
| 89 | ||||
| 103 | ||||
| 104 | ||||
| Board Review and Approval of Investment Advisory Contract (Unaudited) |
105 | |||
| 109 | ||||
| 121 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI AUSTRIA INVESTABLE MARKET INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (19.81)% | (19.82)% | (19.74)% | (14.17)% | (14.22)% | (15.04)% | 8.45% | 8.54% | 8.16% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (19.81)% | (19.82)% | (19.74)% | (53.43)% | (53.56)% | (55.73)% | 124.97% | 127.01% | 119.06% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
Index performance reflects the performance of the MSCI Austria IndexSM through January 31, 2008 and the MSCI Austria Investable Market IndexSM thereafter.
“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 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, 2012 (the “reporting period”), the total return for the Fund was (19.81)%, net of fees, while the total return for the Index was (19.74)%.
The European economy continued to slide downward during the reporting period. The unemployment rate in the 17-nation eurozone reached 11.3% in July 2012, up from 10.1% in July 2011. During the second quarter of 2012, gross domestic product (GDP) declined 0.2% compared to the first quarter of 2012. Manufacturing activity in eurozone factories fell further in August 2012, marking the 13th consecutive month of economic contraction. Retail sales were down 0.2% in July 2012 versus the prior month, and were down 1.7% compared to July 2011. Meanwhile, the annual rate of inflation in the eurozone hit 2.6% in August 2012, above the European Central Bank’s target rate of 2%. The European Commission’s sentiment gauge, the Economic Sentiment Indicator, showed confidence in the European economy as of August 2012, but was at its lowest level in three years.
However, there was a wide disparity between the Continent as a whole and the stronger eurozone nations such as Austria, where the jobless rate was just 4.5% in July 2012, the lowest in the European Union. Meanwhile, retail sales in Austria increased 3% in the first six months of 2012 compared to the same period in 2011. The International Monetary Fund recently commended Austria for its “strong economic performance.” However, Bank Austria noted that economic momentum was slowing in July and August 2012, as Austria’s export industry was adversely affected by the weak European economy. After growing 2.7% in 2011 versus 2010, Austria’s economy grew just 0.2% in the second quarter of 2012 versus the first quarter of the year. Bank Austria’s Purchasing Manager Index declined in July 2012, indicating that the industrial sector was contracting.
Despite Austria’s relatively strong economic performance, stocks, as represented by the Index, fell during the reporting period. All sectors reported negative performance. The financials sector, which represents almost a third of the Index on average, contributed the most significantly to negative Index returns. The utilities sector produced the worst total returns, but its impact on returns was limited because of its light weighting — about 6% of the Index throughout the reporting period.
| 6 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI BELGIUM INVESTABLE MARKET INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 1.11% | 1.40% | 11.81% | (10.45)% | (10.44)% | (9.50)% | 5.33% | 5.39% | 5.58% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 1.11% | 1.40% | 11.81% | (42.41)% | (42.39)% | (39.30)% | 68.15% | 69.11% | 72.11% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
Index performance reflects the performance of the MSCI Belgium IndexSM through November 30, 2007 and the MSCI Belgium Investable Market IndexSM thereafter.
“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 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 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, 2012 (the “reporting period”), the total return for the Fund was 1.11%, net of fees, while the total return for the Index was 11.81%.
The European economy continued to slide downward during the reporting period. The unemployment rate in the 17-nation eurozone reached 11.3% in July 2012, up from 10.1% in July 2011. During the second quarter of 2012, gross domestic product (“GDP”) declined 0.2% compared to the first quarter of 2012. Manufacturing activity in eurozone factories fell further in August 2012, marking the 13th consecutive month of economic contraction. Retail sales were down 0.2% in July 2012 versus the prior month, and were down 1.7% compared to July 2011. Meanwhile, the annual rate of inflation in the eurozone hit 2.6% in August 2012, above the European Central Bank’s target rate of 2%. The European Commission’s sentiment gauge, the Economic Sentiment Indicator, showed confidence in the European economy as of August 2012, but was at its lowest level in three years.
Belgium’s economic performance was in line with the region. According to Moody’s Analytics, second quarter 2012 GDP fell 0.6% from the first quarter of 2012 and 0.4% when compared to the second quarter of 2011. At the same time, Belgian business confidence declined in August 2012 as trade sentiment fell to its lowest level since March 2012. Because Belgium relies on its European neighbors for the majority of its exports, a downturn in the economic health of these countries caused investor concern. In particular, Belgium is especially affected by the health of Germany’s economy, where GDP rose just 0.3% in the second quarter of 2012 versus the first quarter of 2012. In addition, German business confidence fell for the fourth straight month in August 2012.
Despite Belgium’s weak economic conditions, the Index advanced at a double-digit rate during the reporting period, primarily due to Anheuser-Busch InBev NV, which performed much better than the Belgium market overall and represented nearly half of the Index, on average, during the reporting period. Otherwise all sectors generally detracted from Index performance.
| 8 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI BELGIUM INVESTABLE MARKET INDEX FUND
During the reporting period, the Fund’s performance diverged significantly from the Index primarily as a result of regulatory restrictions which can affect the investment adviser’s ability to optimize the portfolio of a fund relative to the constituent weightings of the underlying index. As a regulated investment company, the Fund may not invest more than 25% of the value of its total assets in the securities of one singular issuer, and therefore was obligated to underweight Anheuser-Busch InBev NV, relative to the Index, by approximately 20%, on average, during the reporting period. Consequently, the investment adviser had to overweight other securities in the portfolio, relative to the Index, which did not perform as well as Anheuser-Busch InBev NV during the reporting period.
Special note — On or about November 9, 2012, the investment objective of the Fund will change to track a new underlying index, the MSCI Belgium IMI 25/50 Index (the “IMI 25/50 Index”). The IMI 25/50 Index is designed to measure broad-based equity market performance in Belgium where a capping methodology is applied that limits the weight of any single component to a maximum of 25% of the IMI 25/50 Index. In addition, the Fund will change its name to the iShares MSCI Belgium Capped Investable Market Index Fund.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
9 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI EMERGING MARKETS EASTERN EUROPE INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | Cumulative Total Returns | |||||||||||||||
| Year Ended 8/31/12 | Inception to 8/31/12 | Inception to 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (13.14)% | (12.43)% | (13.17)% | 1.80% | 1.72% | 2.20% | 5.35% | 5.09% | 6.56% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
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.
| 10 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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 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, 2012 (the “reporting period”), the total return for the Fund was (13.14)%, net of fees, while the total return for the Index was (13.17)%.
As represented by the Index, stock markets in Eastern Europe posted double-digit losses for the reporting period, reflecting a slowdown in global economic growth. Among the four countries represented in the Index — Russia, Poland, Czech Republic, and Hungary—three of them saw their economic growth rates fall during the reporting period, with Hungary and the Czech Republic falling into recession by the end of the reporting period. Russia was the lone exception, as its economic growth rate was largely unchanged for the reporting period. The primary factor behind the diminishing economic activity was the continuing sovereign debt crisis in Europe, which had a negative impact on financial institutions around the globe and led to a meaningful slowdown in European economic growth, including recessions in the most fiscally challenged countries in the region. Exports to the eurozone are an important component of emerging economies in Eastern Europe, and the economic slowdown in the region weighed on economic activity in these countries.
In addition, the central banks in Russia, Poland, and Hungary raised short-term interest rates in 2011 to curb rising inflation, and this had a negative impact on economic growth in 2012 as higher borrowing costs put downward pressure on their domestic economies. By the spring of 2012, the central banks in Russia and Hungary reversed course and began lowering short-term rates, while Poland’s held rates steady.
Another factor behind the Index’s overall decline was a stronger U.S. dollar, which lowered international equity returns for U.S. investors (in local currency terms, the Index declined 2.98% for the reporting period). The U.S. dollar appreciated by 12% against the Russian ruble, 15% versus the Polish zloty, 18% versus the Czech koruna, and 20% against the Hungarian forint for the reporting period.
| 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
Russia, the largest country weighting in the Index (comprising approximately three-quarters of the Index on average during the reporting period), declined by more than 12% for the reporting period as falling commodity prices weighed on the Russian equity market. Poland’s stock market, which made up approximately 17% of the Index, also posted a double-digit decline as economic growth in the country slowed from 4.5% at the beginning of the reporting period to 2.5% at the end of the reporting period. Among the two smaller Index components, stocks in the Czech Republic held up best, declining by just under 10%, while the Hungarian stock market tumbled by 19%. Both countries faced recessions, but the Czech central bank has taken more dramatic actions to stimulate economic growth than the Hungarian central bank, which has struggled with an inflation rate of nearly 6%.
From a sector perspective, eight of the nine sectors in the Index declined for the reporting period. The consumer discretionary sector fell by more than 30% as retail spending declined. The materials and utilities sectors suffered declines of more than 25% amid sharply lower commodity prices. The only sector of the Index to advance was consumer staples, which is considered to be a defensive sector of the market.
| 12 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI EMU INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (3.99)% | (4.12)% | (4.01)% | (9.00)% | (9.05)% | (8.92)% | 5.28% | 5.29% | 5.48% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (3.99)% | (4.12)% | (4.01)% | (37.60)% | (37.76)% | (37.31)% | 67.28% | 67.51% | 70.51% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
“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 |
13 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMU INDEX FUND
The iShares MSCI EMU Index Fund (the “Fund”) seeks 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, 2012 (the “reporting period”), the total return for the Fund was (3.99)%, net of fees, while the total return for the Index was (4.01)%.
The European economy continued to slide downward during the reporting period. The unemployment rate in the 17-nation eurozone reached 11.3% in July 2012, up from 10.1% in July 2011. During the second quarter of 2012, gross domestic product (“GDP”) declined 0.2% compared to the first quarter of 2012. Manufacturing activity in eurozone factories fell further in August 2012, marking the 13th consecutive month of economic contraction. Retail sales were down 0.2% in July 2012 versus the prior month, and were down 1.7% compared to July 2011. Meanwhile, the annual rate of inflation in the eurozone hit 2.6% in August 2012, above the European Central Bank’s target rate of 2%. The European Commission’s sentiment gauge, the Economic Sentiment Indicator, showed confidence in the European economy as of August 2012, but was at its lowest level in three years.
Although the unemployment rate in Germany, Europe’s largest economy, remained modest at 6.8% in July 2012, the country’s GDP rose just 0.3% in the second quarter of 2012 versus the first quarter of 2012, and just 0.5% in the first quarter of 2012 compared to the final quarter of 2011. Most of Germany’s exports continued to depend on European markets, many of which were undergoing aggressive austerity programs. In France, second quarter 2012 GDP did not advance from the first quarter of 2012, marking the third straight quarter of zero growth in Europe’s second largest economy. During the second quarter of 2012, Spain’s economy contracted 0.4% from the first quarter of 2012 and 1% from the second quarter of 2011 as unemployment reached 25%. The sluggish economy in Spain has led to high budget deficits, which the government has sought to close by seeking more than $125 billion in spending cuts and tax increases. Spain’s banking system showed signs of weakness during the reporting period, as the government requested a $126 billion bailout from the European Central Bank.
| 14 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMU INDEX FUND
In Italy, GDP declined by 0.70% during the second quarter of 2012 compared to the first quarter of 2012, marking the fourth consecutive quarter of economic contraction. Meanwhile, economic growth in the Netherlands has also been quite weak, with GDP shrinking by 0.8% during the first quarter of 2012 compared with the same quarter in 2011.
In keeping with the generally negative sentiment in Europe, the Index declined during the reporting period. From a country perspective, Spain, France and Italy contributed the most to the Index’s negative performance, while Germany, Belgium and the Netherlands posted modest positive returns.
| 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, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (5.05)% | (5.34)% | (5.16)% | (7.42)% | (7.51)% | (7.36)% | 5.49% | 5.50% | 5.68% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (5.05)% | (5.34)% | (5.16)% | (32.00)% | (32.34)% | (31.76)% | 70.72% | 70.76% | 73.71% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
“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 | 2012 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 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, 2012 (the “reporting period”), the total return for the Fund was (5.05)%, net of fees, while the total return for the Index was (5.16)%.
The European economy continued to slide downward during the reporting period. The unemployment rate in the 17-nation eurozone reached 11.3% in July 2012, up from 10.1% in July 2011. During the second quarter of 2012, gross domestic product (“GDP”) declined 0.2% compared to the first quarter of 2012. Manufacturing activity in eurozone factories fell further in August 2012, marking the 13th consecutive month of economic contraction. Retail sales were down 0.2% in July 2012 versus the prior month, and were down 1.7% compared to July 2011. Meanwhile, the annual rate of inflation in the eurozone hit 2.6% in August 2012, above the European Central Bank’s target rate of 2%. The European Commission’s sentiment gauge, the Economic Sentiment Indicator, showed confidence in the European economy as of August 2012, but was at its lowest level in three years.
In France, second quarter 2012 GDP did not advance from the first quarter of 2012, marking the third straight quarter of zero growth in Europe’s second largest economy after Germany. The stalled economy and an unemployment rate above 10% were the challenges facing newly elected President Francois Hollande, who promised to cut spending or raise taxes to approach a balanced budget. However, either move was generally seen as a damper on economic growth, as the number of unemployed people in France reached 3 million for the first time since 1999. Many firms have announced factory closures or job losses, including a major airline and a major carmaker, which announced job losses of 5,000 and 3,000 respectively.
In line with the country’s economic performance, the Index declined during the reporting period. The worst performing sectors in terms of contributions to returns were industrials, financials and utilities, while the best performing sectors were health care, energy and consumer staples. Shares of industrial and financials companies typically perform poorly in a sluggish economic environment, while shares of health care and consumer staples companies typically fare better since demand for these services are not typically linked to economic growth.
| 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, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 4.55% | 4.61% | 4.67% | (4.96)% | (5.11)% | (4.95)% | 8.18% | 8.12% | 8.32% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 4.55% | 4.61% | 4.67% | (22.46)% | (23.06)% | (22.41)% | 119.43% | 118.35% | 122.32% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
“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 | 2012 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 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, 2012 (the “reporting period”), the total return for the Fund was 4.55%, net of fees, while the total return for the Index was 4.67%.
The European economy continued to slide downward during the reporting period. The unemployment rate in the 17-nation eurozone reached 11.3% in July 2012, up from 10.1% in July 2011. During the second quarter of 2012, gross domestic product (“GDP”) declined 0.2% compared to the first quarter of 2012. Manufacturing activity in eurozone factories fell further in August 2012, marking the 13th consecutive month of economic contraction. Retail sales were down 0.2% in July 2012 versus the prior month, and were down 1.7% compared to July 2011. Meanwhile, the annual rate of inflation in the eurozone hit 2.6% in August 2012, above the European Central Bank’s target rate of 2%. The European Commission’s sentiment gauge, the Economic Sentiment Indicator, showed confidence in the European economy as of August 2012, but was at its lowest level in three years.
In terms of its domestic economy, Germany continues to be Europe’s steadiest performer. The unemployment rate was just 6.8% in July 2012; youth unemployment was 7.9% compared to 22.6% for Europe as a whole. However, in recent quarters, Germany’s overall economy has not been the powerhouse of prior years. Germany’s GDP rose just 0.3% in the second quarter of 2012 versus the first quarter of 2012, which in turn grew 0.5% compared to the final quarter of 2011. In addition, German business confidence fell for the fourth straight month in August 2012. Most of Germany’s exports depend on European markets, many of which are undergoing aggressive austerity programs. In addition, China, which made up 7% of Germany’s exports in 2011, experienced slowing in its economy as well. In the second quarter of 2012, China’s annualized 7.6% GDP growth rate was its slowest since 2009. American demand for German goods has faded as well, as U.S. GDP growth slowed from 2.0% in the first quarter of 2012 to 1.5% in the second quarter of the year.
Despite Germany’s economic challenges, the Index generated one of the stronger returns in the eurozone during the reporting period. The strongest sectors included health care, utilities and information technology. The weakest sectors were consumer discretionary, industrials and materials — areas that typically do poorly in a sluggish economy.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
19 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI ITALY INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (9.98)% | (10.44)% | (10.03)% | (15.40)% | (15.49)% | (15.41)% | 0.88% | 0.86% | 0.86% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (9.98)% | (10.44)% | (10.03)% | (56.68)% | (56.90)% | (56.69)% | 9.11% | 8.98% | 8.98% | ||||||||
GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE)
“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.
| 20 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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 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, 2012 (the “reporting period”), the total return for the Fund was (9.98)%, net of fees, while the total return for the Index was (10.03)%.
The European economy continued to slide downward during the reporting period. The unemployment rate in the 17-nation eurozone reached 11.3% in July 2012, up from 10.1% in July 2011. During the second quarter of 2012, gross domestic product (“GDP”) declined 0.2% compared to the first quarter of 2012. Manufacturing activity in eurozone factories fell further in August 2012, marking the 13th consecutive month of economic contraction. Retail sales were down 0.2% in July 2012 versus the prior month, and were down 1.7% compared to July 2011. Meanwhile, the annual rate of inflation in the eurozone hit 2.6% in August 2012, above the European Central Bank’s target rate of 2%. The European Commission’s sentiment gauge, the Economic Sentiment Indicator, showed confidence in the European economy as of August 2012, but was at its lowest level in three years.
The Italian economy is the third largest in the eurozone behind France and Germany. Italy’s national debt equals 120% of GDP, second only to Greece in terms of eurozone countries’ debt to GDP ratios. In late 2011, the Italian government declared that the economy was in a recession, which caused a change in leadership, ending the reign of Prime Minister Silvio Berlusconi. His successor, Mario Monti, quickly passed a number of economic measures including increasing the retirement age, raising property taxes, simplifying government bureaucracy and enforcing income tax collections. Still, GDP declined by 0.70% during the second quarter of 2012 compared to the first quarter of 2012. Manufacturing contracted significantly, with industrial activity dropping to a 10-month low in August 2012.
The Index declined steadily during the reporting period, as Italy’s fiscal woes came to light. From a sector perspective, financials, utilities and telecommunication services were the largest contributors to the Index’s negative returns, while energy, which had the largest average weight in the Index, was the only positively performing sector during the reporting period.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
21 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI NETHERLANDS INVESTABLE MARKET INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 1.96% | 1.78% | 2.91% | (5.98)% | (6.00)% | (5.30)% | 5.06% | 5.07% | 5.65% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 1.96% | 1.78% | 2.91% | (26.52)% | (26.61)% | (23.85)% | 63.86% | 63.98% | 73.21% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
Index performance reflects the performance of the MSCI Netherlands IndexSM through January 31, 2008 and the MSCI Netherlands Investable Market IndexSM thereafter.
“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.
| 22 | 2012 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 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, 2012 (the “reporting period”), the total return for the Fund was 1.96%, net of fees, while the total return for the Index was 2.91%.
The European economy continued to slide downward during the reporting period. The unemployment rate in the 17-nation eurozone reached 11.3% in July 2012, up from 10.1% in July 2011. During the second quarter of 2012, gross domestic product (“GDP”) declined 0.2% compared to the first quarter of 2012. Manufacturing activity in eurozone factories fell further in August 2012, marking the 13th consecutive month of economic contraction. Retail sales were down 0.2% in July 2012 versus the prior month, and were down 1.7% compared to July 2011. Meanwhile, the annual rate of inflation in the eurozone hit 2.6% in August 2012, above the European Central Bank’s target rate of 2%. The European Commission’s sentiment gauge, the Economic Sentiment Indicator, showed confidence in the European economy as of August 2012, but was at its lowest level in three years.
Economic growth in the Netherlands was weak during the reporting period, with GDP shrinking by 0.8% during the first quarter of 2012 compared with the same quarter in 2011. As of August 2012, consumer confidence in the Netherlands remained low, as the public remained pessimistic about spending as well as the overall economy. Economic sentiment in the Netherlands was negative for the past five years, and deteriorated further in 2012 as the government cut spending, home prices slumped and the debt crisis in Europe continued. The government has pledged to cut spending to reduce the Netherlands budget deficit below 3% of GDP as prescribed by the European Union.
Despite the negative environment, the Index posted a small gain for the reporting period. From a sector perspective, information technology produced the largest total return for the reporting period, and despite its small average allocation in the Index produced the largest total contribution to the Index’s returns, followed by the consumer staples and industrials sectors. On a negative note, the telecommunication services, financials and energy sectors detracted the most from returns.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
23 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI SPAIN INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (19.36)% | (19.82)% | (20.18)% | (9.36)% | (9.47)% | (9.97)% | 7.74% | 7.73% | 7.55% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (19.36)% | (19.82)% | (20.18)% | (38.81)% | (39.19)% | (40.86)% | 110.81% | 110.53% | 107.09% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
“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 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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 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, 2012 (the “reporting period”), the total return for the Fund was (19.36)%, net of fees, while the total return for the Index was (20.18)%.
The European economy continued to slide downward during the reporting period. The unemployment rate in the 17-nation eurozone reached 11.3% in July 2012, up from 10.1% in July 2011. During the second quarter of 2012, gross domestic product (“GDP”) declined 0.2% compared to the first quarter of 2012. Manufacturing activity in eurozone factories fell further in August 2012, marking the 13th consecutive month of economic contraction. Retail sales were down 0.2% in July 2012 versus the prior month, and were down 1.7% compared to July 2011. Meanwhile, the annual rate of inflation in the eurozone hit 2.6% in August 2012, above the European Central Bank’s target rate of 2%. The European Commission’s sentiment gauge, the Economic Sentiment Indicator showed confidence in the European economy as of August 2012, but was at its lowest level in three years.
During the second quarter of 2012, Spain’s economy contracted 0.4% from the first quarter of 2012 and 1% from the second quarter of 2011 as the unemployment rate reached 25%. The sluggish economy has led to high budget deficits, which the government has sought to close by seeking more than $125 billion in spending cuts and tax increases. Spain’s banking system also showed signs of weakness during the reporting period, as the government requested a $126 billion bailout from the European Central Bank. In addition, the Spanish government removed a regulation that capped the interest rates that banks were able to offer to depositors, enabling banks to raise the interest rates on bank accounts.
The Index declined steadily during most of the reporting period. From a sector perspective, telecommunication services, financials and utilities produced the largest negative contributions to the Index’s returns. In terms of weighting, these sectors together comprised, on average, about 75% of the Index. The consumer discretionary and consumer staples sectors contributed positively to the Index’s returns. However, their combined weighting, on average, was only about 8 percent of the Index.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
25 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI SWEDEN INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 5.57% | 5.52% | 5.46% | (0.64)% | (0.73)% | (0.72)% | 13.72% | 13.68% | 13.77% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 5.57% | 5.52% | 5.46% | (3.18)% | (3.58)% | (3.54)% | 261.62% | 260.43% | 263.40% | ||||||||
GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE)
“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.
| 26 | 2012 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 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, 2012 (the “reporting period”), the total return for the Fund was 5.57%, net of fees, while the total return for the Index was 5.46%.
The stock market in Sweden, as represented by the Index, posted an overall gain for the reporting period. However, the Index was volatile, declining in the fall of 2011 and again in early summer of 2012, as news from Europe, a major trading partner, worsened.
Except for a minor slide in manufacturing productivity in August 2012, the Swedish economy seemed to be unaffected by Europe’s challenging environment. Sweden’s gross domestic product (GDP) rose 2.3% on an annual basis in the second quarter of 2012 compared to the second quarter of 2011. Growth was fueled by a surge of exports outside of Europe, as its famous home appliance manufacturers posted profit increases during the second quarter of 2012. Yields on Swedish Treasury bills, normally offering modest interest, were in negative territory, generally suggesting that investors were willing to pay to invest there. Unlike most countries in the world, Sweden’s federal budget is actually running a surplus. The economy’s strength has driven the Swedish krona higher against the euro, although this could become a concern due to Sweden’s reliance on exports.
Meanwhile, the European economy continued to slide downward during the reporting period. Unemployment in the 17-nation eurozone reached 11.3% in July 2012, up from 10.1% in July 2011. Manufacturing activity in eurozone factories fell further in August 2012, marking the 13th consecutive month of economic contraction. Retail sales were down 0.2% in July 2012 versus the prior month, and were down 1.7% compared to July 2011. The European Commission’s sentiment gauge, the Economic Sentiment Indicator, showed confidence in the European economy as of August 2012, but was at its lowest level in three years.
During the reporting period, the financials and consumer discretionary sectors within the Index performed the best, while information technology and telecommunication services had the largest negative impact on results.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
27 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI SWITZERLAND INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (0.53)% | (0.99)% | (0.34)% | 0.68% | 0.63% | (0.03)% | 8.97% | 8.92% | 8.57% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (0.53)% | (0.99)% | (0.34)% | 3.46% | 3.18% | (0.15)% | 136.09% | 134.94% | 127.57% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
“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.
| 28 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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 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, 2012 (the “reporting period”), the total return for the Fund was (0.53)%, net of fees, while the total return for the Index was (0.34)%.
The Switzerland stock market, as represented by the Index, was flat for the reporting period. However, the market encountered headwinds during the fall of 2011 and again as summer 2012 approached, as news from Europe, an important trading partner, worsened. In addition, the Swiss economy stalled during the second quarter of 2012.
Until the second quarter of 2012, the Swiss economy seemed to be unaffected by the economic problems plaguing Europe. First quarter 2012 gross domestic product (“GDP”) grew 0.5% versus the fourth quarter of 2011, which in turn grew 0.4% over the prior quarter. However, the Swiss economy contracted by 0.1% during the second quarter of 2012 versus the first quarter of 2012, primarily due to falling exports to the eurozone. The Swiss franc has remained relatively strong versus the euro, which put Switzerland’s exports at a competitive disadvantage. The manufacturing sector reported declining orders in the latter half of the reporting period.
Meanwhile, the European economy continued to slide downward. The unemployment rate in the 17-nation eurozone reached 11.3% in July 2012, up from 10.1% in July 2011. During the second quarter of 2012, GDP declined 0.2% compared to the first quarter of 2012. Manufacturing activity in eurozone factories fell further in August 2012, marking the 13th consecutive month of economic contraction. Meanwhile, the European Commission’s sentiment gauge, the Economic Sentiment Indicator, showed confidence in the European economy as of August 2012, but was at its lowest level in three years.
Although the Swiss economy, long resistant to the downturn in Europe, finally showed weakness, there were bright spots during the reporting period. From a sector perspective, financials and industrials produced the largest negative contributions to returns for the Index, while health care and consumer staples provided the strongest positive returns for the Index. In a sluggish economy, sectors such as health care and consumer staples often do relatively well because demand for these products and services are not directly correlated to economic growth. On the other hand, sectors such as financials and industrials would tend not to do well because their success is more directly tied to the economy.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
29 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI UNITED KINGDOM INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 6.94% | 7.73% | 7.56% | (3.57)% | (3.46)% | (3.03)% | 6.38% | 6.39% | 7.08% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 6.94% | 7.73% | 7.56% | (16.62)% | (16.14)% | (14.24)% | 85.54% | 85.77% | 98.21% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
“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 | 2012 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 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, 2012 (the “reporting period”), the total return for the Fund was 6.94%, net of fees, while the total return for the Index was 7.56%.
The United Kingdom’s stock market, as represented by the Index, generally climbed for most of the reporting period. However, the path was bumpy, as the Index declined in the fall of 2011 and again in the early summer of 2012, as news from Europe, its most important trading partner, worsened and U.K. economic growth stalled.
In the second quarter of 2012, gross domestic product (“GDP”) in the U.K. fell 0.5% compared to the first quarter of 2012, which in turn fell 0.3% versus the fourth quarter of 2011. Household consumption of goods and services, which makes up about 60% of the U.K.’s GDP, fell 0.4% in the second quarter of 2012 compared to the first quarter of 2012. Consumer confidence suffered its longest slump since the 1970s, despite the surge in national pride during the London Olympic Games.
Meanwhile, the European economy continued to slide downward during the reporting period. The unemployment rate in the 17-nation eurozone reached 11.3% in July 2012, up from 10.1% in July 2011. During the second quarter of 2012, GDP declined 0.2% compared to the first quarter of 2012. Manufacturing activity in eurozone factories fell further in August 2012, marking the 13th consecutive month of economic contraction. Retail sales were down 0.2% in July 2012 versus the prior month, and were down 1.7% compared to July 2011. The European Commission’s sentiment gauge, the Economic Sentiment Indicator, showed confidence in the European economy as of August 2012, but was at its lowest level in three years.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
31 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI UNITED KINGDOM INDEX FUND
Despite challenges in Europe and the U.K. economy, the U.K. stock market posted better results than most of its counterparts in Europe. All sectors except materials posted a positive return during the reporting period. Shares of materials companies tend to do well when the economy is robust, and tend to decline when the economy faces challenges. The sector providing the highest positive contribution to the Index’s return was consumer staples. Shares of consumer staples companies generally do well in a sluggish economic environment because demand for products such as food and beverages typically remain relatively consistent.
| 32 | 2012 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, 2012 to August 31, 2012.
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 (3/1/12) |
Ending Account Value (8/31/12) |
Annualized Expense Ratio |
Expenses Paid During Period a |
||||||||||||
| Austria Investable Market |
||||||||||||||||
| Actual |
$ | 1,000.00 | $ | 890.10 | 0.53 | % | $ | 2.52 | ||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| Belgium Investable Market |
||||||||||||||||
| Actual |
1,000.00 | 1,036.70 | 0.53 | 2.71 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| Emerging Markets Eastern Europe |
||||||||||||||||
| Actual |
1,000.00 | 857.20 | 0.68 | 3.17 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,021.70 | 0.68 | 3.46 | ||||||||||||
| EMU |
||||||||||||||||
| Actual |
1,000.00 | 946.50 | 0.53 | 2.59 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| SHAREHOLDER EXPENSES |
33 |
Table of Contents
Shareholder Expenses (Unaudited) (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund | Beginning Account Value (3/1/12) |
Ending Account Value (8/31/12) |
Annualized Expense Ratio |
Expenses Paid During Period a |
||||||||||||
| France |
||||||||||||||||
| Actual |
$ | 1,000.00 | $ | 959.10 | 0.53 | % | $ | 2.61 | ||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| Germany |
||||||||||||||||
| Actual |
1,000.00 | 954.30 | 0.53 | 2.60 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| Italy |
||||||||||||||||
| Actual |
1,000.00 | 899.40 | 0.53 | 2.53 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| Netherlands Investable Market |
||||||||||||||||
| Actual |
1,000.00 | 992.20 | 0.53 | 2.65 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| Spain |
||||||||||||||||
| Actual |
1,000.00 | 864.30 | 0.53 | 2.48 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| Sweden |
||||||||||||||||
| Actual |
1,000.00 | 957.50 | 0.53 | 2.61 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| Switzerland |
||||||||||||||||
| Actual |
1,000.00 | 1,002.50 | 0.53 | 2.67 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| United Kingdom |
||||||||||||||||
| Actual |
1,000.00 | 989.50 | 0.53 | 2.65 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| 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 (366 days). |
| 34 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI AUSTRIA INVESTABLE MARKET INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
35 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI AUSTRIA INVESTABLE MARKET INDEX FUND
August 31, 2012
| 36 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI BELGIUM INVESTABLE MARKET INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
37 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI BELGIUM INVESTABLE MARKET INDEX FUND
August 31, 2012
| 38 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI EMERGING MARKETS EASTERN EUROPE INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
39 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS EASTERN EUROPE INDEX FUND
August 31, 2012
| 40 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
August 31, 2012
| SCHEDULES OF INVESTMENTS |
41 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI EMU INDEX FUND
August 31, 2012
| 42 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI EMU INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
43 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI EMU INDEX FUND
August 31, 2012
| 44 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI FRANCE INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
45 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI FRANCE INDEX FUND
August 31, 2012
| 46 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI FRANCE INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
47 |
Table of Contents
Schedule of Investments
iSHARES® MSCI GERMANY INDEX FUND
August 31, 2012
| 48 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI GERMANY INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
49 |
Table of Contents
Schedule of Investments
iSHARES® MSCI ITALY INDEX FUND
August 31, 2012
| 50 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI ITALY INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
51 |
Table of Contents
Schedule of Investments
iSHARES® MSCI NETHERLANDS INVESTABLE MARKET INDEX FUND
August 31, 2012
| 52 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI NETHERLANDS INVESTABLE MARKET INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
53 |
Table of Contents
Schedule of Investments
iSHARES® MSCI SPAIN INDEX FUND
August 31, 2012
| 54 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI SPAIN INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
55 |
Table of Contents
Schedule of Investments
iSHARES® MSCI SWEDEN INDEX FUND
August 31, 2012
| 56 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI SWEDEN INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
57 |
Table of Contents
Schedule of Investments
iSHARES® MSCI SWITZERLAND INDEX FUND
August 31, 2012
| 58 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI SWITZERLAND INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
59 |
Table of Contents
Schedule of Investments
iSHARES® MSCI UNITED KINGDOM INDEX FUND
August 31, 2012
| 60 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI UNITED KINGDOM INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
61 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI UNITED KINGDOM INDEX FUND
August 31, 2012
| 62 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Assets and Liabilities
iSHARES®, INC.
August 31, 2012
| iShares MSCI Austria Investable Market Index Fund |
iShares MSCI Belgium Investable Market Index Fund |
iShares MSCI Emerging Markets Eastern Europe Index Fund |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 108,484,140 | $ | 41,994,533 | $ | 28,090,118 | ||||||
| Affiliated (Note 2) |
156,421 | 372,541 | 319,344 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 108,640,561 | $ | 42,367,074 | $ | 28,409,462 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 53,153,660 | $ | 25,231,233 | $ | 20,209,320 | ||||||
| Affiliated (Note 2) |
156,421 | 372,541 | 319,344 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
53,310,081 | 25,603,774 | 20,528,664 | |||||||||
| Foreign currencies, at valueb |
38,560 | 105,087 | 3,051 | |||||||||
| Cash |
— | — | 2,200 | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
1,768,684 | 1,018,563 | 89,866 | |||||||||
| Dividends and interest |
586,381 | 49,086 | 84,666 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
55,703,706 | 26,776,510 | 20,708,447 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
1,770,189 | 1,016,745 | 94,462 | |||||||||
| Collateral for securities on loan (Note 5) |
152,100 | 362,671 | — | |||||||||
| Investment advisory fees (Note 2) |
24,301 | 11,141 | 11,979 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
1,946,590 | 1,390,557 | 106,441 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 53,757,116 | $ | 25,385,953 | $ | 20,602,006 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 174,308,054 | $ | 85,789,836 | $ | 29,713,196 | ||||||
| Undistributed (distributions in excess of) net investment income |
(273 | ) | (4,077 | ) | 75,982 | |||||||
| Accumulated net realized loss |
(65,167,540 | ) | (43,634,642 | ) | (1,306,629 | ) | ||||||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(55,383,125 | ) | (16,765,164 | ) | (7,880,543 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 53,757,116 | $ | 25,385,953 | $ | 20,602,006 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingc |
3,700,000 | 2,120,000 | 850,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 14.53 | $ | 11.97 | $ | 24.24 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $148,404, $347,691 and $ —, respectively. See Note 5. |
| b | Cost of foreign currencies: $37,863, $104,432 and $3,032, respectively. |
| c | $0.001 par value, number of shares authorized: 100 million, 136.2 million and 200 million, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS |
63 |
Table of Contents
Statements of Assets and Liabilities (Continued)
iSHARES®, INC.
August 31, 2012
| iShares MSCI EMU Index Fund |
iShares MSCI France Index Fund |
iShares MSCI Germany Index Fund |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 1,190,508,802 | $ | 516,923,238 | $ | 3,324,705,607 | ||||||
| Affiliated (Note 2) |
8,288,454 | 10,099 | 2,390,237 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 1,198,797,256 | $ | 516,933,337 | $ | 3,327,095,844 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 792,214,235 | $ | 401,326,745 | $ | 2,780,398,203 | ||||||
| Affiliated (Note 2) |
8,288,454 | 10,099 | 2,390,237 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
800,502,689 | 401,336,844 | 2,782,788,440 | |||||||||
| Foreign currencies, at valueb |
563,582 | 371,154 | 1,037,932 | |||||||||
| Cash held at broker, at valuec |
— | — | 1,133,039 | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
4,724,924 | 1,429,640 | 2,003,337 | |||||||||
| Due from custodian (Note 4) |
486,840 | — | — | |||||||||
| Dividends and interest |
1,184,359 | 89,157 | 14,160,719 | |||||||||
| Capital shares sold |
53,209 | — | — | |||||||||
| Futures variation margin |
— | — | 1,632,458 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
807,515,603 | 403,226,795 | 2,802,755,925 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
5,281,471 | 1,421,100 | 2,034,468 | |||||||||
| Collateral for securities on loan (Note 5) |
7,689,440 | — | 2,356,301 | |||||||||
| Capital shares redeemed |
— | — | 75,065 | |||||||||
| Investment advisory fees (Note 2) |
318,685 | 180,193 | 1,261,023 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
13,289,596 | 1,601,293 | 5,726,857 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 794,226,007 | $ | 401,625,502 | $ | 2,797,029,068 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 1,381,114,933 | $ | 544,501,949 | $ | 3,532,707,199 | ||||||
| Undistributed (distributions in excess of) net investment income |
941,872 | (48,128 | ) | — | ||||||||
| Accumulated net realized loss |
(189,521,855 | ) | (27,243,868 | ) | (192,143,841 | ) | ||||||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(398,308,943 | ) | (115,584,451 | ) | (543,534,290 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 794,226,007 | $ | 401,625,502 | $ | 2,797,029,068 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingd |
27,300,000 | 19,400,000 | 131,100,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 29.09 | $ | 20.70 | $ | 21.34 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $7,624,222, $ — and $2,258,527, respectively. See Note 5. |
| b | Cost of foreign currencies: $552,788, $359,635 and $970,707, respectively. |
| c | Cost of cash held at broker: $ —, $ — and $1,140,385, respectively. |
| d | $0.001 par value, number of shares authorized: 1 billion, 340.2 million and 382.2 million, respectively. |
See notes to financial statements.
| 64 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Assets and Liabilities (Continued)
iSHARES®, INC.
August 31, 2012
| iShares MSCI Italy Index Fund |
iShares MSCI Netherlands Investable Market Index Fund |
iShares MSCI Spain Index Fund |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 248,748,451 | $ | 109,156,225 | $ | 282,179,850 | ||||||
| Affiliated (Note 2) |
3,310,326 | 214,917 | 12,725,591 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 252,058,777 | $ | 109,371,142 | $ | 294,905,441 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 196,285,899 | $ | 78,137,999 | $ | 194,852,239 | ||||||
| Affiliated (Note 2) |
3,310,326 | 214,917 | 12,725,591 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
199,596,225 | 78,352,916 | 207,577,830 | |||||||||
| Foreign currencies, at valueb |
102,309 | 66,271 | 128,006 | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
7,946,655 | 143,285 | 647,981 | |||||||||
| Due from custodian (Note 4) |
— | — | 93,562 | |||||||||
| Dividends and interest |
1,060 | 174,413 | 111,751 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
207,646,249 | 78,736,885 | 208,559,130 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
8,067,696 | 165,919 | 743,283 | |||||||||
| Collateral for securities on loan (Note 5) |
3,288,071 | 145,428 | 12,640,707 | |||||||||
| Investment advisory fees (Note 2) |
78,730 | 28,997 | 82,121 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
11,434,497 | 340,344 | 13,466,111 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 196,211,752 | $ | 78,396,541 | $ | 195,093,019 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 316,610,533 | $ | 149,640,824 | $ | 339,717,762 | ||||||
| Undistributed (distributions in excess of) net investment income |
(61,840 | ) | 159,212 | 2,782,477 | ||||||||
| Accumulated net realized loss |
(67,876,200 | ) | (40,388,690 | ) | (60,082,322 | ) | ||||||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(52,460,741 | ) | (31,014,805 | ) | (87,324,898 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 196,211,752 | $ | 78,396,541 | $ | 195,093,019 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingc |
16,650,000 | 4,300,000 | 7,425,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 11.78 | $ | 18.23 | $ | 26.28 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $3,252,697, $139,245 and $12,371,323, respectively. See Note 5. |
| b | Cost of foreign currencies: $100,497, $65,736 and $125,111, 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.
| FINANCIAL STATEMENTS |
65 |
Table of Contents
Statements of Assets and Liabilities (Continued)
iSHARES®, INC.
August 31, 2012
| iShares MSCI Sweden Index Fund |
iShares MSCI Switzerland Index Fund |
iShares MSCI United Kingdom Index Fund |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 421,853,313 | $ | 549,191,468 | $ | 1,449,809,142 | ||||||
| Affiliated (Note 2) |
28,285 | 133,871 | 2,759,112 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 421,881,598 | $ | 549,325,339 | $ | 1,452,568,254 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 370,755,489 | $ | 549,571,487 | $ | 1,344,374,850 | ||||||
| Affiliated (Note 2) |
28,285 | 133,871 | 2,759,112 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
370,783,774 | 549,705,358 | 1,347,133,962 | |||||||||
| Foreign currencies, at valueb |
206,237 | 12,946 | 3,595,115 | |||||||||
| Cash held at broker, at valuec |
— | — | 1,433,305 | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
338,681 | 13,926,436 | 8,100,339 | |||||||||
| Dividends and interest |
375 | 4,874,140 | 9,755,024 | |||||||||
| Futures variation margin |
— | — | 33,022 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
371,329,067 | 568,518,880 | 1,370,050,767 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
333,891 | 13,680,371 | 10,240,503 | |||||||||
| Collateral for securities on loan (Note 5) |
— | — | 2,708,640 | |||||||||
| Capital shares redeemed |
— | 25,364 | — | |||||||||
| Investment advisory fees (Note 2) |
162,793 | 243,431 | 607,525 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
496,684 | 13,949,166 | 13,556,668 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 370,832,383 | $ | 554,569,714 | $ | 1,356,494,099 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 463,321,582 | $ | 606,634,949 | $ | 1,608,102,724 | ||||||
| Undistributed (distributions in excess of) net investment income |
(43,823 | ) | (89,854 | ) | 9,541,575 | |||||||
| Accumulated net realized loss |
(41,351,767 | ) | (52,368,927 | ) | (155,893,106 | ) | ||||||
| Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies |
(51,093,609 | ) | 393,546 | (105,257,094 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 370,832,383 | $ | 554,569,714 | $ | 1,356,494,099 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingd |
13,575,000 | 23,250,000 | 80,200,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 27.32 | $ | 23.85 | $ | 16.91 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $ —, $ — and $2,788,870, respectively. See Note 5. |
| b | Cost of foreign currencies: $202,023, $12,631 and $3,561,819, respectively. |
| c | Cost of cash held at broker: $ —, $ — and $1,400,620, respectively. |
| d | $0.001 par value, number of shares authorized: 63.6 million, 318.625 million and 934.2 million, respectively. |
See notes to financial statements.
| 66 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Operations
iSHARES®, INC.
Year ended August 31, 2012
| iShares MSCI Austria Investable Market Index Fund |
iShares MSCI Belgium Investable Market Index Fund |
iShares MSCI Emerging Markets Eastern Europe Index Fund |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends — unaffiliateda |
$ | 1,798,633 | $ | 954,251 | $ | 1,160,069 | ||||||
| Interest — unaffiliated |
5,425 | — | — | |||||||||
| Interest — affiliated (Note 2) |
23 | 12 | 22 | |||||||||
| Securities lending income — affiliated (Note 2) |
95,248 | 19,268 | 237 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
1,899,329 | 973,531 | 1,160,328 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
350,168 | 131,854 | 171,465 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
350,168 | 131,854 | 171,465 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
1,549,161 | 841,677 | 988,863 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments — unaffiliated |
(13,167,058 | ) | (2,557,621 | ) | (1,216,662 | ) | ||||||
| In-kind redemptions — unaffiliated |
(27,783,959 | ) | (1,264,952 | ) | (2,682,504 | ) | ||||||
| Foreign currency transactions |
(22,611 | ) | (122,664 | ) | (42,971 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net realized loss |
(40,973,628 | ) | (3,945,237 | ) | (3,942,137 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
13,334,926 | 3,015,569 | (1,764,474 | ) | ||||||||
| Translation of assets and liabilities in foreign currencies |
(103,706 | ) | 51,906 | 1,105 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
13,231,220 | 3,067,475 | (1,763,369 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized loss |
(27,742,408 | ) | (877,762 | ) | (5,705,506 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (26,193,247 | ) | $ | (36,085 | ) | $ | (4,716,643 | ) | |||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $248,503, $122,368 and $200,926, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS |
67 |
Table of Contents
Statements of Operations (Continued)
iSHARES®, INC.
Year ended August 31, 2012
| iShares MSCI EMU Index Fund |
iShares MSCI France Index Fund |
iShares MSCI Germany Index Fund |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends — unaffiliateda |
$ | 28,364,909 | $ | 9,928,009 | $ | 86,595,547 | ||||||
| Interest — unaffiliated |
258 | — | 20 | |||||||||
| Interest — affiliated (Note 2) |
194 | 78 | 721 | |||||||||
| Securities lending income — affiliated (Note 2) |
312,517 | 72,418 | 488,417 | |||||||||
|
|
|
|
|
|
|
|||||||
| 28,677,878 | 10,000,505 | 87,084,705 | ||||||||||
| Less: Other foreign taxes (Note 1) |
(808 | ) | (1,006 | ) | — | |||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
28,677,070 | 9,999,499 | 87,084,705 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
3,695,691 | 1,529,840 | 14,093,002 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
3,695,691 | 1,529,840 | 14,093,002 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
24,981,379 | 8,469,659 | 72,991,703 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments — unaffiliated |
(66,586,194 | ) | (23,796,526 | ) | (76,426,767 | ) | ||||||
| In-kind redemptions — unaffiliated |
2,721,446 | (22,895,105 | ) | 54,283,982 | ||||||||
| Futures contracts |
— | — | 23,600 | |||||||||
| Foreign currency transactions |
(376,734 | ) | (148,510 | ) | (1,084,164 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net realized loss |
(64,241,482 | ) | (46,840,141 | ) | (23,203,349 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
3,603,438 | 21,061,115 | 55,283,887 | |||||||||
| Futures contracts |
— | — | 1,632,458 | |||||||||
| Translation of assets and liabilities in foreign currencies |
(4,728 | ) | 9,605 | (840,185 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
3,598,710 | 21,070,720 | 56,076,160 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain (loss) |
(60,642,772 | ) | (25,769,421 | ) | 32,872,811 | |||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (35,661,393 | ) | $ | (17,299,762 | ) | $ | 105,864,514 | ||||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $4,187,889, $1,741,344 and $13,236,802, respectively. |
See notes to financial statements.
| 68 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Operations (Continued)
iSHARES®, INC.
Year ended August 31, 2012
| iShares MSCI Italy Index Fund |
iShares MSCI Netherlands Investable Market Index Fund |
iShares MSCI Spain Index Fund |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends — unaffiliateda |
$ | 5,112,846 | $ | 1,920,753 | $ | 10,488,940 | ||||||
| Interest — affiliated (Note 2) |
41 | 17 | 105 | |||||||||
| Securities lending income — affiliated (Note 2) |
40,173 | 21,596 | 416,598 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
5,153,060 | 1,942,366 | 10,905,643 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
687,537 | 373,539 | 705,321 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
687,537 | 373,539 | 705,321 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
4,465,523 | 1,568,827 | 10,200,322 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments — unaffiliated |
(31,724,058 | ) | (5,771,725 | ) | (30,352,643 | ) | ||||||
| In-kind redemptions — unaffiliated |
1,864,340 | (14,661,575 | ) | (24,902,153 | ) | |||||||
| Foreign currency transactions |
17,638 | (56,324 | ) | (65,899 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net realized loss |
(29,842,080 | ) | (20,489,624 | ) | (55,320,695 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
14,197,062 | 16,002,868 | 23,659,167 | |||||||||
| Translation of assets and liabilities in foreign currencies |
929 | (1,500 | ) | (368 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
14,197,991 | 16,001,368 | 23,658,799 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized loss |
(15,644,089 | ) | (4,488,256 | ) | (31,661,896 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (11,178,566 | ) | $ | (2,919,429 | ) | $ | (21,461,574 | ) | |||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $869,486, $332,733 and $855,365, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS |
69 |
Table of Contents
Statements of Operations (Continued)
iSHARES®, INC.
Year ended August 31, 2012
| iShares MSCI Sweden Index Fund |
iShares MSCI Switzerland Index Fund |
iShares MSCI United Kingdom Index Fund |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends — unaffiliateda |
$ | 11,429,399 | $ | 16,780,021 | $ | 58,648,688 | ||||||
| Interest — unaffiliated |
— | — | 280 | |||||||||
| Interest — affiliated (Note 2) |
45 | 102 | 424 | |||||||||
| Securities lending income — affiliated (Note 2) |
1,613 | 629 | 41,492 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
11,431,057 | 16,780,752 | 58,690,884 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
1,624,714 | 2,708,262 | 6,994,397 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
1,624,714 | 2,708,262 | 6,994,397 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
9,806,343 | 14,072,490 | 51,696,487 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments — unaffiliated |
(8,868,064 | ) | (6,774,061 | ) | (36,834,010 | ) | ||||||
| In-kind redemptions — unaffiliated |
(9,460,688 | ) | 6,032,891 | 23,861,329 | ||||||||
| Futures contracts |
— | — | (128,697 | ) | ||||||||
| Foreign currency transactions |
(251,254 | ) | (182,317 | ) | (848,676 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net realized loss |
(18,580,006 | ) | (923,487 | ) | (13,950,054 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
18,531,048 | (14,994,228 | ) | 52,219,421 | ||||||||
| Futures contracts |
— | — | 33,022 | |||||||||
| Translation of assets and liabilities in foreign currencies |
3,360 | (622,338 | ) | 180,064 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
18,534,408 | (15,616,566 | ) | 52,432,507 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain (loss) |
(45,598 | ) | (16,540,053 | ) | 38,482,453 | |||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | 9,760,745 | $ | (2,467,563 | ) | $ | 90,178,940 | |||||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $2,016,953, $2,452,125 and $683,787, respectively. |
See notes to financial statements.
| 70 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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, 2012 |
Year ended August 31, 2011 |
Year ended August 31, 2012 |
Year ended August 31, 2011 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 1,549,161 | $ | 3,240,793 | $ | 841,677 | $ | 1,389,784 | ||||||||
| Net realized gain (loss) |
(40,973,628 | ) | 3,890,979 | (3,945,237 | ) | (4,660,818 | ) | |||||||||
| Net change in unrealized appreciation/depreciation |
13,231,220 | 5,563,324 | 3,067,475 | 8,534,470 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
(26,193,247 | ) | 12,695,096 | (36,085 | ) | 5,263,436 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(1,874,586 | ) | (3,303,650 | ) | (1,434,412 | ) | (1,401,041 | ) | ||||||||
| Return of capital |
— | — | (27,668 | ) | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(1,874,586 | ) | (3,303,650 | ) | (1,462,080 | ) | (1,401,041 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
30,854,845 | 153,911,553 | 3,661,417 | 70,362,308 | ||||||||||||
| Cost of shares redeemed |
(86,004,103 | ) | (136,848,453 | ) | (8,033,134 | ) | (101,865,045 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
(55,149,258 | ) | 17,063,100 | (4,371,717 | ) | (31,502,737 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
(83,217,091 | ) | 26,454,546 | (5,869,882 | ) | (27,640,342 | ) | |||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
136,974,207 | 110,519,661 | 31,255,835 | 58,896,177 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 53,757,116 | $ | 136,974,207 | $ | 25,385,953 | $ | 31,255,835 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of year |
$ | (273 | ) | $ | 111,146 | $ | (4,077 | ) | $ | 709,744 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
1,900,000 | 7,100,000 | 320,000 | 4,920,000 | ||||||||||||
| Shares redeemed |
(5,500,000 | ) | (6,200,000 | ) | (680,000 | ) | (7,440,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
(3,600,000 | ) | 900,000 | (360,000 | ) | (2,520,000 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| FINANCIAL STATEMENTS |
71 |
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, 2012 |
Year ended August 31, 2011 |
Year ended August 31, 2012 |
Year ended August 31, 2011 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 988,863 | $ | 671,515 | $ | 24,981,379 | $ | 29,284,564 | ||||||||
| Net realized gain (loss) |
(3,942,137 | ) | 4,507,041 | (64,241,482 | ) | (9,900,693 | ) | |||||||||
| Net change in unrealized appreciation/depreciation |
(1,763,369 | ) | (5,857,166 | ) | 3,598,710 | 6,777,116 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
(4,716,643 | ) | (678,610 | ) | (35,661,393 | ) | 26,160,987 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(999,697 | ) | (575,285 | ) | (26,115,000 | ) | (27,791,723 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(999,697 | ) | (575,285 | ) | (26,115,000 | ) | (27,791,723 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
3,811,852 | 76,250,166 | 423,843,438 | 558,259,495 | ||||||||||||
| Cost of shares redeemed |
(9,705,031 | ) | (55,616,346 | ) | (306,073,712 | ) | (642,368,122 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
(5,893,179 | ) | 20,633,820 | 117,769,726 | (84,108,627 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
(11,609,519 | ) | 19,379,925 | 55,993,333 | (85,739,363 | ) | ||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
32,211,525 | 12,831,600 | 738,232,674 | 823,972,037 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 20,602,006 | $ | 32,211,525 | $ | 794,226,007 | $ | 738,232,674 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed net investment income included in net assets at end of year |
$ | 75,982 | $ | 129,787 | $ | 941,872 | $ | 2,355,966 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
150,000 | 2,250,000 | 14,700,000 | 14,400,000 | ||||||||||||
| Shares redeemed |
(400,000 | ) | (1,650,000 | ) | (10,800,000 | ) | (17,800,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
(250,000 | ) | 600,000 | 3,900,000 | (3,400,000 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| 72 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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, 2012 |
Year ended August 31, 2011 |
Year ended August 31, 2012 |
Year ended August 31, 2011 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 8,469,659 | $ | 11,923,061 | $ | 72,991,703 | $ | 91,494,830 | ||||||||
| Net realized gain (loss) |
(46,840,141 | ) | (2,882,430 | ) | (23,203,349 | ) | 106,517,591 | |||||||||
| Net change in unrealized appreciation/depreciation |
21,070,720 | (10,589,579 | ) | 56,076,160 | (323,290,675 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
(17,299,762 | ) | (1,548,948 | ) | 105,864,514 | (125,278,254 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(8,849,764 | ) | (11,811,674 | ) | (74,836,476 | ) | (93,072,582 | ) | ||||||||
| Return of capital |
(2,754 | ) | — | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(8,852,518 | ) | (11,811,674 | ) | (74,836,476 | ) | (93,072,582 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
407,882,087 | 327,507,874 | 1,528,900,109 | 2,649,782,675 | ||||||||||||
| Cost of shares redeemed |
(337,241,789 | ) | (196,716,202 | ) | (1,531,070,466 | ) | (1,151,141,454 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
70,640,298 | 130,791,672 | (2,170,357 | ) | 1,498,641,221 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE IN NET ASSETS |
44,488,018 | 117,431,050 | 28,857,681 | 1,280,290,385 | ||||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
357,137,484 | 239,706,434 | 2,768,171,387 | 1,487,881,002 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 401,625,502 | $ | 357,137,484 | $ | 2,797,029,068 | $ | 2,768,171,387 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of year |
$ | (48,128 | ) | $ | 480,487 | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
21,000,000 | 12,400,000 | 72,900,000 | 102,900,000 | ||||||||||||
| Shares redeemed |
(17,400,000 | ) | (8,000,000 | ) | (73,500,000 | ) | (47,700,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
3,600,000 | 4,400,000 | (600,000 | ) | 55,200,000 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| FINANCIAL STATEMENTS |
73 |
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, 2012 |
Year ended August 31, 2011 |
Year ended August 31, 2012 |
Year ended August 31, 2011 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 4,465,523 | $ | 3,714,465 | $ | 1,568,827 | $ | 3,819,725 | ||||||||
| Net realized gain (loss) |
(29,842,080 | ) | (7,907,880 | ) | (20,489,624 | ) | 8,037,705 | |||||||||
| Net change in unrealized appreciation/depreciation |
14,197,991 | (7,314,629 | ) | 16,001,368 | (605,357 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
(11,178,566 | ) | (11,508,044 | ) | (2,919,429 | ) | 11,252,073 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(4,578,996 | ) | (3,814,673 | ) | (1,910,545 | ) | (3,654,048 | ) | ||||||||
| Return of capital |
(1,125 | ) | — | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(4,580,121 | ) | (3,814,673 | ) | (1,910,545 | ) | (3,654,048 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
186,146,005 | 233,854,014 | 38,973,623 | 63,107,207 | ||||||||||||
| Cost of shares redeemed |
(118,787,548 | ) | (150,419,367 | ) | (77,487,514 | ) | (96,575,333 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
67,358,457 | 83,434,647 | (38,513,891 | ) | (33,468,126 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
51,599,770 | 68,111,930 | (43,343,865 | ) | (25,870,101 | ) | ||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
144,611,982 | 76,500,052 | 121,740,406 | 147,610,507 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 196,211,752 | $ | 144,611,982 | $ | 78,396,541 | $ | 121,740,406 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of year |
$ | (61,840 | ) | $ | 14,337 | $ | 159,212 | $ | 557,254 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
15,750,000 | 14,400,000 | 2,200,000 | 2,850,000 | ||||||||||||
| Shares redeemed |
(9,750,000 | ) | (8,850,000 | ) | (4,500,000 | ) | (4,500,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
6,000,000 | 5,550,000 | (2,300,000 | ) | (1,650,000 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| 74 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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, 2012 |
Year ended August 31, 2011 |
Year ended August 31, 2012 |
Year ended August 31, 2011 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 10,200,322 | $ | 11,073,134 | $ | 9,806,343 | $ | 18,747,767 | ||||||||
| Net realized gain (loss) |
(55,320,695 | ) | (583,970 | ) | (18,580,006 | ) | 3,646,225 | |||||||||
| Net change in unrealized appreciation/depreciation |
23,658,799 | (10,416,178 | ) | 18,534,408 | (18,154,073 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
(21,461,574 | ) | 72,986 | 9,760,745 | 4,239,919 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(11,503,970 | ) | (8,211,532 | ) | (9,531,005 | ) | (19,236,805 | ) | ||||||||
| Return of capital |
— | — | (613,518 | ) | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(11,503,970 | ) | (8,211,532 | ) | (10,144,523 | ) | (19,236,805 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
226,627,780 | 418,742,090 | 141,186,783 | 366,716,894 | ||||||||||||
| Cost of shares redeemed |
(178,928,842 | ) | (424,605,441 | ) | (99,857,806 | ) | (271,324,012 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
47,698,938 | (5,863,351 | ) | 41,328,977 | 95,392,882 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
14,733,394 | (14,001,897 | ) | 40,945,199 | 80,395,996 | |||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
180,359,625 | 194,361,522 | 329,887,184 | 249,491,188 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 195,093,019 | $ | 180,359,625 | $ | 370,832,383 | $ | 329,887,184 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of year |
$ | 2,782,477 | $ | 4,152,024 | $ | (43,823 | ) | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
8,550,000 | 10,200,000 | 5,250,000 | 11,850,000 | ||||||||||||
| Shares redeemed |
(6,150,000 | ) | (10,425,000 | ) | (3,975,000 | ) | (9,750,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
2,400,000 | (225,000 | ) | 1,275,000 | 2,100,000 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| FINANCIAL STATEMENTS |
75 |
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, 2012 |
Year ended August 31, 2011 |
Year ended August 31, 2012 |
Year ended August 31, 2011 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 14,072,490 | $ | 11,696,805 | $ | 51,696,487 | $ | 37,030,142 | ||||||||
| Net realized gain (loss) |
(923,487 | ) | 9,971,355 | (13,950,054 | ) | 19,495,286 | ||||||||||
| Net change in unrealized appreciation/depreciation |
(15,616,566 | ) | 39,334,532 | 52,432,507 | 45,745,307 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
(2,467,563 | ) | 61,002,692 | 90,178,940 | 102,270,735 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(14,947,529 | ) | (11,911,242 | ) | (49,722,633 | ) | (33,922,128 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(14,947,529 | ) | (11,911,242 | ) | (49,722,633 | ) | (33,922,128 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
90,416,035 | 136,480,631 | 243,232,911 | 406,184,764 | ||||||||||||
| Cost of shares redeemed |
(42,590,064 | ) | (67,167,856 | ) | (126,527,912 | ) | (205,612,227 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase in net assets from capital share transactions |
47,825,971 | 69,312,775 | 116,704,999 | 200,572,537 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE IN NET ASSETS |
30,410,879 | 118,404,225 | 157,161,306 | 268,921,144 | ||||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
524,158,835 | 405,754,610 | 1,199,332,793 | 930,411,649 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 554,569,714 | $ | 524,158,835 | $ | 1,356,494,099 | $ | 1,199,332,793 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of year |
$ | (89,854 | ) | $ | 226,960 | $ | 9,541,575 | $ | 8,406,831 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
3,875,000 | 5,125,000 | 14,800,000 | 23,400,000 | ||||||||||||
| Shares redeemed |
(1,875,000 | ) | (2,625,000 | ) | (7,600,000 | ) | (12,400,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase in shares outstanding |
2,000,000 | 2,500,000 | 7,200,000 | 11,000,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| 76 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Austria Investable Market Index Fund |
||||||||||||||||||||
| Year ended Aug. 31, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 18.76 | $ | 17.27 | $ | 20.21 | $ | 29.78 | $ | 37.28 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.35 | 0.42 | 0.43 | 0.51 | 0.56 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
(4.09 | ) | 1.53 | (2.62 | ) | (9.36 | ) | (6.98 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(3.74 | ) | 1.95 | (2.19 | ) | (8.85 | ) | (6.42 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.49 | ) | (0.46 | ) | (0.75 | ) | (0.72 | ) | (1.08 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.49 | ) | (0.46 | ) | (0.75 | ) | (0.72 | ) | (1.08 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 14.53 | $ | 18.76 | $ | 17.27 | $ | 20.21 | $ | 29.78 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(19.81 | )% | 10.92 | % | (11.07 | )% | (28.52 | )% | (17.64 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 53,757 | $ | 136,974 | $ | 110,520 | $ | 159,666 | $ | 193,602 | ||||||||||
| Ratio of expenses to average net assets |
0.52 | % | 0.52 | % | 0.54 | % | 0.55 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
2.32 | % | 1.95 | % | 2.20 | % | 3.25 | % | 1.57 | % | ||||||||||
| Portfolio turnover ratec |
13 | % | 12 | % | 11 | % | 26 | % | 26 | % | ||||||||||
| 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 |
77 |
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, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 12.60 | $ | 11.78 | $ | 12.06 | $ | 17.64 | $ | 25.89 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.38 | 0.35 | 0.19 | 0.22 | 0.78 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
(0.33 | ) | 0.80 | (0.27 | ) | (5.46 | ) | (7.27 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
0.05 | 1.15 | (0.08 | ) | (5.24 | ) | (6.49 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.67 | ) | (0.33 | ) | (0.20 | ) | (0.34 | ) | (1.76 | ) | ||||||||||
| Return of capital |
(0.01 | ) | — | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.68 | ) | (0.33 | ) | (0.20 | ) | (0.34 | ) | (1.76 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 11.97 | $ | 12.60 | $ | 11.78 | $ | 12.06 | $ | 17.64 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
1.11 | % | 9.59 | % | (0.60 | )% | (29.15 | )% | (26.21 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 25,386 | $ | 31,256 | $ | 58,896 | $ | 53,042 | $ | 119,955 | ||||||||||
| Ratio of expenses to average net assets |
0.53 | % | 0.52 | % | 0.54 | % | 0.56 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.35 | % | 2.56 | % | 1.55 | % | 2.23 | % | 3.32 | % | ||||||||||
| Portfolio turnover ratec |
19 | % | 12 | % | 17 | % | 33 | % | 31 | % | ||||||||||
| 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.
| 78 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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, 2012 |
Year ended Aug. 31, 2011 |
Period from to Aug. 31, 2010 |
||||||||||
| Net asset value, beginning of period |
$ | 29.28 | $ | 25.66 | $ | 24.65 | ||||||
|
|
|
|
|
|
|
|||||||
| Income from investment operations: |
||||||||||||
| Net investment incomeb |
1.01 | 0.67 | 0.26 | |||||||||
| Net realized and unrealized gain (loss)c |
(4.92 | ) | 3.45 | 0.89 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total from investment operations |
(3.91 | ) | 4.12 | 1.15 | ||||||||
|
|
|
|
|
|
|
|||||||
| Less distributions from: |
||||||||||||
| Net investment income |
(1.13 | ) | (0.50 | ) | (0.13 | ) | ||||||
| Net realized gain |
— | — | (0.01 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Total distributions |
(1.13 | ) | (0.50 | ) | (0.14 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net asset value, end of period |
$ | 24.24 | $ | 29.28 | $ | 25.66 | ||||||
|
|
|
|
|
|
|
|||||||
| Total return |
(13.14 | )% | 15.86 | % | 4.68 | %d | ||||||
|
|
|
|
|
|
|
|||||||
| Ratios/Supplemental data: |
||||||||||||
| Net assets, end of period (000s) |
$ | 20,602 | $ | 32,212 | $ | 12,832 | ||||||
| Ratio of expenses to average net assetse |
0.69 | % | 0.68 | % | 0.69 | % | ||||||
| Ratio of expenses to average net assets prior to waived fees |
n/a | 0.68 | % | n/a | ||||||||
| Ratio of net investment income to average net assetse |
3.97 | % | 2.06 | % | 1.05 | % | ||||||
| Portfolio turnover ratef |
8 | % | 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.
| FINANCIAL HIGHLIGHTS |
79 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI EMU Index Fund |
||||||||||||||||||||
| Year ended Aug. 31, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008a |
||||||||||||||||
| Net asset value, beginning of year |
$ | 31.55 | $ | 30.75 | $ | 35.64 | $ | 45.97 | $ | 57.15 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomeb |
1.02 | 1.23 | 0.80 | 0.93 | 1.71 | |||||||||||||||
| Net realized and unrealized gain (loss)c |
(2.38 | ) | 0.71 | (4.76 | ) | (9.97 | ) | (9.59 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(1.36 | ) | 1.94 | (3.96 | ) | (9.04 | ) | (7.88 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(1.10 | ) | (1.14 | ) | (0.93 | ) | (1.29 | ) | (3.30 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(1.10 | ) | (1.14 | ) | (0.93 | ) | (1.29 | ) | (3.30 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 29.09 | $ | 31.55 | $ | 30.75 | $ | 35.64 | $ | 45.97 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(3.99 | )% | 5.78 | % | (11.19 | )% | (19.05 | )% | (14.52 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 794,226 | $ | 738,233 | $ | 823,972 | $ | 741,270 | $ | 1,291,808 | ||||||||||
| Ratio of expenses to average net assetsd |
0.53 | % | 0.52 | % | 0.54 | % | 0.56 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.55 | % | 3.38 | % | 2.29 | % | 3.07 | % | 3.06 | % | ||||||||||
| Portfolio turnover ratee |
7 | % | 8 | % | 5 | % | 8 | % | 27 | % | ||||||||||
| 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 the years ended August 31, 2010 and prior have been recalculated, as necessary, to conform with the current 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.
| 80 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI France Index Fund |
||||||||||||||||||||
| Year ended Aug. 31, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 22.60 | $ | 21.03 | $ | 24.28 | $ | 30.70 | $ | 36.53 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.59 | 0.86 | 0.65 | 0.66 | 0.93 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
(1.80 | ) | 1.38 | (3.30 | ) | (6.13 | ) | (5.17 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(1.21 | ) | 2.24 | (2.65 | ) | (5.47 | ) | (4.24 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.69 | ) | (0.67 | ) | (0.60 | ) | (0.95 | ) | (1.59 | ) | ||||||||||
| Return of capital |
(0.00 | )c | — | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.69 | ) | (0.67 | ) | (0.60 | ) | (0.95 | ) | (1.59 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 20.70 | $ | 22.60 | $ | 21.03 | $ | 24.28 | $ | 30.70 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(5.05 | )% | 10.24 | % | (10.98 | )% | (17.11 | )% | (11.96 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 401,626 | $ | 357,137 | $ | 239,706 | $ | 184,511 | $ | 227,203 | ||||||||||
| Ratio of expenses to average net assetsd |
0.53 | % | 0.52 | % | 0.53 | % | 0.55 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
2.91 | % | 3.38 | % | 2.71 | % | 3.18 | % | 2.60 | % | ||||||||||
| Portfolio turnover ratee |
6 | % | 6 | % | 6 | % | 6 | % | 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 | Rounds to less than $0.01. |
| d | Ratios for the years ended August 31, 2010 and prior have been recalculated, as necessary, to conform with the current 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 |
81 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Germany Index Fund |
||||||||||||||||||||
| Year ended Aug. 31, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 21.02 | $ | 19.45 | $ | 20.86 | $ | 27.55 | $ | 32.18 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.56 | 0.86 | 0.38 | 0.58 | 0.88 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
0.34 | 1.38 | (1.49 | ) | (6.65 | ) | (3.84 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
0.90 | 2.24 | (1.11 | ) | (6.07 | ) | (2.96 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.58 | ) | (0.67 | ) | (0.30 | ) | (0.62 | ) | (1.67 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.58 | ) | (0.67 | ) | (0.30 | ) | (0.62 | ) | (1.67 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 21.34 | $ | 21.02 | $ | 19.45 | $ | 20.86 | $ | 27.55 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
4.55 | % | 10.84 | % | (5.35 | )% | (21.62 | )% | (9.81 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 2,797,029 | $ | 2,768,171 | $ | 1,487,881 | $ | 619,638 | $ | 669,452 | ||||||||||
| Ratio of expenses to average net assets |
0.53 | % | 0.51 | % | 0.53 | % | 0.55 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
2.72 | % | 3.45 | % | 1.80 | % | 3.18 | % | 2.72 | % | ||||||||||
| Portfolio turnover ratec |
4 | % | 13 | % | 5 | % | 15 | % | 11 | % | ||||||||||
| 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.
| 82 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Italy Index Fund |
||||||||||||||||||||
| Year ended Aug. 31, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 13.58 | $ | 15.00 | $ | 19.05 | $ | 25.04 | $ | 33.82 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.41 | 0.54 | 0.39 | 0.47 | 1.53 | |||||||||||||||
| Net realized and unrealized lossb |
(1.79 | ) | (1.47 | ) | (3.99 | ) | (5.82 | ) | (7.71 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(1.38 | ) | (0.93 | ) | (3.60 | ) | (5.35 | ) | (6.18 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.42 | ) | (0.49 | ) | (0.44 | ) | (0.64 | ) | (2.60 | ) | ||||||||||
| Return of capital |
(0.00 | )c | — | (0.01 | ) | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.42 | ) | (0.49 | ) | (0.45 | ) | (0.64 | ) | (2.60 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 11.78 | $ | 13.58 | $ | 15.00 | $ | 19.05 | $ | 25.04 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(9.98 | )% | (6.80 | )% | (19.11 | )% | (20.78 | )% | (19.43 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 196,212 | $ | 144,612 | $ | 76,500 | $ | 125,716 | $ | 244,154 | ||||||||||
| Ratio of expenses to average net assetsd |
0.53 | % | 0.51 | % | 0.54 | % | 0.55 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.41 | % | 3.15 | % | 2.17 | % | 2.85 | % | 5.06 | % | ||||||||||
| Portfolio turnover ratee |
14 | % | 16 | % | 12 | % | 18 | % | 29 | % | ||||||||||
| 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 | Rounds to less than $0.01. |
| d | Ratios for the years ended August 31, 2010 and prior have been recalculated, as necessary, to conform with the current 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 |
83 |
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, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 18.45 | $ | 17.89 | $ | 18.52 | $ | 24.38 | $ | 29.75 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.39 | 0.48 | 0.45 | 0.35 | 1.10 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
(0.08 | ) | 0.55 | (0.70 | ) | (5.55 | ) | (4.68 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
0.31 | 1.03 | (0.25 | ) | (5.20 | ) | (3.58 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.53 | ) | (0.47 | ) | (0.38 | ) | (0.66 | ) | (1.79 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.53 | ) | (0.47 | ) | (0.38 | ) | (0.66 | ) | (1.79 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 18.23 | $ | 18.45 | $ | 17.89 | $ | 18.52 | $ | 24.38 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
1.96 | % | 5.44 | % | (1.44 | )% | (20.59 | )% | (12.67 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 78,397 | $ | 121,740 | $ | 147,611 | $ | 83,351 | $ | 209,653 | ||||||||||
| Ratio of expenses to average net assets |
0.53 | % | 0.52 | % | 0.53 | % | 0.55 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
2.21 | % | 2.26 | % | 2.31 | % | 2.24 | % | 3.86 | % | ||||||||||
| Portfolio turnover ratec |
10 | % | 6 | % | 9 | % | 15 | % | 26 | % | ||||||||||
| 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 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Spain Index Fund |
||||||||||||||||||||
| Year ended Aug. 31, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 35.89 | $ | 37.02 | $ | 47.65 | $ | 50.41 | $ | 58.06 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
2.12 | 2.14 | 1.64 | 1.75 | 1.98 | |||||||||||||||
| Net realized and unrealized lossb |
(8.93 | ) | (1.36 | ) | (10.01 | ) | (2.14 | ) | (7.33 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(6.81 | ) | 0.78 | (8.37 | ) | (0.39 | ) | (5.35 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(2.80 | ) | (1.91 | ) | (2.26 | ) | (2.37 | ) | (2.30 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(2.80 | ) | (1.91 | ) | (2.26 | ) | (2.37 | ) | (2.30 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 26.28 | $ | 35.89 | $ | 37.02 | $ | 47.65 | $ | 50.41 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(19.36 | )% | 1.78 | % | (17.91 | )% | 0.64 | % | (9.76 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 195,093 | $ | 180,360 | $ | 194,362 | $ | 278,734 | $ | 321,349 | ||||||||||
| Ratio of expenses to average net assets |
0.53 | % | 0.52 | % | 0.54 | % | 0.56 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
7.60 | % | 5.31 | % | 3.72 | % | 4.70 | % | 3.28 | % | ||||||||||
| Portfolio turnover ratec |
17 | % | 14 | % | 9 | % | 19 | % | 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 | 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 Sweden Index Fund |
||||||||||||||||||||
| Year ended Aug. 31, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 26.82 | $ | 24.46 | $ | 22.86 | $ | 24.48 | $ | 34.57 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.83 | 1.18 | 0.48 | 0.40 | 0.91 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
0.58 | 2.22 | 1.73 | (1.56 | ) | (8.63 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
1.41 | 3.40 | 2.21 | (1.16 | ) | (7.72 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.86 | ) | (1.04 | ) | (0.61 | ) | (0.46 | ) | (2.37 | ) | ||||||||||
| Return of capital |
(0.05 | ) | — | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.91 | ) | (1.04 | ) | (0.61 | ) | (0.46 | ) | (2.37 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 27.32 | $ | 26.82 | $ | 24.46 | $ | 22.86 | $ | 24.48 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
5.57 | % | 13.40 | % | 9.70 | % | (4.04 | )% | (23.16 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 370,832 | $ | 329,887 | $ | 249,491 | $ | 190,333 | $ | 227,654 | ||||||||||
| Ratio of expenses to average net assets |
0.53 | % | 0.51 | % | 0.53 | % | 0.55 | % | 0.51 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.17 | % | 3.80 | % | 1.97 | % | 2.34 | % | 2.91 | % | ||||||||||
| Portfolio turnover ratec |
7 | % | 9 | % | 10 | % | 9 | % | 17 | % | ||||||||||
| 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.
| 86 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Switzerland Index Fund |
||||||||||||||||||||
| Year ended Aug. 31, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 24.67 | $ | 21.64 | $ | 20.71 | $ | 23.09 | $ | 25.78 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.63 | 0.59 | 0.39 | 0.25 | 0.49 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
(0.80 | ) | 2.97 | 0.90 | (2.30 | ) | (2.51 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(0.17 | ) | 3.56 | 1.29 | (2.05 | ) | (2.02 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.65 | ) | (0.53 | ) | (0.36 | ) | (0.33 | ) | (0.67 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.65 | ) | (0.53 | ) | (0.36 | ) | (0.33 | ) | (0.67 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 23.85 | $ | 24.67 | $ | 21.64 | $ | 20.71 | $ | 23.09 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(0.53 | )% | 16.30 | % | 6.35 | % | (8.63 | )% | (7.97 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 554,570 | $ | 524,159 | $ | 405,755 | $ | 271,855 | $ | 366,525 | ||||||||||
| Ratio of expenses to average net assets |
0.53 | % | 0.52 | % | 0.53 | % | 0.56 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
2.73 | % | 2.35 | % | 1.80 | % | 1.42 | % | 1.93 | % | ||||||||||
| Portfolio turnover ratec |
8 | % | 7 | % | 7 | % | 16 | % | 11 | % | ||||||||||
| 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 |
87 |
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, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 16.43 | $ | 15.01 | $ | 15.02 | $ | 19.35 | $ | 24.73 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.64 | 0.54 | 0.46 | 0.50 | 0.83 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
0.46 | 1.35 | (0.03 | ) | (4.26 | ) | (4.89 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
1.10 | 1.89 | 0.43 | (3.76 | ) | (4.06 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.62 | ) | (0.47 | ) | (0.44 | ) | (0.57 | ) | (1.32 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.62 | ) | (0.47 | ) | (0.44 | ) | (0.57 | ) | (1.32 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 16.91 | $ | 16.43 | $ | 15.01 | $ | 15.02 | $ | 19.35 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
6.94 | % | 12.50 | % | 2.87 | % | (18.68 | )% | (17.16 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 1,356,494 | $ | 1,199,333 | $ | 930,412 | $ | 739,124 | $ | 882,502 | ||||||||||
| Ratio of expenses to average net assets |
0.53 | % | 0.52 | % | 0.53 | % | 0.55 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.88 | % | 3.07 | % | 2.98 | % | 3.90 | % | 3.64 | % | ||||||||||
| Portfolio turnover ratec |
7 | % | 4 | % | 7 | % | 11 | % | 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.
| 88 | 2012 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,” and 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 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 |
89 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
SECURITY VALUATION
Each Fund’s investments are valued at fair value each day that the Fund’s listing exchange is open. U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) provides oversight of the valuation of investments for the Funds. The investments of each Fund are valued pursuant to policies and procedures developed by the Global Valuation Committee and approved by the Board of Directors of the Company (the “Board”).
| • | Equity investments traded on a recognized securities exchange are valued at that day’s last reported trade price or the official closing price, as applicable, on the exchange where the stock is primarily traded. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last traded price. |
| • | Open-end U.S. mutual funds are valued at that day’s published net asset value (NAV). |
| • | Financial futures contracts are valued at that day’s last reported settlement price on the exchange where the contract is traded. |
In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the fair value of such investment or if a price is not available, the investment will be valued based upon other available factors deemed relevant by the Global Valuation Committee, in accordance with policies approved by the Board. These factors include but are not limited to (i) attributes specific to the investment; (ii) the principal market for the investment; (iii) the customary participants in the principal market for the investment; (iv) data assumptions by market participants for the investment, if reasonably available; (v) quoted prices for similar investments in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and/or other default rates. Valuations based on such factors are reported to the Board on a quarterly basis.
The Global Valuation Committee employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Company’s pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values, and reviews of market related activity.
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.
Various inputs are used in determining the fair value of financial instruments. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting purposes. 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. The three levels of the fair value hierarchy are as follows:
| • | Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities; |
| 90 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| • | 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 (such as exchange rates, financing terms, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs; and |
| • | Level 3 — Unobservable inputs for the asset or liability, including the Funds’ assumptions used in determining the fair value of investments. |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. In accordance with the Company’s policy, transfers between different levels of the fair value hierarchy are deemed to have occurred as of the beginning of the reporting period.
The following table summarizes the value of each of the Funds’ investments according to the fair value hierarchy as of August 31, 2012. The breakdown of each Fund’s investments into major categories is disclosed in its respective Schedule of Investments.
| iShares MSCI Index Fund and |
Investments | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Austria Investable Market |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 53,153,421 | $ | — | $ | 239 | $ | 53,153,660 | ||||||||
| Short-Term Investments |
156,421 | — | — | 156,421 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 53,309,842 | $ | — | $ | 239 | $ | 53,310,081 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Belgium Investable Market |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 25,231,233 | $ | — | $ | — | $ | 25,231,233 | ||||||||
| Short-Term Investments |
372,541 | — | — | 372,541 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 25,603,774 | $ | — | $ | — | $ | 25,603,774 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Emerging Markets Eastern Europe |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 19,542,355 | $ | — | $ | — | $ | 19,542,355 | ||||||||
| Preferred Stocks |
666,965 | — | — | 666,965 | ||||||||||||
| Short-Term Investments |
319,344 | — | — | 319,344 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 20,528,664 | $ | — | $ | — | $ | 20,528,664 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| EMU |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 777,022,164 | $ | — | $ | 78 | $ | 777,022,242 | ||||||||
| Preferred Stocks |
15,191,993 | — | — | 15,191,993 | ||||||||||||
| Short-Term Investments |
8,288,454 | — | — | 8,288,454 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 800,502,611 | $ | — | $ | 78 | $ | 800,502,689 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| NOTES TO FINANCIAL STATEMENTS |
91 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund and |
Investments | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| France |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 401,326,745 | $ | — | $ | — | $ | 401,326,745 | ||||||||
| Short-Term Investments |
10,099 | — | — | 10,099 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 401,336,844 | $ | — | $ | — | $ | 401,336,844 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Germany |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 2,602,503,378 | $ | — | $ | — | $ | 2,602,503,378 | ||||||||
| Preferred Stocks |
177,894,825 | — | — | 177,894,825 | ||||||||||||
| Short-Term Investments |
2,390,237 | — | — | 2,390,237 | ||||||||||||
| Futures Contractsa |
1,632,458 | — | — | 1,632,458 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 2,784,420,898 | $ | — | $ | — | $ | 2,784,420,898 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Italy |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 196,285,899 | $ | — | $ | — | $ | 196,285,899 | ||||||||
| Short-Term Investments |
3,310,326 | — | — | 3,310,326 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 199,596,225 | $ | — | $ | — | $ | 199,596,225 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Netherlands Investable Market |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 78,137,998 | $ | — | $ | — | $ | 78,137,998 | ||||||||
| Warrants |
— | — | 1 | 1 | ||||||||||||
| Short-Term Investments |
214,917 | — | — | 214,917 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 78,352,915 | $ | — | $ | 1 | $ | 78,352,916 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Spain |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 194,852,239 | $ | — | $ | — | $ | 194,852,239 | ||||||||
| Short-Term Investments |
12,725,591 | — | — | 12,725,591 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 207,577,830 | $ | — | $ | — | $ | 207,577,830 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Sweden |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 370,755,489 | $ | — | $ | — | $ | 370,755,489 | ||||||||
| Short-Term Investments |
28,285 | — | — | 28,285 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 370,783,774 | $ | — | $ | — | $ | 370,783,774 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 92 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund and |
Investments | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Switzerland |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 549,571,487 | $ | — | $ | — | $ | 549,571,487 | ||||||||
| Short-Term Investments |
133,871 | — | — | 133,871 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 549,705,358 | $ | — | $ | — | $ | 549,705,358 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| United Kingdom |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 1,344,374,850 | $ | — | $ | — | $ | 1,344,374,850 | ||||||||
| Short-Term Investments |
2,759,112 | — | — | 2,759,112 | ||||||||||||
| Futures Contractsa |
33,022 | — | — | 33,022 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 1,347,166,984 | $ | — | $ | — | $ | 1,347,166,984 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| a | Futures contracts are shown at the net unrealized appreciation (depreciation) on the contracts. |
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, 2012 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 securities lending income are presented as a reduction of securities lending income, foreign taxes on capital gains from sales of
| NOTES TO FINANCIAL STATEMENTS |
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Notes to Financial Statements (Continued)
iSHARES®, INC.
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, 2012, 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.
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.
| 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 |
| 94 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
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 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 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. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, and any fees or other payments to and from borrowers of securities. Each Fund retains 65% of securities lending income and pays a fee to BTC equal to 35% of such income. As securities lending agent, BTC is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BTC is also responsible for fees and expenses incurred by each Fund as a result of the investment of cash collateral received for securities on loan in a money market fund managed by BFA or an affiliate.
For the year ended August 31, 2012, BTC earned securities lending agent fees from the Funds as follows:
At a special meeting of the Board held on January 5, 2012, the directors approved a new distribution agreement with BlackRock Investments, LLC (“BRIL”). BRIL is an affiliate of BFA. Effective April 1, 2012, BRIL replaced SEI Investments Distribution Co. as the distributor for each Fund. Pursuant to the new distribution agreement, BFA is responsible for any fees or expenses for distribution services provided to the Funds.
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. is the largest stockholder of BlackRock and is considered to be an affiliate of the Funds for 1940 Act purposes.
Certain directors and officers of the Company are also officers of BTC and/or BFA.
| NOTES TO FINANCIAL STATEMENTS |
95 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| 3. | INVESTMENT PORTFOLIO TRANSACTIONS |
Purchases and sales of investments (excluding in-kind transactions and short-term investments) for the year ended August 31, 2012 were as follows:
| iShares MSCI Index Fund | Purchases | Sales | ||||||
| Austria Investable Market |
$ | 9,240,185 | $ | 9,687,080 | ||||
| Belgium Investable Market |
4,876,519 | 5,002,246 | ||||||
| Emerging Markets Eastern Europe |
2,045,366 | 2,384,354 | ||||||
| EMU |
48,846,419 | 49,738,349 | ||||||
| France |
20,599,040 | 19,139,824 | ||||||
| Germany |
111,297,973 | 117,145,633 | ||||||
| Italy |
20,101,025 | 19,240,789 | ||||||
| Netherlands Investable Market |
7,307,305 | 7,563,223 | ||||||
| Spain |
23,329,846 | 23,978,040 | ||||||
| Sweden |
21,368,251 | 22,069,186 | ||||||
| Switzerland |
41,556,233 | 44,271,576 | ||||||
| United Kingdom |
88,601,801 | 90,103,297 | ||||||
In-kind transactions (see Note 4) for the year ended August 31, 2012 were as follows:
| iShares MSCI Index Fund | In-kind Purchases |
In-kind Sales |
||||||
| Austria Investable Market |
$ | 30,467,983 | $ | 85,097,053 | ||||
| Belgium Investable Market |
3,634,337 | 7,929,939 | ||||||
| Emerging Markets Eastern Europe |
3,768,010 | 9,547,019 | ||||||
| EMU |
420,895,887 | 304,038,318 | ||||||
| France |
404,466,876 | 335,926,636 | ||||||
| Germany |
1,521,762,360 | 1,524,332,401 | ||||||
| Italy |
185,198,814 | 118,577,023 | ||||||
| Netherlands Investable Market |
38,881,243 | 77,360,185 | ||||||
| Spain |
225,201,735 | 178,178,049 | ||||||
| Sweden |
141,100,128 | 99,620,799 | ||||||
| Switzerland |
89,650,056 | 42,218,373 | ||||||
| United Kingdom |
241,753,024 | 125,367,622 | ||||||
| 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 a specified
| 96 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
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. Each Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the value of the cash collateral received.
As of August 31, 2012, 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, 2012 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, net of fees and other payments to and from borrowers, and less the fees paid to BTC as securities lending agent.
| 6. | INCOME TAX INFORMATION |
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of August 31, 2012, attributable to passive foreign investment companies, the expiration of capital loss carryforwards, distributions paid in excess of
| NOTES TO FINANCIAL STATEMENTS |
97 |
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iSHARES®, INC.
taxable income, foreign currency transactions and realized gains (losses) from in-kind redemptions, were reclassified to the following accounts:
| 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 |
|||||||||
| Austria Investable Market |
$ | (34,684,755 | ) | $ | 214,006 | $ | 34,470,749 | |||||
| Belgium Investable Market |
(1,882,297 | ) | (121,086 | ) | 2,003,383 | |||||||
| Emerging Markets Eastern Europe |
(3,272,998 | ) | (42,971 | ) | 3,315,969 | |||||||
| EMU |
(38,657,763 | ) | (280,473 | ) | 38,938,236 | |||||||
| France |
(44,467,523 | ) | (148,510 | ) | 44,616,033 | |||||||
| Germany |
(32,767,514 | ) | 1,844,773 | 30,922,741 | ||||||||
| Italy |
(9,573,091 | ) | 37,296 | 9,535,795 | ||||||||
| Netherlands Investable Market |
(20,492,143 | ) | (56,324 | ) | 20,548,467 | |||||||
| Spain |
(33,568,458 | ) | (65,899 | ) | 33,634,357 | |||||||
| Sweden |
(13,517,934 | ) | (319,161 | ) | 13,837,095 | |||||||
| Switzerland |
2,754,127 | 558,225 | (3,312,352 | ) | ||||||||
| United Kingdom |
12,240,989 | (839,110 | ) | (11,401,879 | ) | |||||||
The tax character of distributions paid during the years ended August 31, 2012 and August 31, 2011 was as follows:
| iShares MSCI Index Fund | 2012 | 2011 | ||||||
| Austria Investable Market |
||||||||
| Ordinary income |
$ | 1,874,586 | $ | 3,303,650 | ||||
|
|
|
|
|
|||||
| Belgium Investable Market |
||||||||
| Ordinary income |
$ | 1,434,412 | $ | 1,401,041 | ||||
| Return of capital |
27,668 | — | ||||||
|
|
|
|
|
|||||
| $ | 1,462,080 | $ | 1,401,041 | |||||
|
|
|
|
|
|||||
| Emerging Markets Eastern Europe |
||||||||
| Ordinary income |
$ | 999,697 | $ | 575,285 | ||||
|
|
|
|
|
|||||
| EMU |
||||||||
| Ordinary income |
$ | 26,115,000 | $ | 27,791,723 | ||||
|
|
|
|
|
|||||
| France |
||||||||
| Ordinary income |
$ | 8,849,764 | $ | 11,811,674 | ||||
| Return of capital |
2,754 | — | ||||||
|
|
|
|
|
|||||
| $ | 8,852,518 | $ | 11,811,674 | |||||
|
|
|
|
|
|||||
| Germany |
||||||||
| Ordinary income |
$ | 74,836,476 | $ | 93,072,582 | ||||
|
|
|
|
|
|||||
| 98 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund | 2012 | 2011 | ||||||
| Italy |
||||||||
| Ordinary income |
$ | 4,578,996 | $ | 3,814,673 | ||||
| Return of capital |
1,125 | — | ||||||
|
|
|
|
|
|||||
| $ | 4,580,121 | $ | 3,814,673 | |||||
|
|
|
|
|
|||||
| Netherlands Investable Market |
||||||||
| Ordinary income |
$ | 1,910,545 | $ | 3,654,048 | ||||
|
|
|
|
|
|||||
| Spain |
||||||||
| Ordinary income |
$ | 11,503,970 | $ | 8,211,532 | ||||
|
|
|
|
|
|||||
| Sweden |
||||||||
| Ordinary income |
$ | 9,531,005 | $ | 19,236,805 | ||||
| Return of capital |
613,518 | — | ||||||
|
|
|
|
|
|||||
| $ | 10,144,523 | $ | 19,236,805 | |||||
|
|
|
|
|
|||||
| Switzerland |
||||||||
| Ordinary income |
$ | 14,947,529 | $ | 11,911,242 | ||||
|
|
|
|
|
|||||
| United Kingdom |
||||||||
| Ordinary income |
$ | 49,722,633 | $ | 33,922,128 | ||||
|
|
|
|
|
|||||
As of August 31, 2012, the tax components of accumulated net earnings (losses) were as follows:
| iShares MSCI Index Fund | Undistributed Ordinary Income |
Capital Loss Carryforwards |
Net Unrealized Gains (Losses) a |
Qualified Late-Year Losses b |
Total | |||||||||||||||
| Austria Investable Market |
$ | — | $ | (53,394,481 | ) | $ | (57,368,842 | ) | $ | (9,787,615 | ) | $ | (120,550,938 | ) | ||||||
| Belgium Investable Market |
— | (40,949,518 | ) | (16,949,115 | ) | (2,505,250 | ) | (60,403,883 | ) | |||||||||||
| Emerging Markets Eastern Europe |
75,982 | (448,093 | ) | (8,032,017 | ) | (707,062 | ) | (9,111,190 | ) | |||||||||||
| EMU |
1,024,848 | (143,459,680 | ) | (420,454,037 | ) | (24,000,057 | ) | (586,888,926 | ) | |||||||||||
| France |
— | (14,206,315 | ) | (121,722,822 | ) | (6,947,310 | ) | (142,876,447 | ) | |||||||||||
| Germany |
— | (107,589,044 | ) | (620,466,421 | ) | (7,622,666 | ) | (735,678,131 | ) | |||||||||||
| Italy |
— | (34,703,700 | ) | (80,072,608 | ) | (5,622,473 | ) | (120,398,781 | ) | |||||||||||
| Netherlands Investable Market |
164,106 | (35,489,370 | ) | (32,534,940 | ) | (3,384,079 | ) | (71,244,283 | ) | |||||||||||
| Spain |
2,782,477 | (34,913,308 | ) | (97,369,673 | ) | (15,124,239 | ) | (144,624,743 | ) | |||||||||||
| Sweden |
— | (32,845,764 | ) | (56,920,074 | ) | (2,723,361 | ) | (92,489,199 | ) | |||||||||||
| Switzerland |
— | (36,182,064 | ) | (11,086,060 | ) | (4,797,111 | ) | (52,065,235 | ) | |||||||||||
| United Kingdom |
9,567,268 | (78,815,341 | ) | (157,027,322 | ) | (25,333,230 | ) | (251,608,625 | ) | |||||||||||
| a | The difference between book-basis and tax-basis unrealized gains (losses) was attributable primarily to the tax deferral of losses on wash sales, the realization for tax purposes of unrealized gains/losses on certain futures contracts and the realization for tax purposes of unrealized gains on investments in passive foreign investment companies. |
| b | The Funds have elected to defer certain qualified late-year losses and recognize such losses in the year ending August 31, 2013. |
| NOTES TO FINANCIAL STATEMENTS |
99 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
As of August 31, 2012, the Funds had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:
| iShares MSCI Index Fund | Non- Expiring a |
Expiring 2013 |
Expiring 2014 |
Expiring 2015 |
Expiring 2016 |
Expiring 2017 |
Expiring 2018 |
Expiring 2019 |
Total | |||||||||||||||||||||||||||
| Austria Investable Market |
$ | 3,424,334 | $ | — | $ | — | $ | 9,795,917 | $ | 2,587,916 | $ | 7,102,366 | $ | 16,657,011 | $ | 13,826,937 | $ | 53,394,481 | ||||||||||||||||||
| Belgium Investable Market |
3,414,294 | 33,969 | — | — | 1,698,444 | 5,953,120 | 10,826,174 | 19,023,517 | 40,949,518 | |||||||||||||||||||||||||||
| Emerging Markets Eastern Europe |
243,179 | — | — | — | — | — | — | 204,914 | 448,093 | |||||||||||||||||||||||||||
| EMU |
16,675,236 | 1,873,963 | — | — | — | 26,644,200 | 68,035,542 | 30,230,739 | 143,459,680 | |||||||||||||||||||||||||||
| France |
436,330 | — | — | 158,472 | 335,795 | 3,408,374 | 7,008,530 | 2,858,814 | 14,206,315 | |||||||||||||||||||||||||||
| Germany |
9,227,956 | 2,241,687 | — | 4,227,713 | 3,394,735 | 27,790,050 | 28,490,949 | 32,215,954 | 107,589,044 | |||||||||||||||||||||||||||
| Italy |
3,331,166 | 527,327 | — | — | 472,268 | 2,743,650 | 18,169,627 | 9,459,662 | 34,703,700 | |||||||||||||||||||||||||||
| Netherlands Investable Market |
3,096,503 | 129,137 | 403,525 | 260,715 | 1,195,162 | 5,819,153 | 22,256,170 | 2,329,005 | 35,489,370 | |||||||||||||||||||||||||||
| Spain |
5,225,806 | — | — | — | — | 5,946,927 | 15,120,672 | 8,619,903 | 34,913,308 | |||||||||||||||||||||||||||
| Sweden |
5,222,903 | — | 107,613 | — | 100,015 | 13,686,746 | 8,483,510 | 5,244,977 | 32,845,764 | |||||||||||||||||||||||||||
| Switzerland |
3,464,888 | 354,252 | — | — | — | 2,837,786 | 22,569,380 | 6,955,758 | 36,182,064 | |||||||||||||||||||||||||||
| United Kingdom |
7,758,079 | 1,517,783 | 7,063,063 | — | 261,754 | 16,140,312 | 23,559,917 | 22,514,433 | 78,815,341 | |||||||||||||||||||||||||||
| a | Must be utililized prior to losses subject to expiration. |
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, 2012, 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) |
||||||||||||
| Austria Investable Market |
$ | 110,626,278 | $ | 691,444 | $ | (58,007,641 | ) | $ | (57,316,197 | ) | ||||||
| Belgium Investable Market |
42,551,025 | 1,848,689 | (18,795,940 | ) | (16,947,251 | ) | ||||||||||
| Emerging Markets Eastern Europe |
28,560,936 | 97,415 | (8,129,687 | ) | (8,032,272 | ) | ||||||||||
| EMU |
1,220,942,350 | 15,670,840 | (436,110,501 | ) | (420,439,661 | ) | ||||||||||
| France |
523,071,708 | 2,941,829 | (124,676,693 | ) | (121,734,864 | ) | ||||||||||
| Germany |
3,404,027,975 | 52,968,685 | (674,208,220 | ) | (621,239,535 | ) | ||||||||||
| Italy |
279,670,644 | 519,176 | (80,593,595 | ) | (80,074,419 | ) | ||||||||||
| Netherlands Investable Market |
110,891,277 | 2,226,858 | (34,765,219 | ) | (32,538,361 | ) | ||||||||||
| Spain |
304,950,216 | 2,956,815 | (100,329,201 | ) | (97,372,386 | ) | ||||||||||
| Sweden |
427,708,063 | 8,806,380 | (65,730,669 | ) | (56,924,289 | ) | ||||||||||
| Switzerland |
560,804,945 | 51,338,806 | (62,438,393 | ) | (11,099,587 | ) | ||||||||||
| United Kingdom |
1,504,305,460 | 100,407,618 | (257,579,116 | ) | (157,171,498 | ) | ||||||||||
| 100 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
Management has reviewed the tax positions as of August 31, 2012, inclusive of the open tax return years, and has determined that no provision for income tax is required in the Funds’ financial statements.
| 7. | FINANCIAL FUTURES CONTRACTS |
Each Fund may purchase or sell financial futures contracts in an effort to help such Fund track its underlying index. A futures contract is a standardized, exchange-traded agreement to buy and sell a financial instrument at a set price on a future date. Upon entering into a futures contract, the Fund is required to pledge to the executing broker which holds segregated from its own assets, an amount of cash, U.S. government securities or other high-quality debt and equity securities equal to the minimum initial margin requirements of the exchange on which the contract is traded. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as margin variation and are recorded by the Fund as unrealized appreciation or depreciation. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Losses may arise if the value of a futures contract decreases due to an unfavorable change in the market rates or values of the underlying instrument during the term of the contract or if the counterparty does not perform under the contract. The use of futures contracts also involves the risk of an imperfect correlation in the movements in the price of futures contracts and the assets underlying such contracts.
The following table shows the values of futures contracts held as of August 31, 2012 and the related locations in the Statements of Assets and Liabilities, presented by risk exposure category:
| Assets | ||||||||
| iShares MSCI Germany Index Fund |
iShares MSCI United Kingdom Index Fund |
|||||||
| Equity contracts: |
||||||||
| Variation margin/Net assets consist of — net unrealized appreciation (depreciation)a |
$ | 1,632,458 | $ | 33,022 | ||||
|
|
|
|
|
|||||
| a | Represents cumulative appreciation of futures contracts as reported in the Schedules of Investments. |
| NOTES TO FINANCIAL STATEMENTS |
101 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
The following table shows the realized and unrealized gains (losses) on futures contracts held during the year ended August 31, 2012 and the related locations in the Statements of Operations, presented by risk exposure category:
| Net Realized Gain (Loss) | ||||||||
| iShares MSCI Germany Index Fund |
iShares MSCI United Kingdom Index Fund |
|||||||
| Equity contracts: |
||||||||
| Futures contracts |
$ | 23,600 | $ | (128,697 | ) | |||
|
|
|
|
|
|||||
| Net Change in Unrealized Appreciation/Depreciation |
||||||||
| iShares MSCI Germany Index Fund |
iShares MSCI United Kingdom Index Fund |
|||||||
| Equity contracts: |
||||||||
| Futures contracts |
$ | 1,632,458 | $ | 33,022 | ||||
|
|
|
|
|
|||||
The following table shows the average quarter-end balances of open futures contracts for the year ended August 31, 2012:
|
iShares MSCI Germany Index Fund |
iShares MSCI United Kingdom Index Fund |
|||||||
| Average number of contracts purchased |
63 | 89 | ||||||
| Average value of contracts purchased |
$ | 13,013,200 | $ | 7,879,728 | ||||
| 8. | SUBSEQUENT EVENTS |
On or about November 9, 2012, the investment objective of the iShares MSCI Belgium Investable Market Index Fund will change to track a new underlying index, the MSCI Belgium IMI 25/50 Index, which is designed to measure broad-based equity market performance in Belgium where a capping methodology is applied that limits the weight of any single component to a maximum of 25% of the index. In addition, the Fund will change its name to the iShares MSCI Belgium Capped Investable Market Index Fund.
| 102 | 2012 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 Austria Investable Market Index Fund, iShares MSCI 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 (the “Funds”), at August 31, 2012, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended 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, 2012 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 23, 2012
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
103 |
Table of Contents
iSHARES®, INC.
For the fiscal year ended August 31, 2012, 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 |
$ | 2,047,136 | $ | 248,503 | ||||
| Belgium Investable Market |
1,076,619 | 122,368 | ||||||
| Emerging Markets Eastern Europe |
1,360,995 | 199,049 | ||||||
| EMU |
32,548,010 | 4,184,317 | ||||||
| France |
11,669,353 | 1,733,748 | ||||||
| Germany |
99,832,349 | 13,186,028 | ||||||
| Italy |
5,967,943 | 862,996 | ||||||
| Netherlands Investable Market |
2,253,486 | 332,396 | ||||||
| Spain |
11,343,132 | 851,480 | ||||||
| Sweden |
13,446,352 | 2,015,790 | ||||||
| Switzerland |
19,130,976 | 2,452,125 | ||||||
| United Kingdom |
59,332,475 | 683,787 | ||||||
For corporate shareholders, 0.68% of the income dividends paid by the iShares MSCI Switzerland Index Fund during the fiscal year ended August 31, 2012 qualified for the dividends-received deduction.
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, 2012:
In February 2013, shareholders will receive Form 1099-DIV which will include their share of qualified dividend income distributed during the calendar year 2012. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their income tax returns.
| 104 | 2012 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. The Independent Directors requested, and BFA provided, such information as the Independent Directors, with advice from independent counsel, deemed reasonably necessary to evaluate the Advisory Contract. A committee of Independent Directors (the “15(c) Committee”), with independent counsel, met with management on April 19, 2012, April 27, 2012, and May 16, 2012, to discuss the types of information the Independent Directors required and the manner in which management would organize and present such information. At a meeting held on May 17, 2012, management presented information to the Board relating to the continuance of the Advisory Contract, and the Board, including the Independent Directors, reviewed and discussed such information at length. The Independent Directors requested from management certain additional information, and the 15(c) Committee met with management on June 8, 2012, to discuss the additional requests. At a meeting held on June 20-21, 2012, the Board, including the Independent Directors, reviewed additional information provided by management in response to these requests. The Board, including a majority of the Independent Directors, approved the continuance of the Advisory Contract for the Funds, based on a review of qualitative and quantitative information provided by BFA, including a review of supplemental information management provided at the request of the Independent Directors. 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 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:
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, sponsor, inception date, or other differentiating factors, but that 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 also received a detailed explanation from BFA regarding its rationale for including funds that had been excluded from Lipper’s consideration due to Lipper’s methodology parameters, as well as information showing the effect of including these additional funds in the analysis. 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 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, 2011, 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
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT |
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Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
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 periodic comparative performance information was also considered by the Board.
Based on this review, the other factors considered at the meeting, and their general knowledge of mutual fund pricing, the Board concluded that the investment advisory fees and expense levels and the historical performance of each Fund supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
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, to 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 have been added or enhanced since then, including in such areas as investor education, product management, customized portfolio consulting support, 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 and risk management 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, and the performance information discussed above, the Board concluded that the nature, extent and quality of services 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.
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, noting that the 15(c) Committee had focused on the methodology and proposed presentation during its meetings. 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 — The Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Funds’ assets, noting that the issue of economies of scale had been focused on extensively by the 15(c) Committee during its meetings and addressed by management. The Board and the 15(c) Committee reviewed information provided by BFA regarding scale benefits shared with the iShares funds through breakpoints, waivers, or other fee reductions, as well as through additional investment in the iShares
| 106 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
business and the provision of improved or additional infrastructure and services to the iShares funds and their shareholders. The Board and the 15(c) Committee received information regarding BFA’s historical profitability, including BFA’s and its affiliates’ costs in providing services. The cost information distinguished between fixed and variable costs, and explained how the nature of such costs may impact the existence of scale benefits. 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. The Board noted that it would continue to monitor the sharing of economies of scale to determine the appropriateness of adding new or revised breakpoints in the future. Based on this review, as well as the other factors considered at the meeting, 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 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 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 generally more extensive 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 exchange traded funds, as compared to the Other Accounts that are institutional clients in light of differing regulatory requirements and client-imposed mandates. The Board also considered the “all-inclusive” nature of the Funds’ advisory fee structure, and the Fund expenses borne by BFA under this arrangement. 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 ancillary revenue received by BFA and/or its affiliates in connection with the services provided to the Funds by BFA, such as payment of revenue to BTC, the Funds’ securities lending agent, for loaning portfolio securities (which was included in the profit margins reviewed by the Board pursuant to BFA’s profitability methodology), 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 generally 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 and thus would not alter the Board’s conclusion with respect to the appropriateness of approving the continuance of the Advisory Contract for the coming year.
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT |
107 |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
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.
| 108 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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 |
|||||||||||||||||||||||||||||||
| iShares MSCI Index Fund | 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 |
||||||||||||||||||||||||
| Austria Investable Market |
$ | 0.37621 | $ | — | $ | 0.11710 | $ | 0.49331 | 76 | % | — | % | 24 | % | 100 | % | ||||||||||||||||
| Belgium Investable Market |
0.67745 | — | — | 0.67745 | 100 | — | — | 100 | ||||||||||||||||||||||||
| Emerging Markets Eastern Europe |
1.12532 | — | — | 1.12532 | 100 | — | — | 100 | ||||||||||||||||||||||||
| EMU |
1.09783 | — | — | 1.09783 | 100 | — | — | 100 | ||||||||||||||||||||||||
| France |
0.69160 | — | — | 0.69160 | 100 | — | — | 100 | ||||||||||||||||||||||||
| Italy |
0.41782 | — | — | 0.41782 | 100 | — | — | 100 | ||||||||||||||||||||||||
| Netherlands Investable Market |
0.52797 | — | — | 0.52797 | 100 | — | — | 100 | ||||||||||||||||||||||||
| Spain |
2.79582 | — | — | 2.79582 | 100 | — | — | 100 | ||||||||||||||||||||||||
| Switzerland |
0.65115 | — | — | 0.65115 | 100 | — | — | 100 | ||||||||||||||||||||||||
| United Kingdom |
0.61883 | — | — | 0.61883 | 100 | — | — | 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.
| SUPPLEMENTAL INFORMATION |
109 |
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 Austria Investable Market Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| 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% |
4 | 0.29 | ||||||
| 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% |
25 | 1.81 | ||||||
| Greater than 1.0% and Less than 1.5% |
81 | 5.85 | ||||||
| Greater than 0.5% and Less than 1.0% |
189 | 13.66 | ||||||
| Between 0.5% and –0.5% |
706 | 51.02 | ||||||
| Less than –0.5% and Greater than –1.0% |
159 | 11.49 | ||||||
| Less than –1.0% and Greater than –1.5% |
93 | 6.72 | ||||||
| Less than –1.5% and Greater than –2.0% |
47 | 3.40 | ||||||
| Less than –2.0% and Greater than –2.5% |
25 | 1.81 | ||||||
| Less than –2.5% and Greater than –3.0% |
9 | 0.65 | ||||||
| Less than –3.0% and Greater than –3.5% |
6 | 0.43 | ||||||
| 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% |
6 | 0.43 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 110 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Belgium Investable Market Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| 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% |
31 | 2.24 | ||||||
| Greater than 1.0% and Less than 1.5% |
69 | 4.99 | ||||||
| Greater than 0.5% and Less than 1.0% |
181 | 13.08 | ||||||
| Between 0.5% and –0.5% |
768 | 55.49 | ||||||
| Less than –0.5% and Greater than –1.0% |
168 | 12.14 | ||||||
| Less than –1.0% and Greater than –1.5% |
81 | 5.85 | ||||||
| Less than –1.5% and Greater than –2.0% |
30 | 2.17 | ||||||
| Less than –2.0% and Greater than –2.5% |
10 | 0.72 | ||||||
| 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% |
3 | 0.22 | ||||||
| Less than –4.0% |
5 | 0.36 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
111 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Emerging Market Eastern Europe Index Fund
Period Covered: October 1, 2009 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 3.0% |
2 | 0.29 | % | |||||
| Greater than 2.5% and Less than 3.0% |
3 | 0.43 | ||||||
| Greater than 2.0% and Less than 2.5% |
4 | 0.58 | ||||||
| Greater than 1.5% and Less than 2.0% |
22 | 3.17 | ||||||
| Greater than 1.0% and Less than 1.5% |
45 | 6.49 | ||||||
| Greater than 0.5% and Less than 1.0% |
158 | 22.80 | ||||||
| Between 0.5% and –0.5% |
316 | 45.61 | ||||||
| Less than –0.5% and Greater than –1.0% |
60 | 8.66 | ||||||
| Less than –1.0% and Greater than –1.5% |
42 | 6.06 | ||||||
| Less than –1.5% and Greater than –2.0% |
23 | 3.32 | ||||||
| Less than –2.0% and Greater than –2.5% |
8 | 1.15 | ||||||
| Less than –2.5% and Greater than –3.0% |
3 | 0.43 | ||||||
| Less than –3.0% and Greater than –3.5% |
5 | 0.72 | ||||||
| Less than –3.5% and Greater than –4.0% |
2 | 0.29 | ||||||
|
|
|
|
|
|||||
| 693 | 100.00 | % | ||||||
|
|
|
|
|
|||||
iShares MSCI EMU Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 3.5% |
13 | 0.94 | % | |||||
| Greater than 3.0% and Less than 3.5% |
5 | 0.36 | ||||||
| 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% |
32 | 2.31 | ||||||
| Greater than 1.0% and Less than 1.5% |
73 | 5.27 | ||||||
| Greater than 0.5% and Less than 1.0% |
195 | 14.09 | ||||||
| Between 0.5% and –0.5% |
764 | 55.20 | ||||||
| Less than –0.5% and Greater than –1.0% |
158 | 11.42 | ||||||
| Less than –1.0% and Greater than –1.5% |
68 | 4.92 | ||||||
| Less than –1.5% and Greater than –2.0% |
32 | 2.31 | ||||||
| Less than –2.0% and Greater than –2.5% |
10 | 0.72 | ||||||
| Less than –2.5% and Greater than –3.0% |
8 | 0.58 | ||||||
| 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% |
1 | 0.07 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 112 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI France Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| 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% |
10 | 0.72 | ||||||
| Greater than 1.5% and Less than 2.0% |
31 | 2.24 | ||||||
| Greater than 1.0% and Less than 1.5% |
81 | 5.85 | ||||||
| Greater than 0.5% and Less than 1.0% |
212 | 15.33 | ||||||
| Between 0.5% and –0.5% |
747 | 53.98 | ||||||
| Less than –0.5% and Greater than –1.0% |
153 | 11.06 | ||||||
| Less than –1.0% and Greater than –1.5% |
68 | 4.92 | ||||||
| Less than –1.5% and Greater than –2.0% |
33 | 2.39 | ||||||
| Less than –2.0% and Greater than –2.5% |
11 | 0.79 | ||||||
| Less than –2.5% and Greater than –3.0% |
10 | 0.72 | ||||||
| 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 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
113 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Germany Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| 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% |
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% |
15 | 1.08 | ||||||
| Greater than 1.5% and Less than 2.0% |
22 | 1.59 | ||||||
| Greater than 1.0% and Less than 1.5% |
71 | 5.13 | ||||||
| Greater than 0.5% and Less than 1.0% |
199 | 14.39 | ||||||
| Between 0.5% and –0.5% |
808 | 58.39 | ||||||
| Less than –0.5% and Greater than –1.0% |
139 | 10.05 | ||||||
| Less than –1.0% and Greater than –1.5% |
67 | 4.84 | ||||||
| Less than –1.5% and Greater than –2.0% |
21 | 1.52 | ||||||
| Less than –2.0% and Greater than –2.5% |
11 | 0.79 | ||||||
| Less than –2.5% and Greater than –3.0% |
5 | 0.36 | ||||||
| Less than –3.0% and Greater than –3.5% |
3 | 0.22 | ||||||
| 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 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 114 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Italy Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| 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% |
3 | 0.22 | ||||||
| Greater than 3.0% and Less than 3.5% |
5 | 0.36 | ||||||
| Greater than 2.5% and Less than 3.0% |
6 | 0.43 | ||||||
| Greater than 2.0% and Less than 2.5% |
13 | 0.94 | ||||||
| Greater than 1.5% and Less than 2.0% |
33 | 2.39 | ||||||
| Greater than 1.0% and Less than 1.5% |
97 | 7.01 | ||||||
| Greater than 0.5% and Less than 1.0% |
195 | 14.09 | ||||||
| Between 0.5% and –0.5% |
720 | 52.03 | ||||||
| Less than –0.5% and Greater than –1.0% |
155 | 11.20 | ||||||
| Less than –1.0% and Greater than –1.5% |
81 | 5.85 | ||||||
| Less than –1.5% and Greater than –2.0% |
30 | 2.17 | ||||||
| Less than –2.0% and Greater than –2.5% |
15 | 1.08 | ||||||
| Less than –2.5% and Greater than –3.0% |
9 | 0.65 | ||||||
| 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 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
115 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Netherlands Investable Market Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| 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% |
13 | 0.94 | ||||||
| Greater than 1.5% and Less than 2.0% |
23 | 1.66 | ||||||
| Greater than 1.0% and Less than 1.5% |
72 | 5.20 | ||||||
| Greater than 0.5% and Less than 1.0% |
204 | 14.75 | ||||||
| Between 0.5% and –0.5% |
757 | 54.71 | ||||||
| Less than –0.5% and Greater than –1.0% |
162 | 11.71 | ||||||
| Less than –1.0% and Greater than –1.5% |
81 | 5.85 | ||||||
| Less than –1.5% and Greater than –2.0% |
25 | 1.81 | ||||||
| Less than –2.0% and Greater than –2.5% |
10 | 0.72 | ||||||
| Less than –2.5% and Greater than –3.0% |
8 | 0.58 | ||||||
| Less than –3.0% and Greater than –3.5% |
6 | 0.43 | ||||||
| Less than –3.5% and Greater than –4.0% |
1 | 0.07 | ||||||
| Less than –4.0% and Greater than –4.5% |
2 | 0.14 | ||||||
| Less than –4.5% |
3 | 0.22 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 116 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Spain Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 3.5% |
11 | 0.79 | % | |||||
| Greater than 3.0% and Less than 3.5% |
4 | 0.29 | ||||||
| Greater than 2.5% and Less than 3.0% |
4 | 0.29 | ||||||
| Greater than 2.0% and Less than 2.5% |
20 | 1.45 | ||||||
| Greater than 1.5% and Less than 2.0% |
34 | 2.46 | ||||||
| Greater than 1.0% and Less than 1.5% |
84 | 6.07 | ||||||
| Greater than 0.5% and Less than 1.0% |
186 | 13.44 | ||||||
| Between 0.5% and –0.5% |
722 | 52.17 | ||||||
| Less than –0.5% and Greater than –1.0% |
163 | 11.78 | ||||||
| Less than –1.0% and Greater than –1.5% |
87 | 6.29 | ||||||
| Less than –1.5% and Greater than –2.0% |
35 | 2.53 | ||||||
| Less than –2.0% and Greater than –2.5% |
14 | 1.01 | ||||||
| Less than –2.5% and Greater than –3.0% |
11 | 0.79 | ||||||
| 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 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
117 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Sweden Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| 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% |
6 | 0.43 | ||||||
| Greater than 2.5% and Less than 3.0% |
9 | 0.65 | ||||||
| Greater than 2.0% and Less than 2.5% |
14 | 1.01 | ||||||
| Greater than 1.5% and Less than 2.0% |
43 | 3.11 | ||||||
| Greater than 1.0% and Less than 1.5% |
90 | 6.50 | ||||||
| Greater than 0.5% and Less than 1.0% |
215 | 15.53 | ||||||
| Between 0.5% and –0.5% |
645 | 46.61 | ||||||
| Less than –0.5% and Greater than –1.0% |
163 | 11.78 | ||||||
| Less than –1.0% and Greater than –1.5% |
87 | 6.29 | ||||||
| Less than –1.5% and Greater than –2.0% |
47 | 3.40 | ||||||
| Less than –2.0% and Greater than –2.5% |
18 | 1.30 | ||||||
| Less than –2.5% and Greater than –3.0% |
13 | 0.94 | ||||||
| Less than –3.0% and Greater than –3.5% |
6 | 0.43 | ||||||
| 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 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 118 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Switzerland Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| 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% |
24 | 1.73 | ||||||
| Greater than 1.0% and Less than 1.5% |
58 | 4.19 | ||||||
| Greater than 0.5% and Less than 1.0% |
219 | 15.83 | ||||||
| Between 0.5% and –0.5% |
830 | 59.97 | ||||||
| Less than –0.5% and Greater than –1.0% |
126 | 9.10 | ||||||
| Less than –1.0% and Greater than –1.5% |
65 | 4.70 | ||||||
| Less than –1.5% and Greater than –2.0% |
16 | 1.16 | ||||||
| Less than –2.0% and Greater than –2.5% |
15 | 1.08 | ||||||
| Less than –2.5% and Greater than –3.0% |
4 | 0.29 | ||||||
| Less than –3.0% |
6 | 0.43 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
119 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI United Kingdom Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| 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% |
7 | 0.51 | ||||||
| Greater than 2.0% and Less than 2.5% |
15 | 1.08 | ||||||
| Greater than 1.5% and Less than 2.0% |
45 | 3.25 | ||||||
| Greater than 1.0% and Less than 1.5% |
144 | 10.40 | ||||||
| Greater than 0.5% and Less than 1.0% |
354 | 25.58 | ||||||
| Between 0.5% and –0.5% |
612 | 44.22 | ||||||
| Less than –0.5% and Greater than –1.0% |
103 | 7.45 | ||||||
| Less than –1.0% and Greater than –1.5% |
43 | 3.11 | ||||||
| Less than –1.5% and Greater than –2.0% |
21 | 1.52 | ||||||
| Less than –2.0% and Greater than –2.5% |
7 | 0.51 | ||||||
| Less than –2.5% and Greater than –3.0% |
7 | 0.51 | ||||||
| Less than –3.0% and Greater than –3.5% |
5 | 0.36 | ||||||
| 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 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 120 | 2012 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 Director 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, a Director of iShares MSCI Russia Capped Index Fund, Inc. and a Trustee of iShares U.S. ETF Trust and, as a result, oversees a total of 276 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 Robert H. Silver 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-iShares (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 (55) |
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). | Director of BlackRock, Inc. (since 2007); Trustee of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| Michael Lathamb (47) |
Director (since 2010); President (since 2007). | Chairman of iShares, BlackRock (since 2011); Global Chief Executive Officer of iShares, BlackRock (2010-2011); Managing Director, BlackRock (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, BGI (2003-2007). | Trustee of iShares Trust (since 2010); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| a | Robert S. Kapito is deemed to be an “interested person” (as defined in the 1940 Act) of the Trust 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 Trust due to his affiliations with BlackRock, Inc. and its affiliates. |
| DIRECTOR AND OFFICER INFORMATION |
121 |
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 | |||
| Robert H. Silver (57) |
Director (since 2007); Independent Chairman (since 2012). | President and Co-Founder of The Bravitas Group, Inc. (since 2006); Director and Vice Chairman of the YMCA of Greater NYC (2001-2011); Broadway Producer (2006-2011); 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); President and Chief Operating Officer of UBS Financial Services Inc. (formerly Pain Webber Inc.) (2004-2005) and various executive positions with UBS and its affiliates (1988-2005); CPA and Audit Manager of KPMG, LLP (formerly Peat Marwick Mitchell) (1977-1983). | Trustee of iShares Trust (since 2007); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Independent Chairman of iShares, Inc., iShares MSCI Russia Capped Index Fund, Inc. and iShares U.S. ETF Trust (since 2012). | |||
| Cecilia H. Herbert (63) |
Director (since 2005); Nominating and Governance Committee Chair and Equity Plus Committee Chair (since 2012). | Director (since 1998) and President (2007-2011) of the Board of Directors, Catholic Charities CYO; Trustee (since 2002) and Chair of the Finance Committee (2006-2009) and Investment Committee (since 2006), The Thacher School; Trustee of Pacific Select Funds (2004-2005); Member (since 1994) and Chair (1994-2005) of the Investment Committee, Archdiocese of San Francisco. |
Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Director of Forward Funds (35 portfolios) (since 2009). | |||
| Charles A. Hurty (69) |
Director (since 2005); Audit Committee Chair (since 2006). | Retired; Partner, KPMG LLP (1968-2001). |
Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002); Director of SkyBridge Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC (1 portfolio) (since 2002). | |||
| John E. Kerrigan (57) |
Director (since 2005); Fixed Income Plus Committee Chair (since 2012). | 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); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| 122 | 2012 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 | |||
| John E. Martinez (51) |
Director (since 2003); Securities Lending Committee Chair (since 2012). | Director of FirstREX Agreement Corp. (formerly EquityRock, Inc.) (since 2005). | Trustee of iShares Trust (since 2003); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| George G.C. Parker (73) |
Director (since 2002). | Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University Graduate School of Business (Professor since 1973; Emeritus since 2006). | Trustee of iShares Trust (since 2002); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); 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). | |||
| Madhav V. Rajan (48) |
Director (since 2011); 15(c) Committee Chair (since 2012). | Robert K. Jaedicke Professor of Accounting and Senior Associate Dean for Academic Affairs and Head of MBA Program, 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); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| DIRECTOR AND OFFICER INFORMATION |
123 |
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 | ||
| Edward B. Baer (44) |
Vice President and Chief Legal Officer (since 2012). |
Managing Director, BlackRock (since 2006). | ||
| Eilleen M. Clavere (60) |
Secretary (since 2007). |
Director, BlackRock (since 2009); Director of Legal Administration of Intermediary Investor Business, BGI (2006-2009). | ||
| Jack Gee (53) |
Treasurer and Chief Financial Officer (since 2008). |
Managing Director, BlackRock (since 2009); Senior Director of Fund Administration of Intermediary Investor Business, BGI (2009); Director of Fund Administration of Intermediary Investor Business, BGI (2004-2009). | ||
| Amy Schioldager (50) |
Executive Vice President (since 2007). |
Managing Director, BlackRock (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008). | ||
| Ira P. Shapiro (49) |
Vice President (since 2007). | Managing Director, BlackRock (since 2009); Chief Legal Officer, Exchange-Traded Funds Complex (2007-2012); Associate General Counsel, BGI (2004-2009). | ||
| Scott Radell (43) |
Executive Vice President (since 2012). |
Managing Director, BlackRock (since 2009); Head of Portfolio Solutions, BGI (2007-2009); Credit Portfolio Manager, BGI (2005-2007). | ||
| 124 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes:
| NOTES |
125 |
Table of Contents
Notes:
| 126 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
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iS-AR-82-0812
Table of Contents
|
August 31, 2012 |
2012 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
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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 AUSTRALIA INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 1.84% | 1.56% | 2.15% | 1.63% | 1.49% | 1.69% | 14.35% | 14.37% | 14.15% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 1.84% | 1.56% | 2.15% | 8.44% | 7.69% | 8.75% | 282.33% | 282.84% | 275.75% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
“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 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, 2012 (the “reporting period”), the total return for the Fund was 1.84%, net of fees, while the total return for the Index was 2.15%.
The Australian equity market, as represented by the Index, delivered positive returns for the reporting period, despite slow global economic conditions. Because of Australia’s abundant natural resources, including coal, iron ore, copper, gold, and natural gas, its economy relies heavily on mining and exports of natural resources. During much of the reporting period, the Australian economy continued to benefit from a boom in its mining sector: gross domestic product (GDP) growth was solid, expanding 3.7% in the second quarter of 2012 versus a year earlier. Unemployment levels remained just above 5%, and exports, which reached an all-time high in August 2011, remained at healthy levels.
However, economic slowdown in China — Australia’s largest commodity export market — as well as the ongoing sovereign debt crisis in Europe and lower commodity prices sparked concerns about the impact on Australia’s mining industry in particular, as well as its overall economy. In an effort to support its domestic economy and spur domestic consumption, the Reserve Bank of Australia lowered interest rates in May and June 2012 a cumulative 0.75%, reducing its target rate to 3.50%. Household consumption as well as housing prices climbed during the remainder of the reporting period, although consumer sentiment declined modestly. In the final months of the reporting period, though, prices for iron ore and other commodities dropped sharply, and the robust levels of investment spending within the mining industry contracted.
| 6 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI AUSTRALIA INDEX FUND
Sector performance was varied during the reporting period. The financials sector, which comprised 45% of the Index on average, posted solid results and was the strongest contributor to Index gains. The traditionally economically defensive consumer staples and health care sectors also contributed positively to Index performance. The materials sector, which experienced a sharp decline in commodity prices late in the reporting period, declined. Because it represented approximately 26% of the Index throughout the reporting period, the materials sector detracted meaningfully from Index returns. The energy sector also lost ground as oil and natural gas prices fell during the reporting period.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
7 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI HONG KONG INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||||||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||||||||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||||||||||||||||||||
| (0.33)% | (0.43)% | (0.01)% | 1.83% | 1.74% | 2.36% | 10.77% | 10.94% | 11.47% | ||||||||||||||||||||||||||
| Cumulative Total Returns | ||||||||||||||||||||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||||||||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||||||||||||||||||||
| (0.33)% | (0.43)% | (0.01)% | 9.48% | 9.00% | 12.39% | 178.17% | 182.33% | 196.28% | ||||||||||||||||||||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
“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 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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 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, 2012 (the “reporting period”), the total return for the Fund was (0.33)%, net of fees, while the total return for the Index was (0.01)%.
The Hong Kong equity market, as represented by the Index, declined slightly for the reporting period, lagging the performance of the broader international market. The country’s gross domestic product (“GDP”) growth slowed during the reporting period as the sovereign debt crisis in Europe and slower economic growth in China trimmed Hong Kong’s export demand. After reaching an all-time high in August 2011, export levels fell modestly throughout the reporting period. For the first and second quarters of 2012, annual GDP growth registered 0.4% and 1.1%, respectively. Retail sales also slowed: in July 2012, annual retail sales growth sank to 1.3%, its slowest pace since 2009 and far below its historic average (from 2005 until 2012) of 12%.
Inflation, which had emerged as a new threat for the Hong Kong economy in the previous reporting period, fell throughout the reporting period, dipping to 1.60% in July 2012. Partially driving this decline was a slowdown in Hong Kong’s real estate market, which had soared in recent years as low interest rates and a surge of buyers from mainland China had driven up prices. In June 2012, real estate transactions dropped by 30%, reflecting lower demand from mainland China and a slowdown in new projects by developers. Food price inflation also was tempered. Although food prices continued to climb, they did so at a more moderate pace. Unemployment levels dropped, reaching 3.2% in the final months of the reporting period.
Sector performance was mixed during the reporting period. The financials sector, the largest sector at 60% of the Index on average, registered a slight gain and was the largest single sector contributor to Index gains. The utilities and industrials sectors also achieved positive returns and contributed slightly to Index performance. The traditionally economically sensitive consumer discretionary sector declined and detracted from Index results. The information technology sector also declined, but at approximately 1% of the Index, its impact on Index performance was negligible.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
9 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | Cumulative Total Returns | |||||||||||||||
| Year Ended 8/31/12 | Inception to 8/31/12 | Inception to 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (5.18)% | (5.57)% | (5.09)% | (0.84)% | (0.77)% | (0.57)% | (3.87)% | (3.55)% | (2.63)% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
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.
| 10 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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 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. 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, 2012 (the “reporting period”), the total return for the Fund was (5.18)%, net of fees, while the total return for the Index was (5.09)%.
Japanese small cap equities, as represented by the Index, declined during the reporting period, as the country continued to recover from the effects of the earthquake and tsunami that struck in March 2011, while grappling with a sluggish global economic environment.
Investment related to reconstruction spending in the country’s disaster-struck regions largely drove economic recovery for much of the reporting period. For the first quarter of 2012, annual gross domestic product (“GDP”) expanded 4.7%, surpassing estimates of 3.5% and exceeding economic growth rates in the U.S. and Europe. In the final months of the period, though, reconstruction spending slowed, and economic recovery stalled in Japan. Tepid economic growth in Europe and the U.S. translated into slow demand for exports from Japan. In July 2012, export levels, which have historically been the main driver of Japan’s economic growth, experienced their sharpest annual decline in six months. For the second quarter of 2012, annual GDP growth dropped to a slight 0.7%. Government debt at the end of the reporting period represented 211% of GDP, the largest ratio of government debt to GDP for all industrial countries and above the levels for the troubled eurozone countries of Spain and Greece.
Sector performance within the Index was mixed for the reporting period. The economically sensitive materials and industrials sectors detracted the most from Index returns. The information technology sector was also a significant detractor from Index returns, as was the consumer discretionary sector. The utilities sector also detracted from results, due largely to the destruction caused by the nuclear disaster following the March 2011 earthquake and tsunami. However, at less than 1% of the Index, the impact to Index performance was negligible. On the positive side, the health care sector and the traditionally economically defensive consumer staples sector were the only two sectors to contribute gains to Index performance for the reporting period.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
11 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI MALAYSIA INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 8.61% | 6.43% | 9.24% | 9.61% | 9.23% | 10.13% | 13.16% | 13.23% | 13.90% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 8.61% | 6.43% | 9.24% | 58.18% | 55.48% | 62.01% | 244.40% | 246.40% | 267.55% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
“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 return 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.
| 12 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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 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 that are included in the Index. For the 12-month period ended August 31, 2012 (the “reporting period”), the total return for the Fund was 8.61%, net of fees, while the total return for the Index was 9.24%.
The Malaysian equity market, as represented by the Index, delivered positive results for the reporting period, and outpaced the performance of the broader international market. As a key exporter, Malaysia has historically been somewhat reliant on its trading partners for its economic growth. However, in recent years, the government has taken steps to build domestic demand in order to reduce the country’s vulnerability to the economic well-being of its trading partners.
In a reporting period marked by tepid global economic growth and a sovereign debt crisis in Europe, the effect of those government efforts was evident. Although the country’s export levels declined, the weakness was offset by solid domestic demand and government spending. Private consumption climbed 8.8% in the second quarter of 2012 compared with a year earlier, and public consumption rose 9.4%. As a result, economic growth was solid, as measured by an annual gross domestic product (GDP) growth rate of 5.4% for the second quarter of 2012. Unemployment remained low, declining to 2.8% in June 2012. Inflation, which had peaked in 2008 at over 8%, was relatively benign throughout the reporting period and was recorded at 1.40% in July 2012.
Sector performance was largely positive during the reporting period. The telecommunications sector logged robust gains and was the largest sector contributor to Index performance. The utilities sector also experienced solid absolute returns and added significantly to Index results. The financials sector, the largest sector at 31% of the Index on average, registered gains and contributed meaningfully to Index performance, as did the consumer staples sector. The economically sensitive industrials sector, which accounted for 16% of the Index on average, lost ground during the reporting period and detracted from Index results.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
13 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI PACIFIC EX-JAPAN INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 1.82% | 1.61% | 2.12% | 2.00% | 1.88% | 2.13% | 13.48% | 13.34% | 13.51% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 1.82% | 1.61% | 2.12% | 10.41% | 9.74% | 11.13% | 254.31% | 249.84% | 255.01% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
“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 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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 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, 2012 (the “reporting period”), the total return for the Fund was 1.82%, net of fees, while the total return for the Index was 2.12%.
At the end of the reporting period, the majority of the Fund was invested in three countries: Australia, Hong Kong, and Singapore. The three markets delivered mixed results for the reporting period, but generally outpaced the broader international markets.
The Australian equity market delivered positive returns for the reporting period. Australia’s economy relies heavily on mining and exports. During much of the period, the economy continued to benefit from a boom in its mining sector: gross domestic product (“GDP”) growth was solid, expanding 3.7% in the second quarter of 2012 versus a year earlier. However, global macroeconomic conditions led to worries about future growth. In response, the Reserve Bank of Australia lowered interest rates a cumulative 0.75%, reducing its target rate to 3.50%. Household consumption climbed during the remainder of the reporting period. In the final months of the reporting period, though, commodities prices dropped sharply, and investment spending within the mining industry contracted.
The Hong Kong equity market declined slightly during the reporting period. The country’s GDP growth slowed as the sovereign debt crisis in Europe and weaker economic growth in China trimmed Hong Kong’s export demand. After reaching an all-time high in August 2011, export levels fell modestly throughout the reporting period. For the first and second quarters of 2012, annual GDP growth registered 0.4% and 1.1%, respectively. Hong Kong’s real estate market, which had soared in recent years, began to soften. In June 2012, real estate transactions in Hong Kong dropped by 30%, reflecting lower demand from mainland China and a slowdown in new projects by developers.
The Singapore equity market gained during the reporting period. As an exporter of consumer electronics, information technology products, and pharmaceuticals, Singapore is dependent on the economic strength of its trading partners. Economic growth, as measured by GDP,
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
15 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI PACIFIC EX-JAPAN INDEX FUND
cooled during the period, slowing to a 2.00% annual pace in the second quarter of 2012. To reduce the economy’s dependence on export trade, the Singaporean government pursued measures to boost tourism and financial services. Tourism levels remained fairly resilient during the reporting period, but other areas of Singapore’s economy softened. Retail sales fell 1% in July 2012 compared with a year earlier. Industrial production grew by only 1.90% in July 2012, compared with a historical average (from 2000 until 2012) of 6.85%.
Six out of the ten major industry sectors within the Index delivered positive results during the reporting period. The financials sector, the largest sector at 48% of the Index on average, registered solid gains and was the largest single sector contributor to Index gains. The health care, telecommunication services, and consumer staples sectors also added positively to Index returns. The materials sector, which accounted for approximately 17% of the Index over the reporting period, declined as commodity prices fell, detracting significantly from Index returns.
| 16 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI SINGAPORE INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 4.67% | 5.06% | 5.15% | 4.00% | 4.03% | 4.09% | 14.02% | 13.96% | 13.93% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 4.67% | 5.06% | 5.15% | 21.65% | 21.82% | 22.19% | 271.30% | 269.27% | 268.54% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
“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 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 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, 2012 (the “reporting period”), the total return for the Fund was 4.67%, net of fees, while the total return for the Index was 5.15%.
The Singapore equity market, as represented by the Index, delivered positive results for the reporting period, and outpaced the performance of the broader international market. As an exporter of consumer electronics, information technology products, and pharmaceuticals, Singapore is heavily dependent on the economic strength of its trading partners for its economic health. During the course of the reporting period, economic growth cooled in Singapore as the sovereign debt crisis in Europe and economic sluggishness in the United States translated into reduced demand for exports from Singapore.
Economic growth, as measured by gross domestic product (GDP), slowed to a 2.00% annual pace in the second quarter of 2012. In an effort to reduce the economy’s dependence on export trade, the Singaporean government pursued measures to boost tourism and financial services. Tourism levels remained fairly resilient during the reporting period, but other areas of Singapore’s economy softened. Retail sales fell 1.00% in July 2012 compared with a year earlier. Industrial production grew by only 1.90% in July 2012, compared with a historical average (from 2000 until 2012) of 6.85%.
The Singapore dollar had climbed to unprecedented highs in the previous reporting period after the central bank indicated that it would allow additional appreciation of the currency to rein in inflation. During the reporting period, inflation moderated, dropping from 5.7% in August 2011 to 4.0% in July 2012, and the currency weakened.
Sector performance was mixed during the reporting period. The financials sector, the largest sector at 46% of the Index on average, registered gains and was the largest single sector contributor to Index gains. The industrials sector, which accounted for 25% of the Index on average, also contributed significantly to Index returns. The consumer staples sector was the most significant detractor from performance for the reporting period.
| 18 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI SOUTH KOREA INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||||||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||||||||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||||||||||||||||||||
| (0.62)% | 0.08% | (0.29)% | (1.48)% | (1.54)% | (1.08)% | 11.09% | 11.36% | 12.16% | ||||||||||||||||||||||||||
| Cumulative Total Returns | ||||||||||||||||||||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||||||||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||||||||||||||||||||
| (0.62)% | 0.08% | (0.29)% | (7.16)% | (7.45)% | (5.29)% | 186.20% | 193.27% | 214.95% | ||||||||||||||||||||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
“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 return 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 |
19 |
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 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, 2012 (the “reporting period”), the total return for the Fund was (0.62)%, net of fees, while the total return for the Index was (0.29)%.
The South Korean equity market, as represented by the Index, delivered slightly negative results for the reporting period. Due to the country’s dependence on manufacturing exports for its economic livelihood, South Korean equities are typically considered a leading indicator of global economic conditions. During the reporting period, South Korean exports began to soften, as the sovereign debt crisis in Europe and tepid economic conditions in the U.S. reduced demand for exports from South Korea.
Economic growth, as measured by annual gross domestic product (GDP) growth slowed to 2.30% in the second quarter of 2012 as industrial output cooled, dipping to 1.6% in June 2012. Accordingly, consumer confidence levels declined in the final months of the reporting period, falling from 105 in May 2012 to 99 in August 2012 (a consumer confidence level of 100 is considered neutral; levels below 100 are pessimistic, and levels above 100 are optimistic). In response to the slowing conditions, South Korea’s central bank cut short-term interest rates to 3.0% in July 2012, for the first time in three years, in an effort to boost liquidity in the financial system and help the country to regain economic momentum.
Sector performance within the Index was mostly negative during the reporting period. Reflecting reduced demand and a sharp decline in commodity prices during the reporting period, the materials sector declined and detracted significantly from Index returns. Industrials and financials also detracted meaningfully from Index performance, as did the economically sensitive consumer discretionary sector. Energy stocks declined as a group, as oil and natural gas prices reversed course during the reporting period. On the positive side, the information technology sector, which accounted for 31% of the Index on average, delivered strong absolute gains and contributed substantially to Index results. Utilities advanced, but at only 1% of the Index, the impact to Index performance was modest.
| 20 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI TAIWAN INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (4.80)% | (4.13)% | (4.46)% | (1.09)% | (1.07)% | (0.59)% | 5.98% | 6.74% | 6.73% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (4.80)% | (4.13)% | (4.46)% | (5.33)% | (5.24)% | (2.93)% | 78.78% | 91.97% | 91.82% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
“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 return 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 |
21 |
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 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, 2012 (the “reporting period”), the total return for the Fund was (4.80)%, net of fees, while the total return for the Index was (4.46)%.
The Taiwan market, as represented by the Index, delivered negative results for the reporting period, as it struggled with the effects of a weak global economic environment. A slowdown in China’s economy, the sovereign debt crisis in Europe, and tepid economic conditions in the U.S. all dragged down export demand from Taiwan, causing the country’s economy to slow and ultimately contract.
Economic activity, as measured by annual gross domestic product (GDP) growth, contracted 0.18% in the second quarter of 2012 as Taiwan’s statistics office cut its forecast for export growth from 2.69% to 0.07%. Within its export market, demand for communications equipment, optronics, and chemicals were hurt the most. Domestic demand, which had offset weak export demand in the previous reporting period, weakened during the reporting period, amid a decline in industrial production and modest rise in unemployment levels. Meanwhile, inflation levels climbed to 3.42% in August 2012 due to rising global food prices and severe weather conditions in the country. Taiwan’s central bank, which had cut interest rates for five consecutive quarters as the reporting period opened, left interest rates unchanged throughout the reporting period.
Sector performance within the Index was mixed during the reporting period. The financial sector, which accounted for 15% of the Index on average, was the largest sector detractor from Index performance. Materials stocks, which declined as commodity prices fell, also hurt Index returns meaningfully. Industrials stocks, which tend to be sensitive to the state of the economic environment, also declined. On the positive side, telecommunications services as a group contributed modestly to Index results. The information technology sector, the largest sector at 54% of the Index on average, registered only moderate gains for the reporting period.
| 22 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI THAILAND INVESTABLE MARKET INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | Cumulative Total Returns | |||||||||||||||
| Year Ended 8/31/12 | Inception to 8/31/12 | Inception to 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 9.57% | 9.71% | 9.95% | 11.20% | 11.27% | 11.72% | 60.13% | 60.56% | 63.42% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
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 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 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 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, 2012 (the “reporting period”), the total return for the Fund was 9.57%, net of fees, while the total return for the Index was 9.95%.
The Thailand equity market, as represented by the Index, delivered solid results for the reporting period, outpacing the performance of the broader international market. Thailand’s export-driven economy makes the country heavily reliant on the economic strength of its trading partners. During the reporting period, the sovereign debt crisis, slower economic conditions in China, and a tepid economic environment all translated into reduced demand for Thailand’s exports.
Helping to offset the decline in exports, private spending expanded. Both private consumption and investment grew, in part due to the Thai government’s stimulative measures and accommodative monetary policy. However, natural disaster brought further challenges to the Thai economy. In late 2011, severe flooding caused a number of industrial hubs to close and resulted in disruptions to manufacturing supply chains, particularly for the automobile and technology industries. In the final months of the reporting period, manufacturing levels began to recover, growing 2.7% in the second quarter of 2012 compared with a contraction of 4.3% in the first quarter of 2012, adding to overall gross domestic product (“GDP”) growth for the country. After contracting 8.9% on an annual basis in the fourth quarter of 2011 and gaining only 0.4% annually in the first quarter of 2012, economic activity as measured by GDP grew at an annual 4.2% rate in the second quarter of 2012.
| 24 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI THAILAND INVESTABLE MARKET INDEX FUND
Seven of the ten major industry sectors within the Index delivered positive results during the reporting period. The financials sector, the largest sector at 33% of the Index on average, delivered gains and was the most significant contributor to Index returns. Telecommunications services experienced robust absolute returns and also added substantially to Index performance. Consumer staples and consumer discretionary were also meaningful contributors to Index results. On the negative side, both the energy and materials sectors declined as commodity prices fell. Because the energy sector accounted for 25% of the Index on average, it had a more significant impact on Index performance than did the materials sector, which represented approximately 12% of the Index throughout the reporting period.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
25 |
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, 2012 to August 31, 2012.
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 (3/1/12) |
Ending Account Value (8/31/12) |
Annualized Expense Ratio |
Expenses Paid During Period a |
||||||||||||
| Australia |
||||||||||||||||
| Actual |
$ | 1,000.00 | $ | 991.20 | 0.53 | % | $ | 2.65 | ||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| Hong Kong |
||||||||||||||||
| Actual |
1,000.00 | 945.50 | 0.53 | 2.59 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| Japan Small Cap |
||||||||||||||||
| Actual |
1,000.00 | 947.10 | 0.53 | 2.59 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| Malaysia |
||||||||||||||||
| Actual |
1,000.00 | 993.60 | 0.53 | 2.66 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| 26 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Shareholder Expenses (Unaudited) (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund | Beginning Account Value (3/1/12) |
Ending Account Value (8/31/12) |
Annualized Expense Ratio |
Expenses Paid During Period a |
||||||||||||
| Pacific ex-Japan |
||||||||||||||||
| Actual |
$ | 1,000.00 | $ | 986.20 | 0.50 | % | $ | 2.50 | ||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.60 | 0.50 | 2.54 | ||||||||||||
| Singapore |
||||||||||||||||
| Actual |
1,000.00 | 1,025.80 | 0.53 | 2.70 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| South Korea |
||||||||||||||||
| Actual |
1,000.00 | 931.40 | 0.62 | 3.01 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.00 | 0.62 | 3.15 | ||||||||||||
| Taiwan |
||||||||||||||||
| Actual |
1,000.00 | 914.90 | 0.62 | 2.98 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.00 | 0.62 | 3.15 | ||||||||||||
| Thailand Investable Market |
||||||||||||||||
| Actual |
1,000.00 | 990.80 | 0.62 | 3.10 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.00 | 0.62 | 3.15 | ||||||||||||
| 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 (366 days). |
| SHAREHOLDER EXPENSES |
27 |
Table of Contents
iSHARES® MSCI AUSTRALIA INDEX FUND
August 31, 2012
| 28 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI AUSTRALIA INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
29 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI AUSTRALIA INDEX FUND
August 31, 2012
| 30 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI HONG KONG INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
31 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI HONG KONG INDEX FUND
August 31, 2012
| 32 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
33 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2012
| 34 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
35 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2012
| 36 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
37 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2012
| 38 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
39 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2012
| 40 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
41 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2012
| 42 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI JAPAN SMALL CAP INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
43 |
Table of Contents
Schedule of Investments
iSHARES® MSCI MALAYSIA INDEX FUND
August 31, 2012
| 44 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI MALAYSIA INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
45 |
Table of Contents
Schedule of Investments
iSHARES® MSCI PACIFIC EX-JAPAN INDEX FUND
August 31, 2012
| 46 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI PACIFIC EX-JAPAN INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
47 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI PACIFIC EX-JAPAN INDEX FUND
August 31, 2012
| 48 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI SINGAPORE INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
49 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI SINGAPORE INDEX FUND
August 31, 2012
| 50 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI SOUTH KOREA INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
51 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI SOUTH KOREA INDEX FUND
August 31, 2012
| 52 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI SOUTH KOREA INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
53 |
Table of Contents
Schedule of Investments
iSHARES® MSCI TAIWAN INDEX FUND
August 31, 2012
| 54 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI TAIWAN INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
55 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI TAIWAN INDEX FUND
August 31, 2012
| 56 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI THAILAND INVESTABLE MARKET INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
57 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI THAILAND INVESTABLE MARKET INDEX FUND
August 31, 2012
| 58 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI THAILAND INVESTABLE MARKET INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
59 |
Table of Contents
Statements of Assets and Liabilities
iSHARES®, INC.
August 31, 2012
| iShares MSCI Australia Index Fund |
iShares MSCI Hong Kong Index Fund |
iShares MSCI Japan Small Cap Index Fund |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 2,533,518,026 | $ | 1,937,290,898 | $ | 48,165,176 | ||||||
| Affiliated (Note 2) |
12,648,879 | 158,396,172 | 899,408 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 2,546,166,905 | $ | 2,095,687,070 | $ | 49,064,584 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 2,465,105,268 | $ | 1,858,900,656 | $ | 42,634,224 | ||||||
| Affiliated (Note 2) |
12,648,879 | 158,396,172 | 899,408 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
2,477,754,147 | 2,017,296,828 | 43,533,632 | |||||||||
| Foreign currencies, at valueb |
5,036,955 | 2,486,198 | 109,757 | |||||||||
| Cash held at broker, at valuec |
1,033,248 | 193,249 | — | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
4,766,604 | 3,461,705 | — | |||||||||
| Dividends and interest |
23,777,783 | 3,962,650 | 87,541 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
2,512,368,737 | 2,027,400,630 | 43,730,930 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
4,908,212 | 3,442,861 | — | |||||||||
| Collateral for securities on loan (Note 5) |
12,559,455 | 157,141,868 | 894,577 | |||||||||
| Futures variation margin |
50,019 | 23,375 | — | |||||||||
| Securities related to in-kind transactions (Note 4) |
52,749 | — | — | |||||||||
| Investment advisory fees (Note 2) |
1,099,546 | 818,369 | 19,288 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
18,669,981 | 161,426,473 | 913,865 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 2,493,698,756 | $ | 1,865,974,157 | $ | 42,817,065 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 2,763,686,770 | $ | 2,326,480,918 | $ | 50,180,320 | ||||||
| Undistributed net investment income |
15,190,680 | 4,985,539 | 41,015 | |||||||||
| Accumulated net realized loss |
(216,493,091 | ) | (387,078,954 | ) | (1,874,388 | ) | ||||||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(68,685,603 | ) | (78,413,346 | ) | (5,529,882 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 2,493,698,756 | $ | 1,865,974,157 | $ | 42,817,065 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingd |
106,600,000 | 110,175,000 | 1,000,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 23.39 | $ | 16.94 | $ | 42.82 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $11,595,572, $149,152,566 and $852,710, respectively. See Note 5. |
| b | Cost of foreign currencies: $5,126,714, $2,486,153 and $109,602, respectively. |
| c | Cost of cash held at broker: $961,292, $193,237 and $ —, respectively. |
| d | $0.001 par value, number of shares authorized: 627.8 million, 250 million and 500 million, respectively. |
See notes to financial statements.
| 60 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Assets and Liabilities (Continued)
iSHARES®, INC.
August 31, 2012
| iShares MSCI |
iShares MSCI Pacific ex-Japan Index Fund |
iShares MSCI |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 497,803,699 | $ | 2,764,962,689 | $ | 1,391,265,764 | ||||||
| Affiliated (Note 2) |
131,852 | 93,110,554 | 93,739,331 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 497,935,551 | $ | 2,858,073,243 | $ | 1,485,005,095 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 934,610,659 | $ | 3,161,175,680 | $ | 1,503,087,557 | ||||||
| Affiliated (Note 2) |
131,852 | 93,110,554 | 93,739,331 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
934,742,511 | 3,254,286,234 | 1,596,826,888 | |||||||||
| Foreign currencies, at valueb |
1,216,837 | 10,539,009 | 3,802,304 | |||||||||
| Cash held at broker, at valuec |
— | — | 597,376 | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
5,866,768 | 1,931,637 | — | |||||||||
| Dividends and interest |
1,201,642 | 23,068,734 | 7,042,431 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
943,027,758 | 3,289,825,614 | 1,608,268,999 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
5,917,872 | 7,083,043 | 2,225,568 | |||||||||
| Collateral for securities on loan (Note 5) |
— | 92,808,752 | 92,307,193 | |||||||||
| Capital shares redeemed |
— | — | 328,497 | |||||||||
| Futures variation margin |
— | — | 43,899 | |||||||||
| Investment advisory fees (Note 2) |
417,629 | 1,351,950 | 677,335 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
6,335,501 | 101,243,745 | 95,582,492 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 936,692,257 | $ | 3,188,581,869 | $ | 1,512,686,507 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 581,509,537 | $ | 3,260,367,349 | $ | 1,632,475,855 | ||||||
| Undistributed net investment income |
— | 8,784,423 | 4,917,504 | |||||||||
| Accumulated net realized loss |
(81,611,245 | ) | (476,615,611 | ) | (236,511,623 | ) | ||||||
| Net unrealized appreciation on investments and translation of assets and liabilities in foreign currencies |
436,793,965 | 396,045,708 | 111,804,771 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 936,692,257 | $ | 3,188,581,869 | $ | 1,512,686,507 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingd |
64,500,000 | 73,800,000 | 115,500,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 14.52 | $ | 43.21 | $ | 13.10 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $ —, $87,611,909 and $87,245,393, respectively. See Note 5. |
| b | Cost of foreign currencies: $1,227,871, $10,540,612 and $3,801,146, respectively. |
| c | Cost of cash held at broker: $ —, $ — and $588,820, respectively. |
| d | $0.001 par value, number of shares authorized: 300 million, 1 billion and 300 million, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS |
61 |
Table of Contents
Statements of Assets and Liabilities (Continued)
iSHARES®, INC.
August 31, 2012
| iShares MSCI South Korea Index Fund |
iShares MSCI Taiwan Index Fund |
iShares MSCI Thailand Investable Market Index Fund |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 1,228,085,712 | $ | 1,503,763,165 | $ | 573,393,782 | ||||||
| Affiliated (Note 2) |
167,219,822 | 217,891,495 | 3,026,377 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 1,395,305,534 | $ | 1,721,654,660 | $ | 576,420,159 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 2,666,028,077 | $ | 2,222,571,435 | $ | 590,987,604 | ||||||
| Affiliated (Note 2) |
167,219,822 | 217,891,495 | 3,026,377 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
2,833,247,899 | 2,440,462,930 | 594,013,981 | |||||||||
| Foreign currencies, at valueb |
— | 578,160 | — | |||||||||
| Cash |
— | 5,849,593 | — | |||||||||
| Cash held at broker, at value |
— | 2,136,000 | — | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
44,341,108 | 2,583,854 | 3,388,961 | |||||||||
| Dividends and interest |
351,209 | 17,498,237 | 2,581,734 | |||||||||
| Capital shares sold |
19,625,244 | — | — | |||||||||
| Futures variation margin |
— | 23,828 | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
2,897,565,460 | 2,469,132,602 | 599,984,676 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
64,390,348 | 8,433,816 | 3,701,613 | |||||||||
| Collateral for securities on loan (Note 5) |
162,211,488 | 210,581,890 | — | |||||||||
| Foreign taxes (Note 1) |
17,251 | 1,832,649 | — | |||||||||
| Investment advisory fees (Note 2) |
1,395,158 | 1,156,257 | 315,563 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
228,014,245 | 222,004,612 | 4,017,176 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 2,669,551,215 | $ | 2,247,127,990 | $ | 595,967,500 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 2,110,828,534 | $ | 2,528,748,366 | $ | 593,028,011 | ||||||
| Undistributed (distributions in excess of) net investment income |
(8,724,136 | ) | 49,800,550 | 2,546,326 | ||||||||
| Accumulated net realized loss |
(870,481,180 | ) | (1,050,070,320 | ) | (17,203,163 | ) | ||||||
| Net unrealized appreciation on investments and translation of assets and liabilities in foreign currencies |
1,437,927,997 | 718,649,394 | 17,596,326 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 2,669,551,215 | $ | 2,247,127,990 | $ | 595,967,500 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingc |
47,700,000 | 178,600,000 | 8,450,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 55.97 | $ | 12.58 | $ | 70.53 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $154,344,908, $199,702,589 and $ —, respectively. See Note 5. |
| b | Cost of foreign currencies: $ —, $578,742 and $ —, respectively. |
| c | $0.001 par value, number of shares authorized: 200 million, 900 million and 200 million, respectively. |
See notes to financial statements.
| 62 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Operations
iSHARES®, INC.
Year ended August 31, 2012
| iShares MSCI |
iShares MSCI Hong Kong Index Fund |
iShares MSCI Japan Small Cap Index Fund |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends — unaffiliateda |
$ | 135,071,680 | $ | 65,294,787 | $ | 1,293,278 | ||||||
| Interest — affiliated (Note 2) |
1,038 | 994 | 10 | |||||||||
| Securities lending income — affiliated (Note 2) |
72,055 | 951,866 | 22,396 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
135,144,773 | 66,247,647 | 1,315,684 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
13,830,149 | 9,202,379 | 291,630 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
13,830,149 | 9,202,379 | 291,630 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
121,314,624 | 57,045,268 | 1,024,054 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments — unaffiliated |
(78,881,140 | ) | (168,647,637 | ) | (492,031 | ) | ||||||
| In-kind redemptions — unaffiliated |
82,368,603 | 72,430,126 | 3,133,155 | |||||||||
| Futures contracts |
(202 | ) | (142 | ) | — | |||||||
| Foreign currency transactions |
(3,633,614 | ) | 45,573 | 12,976 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain (loss) |
(146,353 | ) | (96,172,080 | ) | 2,654,100 | |||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
(123,840,642 | ) | 77,318,889 | (8,076,630 | ) | |||||||
| Futures contracts |
(50,019 | ) | (23,375 | ) | — | |||||||
| Translation of assets and liabilities in foreign currencies |
(787,901 | ) | (3,561 | ) | (1,898 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
(124,678,562 | ) | 77,291,953 | (8,078,528 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized loss |
(124,824,915 | ) | (18,880,127 | ) | (5,424,428 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (3,510,291 | ) | $ | 38,165,141 | $ | (4,400,374 | ) | ||||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $659,171, $ — and $96,084, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS |
63 |
Table of Contents
Statements of Operations (Continued)
iSHARES®, INC.
Year ended August 31, 2012
| Malaysia |
Pacific ex-Japan Index Fund |
iShares MSCI Singapore Index Fund |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends — unaffiliateda |
$ | 29,248,661 | $ | 150,035,023 | $ | 55,587,272 | ||||||
| Interest — affiliated (Note 2) |
378 | 1,459 | 631 | |||||||||
| Securities lending income — affiliated (Note 2) |
— | 704,110 | 722,355 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
29,249,039 | 150,740,592 | 56,310,258 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
4,728,077 | 16,176,388 | 7,690,242 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
4,728,077 | 16,176,388 | 7,690,242 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
24,520,962 | 134,564,204 | 48,620,016 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments — unaffiliated |
(2,428,870 | ) | (82,848,651 | ) | (22,302,172 | ) | ||||||
| In-kind redemptions - unaffiliated |
— | 105,380,021 | 28,660,711 | |||||||||
| Futures contracts |
— | — | 297,219 | |||||||||
| Foreign currency transactions |
(694,528 | ) | (3,033,064 | ) | (1,039,852 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain (loss) |
(3,123,398 | ) | 19,498,306 | 5,615,906 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
42,690,801 | (127,312,719 | ) | (25,655,363 | ) | |||||||
| Futures contracts |
— | — | (43,899 | ) | ||||||||
| Translation of assets and liabilities in foreign currencies |
(2,560 | ) | (637,305 | ) | (100,164 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
42,688,241 | (127,950,024 | ) | (25,799,426 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain (loss) |
39,564,843 | (108,451,718 | ) | (20,183,520 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | 64,085,805 | $ | 26,112,486 | $ | 28,436,496 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $2,050,846, $838,289 and $234,795, respectively. |
See notes to financial statements.
| 64 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Operations (Continued)
iSHARES®, INC.
Year ended August 31, 2012
| iShares MSCI South Korea |
iShares MSCI Taiwan Index Fund |
iShares MSCI Thailand Investable Market Index Fund |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends — unaffiliateda |
$ | 29,627,113 | $ | 62,757,119 | $ | 19,248,406 | ||||||
| Interest — unaffiliated |
368 | 151 | — | |||||||||
| Interest — affiliated (Note 2) |
2,784 | 2,527 | 727 | |||||||||
| Securities lending income — affiliated (Note 2) |
2,919,840 | 6,887,058 | b | — | ||||||||
|
|
|
|
|
|
|
|||||||
| 32,550,105 | 69,646,855 | 19,249,133 | ||||||||||
| Less: Other foreign taxes (Note 1) |
(17,299 | ) | (2,792,719 | ) | (90,237 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
32,532,806 | 66,854,136 | 19,158,896 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
19,188,641 | 14,284,338 | 3,584,474 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
19,188,641 | 14,284,338 | 3,584,474 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
13,344,165 | 52,569,798 | 15,574,422 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments — unaffiliated |
294,427,131 | 8,911,597 | (12,792,391 | ) | ||||||||
| In-kind redemptions — unaffiliated |
— | — | 72,001,230 | |||||||||
| Futures contracts |
— | 1,589,034 | — | |||||||||
| Foreign currency transactions |
(947,417 | ) | (692,597 | ) | (373,072 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain |
293,479,714 | 9,808,034 | 58,835,767 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
(395,819,148 | ) | (244,891,193 | ) | (54,341,003 | ) | ||||||
| Futures contracts |
— | (165,994 | ) | — | ||||||||
| Translation of assets and liabilities in foreign currencies |
(14,602 | ) | 56,839 | 11,751 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
(395,833,750 | ) | (245,000,348 | ) | (54,329,252 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain (loss) |
(102,354,036 | ) | (235,192,314 | ) | 4,506,515 | |||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (89,009,871 | ) | $ | (182,622,516 | ) | $ | 20,080,937 | ||||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $5,756,996, $13,501,070 and $2,138,712, respectively. |
| b | Net of foreign tax paid of $1,583,232. |
See notes to financial statements.
| FINANCIAL STATEMENTS |
65 |
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, 2012 |
Year ended August 31, 2011 |
Year ended August 31, 2012 |
Year ended August 31, 2011 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 121,314,624 | $ | 118,543,422 | $ | 57,045,268 | $ | 45,630,453 | ||||||||
| Net realized gain (loss) |
(146,353 | ) | 106,704,629 | (96,172,080 | ) | 84,133,431 | ||||||||||
| Net change in unrealized appreciation/depreciation |
(124,678,562 | ) | 256,987,740 | 77,291,953 | 91,543,565 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
(3,510,291 | ) | 482,235,791 | 38,165,141 | 221,307,449 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(127,985,295 | ) | (126,555,555 | ) | (55,827,349 | ) | (46,031,342 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(127,985,295 | ) | (126,555,555 | ) | (55,827,349 | ) | (46,031,342 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
379,920,871 | 1,069,986,680 | 1,187,272,846 | 712,651,212 | ||||||||||||
| Cost of shares redeemed |
(845,151,157 | ) | (532,059,432 | ) | (911,618,933 | ) | (1,256,261,691 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
(465,230,286 | ) | 537,927,248 | 275,653,913 | (543,610,479 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
(596,725,872 | ) | 893,607,484 | 257,991,705 | (368,334,372 | ) | ||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
3,090,424,628 | 2,196,817,144 | 1,607,982,452 | 1,976,316,824 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 2,493,698,756 | $ | 3,090,424,628 | $ | 1,865,974,157 | $ | 1,607,982,452 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed net investment income included in net assets at end of year |
$ | 15,190,680 | $ | 18,032,011 | $ | 4,985,539 | $ | 3,722,047 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
16,400,000 | 43,800,000 | 73,350,000 | 37,275,000 | ||||||||||||
| Shares redeemed |
(37,600,000 | ) | (21,000,000 | ) | (54,600,000 | ) | (69,225,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
(21,200,000 | ) | 22,800,000 | 18,750,000 | (31,950,000 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| 66 | 2012 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, 2012 |
Year ended August 31, 2011 |
Year ended August 31, 2012 |
Year ended August 31, 2011 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 1,024,054 | $ | 901,280 | $ | 24,520,962 | $ | 28,277,199 | ||||||||
| Net realized gain (loss) |
2,654,100 | 1,510,649 | (3,123,398 | ) | 8,082,452 | |||||||||||
| Net change in unrealized appreciation/depreciation |
(8,078,528 | ) | 5,914,053 | 42,688,241 | 41,299,342 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
(4,400,374 | ) | 8,325,982 | 64,085,805 | 77,658,993 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(1,368,220 | ) | (1,015,659 | ) | (32,637,576 | ) | (26,214,422 | ) | ||||||||
| Return of capital |
— | — | (1,278,099 | ) | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(1,368,220 | ) | (1,015,659 | ) | (33,915,675 | ) | (26,214,422 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
4,249,057 | 39,895,589 | 102,342,503 | 475,718,489 | ||||||||||||
| Cost of shares redeemed |
(30,050,195 | ) | (9,483,428 | ) | (174,222,658 | ) | (342,902,968 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
(25,801,138 | ) | 30,412,161 | (71,880,155 | ) | 132,815,521 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
(31,569,732 | ) | 37,722,484 | (41,710,025 | ) | 184,260,092 | ||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
74,386,797 | 36,664,313 | 978,402,282 | 794,142,190 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 42,817,065 | $ | 74,386,797 | $ | 936,692,257 | $ | 978,402,282 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of year |
$ | 41,015 | $ | (75,439 | ) | $ | — | $ | 4,891,859 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
100,000 | 900,000 | 7,275,000 | 32,925,000 | ||||||||||||
| Shares redeemed |
(700,000 | ) | (200,000 | ) | (13,050,000 | ) | (23,850,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
(600,000 | ) | 700,000 | (5,775,000 | ) | 9,075,000 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| FINANCIAL STATEMENTS |
67 |
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, 2012 |
Year ended August 31, 2011 |
Year ended August 31, 2012 |
Year ended August 31, 2011 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 134,564,204 | $ | 142,331,398 | $ | 48,620,016 | $ | 66,235,936 | ||||||||
| Net realized gain |
19,498,306 | 289,132,578 | 5,615,906 | 117,167,420 | ||||||||||||
| Net change in unrealized appreciation/depreciation |
(127,950,024 | ) | 183,180,135 | (25,799,426 | ) | 18,189,273 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase in net assets resulting from operations |
26,112,486 | 614,644,111 | 28,436,496 | 201,592,629 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(141,521,654 | ) | (153,265,871 | ) | (55,248,494 | ) | (74,873,803 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(141,521,654 | ) | (153,265,871 | ) | (55,248,494 | ) | (74,873,803 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
77,411,532 | 433,392,558 | 109,538,489 | 315,210,889 | ||||||||||||
| Cost of shares redeemed |
(322,287,900 | ) | (784,052,063 | ) | (283,239,248 | ) | (458,731,234 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net decrease in net assets from capital share transactions |
(244,876,368 | ) | (350,659,505 | ) | (173,700,759 | ) | (143,520,345 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
(360,285,536 | ) | 110,718,735 | (200,512,757 | ) | (16,801,519 | ) | |||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
3,548,867,405 | 3,438,148,670 | 1,713,199,264 | 1,730,000,783 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 3,188,581,869 | $ | 3,548,867,405 | $ | 1,512,686,507 | $ | 1,713,199,264 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed net investment income included in net assets at end of year |
$ | 8,784,423 | $ | 12,091,695 | $ | 4,917,504 | $ | 8,735,601 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
1,800,000 | 9,300,000 | 8,600,000 | 23,500,000 | ||||||||||||
| Shares redeemed |
(7,800,000 | ) | (17,100,000 | ) | (24,400,000 | ) | (34,300,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net decrease in shares outstanding |
(6,000,000 | ) | (7,800,000 | ) | (15,800,000 | ) | (10,800,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| 68 | 2012 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, 2012 |
Year ended August 31, 2011 |
Year ended August 31, 2012 |
Year ended August 31, 2011 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 13,344,165 | $ | 21,371,322 | $ | 52,569,798 | $ | 86,901,644 | ||||||||
| Net realized gain (loss) |
293,479,714 | (60,197,500 | ) | 9,808,034 | (8,104,404 | ) | ||||||||||
| Net change in unrealized appreciation/depreciation |
(395,833,750 | ) | 635,977,653 | (245,000,348 | ) | 293,449,652 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
(89,009,871 | ) | 597,151,475 | (182,622,516 | ) | 372,246,892 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(21,597,221 | ) | (31,827,218 | ) | (88,700,282 | ) | (61,236,384 | ) | ||||||||
| Return of capital |
— | (4,789,805 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(21,597,221 | ) | (36,617,023 | ) | (88,700,282 | ) | (61,236,384 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
128,924,534 | 805,031,141 | 381,912,612 | 504,845,705 | ||||||||||||
| Cost of shares redeemed |
(1,419,990,818 | ) | (549,508,621 | ) | (720,973,706 | ) | (679,782,864 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
(1,291,066,284 | ) | 255,522,520 | (339,061,094 | ) | (174,937,159 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
(1,401,673,376 | ) | 816,056,972 | (610,383,892 | ) | 136,073,349 | ||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
4,071,224,591 | 3,255,167,619 | 2,857,511,882 | 2,721,438,533 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 2,669,551,215 | $ | 4,071,224,591 | $ | 2,247,127,990 | $ | 2,857,511,882 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of year |
$ | (8,724,136 | ) | $ | (13,854,595 | ) | $ | 49,800,550 | $ | 84,856,114 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
2,350,000 | 13,050,000 | 30,600,000 | 33,200,000 | ||||||||||||
| Shares redeemed |
(26,400,000 | ) | (9,450,000 | ) | (59,400,000 | ) | (49,000,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
(24,050,000 | ) | 3,600,000 | (28,800,000 | ) | (15,800,000 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| FINANCIAL STATEMENTS |
69 |
Table of Contents
Statements of Changes in Net Assets (Continued)
iSHARES®, INC.
| iShares MSCI Thailand Investable Market Index Fund |
||||||||
| Year ended August 31, 2012 |
Year ended August 31, 2011 |
|||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||
| OPERATIONS: |
||||||||
| Net investment income |
$ | 15,574,422 | $ | 16,617,847 | ||||
| Net realized gain |
58,835,767 | 84,255,527 | ||||||
| Net change in unrealized appreciation/depreciation |
(54,329,252 | ) | 9,058,953 | |||||
|
|
|
|
|
|||||
| Net increase in net assets resulting from operations |
20,080,937 | 109,932,327 | ||||||
|
|
|
|
|
|||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||
| From net investment income |
(15,932,327 | ) | (15,281,425 | ) | ||||
|
|
|
|
|
|||||
| Total distributions to shareholders |
(15,932,327 | ) | (15,281,425 | ) | ||||
|
|
|
|
|
|||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||
| Proceeds from shares sold |
364,124,479 | 335,427,814 | ||||||
| Cost of shares redeemed |
(405,145,323 | ) | (317,542,787 | ) | ||||
|
|
|
|
|
|||||
| Net increase (decrease) in net assets from capital share transactions |
(41,020,844 | ) | 17,885,027 | |||||
|
|
|
|
|
|||||
| INCREASE (DECREASE) IN NET ASSETS |
(36,872,234 | ) | 112,535,929 | |||||
| NET ASSETS |
||||||||
| Beginning of year |
632,839,734 | 520,303,805 | ||||||
|
|
|
|
|
|||||
| End of year |
$ | 595,967,500 | $ | 632,839,734 | ||||
|
|
|
|
|
|||||
| Undistributed net investment income included in net assets at end of year |
$ | 2,546,326 | $ | 3,277,303 | ||||
|
|
|
|
|
|||||
| SHARES ISSUED AND REDEEMED |
||||||||
| Shares sold |
5,250,000 | 5,150,000 | ||||||
| Shares redeemed |
(6,350,000 | ) | (5,050,000 | ) | ||||
|
|
|
|
|
|||||
| Net increase (decrease) in shares outstanding |
(1,100,000 | ) | 100,000 | |||||
|
|
|
|
|
|||||
See notes to financial statements.
| 70 | 2012 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, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 24.18 | $ | 20.92 | $ | 20.33 | $ | 23.96 | $ | 27.62 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
1.04 | 0.99 | 0.72 | 0.78 | 0.96 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
(0.72 | ) | 3.33 | 0.69 | (3.47 | ) | (3.34 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
0.32 | 4.32 | 1.41 | (2.69 | ) | (2.38 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(1.11 | ) | (1.06 | ) | (0.82 | ) | (0.94 | ) | (1.28 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(1.11 | ) | (1.06 | ) | (0.82 | ) | (0.94 | ) | (1.28 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 23.39 | $ | 24.18 | $ | 20.92 | $ | 20.33 | $ | 23.96 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
1.84 | % | 20.54 | % | 6.86 | % | (8.91 | )% | (9.25 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 2,493,699 | $ | 3,090,425 | $ | 2,196,817 | $ | 1,593,676 | $ | 1,059,092 | ||||||||||
| Ratio of expenses to average net assets |
0.53 | % | 0.52 | % | 0.53 | % | 0.55 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
4.61 | % | 3.95 | % | 3.24 | % | 4.92 | % | 3.38 | % | ||||||||||
| Portfolio turnover ratec |
9 | % | 9 | % | 8 | % | 14 | % | 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 |
71 |
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, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 17.59 | $ | 16.02 | $ | 14.39 | $ | 15.87 | $ | 18.30 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.54 | 0.42 | 0.42 | 0.52 | 0.45 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
(0.65 | ) | 1.56 | 1.69 | (1.46 | ) | (2.25 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(0.11 | ) | 1.98 | 2.11 | (0.94 | ) | (1.80 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.54 | ) | (0.41 | ) | (0.48 | ) | (0.54 | ) | (0.63 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.54 | ) | (0.41 | ) | (0.48 | ) | (0.54 | ) | (0.63 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 16.94 | $ | 17.59 | $ | 16.02 | $ | 14.39 | $ | 15.87 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(0.33 | )% | 12.27 | % | 14.85 | % | (4.77 | )% | (10.54 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 1,865,974 | $ | 1,607,982 | $ | 1,976,317 | $ | 1,951,777 | $ | 1,675,184 | ||||||||||
| Ratio of expenses to average net assets |
0.53 | % | 0.52 | % | 0.53 | % | 0.55 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.26 | % | 2.25 | % | 2.67 | % | 4.29 | % | 2.34 | % | ||||||||||
| Portfolio turnover ratec |
11 | % | 15 | % | 5 | % | 9 | % | 17 | % | ||||||||||
| 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.
| 72 | 2012 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, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Period from to |
||||||||||||||||
| Net asset value, beginning of period |
$ | 46.49 | $ | 40.74 | $ | 44.45 | $ | 43.24 | $ | 48.85 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomeb |
0.82 | 0.78 | 0.61 | 0.60 | 0.29 | |||||||||||||||
| Net realized and unrealized gain (loss)c |
(3.25 | ) | 5.87 | (3.39 | ) | 1.29 | (5.74 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(2.43 | ) | 6.65 | (2.78 | ) | 1.89 | (5.45 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(1.24 | ) | (0.90 | ) | (0.93 | ) | (0.68 | ) | (0.16 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(1.24 | ) | (0.90 | ) | (0.93 | ) | (0.68 | ) | (0.16 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of period |
$ | 42.82 | $ | 46.49 | $ | 40.74 | $ | 44.45 | $ | 43.24 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(5.18 | )% | 16.38 | % | (6.25 | )% | 4.62 | % | (11.19 | )%d | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of period (000s) |
$ | 42,817 | $ | 74,387 | $ | 36,664 | $ | 35,556 | $ | 34,594 | ||||||||||
| Ratio of expenses to average net assetse |
0.53 | % | 0.51 | % | 0.53 | % | 0.56 | % | 0.53 | % | ||||||||||
| Ratio of net investment income to average net assetse |
1.84 | % | 1.72 | % | 1.46 | % | 1.59 | % | 0.93 | % | ||||||||||
| Portfolio turnover ratef |
7 | % | 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 |
73 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Malaysia Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 13.92 | $ | 12.98 | $ | 9.79 | $ | 9.39 | $ | 10.97 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.38 | 0.41 | 0.24 | 0.28 | 0.34 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
0.76 | 0.92 | 3.20 | 0.40 | (1.31 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
1.14 | 1.33 | 3.44 | 0.68 | (0.97 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.52 | ) | (0.39 | ) | (0.25 | ) | (0.28 | ) | (0.61 | ) | ||||||||||
| Return of capital |
(0.02 | ) | — | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.54 | ) | (0.39 | ) | (0.25 | ) | (0.28 | ) | (0.61 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 14.52 | $ | 13.92 | $ | 12.98 | $ | 9.79 | $ | 9.39 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
8.61 | % | 10.19 | % | 35.76 | % | 8.00 | % | (9.86 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 936,692 | $ | 978,402 | $ | 794,142 | $ | 513,000 | $ | 473,091 | ||||||||||
| Ratio of expenses to average net assets |
0.53 | % | 0.52 | % | 0.53 | % | 0.56 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
2.73 | % | 2.84 | % | 2.17 | % | 3.45 | % | 2.84 | % | ||||||||||
| Portfolio turnover ratec |
24 | % | 49 | % | 29 | % | 52 | % | 92 | % | ||||||||||
| 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 the years ended August 31, 2012, August 31, 2011, August 31, 2010, August 31, 2009 and August 31, 2008 would have been 14%,14%, 10%, 12% and 16%, respectively. See Note 4. |
See notes to financial statements.
| 74 | 2012 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, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008a |
||||||||||||||||
| Net asset value, beginning of year |
$ | 44.47 | $ | 39.25 | $ | 36.85 | $ | 41.37 | $ | 48.31 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomeb |
1.73 | 1.64 | 1.25 | 1.38 | 1.64 | |||||||||||||||
| Net realized and unrealized gain (loss)c |
(1.14 | ) | 5.31 | 2.52 | (4.79 | ) | (6.01 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
0.59 | 6.95 | 3.77 | (3.41 | ) | (4.37 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(1.85 | ) | (1.73 | ) | (1.37 | ) | (1.11 | ) | (2.51 | ) | ||||||||||
| Net realized gain |
— | — | — | — | (0.06 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(1.85 | ) | (1.73 | ) | (1.37 | ) | (1.11 | ) | (2.57 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 43.21 | $ | 44.47 | $ | 39.25 | $ | 36.85 | $ | 41.37 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
1.82 | % | 17.61 | % | 10.27 | % | (7.23 | )% | (9.87 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 3,188,582 | $ | 3,548,867 | $ | 3,438,149 | $ | 3,382,554 | $ | 3,263,971 | ||||||||||
| 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 |
4.16 | % | 3.53 | % | 3.09 | % | 4.83 | % | 3.35 | % | ||||||||||
| Portfolio turnover rated |
7 | % | 10 | % | 7 | % | 10 | % | 14 | % | ||||||||||
| 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 |
75 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Singapore Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 13.05 | $ | 12.17 | $ | 10.25 | $ | 11.44 | $ | 13.28 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.41 | 0.45 | 0.32 | 0.32 | 0.47 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
0.11 | 0.92 | 1.97 | (1.16 | ) | (1.67 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
0.52 | 1.37 | 2.29 | (0.84 | ) | (1.20 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.47 | ) | (0.49 | ) | (0.37 | ) | (0.35 | ) | (0.64 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.47 | ) | (0.49 | ) | (0.37 | ) | (0.35 | ) | (0.64 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 13.10 | $ | 13.05 | $ | 12.17 | $ | 10.25 | $ | 11.44 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
4.67 | % | 11.27 | % | 22.68 | % | (5.87 | )% | (9.55 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 1,512,687 | $ | 1,713,199 | $ | 1,730,001 | $ | 1,294,039 | $ | 1,476,968 | ||||||||||
| Ratio of expenses to average net assets |
0.53 | % | 0.52 | % | 0.53 | % | 0.55 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.32 | % | 3.34 | % | 2.80 | % | 3.97 | % | 3.56 | % | ||||||||||
| Portfolio turnover ratec |
3 | % | 10 | % | 9 | % | 15 | % | 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 | 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 | 2012 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, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 56.74 | $ | 47.76 | $ | 42.01 | $ | 43.55 | $ | 63.60 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.23 | 0.29 | 0.32 | 0.30 | 0.80 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
(0.63 | ) | 9.19 | 5.82 | (1.45 | ) | (19.87 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(0.40 | ) | 9.48 | 6.14 | (1.15 | ) | (19.07 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.37 | ) | (0.43 | ) | (0.39 | ) | (0.39 | ) | (0.98 | ) | ||||||||||
| Return of capital |
— | (0.07 | ) | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.37 | ) | (0.50 | ) | (0.39 | ) | (0.39 | ) | (0.98 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 55.97 | $ | 56.74 | $ | 47.76 | $ | 42.01 | $ | 43.55 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(0.62 | )% | 19.76 | % | 14.65 | % | (2.31 | )% | (30.35 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 2,669,551 | $ | 4,071,225 | $ | 3,255,168 | $ | 2,398,550 | $ | 1,985,763 | ||||||||||
| Ratio of expenses to average net assetsc |
0.61 | % | 0.59 | % | 0.61 | % | 0.65 | % | 0.63 | % | ||||||||||
| Ratio of net investment income to average net assets |
0.42 | % | 0.49 | % | 0.67 | % | 0.91 | % | 1.35 | % | ||||||||||
| Portfolio turnover rated |
12 | % | 18 | % | 14 | % | 62 | % | 42 | % | ||||||||||
| 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 the years ended August 31, 2010 and prior have been recalculated, as necessary, to conform with the current 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, 2012, August 31, 2011, August 31, 2010, August 31, 2009 and August 31, 2008 would have been 8%, 6%, 6%, 8% and 15%, respectively. See Note 4. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS |
77 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Taiwan Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 13.78 | $ | 12.19 | $ | 10.94 | $ | 13.13 | $ | 15.99 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.28 | 0.39 | 0.23 | 0.30 | 0.54 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
(1.01 | ) | 1.49 | 1.23 | (1.89 | ) | (3.01 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(0.73 | ) | 1.88 | 1.46 | (1.59 | ) | (2.47 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.47 | ) | (0.29 | ) | (0.21 | ) | (0.60 | ) | (0.39 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.47 | ) | (0.29 | ) | (0.21 | ) | (0.60 | ) | (0.39 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 12.58 | $ | 13.78 | $ | 12.19 | $ | 10.94 | $ | 13.13 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(4.80 | )% | 15.24 | % | 13.30 | % | (9.67 | )% | (15.69 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 2,247,128 | $ | 2,857,512 | $ | 2,721,439 | $ | 3,035,331 | $ | 2,918,008 | ||||||||||
| Ratio of expenses to average net assetsc |
0.61 | % | 0.59 | % | 0.61 | % | 0.65 | % | 0.63 | % | ||||||||||
| Ratio of net investment income to average net assets |
2.25 | % | 2.64 | % | 1.90 | % | 3.18 | % | 3.54 | % | ||||||||||
| Portfolio turnover rated |
22 | % | 23 | % | 9 | % | 52 | % | 33 | % | ||||||||||
| 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 the years ended August 31, 2010 and prior have been recalculated, as necessary, to conform with the current 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, 2012, August 31, 2011, August 31, 2010, August 31, 2009 and August 31, 2008 would have been 7%, 8%, 4%, 14% and 11%, respectively. See Note 4. |
See notes to financial statements.
| 78 | 2012 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, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Period from to Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of period |
$ | 66.27 | $ | 55.06 | $ | 36.87 | $ | 38.83 | $ | 50.03 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomeb |
1.76 | 1.65 | 1.44 | 1.17 | 0.32 | |||||||||||||||
| Net realized and unrealized gain (loss)c |
4.37 | 11.10 | 17.95 | (1.88 | ) | (11.52 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
6.13 | 12.75 | 19.39 | (0.71 | ) | (11.20 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(1.87 | ) | (1.54 | ) | (1.20 | ) | (1.25 | ) | 0.00 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(1.87 | ) | (1.54 | ) | (1.20 | ) | (1.25 | ) | 0.00 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of period |
$ | 70.53 | $ | 66.27 | $ | 55.06 | $ | 36.87 | $ | 38.83 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
9.57 | % | 23.33 | % | 53.19 | % | (0.33 | )% | (22.39 | )%d | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of period (000s) |
$ | 595,968 | $ | 632,840 | $ | 520,304 | $ | 94,021 | $ | 58,248 | ||||||||||
| Ratio of expenses to average net assetse,f |
0.61 | % | 0.59 | % | 0.61 | % | 0.65 | % | 0.63 | % | ||||||||||
| Ratio of net investment income to average net assetse |
2.66 | % | 2.56 | % | 3.22 | % | 4.00 | % | 1.68 | % | ||||||||||
| Portfolio turnover rateg |
12 | % | 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 the years ended August 31, 2010 and prior have been recalculated, as necessary, to conform with the current 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 |
79 |
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,” and 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 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.
| 80 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
SECURITY VALUATION
Each Fund’s investments are valued at fair value each day that the Fund’s listing exchange is open. U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) provides oversight of the valuation of investments for the Funds. The investments of each Fund are valued pursuant to policies and procedures developed by the Global Valuation Committee and approved by the Board of Directors of the Company (the “Board”).
| • | Equity investments traded on a recognized securities exchange are valued at that day’s last reported trade price or the official closing price, as applicable, on the exchange where the stock is primarily traded. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last traded price. |
| • | Open-end U.S. mutual funds are valued at that day’s published net asset value (NAV). |
| • | Financial futures contracts are valued at that day’s last reported settlement price on the exchange where the contract is traded. |
In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the fair value of such investment or if a price is not available, the investment will be valued based upon other available factors deemed relevant by the Global Valuation Committee, in accordance with policies approved by the Board. These factors include but are not limited to (i) attributes specific to the investment; (ii) the principal market for the investment; (iii) the customary participants in the principal market for the investment; (iv) data assumptions by market participants for the investment, if reasonably available; (v) quoted prices for similar investments in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and/or other default rates. Valuations based on such factors are reported to the Board on a quarterly basis.
The Global Valuation Committee employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Company’s pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values, and reviews of market related activity.
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.
Various inputs are used in determining the fair value of financial instruments. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting purposes. 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. The three levels of the fair value hierarchy are as follows:
| • | Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities; |
| • | 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 |
| NOTES TO FINANCIAL STATEMENTS |
81 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| (such as exchange rates, financing terms, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs; and |
| • | Level 3 — Unobservable inputs for the asset or liability, including the Funds’ assumptions used in determining the fair value of investments. |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. In accordance with the Company’s policy, transfers between different levels of the fair value hierarchy are deemed to have occurred as of the beginning of the reporting period.
The following table summarizes the value of each of the Funds’ investments according to the fair value hierarchy as of August 31, 2012. The breakdown of each Fund’s investments into major categories is disclosed in its respective Schedule of Investments.
| iShares MSCI Index Fund and
|
Investments | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Australia |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 2,465,102,887 | $ | — | $ | 2,381 | $ | 2,465,105,268 | ||||||||
| Short-Term Investments |
12,648,879 | — | — | 12,648,879 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 2,477,751,766 | $ | — | $ | 2,381 | $ | 2,477,754,147 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities: |
||||||||||||||||
| Futures Contractsa |
$ | (50,019 | ) | $ | — | $ | — | $ | (50,019 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | (50,019 | ) | $ | — | $ | — | $ | (50,019 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Hong Kong |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 1,858,900,656 | $ | — | $ | — | $ | 1,858,900,656 | ||||||||
| Short-Term Investments |
158,396,172 | — | — | 158,396,172 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 2,017,296,828 | $ | — | $ | — | $ | 2,017,296,828 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities: |
||||||||||||||||
| Futures Contractsa |
$ | (23,375 | ) | $ | — | $ | — | $ | (23,375 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | (23,375 | ) | $ | — | $ | — | $ | (23,375 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Japan Small Cap |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 42,634,224 | $ | — | $ | — | $ | 42,634,224 | ||||||||
| Short-Term Investments |
899,408 | — | — | 899,408 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 43,533,632 | $ | — | $ | — | $ | 43,533,632 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 82 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund and
|
Investments | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Malaysia |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 934,610,659 | $ | — | $ | — | $ | 934,610,659 | ||||||||
| Short-Term Investments |
131,852 | — | — | 131,852 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 934,742,511 | $ | — | $ | — | $ | 934,742,511 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Pacific ex-Japan |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 3,161,172,276 | $ | — | $ | 3,404 | $ | 3,161,175,680 | ||||||||
| Short-Term Investments |
93,110,554 | — | — | 93,110,554 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 3,254,282,830 | $ | — | $ | 3,404 | $ | 3,254,286,234 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Singapore |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 1,503,087,557 | $ | — | $ | — | $ | 1,503,087,557 | ||||||||
| Short-Term Investments |
93,739,331 | — | — | 93,739,331 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 1,596,826,888 | $ | — | $ | — | $ | 1,596,826,888 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities: |
||||||||||||||||
| Futures Contractsa |
$ | (43,899 | ) | $ | — | $ | — | $ | (43,899 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | (43,899 | ) | $ | — | $ | — | $ | (43,899 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| South Korea |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 2,579,108,995 | $ | 18,289,151 | $ | — | $ | 2,597,398,146 | ||||||||
| Preferred Stocks |
68,629,931 | — | — | 68,629,931 | ||||||||||||
| Short-Term Investments |
167,219,822 | — | — | 167,219,822 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 2,814,958,748 | $ | 18,289,151 | $ | — | $ | 2,833,247,899 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Taiwan |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 2,222,571,412 | $ | — | $ | 23 | $ | 2,222,571,435 | ||||||||
| Short-Term Investments |
217,891,495 | — | — | 217,891,495 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 2,440,462,907 | $ | — | $ | 23 | $ | 2,440,462,930 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities: |
||||||||||||||||
| Futures Contractsa |
$ | (165,994 | ) | $ | — | $ | — | $ | (165,994 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | (165,994 | ) | $ | — | $ | — | $ | (165,994 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| NOTES TO FINANCIAL STATEMENTS |
83 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund and
|
Investments | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Thailand Investable Market |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 590,305,913 | $ | — | $ | — | $ | 590,305,913 | ||||||||
| Rights |
— | 640,213 | — | 640,213 | ||||||||||||
| Warrants |
41,478 | — | — | 41,478 | ||||||||||||
| Short-Term Investments |
3,026,377 | — | — | 3,026,377 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 593,373,768 | $ | 640,213 | $ | — | $ | 594,013,981 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| a | Futures contracts are shown at the net unrealized appreciation (depreciation) on the contracts. |
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, 2012 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 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, 2012, if any, are disclosed in the Funds’ Statements of Assets and Liabilities.
| 84 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
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.
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.
| 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 billion | |
| 0.45 | Over $32 billion |
| NOTES TO FINANCIAL STATEMENTS |
85 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
Effective June 30, 2012, 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 Fund’s allocable portion of the aggregate of the average daily net assets (of the Fund and certain other iShares funds) up to $46 billion, and 0.475% on its allocable portion of the aggregate average daily net assets in excess of $46 billion. Prior to June 30, 2012, for its investment advisory services to the Fund, BFA was 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. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, and any fees or other payments to and from borrowers of securities. Each Fund retains 65% of securities lending income and pays a fee to BTC equal to 35% of such income. As securities lending agent, BTC is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BTC is also responsible for fees and expenses incurred by each Fund as a result of the investment of cash collateral received for securities on loan in a money market fund managed by BFA or an affiliate.
For the year ended August 31, 2012, BTC earned securities lending agent fees from the Funds as follows:
| iShares MSCI Index Fund | Securities Lending Agent Fees |
|||
| Australia |
$ | 38,799 | ||
| Hong Kong |
512,543 | |||
| Japan Small Cap |
12,059 | |||
| Pacific ex-Japan |
379,136 | |||
| Singapore |
388,961 | |||
| South Korea |
1,572,222 | |||
| Taiwan |
4,262,547 | |||
For the year ended August 31, 2012, BTC, the Funds’ securities lending agent, has agreed to voluntarily reimburse the iShares MSCI Taiwan Index Fund in the amount of $554,131, 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.
At a special meeting of the Board held on January 5, 2012, the directors approved a new distribution agreement with BlackRock Investments, LLC (“BRIL”). BRIL is an affiliate of BFA. Effective April 1, 2012, BRIL replaced SEI Investments Distribution Co. as the distributor for each Fund. Pursuant to the new distribution agreement, BFA is responsible for any fees or expenses for distribution services provided to the Funds.
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. is the largest stockholder of BlackRock and is considered to be an affiliate of the Funds for 1940 Act purposes.
Certain directors and officers of the Company are also officers of BTC and/or BFA.
| 86 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| 3. | INVESTMENT PORTFOLIO TRANSACTIONS |
Purchases and sales of investments (excluding in-kind transactions and short-term investments) for the year ended August 31, 2012 were as follows:
| iShares MSCI Index Fund | Purchases | Sales | ||||||
| Australia |
$ | 228,165,806 | $ | 239,802,176 | ||||
| Hong Kong |
187,763,455 | 449,391,802 | ||||||
| Japan Small Cap |
3,909,599 | 4,545,120 | ||||||
| Malaysia |
220,327,800 | 302,753,431 | ||||||
| Pacific ex-Japan |
240,859,953 | 250,147,455 | ||||||
| Singapore |
49,281,305 | 59,533,585 | ||||||
| South Korea |
368,959,624 | 1,669,395,008 | ||||||
| Taiwan |
524,453,959 | 895,776,143 | ||||||
| Thailand Investable Market |
100,753,794 | 68,160,848 | ||||||
In-kind transactions (see Note 4) for the year ended August 31, 2012 were as follows:
| iShares MSCI Index Fund | In-kind Purchases |
In-kind Sales |
||||||
| Australia |
$ | 378,325,886 | $ | 837,950,867 | ||||
| Hong Kong |
1,131,043,306 | 593,221,463 | ||||||
| Japan Small Cap |
4,210,481 | 29,714,377 | ||||||
| Pacific ex-Japan |
76,874,400 | 318,997,518 | ||||||
| Singapore |
105,638,187 | 274,316,584 | ||||||
| Thailand Investable Market |
325,386,319 | 400,624,037 | ||||||
| 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 a specified 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.
| NOTES TO FINANCIAL STATEMENTS |
87 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
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. Each Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the value of the cash collateral received.
As of August 31, 2012, 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, 2012 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, net of fees and other payments to and from borrowers, and less the fees paid to BTC as securities lending agent.
| 6. | INCOME TAX INFORMATION |
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of August 31, 2012, attributable to passive foreign investment companies, the expiration of capital loss carryforwards, distributions paid in excess of taxable income, foreign currency transactions and realized gains (losses) from in-kind redemptions, were reclassified to the following accounts:
| 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 |
$ | 27,415,134 | $ | 3,829,340 | $ | (31,244,474 | ) | |||||
| Hong Kong |
40,275,941 | 45,573 | (40,321,514 | ) | ||||||||
| Japan Small Cap |
2,638,813 | 460,620 | (3,099,433 | ) | ||||||||
| Malaysia |
(2,953,935 | ) | 3,224,755 | (270,820 | ) | |||||||
| Pacific ex-Japan |
85,551,430 | 3,650,178 | (89,201,608 | ) | ||||||||
| Singapore |
13,995,745 | 2,810,381 | (16,806,126 | ) | ||||||||
| South Korea |
(12,103,908 | ) | 13,383,515 | (1,279,607 | ) | |||||||
| Taiwan |
(9,129,874 | ) | 1,074,920 | 8,054,954 | ||||||||
| Thailand Investable Market |
67,721,779 | (373,072 | ) | (67,348,707 | ) | |||||||
| 88 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
The tax character of distributions paid during the years ended August 31, 2012 and August 31, 2011 was as follows:
| iShares MSCI Index Fund | 2012 | 2011 | ||||||
| Australia |
||||||||
| Ordinary income |
$ | 127,985,295 | $ | 126,555,555 | ||||
|
|
|
|
|
|||||
| Hong Kong |
||||||||
| Ordinary income |
$ | 55,827,349 | $ | 46,031,342 | ||||
|
|
|
|
|
|||||
| Japan Small Cap |
||||||||
| Ordinary income |
$ | 1,368,220 | $ | 1,015,659 | ||||
|
|
|
|
|
|||||
| Malaysia |
||||||||
| Ordinary income |
$ | 32,637,576 | $ | 26,214,422 | ||||
| Return of capital |
1,278,099 | — | ||||||
|
|
|
|
|
|||||
| $ | 33,915,675 | $ | 26,214,422 | |||||
|
|
|
|
|
|||||
| Pacific ex-Japan |
||||||||
| Ordinary income |
$ | 141,521,654 | $ | 153,265,871 | ||||
|
|
|
|
|
|||||
| Singapore |
||||||||
| Ordinary income |
$ | 55,248,494 | $ | 74,873,803 | ||||
|
|
|
|
|
|||||
| South Korea |
||||||||
| Ordinary income |
$ | 21,597,221 | $ | 31,827,218 | ||||
| Return of capital |
— | 4,789,805 | ||||||
|
|
|
|
|
|||||
| $ | 21,597,221 | $ | 36,617,023 | |||||
|
|
|
|
|
|||||
| Taiwan |
||||||||
| Ordinary income |
$ | 88,700,282 | $ | 61,236,384 | ||||
|
|
|
|
|
|||||
| Thailand Investable Market |
||||||||
| Ordinary income |
$ | 15,932,327 | $ | 15,281,425 | ||||
|
|
|
|
|
|||||
| NOTES TO FINANCIAL STATEMENTS |
89 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
As of August 31, 2012, the tax components of accumulated net earnings (losses) were as follows:
| iShares MSCI Index Fund | Undistributed Ordinary Income |
Capital Loss Carryforwards |
Net Unrealized Gains (Losses)a |
Qualified Late-Year Lossesb |
Total | |||||||||||||||
| Australia |
$ | 35,171,363 | $ | (83,748,394 | ) | $ | (180,103,003 | ) | $ | (41,307,980 | ) | $ | (269,988,014 | ) | ||||||
| Hong Kong |
4,985,539 | (221,631,319 | ) | (146,622,533 | ) | (97,238,448 | ) | (460,506,761 | ) | |||||||||||
| Japan Small Cap |
316,645 | (1,363,321 | ) | (5,892,555 | ) | (424,024 | ) | (7,363,255 | ) | |||||||||||
| Malaysia |
— | (39,171,645 | ) | 398,019,062 | (3,664,697 | ) | 355,182,720 | |||||||||||||
| Pacific ex-Japan |
38,415,218 | (266,976,532 | ) | 233,952,896 | (77,177,062 | ) | (71,785,480 | ) | ||||||||||||
| Singapore |
19,173,778 | (175,729,472 | ) | 55,179,811 | (18,413,465 | ) | (119,789,348 | ) | ||||||||||||
| South Korea |
— | (366,086,322 | ) | 951,755,831 | (26,946,828 | ) | 558,722,681 | |||||||||||||
| Taiwan |
52,224,425 | (839,147,106 | ) | 529,053,835 | (23,751,530 | ) | (281,620,376 | ) | ||||||||||||
| Thailand Investable Market |
2,546,326 | (6,554,963 | ) | 10,400,363 | (3,452,237 | ) | 2,939,489 | |||||||||||||
| a | The difference between book-basis and tax-basis unrealized gains (losses) was 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. |
| b | The Funds have elected to defer certain qualified late-year losses and recognize such losses in the year ending August 31, 2013. |
As of August 31, 2012, the Funds had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:
| iShares MSCI Index Fund | Non- Expiringa |
Expiring 2013 |
Expiring 2014 |
Expiring 2015 |
Expiring 2016 |
Expiring 2017 |
Expiring 2018 |
Expiring 2019 |
Total | |||||||||||||||||||||||||||
| Australia |
$ | 23,345,303 | $ | 384,424 | $ | — | $ | 7,066 | $ | 529,868 | $ | 24,006,125 | $ | 23,348,244 | $ | 12,127,364 | $ | 83,748,394 | ||||||||||||||||||
| Hong Kong |
36,014,089 | 468,716 | 425,440 | 2,899,247 | 3,185,408 | 29,235,556 | 114,836,904 | 34,565,959 | 221,631,319 | |||||||||||||||||||||||||||
| Japan Small Cap |
486,584 | — | — | — | — | 131,718 | 541,322 | 203,697 | 1,363,321 | |||||||||||||||||||||||||||
| Malaysia |
— | — | — | — | — | 39,171,645 | — | — | 39,171,645 | |||||||||||||||||||||||||||
| Pacific ex-Japan |
59,368,214 | — | — | — | — | 66,207,828 | 104,799,503 | 36,600,987 | 266,976,532 | |||||||||||||||||||||||||||
| Singapore |
12,674,147 | 2,558,348 | — | — | 807,115 | 15,680,510 | 132,420,824 | 11,588,528 | 175,729,472 | |||||||||||||||||||||||||||
| South Korea |
— | — | — | — | — | 60,990,953 | 226,591,665 | 78,503,704 | 366,086,322 | |||||||||||||||||||||||||||
| Taiwan |
4,857,121 | 12,022,719 | 14,435,986 | 64,999,586 | 16,734,578 | 343,375,145 | 363,052,013 | 19,669,958 | 839,147,106 | |||||||||||||||||||||||||||
| Thailand Investable Market |
2,373,181 | — | — | — | — | 555,444 | 2,321,428 | 1,304,910 | 6,554,963 | |||||||||||||||||||||||||||
| a | Must be utilized prior to losses subject to expiration. |
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.
For the year ended August 31, 2012, the Funds utilized their capital loss carryforwards as follows:
| iShares MSCI Index Fund | Utilized | |||
| Malaysia |
$ | 2,953,935 | ||
| South Korea |
174,121,897 | |||
| 90 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
As of August 31, 2012, 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 |
$ | 2,657,584,305 | 177,500,015 | (357,330,173 | ) | $ | (179,830,158 | ) | ||||||||
| Hong Kong |
2,163,896,257 | 102,798,102 | (249,397,531 | ) | (146,599,429 | ) | ||||||||||
| Japan Small Cap |
49,427,257 | 3,270,759 | (9,164,384 | ) | (5,893,625 | ) | ||||||||||
| Malaysia |
536,710,454 | 448,603,463 | (50,571,406 | ) | 398,032,057 | |||||||||||
| Pacific ex-Japan |
3,020,166,055 | 569,050,520 | (334,930,341 | ) | 234,120,179 | |||||||||||
| Singapore |
1,541,630,055 | 201,081,698 | (145,884,865 | ) | 55,196,833 | |||||||||||
| South Korea |
1,881,477,700 | 1,461,874,526 | (510,104,327 | ) | 951,770,199 | |||||||||||
| Taiwan |
1,911,250,219 | 795,694,640 | (266,481,929 | ) | 529,212,711 | |||||||||||
| Thailand Investable Market |
583,616,122 | 60,016,559 | (49,618,700 | ) | 10,397,859 | |||||||||||
Management has reviewed the tax positions as of August 31, 2012, inclusive of the open tax return years, and has determined that no provision for income tax is required in the Funds’ financial statements.
| 7. | FINANCIAL FUTURES CONTRACTS |
Each Fund may purchase or sell financial futures contracts in an effort to help such Fund track its underlying index. A futures contract is a standardized, exchange-traded agreement to buy and sell a financial instrument at a set price on a future date. Upon entering into a futures contract, the Fund is required to pledge to the executing broker which holds segregated from its own assets, an amount of cash, U.S. government securities or other high-quality debt and equity securities equal to the minimum initial margin requirements of the exchange on which the contract is traded. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as margin variation and are recorded by the Fund as unrealized appreciation or depreciation. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Losses may arise if the value of a futures contract decreases due to an unfavorable change in the market rates or values of the underlying instrument during the term of the contract or if the counterparty does not perform under the contract. The use of futures contracts also involves the risk of an imperfect correlation in the movements in the price of futures contracts and the assets underlying such contracts.
| NOTES TO FINANCIAL STATEMENTS |
91 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
The following table shows the value of futures contracts held as of August 31, 2012 and the related locations in the Statements of Assets and Liabilities, presented by risk exposure category:
| Liabilities | ||||||||||||||||
| iShares MSCI Australia Index Fund |
iShares MSCI Hong Kong Index Fund |
iShares MSCI Singapore Index Fund |
iShares MSCI Taiwan Index Fund |
|||||||||||||
| Equity contracts: |
||||||||||||||||
| Variation margin/Net assets consist of — net unrealized appreciation (depreciation)a |
$ | (50,019 | ) | $ | (23,375 | ) | $ | (43,899 | ) | $ | (165,994 | )b | ||||
|
|
|
|
|
|
|
|
|
|||||||||
| a | Represents cumulative depreciation of futures contracts as reported in the Schedules of Investments. |
| b | Only current day’s variation margin is reported in the Statement of Assets and Liabilities. |
The following table shows the realized and unrealized gains (losses) on futures contracts held during the year ended August 31, 2012 and the related locations in the Statements of Operations, presented by risk exposure category:
| Net Realized Gain (Loss) | ||||||||||||||||
| iShares MSCI Australia Index Fund |
iShares MSCI Hong Kong Index Fund |
iShares MSCI Singapore Index Fund |
iShares MSCI Taiwan Index Fund |
|||||||||||||
| Equity contracts: |
||||||||||||||||
| Futures contracts |
$ | (202 | ) | $ | (142 | ) | $ | 297,219 | $ | 1,589,034 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net Change in Unrealized Appreciation/Depreciation | ||||||||||||||||
| iShares MSCI Australia Index Fund |
iShares MSCI Hong Kong Index Fund |
iShares MSCI Singapore Index Fund |
iShares MSCI Taiwan Index Fund |
|||||||||||||
| Equity contracts: |
||||||||||||||||
| Futures contracts |
$ | (50,019 | ) | $ | (23,375 | ) | $ | (43,899 | ) | $ | (165,994 | ) | ||||
|
|
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|
|
|
|
|
|
|||||||||
| 92 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
The following table shows the average quarter-end balances of open futures contracts for the year ended August 31, 2012:
| iShares MSCI Australia Index Fund |
iShares MSCI Hong Kong Index Fund |
iShares MSCI Singapore Index Fund |
iShares MSCI Taiwan Index Fund |
|||||||||||||
| Average number of contracts purchased |
88 | 31 | 144 | 391 | ||||||||||||
| Average value of contracts purchased |
$ | 9,850,970 | $ | 3,820,650 | $ | 7,754,199 | $ | 10,220,095 | ||||||||
| 8. | 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 |
93 |
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 (the “Funds”), at August 31, 2012, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended 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, 2012 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 23, 2012
| 94 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES®, INC.
For the fiscal year ended August 31, 2012, 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 |
||||||
| Australia |
$ | 135,730,851 | $ | 658,850 | ||||
| Hong Kong |
65,294,787 | — | ||||||
| Japan Small Cap |
1,389,362 | 96,084 | ||||||
| Malaysia |
31,299,507 | — | ||||||
| Pacific ex-Japan |
150,873,312 | 837,764 | ||||||
| Singapore |
55,822,067 | 234,795 | ||||||
| South Korea |
35,384,109 | 5,774,082 | ||||||
| Taiwan |
76,256,349 | 17,847,498 | ||||||
| Thailand Investable Market |
21,387,118 | 2,225,746 | ||||||
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, 2012:
| iShares MSCI Index Fund | Qualified Dividend Income |
|||
| Australia |
$ | 124,259,907 | ||
| Japan Small Cap |
1,181,543 | |||
| Pacific ex-Japan |
99,175,164 | |||
| South Korea |
27,371,303 | |||
| Thailand Investable Market |
18,158,073 | |||
In February 2013, shareholders will receive Form 1099-DIV which will include their share of qualified dividend income distributed during the calendar year 2012. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their income tax returns.
| TAX INFORMATION |
95 |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited)
iSHARES®, INC.
I. iShares MSCI Australia, iShares MSCI Hong Kong, iShares MSCI Japan Small Cap, iShares MSCI Malaysia, iShares MSCI Singapore, iShares MSCI South Korea, iShares MSCI Taiwan, and iShares MSCI Thailand Investable Market Index Funds
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. The Independent Directors requested, and BFA provided, such information as the Independent Directors, with advice from independent counsel, deemed reasonably necessary to evaluate the Advisory Contract. A committee of Independent Directors (the “15(c) Committee”), with independent counsel, met with management on April 19, 2012, April 27, 2012, and May 16, 2012, to discuss the types of information the Independent Directors required and the manner in which management would organize and present such information. At a meeting held on May 17, 2012, management presented information to the Board relating to the continuance of the Advisory Contract, and the Board, including the Independent Directors, reviewed and discussed such information at length. The Independent Directors requested from management certain additional information, and the 15(c) Committee met with management on June 8, 2012, to discuss the additional requests. At a meeting held on June 20-21, 2012, the Board, including the Independent Directors, reviewed additional information provided by management in response to these requests. The Board, including a majority of the Independent Directors, approved the continuance of the Advisory Contract for the Funds, based on a review of qualitative and quantitative information provided by BFA, including a review of supplemental information management provided at the request of the Independent Directors. 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 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:
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, sponsor, inception date, or other differentiating factors, but that 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 also received a detailed explanation from BFA regarding its rationale for including funds that had been excluded from Lipper’s consideration due to Lipper’s methodology parameters, as well as information showing the effect of including these additional funds in the analysis. 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 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, 2011, 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
| 96 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
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 periodic comparative performance information was also considered by the Board.
Based on this review, the other factors considered at the meeting, and their general knowledge of mutual fund pricing, the Board concluded that the investment advisory fees and expense levels and the historical performance of each Fund supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
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, to 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 have been added or enhanced since then, including in such areas as investor education, product management, customized portfolio consulting support, 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 and risk management 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, and the performance information discussed above, the Board concluded that the nature, extent and quality of services 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.
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, noting that the 15(c) Committee had focused on the methodology and proposed presentation during its meetings. 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.
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT |
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Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
Economies of Scale — The Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Funds’ assets, noting that the issue of economies of scale had been focused on extensively by the 15(c) Committee during its meetings and addressed by management. The Board and the 15(c) Committee reviewed information provided by BFA regarding scale benefits shared with the iShares funds through breakpoints, waivers, or other fee reductions, as well as through additional investment in the iShares business and the provision of improved or additional infrastructure and services to the iShares funds and their shareholders. The Board and the 15(c) Committee received information regarding BFA’s historical profitability, including BFA’s and its affiliates’ costs in providing services. The cost information distinguished between fixed and variable costs, and explained how the nature of such costs may impact the existence of scale benefits. 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. The Board noted that it would continue to monitor the sharing of economies of scale to determine the appropriateness of adding new or revised breakpoints in the future. Based on this review, as well as the other factors considered at the meeting, 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 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 substantially similar investment objectives and strategies as the Funds, except for iShares MSCI Australia Index Fund and iShares MSCI Japan Small Cap 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 generally more extensive 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 exchange traded funds, as compared to the Other Accounts that are institutional clients in light of differing regulatory requirements and client-imposed mandates. The Board also considered the “all-inclusive” nature of the Funds’ advisory fee structure, and the Fund expenses borne by BFA under this arrangement. 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 ancillary revenue received by BFA and/or its affiliates in connection with the services provided to the Funds by BFA, such as payment of revenue to BTC, the Funds’ securities lending agent, for loaning portfolio securities (which was included in the profit margins reviewed by the Board pursuant to BFA’s profitability methodology), 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 generally 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 and thus would not alter the Board’s conclusion with respect to the appropriateness of approving the continuance of the Advisory Contract for the coming year.
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Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
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.
II. iShares MSCI Pacific ex-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. The Independent Directors requested, and BFA provided, such information as the Independent Directors, with advice from independent counsel, deemed reasonably necessary to evaluate the Advisory Contract. A committee of Independent Directors (the “15(c) Committee”), with independent counsel, met with management on April 19, 2012, April 27, 2012, and May 16, 2012, to discuss the types of information the Independent Directors required and the manner in which management would organize and present such information. At a meeting held on May 17, 2012, management presented information to the Board relating to the continuance of the Advisory Contract, and the Board, including the Independent Directors, reviewed and discussed such information at length. The Independent Directors requested from management certain additional information, and the 15(c) Committee met with management on June 8, 2012, to discuss the additional requests. At a meeting held on June 20-21, 2012, the Board, including the Independent Directors, reviewed additional information provided by management in response to these requests. The Board, including a majority of the Independent Directors, approved the continuance of the Advisory Contract for the Fund, based on a review of qualitative and quantitative information provided by BFA, including a review of supplemental information management provided at the request of the Independent Directors. 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 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:
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, sponsor, inception date, or other differentiating factors, but that 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 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 also received a detailed explanation from BFA regarding its rationale for including funds that had been excluded from Lipper’s consideration due to Lipper’s methodology parameters, as well as information showing the effect of including these additional funds in the analysis. 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.
The Board also noted that the investment advisory fees and overall expenses for the Fund compared favorably to the investment advisory fee rates and overall expenses of the funds in the Lipper Group.
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT |
99 |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
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, 2011, 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 benchmark index. Such periodic comparative performance information was also considered by the Board.
Based on this review, the other factors considered at the meeting, and their general knowledge of mutual fund pricing, the Board concluded that the investment advisory fees and expense levels and the historical performance of the Fund supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
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, to supporting the Fund and its 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 Fund and its shareholders have been added or enhanced since then, including in such areas as investor education, product management, customized portfolio consulting support, 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 and risk management 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 inception date.
Based on review of this information, and the performance information discussed above, the Board concluded that the nature, extent and quality of services 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.
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, noting that the 15(c) Committee had focused on the methodology and proposed presentation during its meetings. 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.
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Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
Economies of Scale — The Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Fund’s assets, noting that the issue of economies of scale had been focused on extensively by the 15(c) Committee during its meetings and addressed by management. The Board and the 15(c) Committee reviewed information provided by BFA regarding scale benefits shared with the iShares funds through breakpoints, waivers, or other fee reductions, as well as through additional investment in the iShares business and the provision of improved or additional infrastructure and services to the iShares funds and their shareholders. The Board and the 15(c) Committee received information regarding BFA’s historical profitability, including BFA’s and its affiliates’ costs in providing services. The cost information distinguished between fixed and variable costs, and explained how the nature of such costs may impact the existence of scale benefits. The Board noted that BFA and the Board had agreed to revise the Advisory Contract for the Fund to provide for a breakpoint in the Fund’s investment advisory fee rate as the aggregate assets of certain iShares funds, including the Fund, increase. The Board noted that it would continue to monitor the sharing of economies of scale to determine the appropriateness of adding new or revised breakpoints in the future. Based on this review, as well as the other factors considered at the meeting, 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 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 generally more extensive 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 exchange traded fund, as compared to the Other Accounts that are institutional clients in light of differing regulatory requirements and client-imposed mandates. The Board also considered the “all-inclusive” nature of the Fund’s advisory fee structure, and the Fund expenses borne by BFA under this arrangement. 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 ancillary revenue received by BFA and/or its affiliates in connection with the services provided to the Fund by BFA, such as payment of revenue to BTC, the Fund’s securities lending agent, for loaning portfolio securities (which was included in the profit margins reviewed by the Board pursuant to BFA’s profitability methodology), 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 generally 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 and thus would not alter the Board’s conclusion with respect to the appropriateness of approving the continuance of the Advisory Contract for the coming year.
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101 |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
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.
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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 |
|||||||||||||||||||||||||||||||
| iShares MSCI Index Fund | 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 |
||||||||||||||||||||||||
| Australia |
$ | 1.08982 | $ | — | $ | 0.01782 | $ | 1.10764 | 98 | % | — | % | 2 | % | 100 | % | ||||||||||||||||
| Japan Small Cap |
1.24384 | — | — | 1.24384 | 100 | — | — | 100 | ||||||||||||||||||||||||
| Malaysia |
0.43207 | — | 0.10494 | 0.53701 | 80 | — | 20 | 100 | ||||||||||||||||||||||||
| Pacific ex-Japan |
1.84997 | — | — | 1.84997 | 100 | — | — | 100 | ||||||||||||||||||||||||
| Singapore |
0.45773 | — | 0.01549 | 0.47322 | 97 | — | 3 | 100 | ||||||||||||||||||||||||
| South Korea |
0.37301 | — | — | 0.37301 | 100 | — | — | 100 | ||||||||||||||||||||||||
| Taiwan |
0.47282 | — | — | 0.47282 | 100 | — | — | 100 | ||||||||||||||||||||||||
| Thailand Investable Market |
1.86655 | — | — | 1.86655 | 100 | — | — | 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.
| SUPPLEMENTAL INFORMATION |
103 |
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, 2007 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.5% |
5 | 0.36 | % | |||||
| 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% |
4 | 0.29 | ||||||
| Greater than 3.5% and Less than 4.0% |
8 | 0.58 | ||||||
| Greater than 3.0% and Less than 3.5% |
13 | 0.94 | ||||||
| Greater than 2.5% and Less than 3.0% |
20 | 1.45 | ||||||
| Greater than 2.0% and Less than 2.5% |
26 | 1.88 | ||||||
| Greater than 1.5% and Less than 2.0% |
74 | 5.35 | ||||||
| Greater than 1.0% and Less than 1.5% |
122 | 8.82 | ||||||
| Greater than 0.5% and Less than 1.0% |
238 | 17.19 | ||||||
| Between 0.5% and –0.5% |
493 | 35.61 | ||||||
| Less than –0.5% and Greater than –1.0% |
126 | 9.10 | ||||||
| Less than –1.0% and Greater than –1.5% |
100 | 7.23 | ||||||
| Less than –1.5% and Greater than –2.0% |
47 | 3.40 | ||||||
| Less than –2.0% and Greater than –2.5% |
43 | 3.11 | ||||||
| Less than –2.5% and Greater than –3.0% |
24 | 1.73 | ||||||
| Less than –3.0% and Greater than –3.5% |
11 | 0.79 | ||||||
| Less than –3.5% and Greater than –4.0% |
8 | 0.58 | ||||||
| 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% |
5 | 0.36 | ||||||
| Less than –5.5% and Greater than –6.0% |
2 | 0.14 | ||||||
| Less than –6.0% |
5 | 0.36 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 104 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Hong Kong Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 6.0% |
6 | 0.43 | % | |||||
| Greater than 5.5% and Less than 6.0% |
1 | 0.07 | ||||||
| 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% |
6 | 0.43 | ||||||
| Greater than 3.5% and Less than 4.0% |
5 | 0.36 | ||||||
| Greater than 3.0% and Less than 3.5% |
12 | 0.87 | ||||||
| Greater than 2.5% and Less than 3.0% |
17 | 1.23 | ||||||
| Greater than 2.0% and Less than 2.5% |
40 | 2.89 | ||||||
| Greater than 1.5% and Less than 2.0% |
49 | 3.54 | ||||||
| Greater than 1.0% and Less than 1.5% |
97 | 7.01 | ||||||
| Greater than 0.5% and Less than 1.0% |
208 | 15.03 | ||||||
| Between 0.5% and –0.5% |
560 | 40.47 | ||||||
| Less than –0.5% and Greater than –1.0% |
138 | 9.97 | ||||||
| Less than –1.0% and Greater than –1.5% |
91 | 6.58 | ||||||
| Less than –1.5% and Greater than –2.0% |
54 | 3.90 | ||||||
| Less than –2.0% and Greater than –2.5% |
38 | 2.75 | ||||||
| Less than –2.5% and Greater than –3.0% |
21 | 1.52 | ||||||
| Less than –3.0% and Greater than –3.5% |
15 | 1.08 | ||||||
| Less than –3.5% and Greater than –4.0% |
3 | 0.22 | ||||||
| Less than –4.0% and Greater than –4.5% |
5 | 0.36 | ||||||
| Less than –4.5% and Greater than –5.0% |
6 | 0.43 | ||||||
| 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 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
105 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Japan Small Cap Index Fund
Period Covered: January 1, 2008 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.0% |
12 | 1.06 | % | |||||
| Greater than 4.5% and Less than 5.0% |
3 | 0.26 | ||||||
| Greater than 4.0% and Less than 4.5% |
3 | 0.26 | ||||||
| Greater than 3.5% and Less than 4.0% |
5 | 0.44 | ||||||
| Greater than 3.0% and Less than 3.5% |
10 | 0.88 | ||||||
| Greater than 2.5% and Less than 3.0% |
12 | 1.06 | ||||||
| Greater than 2.0% and Less than 2.5% |
21 | 1.85 | ||||||
| Greater than 1.5% and Less than 2.0% |
56 | 4.94 | ||||||
| Greater than 1.0% and Less than 1.5% |
104 | 9.18 | ||||||
| Greater than 0.5% and Less than 1.0% |
161 | 14.22 | ||||||
| Between 0.5% and –0.5% |
436 | 38.49 | ||||||
| Less than –0.5% and Greater than –1.0% |
120 | 10.60 | ||||||
| Less than –1.0% and Greater than –1.5% |
69 | 6.09 | ||||||
| Less than –1.5% and Greater than –2.0% |
44 | 3.88 | ||||||
| Less than –2.0% and Greater than –2.5% |
30 | 2.65 | ||||||
| Less than –2.5% and Greater than –3.0% |
14 | 1.24 | ||||||
| Less than –3.0% and Greater than –3.5% |
13 | 1.15 | ||||||
| Less than –3.5% and Greater than –4.0% |
6 | 0.53 | ||||||
| Less than –4.0% and Greater than –4.5% |
3 | 0.26 | ||||||
| Less than –4.5% and Greater than –5.0% |
2 | 0.18 | ||||||
| Less than –5.0% and Greater than –5.5% |
3 | 0.26 | ||||||
| Less than –5.5% and Greater than –6.0% |
3 | 0.26 | ||||||
| Less than –6.0% |
3 | 0.26 | ||||||
|
|
|
|
|
|||||
| 1,133 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 106 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Malaysia Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| 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% |
2 | 0.14 | ||||||
| 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% |
4 | 0.29 | ||||||
| Greater than 2.0% and Less than 2.5% |
18 | 1.30 | ||||||
| Greater than 1.5% and Less than 2.0% |
39 | 2.83 | ||||||
| Greater than 1.0% and Less than 1.5% |
101 | 7.31 | ||||||
| Greater than 0.5% and Less than 1.0% |
219 | 15.83 | ||||||
| Between 0.5% and –0.5% |
600 | 43.36 | ||||||
| Less than –0.5% and Greater than –1.0% |
186 | 13.44 | ||||||
| Less than –1.0% and Greater than –1.5% |
89 | 6.43 | ||||||
| Less than –1.5% and Greater than –2.0% |
41 | 2.96 | ||||||
| Less than –2.0% and Greater than –2.5% |
31 | 2.24 | ||||||
| Less than –2.5% and Greater than –3.0% |
15 | 1.08 | ||||||
| Less than –3.0% and Greater than –3.5% |
8 | 0.58 | ||||||
| Less than –3.5% and Greater than –4.0% |
5 | 0.36 | ||||||
| Less than –4.0% and Greater than –4.5% |
8 | 0.58 | ||||||
| Less than –4.5% and Greater than –5.0% |
2 | 0.14 | ||||||
| Less than –5.0% and Greater than –5.5% |
2 | 0.14 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
107 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Pacific ex-Japan Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 4.5% |
9 | 0.65 | % | |||||
| Greater than 4.0% and Less than 4.5% |
3 | 0.22 | ||||||
| Greater than 3.5% and Less than 4.0% |
10 | 0.72 | ||||||
| Greater than 3.0% and Less than 3.5% |
10 | 0.72 | ||||||
| Greater than 2.5% and Less than 3.0% |
12 | 0.87 | ||||||
| Greater than 2.0% and Less than 2.5% |
30 | 2.17 | ||||||
| Greater than 1.5% and Less than 2.0% |
60 | 4.34 | ||||||
| Greater than 1.0% and Less than 1.5% |
127 | 9.18 | ||||||
| Greater than 0.5% and Less than 1.0% |
228 | 16.47 | ||||||
| Between 0.5% and –0.5% |
524 | 37.85 | ||||||
| Less than –0.5% and Greater than –1.0% |
127 | 9.18 | ||||||
| Less than –1.0% and Greater than –1.5% |
99 | 7.15 | ||||||
| Less than –1.5% and Greater than –2.0% |
53 | 3.83 | ||||||
| Less than –2.0% and Greater than –2.5% |
30 | 2.17 | ||||||
| Less than –2.5% and Greater than –3.0% |
23 | 1.66 | ||||||
| Less than –3.0% and Greater than –3.5% |
13 | 0.94 | ||||||
| Less than –3.5% and Greater than –4.0% |
7 | 0.51 | ||||||
| Less than –4.0% and Greater than –4.5% |
5 | 0.36 | ||||||
| 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% |
2 | 0.14 | ||||||
| Less than –6.0% |
5 | 0.36 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 108 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Singapore Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 4.5% |
7 | 0.51 | % | |||||
| 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% |
3 | 0.22 | ||||||
| Greater than 2.5% and Less than 3.0% |
10 | 0.72 | ||||||
| Greater than 2.0% and Less than 2.5% |
33 | 2.39 | ||||||
| Greater than 1.5% and Less than 2.0% |
36 | 2.60 | ||||||
| Greater than 1.0% and Less than 1.5% |
104 | 7.51 | ||||||
| Greater than 0.5% and Less than 1.0% |
217 | 15.68 | ||||||
| Between 0.5% and –0.5% |
611 | 44.15 | ||||||
| Less than –0.5% and Greater than –1.0% |
152 | 10.98 | ||||||
| Less than –1.0% and Greater than –1.5% |
81 | 5.85 | ||||||
| Less than –1.5% and Greater than –2.0% |
47 | 3.40 | ||||||
| Less than –2.0% and Greater than –2.5% |
36 | 2.60 | ||||||
| Less than –2.5% and Greater than –3.0% |
13 | 0.94 | ||||||
| Less than –3.0% and Greater than –3.5% |
8 | 0.58 | ||||||
| Less than –3.5% and Greater than –4.0% |
5 | 0.36 | ||||||
| Less than –4.0% and Greater than –4.5% |
6 | 0.43 | ||||||
| Less than –4.5% and Greater than –5.0% |
4 | 0.29 | ||||||
| Less than –5.0% and Greater than –5.5% |
2 | 0.14 | ||||||
| Less than –5.5% |
2 | 0.14 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
109 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI South Korea Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| 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% |
2 | 0.14 | ||||||
| Greater than 4.5% and Less than 5.0% |
5 | 0.36 | ||||||
| Greater than 4.0% and Less than 4.5% |
5 | 0.36 | ||||||
| Greater than 3.5% and Less than 4.0% |
8 | 0.58 | ||||||
| Greater than 3.0% and Less than 3.5% |
10 | 0.72 | ||||||
| Greater than 2.5% and Less than 3.0% |
26 | 1.88 | ||||||
| Greater than 2.0% and Less than 2.5% |
40 | 2.89 | ||||||
| Greater than 1.5% and Less than 2.0% |
64 | 4.62 | ||||||
| Greater than 1.0% and Less than 1.5% |
99 | 7.15 | ||||||
| Greater than 0.5% and Less than 1.0% |
208 | 15.03 | ||||||
| Between 0.5% and –0.5% |
433 | 31.29 | ||||||
| Less than –0.5% and Greater than –1.0% |
176 | 12.72 | ||||||
| Less than –1.0% and Greater than –1.5% |
91 | 6.58 | ||||||
| Less than –1.5% and Greater than –2.0% |
61 | 4.41 | ||||||
| Less than –2.0% and Greater than –2.5% |
41 | 2.96 | ||||||
| Less than –2.5% and Greater than –3.0% |
36 | 2.60 | ||||||
| Less than –3.0% and Greater than –3.5% |
17 | 1.23 | ||||||
| Less than –3.5% and Greater than –4.0% |
13 | 0.94 | ||||||
| Less than –4.0% and Greater than –4.5% |
10 | 0.72 | ||||||
| Less than –4.5% and Greater than –5.0% |
7 | 0.51 | ||||||
| Less than –5.0% and Greater than –5.5% |
4 | 0.29 | ||||||
| Less than –5.5% and Greater than –6.0% |
6 | 0.43 | ||||||
| Less than –6.0% |
13 | 0.94 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 110 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Taiwan Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| 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% |
6 | 0.43 | ||||||
| Greater than 4.0% and Less than 4.5% |
5 | 0.36 | ||||||
| Greater than 3.5% and Less than 4.0% |
14 | 1.01 | ||||||
| Greater than 3.0% and Less than 3.5% |
14 | 1.01 | ||||||
| Greater than 2.5% and Less than 3.0% |
14 | 1.01 | ||||||
| Greater than 2.0% and Less than 2.5% |
30 | 2.17 | ||||||
| Greater than 1.5% and Less than 2.0% |
47 | 3.40 | ||||||
| Greater than 1.0% and Less than 1.5% |
107 | 7.73 | ||||||
| Greater than 0.5% and Less than 1.0% |
200 | 14.45 | ||||||
| Between 0.5% and –0.5% |
499 | 36.06 | ||||||
| Less than –0.5% and Greater than –1.0% |
195 | 14.09 | ||||||
| Less than –1.0% and Greater than –1.5% |
89 | 6.43 | ||||||
| Less than –1.5% and Greater than –2.0% |
52 | 3.76 | ||||||
| Less than –2.0% and Greater than –2.5% |
36 | 2.60 | ||||||
| Less than –2.5% and Greater than –3.0% |
21 | 1.52 | ||||||
| Less than –3.0% and Greater than –3.5% |
22 | 1.59 | ||||||
| Less than –3.5% and Greater than –4.0% |
8 | 0.58 | ||||||
| Less than –4.0% and Greater than –4.5% |
4 | 0.29 | ||||||
| Less than –4.5% and Greater than –5.0% |
4 | 0.29 | ||||||
| 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 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
111 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Thailand Index Fund
Period Covered: April 1, 2008 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.0% |
1 | 0.09 | % | |||||
| Greater than 4.5% and Less than 5.0% |
3 | 0.28 | ||||||
| Greater than 4.0% and Less than 4.5% |
3 | 0.28 | ||||||
| Greater than 3.5% and Less than 4.0% |
5 | 0.47 | ||||||
| Greater than 3.0% and Less than 3.5% |
5 | 0.47 | ||||||
| Greater than 2.5% and Less than 3.0% |
19 | 1.77 | ||||||
| Greater than 2.0% and Less than 2.5% |
22 | 2.05 | ||||||
| Greater than 1.5% and Less than 2.0% |
51 | 4.76 | ||||||
| Greater than 1.0% and Less than 1.5% |
136 | 12.69 | ||||||
| Greater than 0.5% and Less than 1.0% |
185 | 17.26 | ||||||
| Between 0.5% and –0.5% |
361 | 33.67 | ||||||
| Less than –0.5% and Greater than –1.0% |
113 | 10.54 | ||||||
| Less than –1.0% and Greater than –1.5% |
66 | 6.16 | ||||||
| Less than –1.5% and Greater than –2.0% |
36 | 3.36 | ||||||
| Less than –2.0% and Greater than –2.5% |
27 | 2.52 | ||||||
| Less than –2.5% and Greater than –3.0% |
13 | 1.21 | ||||||
| Less than –3.0% and Greater than –3.5% |
10 | 0.93 | ||||||
| Less than –3.5% and Greater than –4.0% |
2 | 0.19 | ||||||
| Less than –4.0% and Greater than –4.5% |
2 | 0.19 | ||||||
| Less than –4.5% and Greater than –5.0% |
4 | 0.37 | ||||||
| Less than –5.0% and Greater than –5.5% |
3 | 0.28 | ||||||
| Less than –5.5% and Greater than –6.0% |
1 | 0.09 | ||||||
| Less than –6.0% |
4 | 0.37 | ||||||
|
|
|
|
|
|||||
| 1,072 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 112 | 2012 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 Director 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, a Director of iShares MSCI Russia Capped Index Fund, Inc. and a Trustee of iShares U.S. ETF Trust and, as a result, oversees a total of 276 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 Robert H. Silver 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-iShares (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 (55) |
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). | Director of BlackRock, Inc. (since 2007); Trustee of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| Michael Lathamb (47) |
Director (since 2010); President (since 2007). | Chairman of iShares, BlackRock (since 2011); Global Chief Executive Officer of iShares, BlackRock (2010-2011); Managing Director, BlackRock (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, BGI (2003-2007). | Trustee of iShares Trust (since 2010); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| a | Robert S. Kapito is deemed to be an “interested person” (as defined in the 1940 Act) of the Trust 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 Trust due to his affiliations with BlackRock, Inc. and its affiliates. |
| DIRECTOR AND OFFICER INFORMATION |
113 |
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 | |||
| Robert H. Silver (57) |
Director (since 2007); Independent Chairman (since 2012). | President and Co-Founder of The Bravitas Group, Inc. (since 2006); Director and Vice Chairman of the YMCA of Greater NYC (2001-2011); Broadway Producer (2006-2011); 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); President and Chief Operating Officer of UBS Financial Services Inc. (formerly Pain Webber Inc.) (2004-2005) and various executive positions with UBS and its affiliates (1988-2005); CPA and Audit Manager of KPMG, LLP (formerly Peat Marwick Mitchell) (1977-1983). | Trustee of iShares Trust (since 2007); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Independent Chairman of iShares, Inc., iShares MSCI Russia Capped Index Fund, Inc. and iShares U.S. ETF Trust (since 2012). | |||
| Cecilia H. Herbert (63) |
Director (since 2005); Nominating and Governance Committee Chair and Equity Plus Committee Chair (since 2012). | Director (since 1998) and President (2007-2011) of the Board of Directors, Catholic Charities CYO; Trustee (since 2002) and Chair of the Finance Committee (2006-2009) and Investment Committee (since 2006), The Thacher School; Trustee of Pacific Select Funds (2004-2005); Member (since 1994) and Chair (1994-2005) of the Investment Committee, Archdiocese of San Francisco. |
Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Director of Forward Funds (35 portfolios) (since 2009). | |||
| Charles A. Hurty (69) |
Director (since 2005); Audit Committee Chair (since 2006). |
Retired; Partner, KPMG LLP (1968-2001). |
Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002); Director of SkyBridge Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC (1 portfolio) (since 2002). | |||
| John E. Kerrigan (57) |
Director (since 2005); Fixed Income Plus Committee Chair (since 2012). |
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); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| 114 | 2012 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 | |||
| John E. Martinez (51) |
Director (since 2003); Securities Lending Committee Chair (since 2012). | Director of FirstREX Agreement Corp. (formerly EquityRock, Inc.) (since 2005). | Trustee of iShares Trust (since 2003); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| George G.C. Parker (73) |
Director (since 2002). |
Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University Graduate School of Business (Professor since 1973; Emeritus since 2006). | Trustee of iShares Trust (since 2002); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); 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). | |||
| Madhav V. Rajan (48) |
Director (since 2011); 15(c) Committee Chair (since 2012). |
Robert K. Jaedicke Professor of Accounting and Senior Associate Dean for Academic Affairs and Head of MBA Program, 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); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| DIRECTOR AND OFFICER INFORMATION |
115 |
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 | ||
| Edward B. Baer (44) |
Vice President and Chief Legal Officer (since 2012). |
Managing Director, BlackRock (since 2006). | ||
| Eilleen M. Clavere (60) |
Secretary (since 2007). |
Director, BlackRock (since 2009); Director of Legal Administration of Intermediary Investor Business, BGI (2006-2009). | ||
| Jack Gee (53) |
Treasurer and Chief Financial Officer (since 2008). |
Managing Director, BlackRock (since 2009); Senior Director of Fund Administration of Intermediary Investor Business, BGI (2009); Director of Fund Administration of Intermediary Investor Business, BGI (2004-2009). | ||
| Amy Schioldager (50) |
Executive Vice President (since 2007). |
Managing Director, BlackRock (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008). | ||
| Ira P. Shapiro (49) |
Vice President (since 2007). | Managing Director, BlackRock (since 2009); Chief Legal Officer, Exchange-Traded Funds Complex (2007-2012); Associate General Counsel, BGI (2004-2009). | ||
| Scott Radell (43) |
Executive Vice President (since 2012). |
Managing Director, BlackRock (since 2009); Head of Portfolio Solutions, BGI (2007-2009); Credit Portfolio Manager, BGI (2005-2007). | ||
| 116 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes:
| NOTES |
117 |
Table of Contents
Notes:
| 118 | 2012 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-83-0812
Table of Contents
| Item 1. Reports to Stockholders.
|
August 31, 2012 |
2012 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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| 83 | ||||
| 84 | ||||
| Board Review and Approval of Investment Advisory Contract (Unaudited) |
85 | |||
| 92 | ||||
| 99 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI BRAZIL INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (16.79)% | (17.32)% | (16.47)% | 0.64% | 0.75% | 1.23% | 23.68% | 23.92% | 24.87% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (16.79)% | (17.32)% | (16.47)% | 3.25% | 3.80% | 6.32% | 737.32% | 753.88% | 821.77% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
“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 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, 2012 (the “reporting period”), the total return for the Fund was (16.79)%, net of fees, while the total return for the Index was (16.47)%.
The Brazilian equity market, as represented by the Index, declined for the reporting period, lagging broader international markets. Economic activity slowed dramatically in Brazil due to reduced demand from Europe, China, and the U.S. for Brazil’s exports, and due to earlier government efforts to slow an overheating economy.
As the sovereign debt crisis in Europe continued, economic activity in China cooled, and U.S. economic conditions remained tepid, Brazil’s economy, which relies heavily on exports to these markets, softened. For the second quarter of 2012, economic activity, as measured by annual gross domestic product (“GDP”) growth, expanded at a slight 0.5% pace, slowing for the ninth consecutive quarter. Industrial output fell 2.5% during the second quarter of 2012 amid declines in manufacturing, mining, and civil construction. Investment also shrank, largely due to a bleak international environment sapping enthusiasm for expansion of production capacity. In an effort to spur growth, the Brazilian government reduced payroll taxes, cut levies on automobiles and appliances, and implemented policies to weaken Brazil’s currency.
Agriculture was one bright spot, representing the largest contributor to Brazil’s GDP in the second quarter of 2012. Brazil also began to receive attention from foreign investors in anticipation of the 2014 World Cup and the 2016 Summer Olympics.
Sector performance was mostly negative during the reporting period. The materials and energy sectors, which represented 21% and 20% of the Index on average, respectively, both declined sharply as demand and prices for commodities fell, accounting for the bulk of Index declines. The financials and telecommunication services sectors also detracted from Index returns significantly. On the positive side, the information technology sector delivered solid gains. At only 3% of the Index, though, its impact on Index performance was modest. The consumer staples sector also added moderately to Index results.
| 6 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI CANADA INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (5.87)% | (5.76)% | (5.73)% | 0.27% | 0.19% | 0.49% | 12.83% | 12.69% | 13.15% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (5.87)% | (5.76)% | (5.73)% | 1.34% | 0.93% | 2.49% | 234.48% | 230.24% | 243.98% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
“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 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 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, 2012 (the “reporting period”), the total return for the Fund was (5.87)%, net of fees, while the total return for the Index was (5.73)%.
Canada’s economy grew at an annual rate of 1.8% in the second quarter of 2012 compared to the second quarter of 2011, matching the annual growth rate in the first quarter of 2012. Growth was somewhat muted by a rail strike as well as weakening global demand for Canadian exports. Confidence in the Canadian economy was evident, as foreign investors bid up the value of Canadian government securities, resulting in lower interest rates, with the 10-year bond averaging 1.75% in June 2012. Interest rates fell further in July 2012, but reversed course in August 2012 as global economic news became more favorable and demand for other currencies strengthened. Canada’s central bank kept its target interest rates unchanged throughout the reporting period at 1.0%.
Inflation was modest during the reporting period. In August 2012, the Canadian inflation rate was 1.2% compared to August 2011. Consumers pulled back as demand for household credit slowed significantly as policymakers warned about the dangers associated with too much debt. The unemployment rate was 7.3% as the reporting period came to a close, with the economy creating about 20,000 jobs per month during the period. Consumer spending advanced at an annual rate of 1.1% in the second quarter of 2012, up from 0.7% in the first quarter of 2012 but down from 2.8% in the fourth quarter of 2011.
Canadian exports expanded at a rate of 0.8% during the second quarter of 2012 compared to the second quarter of 2011, down from 4.0% in the first quarter of 2012 and 7.2% in the fourth quarter of 2011. As with much of the world, Canada’s economy depended in part on Europe’s fortunes, which continued to slide downward during the reporting period. Other trading partners, such as China and the U.S., were also experiencing slowing economies.
| 8 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI CANADA INDEX FUND
The Index posted a decline for the reporting period. Three sectors which contributed negatively to Index performance were materials, information technology and energy, which together represented on average, 49% of the Index. On a positive note, the financials and industrials sectors contributed modestly to Index performance.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
9 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI CHILE INVESTABLE MARKET INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | Cumulative Total Returns | |||||||||||||||
| Year Ended 8/31/12 | Inception to 8/31/12 | Inception to 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (8.68)% | (9.49)% | (7.55)% | 5.95% | 5.88% | 6.80% | 32.00% | 31.59% | 37.11% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
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.
| 10 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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 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 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, 2012 (the “reporting period”), the total return for the Fund was (8.68)%, net of fees, while the total return for the Index was (7.55)%.
The Chilean equity market, as represented by the Index, declined during the reporting period. During the reporting period, the economy accelerated. Economic activity, as measured by annual gross domestic product (GDP) growth, expanded 5.5% in the second quarter of 2012, up from 3.7% in the second quarter of 2011. Largely driving the growth, domestic demand rose 7.1% in the second quarter of 2012.
As the world’s largest producer of copper, the Chilean economy relies heavily on mining and exports. Although export levels continued to rise in the second quarter of 2012, the country’s current account deficit expanded as copper prices fell and import demand grew amid strong domestic demand. Key sectors of the economy, notably services, retail sales, and construction, all remained solid. In an environment of strong local growth and declining inflation levels, Chile’s central bank left its key interest rate unchanged at 5.00% after cutting it once, from 5.25% to 5.00%, in January 2012. Despite the country’s overall economic health, the Chilean stock market softened largely due to overall macroeconomic concerns as investors braced for the headwind created by economic slowdown in China, Chile’s largest trading partner, as well as poor economic conditions in Europe.
Sector performance was mostly negative during the reporting period. The industrials sector was the most significant detractor from Index performance. Materials stocks also declined, reflecting the price decline for copper and other commodities, as well as investor concern about the outlook for the sector. Utilities, the largest sector at 23% of the Index on average, also hurt Index results. On the positive side, the health care sector delivered positive absolute returns. However, at less than 1% of the Index, the health care sector’s contribution to Index returns was negligible.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
11 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI ISRAEL CAPPED INVESTABLE MARKET INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | Cumulative Total Returns | |||||||||||||||
| Year Ended 8/31/12 | Inception to 8/31/12 | Inception to 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (16.52)% | (16.69)% | (16.58)% | (4.04)% | (4.12)% | (3.44)% | (16.71)% | (17.01)% | (14.37)% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
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.
| 12 | 2012 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 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 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, 2012 (the “reporting period”), the total return for the Fund was (16.52)%, net of fees, while the total return for the Index was (16.58)%.
The Israeli equity market, as represented by the Index, delivered negative results for the reporting period, lagging broader international markets. Israel enjoyed a relatively healthy economic environment, as measured by annual gross domestic product (“GDP”) growth, although it slowed during the course of the reporting period, from 4.9% in the third quarter of 2011 to 3.1% in the second quarter of 2012.
As major economies worldwide struggled with sluggish economic conditions and debt during the reporting period, Israel’s economy remained relatively solid. Although the global financial crisis of 2008-2009 had caused a brief recession in Israel, the country rebounded much better than most advanced economies. Key to its recovery was a prudent fiscal policy and a resilient financials sector. As a net lender of debt, Israel’s government debt accounts for approximately 74% of GDP, significantly lower than most advanced countries.
Bolstering Israel’s economy during the reporting period, export levels and domestic consumption remained strong, and investment increased. For the second quarter of 2012, export levels of goods and services expanded at an annual rate of 10.3%, and private consumption levels grew at an annual rate of 5.4%. After peaking at 4.2% in June 2011, inflation steadily dropped during the reporting period, ending the reporting period at 1.9%. The Bank of Israel cut its benchmark interest rate four times during the reporting period, from 3.25% to 2.25% cumulatively.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
13 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI MEXICO INVESTABLE MARKET INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 6.13% | 6.20% | 5.58% | 2.71% | 2.88% | 2.22% | 18.20% | 18.23% | 17.52% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Ten Years Ended 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 6.13% | 6.20% | 5.58% | 14.29% | 15.27% | 11.60% | 432.10% | 433.60% | 402.30% | ||||||||
GROWTH OF $10,000 INVESTMENT
(AT NET ASSET VALUE)
Index performance reflects the performance of the MSCI Mexico IndexSM through November 30, 2007 and the MSCI Mexico Investable Market IndexSM thereafter.
“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 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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 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, 2012 (the “reporting period”), the total return for the Fund was 6.13%, net of fees, while the total return for the Index was 5.58%.
The Mexican equity market, as represented by the Index, delivered positive results for the reporting period, outpacing broader international markets. Unlike many countries, Mexico enjoyed steady economic expansion during the reporting period, with an annual gross domestic product (GDP) growth rate of 4.1% in the second quarter of 2012.
As the largest exporter in Latin America, Mexico exports more than 80% of its goods to the U.S. and Canada. During the reporting period, Mexico’s export levels remained strong, reaching an all-time high in May 2012. Manufacturing, particularly automobile production, was the main driver of growth. This was in part due to a recovery for light vehicle sales in the U.S., which provided the Mexican economy a buffer from overall global economic malaise for the reporting period. In July 2012, automobile production climbed 17.7%, with 68% of exported vehicles going to the U.S. Construction also expanded during the reporting period.
Unemployment levels declined to 4.75% by July 2012. Consumer confidence was healthy, rising to 98.9 in July 2012, its highest level since early 2008, though it decreased to 97.6 in August 2012 (a consumer confidence level of 100 is considered neutral; levels below 100 are pessimistic, and levels above 100 are optimistic). Accordingly, private consumption represented an important part of Mexico’s economic expansion. As household consumption grew during the reporting period, so too did demand for imports, leading to an uneven balance of trade throughout the reporting period. Given the steady economic environment, the benchmark interest rate was left unchanged at 4.5% throughout the reporting period.
Sector performance was mostly positive during the reporting period. The consumer staples sector, which represented 28% of the Index on average, gained ground and was the most significant contributor to Index gains. The financials and industrials sectors also helped Index performance. On the negative side, consumer discretionary stocks declined for the reporting period, detracting meaningfully from Index results. The telecommunication services sector, which accounted for approximately 29% of the Index throughout the reporting period, also detracted modestly from Index results.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
15 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI SOUTH AFRICA INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Inception to 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (3.17)% | (2.63)% | (2.54)% | 4.57% | 4.52% | 5.50% | 16.64% | 16.66% | 17.82% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Inception to 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (3.17)% | (2.63)% | (2.54)% | 25.04% | 24.77% | 30.67% | 336.65% | 337.56% | 380.75% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
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.
| 16 | 2012 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 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, 2012 (the “reporting period”), the total return for the Fund was (3.17)%, net of fees, while the total return for the Index was (2.54)%.
The South African equity market, as represented by the Index, declined only modestly for the reporting period, despite global economic conditions. South Africa is the world’s largest producer and exporter of gold and platinum, and is a key exporter of coal and diamonds. During the reporting period, South Africa’s economy, as measured by annual gross domestic product (“GDP”) growth, remained healthy. For the second quarter of 2012, annual GDP expanded by 3.0%, up from 2.1% in the first quarter of 2012.
Underlying the apparent steady growth, the country’s mining industry experienced turbulence during the reporting period, as it was plagued by strikes and protests, as well as global economic sluggishness, but rebounded sharply in the second quarter of 2012. Retail sales also remained healthy, climbing by 8.3% annually in the second quarter of 2012. However, ongoing clashes between striking mine workers and police caused prolonged shutdowns and led to investor concern about further production slowdowns in the mining industry, which would crimp exports. Meanwhile, manufacturing and construction activity was poor during the reporting period. The softer outlook, combined with an uncertain global economy, led the South Africa Reserve Bank to reduce its benchmark interest rate in July 2012 from 5.50% to 5.00%, its first interest rate cut since 2010.
Sector performance was varied during the reporting period. The consumer discretionary sector, buoyed by healthy consumer confidence levels, delivered gains and made the most significant sector contribution to Index returns. The financials sector, which comprised 25% of the Index on average, also contributed meaningfully to Index results, as did the traditionally economically defensive consumer staples and health care sectors. On the negative side, the materials sector declined, enduring turbulence in the mining industry and a decline in commodity prices. Because the materials sector represented approximately 22% of the Index throughout the reporting period, the sector’s negative performance had a significant impact on Index results. The energy sector also declined during the reporting period as oil and natural gas prices fell.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
17 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI TURKEY INVESTABLE MARKET INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | Cumulative Total Returns | |||||||||||||||
| Year Ended 8/31/12 | Inception to 8/31/12 | Inception to 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 20.37% | 15.59% | 20.63% | 4.81% | 4.67% | 5.15% | 23.17% | 22.43% | 24.94% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
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.
| 18 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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. |
| a | Rounds to less than 0.01%. |
The iShares MSCI Turkey Investable Market Index Fund (the “Fund”) seeks 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 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, 2012 (the “reporting period”), the total return for the Fund was 20.37%, net of fees, while the total return for the Index was 20.63%.
The Turkish equity market, as represented by the Index, delivered positive results for the reporting period, outpacing broader international markets. Turkey enjoyed a healthy economic environment, as measured by annual gross domestic product (GDP) growth, although it slowed during the course of the reporting period, from 8.4% in the third quarter of 2011 to 3.2% in the second quarter of 2012.
After two years of rapid expansion, the Turkish economy softened during the reporting period. Turkey’s largest trading partner, Europe, accounts for roughly 60% of Turkey’s exports. During the reporting period, the ongoing sovereign debt crisis in Europe worsened, spreading to include several peripheral European markets. As a result, economic activity throughout Europe was hampered, in turn, reducing European demand for exports. Export trade with the Middle East, Turkey’s second-largest trading partner, was threatened when conflict arose in Syria.
As demand slowed, though, Turkey focused on the markets of Northern Africa, as well as North America and South America. As a result, overall export levels did not experience the sharp decline that they might otherwise have experienced. During the first half of 2012, for example, while Turkish automobile exports — which accounted for 13% of all Turkish exports for the first eight months of 2012 — from Turkey to Europe declined by 10%, automobile exports to North African countries climbed sharply, with exports to Morocco up 56%, to Tunisia up 68%, to Egypt up 30%, and to Libya up 328%. Export of gold, to Iran in particular, represented a critical component of Turkey’s export market in 2012. Iran became Turkey’s largest export market, representing 86% of Turkey’s total exports, as it began acquiring large amounts of gold. Turkey continued to struggle with a trade deficit throughout the reporting period, although the deficit did narrow late in the reporting period.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
19 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI TURKEY INVESTABLE MARKET INDEX FUND
Sector performance was mostly positive during the reporting period. The financials sector, which represented 46% of the Index on average, delivered solid total returns and was the most significant contributor to Index gains. The consumer staples and industrials sectors also added significantly to Index performance. The only negative sector returns came from utilities, though at less than 1% of the Index, the impact on Index results was negligible.
| 20 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI USA INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | Cumulative Total Returns | |||||||||||||||
| Year Ended 8/31/12 | Inception to 8/31/12 | Inception to 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| 17.44% | 17.57% | 17.69% | 10.66% | 10.69% | 10.88% | 26.55% | 26.63% | 27.07% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
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.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
21 |
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 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, 2012 (the “reporting period”), the total return for the Fund was 17.44%, net of fees, while the total return for the Index was 17.69%.
Although U.S. stocks as a group performed very well, the U.S. economy weakened as the reporting period came to a close. During the second quarter of 2012, the nation’s economy posted a 1.7% growth in gross domestic product (GDP), down from 2.0% in the first quarter and 3.0% in the fourth quarter of 2011. Although job growth was significant in certain industries such as health care, the overall unemployment rate stayed above 8% for the reporting period. In addition, the number of U.S. jobs created each month, particularly the 96,000 added in August 2012, was considered a sign that the economy was lagging.
In this environment, consumers and businesses were reluctant to spend money. The growth rate in consumer spending declined from 2.4% in the first quarter of 2012 compared to the first quarter of 2011, to 1.5% in the second quarter of 2012 compared to the second quarter of 2011. Despite record low interest rates, savings on disposable personal income rose to 4.0% in the second quarter of 2012, up from 3.6% in the first quarter of 2012. Business investment expanded 5.3% in the second quarter of 2012 compared to the second quarter of 2011, down from 7.5% in the first quarter of 2012 compared to the first quarter of 2011. Many economists blamed investor skittishness on the uncertainty surrounding U.S. tax laws as well as the continuing recession in Europe.
Still, there have been some encouraging signs. During the second quarter of 2012, home prices rose by their largest percentage in nearly a decade. Automakers continued selling cars at a brisk pace, keeping factories running at high capacity in the normally slow summer months. In addition, corporations took advantage of ultra-low intermediate- and long-term interest rates by selling nearly $600 billion of corporate bonds to investors over the first seven months of 2012, 6.5% more than same period last year.
| 22 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI USA INDEX FUND
Within the Index, all sectors posted positive performance for the reporting period. The top three positive contributors to performance were the information technology, consumer discretionary and health care sectors, while the weakest performers were the materials, utilities and telecommunication services sectors.
| 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, 2012 to August 31, 2012.
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 (3/1/12) |
Ending Account Value (8/31/12) |
Annualized Expense Ratio |
Expenses Paid During Period a |
||||||||||||
| Brazil |
||||||||||||||||
| Actual |
$ | 1,000.00 | $ | 777.10 | 0.62 | % | $ | 2.77 | ||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.00 | 0.62 | 3.15 | ||||||||||||
| Canada |
||||||||||||||||
| Actual |
1,000.00 | 952.20 | 0.53 | 2.60 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| Chile Investable Market |
||||||||||||||||
| Actual |
1,000.00 | 904.30 | 0.62 | 2.97 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.00 | 0.62 | 3.15 | ||||||||||||
| Israel Capped Investable Market |
||||||||||||||||
| Actual |
1,000.00 | 928.80 | 0.62 | 3.01 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.00 | 0.62 | 3.15 | ||||||||||||
| 24 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Shareholder Expenses (Unaudited) (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund | Beginning Account Value (3/1/12) |
Ending Account Value (8/31/12) |
Annualized Expense Ratio |
Expenses Paid During Period a |
||||||||||||
| Mexico Investable Market |
||||||||||||||||
| Actual |
$ | 1,000.00 | $ | 1,030.90 | 0.53 | % | $ | 2.71 | ||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.50 | 0.53 | 2.69 | ||||||||||||
| South Africa |
||||||||||||||||
| Actual |
1,000.00 | 926.10 | 0.62 | 3.00 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.00 | 0.62 | 3.15 | ||||||||||||
| Turkey Investable Market |
||||||||||||||||
| Actual |
1,000.00 | 1,093.90 | 0.62 | 3.26 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.00 | 0.62 | 3.15 | ||||||||||||
| USA |
||||||||||||||||
| Actual |
1,000.00 | 1,037.30 | 0.15 | 0.77 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,024.40 | 0.15 | 0.76 | ||||||||||||
| 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 (366 days). |
| SHAREHOLDER EXPENSES |
25 |
Table of Contents
iSHARES® MSCI BRAZIL INDEX FUND
August 31, 2012
| 26 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI BRAZIL INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
27 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI BRAZIL INDEX FUND
August 31, 2012
| 28 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI CANADA INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
29 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI CANADA INDEX FUND
August 31, 2012
| 30 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI CANADA INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
31 |
Table of Contents
Schedule of Investments
iSHARES® MSCI CHILE INVESTABLE MARKET INDEX FUND
August 31, 2012
| 32 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI CHILE INVESTABLE MARKET INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
33 |
Table of Contents
Schedule of Investments
iSHARES® MSCI ISRAEL CAPPED INVESTABLE MARKET INDEX FUND
August 31, 2012
| 34 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI ISRAEL CAPPED INVESTABLE MARKET INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
35 |
Table of Contents
Schedule of Investments
iSHARES® MSCI MEXICO INVESTABLE MARKET INDEX FUND
August 31, 2012
| 36 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI MEXICO INVESTABLE MARKET INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
37 |
Table of Contents
Schedule of Investments
iSHARES® MSCI SOUTH AFRICA INDEX FUND
August 31, 2012
| 38 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI SOUTH AFRICA INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
39 |
Table of Contents
Schedule of Investments
iSHARES® MSCI TURKEY INVESTABLE MARKET INDEX FUND
August 31, 2012
| 40 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI TURKEY INVESTABLE MARKET INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
41 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI TURKEY INVESTABLE MARKET INDEX FUND
August 31, 2012
| 42 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
August 31, 2012
| SCHEDULES OF INVESTMENTS |
43 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2012
| 44 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
45 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2012
| 46 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
47 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2012
| 48 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
49 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2012
| 50 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
51 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI USA INDEX FUND
August 31, 2012
| 52 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Assets and Liabilities
iSHARES®, INC.
August 31, 2012
| iShares MSCI Brazil Index Fund |
iShares MSCI Canada Index Fund |
iShares MSCI Chile Investable Market Index Fund |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 5,517,641,070 | $ | 4,735,126,382 | $ | 411,566,410 | ||||||
| Affiliated (Note 2) |
751,668 | 74,028,686 | 900,524 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 5,518,392,738 | $ | 4,809,155,068 | $ | 412,466,934 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 7,345,894,797 | $ | 4,244,760,141 | $ | 548,130,822 | ||||||
| Affiliated (Note 2) |
751,668 | 74,028,686 | 900,524 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
7,346,646,465 | 4,318,788,827 | 549,031,346 | |||||||||
| Foreign currencies, at valueb |
19,203,811 | 7,010,253 | — | |||||||||
| Cash held at broker, at valuec |
— | 1,013,119 | — | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
22,195,333 | 17,097,115 | 2,986,288 | |||||||||
| Dividends and interest |
19,776,625 | 6,707,552 | 65,682 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
7,407,822,234 | 4,350,616,866 | 552,083,316 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
33,197,490 | 20,191,046 | 8,686 | |||||||||
| Collateral for securities on loan (Note 5) |
— | 73,852,977 | — | |||||||||
| Capital shares redeemed |
— | 96,457 | 2,981,330 | |||||||||
| Futures variation margin |
— | 44,971 | — | |||||||||
| Investment advisory fees (Note 2) |
4,007,654 | 1,887,113 | 296,655 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
37,205,144 | 96,072,564 | 3,286,671 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 7,370,617,090 | $ | 4,254,544,302 | $ | 548,796,645 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
6,831,551,708 | 5,002,441,634 | 504,815,303 | |||||||||
| Undistributed (distributions in excess of) net investment income |
(53,385,526 | ) | 12,529,913 | — | ||||||||
| Accumulated net realized loss |
(1,234,724,865 | ) | (270,065,289 | ) | (92,578,843 | ) | ||||||
| Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies |
1,827,175,773 | (490,361,956 | ) | 136,560,185 | ||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 7,370,617,090 | $ | 4,254,544,302 | $ | 548,796,645 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingd |
140,100,000 | 154,600,000 | 9,100,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 52.61 | $ | 27.52 | $ | 60.31 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $ —, $69,624,222 and $ —, respectively. See Note 5. |
| b | Cost of foreign currencies: $19,171,921, $7,000,391 and $ —, respectively. |
| c | Cost of cash held at broker: $ —, $992,144 and $ —, respectively. |
| d | $0.001 par value, number of shares authorized: 500 million, 340.2 million and 200 million, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS |
53 |
Table of Contents
Statements of Assets and Liabilities (Continued)
iSHARES®, INC.
August 31, 2012
| iShares MSCI Israel Capped Investable Market Index Fund |
iShares MSCI Mexico Investable Market Index Fund |
iShares MSCI South Africa Index Fund |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 103,109,027 | $ | 1,297,070,613 | $ | 499,779,322 | ||||||
| Affiliated (Note 2) |
8,504,316 | 20,040,846 | 16,483,223 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 111,613,343 | $ | 1,317,111,459 | $ | 516,262,545 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 68,654,584 | $ | 1,181,416,711 | $ | 470,645,052 | ||||||
| Affiliated (Note 2) |
8,504,316 | 20,040,846 | 16,483,223 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
77,158,900 | 1,201,457,557 | 487,128,275 | |||||||||
| Foreign currencies, at valueb |
76,413 | 1,692,152 | 853,570 | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
3,089,902 | — | — | |||||||||
| Dividends and interest |
288,470 | 12,837 | 1,125,393 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
80,613,685 | 1,203,162,546 | 489,107,238 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
3,172,908 | — | 468,246 | |||||||||
| Collateral for securities on loan (Note 5) |
8,493,216 | 19,913,623 | 16,378,566 | |||||||||
| Capital shares redeemed |
— | — | 72,549 | |||||||||
| Investment advisory fees (Note 2) |
35,073 | 549,371 | 265,699 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
11,701,197 | 20,462,994 | 17,185,060 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 68,912,488 | $ | 1,182,699,552 | $ | 471,922,178 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
133,233,734 | 1,384,339,320 | 565,163,807 | |||||||||
| Undistributed (distributions in excess of) net investment income |
(3,903 | ) | 1,561,425 | (948,355 | ) | |||||||
| Accumulated net realized loss |
(29,863,351 | ) | (87,540,257 | ) | (63,143,743 | ) | ||||||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(34,453,992 | ) | (115,660,936 | ) | (29,149,531 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 68,912,488 | $ | 1,182,699,552 | $ | 471,922,178 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingc |
1,850,000 | 19,400,000 | 7,300,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 37.25 | $ | 60.96 | $ | 64.65 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $8,155,682, $18,314,263 and $15,210,894, respectively. See Note 5. |
| b | Cost of foreign currencies: $76,994, $1,699,186 and $864,018, respectively. |
| c | $0.001 par value, number of shares authorized: 500 million, 255 million and 400 million, respectively. |
See notes to financial statements.
| 54 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Assets and Liabilities (Continued)
iSHARES®, INC.
August 31, 2012
| iShares MSCI Turkey Investable Market Index Fund |
iShares MSCI USA Index Fund |
|||||||
| ASSETS |
||||||||
| Investments, at cost: |
||||||||
| Unaffiliated |
$ | 612,448,912 | $ | 129,943,835 | ||||
| Affiliated (Note 2) |
22,302,547 | 2,416,118 | ||||||
|
|
|
|
|
|||||
| Total cost of investments |
$ | 634,751,459 | $ | 132,359,953 | ||||
|
|
|
|
|
|||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||
| Unaffiliated |
$ | 561,294,434 | $ | 144,470,684 | ||||
| Affiliated (Note 2) |
22,302,547 | 2,456,420 | ||||||
|
|
|
|
|
|||||
| Total fair value of investments |
583,596,981 | 146,927,104 | ||||||
| Foreign currencies, at valueb |
45,057 | — | ||||||
| Receivables: |
||||||||
| Investment securities sold |
— | 840,475 | ||||||
| Dividends and interest |
65,866 | 347,351 | ||||||
|
|
|
|
|
|||||
| Total Assets |
583,707,904 | 148,114,930 | ||||||
|
|
|
|
|
|||||
| LIABILITIES |
||||||||
| Payables: |
||||||||
| Investment securities purchased |
— | 980,854 | ||||||
| Collateral for securities on loan (Note 5) |
22,141,188 | 1,645,836 | ||||||
| Investment advisory fees (Note 2) |
282,431 | 18,407 | ||||||
|
|
|
|
|
|||||
| Total Liabilities |
22,423,619 | 2,645,097 | ||||||
|
|
|
|
|
|||||
| NET ASSETS |
$ | 561,284,285 | $ | 145,469,833 | ||||
|
|
|
|
|
|||||
| Net assets consist of: |
||||||||
| Paid-in capital |
653,746,537 | 130,820,663 | ||||||
| Undistributed (distributions in excess of) net investment income |
(529,751 | ) | 589,867 | |||||
| Accumulated net realized loss |
(40,777,518 | ) | (507,848 | ) | ||||
| Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies |
(51,154,983 | ) | 14,567,151 | |||||
|
|
|
|
|
|||||
| NET ASSETS |
$ | 561,284,285 | $ | 145,469,833 | ||||
|
|
|
|
|
|||||
| Shares outstandingc |
10,000,000 | 4,800,000 | ||||||
|
|
|
|
|
|||||
| Net asset value per share |
$ | 56.13 | $ | 30.31 | ||||
|
|
|
|
|
|||||
| a | Securities on loan with values of $21,268,939 and $1,608,616, respectively. See Note 5. |
| b | Cost of foreign currencies: $45,573 and $ —, respectively. |
| c | $0.001 par value, number of shares authorized: 200 million and 500 million, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS |
55 |
Table of Contents
Statements of Operations
iSHARES®, INC.
Year ended August 31, 2012
| iShares MSCI Brazil Index Fund |
iShares MSCI Canada Index Fund |
iShares MSCI Chile Investable Market Index Fund |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends — unaffiliateda |
$ | 320,967,780 | $ | 111,072,111 | $ | 12,967,433 | ||||||
| Interest — affiliated (Note 2) |
2,530 | 1,284 | 492 | |||||||||
| Securities lending income — affiliated (Note 2) |
2,233 | 283,696 | — | |||||||||
|
|
|
|
|
|
|
|||||||
| 320,972,543 | 111,357,091 | 12,967,925 | ||||||||||
| Less: Other foreign taxes (Note 1) |
— | (11,406 | ) | — | ||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
320,972,543 | 111,345,685 | 12,967,925 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
55,389,902 | 23,683,748 | 3,655,560 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
55,389,902 | 23,683,748 | 3,655,560 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
265,582,641 | 87,661,937 | 9,312,365 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments — unaffiliated |
(531,476,853 | ) | (82,922,657 | ) | (53,319,519 | ) | ||||||
| In-kind redemptions — unaffiliated |
— | 103,949,741 | — | |||||||||
| Futures contracts |
— | (206 | ) | — | ||||||||
| Foreign currency transactions |
(11,746,875 | ) | 317,817 | (627,834 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain (loss) |
(543,223,728 | ) | 21,344,695 | (53,947,353 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
(1,350,755,635 | ) | (434,440,700 | ) | (39,628,008 | ) | ||||||
| Futures contracts |
— | (44,971 | ) | — | ||||||||
| Translation of assets and liabilities in foreign currencies |
(3,916,285 | ) | (32,367 | ) | (1,421 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
(1,354,671,920 | ) | (434,518,038 | ) | (39,629,429 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized loss |
(1,897,895,648 | ) | (413,173,343 | ) | (93,576,782 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (1,632,313,007 | ) | $ | (325,511,406 | ) | $ | (84,264,417 | ) | |||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $29,501,494, $19,537,309 and $4,076,485, respectively. |
See notes to financial statements.
| 56 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Operations (Continued)
iSHARES®, INC.
Year ended August 31, 2012
| 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 |
$ | 2,521,743 | $ | 20,178,499 | $ | 19,838,559 | ||||||
| Interest — affiliated (Note 2) |
84 | 327 | 102 | |||||||||
| Securities lending income — affiliated (Note 2) |
64,726 | 426,671 | 118,612 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
2,586,553 | 20,605,497 | 19,957,273 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
469,665 | 6,061,230 | 3,145,182 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
469,665 | 6,061,230 | 3,145,182 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
2,116,888 | 14,544,267 | 16,812,091 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments — unaffiliated |
(9,758,844 | ) | (44,417,227 | ) | (15,517,638 | ) | ||||||
| In-kind redemptions — unaffiliated |
1,007,522 | 96,098,861 | 25,087,193 | |||||||||
| Foreign currency transactions |
(31,471 | ) | 32,143 | (354,779 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain (loss) |
(8,782,793 | ) | 51,713,777 | 9,214,776 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
(7,354,374 | ) | (17,433,810 | ) | (37,998,271 | ) | ||||||
| Translation of assets and liabilities in foreign currencies |
(256 | ) | 18,058 | (31,210 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
(7,354,630 | ) | (17,415,752 | ) | (38,029,481 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain (loss) |
(16,137,423 | ) | 34,298,025 | (28,814,705 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (14,020,535 | ) | $ | 48,842,292 | $ | (12,002,614 | ) | ||||
|
|
|
|
|
|
|
|||||||
| a | Net of foreign withholding tax of $501,258, $ — and $520,032, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS |
57 |
Table of Contents
Statements of Operations (Continued)
iSHARES®, INC.
Year ended August 31, 2012
| iShares MSCI Turkey Investable Market Index Fund |
iShares MSCI USA Index Fund |
|||||||
| NET INVESTMENT INCOME |
||||||||
| Dividends — unaffiliateda |
$ | 8,949,668 | $ | 2,132,989 | ||||
| Dividends — affiliated (Note 2) |
— | 13,474 | ||||||
| Interest — affiliated (Note 2) |
136 | 51 | ||||||
| Securities lending income — affiliated (Note 2) |
1,048,966 | 9,532 | ||||||
|
|
|
|
|
|||||
| Total investment income |
9,998,770 | 2,156,046 | ||||||
|
|
|
|
|
|||||
| EXPENSES |
||||||||
| Investment advisory fees (Note 2) |
2,589,437 | 147,696 | ||||||
|
|
|
|
|
|||||
| Total expenses |
2,589,437 | 147,696 | ||||||
|
|
|
|
|
|||||
| Net investment income |
7,409,333 | 2,008,350 | ||||||
|
|
|
|
|
|||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||
| Net realized gain (loss) from: |
||||||||
| Investments — unaffiliated |
(23,864,682 | ) | (556,671 | ) | ||||
| Investments — affiliated (Note 2) |
— | (545 | ) | |||||
| In-kind redemptions — unaffiliated |
(19,119,854 | ) | 2,333,994 | |||||
| In-kind redemptions — affiliated (Note 2) |
— | 10,292 | ||||||
| Foreign currency transactions |
(65,112 | ) | — | |||||
|
|
|
|
|
|||||
| Net realized gain (loss) |
(43,049,648 | ) | 1,787,070 | |||||
|
|
|
|
|
|||||
| Net change in unrealized appreciation/depreciation on: |
||||||||
| Investments |
111,604,136 | 14,419,985 | ||||||
| Translation of assets and liabilities in foreign currencies |
12,276 | — | ||||||
|
|
|
|
|
|||||
| Net change in unrealized appreciation/depreciation |
111,616,412 | 14,419,985 | ||||||
|
|
|
|
|
|||||
| Net realized and unrealized gain |
68,566,764 | 16,207,055 | ||||||
|
|
|
|
|
|||||
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | 75,976,097 | $ | 18,215,405 | ||||
|
|
|
|
|
|||||
| a | Net of foreign withholding tax of $1,356,113 and $553, respectively. |
See notes to financial statements.
| 58 | 2012 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, 2012 |
Year ended August 31, 2011 |
Year ended August 31, 2012 |
Year ended August 31, 2011 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 265,582,641 | $ | 367,867,712 | $ | 87,661,937 | $ | 86,191,078 | ||||||||
| Net realized gain (loss) |
(543,223,728 | ) | 13,713,035 | 21,344,695 | 183,034,604 | |||||||||||
| Net change in unrealized appreciation/depreciation |
(1,354,671,920 | ) | (647,882,263 | ) | (434,518,038 | ) | 229,031,923 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
(1,632,313,007 | ) | (266,301,516 | ) | (325,511,406 | ) | 498,257,605 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(82,370,233 | ) | (577,419,673 | ) | (94,130,044 | ) | (84,459,614 | ) | ||||||||
| Return of capital |
(133,826,010 | ) | — | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(216,196,243 | ) | (577,419,673 | ) | (94,130,044 | ) | (84,459,614 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
139,197,302 | 2,935,390,134 | 652,923,013 | 2,412,404,012 | ||||||||||||
| Cost of shares redeemed |
(2,252,192,423 | ) | — | (1,071,283,795 | ) | (1,180,897,966 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
(2,112,995,121 | ) | 2,935,390,134 | (418,360,782 | ) | 1,231,506,046 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
(3,961,504,371 | ) | 2,091,668,945 | (838,002,232 | ) | 1,645,304,037 | ||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
11,332,121,461 | 9,240,452,516 | 5,092,546,534 | 3,447,242,497 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 7,370,617,090 | $ | 11,332,121,461 | $ | 4,254,544,302 | $ | 5,092,546,534 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of year |
$ | (53,385,526 | ) | $ | (237,401,416 | ) | $ | 12,529,913 | $ | 15,657,081 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
2,600,000 | 38,600,000 | 23,900,000 | 76,300,000 | ||||||||||||
| Shares redeemed |
(36,850,000 | ) | — | (39,700,000 | ) | (38,000,000 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
(34,250,000 | ) | 38,600,000 | (15,800,000 | ) | 38,300,000 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| FINANCIAL STATEMENTS |
59 |
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, 2012 |
Year ended August 31, 2011 |
Year ended August 31, 2012 |
Year ended August 31, 2011 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 9,312,365 | $ | 11,376,957 | $ | 2,116,888 | $ | 3,152,768 | ||||||||
| Net realized loss |
(53,947,353 | ) | (12,848,131 | ) | (8,782,793 | ) | (713,779 | ) | ||||||||
| Net change in unrealized appreciation/depreciation |
(39,629,429 | ) | (7,548,871 | ) | (7,354,630 | ) | (3,185,397 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net decrease in net assets resulting from operations |
(84,264,417 | ) | (9,020,045 | ) | (14,020,535 | ) | (746,408 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(8,674,940 | ) | (11,314,677 | ) | (1,986,153 | ) | (3,733,516 | ) | ||||||||
| Return of capital |
(430,786 | ) | (9,331 | ) | (63,813 | ) | — | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(9,105,726 | ) | (11,324,008 | ) | (2,049,966 | ) | (3,733,516 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
168,360,287 | 288,309,806 | 54,151,938 | 46,097,654 | ||||||||||||
| Cost of shares redeemed |
(234,211,464 | ) | (230,298,194 | ) | (47,186,462 | ) | (92,072,921 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
(65,851,177 | ) | 58,011,612 | 6,965,476 | (45,975,267 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
(159,221,320 | ) | 37,667,559 | (9,105,025 | ) | (50,455,191 | ) | |||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
708,017,965 | 670,350,406 | 78,017,513 | 128,472,704 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 548,796,645 | $ | 708,017,965 | $ | 68,912,488 | $ | 78,017,513 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions in excess of net investment income included in net assets at end of year |
$ | — | $ | (2,119 | ) | $ | (3,903 | ) | $ | (151,592 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
2,600,000 | 3,950,000 | 1,300,000 | 850,000 | ||||||||||||
| Shares redeemed |
(4,050,000 | ) | (3,350,000 | ) | (1,150,000 | ) | (1,750,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
(1,450,000 | ) | 600,000 | 150,000 | (900,000 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| 60 | 2012 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, 2012 |
Year ended August 31, 2011 |
Year ended August 31, 2012 |
Year ended August 31, 2011 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 14,544,267 | $ | 21,339,325 | $ | 16,812,091 | $ | 14,792,435 | ||||||||
| Net realized gain |
51,713,777 | 179,585,751 | 9,214,776 | 43,216,708 | ||||||||||||
| Net change in unrealized appreciation/depreciation |
(17,415,752 | ) | 111,537,604 | (38,029,481 | ) | 45,035,353 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
48,842,292 | 312,462,680 | (12,002,614 | ) | 103,044,496 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(16,941,924 | ) | (19,365,342 | ) | (16,263,704 | ) | (21,537,358 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(16,941,924 | ) | (19,365,342 | ) | (16,263,704 | ) | (21,537,358 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
1,078,823,186 | 737,959,537 | 164,594,240 | 174,104,575 | ||||||||||||
| Cost of shares redeemed |
(1,171,754,823 | ) | (1,237,364,625 | ) | (168,507,993 | ) | (256,700,202 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net decrease in net assets from capital share transactions |
(92,931,637 | ) | (499,405,088 | ) | (3,913,753 | ) | (82,595,627 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DECREASE IN NET ASSETS |
(61,031,269 | ) | (206,307,750 | ) | (32,180,071 | ) | (1,088,489 | ) | ||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of year |
1,243,730,821 | 1,450,038,571 | 504,102,249 | 505,190,738 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of year |
$ | 1,182,699,552 | $ | 1,243,730,821 | $ | 471,922,178 | $ | 504,102,249 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of year |
$ | 1,561,425 | $ | 3,926,939 | $ | (948,355 | ) | $ | (2,758,650 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
18,600,000 | 12,300,000 | 2,600,000 | 2,500,000 | ||||||||||||
| Shares redeemed |
(20,500,000 | ) | (21,100,000 | ) | (2,600,000 | ) | (3,800,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net decrease in shares outstanding |
(1,900,000 | ) | (8,800,000 | ) | — | (1,300,000 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| FINANCIAL STATEMENTS |
61 |
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, 2012 |
Year ended August 31, 2011 |
Year ended August 31, 2012 |
Year ended August 31, 2011 |
|||||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||||||
| OPERATIONS: |
||||||||||||||||
| Net investment income |
$ | 7,409,333 | $ | 8,905,310 | $ | 2,008,350 | $ | 36,203 | ||||||||
| Net realized gain (loss) |
(43,049,648 | ) | 71,241,274 | 1,787,070 | 10,879 | |||||||||||
| Net change in unrealized appreciation/depreciation |
111,616,412 | (215,343,703 | ) | 14,419,985 | 393,770 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
75,976,097 | (135,197,119 | ) | 18,215,405 | 440,852 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||||||
| From net investment income |
(8,952,333 | ) | (13,656,029 | ) | (1,429,449 | ) | (35,212 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions to shareholders |
(8,952,333 | ) | (13,656,029 | ) | (1,429,449 | ) | (35,212 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
| Proceeds from shares sold |
169,170,485 | 431,490,354 | 150,498,448 | 3,846,426 | ||||||||||||
| Cost of shares redeemed |
(123,586,926 | ) | (435,948,383 | ) | (27,048,052 | ) | (1,262,145 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from capital share transactions |
45,583,559 | (4,458,029 | ) | 123,450,396 | 2,584,281 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| INCREASE (DECREASE) IN NET ASSETS |
112,607,323 | (153,311,177 | ) | 140,236,352 | 2,989,921 | |||||||||||
| NET ASSETS |
||||||||||||||||
| Beginning of period |
448,676,962 | 601,988,139 | 5,233,481 | 2,243,560 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 561,284,285 | $ | 448,676,962 | $ | 145,469,833 | $ | 5,233,481 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of period |
$ | (529,751 | ) | $ | (695,924 | ) | $ | 589,867 | $ | 10,966 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||||||
| Shares sold |
3,250,000 | 6,400,000 | 5,550,000 | 150,000 | ||||||||||||
| Shares redeemed |
(2,650,000 | ) | (6,900,000 | ) | (950,000 | ) | (50,000 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in shares outstanding |
600,000 | (500,000 | ) | 4,600,000 | 100,000 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See notes to financial statements.
| 62 | 2012 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, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 65.00 | $ | 68.07 | $ | 58.26 | $ | 73.27 | $ | 61.59 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
| |||||||||||||||||||
| Net investment incomea |
1.73 | 2.24 | 1.56 | 1.56 | 1.93 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
(12.64 | ) | (1.69 | ) | 10.83 | (14.63 | ) | 11.59 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(10.91 | ) | 0.55 | 12.39 | (13.07 | ) | 13.52 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.56 | ) | (3.62 | ) | (2.58 | ) | (1.94 | ) | (1.41 | ) | ||||||||||
| Net realized gain |
— | — | — | — | (0.43 | ) | ||||||||||||||
| Return of capital |
(0.92 | ) | — | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(1.48 | ) | (3.62 | ) | (2.58 | ) | (1.94 | ) | (1.84 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 52.61 | $ | 65.00 | $ | 68.07 | $ | 58.26 | $ | 73.27 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(16.79 | )% | 0.36 | % | 21.12 | % | (16.05 | )% | 21.58 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 7,370,617 | $ | 11,332,121 | $ | 9,240,453 | $ | 8,777,366 | $ | 7,242,260 | ||||||||||
| Ratio of expenses to average net assetsc |
0.61 | % | 0.59 | % | 0.61 | % | 0.65 | % | 0.63 | % | ||||||||||
| Ratio of net investment income to average net assets |
2.92 | % | 3.08 | % | 2.24 | % | 3.38 | % | 2.37 | % | ||||||||||
| Portfolio turnover rated |
7 | % | 11 | % | 13 | % | 30 | % | 30 | % | ||||||||||
| 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 the years ended August 31, 2010 and prior have been recalculated, as necessary, to conform with the current 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, 2012, August 31, 2011, August 31, 2010, August 31, 2009 and August 31, 2008 would have been 6%, 11%, 13%, 14%, and 19%, respectively. See Note 4. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS |
63 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI Canada Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 29.89 | $ | 26.10 | $ | 23.70 | $ | 30.55 | $ | 29.87 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
| |||||||||||||||||||
| Net investment incomea |
0.53 | 0.53 | 0.43 | 0.41 | 0.47 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
(2.33 | ) | 3.78 | 2.39 | (6.84 | ) | 0.72 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(1.80 | ) | 4.31 | 2.82 | (6.43 | ) | 1.19 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.57 | ) | (0.52 | ) | (0.42 | ) | (0.42 | ) | (0.51 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.57 | ) | (0.52 | ) | (0.42 | ) | (0.42 | ) | (0.51 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 27.52 | $ | 29.89 | $ | 26.10 | $ | 23.70 | $ | 30.55 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(5.87 | )% | 16.50 | % | 11.91 | % | (20.51 | )% | 3.88 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 4,254,544 | $ | 5,092,547 | $ | 3,447,242 | $ | 2,393,638 | $ | 2,071,061 | ||||||||||
| Ratio of expenses to average net assetsc |
0.53 | % | 0.52 | % | 0.53 | % | 0.55 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
1.94 | % | 1.70 | % | 1.63 | % | 2.00 | % | 1.46 | % | ||||||||||
| Portfolio turnover rated |
5 | % | 8 | % | 6 | % | 6 | % | 11 | % | ||||||||||
| 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 the years ended August 31, 2010 and prior have been recalculated, as necessary, to conform with the current 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.
| 64 | 2012 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, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Period from to Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of period |
$ | 67.11 | $ | 67.37 | $ | 44.61 | $ | 44.80 | $ | 48.84 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomeb |
0.97 | 0.95 | 0.59 | 0.76 | 0.92 | |||||||||||||||
| Net realized and unrealized gain (loss)c |
(6.80 | ) | (0.23 | ) | 22.86 | (0.42 | ) | (4.38 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(5.83 | ) | 0.72 | 23.45 | 0.34 | (3.46 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.92 | ) | (0.98 | ) | (0.66 | ) | (0.53 | ) | (0.58 | ) | ||||||||||
| Return of capital |
(0.05 | ) | (0.00 | )d | (0.03 | ) | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.97 | ) | (0.98 | ) | (0.69 | ) | (0.53 | ) | (0.58 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of period |
$ | 60.31 | $ | 67.11 | $ | 67.37 | $ | 44.61 | $ | 44.80 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(8.68 | )% | 0.93 | % | 52.88 | % | 0.89 | % | (7.15 | )%e | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of period (000s) |
$ | 548,797 | $ | 708,018 | $ | 670,350 | $ | 263,205 | $ | 76,158 | ||||||||||
| Ratio of expenses to average net assetsf |
0.61 | % | 0.59 | % | 0.61 | % | 0.65 | % | 0.63 | % | ||||||||||
| Ratio of net investment income to average net assetsf |
1.55 | % | 1.30 | % | 1.05 | % | 1.98 | % | 2.38 | % | ||||||||||
| Portfolio turnover rateg |
48 | % | 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, 2012, August 31, 2011, August 31, 2010, August 31, 2009 and the period ended August 31, 2008 would have been 20%, 12%, 9%, 14% and 16%, respectively. See Note 4. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS |
65 |
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, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Period from to Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of period |
$ | 45.89 | $ | 49.41 | $ | 46.87 | $ | 48.62 | $ | 50.33 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomeb |
1.12 | 1.39 | 1.40 | 0.98 | 0.21 | |||||||||||||||
| Net realized and unrealized gain (loss)c |
(8.66 | ) | (3.18 | ) | 2.63 | (1.75 | ) | (1.92 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(7.54 | ) | (1.79 | ) | 4.03 | (0.77 | ) | (1.71 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(1.07 | ) | (1.73 | ) | (1.49 | ) | (0.98 | ) | — | |||||||||||
| Return of capital |
(0.03 | ) | — | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(1.10 | ) | (1.73 | ) | (1.49 | ) | (0.98 | ) | — | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of period |
$ | 37.25 | $ | 45.89 | $ | 49.41 | $ | 46.87 | $ | 48.62 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(16.52 | )% | (4.26 | )% | 8.57 | % | (0.63 | )% | (3.40 | )%d | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of period (000s) |
$ | 68,912 | $ | 78,018 | $ | 128,473 | $ | 107,792 | $ | 204,201 | ||||||||||
| Ratio of expenses to average net assetse |
0.61 | % | 0.59 | % | 0.61 | % | 0.66 | % | 0.63 | % | ||||||||||
| Ratio of net investment income to average net assetse |
2.75 | % | 2.49 | % | 2.64 | % | 2.66 | % | 0.93 | % | ||||||||||
| Portfolio turnover ratef |
20 | % | 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.
| 66 | 2012 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, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of year |
$ | 58.39 | $ | 48.17 | $ | 42.59 | $ | 51.94 | $ | 58.35 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomea |
0.73 | 0.80 | 0.72 | 0.43 | 1.40 | |||||||||||||||
| Net realized and unrealized gain (loss)b |
2.76 | 10.15 | 5.61 | (9.17 | ) | (6.21 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
3.49 | 10.95 | 6.33 | (8.74 | ) | (4.81 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.92 | ) | (0.73 | ) | (0.75 | ) | (0.61 | ) | (1.60 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.92 | ) | (0.73 | ) | (0.75 | ) | (0.61 | ) | (1.60 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 60.96 | $ | 58.39 | $ | 48.17 | $ | 42.59 | $ | 51.94 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
6.13 | % | 22.67 | % | 14.83 | % | (16.50 | )% | (8.44 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 1,182,700 | $ | 1,243,731 | $ | 1,450,039 | $ | 694,278 | $ | 955,684 | ||||||||||
| Ratio of expenses to average net assets |
0.53 | % | 0.52 | % | 0.53 | % | 0.55 | % | 0.52 | % | ||||||||||
| Ratio of net investment income to average net assets |
1.26 | % | 1.35 | % | 1.46 | % | 1.25 | % | 2.42 | % | ||||||||||
| Portfolio turnover ratec |
10 | % | 5 | % | 11 | % | 13 | % | 13 | % | ||||||||||
| 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 |
67 |
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, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008a |
||||||||||||||||
| Net asset value, beginning of year |
$ | 69.06 | $ | 58.74 | $ | 51.99 | $ | 55.80 | $ | 62.26 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomeb |
2.10 | 1.65 | 1.18 | 1.94 | 2.28 | |||||||||||||||
| Net realized and unrealized gain (loss)c |
(4.41 | ) | 11.08 | 6.92 | (3.84 | ) | (6.02 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(2.31 | ) | 12.73 | 8.10 | (1.90 | ) | (3.74 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(2.10 | ) | (2.41 | ) | (1.35 | ) | (1.91 | ) | (2.72 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(2.10 | ) | (2.41 | ) | (1.35 | ) | (1.91 | ) | (2.72 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 64.65 | $ | 69.06 | $ | 58.74 | $ | 51.99 | $ | 55.80 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(3.17 | )% | 21.58 | % | 15.80 | % | (2.23 | )% | (6.18 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 471,922 | $ | 504,102 | $ | 505,191 | $ | 488,728 | $ | 429,655 | ||||||||||
| Ratio of expenses to average net assets |
0.61 | % | 0.59 | % | 0.61 | % | 0.66 | % | 0.63 | % | ||||||||||
| Ratio of net investment income to average net assets |
3.26 | % | 2.38 | % | 2.09 | % | 4.81 | % | 3.61 | % | ||||||||||
| Portfolio turnover rated |
4 | % | 4 | % | 5 | % | 16 | % | 21 | % | ||||||||||
| 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.
| 68 | 2012 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, 2012 |
Year ended Aug. 31, 2011 |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Period from to Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of period |
$ | 47.73 | $ | 60.81 | $ | 48.01 | $ | 52.42 | $ | 50.30 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
||||||||||||||||||||
| Net investment incomeb |
0.86 | 0.84 | 1.00 | 0.78 | 0.83 | |||||||||||||||
| Net realized and unrealized gain (loss)c |
8.70 | (12.59 | ) | 13.02 | (4.22 | ) | 1.29 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
9.56 | (11.75 | ) | 14.02 | (3.44 | ) | 2.12 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(1.16 | ) | (1.33 | ) | (1.22 | ) | (0.97 | ) | — | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(1.16 | ) | (1.33 | ) | (1.22 | ) | (0.97 | ) | — | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of period |
$ | 56.13 | $ | 47.73 | $ | 60.81 | $ | 48.01 | $ | 52.42 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
20.37 | % | (19.74 | )% | 29.55 | % | (5.56 | )% | 4.22 | %d | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of period (000s) |
$ | 561,284 | $ | 448,677 | $ | 601,988 | $ | 242,435 | $ | 152,021 | ||||||||||
| Ratio of expenses to average net assetse |
0.61 | % | 0.59 | % | 0.61 | % | 0.65 | % | 0.63 | % | ||||||||||
| Ratio of net investment income to average net assetse |
1.75 | % | 1.30 | % | 1.81 | % | 2.39 | % | 3.78 | % | ||||||||||
| Portfolio turnover ratef |
9 | % | 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 |
69 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI USA Index Fund | ||||||||||||
| Year ended Aug. 31, 2012 |
Year ended Aug. 31, 2011 |
Period from to |
||||||||||
| Net asset value, beginning of period |
$ | 26.17 | $ | 22.44 | $ | 24.83 | ||||||
|
|
|
|
|
|
|
|||||||
| Income from investment operations: |
||||||||||||
| Net investment incomeb |
0.59 | 0.51 | 0.17 | |||||||||
| Net realized and unrealized gain (loss)c |
3.94 | 3.73 | (2.49 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Total from investment operations |
4.53 | 4.24 | (2.32 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Less distributions from: |
||||||||||||
| Net investment income |
(0.39 | ) | (0.51 | ) | (0.07 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total distributions |
(0.39 | ) | (0.51 | ) | (0.07 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net asset value, end of period |
$ | 30.31 | $ | 26.17 | $ | 22.44 | ||||||
|
|
|
|
|
|
|
|||||||
| Total return |
17.44 | % | 18.89 | % | (9.37 | )%d | ||||||
|
|
|
|
|
|
|
|||||||
| Ratios/Supplemental data: |
||||||||||||
| Net assets, end of period (000s) |
$ | 145,470 | $ | 5,233 | $ | 2,244 | ||||||
| Ratio of expenses to average net assetse |
0.15 | % | 0.15 | % | 0.15 | % | ||||||
| Ratio of net investment income to average net assetse |
2.04 | % | 1.90 | % | 2.21 | % | ||||||
| Portfolio turnover ratef |
6 | % | 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.
| 70 | 2012 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,” and 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.
SECURITY VALUATION
Each Fund’s investments are valued at fair value each day that the Fund’s listing exchange is open. U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement
| NOTES TO FINANCIAL STATEMENTS |
71 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
date. The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) provides oversight of the valuation of investments for the Funds. The investments of each Fund are valued pursuant to policies and procedures developed by the Global Valuation Committee and approved by the Board of Directors of the Company (the “Board”).
| • | Equity investments traded on a recognized securities exchange are valued at that day’s last reported trade price or the official closing price, as applicable, on the exchange where the stock is primarily traded. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last traded price. |
| • | Open-end U.S. mutual funds are valued at that day’s published net asset value (NAV). |
| • | Financial futures contracts are valued at that day’s last reported settlement price on the exchange where the contract is traded. |
In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the fair value of such investment or if a price is not available, the investment will be valued based upon other available factors deemed relevant by the Global Valuation Committee, in accordance with policies approved by the Board. These factors include but are not limited to (i) attributes specific to the investment; (ii) the principal market for the investment; (iii) the customary participants in the principal market for the investment; (iv) data assumptions by market participants for the investment, if reasonably available; (v) quoted prices for similar investments in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and/or other default rates. Valuations based on such factors are reported to the Board on a quarterly basis.
The Global Valuation Committee employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Company’s pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values, and reviews of market related activity.
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.
Various inputs are used in determining the fair value of financial instruments. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting purposes. 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. The three levels of the fair value hierarchy are as follows:
| • | Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities; |
| • | 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 (such as exchange rates, financing terms, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs; and |
| • | Level 3 — Unobservable inputs for the asset or liability, including the Funds’ assumptions used in determining the fair value of investments. |
| 72 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. In accordance with the Company’s policy, transfers between different levels of the fair value hierarchy are deemed to have occurred as of the beginning of the reporting period.
The following table summarizes the value of each of the Funds’ investments according to the fair value hierarchy as of August 31, 2012. The breakdown of each Fund’s investments into major categories is disclosed in its respective Schedule of Investments.
| iShares MSCI Index Fund and |
Investments | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Brazil |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 3,452,101,367 | $ | — | $ | — | $ | 3,452,101,367 | ||||||||
| Preferred Stocks |
3,893,793,430 | — | — | 3,893,793,430 | ||||||||||||
| Short-Term Investments |
751,668 | — | — | 751,668 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 7,346,646,465 | $ | — | $ | — | $ | 7,346,646,465 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Canada |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 4,244,760,056 | $ | — | $ | 85 | $ | 4,244,760,141 | ||||||||
| Short-Term Investments |
74,028,686 | — | — | 74,028,686 | ||||||||||||
| Liabilities: |
||||||||||||||||
| Futures Contractsa |
(44,971 | ) | — | — | (44,971 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 4,318,743,771 | $ | — | $ | 85 | $ | 4,318,743,856 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Chile Investable Market |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 508,900,484 | $ | — | $ | — | $ | 508,900,484 | ||||||||
| Preferred Stocks |
39,230,337 | — | — | 39,230,337 | ||||||||||||
| Rights |
— | — | 1 | 1 | ||||||||||||
| Short-Term Investments |
900,524 | — | — | 900,524 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 549,031,345 | $ | — | $ | 1 | $ | 549,031,346 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Israel Capped Investable Market |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 68,654,584 | $ | — | $ | — | $ | 68,654,584 | ||||||||
| Short-Term Investments |
8,504,316 | — | — | 8,504,316 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 77,158,900 | $ | — | $ | — | $ | 77,158,900 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| NOTES TO FINANCIAL STATEMENTS |
73 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund and |
Investments | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Mexico Investable Market |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 1,181,416,711 | $ | — | $ | — | $ | 1,181,416,711 | ||||||||
| Short-Term Investments |
20,040,846 | — | — | 20,040,846 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 1,201,457,557 | $ | — | $ | — | $ | 1,201,457,557 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| South Africa |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 470,645,052 | $ | — | $ | — | $ | 470,645,052 | ||||||||
| Short-Term Investments |
16,483,223 | — | — | 16,483,223 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 487,128,275 | $ | — | $ | — | $ | 487,128,275 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Turkey Investable Market |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 561,294,434 | $ | — | $ | — | $ | 561,294,434 | ||||||||
| Short-Term Investments |
22,302,547 | — | — | 22,302,547 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 583,596,981 | $ | — | $ | — | $ | 583,596,981 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| USA |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 145,086,626 | $ | — | $ | — | $ | 145,086,626 | ||||||||
| Rights |
— | — | 995 | 995 | ||||||||||||
| Short-Term Investments |
1,839,483 | — | — | 1,839,483 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 146,926,109 | $ | — | $ | 995 | $ | 146,927,104 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| a | Futures Contracts are shown at the net unrealized appreciation (depreciation) on the contracts. |
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, 2012 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.
| 74 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
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 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, 2012, 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.
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.
| 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 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 | |||
| NOTES TO FINANCIAL STATEMENTS |
75 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
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 billion | |||
| 0.45 | Over $32 billion | |||
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. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, and any fees or other payments to and from borrowers of securities. Each Fund retains 65% of securities lending income and pays a fee to BTC equal to 35% of such income. As securities lending agent, BTC is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BTC is also responsible for fees and expenses incurred by each Fund as a result of the investment of cash collateral received for securities on loan in a money market fund managed by BFA or an affiliate.
For the year ended August 31, 2012, BTC earned securities lending agent fees from the Funds as follows:
| iShares MSCI Index Fund |
Securities Lending Agent Fees |
|||
| Brazil |
$ | 999 | ||
| Canada |
152,759 | |||
| Israel Capped Investable Market |
34,852 | |||
| Mexico Investable Market |
229,746 | |||
| South Africa |
63,868 | |||
| Turkey Investable Market |
564,828 | |||
| USA |
5,135 | |||
At a special meeting of the Board held on January 5, 2012, the directors approved a new distribution agreement with BlackRock Investments, LLC (“BRIL”). BRIL is an affiliate of BFA. Effective April 1, 2012, BRIL replaced SEI Investments Distribution Co. as the distributor for each Fund. Pursuant to the new distribution agreement, BFA is responsible for any fees or expenses for distribution services provided to the Funds.
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.
| 76 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
The PNC Financial Services Group, Inc. is the largest stockholder of BlackRock and is considered to be an affiliate of the Funds for 1940 Act purposes.
Investments in issuers considered to be affiliates of the Funds (excluding short-term investments) during the year ended August 31, 2012, for purposes of Section 2(a)(3) of the 1940 Act, were as follows:
| iShares MSCI Index Fund and Name of Affiliated Issuer |
Shares Held at Beginning of Year |
Shares Purchased |
Shares Sold |
Shares Held of Year |
Value at of Year |
Dividend Income |
Net Realized Gain (Loss) |
|||||||||||||||||||||
| USA |
||||||||||||||||||||||||||||
| BlackRock Inc. |
42 | 1,645 | (242 | ) | 1,445 | $ | 254,855 | $ | 7,034 | $ | 2,474 | |||||||||||||||||
| PNC Financial Services Group Inc. (The) |
236 | 6,726 | (1,137 | ) | 5,825 | 362,082 | 6,440 | 7,273 | ||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||
| $ | 616,937 | $ | 13,474 | $ | 9,747 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||
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, 2012 were as follows:
| iShares MSCI Index Fund | Purchases | Sales | ||||||
| Brazil |
$ | 677,745,152 | $ | 2,687,930,140 | ||||
| Canada |
218,082,422 | 231,204,849 | ||||||
| Chile Investable Market |
289,404,783 | 355,650,955 | ||||||
| Israel Capped Investable Market |
15,662,730 | 15,433,746 | ||||||
| Mexico Investable Market |
112,275,470 | 115,569,470 | ||||||
| South Africa |
28,029,725 | 21,585,330 | ||||||
| Turkey Investable Market |
44,704,827 | 39,906,554 | ||||||
| USA |
7,113,772 | 6,415,668 | ||||||
In-kind transactions (see Note 4) for the year ended August 31, 2012 were as follows:
| iShares MSCI Index Fund | In-kind Purchases |
In-kind Sales |
||||||
| Canada |
$ | 647,280,432 | $ | 1,061,787,843 | ||||
| Israel Capped Investable Market |
53,704,433 | 46,921,730 | ||||||
| Mexico Investable Market |
1,076,855,290 | 1,169,587,848 | ||||||
| South Africa |
157,574,724 | 168,111,741 | ||||||
| Turkey Investable Market |
161,238,727 | 123,075,175 | ||||||
| USA |
149,988,187 | 27,014,749 | ||||||
| NOTES TO FINANCIAL STATEMENTS |
77 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| 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 a specified 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. Each Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the value of the cash collateral received.
As of August 31, 2012, 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, 2012 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, net of fees and other payments to and from borrowers, and less the fees paid to BTC as securities lending agent.
| 78 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| 6. | INCOME TAX INFORMATION |
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of August 31, 2012, attributable to passive foreign investment companies, the expiration of capital loss carryforwards, distributions paid in excess of taxable income, foreign currency transactions and realized gains (losses) from in-kind redemptions, were reclassified to the following accounts:
| 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 |
|||||||||
| Brazil |
$ | — | $ | 803,482 | $ | (803,482 | ) | |||||
| Canada |
46,499,708 | 3,340,939 | (49,840,647 | ) | ||||||||
| Chile Investable Market |
— | (635,306 | ) | 635,306 | ||||||||
| Israel Capped Investable Market |
(531,147 | ) | 16,954 | 514,193 | ||||||||
| Mexico Investable Market |
82,604,850 | 32,143 | (82,636,993 | ) | ||||||||
| South Africa |
19,275,126 | 1,261,908 | (20,537,034 | ) | ||||||||
| Turkey Investable Market |
(25,995,923 | ) | 1,709,173 | 24,286,750 | ||||||||
| USA |
2,283,670 | — | (2,283,670 | ) | ||||||||
The tax character of distributions paid during the years ended August 31, 2012 and August 31, 2011 was as follows:
| iShares MSCI Index Fund | 2012 | 2011 | ||||||
| Brazil |
||||||||
| Ordinary income |
$ | 82,370,233 | $ | 577,419,673 | ||||
| Return of Capital |
133,826,010 | — | ||||||
|
|
|
|
|
|||||
| $ | 216,196,243 | $ | 577,419,673 | |||||
|
|
|
|
|
|||||
| Canada |
||||||||
| Ordinary income |
$ | 94,130,044 | $ | 84,459,614 | ||||
|
|
|
|
|
|||||
| Chile Investable Market |
||||||||
| Ordinary income |
$ | 8,674,940 | $ | 11,314,677 | ||||
| Return of Capital |
430,786 | 9,331 | ||||||
|
|
|
|
|
|||||
| $ | 9,105,726 | $ | 11,324,008 | |||||
|
|
|
|
|
|||||
| Israel Capped Investable Market |
||||||||
| Ordinary income |
$ | 1,986,153 | $ | 3,733,516 | ||||
| Return of Capital |
63,813 | — | ||||||
|
|
|
|
|
|||||
| $ | 2,049,966 | $ | 3,733,516 | |||||
|
|
|
|
|
|||||
| Mexico Investable Market |
||||||||
| Ordinary income |
$ | 16,941,924 | $ | 19,365,342 | ||||
|
|
|
|
|
|||||
| NOTES TO FINANCIAL STATEMENTS |
79 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund | 2012 | 2011 | ||||||
| South Africa |
||||||||
| Ordinary income |
$ | 16,263,704 | $ | 21,537,358 | ||||
|
|
|
|
|
|||||
| Turkey Investable Market |
||||||||
| Ordinary income |
$ | 8,952,333 | $ | 13,656,029 | ||||
|
|
|
|
|
|||||
| USA |
||||||||
| Ordinary income |
$ | 1,429,449 | $ | 35,212 | ||||
|
|
|
|
|
|||||
As of August 31, 2012, the tax components of accumulated net earnings (losses) were as follows:
| iShares MSCI Index Fund | Undistributed Ordinary Income |
Capital Loss Carryforwards |
Net Unrealized Gains (Losses) a |
Qualified Late-Year Losses b |
Total | |||||||||||||||
| Brazil |
$ | — | $ | (358,257,493 | ) | $ | 1,331,322,754 | $ | (433,999,879 | ) | $ | 539,065,382 | ||||||||
| Canada |
22,938,870 | (156,573,257 | ) | (584,100,631 | ) | (30,162,314 | ) | (747,897,332 | ) | |||||||||||
| Chile Investable Market |
— | (45,080,793 | ) | 114,530,728 | (25,468,593 | ) | 43,981,342 | |||||||||||||
| Israel Capped Investable Market |
— | (21,857,675 | ) | (36,630,621 | ) | (5,832,950 | ) | (64,321,246 | ) | |||||||||||
| Mexico Investable Market |
1,561,425 | (42,722,155 | ) | (126,372,383 | ) | (34,106,655 | ) | (201,639,768 | ) | |||||||||||
| South Africa |
1,630,938 | (44,186,775 | ) | (39,214,805 | ) | (11,470,987 | ) | (93,241,629 | ) | |||||||||||
| Turkey Investable Market |
— | (15,384,001 | ) | (59,253,675 | ) | (17,824,576 | ) | (92,462,252 | ) | |||||||||||
| USA |
589,867 | (2,724 | ) | 14,353,895 | (291,868 | ) | 14,649,170 | |||||||||||||
| a | The difference between book-basis and tax-basis unrealized gains (losses) was 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. |
| b | The Funds have elected to defer certain qualified late-year losses and recognize such losses in the year ending August 31, 2013. |
As of August 31, 2012, the Funds had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:
| iShares MSCI Index Fund |
Non- Expiring a |
Expiring 2013 |
Expiring 2014 |
Expiring 2015 |
Expiring 2016 |
Expiring 2017 |
Expiring 2018 |
Expiring 2019 |
Total | |||||||||||||||||||||||||||
| Brazil |
$ | 160,031,183 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 198,226,310 | $ | — | $ | 358,257,493 | ||||||||||||||||||
| Canada |
31,451,368 | 2,931,648 | — | 5,363,291 | 5,107,471 | 27,886,883 | 68,928,677 | 14,903,919 | 156,573,257 | |||||||||||||||||||||||||||
| Chile Investable Market |
30,504,831 | — | — | — | — | 1,886,881 | 11,712,090 | 976,991 | 45,080,793 | |||||||||||||||||||||||||||
| Israel Capped Investable Market |
3,141,756 | — | — | — | — | 784,479 | 10,801,191 | 7,130,249 | 21,857,675 | |||||||||||||||||||||||||||
| Mexico Investable Market |
6,596,203 | 12,912 | 632,766 | — | 853,150 | 8,973,988 | 2,789,471 | 22,863,665 | 42,722,155 | |||||||||||||||||||||||||||
| South Africa |
5,013,197 | — | 260,738 | 1,607,845 | 972,024 | 15,339,464 | 14,856,365 | 6,137,142 | 44,186,775 | |||||||||||||||||||||||||||
| Turkey Investable Market |
4,821,444 | — | — | — | — | 720,636 | 5,982,737 | 3,859,184 | 15,384,001 | |||||||||||||||||||||||||||
| USA |
2,724 | — | — | — | — | — | — | — | 2,724 | |||||||||||||||||||||||||||
| a | Must be utilized prior to losses subject to expiration. |
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Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
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, 2012, 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) |
||||||||||||
| Brazil |
$ | 6,014,245,757 | $ | 2,181,751,958 | $ | (849,351,250 | ) | $ | 1,332,400,708 | |||||||
| Canada |
4,902,893,743 | 276,291,437 | (860,396,353 | ) | (584,104,916 | ) | ||||||||||
| Chile Investable Market |
434,496,391 | 149,186,694 | (34,651,739 | ) | 114,534,955 | |||||||||||
| Israel Capped Investable Market |
113,789,972 | 4,188,910 | (40,819,982 | ) | (36,631,072 | ) | ||||||||||
| Mexico Investable Market |
1,327,822,906 | 52,144,359 | (178,509,708 | ) | (126,365,349 | ) | ||||||||||
| South Africa |
526,327,819 | 51,910,461 | (91,110,005 | ) | (39,199,544 | ) | ||||||||||
| Turkey Investable Market |
642,850,151 | 19,752,825 | (79,005,995 | ) | (59,253,170 | ) | ||||||||||
| USA |
132,573,209 | 16,843,494 | (2,489,599 | ) | 14,353,895 | |||||||||||
Management has reviewed the tax positions as of August 31, 2012, inclusive of the open tax return years, and has determined that no provision for income tax is required in the Funds’ financial statements.
| 7. | FINANCIAL FUTURES CONTRACTS |
Each Fund may purchase or sell financial futures contracts in an effort to help such Fund track its underlying index. A futures contract is a standardized, exchange-traded agreement to buy and sell a financial instrument at a set price on a future date. Upon entering into a futures contract, the Fund is required to pledge to the executing broker which holds segregated from its own assets, an amount of cash, U.S. government securities or other high-quality debt and equity securities equal to the minimum initial margin requirements of the exchange on which the contract is traded. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as margin variation and are recorded by the Fund as unrealized appreciation or depreciation. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Losses may arise if the value of a futures contract decreases due to an unfavorable change in the market rates or values of the underlying instrument during the term of the contract or if the counterparty does not perform under the contract. The use of futures contracts also involves the risk of an imperfect correlation in the movements in the price of futures contracts and the assets underlying such contracts.
The following table shows the value of futures contracts held by iShares MSCI Canada Index Fund as of August 31, 2012 and the related locations in the Statements of Assets and Liabilities, presented by risk exposure category:
| Liabilities | ||||
| Equity contracts: |
||||
| Variation margin/Net assets consist of — net Unrealized appreciation (depreciation)a |
$ | (44,971 | ) | |
|
|
|
|||
| a | Represents cumulative depreciation of futures contracts as reported in the Schedule of Investments. |
| NOTES TO FINANCIAL STATEMENTS |
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Notes to Financial Statements (Continued)
iSHARES®, INC.
The following table shows the realized and unrealized gains (losses) on futures contracts held by iShares MSCI Canada Index Fund during the year ended August 31, 2012 and the related locations in the Statements of Operations, presented by risk exposure category:
| Net Realized Gain (Loss) |
Net Change in Unrealized Appreciation/Depreciation |
|||||||
| Equity contracts: |
||||||||
| Futures contracts |
$ | (206 | ) | $ | (44,971 | ) | ||
|
|
|
|
|
|||||
For the year ended August 31, 2012, the average quarter-end number of contracts and notional value of open futures contracts for the iShares MSCI Canada Index Fund were 63 and $8,728,041, respectively.
| 8. | 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.
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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 (the “Funds”), at August 31, 2012, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended 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, 2012 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 23, 2012
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Table of Contents
iSHARES®, INC.
For corporate shareholders, the following percentages of the income dividends paid by the Funds during the fiscal year ended August 31, 2012 qualified for the dividends-received deduction:
| iShares MSCI Index Fund | Dividends- Received Deduction |
|||
| USA |
100 | % | ||
For the fiscal year ended August 31, 2012, 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 |
$ | 350,469,274 | $ | 29,448,759 | ||||
| Canada |
130,609,420 | 19,541,009 | ||||||
| Chile Investable Market |
17,043,918 | 4,070,280 | ||||||
| Israel Capped Investable Market |
3,023,001 | 499,955 | ||||||
| Mexico Investable Market |
20,178,499 | — | ||||||
| South Africa |
20,358,591 | 520,000 | ||||||
| Turkey Investable Market |
10,305,602 | 1,356,036 | ||||||
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, 2012:
In February 2013, shareholders will receive Form 1099-DIV which will include their share of qualified dividend income distributed during the calendar year 2012. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their income tax returns.
| 84 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited)
iSHARES®, INC.
I. iShares MSCI Brazil, iShares MSCI Canada, iShares MSCI Chile Investable Market, iShares MSCI Israel Capped Investable Market, iShares MSCI Mexico Investable Market, iShares MSCI South Africa, and iShares MSCI Turkey Investable Market Index Funds
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. The Independent Directors requested, and BFA provided, such information as the Independent Directors, with advice from independent counsel, deemed reasonably necessary to evaluate the Advisory Contract. A committee of Independent Directors (the “15(c) Committee”), with independent counsel, met with management on April 19, 2012, April 27, 2012, and May 16, 2012, to discuss the types of information the Independent Directors required and the manner in which management would organize and present such information. At a meeting held on May 17, 2012, management presented information to the Board relating to the continuance of the Advisory Contract, and the Board, including the Independent Directors, reviewed and discussed such information at length. The Independent Directors requested from management certain additional information, and the 15(c) Committee met with management on June 8, 2012, to discuss the additional requests. At a meeting held on June 20-21, 2012, the Board, including the Independent Directors, reviewed additional information provided by management in response to these requests. The Board, including a majority of the Independent Directors, approved the continuance of the Advisory Contract for the Funds, based on a review of qualitative and quantitative information provided by BFA, including a review of supplemental information management provided at the request of the Independent Directors. 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 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:
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, sponsor, inception date, or other differentiating factors, but that 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 also received a detailed explanation from BFA regarding its rationale for including funds that had been excluded from Lipper’s consideration due to Lipper’s methodology parameters, as well as information showing the effect of including these additional funds in the analysis. 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 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, 2011, 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
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Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
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 periodic comparative performance information was also considered by the Board.
Based on this review, the other factors considered at the meeting, and their general knowledge of mutual fund pricing, the Board concluded that the investment advisory fees and expense levels and the historical performance of each Fund supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
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, to 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 have been added or enhanced since then, including in such areas as investor education, product management, customized portfolio consulting support, 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 and risk management 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, and the performance information discussed above, the Board concluded that the nature, extent and quality of services 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.
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, noting that the 15(c) Committee had focused on the methodology and proposed presentation during its meetings. 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.
| 86 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
Economies of Scale — The Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Funds’ assets, noting that the issue of economies of scale had been focused on extensively by the 15(c) Committee during its meetings and addressed by management. The Board and the 15(c) Committee reviewed information provided by BFA regarding scale benefits shared with the iShares funds through breakpoints, waivers, or other fee reductions, as well as through additional investment in the iShares business and the provision of improved or additional infrastructure and services to the iShares funds and their shareholders. The Board and the 15(c) Committee received information regarding BFA’s historical profitability, including BFA’s and its affiliates’ costs in providing services. The cost information distinguished between fixed and variable costs, and explained how the nature of such costs may impact the existence of scale benefits. 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. The Board noted that it would continue to monitor the sharing of economies of scale to determine the appropriateness of adding new or revised breakpoints in the future. Based on this review, as well as the other factors considered at the meeting, 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 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 substantially similar investment objectives and strategies as the Funds, except for iShares MSCI Chile Investable Market Index Fund, iShares Israel Capped Investable Market Index Fund, and iShares MSCI Mexico Investable Market 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 generally more extensive 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 exchange traded funds, as compared to the Other Accounts that are institutional clients in light of differing regulatory requirements and client-imposed mandates. The Board also considered the “all-inclusive” nature of the Funds’ advisory fee structure, and the Fund expenses borne by BFA under this arrangement. 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 ancillary revenue received by BFA and/or its affiliates in connection with the services provided to the Funds by BFA, such as payment of revenue to BTC, the Funds’ securities lending agent, for loaning portfolio securities (which was included in the profit margins reviewed by the Board pursuant to BFA’s profitability methodology), 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 generally 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
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Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
disadvantageous to the Funds’ shareholders and thus would not alter the Board’s conclusion with respect to the appropriateness of approving the continuance of the Advisory Contract for the coming year.
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.
II. iShares MSCI USA 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. The Independent Directors requested, and BFA provided, such information as the Independent Directors, with advice from independent counsel, deemed reasonably necessary to evaluate the Advisory Contract. A committee of Independent Directors (the “15(c) Committee”), with independent counsel, met with management on April 19, 2012, April 27, 2012, and May 16, 2012, to discuss the types of information the Independent Directors required and the manner in which management would organize and present such information. At a meeting held on May 17, 2012, management presented information to the Board relating to the continuance of the Advisory Contract, and the Board, including the Independent Directors, reviewed and discussed such information at length. The Independent Directors requested from management certain additional information, and the 15(c) Committee met with management on June 8, 2012, to discuss the additional requests. At a meeting held on June 20-21, 2012, the Board, including the Independent Directors, reviewed additional information provided by management in response to these requests. The Board, including a majority of the Independent Directors, approved the continuance of the Advisory Contract for the Fund, based on a review of qualitative and quantitative information provided by BFA, including a review of supplemental information management provided at the request of the Independent Directors. 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 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:
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, sponsor, inception date, or other differentiating factors, but that 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 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 also received a detailed explanation from BFA regarding its rationale for including funds that had been excluded from Lipper’s consideration due to Lipper’s methodology parameters, as well as information showing the effect of including these additional funds in the analysis. 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.
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Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
The Board also noted that the investment advisory fees and overall expenses for the Fund compared favorably to the investment advisory fee rates and overall expenses of the funds in the 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, 2011, 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 benchmark index. Such periodic comparative performance information was also considered by the Board.
Based on this review, the other factors considered at the meeting, and their general knowledge of mutual fund pricing, the Board concluded that the investment advisory fees and expense levels and the historical performance of the Fund supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
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, to supporting the Fund and its 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 Fund and its shareholders have been added or enhanced since then, including in such areas as investor education, product management, customized portfolio consulting support, 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 and risk management 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 inception date.
Based on review of this information, and the performance information discussed above, the Board concluded that the nature, extent and quality of services 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.
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, noting that the 15(c) Committee had focused on the methodology and proposed presentation during its meetings. 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
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Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
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 — The Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Fund’s assets, noting that the issue of economies of scale had been focused on extensively by the 15(c) Committee during its meetings and addressed by management. The Board and the 15(c) Committee reviewed information provided by BFA regarding scale benefits shared with the iShares funds through breakpoints, waivers, or other fee reductions, as well as through additional investment in the iShares business and the provision of improved or additional infrastructure and services to the iShares funds and their shareholders. The Board and the 15(c) Committee received information regarding BFA’s historical profitability, including BFA’s and its affiliates’ costs in providing services. The cost information distinguished between fixed and variable costs, and explained how the nature of such costs may impact the existence of scale benefits. The Board noted that the Advisory Contract for the Fund did not provide for any breakpoints in the Fund’s investment advisory fee rates 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 noted that it would continue to monitor the sharing of economies of scale to determine the appropriateness of adding breakpoints in the future. Based on this review, as well as the other factors considered at the meeting, the Board, recognizing its responsibility to consider this issue at least annually, concluded that the investment advisory fee rate incorporates potential economies of scale and supported the 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 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 generally more extensive 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 exchange traded fund, as compared to the Other Accounts that are institutional clients in light of differing regulatory requirements and client-imposed mandates. The Board also considered the “all-inclusive” nature of the Fund’s advisory fee structure, and the Fund expenses borne by BFA under this arrangement. 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 ancillary revenue received by BFA and/or its affiliates in connection with the services provided to the Fund by BFA, such as payment of revenue to BTC, the Fund’s securities lending agent, for loaning portfolio securities (which was included in the profit margins reviewed by the Board pursuant to BFA’s profitability methodology), 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 generally 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
| 90 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
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 and thus would not alter the Board’s conclusion with respect to the appropriateness of approving the continuance of the Advisory Contract for the coming year.
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 |
91 |
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 |
|||||||||||||||||||||||||||||||
| iShares MSCI Index Fund | 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 |
||||||||||||||||||||||||
| Canada |
$ | 0.56791 | $ | — | $ | 0.00126 | $ | 0.56917 | 100 | % | — | % | 0 | %a | 100 | % | ||||||||||||||||
| Israel Capped Investable Market |
1.00580 | — | 0.09714 | 1.10294 | 91 | — | 9 | 100 | ||||||||||||||||||||||||
| Mexico Investable Market |
0.91647 | — | — | 0.91647 | 100 | — | — | 100 | ||||||||||||||||||||||||
| South Africa |
2.02260 | — | 0.07432 | 2.09692 | 96 | — | 4 | 100 | ||||||||||||||||||||||||
| Turkey Investable Market |
1.01488 | — | 0.14474 | 1.15962 | 88 | — | 12 | 100 | ||||||||||||||||||||||||
| USA |
0.38886 | — | 0.00269 | 0.39155 | 99 | — | 1 | 100 | ||||||||||||||||||||||||
| a | Rounds to less than 1%. |
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.
| 92 | 2012 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, 2007 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 4.0% |
2 | 0.14 | % | |||||
| Greater than 3.5% and Less than 4.0% |
1 | 0.07 | ||||||
| Greater than 3.0% and Less than 3.5% |
5 | 0.36 | ||||||
| Greater than 2.5% and Less than 3.0% |
13 | 0.94 | ||||||
| Greater than 2.0% and Less than 2.5% |
34 | 2.46 | ||||||
| Greater than 1.5% and Less than 2.0% |
69 | 4.99 | ||||||
| Greater than 1.0% and Less than 1.5% |
104 | 7.51 | ||||||
| Greater than 0.5% and Less than 1.0% |
149 | 10.77 | ||||||
| Between 0.5% and –0.5% |
891 | 64.39 | ||||||
| Less than –0.5% and Greater than –1.0% |
74 | 5.35 | ||||||
| Less than –1.0% and Greater than –1.5% |
14 | 1.01 | ||||||
| Less than –1.5% and Greater than –2.0% |
10 | 0.72 | ||||||
| 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% |
1 | 0.07 | ||||||
| Less than –5.0% |
2 | 0.14 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
93 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Canada Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| 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% |
2 | 0.14 | ||||||
| Greater than 2.5% and Less than 3.0% |
2 | 0.14 | ||||||
| Greater than 2.0% and Less than 2.5% |
4 | 0.29 | ||||||
| Greater than 1.5% and Less than 2.0% |
3 | 0.22 | ||||||
| Greater than 1.0% and Less than 1.5% |
22 | 1.59 | ||||||
| Greater than 0.5% and Less than 1.0% |
103 | 7.45 | ||||||
| Between 0.5% and –0.5% |
1,113 | 80.42 | ||||||
| Less than –0.5% and Greater than –1.0% |
103 | 7.45 | ||||||
| Less than –1.0% and Greater than –1.5% |
24 | 1.73 | ||||||
| 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 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
iShares MSCI Chile Investable Market Index Fund
Period Covered: January 1, 2008 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 4.0% |
4 | 0.35 | % | |||||
| Greater than 3.5% and Less than 4.0% |
2 | 0.18 | ||||||
| Greater than 3.0% and Less than 3.5% |
1 | 0.09 | ||||||
| Greater than 2.5% and Less than 3.0% |
5 | 0.44 | ||||||
| Greater than 2.0% and Less than 2.5% |
8 | 0.71 | ||||||
| Greater than 1.5% and Less than 2.0% |
13 | 1.15 | ||||||
| Greater than 1.0% and Less than 1.5% |
46 | 4.06 | ||||||
| Greater than 0.5% and Less than 1.0% |
221 | 19.50 | ||||||
| Between 0.5% and –0.5% |
604 | 53.30 | ||||||
| Less than –0.5% and Greater than –1.0% |
163 | 14.39 | ||||||
| Less than –1.0% and Greater than –1.5% |
30 | 2.65 | ||||||
| Less than –1.5% and Greater than –2.0% |
17 | 1.50 | ||||||
| Less than –2.0% and Greater than –2.5% |
7 | 0.62 | ||||||
| Less than –2.5% and Greater than –3.0% |
4 | 0.35 | ||||||
| Less than –3.0% |
8 | 0.71 | ||||||
|
|
|
|
|
|||||
| 1,133 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 94 | 2012 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, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.0% |
3 | 0.28 | % | |||||
| Greater than 4.5% and Less than 5.0% |
1 | 0.09 | ||||||
| Greater than 4.0% and Less than 4.5% |
3 | 0.28 | ||||||
| Greater than 3.5% and Less than 4.0% |
1 | 0.09 | ||||||
| Greater than 3.0% and Less than 3.5% |
5 | 0.47 | ||||||
| Greater than 2.5% and Less than 3.0% |
5 | 0.47 | ||||||
| Greater than 2.0% and Less than 2.5% |
13 | 1.21 | ||||||
| Greater than 1.5% and Less than 2.0% |
31 | 2.89 | ||||||
| Greater than 1.0% and Less than 1.5% |
69 | 6.44 | ||||||
| Greater than 0.5% and Less than 1.0% |
168 | 15.66 | ||||||
| Between 0.5% and –0.5% |
497 | 46.35 | ||||||
| Less than –0.5% and Greater than –1.0% |
115 | 10.73 | ||||||
| Less than –1.0% and Greater than –1.5% |
69 | 6.44 | ||||||
| Less than –1.5% and Greater than –2.0% |
48 | 4.48 | ||||||
| Less than –2.0% and Greater than –2.5% |
14 | 1.31 | ||||||
| Less than –2.5% and Greater than –3.0% |
12 | 1.12 | ||||||
| Less than –3.0% and Greater than –3.5% |
5 | 0.47 | ||||||
| Less than –3.5% and Greater than –4.0% |
2 | 0.19 | ||||||
| Less than –4.0% and Greater than –4.5% |
1 | 0.09 | ||||||
| Less than –4.5% and Greater than –5.0% |
4 | 0.37 | ||||||
| Less than –5.0% and Greater than –5.5% |
2 | 0.19 | ||||||
| Less than –5.5% and Greater than –6.0% |
2 | 0.19 | ||||||
| Less than –6.0% |
2 | 0.19 | ||||||
|
|
|
|
|
|||||
| 1,072 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
95 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Mexico Investable Market Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 4.5% |
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% |
3 | 0.22 | ||||||
| Greater than 2.5% and Less than 3.0% |
3 | 0.22 | ||||||
| Greater than 2.0% and Less than 2.5% |
2 | 0.14 | ||||||
| Greater than 1.5% and Less than 2.0% |
11 | 0.79 | ||||||
| Greater than 1.0% and Less than 1.5% |
28 | 2.02 | ||||||
| Greater than 0.5% and Less than 1.0% |
101 | 7.31 | ||||||
| Between 0.5% and –0.5% |
985 | 71.17 | ||||||
| Less than –0.5% and Greater than –1.0% |
171 | 12.37 | ||||||
| Less than –1.0% and Greater than –1.5% |
48 | 3.47 | ||||||
| Less than –1.5% and Greater than –2.0% |
14 | 1.01 | ||||||
| Less than –2.0% and Greater than –2.5% |
6 | 0.43 | ||||||
| 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 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 96 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI South Africa Index Fund
Period Covered: January 1, 2007 through June 30, 2012
| 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% |
3 | 0.22 | ||||||
| Greater than 3.5% and Less than 4.0% |
6 | 0.43 | ||||||
| Greater than 3.0% and Less than 3.5% |
14 | 1.01 | ||||||
| Greater than 2.5% and Less than 3.0% |
11 | 0.79 | ||||||
| Greater than 2.0% and Less than 2.5% |
43 | 3.11 | ||||||
| Greater than 1.5% and Less than 2.0% |
64 | 4.62 | ||||||
| Greater than 1.0% and Less than 1.5% |
124 | 8.96 | ||||||
| Greater than 0.5% and Less than 1.0% |
233 | 16.84 | ||||||
| Between 0.5% and –0.5% |
496 | 35.84 | ||||||
| Less than –0.5% and Greater than –1.0% |
154 | 11.13 | ||||||
| Less than –1.0% and Greater than –1.5% |
75 | 5.42 | ||||||
| Less than –1.5% and Greater than –2.0% |
62 | 4.48 | ||||||
| Less than –2.0% and Greater than –2.5% |
34 | 2.46 | ||||||
| Less than –2.5% and Greater than –3.0% |
13 | 0.94 | ||||||
| Less than –3.0% and Greater than –3.5% |
20 | 1.45 | ||||||
| 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% and Greater than –5.0% |
2 | 0.14 | ||||||
| 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 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
97 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Turkey Investable Market Index Fund
Period Covered: April 1, 2008 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 6.0% |
7 | 0.65 | % | |||||
| Greater than 5.5% and Less than 6.0% |
3 | 0.28 | ||||||
| Greater than 5.0% and Less than 5.5% |
1 | 0.09 | ||||||
| Greater than 4.5% and Less than 5.0% |
2 | 0.19 | ||||||
| Greater than 4.0% and Less than 4.5% |
3 | 0.28 | ||||||
| Greater than 3.5% and Less than 4.0% |
2 | 0.19 | ||||||
| Greater than 3.0% and Less than 3.5% |
11 | 1.03 | ||||||
| Greater than 2.5% and Less than 3.0% |
20 | 1.87 | ||||||
| Greater than 2.0% and Less than 2.5% |
21 | 1.96 | ||||||
| Greater than 1.5% and Less than 2.0% |
38 | 3.54 | ||||||
| Greater than 1.0% and Less than 1.5% |
109 | 10.17 | ||||||
| Greater than 0.5% and Less than 1.0% |
181 | 16.88 | ||||||
| Between 0.5% and –0.5% |
380 | 35.46 | ||||||
| Less than –0.5% and Greater than –1.0% |
110 | 10.26 | ||||||
| Less than –1.0% and Greater than –1.5% |
74 | 6.90 | ||||||
| Less than –1.5% and Greater than –2.0% |
41 | 3.82 | ||||||
| Less than –2.0% and Greater than –2.5% |
22 | 2.05 | ||||||
| Less than –2.5% and Greater than –3.0% |
14 | 1.31 | ||||||
| Less than –3.0% and Greater than –3.5% |
9 | 0.84 | ||||||
| Less than –3.5% and Greater than –4.0% |
6 | 0.56 | ||||||
| Less than –4.0% and Greater than –4.5% |
4 | 0.37 | ||||||
| Less than –4.5% and Greater than –5.0% |
2 | 0.19 | ||||||
| Less than –5.0% and Greater than –5.5% |
1 | 0.09 | ||||||
| Less than –5.5% and Greater than –6.0% |
4 | 0.37 | ||||||
| Less than –6.0% |
7 | 0.65 | ||||||
|
|
|
|
|
|||||
| 1,072 | 100.00 | % | ||||||
|
|
|
|
|
|||||
iShares MSCI USA Index Fund
Period Covered: July 1, 2010 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 1.5% |
1 | 0.20 | % | |||||
| Greater than 1.0% and Less than 1.5% |
3 | 0.59 | ||||||
| Greater than 0.5% and Less than 1.0% |
7 | 1.39 | ||||||
| Between 0.5% and –0.5% |
482 | 95.44 | ||||||
| Less than –0.5% and Greater than –1.0% |
12 | 2.38 | ||||||
|
|
|
|
|
|||||
| 505 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 98 | 2012 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 Director 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, a Director of iShares MSCI Russia Capped Index Fund, Inc. and a Trustee of iShares U.S. ETF Trust and, as a result, oversees a total of 276 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 Robert H. Silver 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-iShares (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 (55) |
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). | Director of BlackRock, Inc. (since 2007); Trustee of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| Michael Lathamb (47) |
Director (since 2010); President (since 2007). | Chairman of iShares, BlackRock (since 2011); Global Chief Executive Officer of iShares, BlackRock (2010-2011); Managing Director, BlackRock (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, BGI (2003-2007). | Trustee of iShares Trust (since 2010); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| a | Robert S. Kapito is deemed to be an “interested person” (as defined in the 1940 Act) of the Trust 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 Trust due to his affiliations with BlackRock, Inc. and its affiliates. |
| DIRECTOR AND OFFICER INFORMATION |
99 |
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 | |||
| Robert H. Silver (57) |
Director (since 2007); Independent Chairman (since 2012). | President and Co-Founder of The Bravitas Group, Inc. (since 2006); Director and Vice Chairman of the YMCA of Greater NYC (2001-2011); Broadway Producer (2006-2011); 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); President and Chief Operating Officer of UBS Financial Services Inc. (formerly Pain Webber Inc.) (2004-2005) and various executive positions with UBS and its affiliates (1988-2005); CPA and Audit Manager of KPMG, LLP (formerly Peat Marwick Mitchell) (1977-1983). | Trustee of iShares Trust (since 2007); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Independent Chairman of iShares, Inc., iShares MSCI Russia Capped Index Fund, Inc. and iShares U.S. ETF Trust (since 2012). | |||
| Cecilia H. Herbert (63) |
Director (since 2005); Nominating and Governance Committee Chair and Equity Plus Committee Chair (since 2012). | Director (since 1998) and President (2007-2011) of the Board of Directors, Catholic Charities CYO; Trustee (since 2002) and Chair of the Finance Committee (2006-2009) and Investment Committee (since 2006), The Thacher School; Trustee of Pacific Select Funds (2004-2005); Member (since 1994) and Chair (1994-2005) of the Investment Committee, Archdiocese of San Francisco. |
Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Director of Forward Funds (35 portfolios) (since 2009). | |||
| Charles A. Hurty (69) |
Director (since 2005); Audit Committee Chair (since 2006). | Retired; Partner, KPMG LLP (1968-2001). |
Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002); Director of SkyBridge Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC (1 portfolio) (since 2002). | |||
| John E. Kerrigan (57) |
Director (since 2005); Fixed Income Plus Committee Chair (since 2012). | 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); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| 100 | 2012 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 | |||
| John E. Martinez (51) |
Director (since 2003); Securities Lending Committee Chair (since 2012). | Director of FirstREX Agreement Corp. (formerly EquityRock, Inc.) (since 2005). | Trustee of iShares Trust (since 2003); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| George G.C. Parker (73) |
Director (since 2002). | Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University Graduate School of Business (Professor since 1973; Emeritus since 2006). | Trustee of iShares Trust (since 2002); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); 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). | |||
| Madhav V. Rajan (48) |
Director (since 2011); 15(c) Committee Chair (since 2012). | Robert K. Jaedicke Professor of Accounting and Senior Associate Dean for Academic Affairs and Head of MBA Program, 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); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| DIRECTOR AND OFFICER INFORMATION |
101 |
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 | ||
| Edward B. Baer (44) |
Vice President and Chief Legal Officer (since 2012). |
Managing Director, BlackRock (since 2006). | ||
| Eilleen M. Clavere (60) |
Secretary (since 2007). |
Director, BlackRock (since 2009); Director of Legal Administration of Intermediary Investor Business, BGI (2006-2009). | ||
| Jack Gee (53) |
Treasurer and Chief Financial Officer (since 2008). |
Managing Director, BlackRock (since 2009); Senior Director of Fund Administration of Intermediary Investor Business, BGI (2009); Director of Fund Administration of Intermediary Investor Business, BGI (2004-2009). | ||
| Amy Schioldager (50) |
Executive Vice President (since 2007). |
Managing Director, BlackRock (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008). | ||
| Ira P. Shapiro (49) |
Vice President (since 2007). | Managing Director, BlackRock (since 2009); Chief Legal Officer, Exchange-Traded Funds Complex (2007-2012); Associate General Counsel, BGI (2004-2009). | ||
| Scott Radell (43) |
Executive Vice President (since 2012). |
Managing Director, BlackRock (since 2009); Head of Portfolio Solutions, BGI (2007-2009); Credit Portfolio Manager, BGI (2005-2007). | ||
| 102 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
For more information visit www.iShares.com
or call 1-800-474-2737
| Go paperless. . . |
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| It’s Fast, Convenient, and Timely! |
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iS-AR-84-0812
Table of Contents
|
August 31, 2012 |
2012 Annual Report
iShares, Inc.
iShares MSCI Emerging Markets Index Fund | EEM | NYSE Arca
Table of Contents
Table of Contents
| 5 | ||||
| 8 | ||||
| 9 | ||||
| 23 | ||||
| 26 | ||||
| 27 | ||||
| 36 | ||||
| 37 | ||||
| Board Review and Approval of Investment Advisory Contract (Unaudited) |
38 | |||
| 41 | ||||
| 43 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI EMERGING MARKETS INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Inception to 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (6.18)% | (6.19)% | (5.80)% | (0.64)% | (0.54)% | (0.37)% | 15.96% | 15.97% | 16.35% | ||||||||
| Cumulative Total Returns | ||||||||||||||||
| Year Ended 8/31/12 | Five Years Ended 8/31/12 | Inception to 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (6.18)% | (6.19)% | (5.80)% | (3.15)% | (2.69)% | (1.82)% | 302.21% | 302.52% | 314.82% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
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 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, 2012 (the “reporting period”), the total return for the Fund was (6.18)%, net of fees, while the total return for the Index was (5.80)%.
As represented by the Index, emerging markets stocks declined for the reporting period, reflecting a slowdown in growth rates in many emerging economies. Larger countries such as China, India, and Brazil — among the most rapidly growing economies in the world over the past decade — saw their economic growth rates fall during the reporting period. One factor behind this trend was the continuing sovereign debt crisis in Europe, which had a negative impact on financial institutions around the globe and led to a meaningful slowdown in European economic growth, including recessions in the most fiscally challenged countries in the region. Exports to developed regions of the world are an important component of emerging economies — for example, exports comprise approximately 40% of the Chinese economy, and the European Union is its largest trading partner. A marked decline in exports to Europe weighed on economic activity in many emerging markets.
In addition, central banks in many emerging markets raised short-term interest rates in 2011 to curb rising inflation, and this had a negative impact on domestic economic growth in 2012. Central banks in China, South Korea, and Brazil — the three largest country weightings in the Index on average — all raised interest rates in 2011 to combat runaway inflation. Although these three central banks were successful in lowering the inflation rate, higher borrowing costs put downward pressure on their respective domestic economies. By the spring of 2012, all three central banks began lowering short-term rates.
The primary factor behind the Index’s overall decline, however, was a stronger U.S. dollar, which lowered international equity returns for U.S. investors (in local currency terms, the Index gained 3.38% for the reporting period). Although the U.S. dollar was largely unchanged versus the Chinese yuan, it appreciated by 6.5% versus the South Korean won and more than 20% against the Brazilian real, Indian rupee, and South African rand.
| 6 | 2012 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, emerging markets in Eastern Europe suffered the most significant declines for the reporting period. Close proximity to the troubled eurozone contributed to the decline in Eastern European markets, most notably in Hungary, Poland, and Russia. Equity markets in Latin America also struggled during the reporting period, led by a sharp decline in the Brazilian stock market. Emerging markets in the Asia/Pacific region held up best as positive returns in the Philippines and Malaysia helped mitigate declines elsewhere, particularly the two largest economies in the region — India and China.
From a sector perspective, six of the ten sectors in the Index declined for the reporting period. The most economically sensitive sectors—including energy, materials, and industrials — posted double-digit declines for the reporting period. In particular, the energy and materials sectors were adversely impacted by a substantial decline in commodity prices. On the positive side, information technology stocks generated the best returns, gaining more than 13% as a group for the reporting period. The other sectors that gained ground are considered to be defensive sectors of the market — consumer staples, health care, and telecommunication services.
| 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, 2012 to August 31, 2012.
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 (3/1/12) |
Ending Account Value (8/31/12) |
Annualized Expense Ratio |
Expenses Paid During Period a |
|||||||||||||
| Actual |
$ | 1,000.00 | $ | 892.50 | 0.68 | % | $ | 3.23 | ||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,021.70 | 0.68 | 3.46 | ||||||||||||
| 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 (366 days). |
| 8 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULE OF INVESTMENTS |
9 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2012
| 10 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULE OF INVESTMENTS |
11 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2012
| 12 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULE OF INVESTMENTS |
13 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2012
| 14 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULE OF INVESTMENTS |
15 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2012
| 16 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULE OF INVESTMENTS |
17 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2012
| 18 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULE OF INVESTMENTS |
19 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2012
| 20 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULE OF INVESTMENTS |
21 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2012
| 22 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Statement of Assets and Liabilities
iSHARES® MSCI EMERGING MARKETS INDEX FUND
August 31, 2012
| ASSETS |
||||
| Investments, at cost: |
||||
| Unaffiliated |
$ | 36,131,573,579 | ||
| Affiliated (Note 2) |
1,784,531,449 | |||
|
|
|
|||
| Total cost of investments |
$ | 37,916,105,028 | ||
|
|
|
|||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||
| Unaffiliated |
$ | 34,083,877,725 | ||
| Affiliated (Note 2) |
1,784,531,449 | |||
|
|
|
|||
| Total fair value of investments |
35,868,409,174 | |||
| Foreign currencies, at valueb |
58,015,684 | |||
| Cash |
32,480,966 | |||
| Cash held at broker, at value |
18,604,000 | |||
| Receivables: |
||||
| Investment securities sold |
135,362,655 | |||
| Dividends and interest |
78,027,535 | |||
| Futures variation margin |
1,511,220 | |||
|
|
|
|||
| Total Assets |
36,192,411,234 | |||
|
|
|
|||
| LIABILITIES |
||||
| Payables: |
||||
| Investment securities purchased |
117,870,739 | |||
| Collateral for securities on loan (Note 5) |
1,739,607,529 | |||
| Capital shares redeemed |
53,773,661 | |||
| Foreign taxes (Note 1) |
4,350,696 | |||
| Investment advisory fees (Note 2) |
20,180,329 | |||
|
|
|
|||
| Total Liabilities |
1,935,782,954 | |||
|
|
|
|||
| NET ASSETS |
$ | 34,256,628,280 | ||
|
|
|
|||
| Net assets consist of: |
||||
| Paid-in capital |
$ | 40,751,814,714 | ||
| Undistributed net investment income |
90,247,601 | |||
| Accumulated net realized loss |
(4,544,676,689 | ) | ||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(2,040,757,346 | ) | ||
|
|
|
|||
| NET ASSETS |
$ | 34,256,628,280 | ||
|
|
|
|||
| Shares outstandingc |
873,450,000 | |||
|
|
|
|||
| Net asset value per share |
$ | 39.22 | ||
|
|
|
|||
| a | Securities on loan with a value of $1,637,267,392. See Note 5. |
| b | Cost of foreign currencies: $57,911,959. |
| c | $0.001 par value, number of shares authorized: 2 billion. |
See notes to consolidated financial statements.
| CONSOLIDATED FINANCIAL STATEMENTS |
23 |
Table of Contents
Consolidated Statement of Operations
iSHARES® MSCI EMERGING MARKETS INDEX FUND
Year ended August 31, 2012
| NET INVESTMENT INCOME |
||||
| Dividends — unaffiliateda |
$ | 946,944,370 | ||
| Interest — unaffiliated |
1,215 | |||
| Interest — affiliated (Note 2) |
27,388 | |||
| Securities lending income — affiliated (Note 2)b |
33,159,893 | |||
|
|
|
|||
| 980,132,866 | ||||
| Less: Other foreign taxes (Note 1) |
(4,190,077 | ) | ||
|
|
|
|||
| Total investment income |
975,942,789 | |||
|
|
|
|||
| EXPENSES |
||||
| Investment advisory fees (Note 2) |
238,711,967 | |||
| Mauritius income taxes (Note 1) |
286,269 | |||
| Commitment fees (Note 7) |
55,104 | |||
| Interest expense (Note 7) |
29,571 | |||
|
|
|
|||
| Total expenses |
239,082,911 | |||
| Less investment advisory fees waived (Note 2) |
(2,970,385 | ) | ||
|
|
|
|||
| Net expenses |
236,112,526 | |||
|
|
|
|||
| Net investment income |
739,830,263 | |||
|
|
|
|||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||
| Net realized gain (loss) from: |
||||
| Investments — unaffiliated |
(1,383,793,216 | ) | ||
| Investments — affiliated (Note 2) |
(119,037 | ) | ||
| In-kind redemptions — unaffiliated |
346,741,091 | |||
| In-kind redemptions — affiliated (Note 2) |
(12,443 | ) | ||
| Futures contracts |
2,511,231 | |||
| Foreign currency transactions |
(33,736,832 | ) | ||
|
|
|
|||
| Net realized loss |
(1,068,409,206 | ) | ||
|
|
|
|||
| Net change in unrealized appreciation/depreciation on: |
||||
| Investments |
(1,949,295,568 | ) | ||
| Futures contracts |
7,733,312 | |||
| Translation of assets and liabilities in foreign currencies |
(661,884 | ) | ||
|
|
|
|||
| Net change in unrealized appreciation/depreciation |
(1,942,224,140 | ) | ||
|
|
|
|||
| Net realized and unrealized loss |
(3,010,633,346 | ) | ||
|
|
|
|||
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (2,270,803,083 | ) | |
|
|
|
|||
| a | Net of foreign withholding tax of $106,651,366. |
| b | Net of foreign tax paid of $1,156,628. |
See notes to consolidated financial statements.
| 24 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Statements of Changes in Net Assets
iSHARES® MSCI EMERGING MARKETS INDEX FUND
| Year ended August 31, 2012 |
Year ended August 31, 2011 |
|||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||
| OPERATIONS: |
||||||||
| Net investment income |
$ | 739,830,263 | $ | 729,292,060 | ||||
| Net realized gain (loss) |
(1,068,409,206 | ) | 2,985,401,279 | |||||
| Net change in unrealized appreciation/depreciation |
(1,942,224,140 | ) | 63,663,978 | |||||
|
|
|
|
|
|||||
| Net increase (decrease) in net assets resulting from operations |
(2,270,803,083 | ) | 3,778,357,317 | |||||
|
|
|
|
|
|||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||
| From net investment income |
(703,374,541 | ) | (763,134,134 | ) | ||||
|
|
|
|
|
|||||
| Total distributions to shareholders |
(703,374,541 | ) | (763,134,134 | ) | ||||
|
|
|
|
|
|||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||
| Proceeds from shares sold |
7,880,602,043 | 5,567,132,618 | ||||||
| Cost of shares redeemed |
(4,146,345,050 | ) | (14,852,761,754 | ) | ||||
|
|
|
|
|
|||||
| Net increase (decrease) in net assets from capital share transactions |
3,734,256,993 | (9,285,629,136 | ) | |||||
|
|
|
|
|
|||||
| INCREASE (DECREASE) IN NET ASSETS |
760,079,369 | (6,270,405,953 | ) | |||||
| NET ASSETS |
||||||||
| Beginning of year |
33,496,548,911 | 39,766,954,864 | ||||||
|
|
|
|
|
|||||
| End of year |
$ | 34,256,628,280 | $ | 33,496,548,911 | ||||
|
|
|
|
|
|||||
| Undistributed net investment income included in net assets at end of year |
$ | 90,247,601 | $ | 84,964,451 | ||||
|
|
|
|
|
|||||
| SHARES ISSUED AND REDEEMED |
||||||||
| Shares sold |
193,950,000 | 118,800,000 | ||||||
| Shares redeemed |
(104,850,000 | ) | (324,000,000 | ) | ||||
|
|
|
|
|
|||||
| Net increase (decrease) in shares outstanding |
89,100,000 | (205,200,000 | ) | |||||
|
|
|
|
|
|||||
See notes to consolidated financial statements.
| CONSOLIDATED FINANCIAL STATEMENTS |
25 |
Table of Contents
iSHARES® MSCI EMERGING MARKETS INDEX FUND
(For a share outstanding throughout each period)
| Year ended (Consolidated) |
Year ended Aug. 31, 2011 (Consolidated) |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Year ended Aug. 31, 2008a |
||||||||||||||||
| Net asset value, beginning of year |
$ | 42.71 | $ | 40.19 | $ | 35.48 | $ | 40.07 | $ | 44.78 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
| |||||||||||||||||||
| Net investment incomeb |
0.86 | 0.81 | 0.58 | 0.66 | 1.10 | |||||||||||||||
| Net realized and unrealized gain (loss)c |
(3.53 | ) | 2.56 | 4.73 | (4.66 | ) | (4.64 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(2.67 | ) | 3.37 | 5.31 | (4.00 | ) | (3.54 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.82 | ) | (0.85 | ) | (0.60 | ) | (0.59 | ) | (1.17 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.82 | ) | (0.85 | ) | (0.60 | ) | (0.59 | ) | (1.17 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of year |
$ | 39.22 | $ | 42.71 | $ | 40.19 | $ | 35.48 | $ | 40.07 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(6.18 | )% | 8.23 | % | 14.97 | % | (9.47 | )% | (8.36 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
||||||||||||||||||||
| Net assets, end of year (000s) |
$ | 34,256,628 | $ | 33,496,549 | $ | 39,766,955 | $ | 30,268,121 | $ | 20,302,756 | ||||||||||
| Ratio of expenses to average net assetsd |
0.68 | % | 0.67 | % | 0.68 | % | 0.72 | % | 0.72 | % | ||||||||||
| Ratio of expenses to average net assets prior to waived feesd |
0.69 | % | 0.67 | % | 0.68 | % | 0.72 | % | 0.72 | % | ||||||||||
| Ratio of net investment income to average net assets |
2.13 | % | 1.76 | % | 1.45 | % | 2.32 | % | 2.32 | % | ||||||||||
| Portfolio turnover ratee |
15 | % | 17 | % | 14 | % | 5 | % | 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 | Ratios for the periods ended August 31, 2010 and prior have been recalculated, as necessary, to conform with the current presentation of foreign taxes. |
| e | 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 rates for the years ended August 31, 2012 and August 31, 2011 would have been 10% and 15%, respectively. See Note 4. |
See notes to consolidated financial statements.
| 26 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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”):
| iShares MSCI Index Fund | Diversification Classification | |
| Emerging Markets |
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 for the Fund include the accounts of the Subsidiary.
The Fund 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 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.
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
27 |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
SECURITY VALUATION
The Fund’s investments are valued at fair value each day that the Fund’s listing exchange is open. U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) provides oversight of the valuation of investments for the Fund. The investments of the Fund are valued pursuant to policies and procedures developed by the Global Valuation Committee and approved by the Board of Directors of the Company (the “Board”).
| • | Equity investments traded on a recognized securities exchange are valued at that day’s last reported trade price or the official closing price, as applicable, on the exchange where the stock is primarily traded. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last traded price. |
| • | Exchange-traded funds and closed-end funds traded on a recognized securities exchange are valued at that day’s last reported trade price or the official closing price, as applicable, on the exchange where the fund is primarily traded. Funds traded on a recognized exchange for which there were no sales on that day are valued at the last traded price. |
| • | Open-end U.S. mutual funds are valued at that day’s published net asset value (NAV). |
| • | Financial futures contracts are valued at that day’s last reported settlement price on the exchange where the contract is traded. |
In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the fair value of such investment or if a price is not available, the investment will be valued based upon other available factors deemed relevant by the Global Valuation Committee, in accordance with policies approved by the Board. These factors include but are not limited to (i) attributes specific to the investment; (ii) the principal market for the investment; (iii) the customary participants in the principal market for the investment; (iv) data assumptions by market participants for the investment, if reasonably available; (v) quoted prices for similar investments in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and/or other default rates. Valuations based on such factors are reported to the Board on a quarterly basis.
The Global Valuation Committee employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Company’s pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values, and reviews of market related activity.
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.
Various inputs are used in determining the fair value of financial instruments. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting purposes. 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. The three levels of the fair value hierarchy are as follows:
| • | Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities; |
| 28 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
| • | 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 (such as exchange rates, financing terms, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs; and |
| • | Level 3 — Unobservable inputs for the asset or liability, including the Fund’s assumptions used in determining the fair value of investments. |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. In accordance with the Company’s policy, transfers between different levels of the fair value hierarchy are deemed to have occurred as of the beginning of the reporting period.
The following table summarizes the value of each of the Fund’s investments according to the fair value hierarchy as of August 31, 2012. The breakdown of the Fund’s investments into major categories is disclosed in its Consolidated Schedule of Investments.
| Investments | ||||||||||||||||
| Investment Type | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 31,375,972,914 | $ | 33,241,503 | $ | — | $ | 31,409,214,417 | ||||||||
| Preferred Stocks |
2,673,378,457 | — | — | 2,673,378,457 | ||||||||||||
| Rights |
— | 1,284,851 | — | 1,284,851 | ||||||||||||
| Short-Term Investments |
1,784,531,449 | — | — | 1,784,531,449 | ||||||||||||
| Futures Contractsa |
7,733,312 | — | — | 7,733,312 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 35,841,616,132 | $ | 34,526,354 | $ | — | $ | 35,876,142,486 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| a | Futures contracts are shown at the net unrealized appreciation (depreciation) on the contracts. |
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, 2012 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.
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
29 |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS 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 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 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, 2012, if any, are disclosed in the Fund’s Consolidated Statement of Assets and Liabilities.
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.
As a result of recent legislative changes enacted by the 2012 India Finance Act (“the Act”) and its general anti-avoidance rules (“GAAR”), which are effective April 1, 2013, the Subsidiary’s ability to leverage the treaty between Mauritius and India may be adversely impacted, and therefore the Fund may be subject to taxes on capital gains and/or dividends realized on Indian securities. The Act also includes provisions that impose Indian tax on the transfer of shares of an Indian company. However, until more definitive guidance on the legislative changes is available, the impact to the Fund, if any, cannot be determined at this time.
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.
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.
| 30 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS 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 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 |
BFA has voluntarily waived a portion of its investment advisory fees for the Fund in the amount of $2,966,217.
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, 2012, BFA waived its investment advisory fees for the Fund in the amount of $4,168.
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. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, and any fees or other payments to and from borrowers of securities. The Fund retains 65% of securities lending income and pays a fee to BTC equal to 35% of such income. As securities lending agent, BTC is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BTC is also responsible for fees and expenses incurred by the Fund as a result of the investment of cash collateral received for securities on loan in a money market fund managed by BFA or an affiliate.
For the year ended August 31, 2012, BTC earned securities lending agent fees from the Fund of $18,260,147.
For the year ended August 31, 2012, BTC, the Fund’s securities lending agent, has agreed to voluntarily reimburse the Fund in the amount of $404,820, related to the foreign tax on the securities lending income. Such reimbursement is included in the “Securities lending income – affiliated” in the Fund’s Consolidated Statement of Operations.
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
31 |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
At a special meeting of the Board held on January 5, 2012, the directors approved a new distribution agreement with BlackRock Investments, LLC (“BRIL”). BRIL is an affiliate of BFA. Effective April 1, 2012, BRIL replaced SEI Investments Distribution Co. as the distributor for the Fund. Pursuant to the new distribution agreement, BFA is responsible for any fees or expenses for distribution services provided to the 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. is the largest stockholder of BlackRock and is considered to be an affiliate of the Fund for 1940 Act purposes.
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, 2012, for purposes of Section 2(a)(3) of the 1940 Act, were as follows:
| Name of Affiliated Issuer | Shares Held at Beginning of Year |
Shares Purchased |
Shares Sold |
Shares Held at End of Year |
Value at End of Year |
Dividend Income |
Net Realized Gain (Loss) |
|||||||||||||||||||||
| iShares MSCI Malaysia Index Fund |
349,867 | 43,826 | (393,693 | ) | — | $ | — | $ | — | $ | (131,480 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||
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, 2012, were $6,862,980,988 and $5,058,173,451, respectively.
In-kind purchases and sales (see Note 4) for the year ended August 31, 2012, aggregated $4,140,909,712 and $2,241,885,429, 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 a specified 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
| 32 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
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. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the value of the cash collateral received.
As of August 31, 2012, 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, 2012 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, net of fees and other payments to and from borrowers, and less the fees paid to BTC as securities lending agent.
| 6. | INCOME TAX INFORMATION |
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of August 31, 2012, attributable to passive foreign investment companies, the expiration of capital loss carryforwards, foreign currency transactions and realized gains (losses) from in-kind redemptions, were reclassified to the following accounts:
| Paid-in Capital |
Undistributed Net Investment Income/Distributions in Excess of Net Investment Income |
Undistributed Net Realized Gain/Accumulated Net Realized Loss |
||||||||
| $ | 241,735,240 | $ | (31,172,572) | $ | (210,562,668) | |||||
The tax character of distributions paid during the years ended August 31, 2012 and August 31, 2011 was as follows:
| 2012 | 2011 | |||||||
| Ordinary income |
$ | 703,374,541 | $ | 763,134,134 | ||||
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| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
33 |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
As of August 31, 2012, the tax components of accumulated net earnings (losses) were as follows:
| Undistributed Ordinary Income |
Capital Loss Carryforwards |
Net Unrealized Gains (Losses)a |
Qualified Late-Year Lossesb |
Total | ||||||||||||||
| $ | 106,067,286 | $ | (2,980,649,149 | ) | $ | (2,616,246,283 | ) | $ | (1,004,358,288 | ) | $ | (6,495,186,434 | ) | |||||
| a | The difference between book-basis and tax-basis unrealized gains (losses) was attributable primarily to the tax deferral of losses on wash sales, the realization for tax purposes of unrealized gains (losses) on certain futures contracts and the realization for tax purposes of unrealized gains on investments in passive foreign investment companies. |
| b | The Fund has elected to defer certain qualified late-year losses and recognize such losses in the year ending August 31, 2013. |
As of August 31, 2012, the Fund had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:
| Non- Expiringa |
Expiring 2013 |
Expiring 2014 |
Expiring 2015 |
Expiring 2016 |
Expiring 2017 |
Expiring 2018 |
Expiring 2019 |
Total | ||||||||||||||||||||||||||
| $ | 602,564,447 | $ | 20,296,564 | $ | 11,239,258 | $ | 29,973,301 | $ | 13,844,901 | $ | 228,196,854 | $ | 1,201,366,175 | $ | 873,167,649 | $ | 2,980,649,149 | |||||||||||||||||
| a | Must be utilized prior to losses subject to expiration. |
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, 2012, the cost of investments for federal income tax purposes was $38,483,860,653. Net unrealized depreciation was $2,615,451,479, of which $4,207,139,867 represented gross unrealized appreciation on securities and $6,822,591,346 represented gross unrealized depreciation on securities.
Management has reviewed the tax positions as of August 31, 2012, 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.
| 7. | FINANCIAL FUTURES CONTRACTS |
The Fund may purchase or sell financial futures contracts in an effort to help the Fund track its underlying index. A futures contract is a standardized, exchange-traded agreement to buy and sell a financial instrument at a set price on a future date. Upon entering into a futures contract, the Fund is required to pledge to the executing broker which holds segregated from its own assets, an amount of cash, U.S. government securities or other high-quality debt and equity securities equal to the minimum initial margin requirements of the exchange on which the contract is traded. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as margin variation and are recorded by the Fund as unrealized appreciation or depreciation. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Losses may arise if the value of a futures contract decreases due to an unfavorable change in the market rates or values of the underlying instrument during the term of the contract or if the counterparty does not perform under the contract. The use of futures contracts also involves the risk of an imperfect correlation in the movements in the price of futures contracts and the assets underlying such contracts.
| 34 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
The following table shows the value of futures contracts held as of August 31, 2012 and the related locations in the Consolidated Statement of Assets and Liabilities, presented by risk exposure category:
| Assets | ||||
| Equity contracts: |
||||
| Variation margin/Net assets consist |
$ | 7,733,312 | ||
|
|
|
|||
| a | Represents cumulative appreciation of futures contracts as reported in the Consolidated Schedule of Investments. Only current day’s variation margin is reported within the Consolidated Statement of Assets and Liabilities. |
The following table shows the realized and unrealized gains (losses) on futures contracts held during the year ended August 31, 2012 and the related locations in the Consolidated Statement of Operations, presented by risk exposure category:
| Net Realized Gain (Loss) |
Net Change in
Unrealized Appreciation/Depreciation |
|||||||
| Equity contracts: |
||||||||
| Futures contracts |
$ | 2,511,231 | $ | 7,733,312 | ||||
|
|
|
|
|
|||||
For the year ended August 31, 2012, the average quarter-end number of contracts and notional value of open futures contracts for the Fund were 1,907 and $89,914,370, respectively.
| 8. | LINE OF CREDIT |
The Fund, along with certain other iShares funds, is a party to a $125 million credit agreement with State Street Bank and Trust Company, which expires October 31, 2012. The credit agreement was established to facilitate the funding of purchases of securities in India. The credit agreement has the following terms: a commitment fee of 0.08% per annum on the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR plus 1.00% per annum or (b) the U.S. Federal Funds rate plus 1.00% per annum on amounts borrowed. The commitment fee is allocated to each fund participating in the credit agreement based on each fund’s pro-rata share of the aggregate average daily value of assets invested in local Indian securities.
For the year ended August 31, 2012, the Fund’s maximum amount borrowed, the average borrowings and the average interest rate under the credit agreement were $118,769,420, $2,277,770 and 1.24%, respectively.
| 9. | 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 |
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 statements of operations and of changes in net assets and the consolidated financial highlights present fairly, in all material respects, the financial position of the iShares MSCI Emerging Markets Index Fund and its subsidiary (the “Fund”), at August 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended 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, 2012 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 23, 2012
| 36 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI EMERGING MARKETS INDEX FUND
For corporate shareholders, 0.49% of the income dividends paid by the Fund during the fiscal year August 31, 2012 qualified for the dividends-received deduction.
For the fiscal year ended August 31, 2012, the Fund earned foreign source income of $1,053,594,515 and paid foreign taxes of $109,766,119 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 $640,469,790 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, 2012.
In February 2013, shareholders will receive Form 1099-DIV which will include their share of qualified dividend income distributed during the calendar year 2012. 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. The Independent Directors requested, and BFA provided, such information as the Independent Directors, with advice from independent counsel, deemed reasonably necessary to evaluate the Advisory Contract. A committee of Independent Directors (the “15(c) Committee”), with independent counsel, met with management on April 19, 2012, April 27, 2012, and May 16, 2012, to discuss the types of information the Independent Directors required and the manner in which management would organize and present such information. At a meeting held on May 17, 2012, management presented information to the Board relating to the continuance of the Advisory Contract, and the Board, including the Independent Directors, reviewed and discussed such information at length. The Independent Directors requested from management certain additional information, and the 15(c) Committee met with management on June 8, 2012, to discuss the additional requests. At a meeting held on June 20-21, 2012, the Board, including the Independent Directors, reviewed additional information provided by management in response to these requests. The Board, including a majority of the Independent Directors, approved the continuance of the Advisory Contract for the Fund, based on a review of qualitative and quantitative information provided by BFA, including a review of supplemental information management provided at the request of the Independent Directors. 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 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:
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, sponsor, inception date, or other differentiating factors, but that 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 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 also received a detailed explanation from BFA regarding its rationale for including funds that had been excluded from Lipper’s consideration due to Lipper’s methodology parameters, as well as information showing the effect of including these additional funds in the analysis. 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.
The Board also noted that the investment advisory fees and overall expenses for the Fund compared favorably to the investment advisory fee rates and overall expenses of the funds in the 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, 2011, 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
| 38 | 2012 iSHARESANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
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 benchmark index. Such periodic comparative performance information was also considered by the Board.
Based on this review, the other factors considered at the meeting, and their general knowledge of mutual fund pricing, the Board concluded that the investment advisory fees and expense levels and the historical performance of the Fund supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
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, to supporting the Fund and its 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 Fund and its shareholders have been added or enhanced since then, including in such areas as investor education, product management, customized portfolio consulting support, 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 and risk management 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 inception date.
Based on review of this information, and the performance information discussed above, the Board concluded that the nature, extent and quality of services 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.
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, noting that the 15(c) Committee had focused on the methodology and proposed presentation during its meetings. 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 — The Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Fund’s assets, noting that the issue of economies of scale had been focused on extensively by the 15(c) Committee during its meetings and addressed by management. The Board and the 15(c) Committee reviewed information provided by BFA regarding scale benefits shared with the iShares funds through breakpoints, waivers, or other fee reductions, as well as through additional investment in the iShares business and the provision of improved or additional infrastructure and services to the iShares funds and their shareholders. The Board and
| 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
the 15(c) Committee received information regarding BFA’s historical profitability, including BFA’s and its affiliates’ costs in providing services. The cost information distinguished between fixed and variable costs, and explained how the nature of such costs may impact the existence of scale benefits. The Board noted that the Advisory Contract for the Fund already provided for breakpoints in the Fund’s investment advisory fee rates as the assets of the Fund, on an aggregated basis with the assets of certain other iShares funds, increase. The Board noted that it would continue to monitor the sharing of economies of scale to determine the appropriateness of adding new or revised breakpoints in the future. Based on this review, as well as the other factors considered at the meeting, 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 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 generally more extensive 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 exchange traded fund, as compared to the Other Accounts that are institutional clients in light of differing regulatory requirements and client-imposed mandates. The Board also considered the “all-inclusive” nature of the Fund’s advisory fee structure, and the Fund expenses borne by BFA under this arrangement. 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 ancillary revenue received by BFA and/or its affiliates in connection with the services provided to the Fund by BFA, such as payment of revenue to BTC, the Fund’s securities lending agent, for loaning portfolio securities (which was included in the profit margins reviewed by the Board pursuant to BFA’s profitability methodology), 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 generally 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 and thus would not alter the Board’s conclusion with respect to the appropriateness of approving the continuance of the Advisory Contract for the coming year.
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 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited)
iSHARES® MSCI EMERGING MARKETS INDEX FUND
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 the 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 |
|||||||||||||||||||||||
| $ | 0.77400 | $ | — | $ | 0.04132 | $ | 0.81532 | 95 | % | — | % | 5 | % | 100 | % | |||||||||||||||
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.
| SUPPLEMENTAL INFORMATION |
41 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES® MSCI EMERGING MARKETS 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, 2007 through June 30, 2012
| 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% |
4 | 0.29 | ||||||
| Greater than 3.0% and Less than 3.5% |
2 | 0.14 | ||||||
| Greater than 2.5% and Less than 3.0% |
10 | 0.72 | ||||||
| Greater than 2.0% and Less than 2.5% |
15 | 1.08 | ||||||
| Greater than 1.5% and Less than 2.0% |
29 | 2.10 | ||||||
| Greater than 1.0% and Less than 1.5% |
66 | 4.77 | ||||||
| Greater than 0.5% and Less than 1.0% |
241 | 17.42 | ||||||
| Between 0.5% and –0.5% |
684 | 49.43 | ||||||
| Less than –0.5% and Greater than –1.0% |
174 | 12.57 | ||||||
| Less than –1.0% and Greater than –1.5% |
88 | 6.36 | ||||||
| Less than –1.5% and Greater than –2.0% |
32 | 2.31 | ||||||
| Less than –2.0% and Greater than –2.5% |
13 | 0.94 | ||||||
| Less than –2.5% and Greater than –3.0% |
6 | 0.43 | ||||||
| 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% |
5 | 0.36 | ||||||
| Less than –4.5% |
3 | 0.22 | ||||||
|
|
|
|
|
|||||
| 1,384 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 42 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Director and Officer Information (Unaudited)
iSHARES® MSCI EMERGING MARKET 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 Director 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 MSCI Russia Capped Index Fund, Inc. also serves as a Director of iShares, Inc., a Trustee of iShares Trust and a Trustee of iShares U.S. ETF Trust and, as a result, oversees a total of 276 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 Robert H. Silver as its Independent Chairman. Additional information about the Fund’s Directors and Officers may be found in the Fund’s Statement of Additional Information, which is available without charge, upon request, by calling toll-free 1-800-iShares (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 (55) |
Director (since 2010). |
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). | Director of BlackRock, Inc. (since 2007); Director of iShares, Inc. (since 2009); Trustee of iShares Trust (since 2009); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| Michael Lathamb (47) |
Director |
Chairman of iShares, BlackRock (since 2011); Global Chief Executive Officer of iShares, BlackRock (2010-2011); Managing Director, BlackRock (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, BGI (2003-2007). | Director of iShares, Inc. (since 2010); Trustee of iShares Trust (since 2010); Trustee of iShares U.S. ETF Trust | |||
| a | Robert S. Kapito is deemed to be an “interested person” (as defined in the 1940 Act) of the Trust 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 Trust due to his affiliations with BlackRock, Inc. and its affiliates. |
| DIRECTOR AND OFFICER INFORMATION |
43 |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® MSCI EMERGING MARKET INDEX FUND
Independent Directors
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| Robert H. Silver (57) |
Director (since 2010); Independent Chairman (since 2012). |
President and Co-Founder of The Bravitas Group, Inc. (since 2006); Director and Vice Chairman of the YMCA of Greater NYC (2001-2011); Broadway Producer (2006-2011); 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); President and Chief Operating Officer of UBS Financial Services Inc. (formerly Pain Webber Inc.) (2004-2005) and various executive positions with UBS and its affiliates (1988-2005); CPA and Audit Manager of KPMG, LLP (formerly Peat Marwick Mitchell) (1977-1983). | Director of iShares, Inc. (since 2007); Trustee of iShares Trust (since 2007); Trustee of iShares U.S. ETF Trust (since 2011); Independent Chairman of iShares, Inc., iShares Trust and iShares U.S. ETF Trust (since 2012). | |||
| Cecilia H. Herbert (63) |
Director (since 2010); Nominating and Governance Committee Chair and Equity Plus Committee Chair (since 2012). |
Director (since 1998) and President (2007-2011) of the Board of Directors, Catholic Charities CYO; Trustee (since 2002) and Chair of the Finance Committee (2006-2009) and Investment Committee (since 2006), The Thacher School; Trustee of Pacific Select Funds (2004-2005); Member (since 1994) and Chair (1994-2005) of the Investment Committee, Archdiocese of San Francisco. |
Director of iShares, Inc. (since 2005); Trustee of iShares Trust (since 2005); Trustee of iShares U.S. ETF Trust (since 2011); Director of Forward Funds (35 portfolios) (since 2009). | |||
| Charles A. Hurty (69) |
Director (since 2010); Audit Committee Chair (since 2006). |
Retired; Partner, KPMG LLP (1968-2001). |
Director of iShares, Inc. (since 2005); Trustee of iShares Trust (since 2005); Trustee of iShares U.S. ETF Trust (since 2011); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002); Director of SkyBridge Alternative Investment Multi-Adviser Hedge Fund Portfolios LLC (1 portfolio) (since 2002). | |||
| John E. Kerrigan (57) |
Director (since 2010); Fixed Income Plus Committee Chair (since 2012). |
Chief Investment Officer, Santa Clara University (since 2002). | Director of iShares, Inc. (since 2005); Trustee of iShares Trust (since 2005); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| 44 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® MSCI EMERGING MARKET INDEX FUND
Independent Directors (Continued)
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years |
Other Directorships Held | |||
| John E. Martinez (51) |
Director (since 2010); Securities Lending Committee Chair (since 2012). |
Director of FirstREX Agreement Corp. (formerly EquityRock, Inc.) (since 2005). | Director of iShares, Inc. (since 2003); Trustee of iShares Trust (since 2003); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| George G.C. Parker (73) |
Director (since 2010). |
Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University Graduate School of Business (Professor since 1973; Emeritus since 2006). | Director of iShares, Inc. (since 2002); Trustee of iShares Trust (since 2000); Trustee of iShares U.S. ETF Trust (since 2011); 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). | |||
| Madhav V. Rajan (48) |
Director (since 2011); 15(c) Committee Chair (since 2012). |
Robert K. Jaedicke Professor of Accounting and Senior Associate Dean for Academic Affairs and Head of MBA Program, 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). |
Director of iShares, Inc. (since 2011); Trustee of iShares Trust (since 2011); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| DIRECTOR AND OFFICER INFORMATION |
45 |
Table of Contents
Director and Officer Information (Unaudited) (Continued)
iSHARES® MSCI EMERGING MARKET INDEX FUND
Officers
| Name (Age) | Position(s) (Length of Service) |
Principal Occupation(s) During the Past 5 Years | ||
| Edward B. Baer (44) |
Vice President and Chief Legal Officer (since 2012). |
Managing Director, BlackRock (since 2006). | ||
| Eilleen M. Clavere (60) |
Secretary (since 2010). |
Director, BlackRock (since 2009); Director of Legal Administration of Intermediary Investor Business, BGI (2006-2009). | ||
| Jack Gee (53) |
Treasurer and Chief Financial Officer (since 2010). |
Managing Director, BlackRock (since 2009); Senior Director of Fund Administration of Intermediary Investor Business, BGI (2009); Director of Fund Administration of Intermediary Investor Business, BGI (2004-2009). | ||
| Amy Schioldager (50) |
Executive Vice President (since 2010). |
Managing Director, BlackRock (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008). | ||
| Ira P. Shapiro (49) |
Vice President (since 2010). | Managing Director, BlackRock (since 2009); Chief Legal Officer, Exchange-Traded Funds Complex (2007-2012); Associate General Counsel, BGI (2004-2009). | ||
| Scott Radell (43) |
Executive Vice President (since 2012). |
Managing Director, BlackRock (since 2009); Head of Portfolio Solutions, BGI (2007-2009); Credit Portfolio Manager, BGI (2005-2007). | ||
| 46 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
For more information visit www.iShares.com
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iS-AR-85-0812
Table of Contents
|
August 31, 2012 |
2012 Annual Report
iShares, Inc.
iShares MSCI BRIC Index Fund | BKF | NYSE Arca
iShares MSCI Emerging Markets Asia Index Fund | EEMA | NASDAQ
iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund | EMDI | NASDAQ
iShares MSCI Emerging Markets Energy Sector Capped Index Fund | EMEY | NASDAQ
iShares MSCI Emerging Markets Growth Index Fund | EGRW | NASDAQ
iShares MSCI Emerging Markets Minimum Volatility Index Fund | EEMV | NYSE Arca
iShares MSCI Emerging Markets Small Cap Index Fund | EEMS | NYSE Arca
iShares MSCI Emerging Markets Value Index Fund | EVAL | NASDAQ
Table of Contents
| 5 | ||||
| 28 | ||||
| 30 | ||||
| 30 | ||||
| 35 | ||||
| iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
43 | |||
| iShares MSCI Emerging Markets Energy Sector Capped Index Fund |
45 | |||
| 47 | ||||
| 54 | ||||
| 58 | ||||
| 67 | ||||
| 74 | ||||
| 84 | ||||
| 92 | ||||
| 104 | ||||
| 105 | ||||
| Board Review and Approval of Investment Advisory Contract (Unaudited) |
106 | |||
| 110 | ||||
| 115 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI BRIC INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | Cumulative Total Returns | |||||||||||||||
| Year Ended 8/31/12 | Inception to 8/31/12 | Inception to 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (13.33)% | (12.90)% | (12.17)% | (7.50)% | (7.52)% | (7.19)% | (31.22)% | (31.30)% | (30.12)% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
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 |
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 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 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, 2012 (the “reporting period”), the total return for the Fund was (13.33)%, net of fees, while the total return for the Index was (12.17)%.
As represented by the Index, the stock markets in the BRIC countries posted double-digit declines for the reporting period, reflecting a slowdown in global economic growth. China, Brazil, and India — among the most rapidly growing economies in the world over the past decade — saw their economic growth rates fall during the reporting period, while Russia’s growth rate was largely unchanged. One factor behind this trend was the continuing sovereign debt crisis in Europe, which had a negative impact on financial institutions around the globe and led to a meaningful slowdown in European economic growth, including recessions in the most fiscally challenged countries in the region. Exports to developed regions of the world are an important component of emerging economies. For example, exports comprise approximately 40% of the Chinese economy, and the European Union is its largest trading partner. A marked decline in exports to Europe weighed on economic activity in BRIC countries.
In addition, central banks in the BRIC countries raised short-term interest rates in 2011 to combat runaway inflation, and this had a negative impact on domestic economic growth in 2012. Although the central banks were successful in lowering the inflation rate in their respective countries, higher borrowing costs put downward pressure on their domestic economies. By the spring of 2012, all four central banks began lowering short-term rates.
Another factor behind the Index’s overall decline was a stronger U.S. dollar, which lowered international equity returns for U.S. investors (in local currency terms, the Index returned declined 1.11% for the reporting period). Although the U.S. dollar was largely unchanged versus the Chinese yuan, it appreciated by 12% against the Russian ruble, 21% versus the Indian rupee, and 28% against the Brazilian real.
| 6 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI BRIC INDEX FUND
Chinese stocks, the Index’s largest country weighting, declined by about 8% during the reporting period. China’s economy grew by 7.6% for the 12 months ended June 30, 2012, the country’s slowest growth rate since the global downturn in 2008. Nonetheless, China remains one of the fastest-growing countries in the world. Indian and Russian stocks posted declines of approximately 12% for the reporting period. India’s economy grew at a 5.5% rate for the 12 months ended June 30, 2012 — its lowest level of growth since 2005 — while the Russian economy held steady at a 4% annual rate for the reporting period. The weakest performer among the four markets represented in the Index was Brazil, whose stocks declined by more than 16% for the reporting period. Brazil’s economy grew by just 0.5% during the reporting period, prompting the Brazilian central bank to cut interest rates sharply, from a peak of 12.5% to 7.5% by the end of the reporting period.
From a sector perspective, eight of the ten sectors in the Index declined for the reporting period. The materials sector fell by more than 30% as commodity prices declined substantially. The consumer discretionary, energy, and industrials sectors also posted double-digit declines for the reporting period. The only two sectors of the Index to advance were information technology and consumer staples.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
7 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI EMERGING MARKETS ASIA INDEX FUND
Performance as of August 31, 2012
| Cumulative Total Returns | ||||||||||
| Inception to 8/31/12 | ||||||||||
| NAV | MARKET | INDEX | ||||||||
| (7.52)% | (7.03)% | (7.22)% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
“Cumulative Total Returns” represent the total change in value of an investment over the period indicated and are calculated from an inception date of 2/8/12.
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 (2/9/12), 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.
| 8 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS ASIA 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 Asia 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 Asia IndexSM (the “Index”). The Index is designed to measure the equity market performance in the emerging market countries of Asia. 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 February 8, 2012 (inception date of the Fund) through August 31, 2012 (the “reporting period”), the total return for the Fund was (7.52)%, net of fees, while the total return for the Index was (7.22)%.
As represented by the Index, emerging markets in Asia declined for the reporting period. One factor contributing to the decline in Asian emerging markets was the continuing sovereign debt crisis in Europe, which had a negative impact on financial institutions around the globe and led to a meaningful slowdown in European economic growth, including recessions in the most fiscally challenged countries in the region. Exports to developed regions of the world are an important component of emerging economies in Asia. For example, exports comprise approximately 40% of the Chinese economy, and the European Union is its largest trading partner. A marked decline in exports to Europe weighed on economic activity in many Asian emerging markets, as did falling commodity prices.
In addition, central banks in many Asian countries — including China, South Korea, and India, which comprise three of the larger country weightings in the Index — raised short-term interest rates in 2011 to curb rising inflation, and the higher borrowing costs put downward pressure on their respective domestic economies in 2012. The inflation-fighting efforts of these central banks were generally successful, though, leading many of them to begin lowering short-term rates by the end of the reporting period.
Another factor contributing to the Index’s overall decline was a stronger U.S. dollar, which lowered international equity returns for U.S. investors (in local currency terms, the Index declined 4.74% for the reporting period). Among the largest countries represented in the Index, the U.S. dollar appreciated by 1% versus the Chinese yuan, 1.5% versus the South Korean won and Taiwan dollar, and 13% versus the Indian rupee for the reporting period.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
9 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS ASIA INDEX FUND
China, the Index’s largest country weighting, posted a double-digit decline for the reporting period. China’s economy grew by 7.6% for the 12 months ended June 30, 2012, the country’s slowest growth rate since the global downturn in 2008. India was the only other country in the Index to decline by more than 10% for the reporting period. India’s economy grew at a 5.5% rate for the 12 months ended June 30, 2012, its slowest level of growth since 2005. Stock markets in the Philippines, Thailand, and Malaysia posted positive returns for the reporting period as these countries benefited from greater trade activity with the U.S. versus the European Union.
From a sector perspective, six of the ten sectors in the Index declined for the reporting period. The energy and materials sectors suffered the largest losses, falling by more than 15% amid sharply lower commodity prices. The financials sector, the largest sector weighting in the Index during the reporting period, also posted a double-digit decline. On the positive side, the more defensive segments of the market — including consumer staples, health care, telecommunication services, and utilities — gained ground for the reporting period.
| 10 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI EMERGING MARKETS CONSUMER DISCRETIONARY SECTOR INDEX FUND
Performance as of August 31, 2012
| Cumulative Total Returns | ||||||||||
| Inception to 8/31/12 | ||||||||||
| NAV | MARKET | INDEX | ||||||||
| (5.68)% | (4.44)% | (5.16)% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
“Cumulative Total Returns” represent the total change in value of an investment over the period indicated and are calculated from an inception date of 2/8/12.
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 (2/9/12), 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 CONSUMER DISCRETIONARY SECTOR 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. |
| ** | Other includes sectors which individually represent less than 1% of net assets. |
The iShares MSCI Emerging Markets Consumer Discretionary Sector 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 Consumer Discretionary IndexSM (the “Index”). The Index is designed to measure the combined equity market performance of the consumer discretionary sector of emerging market countries. 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 February 8, 2012 (inception date of the Fund) through August 31, 2012 (the “reporting period”), the total return for the Fund was (5.68)%, net of fees, while the total return for the Index was (5.16)%.
As represented by the Index, consumer discretionary stocks in emerging markets declined for the reporting period, reflecting a slowdown in growth rates in many emerging economies. Consumer discretionary stocks are typically sensitive to economic fluctuations and tend to move in response to the ups and downs of the economy. During the reporting period, countries such as China, India, and Brazil — among the most rapidly growing economies in the world over the past decade — saw their economic growth rates fall, mirroring a broad economic slowdown around the globe. In addition, central banks in many emerging markets raised short-term interest rates in 2011 to curb rising inflation, and this had a negative impact on domestic economic growth in 2012. For example, central banks in China, South Korea, and India — three of the larger Asian country weightings in the Index as of August 31, 2012 — all raised interest rates in 2011 to combat runaway inflation. Although these three central banks were successful in lowering the inflation rate, higher borrowing costs put downward pressure on their respective domestic economies.
Another factor contributing to the Index’s overall decline was a stronger U.S. dollar, which lowered international equity returns for U.S. investors. Among the largest countries represented in the Index, the U.S. dollar appreciated by 1% versus the Chinese yuan, 1.55% against the South Korean won, 10% versus the South African rand, 13% against the Indian rupee, and 18% versus the Brazilian real for the reporting period.
| 12 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS CONSUMER DISCRETIONARY SECTOR INDEX FUND
On a regional basis, consumer discretionary stocks in China, Brazil, and Poland suffered the most significant declines, falling by more than 20% for the reporting period. China’s economy grew by 7.6% for the 12 months ended June 30, 2012, the country’s slowest growth rate since the global downturn in 2008, while Brazil’s economy grew by just 0.5% for the 12 months ended June 30, 2012. Consumer discretionary stocks in Thailand and South Africa posted the best returns, gaining more than 15% for the reporting period. Consumer discretionary stocks in South Korea, which comprised more than one-third of the Index as of the end of the reporting period, advanced by 1% overall.
Within the consumer discretionary sector, the best performers included leisure products makers, distributors, and household appliance manufacturers, all of which posted double-digit gains for the reporting period. Media companies, including broadcasters and cable and satellite television operators, also posted strong returns. On the downside, computer and electronics retailers, homebuilders, and specialty retail stores posted the largest declines for the reporting period.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
13 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI EMERGING MARKETS ENERGY SECTOR CAPPED INDEX FUND
Performance as of August 31, 2012
| Cumulative Total Returns | ||||||||||
| Inception to 8/31/12 | ||||||||||
| NAV | MARKET | INDEX | ||||||||
| (19.71)% | (19.22)% | (18.98)% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
“Cumulative Total Returns” represent the total change in value of an investment over the period indicated and are calculated from an inception date of 2/8/12.
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 ma rket 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 (2/9/12), 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 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS ENERGY SECTOR CAPPED INDEX FUND
The iShares MSCI Emerging Markets Energy Sector Capped 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 Energy 25/50 IndexSM (the “Index”). The Index is designed to measure the performance of energy-related companies in emerging market countries. A capping methodology is applied that limits the weight of any single component to a maximum of 25% of the Index. 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 February 8, 2012 (inception date of the Fund) through August 31, 2012 (the “reporting period”), the total return for the Fund was (19.71)%, net of fees, while the total return for the Index was (18.98)%.
As represented by the Index, energy stocks in emerging markets posted double-digit declines for the reporting period. The decline in energy stocks reflected a broad global economic slowdown, which led to reduced demand for commodities in general. One factor behind this trend was the continuing sovereign debt crisis in Europe, which had a negative impact on financial institutions around the globe and led to a meaningful slowdown in European economic growth, including recessions in the most fiscally challenged countries in the region. The weaker economic environment in Europe weighed on Continental demand for energy. Decelerating economic growth in the U.S. and China also contributed to reduced global demand for energy.
Nonetheless, energy prices held up reasonably well during the reporting period. The price of oil declined by just 2%, falling from $98.80 per barrel at the beginning of the reporting period to $96.50 as of August 31, 2012, while natural gas prices increased by nearly 10%, rising from $2.48 per million British thermal units (“BTUs”) at the beginning of the period to $2.72 as of August 31, 2012. However, both oil and natural gas prices experienced significant volatility during the reporting period. Oil prices peaked in early March of 2012 at $109 per barrel, then dipped as low as $77 per barrel in late June of 2012 before rebounding over the last two months of the reporting period. Meanwhile, natural gas followed an opposite pattern, falling to $1.82 per million BTUs in mid-April of 2012, then surging to $3.20 per million BTUs in late July of 2012 before falling back over the last month of the reporting period.
Another factor contributing to the Index’s overall decline was a stronger U.S. dollar, which lowered international equity returns for U.S. investors. Among the largest countries represented in the Index, the U.S. dollar appreciated by 1% versus the Chinese yuan, 8.5% against the Russian ruble, 13% versus the Indian rupee, and 18% against the Brazilian real for the reporting period.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
15 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS ENERGY SECTOR CAPPED INDEX FUND
Other factors influencing the performance of energy stocks during the reporting period included a relatively mild winter and attractive dividend payouts. Warmer-than-normal temperatures and below-average snowfall across the Midwest and Northeast regions of the U.S. contributed to lower demand for energy.
| 16 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI EMERGING MARKETS GROWTH INDEX FUND
Performance as of August 31, 2012
| Cumulative Total Returns | ||||||||||
| Inception to 8/31/12 | ||||||||||
| NAV | MARKET | INDEX | ||||||||
| (5.90)% | (6.34)% | (5.45)% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
“Cumulative Total Returns” represent the total change in value of an investment over the period indicated and are calculated from an inception date of 2/8/12.
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 (2/9/12), 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 |
17 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS GROWTH 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 Growth 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 Growth IndexSM (the “Index”). The Index generally represents approximately 50% of the MSCI Emerging Markets Index and consists of those securities classified by the Index provider as most representing the growth style. 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 February 8, 2012 (inception date of the Fund) through August 31, 2012 (the “reporting period”), the total return for the Fund was (5.90)%, net of fees, while the total return for the Index was (5.45)%.
As represented by the Index, growth stocks in emerging markets declined for the reporting period, reflecting a slowdown in growth rates in many emerging economies. Larger countries such as China, India, and Brazil — among the most rapidly growing economies in the world over the past decade — saw their economic growth rates fall during the reporting period. One factor behind this trend was the continuing sovereign debt crisis in Europe, which had a negative impact on financial institutions around the globe and led to a meaningful slowdown in European economic growth, including recessions in the most fiscally challenged countries in the region. Exports to developed regions of the world are an important component of emerging economies. For example, exports comprise approximately 40% of the Chinese economy, with the European Union as is its largest trading partner. A marked decline in exports to Europe weighed on economic activity in many emerging markets.
In addition, central banks in many emerging markets raised short-term interest rates in 2011 to curb rising inflation, which had a negative impact on domestic economic growth in 2012. Central banks in China, South Korea, and Brazil — the three largest country weightings in the Index as of August 31, 2012 — all raised interest rates in 2011 to combat runaway inflation. Although these three central banks were successful in lowering the inflation rate, higher borrowing costs put downward pressure on their respective domestic economies. By the spring of 2012, all three central banks began lowering short-term rates.
| 18 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS GROWTH INDEX FUND
The primary factor behind the Index’s overall decline, however, was a stronger U.S. dollar, which lowered international equity returns for U.S. investors (in local currency terms, the Index gained 0.01% for the reporting period). Among the largest countries represented in the Index, the U.S. dollar appreciated by 1% versus the Chinese yuan, 1.5% versus the South Korean won and Taiwan dollar, 10% against the South African rand, 13% versus the Indian rupee, and 18% against the Brazilian real for the reporting period.
On a regional basis, the Latin American growth stocks in the Index fell the most during the reporting period, declining by 12% as a group. Growth stocks in Brazil and Peru led the decline in Latin America. Close proximity to the troubled eurozone contributed to the decline in Eastern European growth stocks, most notably in Hungary and Russia. Growth stocks in the Middle East and Asia/Pacific regions held up best, led by positive returns in Egypt, Turkey, and the Philippines.
From a sector perspective, six of the ten sectors in the Index declined for the reporting period. The energy and materials sectors posted the largest declines as a substantial drop in commodity prices adversely impacted these sectors of the Index. Financials, the largest sector weighting in the Index during the reporting period, also declined. On the positive side, the health care and consumer staples sectors — considered to be defensive sectors of the market — generated the best returns.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
19 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI EMERGING MARKETS MINIMUM VOLATILITY INDEX FUND
Performance as of August 31, 2012
| Cumulative Total Returns | ||||||||||
| Inception to 8/31/12 | ||||||||||
| NAV | MARKET | INDEX | ||||||||
| 15.16% | 15.58% | 15.60% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
“Cumulative Total Returns” represent the total change in value of an investment over the period indicated and are calculated from an inception date of 10/18/11.
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 (10/20/11), 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.
| 20 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS MINIMUM VOLATILITY INDEX FUND
The iShares MSCI Emerging Markets Minimum Volatility 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 Minimum Volatility Index (the “Index”). The Index measures the performance of equity securities in global emerging markets that have lower absolute volatility. 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 October 18, 2011 (inception date of the Fund) through August 31, 2012 (the “reporting period”), the total return for the Fund was 15.16%, net of fees, while the total return for the Index was 15.60%.
As represented by the Index, lower-volatility stocks in emerging markets posted double-digit gains for the reporting period. Shortly after the beginning of the reporting period, the Index began a broad rally as signs of improving global economic growth boosted investor confidence. The rally in low-volatility emerging markets stocks lasted through April 2012. The Index lost some of its previous gains in May 2012 as global economic activity decelerated, putting downward pressure on emerging markets as demand for their exports waned. In particular, the continuing sovereign debt crisis in Europe led to a meaningful slowdown in European economic growth, including recessions in the most fiscally challenged countries in the region. However, low-volatility emerging markets stocks bottomed in June 2012 and moved gradually higher over the last three months of the reporting period as investors grew more comfortable with the global economic outlook.
Currency fluctuations had a negative impact on Index performance, including a stronger U.S. dollar, which lowered international equity returns for U.S. investors (in local currency terms, the Index returned 19.21% for the reporting period). China, Taiwan, and Brazil were among the larger country weightings in the Index. Although the U.S. dollar was largely unchanged against the Chinese yuan and Taiwan dollar during the reporting period, the U.S. dollar appreciated by nearly 16% versus the Brazilian real for the reporting period.
On a regional basis, low-volatility stocks in the Asia/Pacific region (comprising approximately two-thirds of the Index as of August 31, 2012) generated the best returns for the reporting period, gaining about 16%. Strong returns from smaller countries in the region helped offset weaker performance from China and Taiwan, the two largest country weightings in the Index. Low-volatility stocks in Europe, the Middle East, and Africa also posted double-digit gains for the reporting period. The laggards were low-volatility stocks in Latin America, which returned about 6% overall. A decline in Brazilian stocks contributed to the weaker returns in Latin America.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
21 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
Performance as of August 31, 2012
| Average Annual Total Returns | Cumulative Total Returns | |||||||||||||||
| Year Ended 8/31/12 | Inception to 8/31/12 | Inception to 8/31/12 | ||||||||||||||
| NAV | MARKET | INDEX | NAV | MARKET | INDEX | NAV | MARKET | INDEX | ||||||||
| (9.98)% | (11.19)% | (8.57)% | (11.19)% | (11.24)% | (9.79)% | (11.65)% | (11.70)% | (10.17)% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
Total returns for the period since inception are calculated from the inception date of the Fund (8/16/11). “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 (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.
| 22 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS 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 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 12-month period ended August 31, 2012 (the “reporting period”), the total return for the Fund was (9.98)%, net of fees, while the total return for the Index was (8.57)%.
As represented by the Index, small-cap stocks in emerging markets declined for the reporting period, reflecting a slowdown in growth rates in many emerging economies. Larger countries such as China, India, and Brazil — among the most rapidly growing economies in the world over the past decade — saw their economic growth rates fall during the reporting period. One key factor behind this trend was the continuing sovereign debt crisis in Europe, which had a negative impact on financial institutions around the globe and led to a meaningful slowdown in European economic growth, including recessions in the most fiscally challenged countries in the region. Exports to developed regions of the world are an important component of emerging economies — for example, exports comprise approximately 40% of the Chinese economy, and the European Union is its largest trading partner. A marked decline in exports to Europe weighed on economic activity in many emerging markets.
In addition, central banks in many emerging markets raised short-term interest rates in 2011 to curb rising inflation, and this had a negative impact on domestic economic growth in 2012. Central banks in China, South Korea, and India — three of the five largest country weightings in the Index as of August 31, 2012 — all raised interest rates in 2011 to combat runaway inflation. Although these three central banks were successful in lowering the inflation rate, higher borrowing costs put downward pressure on their respective domestic economies. By the spring of 2012, all three central banks began lowering short-term rates.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
23 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
Another factor behind the Index’s overall decline was a stronger U.S. dollar, which lowered international equity returns for U.S. investors (in local currency terms, the Index declined 1.04% for the reporting period). Although the U.S. dollar was largely unchanged versus the Chinese yuan, it appreciated by 3% versus the Taiwan dollar and 6.5% versus the South Korean won. Furthermore, the U.S. dollar rallied by more than 20% against the Brazilian real, Indian rupee, and South African rand.
On a regional basis, small-cap stocks in Eastern Europe suffered the most significant declines for the reporting period. Close proximity to the troubled eurozone contributed to the decline in Eastern European markets, most notably in Hungary, Russia, and the Czech Republic. Small-cap stocks in the Asia/Pacific region also struggled as positive returns in the Philippines, Thailand, and Malaysia were more than offset by sharp declines in the two largest economies in the region — India and China. Small-cap stocks in Latin America held up best, led by Mexico and Brazil.
From a sector perspective, nine of the ten sectors in the Index declined for the reporting period. The most economically sensitive sectors — energy, materials, and industrials — declined the most for the reporting period. In particular, the energy and materials sectors were adversely impacted by a substantial decline in commodity prices. The telecommunication services and utilities sectors of the Index also posted double-digit declines for the reporting period. On the positive side, the only sector of the Index to advance was consumer staples, which is generally considered to be a defensive sector of the market.
| 24 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI EMERGING MARKETS VALUE INDEX FUND
Performance as of August 31, 2012
| Cumulative Total Returns | ||||||||||
| Inception to 8/31/12 | ||||||||||
| NAV | MARKET | INDEX | ||||||||
| (12.41)% | (11.30)% | (12.14)% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
“Cumulative Total Returns” represent the total change in value of an investment over the period indicated and are calculated from an inception date of 2/8/12.
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 (2/9/12), 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 |
25 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS VALUE 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 Value 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 Value IndexSM (the “Index”). The Index generally represents approximately 50% of the MSCI Emerging Markets Index and consists of those securities classified by the Index provider as most representing the value style. 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 February 8, 2012 (inception date of the Fund) through August 31, 2012 (the “reporting period”), the total return for the Fund was (12.41)%, net of fees, while the total return for the Index was (12.14)%.
As represented by the Index, value stocks in emerging markets declined for the reporting period, reflecting a slowdown in growth rates in many emerging economies. Countries such as China, India, and Brazil — among the most rapidly growing economies in the world over the past decade — saw their economic growth rates fall during the reporting period. One factor behind this trend was the continuing sovereign debt crisis in Europe, which had a negative impact on financial institutions around the globe and led to a meaningful slowdown in European economic growth, including recessions in the most fiscally challenged countries in the region. Exports to developed regions of the world are an important component of emerging economies. For example, exports comprise approximately 40% of the Chinese economy, and the European Union is its largest trading partner. A marked decline in exports to Europe weighed on economic activity in many emerging markets.
In addition, central banks in many emerging markets raised short-term interest rates in 2011 to curb rising inflation, which had a negative impact on domestic economic growth in 2012. Central banks in China, South Korea, and Brazil — the three largest country weightings in the Index as of August 31, 2012 — all raised interest rates in 2011 to combat runaway inflation. Although these three central banks were successful in lowering the inflation rate, higher borrowing costs put downward pressure on their respective domestic economies. By the spring of 2012, all three central banks began lowering short-term rates.
| 26 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS VALUE INDEX FUND
Another factor contributing to the Index’s overall decline was a stronger U.S. dollar, which lowered international equity returns for U.S. investors (in local currency terms, the Index fell 7.05% for the reporting period). Among the larger countries represented in the Index, the U.S. dollar appreciated by 1% versus the Chinese yuan, 1.5% versus the South Korean won and Taiwan dollar, 10% against the South African rand, 13% versus the Indian rupee, and 18% against the Brazilian real for the reporting period.
On a regional basis, the Latin American value stocks in the Index fell the most during the reporting period, declining by 18% as a group. Value stocks in Brazil, which fell by more than 25% for the reporting period, more than offset positive returns in Colombia and Mexico. Returns for value stocks in the Eastern Europe and Asia/Pacific regions were in line with the performance of the overall Index, while value stocks in the Middle East held up best, led by positive returns in Egypt and Turkey.
From a sector perspective, eight of the ten sectors in the Index declined for the reporting period. The energy and materials sectors posted the largest losses, declining by more than 20% as a substantial drop in commodity prices adversely impacted these sectors of the Index. Financials, the largest sector weighting in the Index during the reporting period, also declined. The only two sectors of the Index to generate positive returns for the reporting period were telecommunication services and consumer staples.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
27 |
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, 2012 to August 31, 2012.
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 (3/1/12) |
Ending Account Value (8/31/12) |
Annualized Expense Ratio |
Expenses Paid During Period a |
||||||||||||
| BRIC |
||||||||||||||||
| Actual |
$ | 1,000.00 | $ | 827.40 | 0.69 | % | $ | 3.17 | ||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,021.70 | 0.69 | 3.51 | ||||||||||||
| Emerging Markets Asia |
||||||||||||||||
| Actual |
1,000.00 | 906.70 | 0.49 | 2.35 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.70 | 0.49 | 2.49 | ||||||||||||
| Emerging Markets Consumer Discretionary Sector |
||||||||||||||||
| Actual |
1,000.00 | 931.50 | 0.68 | 3.30 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,021.70 | 0.68 | 3.46 | ||||||||||||
| Emerging Markets Energy Sector Capped |
||||||||||||||||
| Actual |
1,000.00 | 798.80 | 0.68 | 3.07 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,021.70 | 0.68 | 3.46 | ||||||||||||
| 28 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Shareholder Expenses (Unaudited) (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund | Beginning Account Value (3/1/12) |
Ending Account Value (8/31/12) |
Annualized Expense Ratio |
Expenses Paid During Period a |
||||||||||||
| Emerging Markets Growth |
||||||||||||||||
| Actual |
$ | 1,000.00 | $ | 916.80 | 0.49 | % | $ | 2.36 | ||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.70 | 0.49 | 2.49 | ||||||||||||
| Emerging Markets Minimum Volatility |
||||||||||||||||
| Actual |
1,000.00 | 990.70 | 0.25 | 1.25 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,023.90 | 0.25 | 1.27 | ||||||||||||
| Emerging Markets Small Cap |
||||||||||||||||
| Actual |
1,000.00 | 907.50 | 0.68 | 3.26 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,021.70 | 0.68 | 3.46 | ||||||||||||
| Emerging Markets Value |
||||||||||||||||
| Actual |
1,000.00 | 868.70 | 0.49 | 2.30 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.70 | 0.49 | 2.49 | ||||||||||||
| 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 (366 days). |
| SHAREHOLDER EXPENSES |
29 |
Table of Contents
Consolidated Schedule of Investments
August 31, 2012
| 30 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI BRIC INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
31 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI BRIC INDEX FUND
August 31, 2012
| 32 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI BRIC INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
33 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI BRIC INDEX FUND
August 31, 2012
| 34 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments
iSHARES® MSCI EMERGING MARKETS ASIA INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
35 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS ASIA INDEX FUND
August 31, 2012
| 36 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS ASIA INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
37 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS ASIA INDEX FUND
August 31, 2012
| 38 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS ASIA INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
39 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS ASIA INDEX FUND
August 31, 2012
| 40 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS ASIA INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
41 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS ASIA INDEX FUND
August 31, 2012
NVDR — Non-Voting Depositary Receipts
SP ADR — Sponsored American Depositary Receipts
| a | Non-income earning security. |
| b | Affiliated issuer. See Note 2. |
| c | The rate quoted is the annualized seven-day yield of the fund at period end. |
See notes to consolidated financial statements.
| 42 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments
iSHARES® MSCI EMERGING MARKETS CONSUMER DISCRETIONARY SECTOR INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
43 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS CONSUMER DISCRETIONARY SECTOR INDEX FUND
August 31, 2012
| 44 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments
iSHARES® MSCI EMERGING MARKETS ENERGY SECTOR CAPPED INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
45 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS ENERGY SECTOR CAPPED INDEX FUND
August 31, 2012
| 46 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments
iSHARES® MSCI EMERGING MARKETS GROWTH INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
47 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS GROWTH INDEX FUND
August 31, 2012
| 48 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS GROWTH INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
49 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS GROWTH INDEX FUND
August 31, 2012
| 50 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS GROWTH INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
51 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS GROWTH INDEX FUND
August 31, 2012
| 52 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS GROWTH INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
53 |
Table of Contents
Consolidated Schedule of Investments
iSHARES® MSCI EMERGING MARKETS MINIMUM VOLATILITY INDEX FUND
August 31, 2012
| 54 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS MINIMUM VOLATILITY INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
55 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS MINIMUM VOLATILITY INDEX FUND
August 31, 2012
| 56 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS MINIMUM VOLATILITY INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
57 |
Table of Contents
Consolidated Schedule of Investments
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2012
| 58 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
59 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2012
| 60 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
61 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2012
| 62 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
63 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2012
| 64 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
65 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS SMALL CAP INDEX FUND
August 31, 2012
| 66 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments
iSHARES® MSCI EMERGING MARKETS VALUE INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
67 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS VALUE INDEX FUND
August 31, 2012
| 68 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS VALUE INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
69 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS VALUE INDEX FUND
August 31, 2012
| 70 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS VALUE INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
71 |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS VALUE INDEX FUND
August 31, 2012
| 72 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS VALUE INDEX FUND
August 31, 2012
| CONSOLIDATED SCHEDULES OF INVESTMENTS |
73 |
Table of Contents
Consolidated Statements of Assets and Liabilities
iSHARES®, INC.
August 31, 2012
| iShares MSCI BRIC Index Fund |
iShares MSCI Emerging Markets Asia Index Fund |
iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 758,791,320 | $ | 21,706,768 | $ | 2,504,688 | ||||||
| Affiliated (Note 2) |
36,484,789 | 9,178 | 21,108 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 795,276,109 | $ | 21,715,946 | $ | 2,525,796 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 681,938,721 | $ | 20,008,072 | $ | 2,416,837 | ||||||
| Affiliated (Note 2) |
36,484,789 | 9,178 | 21,108 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
718,423,510 | 20,017,250 | 2,437,945 | |||||||||
| Foreign currencies, at valueb |
473,310 | 10,215 | 3,845 | |||||||||
| Cash |
2,623,807 | 30,000 | — | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
9,677,742 | 15,513 | 5,514 | |||||||||
| Dividends and interest |
1,026,934 | 35,482 | 2,719 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
732,225,303 | 20,108,460 | 2,450,023 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
2,405,632 | 26,418 | 4,710 | |||||||||
| Collateral for securities on loan (Note 5) |
35,369,222 | — | 19,520 | |||||||||
| Capital shares redeemed |
7,578,958 | — | — | |||||||||
| Line of credit (Note 7) |
1,300,178 | — | — | |||||||||
| Foreign taxes (Note 1) |
— | 2,898 | 152 | |||||||||
| Investment advisory fees (Note 2) |
422,635 | 8,479 | 1,423 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
47,076,625 | 37,795 | 25,805 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 685,148,678 | $ | 20,070,665 | $ | 2,424,218 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 900,929,076 | $ | 21,747,292 | $ | 3,272,295 | ||||||
| Undistributed (distributions in excess of) net investment income |
(631,851 | ) | 120,446 | 15,100 | ||||||||
| Accumulated net realized loss |
(138,253,632 | ) | (98,362 | ) | (775,325 | ) | ||||||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(76,894,915 | ) | (1,698,711 | ) | (87,852 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 685,148,678 | $ | 20,070,665 | $ | 2,424,218 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingc |
19,200,000 | 400,000 | 50,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 35.68 | $ | 50.18 | $ | 48.48 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $32,837,121, $ — and $18,434, respectively. See Note 5. |
| b | Cost of foreign currencies: $471,922, $10,233 and $3,846, respectively. |
| c | $0.001 par value, number of shares authorized: 500 million, 500 million and 500 million, respectively. |
See notes to consolidated financial statements.
| 74 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Statements of Assets and Liabilities (Continued)
iSHARES®, INC.
August 31, 2012
| iShares MSCI Emerging Markets Energy Sector Capped |
iShares MSCI Emerging Markets Growth |
iShares MSCI Emerging Markets Minimum Volatility Index Fund |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 2,445,148 | $ | 10,559,270 | $ | 376,887,207 | ||||||
| Affiliated (Note 2) |
58,812 | 222,869 | 1,602,521 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 2,503,960 | $ | 10,782,139 | $ | 378,489,728 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 1,947,774 | $ | 10,090,998 | $ | 384,986,410 | ||||||
| Affiliated (Note 2) |
58,812 | 222,869 | 1,602,521 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
2,006,586 | 10,313,867 | 386,588,931 | |||||||||
| Foreign currencies, at valueb |
1,645 | 6,557 | 223,110 | |||||||||
| Cash |
4,702 | 10,930 | — | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
10,293 | 44,868 | 1,653,638 | |||||||||
| Dividends and interest |
548 | 18,218 | 1,090,834 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
2,023,774 | 10,394,440 | 389,556,513 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
14,755 | 45,552 | 1,566,515 | |||||||||
| Collateral for securities on loan (Note 5) |
— | 222,869 | 669,894 | |||||||||
| Foreign taxes (Note 1) |
— | 796 | 14,845 | |||||||||
| Investment advisory fees (Note 2) |
1,192 | 4,265 | 78,185 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
15,947 | 273,482 | 2,329,439 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 2,007,827 | $ | 10,120,958 | $ | 387,227,074 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 3,421,694 | $ | 10,854,325 | $ | 382,079,323 | ||||||
| Undistributed net investment income |
— | 40,694 | 1,751,482 | |||||||||
| Accumulated net realized loss |
(916,494 | ) | (305,634 | ) | (4,700,131 | ) | ||||||
| Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies |
(497,373 | ) | (468,427 | ) | 8,096,400 | |||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 2,007,827 | $ | 10,120,958 | $ | 387,227,074 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingc |
50,000 | 200,000 | 7,000,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 40.16 | $ | 50.60 | $ | 55.32 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $ —, $211,904 and $632,603, respectively. See Note 5. |
| b | Cost of foreign currencies: $1,635, $6,567 and $223,966, respectively. |
| c | $0.001 par value, number of shares authorized: 500 million, 500 million and 500 million, respectively. |
See notes to consolidated financial statements.
| CONSOLIDATED FINANCIAL STATEMENTS |
75 |
Table of Contents
Consolidated Statements of Assets and Liabilities (Continued)
iSHARES®, INC.
August 31, 2012
| iShares MSCI Markets Small Cap Index Fund |
iShares MSCI Emerging Markets Value Index Fund |
|||||||
| ASSETS |
||||||||
| Investments, at cost: |
||||||||
| Unaffiliated |
$ | 9,385,386 | $ | 10,310,509 | ||||
| Affiliated (Note 2) |
— | 29,373 | ||||||
|
|
|
|
|
|||||
| Total cost of investments |
$ | 9,385,386 | $ | 10,339,882 | ||||
|
|
|
|
|
|||||
| Investments in securities, at fair value (Note 1): |
||||||||
| Unaffiliated |
$ | 8,641,717 | $ | 9,006,314 | ||||
| Affiliated (Note 2) |
— | 29,373 | ||||||
|
|
|
|
|
|||||
| Total fair value of investments |
8,641,717 | 9,035,687 | ||||||
| Foreign currencies, at valuea |
12,649 | 9,425 | ||||||
| Cash |
17,065 | 152 | ||||||
| Receivables: |
||||||||
| Investment securities sold |
101,819 | 4,572 | ||||||
| Dividends and interest |
27,619 | 20,611 | ||||||
|
|
|
|
|
|||||
| Total Assets |
8,800,869 | 9,070,447 | ||||||
|
|
|
|
|
|||||
| LIABILITIES |
||||||||
| Payables: |
||||||||
| Investment securities purchased |
105,984 | 5,053 | ||||||
| Foreign taxes (Note 1) |
1,267 | 848 | ||||||
| Investment advisory fees (Note 2) |
5,059 | 3,845 | ||||||
|
|
|
|
|
|||||
| Total Liabilities |
112,310 | 9,746 | ||||||
|
|
|
|
|
|||||
| NET ASSETS |
$ | 8,688,559 | $ | 9,060,701 | ||||
|
|
|
|
|
|||||
| Net assets consist of: |
||||||||
| Paid-in capital |
$ | 17,785,830 | $ | 10,520,963 | ||||
| Undistributed net investment income |
237,427 | 43,741 | ||||||
| Accumulated net realized loss |
(8,590,803 | ) | (199,744 | ) | ||||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(743,895 | ) | (1,304,259 | ) | ||||
|
|
|
|
|
|||||
| NET ASSETS |
$ | 8,688,559 | $ | 9,060,701 | ||||
|
|
|
|
|
|||||
| Shares outstandingb |
200,000 | 200,000 | ||||||
|
|
|
|
|
|||||
| Net asset value per share |
$ | 43.44 | $ | 45.30 | ||||
|
|
|
|
|
|||||
| a | Cost of foreign currencies: $12,653 and $9,424, respectively. |
| b | $0.001 par value, number of shares authorized: 500 million and 500 million, respectively. |
See notes to consolidated financial statements.
| 76 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Statements of Operations
iSHARES®, INC.
Period ended August 31, 2012
| iShares MSCI Index Fund |
iShares MSCI Emerging Markets Asia |
iShares MSCI Markets Consumer Discretionary Sector |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends — unaffiliatedb |
$ | 24,725,808 | $ | 337,821 | $ | 74,739 | ||||||
| Interest — affiliated (Note 2) |
344 | 5 | 1 | |||||||||
| Securities lending income — affiliated (Note 2) |
702,843 | — | 948 | |||||||||
|
|
|
|
|
|
|
|||||||
| 25,428,995 | 337,826 | 75,688 | ||||||||||
| Less: Other foreign taxes (Note 1) |
— | (3,724 | ) | (152 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
25,428,995 | 334,102 | 75,536 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
5,399,206 | 64,202 | 31,777 | |||||||||
| Commitment fees (Note 7) |
4,609 | 34 | 14 | |||||||||
| Interest expense (Note 7) |
1,160 | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
5,404,975 | 64,236 | 31,791 | |||||||||
| Less investment advisory fees waived (Note 2) |
— | (17,939 | ) | — | ||||||||
|
|
|
|
|
|
|
|||||||
| Net expenses |
5,404,975 | 46,297 | 31,791 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
20,024,020 | 287,805 | 43,745 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments — unaffiliated |
(89,543,283 | ) | (96,787 | ) | (776,862 | ) | ||||||
| In-kind redemptions — unaffiliated |
24,302,811 | — | (179,013 | ) | ||||||||
| Foreign currency transactions |
(1,343,260 | ) | (5,970 | ) | (2,515 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net realized loss |
(66,583,732 | ) | (102,757 | ) | (958,390 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
(88,384,034 | ) | (1,698,696 | ) | (87,851 | ) | ||||||
| Translation of assets and liabilities in foreign currencies |
(148,296 | ) | (15 | ) | (1 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
(88,532,330 | ) | (1,698,711 | ) | (87,852 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized loss |
(155,116,062 | ) | (1,801,468 | ) | (1,046,242 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (135,092,042 | ) | $ | (1,513,663 | ) | $ | (1,002,497 | ) | |||
|
|
|
|
|
|
|
|||||||
| a | For the period from February 8, 2012 (commencement of operations) to August 31, 2012. |
| b | Net of foreign withholding tax of $2,455,381, $49,278 and $7,263, respectively. |
See notes to consolidated financial statements.
| CONSOLIDATED FINANCIAL STATEMENTS |
77 |
Table of Contents
Consolidated Statements of Operations (Continued)
iSHARES®, INC.
Period ended August 31, 2012
| iShares MSCI Emerging Markets Energy Sector Capped Index Funda |
iShares MSCI Markets Growth Index Funda |
iShares MSCI Emerging Markets Minimum Volatility Index Fundb |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends — unaffiliatedc |
$ | 204,950 | $ | 159,563 | $ | 4,594,755 | ||||||
| Interest — unaffiliated |
— | — | 321 | |||||||||
| Interest — affiliated (Note 2) |
2 | 2 | 72 | |||||||||
| Securities lending income — affiliated (Note 2) |
1 | 1,118 | 12,329 | |||||||||
|
|
|
|
|
|
|
|||||||
| 204,953 | 160,683 | 4,607,477 | ||||||||||
| Less: Other foreign taxes (Note 1) |
— | (899 | ) | (27,867 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
204,953 | 159,784 | 4,579,610 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
28,472 | 39,428 | 726,408 | |||||||||
| Commitment fees (Note 7) |
11 | 14 | 112 | |||||||||
| Interest expense (Note 7) |
6 | 21 | 116 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
28,489 | 39,463 | 726,636 | |||||||||
| Less investment advisory fees waived (Note 2) |
— | (11,017 | ) | (461,865 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net expenses |
28,489 | 28,446 | 264,771 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
176,464 | 131,338 | 4,314,839 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments — unaffiliated |
(916,494 | ) | (305,634 | ) | (4,730,152 | ) | ||||||
| In-kind redemptions — unaffiliated |
(870,580 | ) | — | 1,183,641 | ||||||||
| Foreign currency transactions |
(8,266 | ) | (5,596 | ) | (302,989 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net realized loss |
(1,795,340 | ) | (311,230 | ) | (3,849,500 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
(497,374 | ) | (468,272 | ) | 8,099,203 | |||||||
| Translation of assets and liabilities in foreign currencies |
1 | (155 | ) | (2,803 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
(497,373 | ) | (468,427 | ) | 8,096,400 | |||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain (loss) |
(2,292,713 | ) | (779,657 | ) | 4,246,900 | |||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (2,116,249 | ) | $ | (648,319 | ) | $ | 8,561,739 | ||||
|
|
|
|
|
|
|
|||||||
| a | For the period from February 8, 2012 (commencement of operations) to August 31, 2012. |
| b | For the period from October 18, 2011 (commencement of operations) to August 31, 2012. |
| c | Net of foreign withholding tax of $26,336, $18,177 and $639,425, respectively. |
See notes to consolidated financial statements.
| 78 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Statements of Operations (Continued)
iSHARES®, INC.
Period ended August 31, 2012
| iShares MSCI Emerging Markets Small Cap |
iShares MSCI Emerging Markets Value Index Funda |
|||||||
| NET INVESTMENT INCOME |
||||||||
| Dividends — unaffiliatedb |
$ | 659,962 | $ | 226,587 | ||||
| Interest — unaffiliated |
2 | — | ||||||
| Interest — affiliated (Note 2) |
18 | 2 | ||||||
|
|
|
|
|
|||||
| 659,982 | 226,589 | |||||||
| Less: Other foreign taxes (Note 1) |
(7,991 | ) | (1,198 | ) | ||||
|
|
|
|
|
|||||
| Total investment income |
651,991 | 225,391 | ||||||
|
|
|
|
|
|||||
| EXPENSES |
||||||||
| Investment advisory fees (Note 2) |
246,547 | 36,290 | ||||||
| Commitment fees (Note 7) |
122 | 13 | ||||||
| Interest expense (Note 7) |
424 | 20 | ||||||
|
|
|
|
|
|||||
| Total expenses |
247,093 | 36,323 | ||||||
| Less investment advisory fees waived (Note 2) |
— | (10,140 | ) | |||||
|
|
|
|
|
|||||
| Net expenses |
247,093 | 26,183 | ||||||
|
|
|
|
|
|||||
| Net investment income |
404,898 | 199,208 | ||||||
|
|
|
|
|
|||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||
| Net realized gain (loss) from: |
||||||||
| Investments — unaffiliated |
(8,472,797 | ) | (199,744 | ) | ||||
| In-kind redemptions — unaffiliated |
(2,448,237 | ) | — | |||||
| Foreign currency transactions |
152,435 | (6,976 | ) | |||||
|
|
|
|
|
|||||
| Net realized loss |
(10,768,599 | ) | (206,720 | ) | ||||
|
|
|
|
|
|||||
| Net change in unrealized appreciation/depreciation on: |
||||||||
| Investments |
643,123 | (1,304,195 | ) | |||||
| Translation of assets and liabilities in foreign currencies |
822 | (64 | ) | |||||
|
|
|
|
|
|||||
| Net change in unrealized appreciation/depreciation |
643,945 | (1,304,259 | ) | |||||
|
|
|
|
|
|||||
| Net realized and unrealized loss |
(10,124,654 | ) | (1,510,979 | ) | ||||
|
|
|
|
|
|||||
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (9,719,756 | ) | $ | (1,311,771 | ) | ||
|
|
|
|
|
|||||
| a | For the period from February 8, 2012 (commencement of operations) to August 31, 2012. |
| b | Net of foreign withholding tax of $64,407 and $29,110, respectively. |
See notes to consolidated financial statements.
| CONSOLIDATED FINANCIAL STATEMENTS |
79 |
Table of Contents
Consolidated Statements of Changes in Net Assets
iSHARES®, INC.
| iShares MSCI BRIC Index Fund |
iShares MSCI Emerging Markets Asia Index Fund |
|||||||||||
| Year ended August 31, 2012 |
Year ended August 31, 2011 |
Period from to August 31, 2012 |
||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||
| OPERATIONS: |
||||||||||||
| Net investment income |
$ | 20,024,020 | $ | 20,442,911 | $ | 287,805 | ||||||
| Net realized gain (loss) |
(66,583,732 | ) | 18,189,682 | (102,757 | ) | |||||||
| Net change in unrealized appreciation/depreciation |
(88,532,330 | ) | (29,622,905 | ) | (1,698,711 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net increase (decrease) in net assets resulting from operations |
(135,092,042 | ) | 9,009,688 | (1,513,663 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||
| From net investment income |
(18,504,865 | ) | (22,858,814 | ) | (162,964 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total distributions to shareholders |
(18,504,865 | ) | (22,858,814 | ) | (162,964 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||
| Proceeds from shares sold |
247,215,549 | 111,929,766 | 21,747,292 | |||||||||
| Cost of shares redeemed |
(274,663,908 | ) | (178,701,150 | ) | — | |||||||
|
|
|
|
|
|
|
|||||||
| Net increase (decrease) in net assets from capital share transactions |
(27,448,359 | ) | (66,771,384 | ) | 21,747,292 | |||||||
|
|
|
|
|
|
|
|||||||
| INCREASE (DECREASE) IN NET ASSETS |
(181,045,266 | ) | (80,620,510 | ) | 20,070,665 | |||||||
| NET ASSETS |
||||||||||||
| Beginning of period |
866,193,944 | 946,814,454 | — | |||||||||
|
|
|
|
|
|
|
|||||||
| End of period |
$ | 685,148,678 | $ | 866,193,944 | $ | 20,070,665 | ||||||
|
|
|
|
|
|
|
|||||||
| Undistributed (distributions in excess of) net investment income included in net assets at end of period |
$ | (631,851 | ) | $ | (1,686,142 | ) | $ | 120,446 | ||||
|
|
|
|
|
|
|
|||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||
| Shares sold |
6,050,000 | 2,300,000 | 400,000 | |||||||||
| Shares redeemed |
(7,350,000 | ) | (3,850,000 | ) | — | |||||||
|
|
|
|
|
|
|
|||||||
| Net increase (decrease) in shares outstanding |
(1,300,000 | ) | (1,550,000 | ) | 400,000 | |||||||
|
|
|
|
|
|
|
|||||||
| a | Commencement of operations. |
See notes to consolidated financial statements.
| 80 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Statements of Changes in Net Assets (Continued)
iSHARES®, INC.
| iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
iShares MSCI Emerging Markets Energy Sector Capped Index Fund |
|||||||
| Period from to August 31, 2012 |
Period from to August 31, 2012 |
|||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||
| OPERATIONS: |
||||||||
| Net investment income |
$ | 43,745 | $ | 176,464 | ||||
| Net realized loss |
(958,390 | ) | (1,795,340 | ) | ||||
| Net change in unrealized appreciation/depreciation |
(87,852 | ) | (497,373 | ) | ||||
|
|
|
|
|
|||||
| Net decrease in net assets resulting from operations |
(1,002,497 | ) | (2,116,249 | ) | ||||
|
|
|
|
|
|||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||
| From net investment income |
(26,130 | ) | (168,198 | ) | ||||
| Return of capital |
— | (6,779 | ) | |||||
|
|
|
|
|
|||||
| Total distributions to shareholders |
(26,130 | ) | (174,977 | ) | ||||
|
|
|
|
|
|||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||
| Proceeds from shares sold |
10,313,556 | 10,227,402 | ||||||
| Cost of shares redeemed |
(6,860,711 | ) | (5,928,349 | ) | ||||
|
|
|
|
|
|||||
| Net increase in net assets from capital share transactions |
3,452,845 | 4,299,053 | ||||||
|
|
|
|
|
|||||
| INCREASE IN NET ASSETS |
2,424,218 | 2,007,827 | ||||||
| NET ASSETS |
||||||||
| Beginning of period |
— | — | ||||||
|
|
|
|
|
|||||
| End of period |
$ | 2,424,218 | $ | 2,007,827 | ||||
|
|
|
|
|
|||||
| Undistributed net investment income included in net assets at end of period |
$ | 15,100 | $ | — | ||||
|
|
|
|
|
|||||
| SHARES ISSUED AND REDEEMED |
||||||||
| Shares sold |
200,000 | 200,000 | ||||||
| Shares redeemed |
(150,000 | ) | (150,000 | ) | ||||
|
|
|
|
|
|||||
| Net increase in shares outstanding |
50,000 | 50,000 | ||||||
|
|
|
|
|
|||||
| a | Commencement of operations. |
See notes to consolidated financial statements.
| CONSOLIDATED FINANCIAL STATEMENTS |
81 |
Table of Contents
Consolidated Statements of Changes in Net Assets (Continued)
iSHARES®, INC.
| iShares MSCI Emerging Markets Growth Index Fund |
iShares MSCI Emerging Markets Minimum Volatility Index Fund |
|||||||
| Period from to August 31, 2012 |
Period from to August 31, 2012 |
|||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||
| OPERATIONS: |
||||||||
| Net investment income |
$ | 131,338 | $ | 4,314,839 | ||||
| Net realized loss |
(311,230 | ) | (3,849,500 | ) | ||||
| Net change in unrealized appreciation/depreciation |
(468,427 | ) | 8,096,400 | |||||
|
|
|
|
|
|||||
| Net increase (decrease) in net assets resulting from operations |
(648,319 | ) | 8,561,739 | |||||
|
|
|
|
|
|||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||
| From net investment income |
(85,048 | ) | (2,260,368 | ) | ||||
|
|
|
|
|
|||||
| Total distributions to shareholders |
(85,048 | ) | (2,260,368 | ) | ||||
|
|
|
|
|
|||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||
| Proceeds from shares sold |
10,854,325 | 411,979,067 | ||||||
| Cost of shares redeemed |
— | (31,053,364 | ) | |||||
|
|
|
|
|
|||||
| Net increase in net assets from capital share transactions |
10,854,325 | 380,925,703 | ||||||
|
|
|
|
|
|||||
| INCREASE IN NET ASSETS |
10,120,958 | 387,227,074 | ||||||
| NET ASSETS |
||||||||
| Beginning of period |
— | — | ||||||
|
|
|
|
|
|||||
| End of period |
$ | 10,120,958 | $ | 387,227,074 | ||||
|
|
|
|
|
|||||
| Undistributed net investment income included in net assets at end of period |
$ | 40,694 | $ | 1,751,482 | ||||
|
|
|
|
|
|||||
| SHARES ISSUED AND REDEEMED |
||||||||
| Shares sold |
200,000 | 7,600,000 | ||||||
| Shares redeemed |
— | (600,000 | ) | |||||
|
|
|
|
|
|||||
| Net increase in shares outstanding |
200,000 | 7,000,000 | ||||||
|
|
|
|
|
|||||
| a | Commencement of operations. |
See notes to consolidated financial statements.
| 82 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Statements of Changes in Net Assets (Continued)
iSHARES®, INC.
| iShares MSCI Emerging Markets Small Cap Index Fund |
iShares MSCI Emerging Markets Value Index Fund |
|||||||||||
| Year ended August 31, 2012 |
Period from to August 31, 2011 |
Period from to August 31, 2012 |
||||||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||||||
| OPERATIONS: |
||||||||||||
| Net investment income |
$ | 404,898 | $ | 92,673 | $ | 199,208 | ||||||
| Net realized loss |
(10,768,599 | ) | (93,859 | ) | (206,720 | ) | ||||||
| Net change in unrealized appreciation/depreciation |
643,945 | (1,387,840 | ) | (1,304,259 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net decrease in net assets resulting from operations |
(9,719,756 | ) | (1,389,026 | ) | (1,311,771 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||||||
| From net investment income |
(500,104 | ) | — | (148,491 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Total distributions to shareholders |
(500,104 | ) | — | (148,491 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||||||
| Proceeds from shares sold |
9,491,705 | 70,832,414 | 10,520,963 | |||||||||
| Cost of shares redeemed |
(60,026,674 | ) | — | — | ||||||||
|
|
|
|
|
|
|
|||||||
| Net increase (decrease) in net assets from capital share transactions |
(50,534,969 | ) | 70,832,414 | 10,520,963 | ||||||||
|
|
|
|
|
|
|
|||||||
| INCREASE (DECREASE) IN NET ASSETS |
(60,754,829 | ) | 69,443,388 | 9,060,701 | ||||||||
| NET ASSETS |
||||||||||||
| Beginning of period |
69,443,388 | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
| End of period |
$ | 8,688,559 | $ | 69,443,388 | $ | 9,060,701 | ||||||
|
|
|
|
|
|
|
|||||||
| Undistributed net investment income included in net assets at end of period |
$ | 237,427 | $ | 62,835 | $ | 43,741 | ||||||
|
|
|
|
|
|
|
|||||||
| SHARES ISSUED AND REDEEMED |
||||||||||||
| Shares sold |
200,000 | 1,400,000 | 200,000 | |||||||||
| Shares redeemed |
(1,400,000 | ) | — | — | ||||||||
|
|
|
|
|
|
|
|||||||
| Net increase (decrease) in shares outstanding |
(1,200,000 | ) | 1,400,000 | 200,000 | ||||||||
|
|
|
|
|
|
|
|||||||
| a | Commencement of operations. |
See notes to consolidated financial statements.
| CONSOLIDATED FINANCIAL STATEMENTS |
83 |
Table of Contents
iSHARES®, INC.
(For a share outstanding throughout each period)
| iShares MSCI BRIC Index Fund | ||||||||||||||||||||
| Year ended Aug. 31, 2012 (Consolidated) |
Year ended Aug. 31, 2011 (Consolidated) |
Year ended Aug. 31, 2010 |
Year ended Aug. 31, 2009 |
Period from to Aug. 31, 2008 |
||||||||||||||||
| Net asset value, beginning of period |
$ | 42.25 | $ | 42.94 | $ | 37.57 | $ | 44.13 | $ | 56.50 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from investment operations: |
| |||||||||||||||||||
| Net investment incomeb |
0.98 | 0.89 | 0.66 | 0.58 | 0.72 | |||||||||||||||
| Net realized and unrealized gain (loss)c |
(6.62 | ) | (0.58 | ) | 5.35 | (6.60 | ) | (12.93 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total from investment operations |
(5.64 | ) | 0.31 | 6.01 | (6.02 | ) | (12.21 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.93 | ) | (1.00 | ) | (0.64 | ) | (0.54 | ) | (0.16 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total distributions |
(0.93 | ) | (1.00 | ) | (0.64 | ) | (0.54 | ) | (0.16 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value, end of period |
$ | 35.68 | $ | 42.25 | $ | 42.94 | $ | 37.57 | $ | 44.13 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total return |
(13.33 | )% | 0.49 | % | 15.95 | % | (13.08 | )% | (21.65 | )%d | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios/Supplemental data: |
| |||||||||||||||||||
| Net assets, end of period (000s) |
$ | 685,149 | $ | 866,194 | $ | 946,814 | $ | 497,839 | $ | 161,092 | ||||||||||
| Ratio of expenses to average net assetse |
0.69 | % | 0.67 | % | 0.69 | % | 0.72 | % | 0.72 | % | ||||||||||
| Ratio of expenses to average net assets prior to waived feese,f |
n/a | 0.67 | % | n/a | n/a | n/a | ||||||||||||||
| Ratio of net investment income to average net assetse |
2.55 | % | 1.86 | % | 1.52 | % | 1.87 | % | 1.74 | % | ||||||||||
| Portfolio turnover rateg |
32 | % | 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 the periods ended August 31, 2010 and prior have been recalculated, as necessary, to conform with the current 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, 2012, August 31, 2011, August 31, 2010, August 31, 2009 and the period ended August 31, 2008 would have been 20%, 10%, 8%, 6% and 2%, respectively. See Note 4. |
See notes to consolidated financial statements.
| 84 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout the period)
| iShares MSCI Emerging Markets Asia Index Fund | ||||
| Period from to Aug. 31, 2012 |
||||
| Net asset value, beginning of period |
$ | 54.71 | ||
|
|
|
|||
| Income from investment operations: |
| |||
| Net investment incomeb |
0.87 | |||
| Net realized and unrealized lossc |
(4.99 | ) | ||
|
|
|
|||
| Total from investment operations |
(4.12 | ) | ||
|
|
|
|||
| Less distributions from: |
||||
| Net investment income |
(0.41 | ) | ||
|
|
|
|||
| Total distributions |
(0.41 | ) | ||
|
|
|
|||
| Net asset value, end of period |
$ | 50.18 | ||
|
|
|
|||
| Total return |
(7.52 | )%d | ||
|
|
|
|||
| Ratios/Supplemental data: |
||||
| Net assets, end of period (000s) |
$ | 20,071 | ||
| Ratio of expenses to average net assetse |
0.49 | % | ||
| Ratio of expenses to average net assets prior to waived feese |
0.68 | % | ||
| Ratio of net investment income to average net assetse |
3.05 | % | ||
| Portfolio turnover ratef |
3 | % | ||
| 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, 2012 would have been 3%. See Note 4. |
See notes to consolidated financial statements.
| CONSOLIDATED FINANCIAL HIGHLIGHTS |
85 |
Table of Contents
Consolidated Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout the period)
| iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund | ||||
| Period from to Aug. 31, 2012 |
||||
| Net asset value, beginning of period |
$ | 51.54 | ||
|
|
|
|||
| Income from investment operations: |
| |||
| Net investment incomeb |
0.26 | |||
| Net realized and unrealized lossc |
(3.19 | ) | ||
|
|
|
|||
| Total from investment operations |
(2.93 | ) | ||
|
|
|
|||
| Less distributions from: |
||||
| Net investment income |
(0.13 | ) | ||
|
|
|
|||
| Total distributions |
(0.13 | ) | ||
|
|
|
|||
| Net asset value, end of period |
$ | 48.48 | ||
|
|
|
|||
| Total return |
(5.68 | )%d | ||
|
|
|
|||
| Ratios/Supplemental data: |
||||
| Net assets, end of period (000s) |
$ | 2,424 | ||
| Ratio of expenses to average net assetse |
0.68 | % | ||
| Ratio of net investment income to average net assetse |
0.94 | % | ||
| Portfolio turnover ratef |
54 | % | ||
| 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, 2012 would have been 5%. See Note 4. |
See notes to consolidated financial statements.
| 86 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout the period)
| iShares MSCI Emerging Markets Energy Sector Capped Index Fund | ||||
| Period from to Aug. 31, 2012 |
||||
| Net asset value, beginning of period |
$ | 51.12 | ||
|
|
|
|||
| Income from investment operations: |
| |||
| Net investment incomeb |
1.05 | |||
| Net realized and unrealized lossc |
(11.14 | ) | ||
|
|
|
|||
| Total from investment operations |
(10.09 | ) | ||
|
|
|
|||
| Less distributions from: |
||||
| Net investment income |
(0.84 | ) | ||
| Return of capital |
(0.03 | ) | ||
|
|
|
|||
| Total distributions |
(0.87 | ) | ||
|
|
|
|||
| Net asset value, end of period |
$ | 40.16 | ||
|
|
|
|||
| Total return |
(19.71 | )%d | ||
|
|
|
|||
| Ratios/Supplemental data: |
||||
| Net assets, end of period (000s) |
$ | 2,008 | ||
| Ratio of expenses to average net assetse |
0.68 | % | ||
| Ratio of net investment income to average net assetse |
4.23 | % | ||
| Portfolio turnover ratef |
29 | % | ||
| 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, 2012 would have been 3%. See Note 4. |
See notes to consolidated financial statements.
| CONSOLIDATED FINANCIAL HIGHLIGHTS |
87 |
Table of Contents
Consolidated Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout the period)
| iShares MSCI Emerging Markets Growth Index Fund | ||||
| Period from to Aug. 31, 2012 |
||||
| Net asset value, beginning of period |
$ | 54.24 | ||
|
|
|
|||
| Income from investment operations: |
| |||
| Net investment incomeb |
0.66 | |||
| Net realized and unrealized lossc |
(3.87 | ) | ||
|
|
|
|||
| Total from investment operations |
(3.21 | ) | ||
|
|
|
|||
| Less distributions from: |
||||
| Net investment income |
(0.43 | ) | ||
|
|
|
|||
| Total distributions |
(0.43 | ) | ||
|
|
|
|||
| Net asset value, end of period |
$ | 50.60 | ||
|
|
|
|||
| Total return |
(5.90 | )%d | ||
|
|
|
|||
| Ratios/Supplemental data: |
||||
| Net assets, end of period (000s) |
$ | 10,121 | ||
| Ratio of expenses to average net assetse |
0.49 | % | ||
| Ratio of expenses to average net assets prior to waived feese |
0.68 | % | ||
| Ratio of net investment income to average net assetse |
2.27 | % | ||
| Portfolio turnover ratef |
12 | % | ||
| 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, 2012 would have been 12%. See Note 4. |
See notes to consolidated financial statements.
| 88 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout the period)
| iShares MSCI Emerging Markets Minimum Volatility Index Fund | ||||
| Period from to Aug. 31, 2012 |
||||
| Net asset value, beginning of period |
$ | 49.30 | ||
|
|
|
|||
| Income from investment operations: |
| |||
| Net investment incomeb |
1.93 | |||
| Net realized and unrealized gainc |
5.41 | |||
|
|
|
|||
| Total from investment operations |
7.34 | |||
|
|
|
|||
| Less distributions from: |
||||
| Net investment income |
(1.32 | ) | ||
|
|
|
|||
| Total distributions |
(1.32 | ) | ||
|
|
|
|||
| Net asset value, end of period |
$ | 55.32 | ||
|
|
|
|||
| Total return |
15.16 | %d | ||
|
|
|
|||
| Ratios/Supplemental data: |
||||
| Net assets, end of period (000s) |
$ | 387,227 | ||
| Ratio of expenses to average net assetse |
0.25 | % | ||
| Ratio of expenses to average net assets prior to waived feese |
0.69 | % | ||
| Ratio of net investment income to average net assetse |
4.08 | % | ||
| Portfolio turnover ratef |
31 | % | ||
| 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, 2012 would have been 16%. See Note 4. |
See notes to consolidated financial statements.
| CONSOLIDATED FINANCIAL HIGHLIGHTS |
89 |
Table of Contents
Consolidated Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout each period)
iShares MSCI Emerging Markets Small Cap Index Fund
| Year ended Aug. 31, 2012 |
Period from to Aug. 31, 2011 |
|||||||
| Net asset value, beginning of period |
$ | 49.60 | $ | 50.54 | ||||
|
|
|
|
|
|||||
| Income from investment operations: |
| |||||||
| Net investment incomeb |
0.50 | 0.07 | ||||||
| Net realized and unrealized lossc |
(5.52 | ) | (1.01 | ) | ||||
|
|
|
|
|
|||||
| Total from investment operations |
(5.02 | ) | (0.94 | ) | ||||
|
|
|
|
|
|||||
| Less distributions from: |
||||||||
| Net investment income |
(1.14 | ) | 0.00 | |||||
|
|
|
|
|
|||||
| Total distributions |
(1.14 | ) | 0.00 | |||||
|
|
|
|
|
|||||
| Net asset value, end of period |
$ | 43.44 | $ | 49.60 | ||||
|
|
|
|
|
|||||
| Total return |
(9.98 | )% | (1.86 | )%d | ||||
|
|
|
|
|
|||||
| Ratios/Supplemental data: |
||||||||
| Net assets, end of period (000s) |
$ | 8,689 | $ | 69,443 | ||||
| Ratio of expenses to average net assetse |
0.69 | % | 0.69 | % | ||||
| Ratio of net investment income to average net assetse |
1.13 | % | 3.33 | % | ||||
| Portfolio turnover ratef |
32 | % | 2 | % | ||||
| 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 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 year ended August 31, 2012 and the period ended August 31, 2011 would have been 17% and 2%, respectively. See Note 4. |
See notes to consolidated financial statements.
| 90 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Consolidated Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout the period)
| iShares MSCI Emerging Markets Value Index Fund | ||||
| Period from to Aug. 31, 2012 |
||||
| Net asset value, beginning of period |
$ | 52.58 | ||
|
|
|
|||
| Income from investment operations: |
| |||
| Net investment incomeb |
1.00 | |||
| Net realized and unrealized lossc |
(7.54 | ) | ||
|
|
|
|||
| Total from investment operations |
(6.54 | ) | ||
|
|
|
|||
| Less distributions from: |
||||
| Net investment income |
(0.74 | ) | ||
|
|
|
|||
| Total distributions |
(0.74 | ) | ||
|
|
|
|||
| Net asset value, end of period |
$ | 45.30 | ||
|
|
|
|||
| Total return |
(12.41 | )%d | ||
|
|
|
|||
| Ratios/Supplemental data: |
||||
| Net assets, end of period (000s) |
$ | 9,061 | ||
| Ratio of expenses to average net assetse |
0.49 | % | ||
| Ratio of expenses to average net assets prior to waived feese |
0.68 | % | ||
| Ratio of net investment income to average net assetse |
3.73 | % | ||
| Portfolio turnover ratef |
12 | % | ||
| 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, 2012 would have been 12%. See Note 4. |
See notes to consolidated financial statements.
| CONSOLIDATED FINANCIAL HIGHLIGHTS |
91 |
Table of Contents
Notes to Consolidated Financial Statements
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 consolidated financial statements relate only to the following funds (each, a “Fund,” and collectively, the “Funds”):
| a | The Fund commenced operations on February 8, 2012. |
| b | The Fund commenced operations on October 18, 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 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 carries out its investment strategies associated with investment in Indian securities by investing in a wholly-owned subsidiary in the Republic of Mauritius (each, a “Subsidiary,” and collectively, the “Subsidiaries”), which in turn invests in Indian securities included in the underlying index. The investment adviser of each Fund also serves as the investment adviser to each Subsidiary. Through this investment structure, each Fund expects to obtain certain benefits under a current tax treaty between Mauritius and India. The accompanying consolidated financial statements for each Fund include the accounts of its Subsidiary.
Each Fund 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.
| 92 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES®, INC.
| 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.
SECURITY VALUATION
Each Fund’s investments are valued at fair value each day that the Fund’s listing exchange is open. U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) provides oversight of the valuation of investments for the Funds. The investments of each Fund are valued pursuant to policies and procedures developed by the Global Valuation Committee and approved by the Board of Directors of the Company (the “Board”).
| • | Equity investments traded on a recognized securities exchange are valued at that day’s last reported trade price or the official closing price, as applicable, on the exchange where the stock is primarily traded. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last traded price. |
| • | Open-end U.S. mutual funds are valued at that day’s published net asset value (NAV). |
In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the fair value of such investment or if a price is not available, the investment will be valued based upon other available factors deemed relevant by the Global Valuation Committee, in accordance with policies approved by the Board. These factors include but are not limited to (i) attributes specific to the investment; (ii) the principal market for the investment; (iii) the customary participants in the principal market for the investment; (iv) data assumptions by market participants for the investment, if reasonably available; (v) quoted prices for similar investments in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and/or other default rates. Valuations based on such factors are reported to the Board on a quarterly basis.
The Global Valuation Committee employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Company’s pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values, and reviews of market related activity.
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.
Various inputs are used in determining the fair value of financial instruments. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting purposes. 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
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
93 |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES®, INC.
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. The three levels of the fair value hierarchy are as follows:
| • | Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities; |
| • | 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 (such as exchange rates, financing terms, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs; and |
| • | Level 3 — Unobservable inputs for the asset or liability, including the Funds’ assumptions used in determining the fair value of investments. |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. In accordance with the Company’s policy, transfers between different levels of the fair value hierarchy are deemed to have occurred as of the beginning of the reporting period.
The following table summarizes the value of each of the Funds’ investments according to the fair value hierarchy as of August 31, 2012. The breakdown of each Fund’s investments into major categories is disclosed in its respective Consolidated Schedule of Investments.
| iShares MSCI Index Fund and |
Investments | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| BRIC |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 566,596,994 | $ | — | $ | — | $ | 566,596,994 | ||||||||
| Preferred Stocks |
115,341,727 | — | — | 115,341,727 | ||||||||||||
| Short-Term Investments |
36,484,789 | — | — | 36,484,789 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 718,423,510 | $ | — | $ | — | $ | 718,423,510 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Emerging Markets Asia |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 19,799,737 | $ | 33,731 | $ | — | $ | 19,833,468 | ||||||||
| Preferred Stocks |
173,704 | — | — | 173,704 | ||||||||||||
| Rights |
— | 900 | — | 900 | ||||||||||||
| Short-Term Investments |
9,178 | — | — | 9,178 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 19,982,619 | $ | 34,631 | $ | — | $ | 20,017,250 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Emerging Markets Consumer Discretionary Sector |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 2,328,003 | $ | 29,038 | $ | — | $ | 2,357,041 | ||||||||
| Preferred Stocks |
59,796 | — | — | 59,796 | ||||||||||||
| Short-Term Investments |
21,108 | — | — | 21,108 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 2,408,907 | $ | 29,038 | $ | — | $ | 2,437,945 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 94 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES®, INC.
| iShares MSCI Index Fund and |
Investments | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Emerging Markets Energy Sector Capped |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 1,731,696 | $ | — | $ | — | $ | 1,731,696 | ||||||||
| Preferred Stocks |
216,078 | — | — | 216,078 | ||||||||||||
| Short-Term Investments |
58,812 | — | — | 58,812 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 2,006,586 | $ | — | $ | — | $ | 2,006,586 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Emerging Markets Growth |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 9,344,590 | $ | 19,799 | $ | — | $ | 9,364,389 | ||||||||
| Preferred Stocks |
726,609 | — | — | 726,609 | ||||||||||||
| Short-Term Investments |
222,869 | — | — | 222,869 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 10,294,068 | $ | 19,799 | $ | — | $ | 10,313,867 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Emerging Markets Minimum Volatility |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 366,327,556 | $ | — | $ | — | $ | 366,327,556 | ||||||||
| Preferred Stocks |
18,658,854 | — | — | 18,658,854 | ||||||||||||
| Short-Term Investments |
1,602,521 | — | — | 1,602,521 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 386,588,931 | $ | — | $ | — | $ | 386,588,931 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Emerging Markets Small Cap |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 8,517,187 | $ | 10,521 | $ | 5,198 | $ | 8,532,906 | ||||||||
| Preferred Stocks |
108,811 | — | — | 108,811 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 8,625,998 | $ | 10,521 | $ | 5,198 | $ | 8,641,717 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Emerging Markets Value |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 8,217,492 | $ | — | $ | — | $ | 8,217,492 | ||||||||
| Preferred Stocks |
788,171 | — | — | 788,171 | ||||||||||||
| Rights |
— | 651 | — | 651 | ||||||||||||
| Short-Term Investments |
29,373 | — | — | 29,373 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 9,035,036 | $ | 651 | $ | — | $ | 9,035,687 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund had transfers from Level 1 to Level 2 during the period ended August 31, 2012 in the amount of $31,538, measured as of the point of acquisition by the Fund, resulting from a temporary suspension of trading due to a pending corporate action.
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
95 |
Table of Contents
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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, 2012 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 Consolidated 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, 2012, if any, are disclosed in the Funds’ Consolidated Statements of Assets and Liabilities.
Each Fund conducts its investment activities in India through its Subsidiary and expects to obtain benefits under the Double Tax Avoidance Agreement (“DTAA”). In order to be eligible to claim benefits under the DTAA, each Subsidiary must satisfy certain conditions, including the establishment and maintenance of valid tax residence in Mauritius. Each Subsidiary is subject to tax in Mauritius on its net income at the rate of 15%. However, a system of tax credits effectively reduces the Mauritius income tax rate to a maximum of 3%. These income taxes, if any, are paid by the Funds and are disclosed in the Consolidated Statements of Operations. Further, each Subsidiary is not subject to tax in Mauritius on any gains from the sale of securities. Any dividends paid by a Subsidiary to its 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.
As a result of recent legislative changes enacted by the 2012 India Finance Act (“the Act”) and its general anti-avoidance rules (“GAAR”), which are effective April 1, 2013, the Subsidiaries’ ability to leverage the treaty between Mauritius and India may be adversely impacted, and therefore the Funds may be subject to taxes on capital gains and/or dividends realized on Indian securities. The Act also includes provisions that impose Indian tax on the transfer of shares of an Indian company. However, until more definitive guidance on the legislative changes is available, the impact to the Funds, if any, cannot be determined at this time.
| 96 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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Notes to Consolidated Financial Statements (Continued)
iSHARES®, INC.
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.
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.
| 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.
Each 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. Each 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 each of the iShares MSCI BRIC, iShares MSCI Emerging Markets Consumer Discretionary Sector, iShares MSCI Emerging Markets Energy Sector Capped, iShares MSCI Emerging Markets Minimum Volatility and iShares MSCI Emerging Markets Small Cap 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 | |
| 0.75% | 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 |
BFA has contractually agreed to waive a portion of its investment advisory fees for the iShares MSCI Emerging Markets Minimum Volatility Index Fund through December 31, 2014 in order to limit total annual operating expenses to 0.25% of average daily net assets.
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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Notes to Consolidated Financial Statements (Continued)
iSHARES®, INC.
For its investment advisory services to each Fund, BFA is entitled to an annual investment advisory fee based on the average daily net assets of each Fund as follows:
| iShares MSCI Index Fund | Investment Advisory Fee |
|||
| Emerging Markets Asia |
0.68 | % | ||
| Emerging Markets Growth |
0.68 | |||
| Emerging Markets Value |
0.68 | |||
BFA has contractually agreed to waive a portion of its investment advisory fees for the iShares MSCI Emerging Markets Asia, iShares Emerging Markets Growth and iShares Emerging Markets Value Index Funds through December 31, 2014 in order to limit total annual operating expenses to 0.49% of average daily net assets.
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. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, and any fees or other payments to and from borrowers of securities. Each Fund retains 65% of securities lending income and pays a fee to BTC equal to 35% of such income. As securities lending agent, BTC is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BTC is also responsible for fees and expenses incurred by each Fund as a result of the investment of cash collateral received for securities on loan in a money market fund managed by BFA or an affiliate.
For the period ended August 31, 2012, BTC earned securities lending agent fees from the Funds as follows:
| iShares MSCI Index Fund | Securities Lending Agent Fees |
|||
| BRIC |
$ | 378,454 | ||
| Emerging Markets Consumer Discretionary Sector |
510 | |||
| Emerging Markets Energy Sector Capped |
1 | |||
| Emerging Markets Growth |
602 | |||
| Emerging Markets Minimum Volatility |
6,639 | |||
At a special meeting of the Board held on January 5, 2012, the directors approved a new distribution agreement with BlackRock Investments, LLC (“BRIL”). BRIL is an affiliate of BFA. Effective April 1, 2012, BRIL replaced SEI Investments Distribution Co. as the distributor for each Fund. Pursuant to the new distribution agreement, BFA is responsible for any fees or expenses for distribution services provided to the Funds.
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 Consolidated Statements of Operations.
The PNC Financial Services Group, Inc. is the largest stockholder of BlackRock and is considered to be an affiliate of the Funds for 1940 Act purposes.
Certain directors and officers of the Company are also officers of BTC and/or BFA.
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Notes to Consolidated Financial Statements (Continued)
iSHARES®, INC.
| 3. | INVESTMENT PORTFOLIO TRANSACTIONS |
Purchases and sales of investments (excluding in-kind transactions and short-term investments) for the period ended August 31, 2012 were as follows:
| iShares MSCI Index Fund | Purchases | Sales | ||||||
| BRIC |
$ | 307,127,204 | $ | 246,688,173 | ||||
| Emerging Markets Asia |
13,703,462 | 519,643 | ||||||
| Emerging Markets Consumer Discretionary Sector |
6,391,360 | 4,331,864 | ||||||
| Emerging Markets Energy Sector Capped |
3,799,118 | 2,135,986 | ||||||
| Emerging Markets Growth |
6,970,290 | 1,257,169 | ||||||
| Emerging Markets Minimum Volatility |
256,608,538 | 37,428,933 | ||||||
| Emerging Markets Small Cap |
11,366,668 | 40,610,387 | ||||||
| Emerging Markets Value |
6,709,812 | 1,115,470 | ||||||
In-kind transactions (see Note 4) for the period ended August 31, 2012 were as follows:
| iShares MSCI Index Fund | In-kind Purchases |
In-kind Sales |
||||||
| BRIC |
$ | 89,219,400 | $ | 177,560,937 | ||||
| Emerging Markets Asia |
8,619,735 | — | ||||||
| Emerging Markets Consumer Discretionary Sector |
4,283,154 | 2,882,087 | ||||||
| Emerging Markets Energy Sector Capped |
6,671,622 | 4,102,533 | ||||||
| Emerging Markets Growth |
5,151,783 | — | ||||||
| Emerging Markets Minimum Volatility |
174,696,121 | 13,442,008 | ||||||
| Emerging Markets Small Cap |
3,844,423 | 25,147,268 | ||||||
| Emerging Markets Value |
4,915,911 | — | ||||||
| 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 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 a specified 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.
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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Notes to Consolidated Financial Statements (Continued)
iSHARES®, INC.
| 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. Each Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the value of the cash collateral received.
As of August 31, 2012, 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, 2012 and the value of the related collateral are disclosed in the Consolidated Statements of Assets and Liabilities. Securities lending income, as disclosed in the Consolidated Statements of Operations, represents the income earned from the investment of the cash collateral, net of fees and other payments to and from borrowers, and less the fees paid to BTC as securities lending agent.
| 6. | INCOME TAX INFORMATION |
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of August 31, 2012, attributable to passive foreign investment companies, distributions paid in excess of taxable income, foreign currency transactions and realized gains (losses) from in-kind redemptions, were reclassified to the following accounts:
| 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 |
|||||||||
| BRIC |
$ | 21,253,839 | $ | (464,864 | ) | $ | (20,788,975 | ) | ||||
| Emerging Markets Asia |
— | (4,395 | ) | 4,395 | ||||||||
| Emerging Markets Consumer Discretionary Sector |
(180,550 | ) | (2,515 | ) | 183,065 | |||||||
| Emerging Markets Energy Sector Capped |
(870,580 | ) | (8,266 | ) | 878,846 | |||||||
| Emerging Markets Growth |
— | (5,596 | ) | 5,596 | ||||||||
| Emerging Markets Minimum Volatility |
1,153,620 | (302,989 | ) | (850,631 | ) | |||||||
| Emerging Markets Small Cap |
(2,511,615 | ) | 269,798 | 2,241,817 | ||||||||
| Emerging Markets Value |
— | (6,976 | ) | 6,976 | ||||||||
| 100 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES®, INC.
The tax character of distributions paid during the periods ended August 31, 2012 and August 31, 2011 was as follows:
| iShares MSCI Index Fund | 2012 | 2011 | ||||||
| BRIC |
||||||||
| Ordinary income |
$ | 18,504,865 | $ | 22,858,814 | ||||
|
|
|
|
|
|||||
| Emerging Markets Asia |
||||||||
| Ordinary income |
$ | 162,964 | $ | — | ||||
|
|
|
|
|
|||||
| Emerging Markets Consumer Discretionary Sector |
||||||||
| Ordinary income |
$ | 26,130 | $ | — | ||||
|
|
|
|
|
|||||
| Emerging Markets Energy Sector Capped |
||||||||
| Ordinary income |
$ | 168,198 | — | |||||
| Return of capital |
6,779 | — | ||||||
|
|
|
|
|
|||||
| $ | 174,977 | $ | — | |||||
|
|
|
|
|
|||||
| Emerging Markets Growth |
||||||||
| Ordinary income |
$ | 85,048 | $ | — | ||||
|
|
|
|
|
|||||
| Emerging Markets Minimum Volatility |
||||||||
| Ordinary income |
$ | 2,260,368 | $ | — | ||||
|
|
|
|
|
|||||
| Emerging Markets Small Cap |
||||||||
| Ordinary income |
$ | 500,104 | $ | — | ||||
|
|
|
|
|
|||||
| Emerging Markets Value |
||||||||
| Ordinary income |
$ | 148,491 | $ | — | ||||
|
|
|
|
|
|||||
As of August 31, 2012, the tax components of accumulated net earnings (losses) were as follows:
| iShares MSCI Index Fund |
Undistributed Ordinary |
Capital Carryforwards |
Net Unrealized Gains (Losses) a |
Qualified Late-Year Losses b |
Total |
|||||||||||||||
| BRIC |
$ | — | $ | (83,793,558 | ) | $ | (90,525,811 | ) | $ | (41,461,029 | ) | $ | (215,780,398 | ) | ||||||
| Emerging Markets Asia |
123,992 | (97,800 | ) | (1,702,819 | ) | — | (1,676,627 | ) | ||||||||||||
| Emerging Markets Consumer Discretionary Sector |
15,100 | (769,548 | ) | (93,629 | ) | — | (848,077 | ) | ||||||||||||
| Emerging Markets Energy Sector Capped |
— | (911,455 | ) | (502,412 | ) | — | (1,413,867 | ) | ||||||||||||
| Emerging Markets Growth |
42,036 | (302,438 | ) | (472,965 | ) | — | (733,367 | ) | ||||||||||||
| Emerging Markets Minimum Volatility |
1,897,442 | (1,248,753 | ) | 4,499,062 | — | 5,147,751 | ||||||||||||||
| Emerging Markets Small Cap |
278,346 | (62,813 | ) | (890,376 | ) | (8,422,428 | ) | (9,097,271 | ) | |||||||||||
| Emerging Markets Value |
49,010 | (188,505 | ) | (1,320,767 | ) | — | (1,460,262 | ) | ||||||||||||
| a | The difference between book-basis and tax-basis unrealized gains (losses) was 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. |
| b | The Funds have elected to defer certain qualified late-year losses and recognize such losses in the year ending August 31, 2013. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
101 |
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES®, INC.
As of August 31, 2012, the Funds had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:
| iShares MSCI Index Fund | Non- Expiring a |
Expiring 2017 |
Expiring 2018 |
Expiring 2019 |
Total | |||||||||||||||
| BRIC |
$ | 63,224,174 | $ | 1,540,740 | $ | 11,268,086 | $ | 7,760,558 | $ | 83,793,558 | ||||||||||
| Emerging Markets Asia |
97,800 | — | — | — | 97,800 | |||||||||||||||
| Emerging Markets Consumer Discretionary Sector |
769,548 | — | — | — | 769,548 | |||||||||||||||
| Emerging Markets Energy Sector Capped |
911,455 | — | — | — | 911,455 | |||||||||||||||
| Emerging Markets Growth |
302,438 | — | — | — | 302,438 | |||||||||||||||
| Emerging Markets Minimum Volatility |
1,248,753 | — | — | — | 1,248,753 | |||||||||||||||
| Emerging Markets Small Cap |
62,813 | — | — | — | 62,813 | |||||||||||||||
| Emerging Markets Value |
188,505 | — | — | — | 188,505 | |||||||||||||||
| a | Must be utilized prior to losses subject to expiration. |
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, 2012, 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) |
||||||||||||
| BRIC |
$ | 808,907,005 | $ | 55,368,235 | $ | (145,851,730 | ) | $ | (90,483,495 | ) | ||||||
| Emerging Markets Asia |
21,720,054 | 522,389 | (2,225,193 | ) | (1,702,804 | ) | ||||||||||
| Emerging Markets Consumer Discretionary Sector |
2,531,573 | 144,701 | (238,329 | ) | (93,628 | ) | ||||||||||
| Emerging Markets Energy Sector Capped |
2,508,999 | 10,583 | (512,996 | ) | (502,413 | ) | ||||||||||
| Emerging Markets Growth |
10,786,677 | 534,481 | (1,007,291 | ) | (472,810 | ) | ||||||||||
| Emerging Markets Minimum Volatility |
382,087,066 | 15,911,137 | (11,409,272 | ) | 4,501,865 | |||||||||||
| Emerging Markets Small Cap |
9,531,867 | 599,932 | (1,490,082 | ) | (890,150 | ) | ||||||||||
| Emerging Markets Value |
10,356,390 | 251,522 | (1,572,225 | ) | (1,320,703 | ) | ||||||||||
Management has reviewed the tax positions as of August 31, 2012, inclusive of the open tax return years, and has determined that no provision for income tax is required in the Funds’ consolidated financial statements.
| 7. | LINE OF CREDIT |
The Funds, along with certain other iShares funds, are a party to a $125 million credit agreement with State Street Bank and Trust Company, which expires October 31, 2012. The credit agreement was established to facilitate the funding of purchases of securities in India. The credit agreement has the following terms: a commitment fee of 0.08% per annum on the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR plus 1.00% per annum or (b) the U.S. Federal Funds rate plus
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Table of Contents
Notes to Consolidated Financial Statements (Continued)
iSHARES®, INC.
1.00% per annum on amounts borrowed. The commitment fee is allocated to each fund participating in the credit agreement based on each fund’s pro-rata share of the aggregate average daily value of assets invested in local Indian securities.
For the period ended August 31, 2012, the maximum amounts borrowed, the average borrowings and the average interest rates under the credit agreement were as follows:
| iShares MSCI Index Fund | Maximum Amount Borrowed |
Average Borrowings |
Average Interest Rates |
|||||||||
| BRIC |
$ | 2,400,000 | $ | 79,558 | 1.26 | % | ||||||
| Emerging Markets Energy Sector Capped |
22,470 | 456 | 1.24 | |||||||||
| Emerging Markets Growth |
83,460 | 1,601 | 1.24 | |||||||||
| Emerging Markets Minimum Volatility |
400,000 | 8,952 | 1.27 | |||||||||
| Emerging Markets Small Cap |
1,500,000 | 32,877 | 1.27 | |||||||||
| Emerging Markets Value |
80,250 | 1,539 | 1.24 | |||||||||
| 8. | SUBSEQUENT EVENTS |
Management has evaluated the impact of all subsequent events on the Funds 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 statement
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
103 |
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 statements of assets and liabilities, including the consolidated schedules 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 financial position of the iShares MSCI BRIC Index Fund, iShares MSCI Emerging Markets Asia Index Fund, iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund, iShares MSCI Emerging Markets Energy Sector Capped Index Fund, iShares MSCI Emerging Markets Growth Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund, iShares MSCI Emerging Markets Value Index Fund and their subsidiaries (the “Funds”), at August 31, 2012, 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, 2012 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 23, 2012
| 104 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES®, INC.
For the fiscal period ended August 31, 2012, 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 follow:
| iShares MSCI Index Fund | Foreign Source Income Earned |
Foreign Taxes Paid |
||||||
| BRIC |
$ | 27,181,189 | $ | 2,451,142 | ||||
| Emerging Markets Asia |
387,099 | 51,542 | ||||||
| Emerging Markets Consumer Discretionary Sector |
82,002 | 6,784 | ||||||
| Emerging Markets Energy Sector Capped |
231,286 | 23,409 | ||||||
| Emerging Markets Growth |
177,740 | 17,466 | ||||||
| Emerging Markets Minimum Volatility |
5,234,180 | 653,827 | ||||||
| Emerging Markets Small Cap |
724,290 | 65,394 | ||||||
| Emerging Markets Value |
255,697 | 27,249 | ||||||
For corporate shareholders, the following percentages of the income dividends paid by certain Funds during the fiscal period ended August 31, 2012 qualified for the dividends-received deduction:
| iShares MSCI Index Fund | Dividends- Received Deduction |
|||
| Emerging Markets Growth |
0.90 | % | ||
| Emerging Markets Value |
0.19 | |||
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 period ended August 31, 2012:
In February 2013, shareholders will receive Form 1099-DIV which will include their share of qualified dividend income distributed during the calendar year 2012. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their income tax returns.
| TAX INFORMATION |
105 |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited)
iSHARES®, INC.
iShares MSCI BRIC, iShares MSCI Emerging Markets Minimum Volatility, and iShares MSCI Emerging Markets Small Cap Index Funds
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. The Independent Directors requested, and BFA provided, such information as the Independent Directors, with advice from independent counsel, deemed reasonably necessary to evaluate the Advisory Contract. A committee of Independent Directors (the “15(c) Committee”), with independent counsel, met with management on April 19, 2012, April 27, 2012, and May 16, 2012, to discuss the types of information the Independent Directors required and the manner in which management would organize and present such information. At a meeting held on May 17, 2012, management presented information to the Board relating to the continuance of the Advisory Contract, and the Board, including the Independent Directors, reviewed and discussed such information at length. The Independent Directors requested from management certain additional information, and the 15(c) Committee met with management on June 8, 2012, to discuss the additional requests. At a meeting held on June 20-21, 2012, the Board, including the Independent Directors, reviewed additional information provided by management in response to these requests. The Board, including a majority of the Independent Directors, approved the continuance of the Advisory Contract for the Funds, based on a review of qualitative and quantitative information provided by BFA, including a review of supplemental information management provided at the request of the Independent Directors. 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 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:
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, sponsor, inception date, or other differentiating factors, but that 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 also received a detailed explanation from BFA regarding its rationale for including funds that had been excluded from Lipper’s consideration due to Lipper’s methodology parameters, as well as information showing the effect of including these additional funds in the analysis. 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 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, 2011, 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
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Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
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 periodic comparative performance information was also considered by the Board.
Based on this review, the other factors considered at the meeting, and their general knowledge of mutual fund pricing, the Board concluded that the investment advisory fees and expense levels and the historical performance of each Fund supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
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, to 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 have been added or enhanced since then, including in such areas as investor education, product management, customized portfolio consulting support, 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 and risk management 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, and the performance information discussed above, the Board concluded that the nature, extent and quality of services 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.
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, noting that the 15(c) Committee had focused on the methodology and proposed presentation during its meetings. 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 — The Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Funds’ assets, noting that the issue of economies of scale had been focused on extensively by the 15(c) Committee during its meetings
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Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
and addressed by management. The Board and the 15(c) Committee reviewed information provided by BFA regarding scale benefits shared with the iShares funds through breakpoints, waivers, or other fee reductions, as well as through additional investment in the iShares business and the provision of improved or additional infrastructure and services to the iShares funds and their shareholders. The Board and the 15(c) Committee received information regarding BFA’s historical profitability, including BFA’s and its affiliates’ costs in providing services. The cost information distinguished between fixed and variable costs, and explained how the nature of such costs may impact the existence of scale benefits. 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. The Board noted that it would continue to monitor the sharing of economies of scale to determine the appropriateness of adding new or revised breakpoints in the future. Based on this review, as well as the other factors considered at the meeting, 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 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 the Funds, except for iShares MSCI Emerging Markets Small Cap 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 generally more extensive 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 exchange traded funds, as compared to the Other Accounts that are institutional clients in light of differing regulatory requirements and client-imposed mandates. The Board also considered the “all-inclusive” nature of the Funds’ advisory fee structure, and the Fund expenses borne by BFA under this arrangement. 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 ancillary revenue received by BFA and/or its affiliates in connection with the services provided to the Funds by BFA, such as payment of revenue to BTC, the Funds’ securities lending agent, for loaning portfolio securities (which was included in the profit margins reviewed by the Board pursuant to BFA’s profitability methodology), 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 generally 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 and thus would not alter the Board’s conclusion with respect to the appropriateness of approving the continuance of the Advisory Contract for the coming year.
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Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
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 |
109 |
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 |
|||||||||||||||||||||||||||||||
| iShares MSCI Index Fund | 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 |
||||||||||||||||||||||||
| Emerging Markets Minimum Volatility |
$ | 1.21232 | $ | — | $ | 0.11167 | $ | 1.32399 | 92 | % | — | % | 8 | % | 100 | % | ||||||||||||||||
| Emerging Markets Small Cap |
1.14227 | — | — | 1.14227 | 100 | — | — | 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 calendar quarter-end. The specific periods covered for each Fund are disclosed in the table for such Fund.
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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 BRIC Index Fund
Period Covered: January 1, 2008 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 5.5% |
3 | 0.26 | % | |||||
| Greater than 5.0% and Less than 5.5% |
1 | 0.09 | ||||||
| Greater than 4.5% and Less than 5.0% |
3 | 0.26 | ||||||
| Greater than 4.0% and Less than 4.5% |
2 | 0.18 | ||||||
| Greater than 3.5% and Less than 4.0% |
2 | 0.18 | ||||||
| Greater than 3.0% and Less than 3.5% |
5 | 0.44 | ||||||
| Greater than 2.5% and Less than 3.0% |
11 | 0.97 | ||||||
| Greater than 2.0% and Less than 2.5% |
26 | 2.29 | ||||||
| Greater than 1.5% and Less than 2.0% |
54 | 4.77 | ||||||
| Greater than 1.0% and Less than 1.5% |
164 | 14.47 | ||||||
| Greater than 0.5% and Less than 1.0% |
206 | 18.18 | ||||||
| Between 0.5% and –0.5% |
420 | 37.07 | ||||||
| Less than –0.5% and Greater than –1.0% |
136 | 12.00 | ||||||
| Less than –1.0% and Greater than –1.5% |
48 | 4.24 | ||||||
| Less than –1.5% and Greater than –2.0% |
23 | 2.03 | ||||||
| Less than –2.0% and Greater than –2.5% |
13 | 1.15 | ||||||
| Less than –2.5% and Greater than –3.0% |
5 | 0.44 | ||||||
| Less than –3.0% and Greater than –3.5% |
1 | 0.09 | ||||||
| Less than –3.5% and Greater than –4.0% |
2 | 0.18 | ||||||
| Less than –4.0% and Greater than –4.5% |
2 | 0.18 | ||||||
| Less than –4.5% and Greater than –5.0% |
2 | 0.18 | ||||||
| Less than –5.0% and Greater than –5.5% |
1 | 0.09 | ||||||
| Less than –5.5% |
3 | 0.26 | ||||||
|
|
|
|
|
|||||
| 1,133 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
111 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Emerging Markets Asia Index Fund
Period Covered: April 1, 2012 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 2.0% |
1 | 1.59 | % | |||||
| Greater than 1.5% and Less than 2.0% |
9 | 14.29 | ||||||
| Greater than 1.0% and Less than 1.5% |
8 | 12.70 | ||||||
| Greater than 0.5% and Less than 1.0% |
5 | 7.94 | ||||||
| Between 0.5% and –0.5% |
26 | 41.26 | ||||||
| Less than –0.5% and Greater than –1.0% |
6 | 9.52 | ||||||
| Less than –1.0% and Greater than –1.5% |
5 | 7.94 | ||||||
| Less than –1.5% and Greater than –2.0% |
3 | 4.76 | ||||||
|
|
|
|
|
|||||
| 63 | 100.00 | % | ||||||
|
|
|
|
|
|||||
iShares MSCI Emerging Markets Consumer Discretionary Index Sector Fund
Period Covered: April 1, 2012 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 2.0% and Less than 2.5% |
1 | 1.59 | % | |||||
| Greater than 1.5% and Less than 2.0% |
1 | 1.59 | ||||||
| Greater than 1.0% and Less than 1.5% |
5 | 7.94 | ||||||
| Greater than 0.5% and Less than 1.0% |
13 | 20.64 | ||||||
| Between 0.5% and –0.5% |
30 | 47.61 | ||||||
| Less than –0.5% and Greater than –1.0% |
6 | 9.52 | ||||||
| Less than –1.0% and Greater than –1.5% |
6 | 9.52 | ||||||
| Less than –1.5% |
1 | 1.59 | ||||||
|
|
|
|
|
|||||
| 63 | 100.00 | % | ||||||
|
|
|
|
|
|||||
iShares MSCI Emerging Markets Energy Sector Capped Index Fund
Period Covered: April 1, 2012 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 1.5% and Less than 2.0% |
3 | 4.76 | % | |||||
| Greater than 1.0% and Less than 1.5% |
10 | 15.87 | ||||||
| Greater than 0.5% and Less than 1.0% |
15 | 23.82 | ||||||
| Between 0.5% and –0.5% |
29 | 46.03 | ||||||
| Less than –0.5% and Greater than –1.0% |
3 | 4.76 | ||||||
| Less than –1.0% and Greater than –1.5% |
3 | 4.76 | ||||||
|
|
|
|
|
|||||
| 63 | 100.00 | % | ||||||
|
|
|
|
|
|||||
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Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Emerging Markets Growth Index Fund
Period Covered: April 1, 2012 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 1.5% and Less than 2.0% |
2 | 3.17 | % | |||||
| Greater than 1.0% and Less than 1.5% |
2 | 3.17 | ||||||
| Greater than 0.5% and Less than 1.0% |
13 | 20.64 | ||||||
| Between 0.5% and –0.5% |
33 | 52.39 | ||||||
| Less than –0.5% and Greater than –1.0% |
9 | 14.29 | ||||||
| Less than –1.0% and Greater than –1.5% |
2 | 3.17 | ||||||
| Less than –1.5% and Greater than –2.0% |
2 | 3.17 | ||||||
|
|
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|
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|||||
| 63 | 100.00 | % | ||||||
|
|
|
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|
|||||
iShares MSCI Emerging Markets Minimum Volatility Index Fund
Period Covered: January 1, 2012 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 2.0% |
1 | 0.80 | % | |||||
| Greater than 1.5% and Less than 2.0% |
9 | 7.20 | ||||||
| Greater than 1.0% and Less than 1.5% |
19 | 15.20 | ||||||
| Greater than 0.5% and Less than 1.0% |
39 | 31.20 | ||||||
| Between 0.5% and –0.5% |
43 | 34.40 | ||||||
| Less than –0.5% and Greater than –1.0% |
9 | 7.20 | ||||||
| Less than –1.0% and Greater than –1.5% |
4 | 3.20 | ||||||
| Less than –1.5% and Greater than –2.0% |
1 | 0.80 | ||||||
|
|
|
|
|
|||||
| 125 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
113 |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Emerging Markets Small Cap Index Fund
Period Covered: October 1, 2011 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 3.5% |
3 | 1.59 | % | |||||
| Greater than 3.0% and Less than 3.5% |
2 | 1.06 | ||||||
| Greater than 2.5% and Less than 3.0% |
3 | 1.59 | ||||||
| Greater than 2.0% and Less than 2.5% |
6 | 3.19 | ||||||
| Greater than 1.5% and Less than 2.0% |
19 | 10.11 | ||||||
| Greater than 1.0% and Less than 1.5% |
25 | 13.30 | ||||||
| Greater than 0.5% and Less than 1.0% |
30 | 15.96 | ||||||
| Between 0.5% and –0.5% |
55 | 29.26 | ||||||
| Less than –0.5% and Greater than –1.0% |
24 | 12.77 | ||||||
| Less than –1.0% and Greater than –1.5% |
12 | 6.38 | ||||||
| Less than –1.5% and Greater than –2.0% |
4 | 2.13 | ||||||
| Less than –2.0% and Greater than –2.5% |
5 | 2.66 | ||||||
|
|
|
|
|
|||||
| 188 | 100.00 | % | ||||||
|
|
|
|
|
|||||
iShares MSCI Emerging Markets Value Index Fund
Period Covered: April 1, 2012 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 2.0% |
1 | 1.59 | % | |||||
| Greater than 1.5% and Less than 2.0% |
4 | 6.35 | ||||||
| Greater than 1.0% and Less than 1.5% |
12 | 19.05 | ||||||
| Greater than 0.5% and Less than 1.0% |
10 | 15.87 | ||||||
| Between 0.5% and –0.5% |
29 | 46.03 | ||||||
| Less than –0.5% and Greater than –1.0% |
6 | 9.52 | ||||||
| Less than –1.0% and Greater than –1.5% |
1 | 1.59 | ||||||
|
|
|
|
|
|||||
| 63 | 100.00 | % | ||||||
|
|
|
|
|
|||||
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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 Director 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, a Director of iShares MSCI Russia Capped Index Fund, Inc. and a Trustee of iShares U.S. ETF Trust and, as a result, oversees a total of 276 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 Robert H. Silver 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-iShares (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 (55) |
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). | Director of BlackRock, Inc. (since 2007); Trustee of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| Michael Lathamb (47) |
Director (since 2010); President (since 2007). | Chairman of iShares, BlackRock (since 2011); Global Chief Executive Officer of iShares, BlackRock (2010-2011); Managing Director, BlackRock (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, BGI (2003-2007). |
Trustee of iShares Trust (since 2010); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| a | Robert S. Kapito is deemed to be an “interested person” (as defined in the 1940 Act) of the Trust 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 Trust due to his affiliations with BlackRock, Inc. and its affiliates. |
| DIRECTOR AND OFFICER INFORMATION |
115 |
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 | |||
| Robert H. Silver (57) |
Director (since 2007); Independent Chairman (since 2012). | President and Co-Founder of The Bravitas Group, Inc. (since 2006); Director and Vice Chairman of the YMCA of Greater NYC (2001-2011); Broadway Producer (2006-2011); 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); President and Chief Operating Officer of UBS Financial Services Inc. (formerly Pain Webber Inc.) (2004-2005) and various executive positions with UBS and its affiliates (1988-2005); CPA and Audit Manager of KPMG, LLP (formerly Peat Marwick Mitchell) (1977-1983). | Trustee of iShares Trust (since 2007); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Independent Chairman of iShares, Inc., iShares MSCI Russia Capped Index Fund, Inc. and iShares U.S. ETF Trust (since 2012). | |||
| Cecilia H. Herbert (63) |
Director (since 2005); Nominating and Governance Committee Chair and Equity Plus Committee Chair (since 2012). | Director (since 1998) and President (2007-2011) of the Board of Directors, Catholic Charities CYO; Trustee (since 2002) and Chair of the Finance Committee (2006-2009) and Investment Committee (since 2006), The Thacher School; Trustee of Pacific Select Funds (2004-2005); Member (since 1994) and Chair (1994-2005) of the Investment Committee, Archdiocese of San Francisco. |
Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Director of Forward Funds (35 portfolios) (since 2009). | |||
| Charles A. Hurty (69) |
Director (since 2005); Audit Committee Chair (since 2006). |
Retired; Partner, KPMG LLP (1968-2001). | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002); Director of SkyBridge Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC (1 portfolio) (since 2002). | |||
| John E. Kerrigan (57) |
Director (since 2005); Fixed Income Plus Committee Chair (since 2012). |
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); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| 116 | 2012 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 | |||
| John E. Martinez (51) |
Director (since 2003); Securities Lending Committee Chair (since 2012). | Director of FirstREX Agreement Corp. (formerly EquityRock, Inc.) (since 2005). | Trustee of iShares Trust (since 2003); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| George G.C. Parker (73) |
Director (since 2002). | Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University Graduate School of Business (Professor since 1973; Emeritus since 2006). | Trustee of iShares Trust (since 2002); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); 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). | |||
| Madhav V. Rajan (48) |
Director (since 2011); 15(c) Committee Chair (since 2012). |
Robert K. Jaedicke Professor of Accounting and Senior Associate Dean for Academic Affairs and Head of MBA Program, 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); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| DIRECTOR AND OFFICER INFORMATION |
117 |
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 | ||
| Edward B. Baer (44) |
Vice President and Chief Legal Officer (since 2012). |
Managing Director, BlackRock (since 2006). | ||
| Eilleen M. Clavere (60) |
Secretary (since 2007). |
Director, BlackRock (since 2009); Director of Legal Administration of Intermediary Investor Business, BGI (2006-2009). | ||
| Jack Gee (53) |
Treasurer and Chief Financial Officer (since 2008). |
Managing Director, BlackRock (since 2009); Senior Director of Fund Administration of Intermediary Investor Business, BGI (2009); Director of Fund Administration of Intermediary Investor Business, BGI (2004-2009). | ||
| Amy Schioldager (50) |
Executive Vice President (since 2007). |
Managing Director, BlackRock (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008). | ||
| Ira P. Shapiro (49) |
Vice President (since 2007). | Managing Director, BlackRock (since 2009); Chief Legal Officer, Exchange-Traded Funds Complex (2007-2012); Associate General Counsel, BGI (2004-2009). | ||
| Scott Radell (43) |
Executive Vice President (since 2012). |
Managing Director, BlackRock (since 2009); Head of Portfolio Solutions, BGI (2007-2009); Credit Portfolio Manager, BGI (2005-2007). | ||
| 118 | 2012 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-810-0812
Table of Contents
|
August 31, 2012 |
2012 Annual Report
iShares, Inc.
iShares MSCI All Country World Minimum Volatility Index Fund | ACWV | NYSE Arca
iShares MSCI Emerging Markets EMEA Index Fund | EEME | NASDAQ
iShares MSCI World Index Fund | URTH | NYSE Arca
Table of Contents
| 5 | ||||
| 14 | ||||
| 15 | ||||
| iShares MSCI All Country World Minimum Volatility Index Fund |
15 | |||
| 20 | ||||
| 23 | ||||
| 40 | ||||
| 44 | ||||
| 47 | ||||
| 56 | ||||
| 57 | ||||
| Board Review and Approval of Investment Advisory Contract (Unaudited) |
58 | |||
| 62 | ||||
| 64 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI ALL COUNTRY WORLD MINIMUM VOLATILITY INDEX FUND
Performance as of August 31, 2012
| Cumulative Total Returns | ||||||||||
| Inception to 8/31/12 | ||||||||||
| NAV | MARKET | INDEX | ||||||||
| 12.41% | 13.02% | 12.19% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
“Cumulative Total Returns” represent the total change in value of an investment over the period indicated and are calculated from an inception date of 10/18/11.
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 (10/20/11), 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.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
5 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI ALL COUNTRY WORLD MINIMUM VOLATILITY INDEX FUND
The iShares MSCI All Country World Minimum Volatility Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI All Country World Minimum Volatility Index (the “Index”). The Index is designed to measure the combined performance of equity securities in both emerging and developed markets that have lower absolute volatility. 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 October 18, 2011 (inception date of the Fund) through August 31, 2012 (the “reporting period”), the total return for the Fund was 12.41%, net of fees, while the total return for the Index was 12.19%.
As represented by the Index, lower-volatility stocks worldwide posted double-digit gains for the reporting period. Shortly after the beginning of the reporting period, the Index began a broad rally as signs of improving economic growth, particularly in the U.S. and U.K., boosted investor confidence. The rally in low-volatility stocks lasted through the first quarter of 2012. The Index lost some of its previous gains in April and May 2012 as global economic activity decelerated, putting downward pressure on global equity markets. In particular, the continuing sovereign debt crisis in Europe had a negative impact on financial institutions around the globe and led to a meaningful slowdown in European economic growth, including recessions in the most fiscally challenged countries in the region. However, global stocks bottomed in June 2012 and moved gradually higher over the last three months of the reporting period as investors grew more comfortable with the economic environment and Europe’s efforts to solve its sovereign debt crisis.
Currency fluctuations had a modestly negative impact on Index performance for the reporting period (in local currency terms, the Index returned 12.91% for the reporting period). The U.S. dollar was largely unchanged against the Canadian dollar but appreciated by 2% versus the Japanese yen and 6% against the Swiss franc; excluding the U.S., Japan, Canada, and Switzerland were the largest country weightings in the Index. The stronger U.S. dollar lowered international equity returns for U.S. investors.
On a regional basis, the U.S. equity market (which comprised just over half of the Index as of August 31, 2012) posted the best returns, gaining nearly 17% for the reporting period. The U.S. economy held up better than other regions of the globe during the reporting period, providing a favorable backdrop for U.S. stocks. The European stocks in the Index gained about 8% for the reporting period, while Index stocks in the Asia/Pacific region advanced by roughly 12%.
| 6 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI ALL COUNTRY WORLD MINIMUM VOLATILITY INDEX FUND
One additional factor favoring the Index was its relatively high dividend yield, which was approximately 4% as of the end of the reporting period. Dividend payouts helped boost the performance of the Index.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
7 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI EMERGING MARKETS EMEA INDEX FUND
Performance as of August 31, 2012
| Cumulative Total Returns | ||||||||||
| Inception to 8/31/12 | ||||||||||
| NAV | MARKET | INDEX | ||||||||
| 2.91% | 3.38% | 3.36% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
“Cumulative Total Returns” represent the total change in value of an investment over the period indicated and are calculated from an inception date of 1/18/12.
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 (1/19/12), 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.
| 8 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS EMEA 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 EMEA 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 EMEA Index (the “Index”). The Index is designed to measure the performance of equity securities in the emerging market countries of Europe, the Middle East and Africa. 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 January 18, 2012 (inception date of the Fund) through August 31, 2012 (the “reporting period”), the total return for the Fund was 2.91%, net of fees, while the total return for the Index was 3.36%.
As represented by the Index, stock markets in Eastern Europe, the Middle East, and Africa advanced for the reporting period. The Index posted a positive return despite a broad slowdown in global economic growth, driven in large part by a continuing sovereign debt crisis in Europe, which had a negative impact on financial institutions around the globe and led to a meaningful slowdown in European economic growth. Exports to developed regions of the world are an important component of emerging economies, and a marked decline in exports to Europe weighed on economic activity in many countries represented in the Index.
Nonetheless, most of these economies held up reasonably well thanks to improving domestic consumption. One factor contributing to domestic demand was a series of interest rate cuts by central banks in a number of countries represented in the Index, including Russia, South Africa, and Hungary. The resulting reduction in borrowing costs boosted domestic economic activity, which helped offset weaker export demand.
Currency fluctuations detracted from Index performance; in local currency terms, the Index returned 5.94% for the reporting period. The difference resulted from a stronger U.S. dollar, which lowered international equity returns for U.S. investors. The U.S. dollar appreciated by 5% versus the South African rand and 2.5% against the Russian ruble for the reporting period. South Africa and Russia were the largest components of the Index, comprising more than three-quarters of the Index as of August 31, 2012.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
9 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI EMERGING MARKETS EMEA INDEX FUND
South Africa, the largest country weighting in the Index (comprising more than 40% of the Index), posted a modest gain for the reporting period. A major exporter of minerals, South Africa saw its exports weaken amid falling demand for commodities, but improving industrial production and retail spending domestically helped support the South African economy. Russia, which comprised approximately 35% of the Index on average, was one of two markets in the Index to decline for the reporting period. Falling energy prices, particularly a sharp decline in the price of oil during the second quarter of 2012, weighed on the Russian equity market. Turkey was among the top-performing stock markets in the Index, gaining more than 25% for the reporting period. Turkey increased its exports to countries in the Middle East and North Africa, where growth has been more robust than in Europe and other developed nations.
From a sector perspective, seven of the ten sectors in the Index advanced for the reporting period. The health care and consumer discretionary sectors posted the best returns, each gaining more than 20% for the reporting period. Financials, the largest sector weighting in the Index as of August 31, 2012, also generated a strong return, advancing by approximately 15%. The only sectors of the Index to register negative returns were materials, utilities, and energy, all of which were adversely affected by the decline in commodity prices.
| 10 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI WORLD INDEX FUND
Performance as of August 31, 2012
| Cumulative Total Returns | ||||||||||
| Inception to 8/31/12 | ||||||||||
| NAV | MARKET | INDEX | ||||||||
| 7.76% | 8.34% | 7.68% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
“Cumulative Total Returns” represent the total change in value of an investment over the period indicated and are calculated from an inception date of 1/10/12.
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 (1/12/12), 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 WORLD 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 World Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI World Index (the “Index”). The Index is designed to measure the performance of equity securities in the top 85% of equity market capitalization, as calculated by the index provider, in certain developed market countries. 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 January 10, 2012 (inception date of the Fund) through August 31, 2012 (the “reporting period”), the total return for the Fund was 7.76%, net of fees, while the total return for the Index was 7.68%.
As represented by the Index, stocks worldwide advanced for the reporting period. As the period began, global equity markets were in the midst of a broad rally as signs of improving economic growth, particularly in the U.S. and U.K., boosted investor confidence. After peaking in late March 2012, however, global stocks declined as global economic activity began to decelerate. One factor behind this trend was the continuing sovereign debt crisis in Europe, which had a negative impact on financial institutions around the globe and led to a meaningful slowdown in European economic growth, including recessions in the most fiscally challenged countries in the region. Weaker economic growth in the U.S. and China also weighed on equity markets worldwide. Global stocks bottomed in June 2012 and moved gradually higher over the last three months of the reporting period as investors grew more comfortable with the economic environment and Europe’s efforts to solve its sovereign debt crisis.
Currency fluctuations had a modestly positive impact on Index performance for the reporting period (in local currency terms, the Index returned 7.47% for the reporting period). The U.S. dollar depreciated by 2% versus the British pound and was largely unchanged against the Canadian dollar; excluding the U.S., the U.K. and Canada were the largest country weightings in the Index. The U.S. dollar also appreciated by 2% versus both the Japanese yen and the euro. The net result of the U.S. dollar’s fluctuations against various currencies during the reporting period was a slight overall decline, which boosted Index performance for U.S. investors.
On a regional basis, the U.S. equity market (which comprised approximately half of the Index as of August 31, 2012) returned about 10% for the reporting period. The U.S. economy held up better than other regions of the globe during the reporting period, providing a favorable
| 12 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI WORLD INDEX FUND
backdrop for U.S. stocks. The remainder of the Index was split between equity markets in Europe, which gained about 7% for the reporting period, and the Asia/Pacific region, which rose by 3.5%. Stocks in the Asia/Pacific region were held in check by declining exports resulting from decelerating economic growth in the U.S. and Europe.
From a sector perspective, eight of the ten sectors in the Index advanced for the reporting period. Information technology generated the largest returns for the reporting period, gaining about 13%. Financials, the largest sector weighting in the Index as of August 31, 2012, and the two consumer sectors — consumer discretionary and consumer staples — also posted double-digit gains for the reporting period. The only two sectors in the Index to decline for the reporting period were energy and materials, which were both adversely impacted by a substantial decline in commodity prices.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
13 |
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, 2012 to August 31, 2012.
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 (3/1/12) |
Ending Account Value (8/31/12) |
Annualized Expense Ratio |
Expenses Paid During Period a |
||||||||||||
| All Country World Minimum Volatility |
||||||||||||||||
| Actual |
$ | 1,000.00 | $ | 1,047.60 | 0.23 | % | $ | 1.18 | ||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,024.00 | 0.23 | 1.17 | ||||||||||||
| Emerging Markets EMEA |
||||||||||||||||
| Actual |
1,000.00 | 908.10 | 0.49 | 2.35 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,022.70 | 0.49 | 2.49 | ||||||||||||
| World |
||||||||||||||||
| Actual |
1,000.00 | 999.60 | 0.24 | 1.21 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,023.90 | 0.24 | 1.22 | ||||||||||||
| 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 (366 days). |
| 14 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES® MSCI ALL COUNTRY WORLD MINIMUM VOLATILITY INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
15 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI ALL COUNTRY WORLD MINIMUM VOLATILITY INDEX FUND
August 31, 2012
| 16 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI ALL COUNTRY WORLD MINIMUM VOLATILITY INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
17 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI ALL COUNTRY WORLD MINIMUM VOLATILITY INDEX FUND
August 31, 2012
| 18 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI ALL COUNTRY WORLD MINIMUM VOLATILITY INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
19 |
Table of Contents
Schedule of Investments
iSHARES® MSCI EMERGING MARKETS EMEA INDEX FUND
August 31, 2012
| 20 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS EMEA INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
21 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI EMERGING MARKETS EMEA INDEX FUND
August 31, 2012
| 22 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
23 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| 24 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
25 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| 26 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
27 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| 28 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
29 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| 30 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
31 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| 32 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
33 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| 34 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
35 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| 36 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
37 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| 38 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI WORLD INDEX FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
39 |
Table of Contents
Statements of Assets and Liabilities
iSHARES®, INC.
August 31, 2012
| iShares MSCI All Country World Minimum Volatility Index Fund |
iShares MSCI Emerging Index Fund |
iShares MSCI World Index Fund |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 555,947,606 | $ | 10,598,098 | $ | 10,037,896 | ||||||
| Affiliated (Note 2) |
24,154,997 | — | 79,967 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 580,102,603 | $ | 10,598,098 | $ | 10,117,863 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 575,362,004 | $ | 10,251,578 | $ | 10,620,648 | ||||||
| Affiliated (Note 2) |
24,268,525 | — | 79,710 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
599,630,529 | 10,251,578 | 10,700,358 | |||||||||
| Foreign currencies, at valueb |
437,784 | 4,018 | 13,458 | |||||||||
| Cash |
12,028 | 60,986 | — | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
1,531,645 | 324 | 11,793 | |||||||||
| Dividends and interest |
1,287,460 | 22,583 | 34,160 | |||||||||
| Capital shares sold |
— | 85,445 | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
602,899,446 | 10,424,934 | 10,759,769 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
1,640,620 | 79,446 | 16,072 | |||||||||
| Collateral for securities on loan (Note 5) |
22,381,865 | — | 52,523 | |||||||||
| Foreign taxes (Note 1) |
10,105 | — | — | |||||||||
| Investment advisory fees (Note 2) |
91,268 | 2,245 | 2,166 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
24,123,858 | 81,691 | 70,761 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 578,775,588 | $ | 10,343,243 | $ | 10,689,008 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 559,445,278 | $ | 10,725,256 | $ | 10,070,791 | ||||||
| Undistributed net investment income |
2,864,392 | 23,724 | 57,276 | |||||||||
| Accumulated net realized loss |
(3,065,984 | ) | (58,760 | ) | (21,434 | ) | ||||||
| Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies |
19,531,902 | (346,977 | ) | 582,375 | ||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 578,775,588 | $ | 10,343,243 | $ | 10,689,008 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingc |
10,400,000 | 200,000 | 200,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 55.65 | $ | 51.72 | $ | 53.45 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $21,853,129, $ — and $51,291, respectively. See Note 5. |
| b | Cost of foreign currencies: $436,110, $3,963 and $13,375, respectively. |
| c | $0.001 par value, number of shares authorized: 500 million, 500 million and 500 million, respectively. |
See notes to financial statements.
| 40 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Operations
iSHARES®, INC.
Period ended August 31, 2012
| iShares MSCI All Country
World |
iShares MSCI Emerging Index Fundb |
iShares MSCI World Index Fundc |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends — unaffiliatedd |
$ | 5,272,338 | $ | 231,366 | $ | 382,289 | ||||||
| Dividends — affiliated (Note 2) |
3,671 | — | 914 | |||||||||
| Interest — unaffiliated |
37 | — | — | |||||||||
| Interest — affiliated (Note 2) |
111 | 3 | 5 | |||||||||
| Securities lending income — affiliated (Note 2) |
64,779 | 7 | 515 | |||||||||
|
|
|
|
|
|
|
|||||||
| 5,340,936 | 231,376 | 383,723 | ||||||||||
| Less: Other foreign taxes (Note 1) |
(12,680 | ) | — | (3 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
5,328,256 | 231,376 | 383,720 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
538,193 | 31,766 | 29,225 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
538,193 | 31,766 | 29,225 | |||||||||
| Less investment advisory fees waived (Note 2) |
(178,744 | ) | (8,876 | ) | — | |||||||
|
|
|
|
|
|
|
|||||||
| Net expenses |
359,449 | 22,890 | 29,225 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
4,968,807 | 208,486 | 354,495 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments — unaffiliated |
(2,703,017 | ) | (59,866 | ) | (25,774 | ) | ||||||
| Investments — affiliated (Note 2) |
(362,675 | ) | — | — | ||||||||
| In-kind redemptions — unaffiliated |
— | (159,185 | ) | 274,702 | ||||||||
| In-kind redemptions — affiliated (Note 2) |
— | — | (41 | ) | ||||||||
| Foreign currency transactions |
(16,737 | ) | (6,522 | ) | (1,482 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain (loss) |
(3,082,429 | ) | (225,573 | ) | 247,405 | |||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
19,527,926 | (346,520 | ) | 582,495 | ||||||||
| Translation of assets and liabilities in foreign currencies |
3,976 | (457 | ) | (120 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
19,531,902 | (346,977 | ) | 582,375 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain (loss) |
16,449,473 | (572,550 | ) | 829,780 | ||||||||
|
|
|
|
|
|
|
|||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | 21,418,280 | $ | (364,064 | ) | $ | 1,184,275 | |||||
|
|
|
|
|
|
|
|||||||
| a | For the period from October 18, 2011 (commencement of operations) to August 31, 2012. |
| b | For the period from January 18, 2012 (commencement of operations) to August 31, 2012. |
| c | For the period from January 10, 2012 (commencement of operations) to August 31, 2012. |
| d | Net of foreign withholding tax of $340,499, $32,761 and $22,094, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS |
41 |
Table of Contents
Statements of Changes in Net Assets
iSHARES®, INC.
| iShares MSCI All Country World Minimum Volatility Index Fund |
iShares MSCI Emerging Markets EMEA Index Fund |
|||||||
| Period from October 18, 2011a to August 31, 2012 |
Period from January 18, 2012a to August 31, 2012 |
|||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||
| OPERATIONS: |
||||||||
| Net investment income |
$ | 4,968,807 | $ | 208,486 | ||||
| Net realized gain (loss) |
(3,082,429 | ) | (225,573 | ) | ||||
| Net change in unrealized appreciation/depreciation |
19,531,902 | (346,977 | ) | |||||
|
|
|
|
|
|||||
| Net increase (decrease) in net assets resulting from operations |
21,418,280 | (364,064 | ) | |||||
|
|
|
|
|
|||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||
| From net investment income |
(2,087,970 | ) | (178,240 | ) | ||||
|
|
|
|
|
|||||
| Total distributions to shareholders |
(2,087,970 | ) | (178,240 | ) | ||||
|
|
|
|
|
|||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||
| Proceeds from shares sold |
559,445,278 | 15,732,186 | ||||||
| Cost of shares redeemed |
— | (4,846,639 | ) | |||||
|
|
|
|
|
|||||
| Net increase in net assets from capital share transactions |
559,445,278 | 10,885,547 | ||||||
|
|
|
|
|
|||||
| INCREASE IN NET ASSETS |
578,775,588 | 10,343,243 | ||||||
| NET ASSETS |
||||||||
| Beginning of period |
— | — | ||||||
|
|
|
|
|
|||||
| End of period |
$ | 578,775,588 | $ | 10,343,243 | ||||
|
|
|
|
|
|||||
| Undistributed net investment income included in net assets at end of period |
$ | 2,864,392 | $ | 23,724 | ||||
|
|
|
|
|
|||||
| SHARES ISSUED AND REDEEMED |
||||||||
| Shares sold |
10,400,000 | 300,000 | ||||||
| Shares redeemed |
— | (100,000 | ) | |||||
|
|
|
|
|
|||||
| Net increase in shares outstanding |
10,400,000 | 200,000 | ||||||
|
|
|
|
|
|||||
| a | Commencement of operations. |
See notes to financial statements.
| 42 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Changes in Net Assets (Continued)
iSHARES®, INC.
| iShares MSCI World Index Fund |
||||
| Period from to August 31, 2012 |
||||
| INCREASE (DECREASE) IN NET ASSETS |
||||
| OPERATIONS: |
||||
| Net investment income |
$ | 354,495 | ||
| Net realized gain |
247,405 | |||
| Net change in unrealized appreciation/depreciation |
582,375 | |||
|
|
|
|||
| Net increase in net assets resulting from operations |
1,184,275 | |||
|
|
|
|||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||
| From net investment income |
(295,901 | ) | ||
|
|
|
|||
| Total distributions to shareholders |
(295,901 | ) | ||
|
|
|
|||
| CAPITAL SHARE TRANSACTIONS: |
||||
| Proceeds from shares sold |
20,127,850 | |||
| Cost of shares redeemed |
(10,327,216 | ) | ||
|
|
|
|||
| Net increase in net assets from capital share transactions |
9,800,634 | |||
|
|
|
|||
| INCREASE IN NET ASSETS |
10,689,008 | |||
| NET ASSETS |
||||
| Beginning of period |
— | |||
|
|
|
|||
| End of period |
$ | 10,689,008 | ||
|
|
|
|||
| Undistributed net investment income included in net assets at end of period |
$ | 57,276 | ||
|
|
|
|||
| SHARES ISSUED AND REDEEMED |
||||
| Shares sold |
400,000 | |||
| Shares redeemed |
(200,000 | ) | ||
|
|
|
|||
| Net increase in shares outstanding |
200,000 | |||
|
|
|
|||
| a | Commencement of operations. |
See notes to financial statements.
| FINANCIAL STATEMENTS |
43 |
Table of Contents
iSHARES®, INC.
(For a share outstanding throughout the period)
| iShares MSCI All Country World Minimum Volatility Index Fund | ||||
| Period from to Aug. 31, 2012 |
||||
| Net asset value, beginning of period |
$ | 50.02 | ||
|
|
|
|||
| Income from investment operations: |
||||
| Net investment incomeb |
1.49 | |||
| Net realized and unrealized gainc |
4.67 | |||
|
|
|
|||
| Total from investment operations |
6.16 | |||
|
|
|
|||
| Less distributions from: |
||||
| Net investment income |
(0.53 | ) | ||
|
|
|
|||
| Total distributions |
(0.53 | ) | ||
|
|
|
|||
| Net asset value, end of period |
$ | 55.65 | ||
|
|
|
|||
| Total return |
12.41 | %d | ||
|
|
|
|||
| Ratios/Supplemental data: |
||||
| Net assets, end of period (000s) |
$ | 578,776 | ||
| Ratio of expenses to average net assetse |
0.23 | % | ||
| Ratio of expenses to average net assets prior to waived feese |
0.34 | % | ||
| Ratio of net investment income to average net assetse |
3.17 | % | ||
| Portfolio turnover ratef |
22 | % | ||
| 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, 2012 would have been 22%. See Note 4. |
See notes to financial statements.
| 44 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout the period)
| iShares MSCI Emerging Markets EMEA Index Fund | ||||
| Period from to Aug. 31, 2012 |
||||
| Net asset value, beginning of period |
$ | 51.16 | ||
|
|
|
|||
| Income from investment operations: |
||||
| Net investment incomeb |
1.43 | |||
| Net realized and unrealized gainc |
0.02 | |||
|
|
|
|||
| Total from investment operations |
1.45 | |||
|
|
|
|||
| Less distributions from: |
||||
| Net investment income |
(0.89 | ) | ||
|
|
|
|||
| Total distributions |
(0.89 | ) | ||
|
|
|
|||
| Net asset value, end of period |
$ | 51.72 | ||
|
|
|
|||
| Total return |
2.91 | %d | ||
|
|
|
|||
| Ratios/Supplemental data: |
||||
| Net assets, end of period (000s) |
$ | 10,343 | ||
| Ratio of expenses to average net assetse |
0.49 | % | ||
| Ratio of expenses to average net assets prior to waived feese |
0.68 | % | ||
| Ratio of net investment income to average net assetse |
4.46 | % | ||
| Portfolio turnover ratef |
5 | % | ||
| 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 as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS |
45 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout the period)
| iShares MSCI World Index Fund | ||||
| Period from to Aug. 31, 2012 |
||||
| Net asset value, beginning of period |
$ | 50.32 | ||
|
|
|
|||
| Income from investment operations: |
||||
| Net investment incomeb |
0.98 | |||
| Net realized and unrealized gainc |
2.89 | |||
|
|
|
|||
| Total from investment operations |
3.87 | |||
|
|
|
|||
| Less distributions from: |
||||
| Net investment income |
(0.74 | ) | ||
|
|
|
|||
| Total distributions |
(0.74 | ) | ||
|
|
|
|||
| Net asset value, end of period |
$ | 53.45 | ||
|
|
|
|||
| Total return |
7.76 | %d | ||
|
|
|
|||
| Ratios/Supplemental data: |
||||
| Net assets, end of period (000s) |
$ | 10,689 | ||
| Ratio of expenses to average net assetse |
0.24 | % | ||
| Ratio of net investment income to average net assetse |
2.91 | % | ||
| Portfolio turnover ratef |
3 | % | ||
| 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 as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| 46 | 2012 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,” and collectively, the “Funds”):
| iShares MSCI Index Fund | Diversification Classification | |
| All Country World MinimumVolatilitya |
Non-diversified | |
| Emerging Markets EMEAb |
Non-diversified | |
| Worldc |
Diversified |
| a | The Fund commenced operations on October 18, 2011. |
| b | The Fund commenced operations on January 18, 2012. |
| c | The Fund commenced operations on January 10, 2012. |
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 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 |
47 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
SECURITY VALUATION
Each Fund’s investments are valued at fair value each day that the Fund’s listing exchange is open. U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) provides oversight of the valuation of investments for the Funds. The investments of each Fund are valued pursuant to policies and procedures developed by the Global Valuation Committee and approved by the Board of Directors of the Company (the “Board”).
| • | Equity investments traded on a recognized securities exchange are valued at that day’s last reported trade price or the official closing price, as applicable, on the exchange where the stock is primarily traded. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last traded price. |
| • | Open-end U.S. mutual funds are valued at that day’s published net asset value (NAV). |
| • | Exchange-traded funds and closed-end funds traded on a recognized securities exchange are valued at that day’s last reported trade price or the official closing price, as applicable, on the exchange where the fund is primarily traded. Funds traded on a recognized exchange for which there were no sales on that day are valued at the last traded price. |
In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the fair value of such investment or if a price is not available, the investment will be valued based upon other available factors deemed relevant by the Global Valuation Committee, in accordance with policies approved by the Board. These factors include but are not limited to (i) attributes specific to the investment; (ii) the principal market for the investment; (iii) the customary participants in the principal market for the investment; (iv) data assumptions by market participants for the investment, if reasonably available; (v) quoted prices for similar investments in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and/or other default rates. Valuations based on such factors are reported to the Board on a quarterly basis.
The Global Valuation Committee employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Company’s pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values, and reviews of market related activity.
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.
Various inputs are used in determining the fair value of financial instruments. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting purposes. 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. The three levels of the fair value hierarchy are as follows:
| • | Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities; |
| 48 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| • | 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 (such as exchange rates, financing terms, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs; and |
| • | Level 3 — Unobservable inputs for the asset or liability, including the Funds’ assumptions used in determining the fair value of investments. |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. In accordance with the Company’s policy, transfers between different levels of the fair value hierarchy are deemed to have occurred as of the beginning of the reporting period.
The following table summarizes the value of each of the Funds’ investments according to the fair value hierarchy as of August 31, 2012. The breakdown of each Fund’s investments into major categories is disclosed in its respective Schedule of Investments.
| iShares MSCI Index Fund and
|
Investments | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| All Country World Minimum Volatility |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 574,356,069 | $ | — | $ | — | $ | 574,356,069 | ||||||||
| Investment Companies |
1,640,470 | — | — | 1,640,470 | ||||||||||||
| Preferred Stocks |
1,005,935 | — | — | 1,005,935 | ||||||||||||
| Short-Term Investments |
22,628,055 | — | — | 22,628,055 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 599,630,529 | $ | — | $ | — | $ | 599,630,529 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Emerging Markets EMEA |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 10,101,709 | $ | — | $ | — | $ | 10,101,709 | ||||||||
| Preferred Stocks |
149,869 | — | — | 149,869 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 10,251,578 | $ | — | $ | — | $ | 10,251,578 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| World |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 10,625,956 | $ | — | $ | — | $ | 10,625,956 | ||||||||
| Preferred Stocks |
18,991 | — | — | 18,991 | ||||||||||||
| Rights |
— | — | 40 | 40 | ||||||||||||
| Short-Term Investments |
55,371 | — | — | 55,371 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 10,700,318 | $ | — | $ | 40 | $ | 10,700,358 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| NOTES TO FINANCIAL STATEMENTS |
49 |
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, 2012 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 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, 2012, 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.
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.
| 50 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
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 the iShares MSCI All Country World Minimum Volatility 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 asset of the fund and certain other iShares funds, as follows:
| Investment Advisory Fee | Aggregate Average Daily Net Assets | |
| 0.35% | First $30 billion | |
| 0.32 | Over $30 billion, up to and including $60 billion | |
| 0.28 | Over $60 billion |
BFA has voluntarily waived a portion of its investment advisory fees for the iShares MSCI All Country World Minimum Volatility Index Fund in the amount of $171,948.
BFA has contractually agreed to waive a portion of its investment advisory fees for the iShares MSCI All Country World Minimum Volatility Index 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 period ended August 31, 2012, BFA waived its investment advisory fees for the fund in the amount of $6,796.
For its investment advisory services to each Fund, BFA is entitled to an annual investment advisory fee based on the average daily net assets of each Fund as follows:
| iShares MSCI Index Fund | Investment Advisory Fee |
|||
| Emerging Markets EMEA |
0.68 | % | ||
| World |
0.24 | |||
BFA has contractually agreed to waive a portion of its investment advisory fees for the iShares MSCI Emerging Markets EMEA Index Fund through December 31, 2014 in order to limit total annual operating expenses to 0.49% of average daily net assets.
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. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, and any fees or other payments to and from borrowers of securities. Each Fund retains 65% of securities lending income and pays a fee to BTC equal to 35% of such income. As securities lending agent, BTC is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BTC is also responsible for fees and expenses incurred by each Fund as a result of the investment of cash collateral received for securities on loan in a money market fund managed by BFA or an affiliate.
| NOTES TO FINANCIAL STATEMENTS |
51 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
For the period ended August 31, 2012, BTC earned securities lending agent fees from the Funds as follows:
| iShares MSCI Index Fund | Securities Lending Agent Fees |
|||
| All Country World Minimum Volatility |
$ | 34,881 | ||
| Emerging Markets EMEA |
4 | |||
| World |
277 | |||
At a special meeting of the Board held on January 5, 2012, the directors approved a new distribution agreement with BlackRock Investments, LLC (“BRIL”). BRIL is an affiliate of BFA. Effective April 1, 2012, BRIL replaced SEI Investments Distribution Co. as the distributor for each Fund. Pursuant to the new distribution agreement, BFA is responsible for any fees or expenses for distribution services provided to the Funds.
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. is the largest stockholder of BlackRock and is considered to be an affiliate of the Funds for 1940 Act purposes.
The iShares MSCI All Country World Minimum Volatility Index 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 Funds (excluding short-term investments) during the period ended August 31, 2012, for purposes of Section 2(a)(3) of the 1940 Act, were as follows:
| iShares MSCI Index Fund and Name of Affiliated Issuer |
Shares Held at Beginning of Period |
Shares Purchased |
Shares Sold |
Shares Held at End of Period |
Value at End of Period |
Dividend Income |
Net Realized Gain (Loss) |
|||||||||||||||||||||
| All Country World Minimum Volatility |
||||||||||||||||||||||||||||
| iShares S&P India Nifty 50 Index Fund |
— | 176,068 | (102,800 | ) | 73,268 | $ | 1,640,470 | $ | 3,671 | $ | (362,675 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||
| World |
||||||||||||||||||||||||||||
| BlackRock Inc. |
— | 117 | (59 | ) | 58 | $ | 10,229 | $ | 384 | $ | 90 | |||||||||||||||||
| PNC Financial Services Group Inc. (The) |
— | 461 | (234 | ) | 227 | 14,110 | 530 | (131 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||
| $ | 24,339 | $ | 914 | $ | (41 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||
Certain directors and officers of the Company are also officers of BTC and/or BFA.
| 52 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| 3. | INVESTMENT PORTFOLIO TRANSACTIONS |
Purchases and sales of investments (excluding in-kind transactions and short-term investments) for the period ended August 31, 2012 were as follows:
| iShares MSCI Index Fund | Purchases | Sales | ||||||
| All Country World Minimum Volatility |
$ | 82,162,614 | $ | 39,931,094 | ||||
| Emerging Markets EMEA |
369,861 | 396,331 | ||||||
| World |
585,141 | 573,153 | ||||||
In-kind transactions (see Note 4) for the period ended August 31, 2012 were as follows:
| iShares MSCI Index Fund | In-kind Purchases |
In-kind Sales |
||||||
| All Country World Minimum Volatility |
$ | 518,308,720 | $ | — | ||||
| Emerging Markets EMEA |
15,619,683 | 4,776,064 | ||||||
| World |
20,107,850 | 10,306,233 | ||||||
| 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 a specified 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 |
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. Each Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the value of the cash collateral received.
| NOTES TO FINANCIAL STATEMENTS |
53 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
As of August 31, 2012, 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, 2012 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, net of fees and other payments to and from borrowers, and less the fees paid to BTC as securities lending agent.
| 6. | INCOME TAX INFORMATION |
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of August 31, 2012, attributable to passive foreign investment companies, foreign currency transactions and realized gains (losses) from in-kind redemptions, were reclassified to the following accounts:
| 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 |
|||||||||
| All Country World Minimum Volatility |
$ | — | $ | (16,445 | ) | $ | 16,445 | |||||
| Emerging Markets EMEA |
(160,291 | ) | (6,522 | ) | 166,813 | |||||||
| World |
270,157 | (1,318 | ) | (268,839 | ) | |||||||
The tax character of distributions paid during the period ended August 31, 2012 was as follows:
| iShares MSCI Index Fund | 2012 | |||
| All Country World Minimum Volatility |
||||
| Ordinary income |
$ | 2,087,970 | ||
|
|
|
|||
| Emerging Markets EMEA |
||||
| Ordinary income |
$ | 178,240 | ||
|
|
|
|||
| World |
||||
| Ordinary income |
$ | 295,901 | ||
|
|
|
|||
| 54 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
As of August 31, 2012, the tax components of accumulated net earnings (losses) were as follows:
| iShares MSCI Index Fund | Undistributed Ordinary Income |
Capital Loss |
Net Unrealized |
Total | ||||||||||||
| All Country World Minimum Volatility |
$ | 3,609,683 | $ | (1,876,800 | ) | $ | 17,597,427 | $ | 19,330,310 | |||||||
| Emerging Markets EMEA |
29,656 | (55,073 | ) | (356,596 | ) | (382,013 | ) | |||||||||
| World |
65,396 | (19,493 | ) | 572,314 | 618,217 | |||||||||||
| a | The difference between book-basis and tax-basis unrealized gains (losses) was 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. |
As of August 31, 2012, the Funds had non-expiring capital loss carryforwards available to offset future realized capital gains as follows:
| iShares MSCI Index Fund | Non- Expiring |
|||
| All Country World Minimum Volatility |
$ | 1,876,800 | ||
| Emerging Markets EMEA |
55,073 | |||
| World |
19,493 | |||
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, 2012, 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 |
Gross Unrealized Depreciation |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| All Country World Minimum Volatility |
$ | 582,037,078 | $ | 24,631,715 | $ | (7,038,264 | ) | $ | 17,593,451 | |||||||
| Emerging Markets EMEA |
10,607,717 | 200,328 | (556,467 | ) | (356,139 | ) | ||||||||||
| World |
10,127,924 | 941,735 | (369,301 | ) | 572,434 | |||||||||||
Management has reviewed the tax positions as of August 31, 2012 and has determined that no provision for income tax is required in the Funds’ financial statements.
| 7. | 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 |
55 |
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 All Country World Minimum Volatility Index Fund, iShares MSCI Emerging Markets EMEA Index Fund and iShares MSCI World Index Fund (the “Funds”), at August 31, 2012, 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, 2012 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 23, 2012
| 56 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES®, INC.
For the fiscal period ended August 31, 2012, the iShares MSCI Emerging Markets EMEA Index Fund earned foreign source income of $264,127 and paid foreign taxes of $31,194 which it intends to pass through to its shareholders pursuant to Section 853 of the Internal Revenue Code (the “Code”).
For corporate shareholders, the following percentages of the income dividends paid by certain Funds during the fiscal period ended August 31, 2012 qualified for the dividends-received deduction:
| iShares MSCI Index Fund | Dividends- Received Deduction |
|||
| All Country World Minimum Volatility |
77.92 | % | ||
| World |
42.54 | |||
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 period ended August 31, 2012:
| iShares MSCI Index Fund | Qualified Dividend Income |
|||
| All Country World Minimum Volatility |
$ | 2,087,970 | ||
| Emerging Markets EMEA |
209,434 | |||
| World |
295,901 | |||
In February 2013, shareholders will receive Form 1099-DIV which will include their share of qualified dividend income distributed during the calendar year 2012. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their income tax returns.
| TAX INFORMATION |
57 |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited)
iSHARES®, INC.
iShares MSCI All Country World Minimum Volatility 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. The Independent Directors requested, and BFA provided, such information as the Independent Directors, with advice from independent counsel, deemed reasonably necessary to evaluate the Advisory Contract. A committee of Independent Directors (the “15(c) Committee”), with independent counsel, met with management on April 19, 2012, April 27, 2012, and May 16, 2012, to discuss the types of information the Independent Directors required and the manner in which management would organize and present such information. At a meeting held on May 17, 2012, management presented information to the Board relating to the continuance of the Advisory Contract, and the Board, including the Independent Directors, reviewed and discussed such information at length. The Independent Directors requested from management certain additional information, and the 15(c) Committee met with management on June 8, 2012, to discuss the additional requests. At a meeting held on June 20-21, 2012, the Board, including the Independent Directors, reviewed additional information provided by management in response to these requests. The Board, including a majority of the Independent Directors, approved the continuance of the Advisory Contract for the Fund, based on a review of qualitative and quantitative information provided by BFA, including a review of supplemental information management provided at the request of the Independent Directors. 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 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:
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, sponsor, inception date, or other differentiating factors, but that 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 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 also received a detailed explanation from BFA regarding its rationale for including funds that had been excluded from Lipper’s consideration due to Lipper’s methodology parameters, as well as information showing the effect of including these additional funds in the analysis. 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.
The Board also noted that the investment advisory fees and overall expenses for the Fund compared favorably to the investment advisory fee rates and overall expenses of the funds in the 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, 2011, 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
| 58 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
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 benchmark index. Such periodic comparative performance information was also considered by the Board.
Based on this review, the other factors considered at the meeting, and their general knowledge of mutual fund pricing, the Board concluded that the investment advisory fees and expense levels and the historical performance of the Fund supported the Board’s approval of the continuance of the Advisory Contract for the coming year.
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, to supporting the Fund and its 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 Fund and its shareholders have been added or enhanced since then, including in such areas as investor education, product management, customized portfolio consulting support, 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 and risk management 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 inception date.
Based on review of this information, and the performance information discussed above, the Board concluded that the nature, extent and quality of services 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.
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, noting that the 15(c) Committee had focused on the methodology and proposed presentation during its meetings. 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 — The Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Fund’s assets, noting that the issue of economies of scale had been focused on extensively by the 15(c) Committee during its meetings and addressed by management. The Board and the 15(c) Committee reviewed information provided by BFA regarding scale benefits shared
| BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT |
59 |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
with the iShares funds through breakpoints, waivers, or other fee reductions, as well as through additional investment in the iShares business and the provision of improved or additional infrastructure and services to the iShares funds and their shareholders. The Board and the 15(c) Committee received information regarding BFA’s historical profitability, including BFA’s and its affiliates’ costs in providing services. The cost information distinguished between fixed and variable costs, and explained how the nature of such costs may impact the existence of scale benefits. The Board noted that the Advisory Contract for the Fund already provided for breakpoints in the Fund’s investment advisory fee rates as the assets of the Fund, on an aggregated basis with the assets of certain other iShares funds, increase. The Board noted that it would continue to monitor the sharing of economies of scale to determine the appropriateness of adding new or revised breakpoints in the future. Based on this review, as well as the other factors considered at the meeting, 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 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 generally more extensive 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 exchange traded fund, as compared to the Other Accounts that are institutional clients in light of differing regulatory requirements and client-imposed mandates. The Board also considered the “all-inclusive” nature of the Fund’s advisory fee structure, and the Fund expenses borne by BFA under this arrangement. 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 ancillary revenue received by BFA and/or its affiliates in connection with the services provided to the Fund by BFA, such as payment of revenue to BTC, the Fund’s securities lending agent, for loaning portfolio securities (which was included in the profit margins reviewed by the Board pursuant to BFA’s profitability methodology), 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 generally 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 and thus would not alter the Board’s conclusion with respect to the appropriateness of approving the continuance of the Advisory Contract for the coming year.
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
| 60 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Board Review and Approval of Investment Advisory
Contract (Unaudited) (Continued)
iSHARES®, INC.
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 |
61 |
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 |
|||||||||||||||||||||||||||||||
| iShares MSCI Index Fund | 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 |
||||||||||||||||||||||||
| All Country World |
$ | 0.53103 | $ | — | $ | — | $ | 0.53103 | 100 | % | — | % | — | % | 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.
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.
| 62 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI All Country World Minimum Volatility Index Fund
Period Covered: January 1, 2012 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 3.0% |
2 | 1.60 | % | |||||
| Greater than 2.5% and Less than 3.0% |
1 | 0.80 | ||||||
| Greater than 2.0% and Less than 2.5% |
6 | 4.80 | ||||||
| Greater than 1.5% and Less than 2.0% |
3 | 2.40 | ||||||
| Greater than 1.0% and Less than 1.5% |
15 | 12.00 | ||||||
| Greater than 0.5% and Less than 1.0% |
39 | 31.20 | ||||||
| Between 0.5% and –0.5% |
56 | 44.80 | ||||||
| Less than –0.5% and Greater than –1.0% |
2 | 1.60 | ||||||
| Less than –1.0% and Greater than –1.5% |
1 | 0.80 | ||||||
|
|
|
|
|
|||||
| 125 | 100.00 | % | ||||||
|
|
|
|
|
|||||
iShares MSCI Emerging Markets EMEA Index Fund
Period Covered: April 1, 2012 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 1.5% and Less than 2.0% |
3 | 4.76 | % | |||||
| Greater than 1.0% and Less than 1.5% |
8 | 12.70 | ||||||
| Greater than 0.5% and Less than 1.0% |
10 | 15.87 | ||||||
| Between 0.5% and –0.5% |
29 | 46.03 | ||||||
| Less than –0.5% and Greater than –1.0% |
9 | 14.29 | ||||||
| Less than –1.0% and Greater than –1.5% |
3 | 4.76 | ||||||
| Less than –1.5% |
1 | 1.59 | ||||||
|
|
|
|
|
|||||
| 63 | 100.00 | % | ||||||
|
|
|
|
|
|||||
iShares MSCI World Index Fund
Period Covered: April 1, 2012 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 1.5% and Less than 2.0% |
10 | 15.87 | % | |||||
| Greater than 1.0% and Less than 1.5% |
14 | 22.23 | ||||||
| Greater than 0.5% and Less than 1.0% |
29 | 46.03 | ||||||
| Between 0.5% and –0.5% |
10 | 15.87 | ||||||
|
|
|
|
|
|||||
| 63 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
63 |
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 Director 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, a Director of iShares MSCI Russia Capped Index Fund, Inc. and a Trustee of iShares U.S. ETF Trust and, as a result, oversees a total of 276 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 Robert H. Silver 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-iShares (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 (55) |
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). | Director of BlackRock, Inc. (since 2007); Trustee of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| Michael Lathamb (47) |
Director (since 2010); President (since 2007). | Chairman of iShares, BlackRock (since 2011); Global Chief Executive Officer of iShares, BlackRock (2010-2011); Managing Director, BlackRock (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, BGI (2003-2007). | Trustee of iShares Trust (since 2010); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| a | Robert S. Kapito is deemed to be an “interested person” (as defined in the 1940 Act) of the Trust 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 Trust due to his affiliations with BlackRock, Inc. and its affiliates. |
| 64 | 2012 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 | |||
| Robert H. Silver (57) |
Director (since 2007); Independent Chairman (since 2012). | President and Co-Founder of The Bravitas Group, Inc. (since 2006); Director and Vice Chairman of the YMCA of Greater NYC (2001-2011); Broadway Producer (2006-2011); 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); President and Chief Operating Officer of UBS Financial Services Inc. (formerly Pain Webber Inc.) (2004-2005) and various executive positions with UBS and its affiliates (1988-2005); CPA and Audit Manager of KPMG, LLP (formerly Peat Marwick Mitchell) (1977-1983). | Trustee of iShares Trust (since 2007); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Independent Chairman of iShares, Inc., iShares MSCI Russia Capped Index Fund, Inc. and iShares U.S. ETF Trust (since 2012). | |||
| Cecilia H. Herbert (63) |
Director (since 2005); Nominating and Governance Committee Chair and Equity Plus Committee Chair (since 2012). | Director (since 1998) and President (2007-2011) of the Board of Directors, Catholic Charities CYO; Trustee (since 2002) and Chair of the Finance Committee (2006-2009) and Investment Committee (since 2006), The Thacher School; Trustee of Pacific Select Funds (2004-2005); Member (since 1994) and Chair (1994-2005) of the Investment Committee, Archdiocese of San Francisco. |
Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Director of Forward Funds (35 portfolios) (since 2009). | |||
| Charles A. Hurty (69) |
Director (since 2005); Audit Committee Chair (since 2006). | Retired; Partner, KPMG LLP (1968-2001). |
Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002); Director of SkyBridge Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC (1 portfolio) (since 2002). | |||
| John E. Kerrigan (57) |
Director (since 2005); Fixed Income Plus Committee Chair (since 2012). | 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); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| DIRECTOR AND OFFICER INFORMATION |
65 |
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 | |||
| John E. Martinez (51) |
Director (since 2003); Securities Lending Committee Chair (since 2012). | Director of FirstREX Agreement Corp. (formerly EquityRock, Inc.) (since 2005). | Trustee of iShares Trust (since 2003); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| George G.C. Parker (73) |
Director (since 2002). | Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University Graduate School of Business (Professor since 1973; Emeritus since 2006). | Trustee of iShares Trust (since 2002); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); 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). | |||
| Madhav V. Rajan (48) |
Director (since 2011); 15(c) Committee Chair (since 2012). | Robert K. Jaedicke Professor of Accounting and Senior Associate Dean for Academic Affairs and Head of MBA Program, 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); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| 66 | 2012 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 | ||
| Edward B. Baer (44) |
Vice President and Chief Legal Officer (since 2012). |
Managing Director, BlackRock (since 2006). | ||
| Eilleen M. Clavere (60) |
Secretary (since 2007). |
Director, BlackRock (since 2009); Director of Legal Administration of Intermediary Investor Business, BGI (2006-2009). | ||
| Jack Gee (53) |
Treasurer and Chief Financial Officer (since 2008). |
Managing Director, BlackRock (since 2009); Senior Director of Fund Administration of Intermediary Investor Business, BGI (2009); Director of Fund Administration of Intermediary Investor Business, BGI (2004-2009). | ||
| Amy Schioldager (50) |
Executive Vice President (since 2007). |
Managing Director, BlackRock (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008). | ||
| Ira P. Shapiro (49) |
Vice President (since 2007). | Managing Director, BlackRock (since 2009); Chief Legal Officer, Exchange-Traded Funds Complex (2007-2012); Associate General Counsel, BGI (2004-2009). | ||
| Scott Radell (43) |
Executive Vice President (since 2012). |
Managing Director, BlackRock (since 2009); Head of Portfolio Solutions, BGI (2007-2009); Credit Portfolio Manager, BGI (2005-2007). | ||
| DIRECTOR AND OFFICER INFORMATION |
67 |
Table of Contents
Notes:
| 68 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes:
| NOTES |
69 |
Table of Contents
Notes:
| 70 | 2012 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-811-0812
Table of Contents
|
August 31, 2012 |
2012 Annual Report
iShares, Inc.
iShares MSCI Global Agriculture Producers Fund | VEGI | NYSE Arca
iShares MSCI Global Energy Producers Fund | FILL | NYSE Arca
iShares MSCI Global Gold Miners Fund | RING | NYSE Arca
iShares MSCI Global Select Metals & Mining Producers Fund | PICK | NYSE Arca
iShares MSCI Global Silver Miners Fund | SLVP | NYSE Arca
Table of Contents
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| 64 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI GLOBAL AGRICULTURE PRODUCERS FUND
Performance as of August 31, 2012
| Cumulative Total Returns | ||||||||||
| Inception to 8/31/12 | ||||||||||
| NAV | MARKET | INDEX | ||||||||
| 0.97% | 1.42% | 1.15% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
“Cumulative Total Returns” represent the total change in value of an investment over the period indicated and are calculated from an inception date of 1/31/12.
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 (2/2/12), 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 |
5 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI GLOBAL AGRICULTURE PRODUCERS 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. |
| ** | Other includes sectors which individually represent less than 1% of net assets. |
The iShares MSCI Global Agriculture Producers Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI ACWI Select Agriculture Producers Investable Market Index (the “Index”). The Index is designed to measure the combined performance of equity securities of companies primarily engaged in the business of agriculture in both developed and 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 period from January 31, 2012 (inception date of the Fund) through August 31, 2012 (the “reporting period”), the total return for the Fund was 0.97%, net of fees, while the total return for the Index was 1.15%.
As represented by the Index, global agriculture stocks advanced modestly for the reporting period. The reporting period was characterized by a broad global economic slowdown, which led to reduced demand for commodities in general. One factor behind this trend was the continuing sovereign debt crisis in Europe, which had a negative impact on financial institutions around the globe and led to a meaningful slowdown in European economic growth, including recessions in the most fiscally challenged countries in the region. The weaker economic environment in Europe weighed on Continental demand for commodities, including agricultural products. Decelerating economic growth in the U.S. and China also contributed to reduced global demand for agriculture-related products.
While demand declined, the supply of agricultural products also weakened during the reporting period. A late frost in the spring of 2012, followed by drought conditions in the summer (including the worst drought in the U.S. since 1956), led to expectations of lower yields for grains and other food crops around the world.
As a result, prices for many agricultural commodities increased during the reporting period. The prices of barley and wheat both increased by more than 25%, while corn prices rose by 22% and soybean prices surged by more than 40% for the reporting period. The most significant exception was sugar prices, which fell by 15% for the reporting period as sugar crops held up better than other crops in drought conditions. Overall, according to data from the International Monetary Fund (“IMF”), prices for food and beverage commodities increased by approximately 11% for the reporting period.
| 6 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI GLOBAL AGRICULTURE PRODUCERS FUND
Currency fluctuations detracted overall from Index performance as the U.S. dollar generally strengthened during the reporting period, which lowered international equity returns for U.S. investors. The U.S. is the largest country weighting in the Index, comprising approximately 40% of the Index as of August 31, 2012. In the remainder of the Index, top country weightings included Canada, Switzerland, Japan, and the eurozone. The U.S. dollar appreciated by 1% against the Canadian dollar, 3.5% versus the Swiss franc, 2.5% against the Japanese yen, and 4% versus the euro.
From a sector perspective, materials stocks comprised approximately 55% of the Index as of the end of the reporting period. Many of these materials companies produce agricultural chemicals, fertilizers, and other raw materials used in agriculture production. According to IMF data, the prices of agricultural raw materials declined by approximately 2% for the reporting period. Food, beverage, and tobacco makers comprised just over 25% of the Index, while capital goods companies — which typically produce agricultural machinery and equipment — made up another 15% of the Index.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
7 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI GLOBAL ENERGY PRODUCERS FUND
Performance as of August 31, 2012
| Cumulative Total Returns | ||||||||||
| Inception to 8/31/12 | ||||||||||
| NAV | MARKET | INDEX | ||||||||
| (3.77)% | (4.09)% | (3.76)% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
“Cumulative Total Returns” represent the total change in value of an investment over the period indicated and are calculated from an inception date of 1/31/12.
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 (2/2/12), 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.
| 8 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI GLOBAL ENERGY PRODUCERS FUND
The iShares MSCI Global Energy Producers Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI ACWI Select Energy Producers Investable Market Index (the “Index”). The Index is designed to measure the combined performance of equity securities of companies primarily engaged in the business of energy exploration and production in both developed and 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 period from January 31, 2012 (inception date of the Fund) through August 31, 2012 (the “reporting period”), the total return for the Fund was (3.77)%, net of fees, while the total return for the Index was (3.76)%.
As represented by the Index, global energy exploration and production stocks declined for the reporting period. The decline in energy stocks reflected a broad global economic slowdown, which led to reduced demand for commodities in general. One factor behind this trend was the continuing sovereign debt crisis in Europe, which had a negative impact on financial institutions around the globe and led to a meaningful slowdown in European economic growth, including recessions in the most fiscally challenged countries in the region. The weaker economic environment in Europe weighed on Continental demand for energy. Decelerating economic growth in the U.S. and China also contributed to reduced global demand for energy.
Nonetheless, energy prices held up reasonably well during the reporting period. The price of oil declined by just 2%, falling from $98.50 per barrel at the beginning of the reporting period to $96.50 as of August 31, 2012, while natural gas prices increased by 8%, rising from $2.51 per million British thermal units (“BTUs”) at the beginning of the period to $2.72 as of August 31, 2012. However, both oil and natural gas prices experienced significant volatility during the reporting period. Oil prices peaked in early March of 2012 at $109 per barrel, then dipped as low as $77 a barrel in late June of 2012 before rebounding over the last two months of the reporting period. Meanwhile, natural gas followed an opposite pattern, falling to $1.82 per million BTUs in mid-April of 2012, then surging to $3.20 per million BTUs in late July of 2012 before falling back over the last month of the reporting period.
Another contributing factor to the overall decline in the Index was a stronger U.S. dollar, which lowered international equity returns for U.S. investors. The U.S. is the largest country weighting in the Index, comprising approximately 45% of the Index as of August 31, 2012. In the remainder of the Index, top country weightings included the U.K., Canada, China, and France. The U.S. dollar declined by 0.5% versus the British pound during the reporting period, but appreciated by 1% against the Canadian dollar and Chinese yuan and by 4% versus the euro.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
9 |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI GLOBAL ENERGY PRODUCERS FUND
Other factors influencing the performance of energy stocks during the reporting period included a relatively mild winter and attractive dividend payouts. Warmer-than-normal temperatures and below-average snowfall across the Midwest and Northeast regions of the U.S. contributed to lower demand for energy. On the positive side, however, the Index’s dividend yield as of August 31, 2012 was approximately 3%, which helped mitigate the overall decline in the Index.
| 10 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI GLOBAL GOLD MINERS FUND
Performance as of August 31, 2012
| Cumulative Total Returns | ||||||||||
| Inception to 8/31/12 | ||||||||||
| NAV | MARKET | INDEX | ||||||||
| (19.45)% | (18.85)% | (19.34)% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
“Cumulative Total Returns” represent the total change in value of an investment over the period indicated and are calculated from an inception date of 1/31/12.
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 (2/2/12), 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 GLOBAL GOLD MINERS FUND
The iShares MSCI Global Miners Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI ACWI Select Gold Miners Investable Market Index (the “Index”). The Index is designed to measure the combined performance of equity securities of companies primarily engaged in the business of gold mining in both developed and 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 period from January 31, 2012 (inception date of the Fund) through August 31, 2012 (the “reporting period”), the total return for the Fund was (19.45)%, net of fees, while the total return for the Index was (19.34)%.
As represented by the Index, global gold mining stocks posted double-digit declines for the reporting period. The decline in gold mining stocks reflected a broad global economic slowdown, which led to reduced demand for gold. One factor behind this trend was the continuing sovereign debt crisis in Europe, which had a negative impact on financial institutions around the globe and led to a meaningful slowdown in European economic growth, including recessions in the most fiscally challenged countries in the region. The weaker economic environment in Europe weighed on Continental demand for gold. Although demand for gold typically increases when inflation or inflation expectations rise, decelerating economic growth on a global basis generally curbed inflation concerns and also weighed on demand for gold during the reporting period.
For the reporting period, the price of gold fell by just 2% overall, but there was some meaningful volatility along the way. At the beginning of the reporting period, the price of gold was approximately $1,730 per ounce, but fell by almost 10% to $1,575 per ounce in mid-May of 2012 as the U.S., China, and Europe all reported a slowdown in economic activity. The price of gold hovered around this level until the final six weeks of the reporting period, when the price rose to just under $1,700 per ounce as of August 31, 2012.
Gold mining stocks tend to be more volatile than the price of the base metal, so stock prices fell more sharply as the price of gold declined. In addition, because of geopolitical risks and variability in annual production levels, gold mining stocks are perceived to be among the riskier segments of the global equity markets. During the reporting period, slowing global growth and turmoil in Europe led to significant bouts of risk aversion in the global equity markets, and gold mining stocks suffered as a result. Rising production costs and the threat of higher taxes on mining operations in a number of countries also detracted from Index performance.
| 12 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI GLOBAL GOLD MINERS FUND
Another contributing factor to the overall decline in the Index was a stronger U.S. dollar, which lowered international equity returns for U.S. investors. Because gold is generally priced in U.S. dollars, the stronger U.S. dollar made gold more expensive for foreign buyers. The U.S. dollar appreciated by 1% against the Canadian dollar, 2% against the Australian dollar, and 7% against the South African rand. Canada, Australia, and South Africa comprised approximately three-quarters of the Index as of August 31, 2012.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
13 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI GLOBAL SELECT METALS & MINING PRODUCERS FUND
Performance as of August 31, 2012
| Cumulative Total Returns | ||||||||||
| Inception to 8/31/12 | ||||||||||
| NAV | MARKET | INDEX | ||||||||
| (22.76)% | (21.87)% | (22.92)% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
“Cumulative Total Returns” represent the total change in value of an investment over the period indicated and are calculated from an inception date of 1/31/12.
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 (2/2/12), 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 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI GLOBAL SELECT METALS & MINING PRODUCERS FUND
The iShares MSCI Global Select Metals & Mining Producers Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI ACWI Select Metals & Mining Producers Ex Gold & Silver Investable Market Index (the “Index”). The Index is designed to measure the combined performance of equity securities of companies primarily involved in the extraction and production of diversified metals, aluminum, steel, and precious metals and minerals, excluding gold and silver, in both developed and 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 period from January 31, 2012 (inception date of the Fund) through August 31, 2012 (the “reporting period”), the total return for the Fund was (22.76)%, net of fees, while the total return for the Index was (22.92)%.
As represented by the Index, global metals and mining stocks declined by more than 20% for the reporting period. The decline in metals and mining stocks reflected a broad global economic slowdown, which led to reduced demand for commodities in general and metals in particular. One factor behind this trend was the continuing sovereign debt crisis in Europe, which had a negative impact on financial institutions around the globe and led to a meaningful slowdown in European economic growth, including recessions in the most fiscally challenged countries in the region. The weaker economic environment in Europe weighed on Continental demand for metals.
As a result, metals prices fell during the reporting period. The price of copper declined by about 7%, the price of lead dipped by approximately 10%, the price of aluminum fell by roughly 14%, and the prices for nickel and iron ore slumped by more than 20%. In addition, the prices for various types of steel declined by 10% to 15% during the reporting period.
Metals and mining stocks tend to be more volatile than the price of the underlying base metals because there are greater risks involved — changing production costs, geopolitical risks (including the threat of nationalization or higher taxes on mining operations), and variability in annual production levels can influence metals and mining stocks as much as the prices of the underlying metals. During the reporting period, slowing global growth and turmoil in Europe led to significant bouts of risk aversion in the global equity markets, and metals and mining stocks suffered as a result.
Another contributing factor to the overall decline in the Index was a stronger U.S. dollar, which lowered international equity returns for U.S. investors. Although the U.S. dollar declined by 0.5% versus the British pound during the reporting period (the U.K. was the largest country weighting in the Index as of August 31, 2012), the U.S. dollar appreciated by 2% against the Australian dollar, 2.5% versus the Japanese yen, and 16% against the Brazilian real. Australia, Japan, and Brazil comprised more than one-third of the Index as of August 31, 2012.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
15 |
Table of Contents
Management’s Discussion of Fund Performance
iSHARES® MSCI GLOBAL SILVER MINERS FUND
Performance as of August 31, 2012
| Cumulative Total Returns | ||||||||||
| Inception to 8/31/12 | ||||||||||
| NAV | MARKET | INDEX | ||||||||
| (15.18)% | (16.67)% | (15.01)% | ||||||||
GROWTH OF $10,000 INVESTMENT
(SINCE INCEPTION AT NET ASSET VALUE)
“Cumulative Total Returns” represent the total change in value of an investment over the period indicated and are calculated from an inception date of 1/31/12.
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 (2/2/12), 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.
| 16 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Management’s Discussion of Fund Performance (Continued)
iSHARES® MSCI GLOBAL SILVER MINERS FUND
The iShares MSCI Global Silver Miners Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI ACWI Select Silver Miners Investable Market Index (the “Index”). The Index is designed to measure the combined performance of equity securities of companies primarily engaged in the business of silver mining in both developed and 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 period from January 31, 2012 (inception date of the Fund) through August 31, 2012 (the “reporting period”), the total return for the Fund was (15.18)%, net of fees, while the total return for the Index was (15.01)%.
As represented by the Index, global silver mining stocks posted double-digit declines for the reporting period. The decline in silver mining stocks reflected a broad global economic slowdown, which led to reduced demand for silver. One factor behind this trend was the continuing sovereign debt crisis in Europe, which had a negative impact on financial institutions around the globe and led to a meaningful slowdown in European economic growth, including recessions in the most fiscally challenged countries in the region. The weaker economic environment in Europe weighed on Continental demand for silver. Decelerating economic growth in the U.S. and China also contributed to reduced global demand for silver.
For the reporting period, the price of silver fell by approximately 9% overall, but there was even greater volatility along the way. At the beginning of the reporting period, the price of silver was $33.60 per ounce, but fell by 20% to $26.67 per ounce in mid-July of 2012 as the U.S., China, and Europe all reported a slowdown in economic activity. The price of silver hovered around this level until the final two weeks of the reporting period, when it rose to $30.50 per ounce as of August 31, 2012.
Silver mining stocks tend to be more volatile than the price of the base metal, so stock prices fell more sharply as the price of silver declined. In addition, because of geopolitical risks and variability in annual production levels, silver mining stocks are perceived to be among the riskier segments of the global equity markets. During the reporting period, slowing global growth and turmoil in Europe led to significant bouts of risk aversion in the global equity markets, and silver mining stocks suffered as a result.
Currency fluctuations were mixed but detracted overall from Index performance as the U.S. dollar generally strengthened during the reporting period. A stronger U.S. dollar lowered international equity returns for U.S. investors. Because silver is generally priced in U.S. dollars, the stronger U.S. dollar made silver more expensive for foreign buyers. Among the countries represented in the Index, the U.S. dollar appreciated by 1% against the Canadian dollar (Canada comprised approximately half of the Index as of August 31, 2012) and 1.5% against the Mexican peso, but depreciated by 0.5% against the British pound and 3% against the Peruvian sol.
| MANAGEMENT’S DISCUSSIONS OF FUND PERFORMANCE |
17 |
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, 2012 to August 31, 2012.
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 Fund | Beginning Account Value (3/1/12) |
Ending Account Value (8/31/12) |
Annualized Expense Ratio |
Expenses Paid During Period a |
||||||||||||
| Global Agriculture Producers |
||||||||||||||||
| Actual |
$ | 1,000.00 | $ | 979.40 | 0.38 | % | $ | 1.89 | ||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,023.20 | 0.38 | 1.93 | ||||||||||||
| Global Energy Producers |
||||||||||||||||
| Actual |
1,000.00 | 908.70 | 0.39 | 1.87 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,023.20 | 0.39 | 1.98 | ||||||||||||
| Global Gold Miners |
||||||||||||||||
| Actual |
1,000.00 | 805.80 | 0.39 | 1.77 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,023.20 | 0.39 | 1.98 | ||||||||||||
| Global Select Metals & Mining Producers |
||||||||||||||||
| Actual |
1,000.00 | 760.40 | 0.39 | 1.73 | ||||||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,023.20 | 0.39 | 1.98 | ||||||||||||
| 18 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Shareholder Expenses (Unaudited) (Continued)
iSHARES®, INC.
| iShares MSCI Fund | Beginning Account Value (3/1/12) |
Ending Account Value (8/31/12) |
Annualized Expense Ratio |
Expenses Paid During Period a |
||||||||||||
| Global Silver Miners |
||||||||||||||||
| Actual |
$ | 1,000.00 | $ | 826.60 | 0.39 | % | $ | 1.79 | ||||||||
| Hypothetical (5% return before expenses) |
1,000.00 | 1,023.20 | 0.39 | 1.98 | ||||||||||||
| 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 (366 days). |
| SHAREHOLDER EXPENSES |
19 |
Table of Contents
iSHARES® MSCI GLOBAL AGRICULTURE PRODUCERS FUND
August 31, 2012
| 20 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI GLOBAL AGRICULTURE PRODUCERS FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
21 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI GLOBAL AGRICULTURE PRODUCERS FUND
August 31, 2012
| 22 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI GLOBAL AGRICULTURE PRODUCERS FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
23 |
Table of Contents
Schedule of Investments
iSHARES® MSCI GLOBAL ENERGY PRODUCERS FUND
August 31, 2012
| 24 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI GLOBAL ENERGY PRODUCERS FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
25 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI GLOBAL ENERGY PRODUCERS FUND
August 31, 2012
| 26 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI GLOBAL ENERGY PRODUCERS FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
27 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI GLOBAL ENERGY PRODUCERS FUND
August 31, 2012
| 28 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI GLOBAL GOLD MINERS FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
29 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI GLOBAL GOLD MINERS FUND
August 31, 2012
| 30 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI GLOBAL SELECT METALS & MINING PRODUCERS FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
31 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI GLOBAL SELECT METALS & MINING PRODUCERS FUND
August 31, 2012
| 32 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI GLOBAL SELECT METALS & MINING PRODUCERS FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
33 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI GLOBAL SELECT METALS & MINING PRODUCERS FUND
August 31, 2012
| 34 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI GLOBAL SELECT METALS & MINING PRODUCERS FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
35 |
Table of Contents
Schedule of Investments (Continued)
iSHARES® MSCI GLOBAL SELECT METALS & MINING PRODUCERS FUND
August 31, 2012
| 36 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Schedule of Investments
iSHARES® MSCI GLOBAL SILVER MINERS FUND
August 31, 2012
| SCHEDULES OF INVESTMENTS |
37 |
Table of Contents
Statements of Assets and Liabilities
iSHARES®, INC.
August 31, 2012
| iShares MSCI Global Agriculture Producers Fund |
iShares MSCI Global Energy Producers Fund |
iShares MSCI Global Gold |
||||||||||
| ASSETS |
||||||||||||
| Investments, at cost: |
||||||||||||
| Unaffiliated |
$ | 9,939,492 | $ | 5,010,932 | $ | 36,120,451 | ||||||
| Affiliated (Note 2) |
113,151 | 5,936 | 81,082 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cost of investments |
$ | 10,052,643 | $ | 5,016,868 | $ | 36,201,533 | ||||||
|
|
|
|
|
|
|
|||||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||||||
| Unaffiliated |
$ | 9,858,566 | $ | 4,674,516 | $ | 32,026,127 | ||||||
| Affiliated (Note 2) |
110,447 | 5,936 | 81,082 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total fair value of investments |
9,969,013 | 4,680,452 | 32,107,209 | |||||||||
| Foreign currencies, at valueb |
5,375 | 5,868 | 26,536 | |||||||||
| Receivables: |
||||||||||||
| Investment securities sold |
86,992 | 44,367 | 424,950 | |||||||||
| Due from custodian (Note 4) |
332,500 | — | — | |||||||||
| Dividends and interest |
9,906 | 21,335 | 31,801 | |||||||||
| Capital shares sold |
95,885 | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
10,499,671 | 4,752,022 | 32,590,496 | |||||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES |
||||||||||||
| Payables: |
||||||||||||
| Investment securities purchased |
525,888 | 48,680 | 421,736 | |||||||||
| Collateral for securities on loan (Note 5) |
7,250 | 665 | 74,138 | |||||||||
| Investment advisory fees (Note 2) |
1,923 | 1,557 | 10,209 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
535,061 | 50,902 | 506,083 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 9,964,610 | $ | 4,701,120 | $ | 32,084,413 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 10,058,281 | $ | 5,040,238 | $ | 36,768,976 | ||||||
| Undistributed net investment income |
14,236 | 21,897 | 34,928 | |||||||||
| Accumulated net realized loss |
(24,276 | ) | (24,692 | ) | (625,429 | ) | ||||||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(83,631 | ) | (336,323 | ) | (4,094,062 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET ASSETS |
$ | 9,964,610 | $ | 4,701,120 | $ | 32,084,413 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstandingc |
400,000 | 200,000 | 1,600,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share |
$ | 24.91 | $ | 23.51 | $ | 20.05 | ||||||
|
|
|
|
|
|
|
|||||||
| a | Securities on loan with values of $6,539, $632 and $69,320, respectively. See Note 5. |
| b | Cost of foreign currencies: $5,318, $5,796 and $26,362, respectively. |
| c | $0.001 par value, number of shares authorized: 500 million, 500 million and 500 million, respectively. |
See notes to financial statements.
| 38 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Assets and Liabilities (Continued)
iSHARES®, INC.
August 31, 2012
| iShares MSCI Global Select Producers Fund |
iShares MSCI Global Silver |
|||||||
| ASSETS |
||||||||
| Investments, at cost: |
||||||||
| Unaffiliated |
$ | 123,586,501 | $ | 2,432,131 | ||||
| Affiliated (Note 2) |
3,750 | 10,247 | ||||||
|
|
|
|
|
|||||
| Total cost of investments |
$ | 123,590,251 | $ | 2,442,378 | ||||
|
|
|
|
|
|||||
| Investments in securities, at fair value (including securities on loana) (Note 1): |
||||||||
| Unaffiliated |
$ | 122,919,665 | $ | 2,090,657 | ||||
| Affiliated (Note 2) |
3,750 | 10,247 | ||||||
|
|
|
|
|
|||||
| Total fair value of investments |
122,923,415 | 2,100,904 | ||||||
| Foreign currencies, at valueb |
3,704 | 492 | ||||||
| Receivables: |
||||||||
| Investment securities sold |
64,707 | 41,660 | ||||||
| Dividends and interest |
14,281 | 2,292 | ||||||
| Capital shares sold |
18,326,334 | — | ||||||
|
|
|
|
|
|||||
| Total Assets |
141,332,441 | 2,145,348 | ||||||
|
|
|
|
|
|||||
| LIABILITIES |
||||||||
| Payables: |
||||||||
| Investment securities purchased |
17,807,313 | 41,886 | ||||||
| Collateral for securities on loan (Note 5) |
75 | 8,400 | ||||||
| Foreign taxes (Note 1) |
60 | — | ||||||
| Investment advisory fees (Note 2) |
1,311 | 647 | ||||||
|
|
|
|
|
|||||
| Total Liabilities |
17,808,759 | 50,933 | ||||||
|
|
|
|
|
|||||
| NET ASSETS |
$ | 123,523,682 | $ | 2,094,415 | ||||
|
|
|
|
|
|||||
| Net assets consist of: |
||||||||
| Paid-in capital |
$ | 124,215,632 | $ | 2,516,572 | ||||
| Undistributed net investment income |
22,110 | 5,092 | ||||||
| Accumulated net realized loss |
(36,927 | ) | (85,784 | ) | ||||
| Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies |
(677,133 | ) | (341,465 | ) | ||||
|
|
|
|
|
|||||
| NET ASSETS |
$ | 123,523,682 | $ | 2,094,415 | ||||
|
|
|
|
|
|||||
| Shares outstandingc |
6,500,000 | 100,000 | ||||||
|
|
|
|
|
|||||
| Net asset value per share |
$ | 19.00 | $ | 20.94 | ||||
|
|
|
|
|
|||||
| a | Securities on loan with values of $70 and $7,689, respectively. See Note 5. |
| b | Cost of foreign currencies: $3,670 and $491, respectively. |
| c | $0.001 par value, number of shares authorized: 500 million and 500 million, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS |
39 |
Table of Contents
Statements of Operations
iSHARES®, INC.
Period ended August 31, 2012
| iShares MSCI Producers Funda |
iShares MSCI Global Energy Producers Funda |
iShares MSCI Global Gold |
||||||||||
| NET INVESTMENT INCOME |
||||||||||||
| Dividends — unaffiliatedb |
$ | 66,325 | $ | 94,512 | $ | 223,586 | ||||||
| Dividends — affiliated (Note 2) |
168 | — | — | |||||||||
| Interest — affiliated (Note 2) |
1 | 1 | 9 | |||||||||
| Securities lending income — affiliated (Note 2) |
1 | 0 | c | 311 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
66,495 | 94,513 | 223,906 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES |
||||||||||||
| Investment advisory fees (Note 2) |
11,217 | 10,385 | 53,344 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
11,217 | 10,385 | 53,344 | |||||||||
| Less investment advisory fees waived (Note 2) |
(206 | ) | — | — | ||||||||
|
|
|
|
|
|
|
|||||||
| Net expenses |
11,011 | 10,385 | 53,344 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
55,484 | 84,128 | 170,562 | |||||||||
|
|
|
|
|
|
|
|||||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
| Net realized gain (loss) from: |
||||||||||||
| Investments — unaffiliated |
(23,653 | ) | (22,986 | ) | (625,429 | ) | ||||||
| Investments — affiliated (Note 2) |
(623 | ) | — | — | ||||||||
| In-kind redemptions — unaffiliated |
— | — | (180,781 | ) | ||||||||
| Foreign currency transactions |
(1,624 | ) | (880 | ) | 139 | |||||||
|
|
|
|
|
|
|
|||||||
| Net realized loss |
(25,900 | ) | (23,866 | ) | (806,071 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation on: |
||||||||||||
| Investments |
(83,630 | ) | (336,416 | ) | (4,094,324 | ) | ||||||
| Translation of assets and liabilities in foreign currencies |
(1 | ) | 93 | 262 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net change in unrealized appreciation/depreciation |
(83,631 | ) | (336,323 | ) | (4,094,062 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized loss |
(109,531 | ) | (360,189 | ) | (4,900,133 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (54,047 | ) | $ | (276,061 | ) | $ | (4,729,571 | ) | |||
|
|
|
|
|
|
|
|||||||
| a | For the period from January 31, 2012 (commencement of operations) to August 31, 2012. |
| b | Net of foreign withholding tax of $6,751, $6,303 and $22,380, respectively. |
| c | Rounds to less than $1. |
See notes to financial statements.
| 40 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Operations (Continued)
iSHARES®, INC.
Period ended August 31, 2012
| iShares MSCI Global Select Metals & Mining Producers Funda |
iShares MSCI Global Silver Miners Funda |
|||||||
| NET INVESTMENT INCOME |
| |||||||
| Dividends — unaffiliatedb |
$ | 55,666 | $ | 21,854 | ||||
| Interest — affiliated (Note 2) |
1 | 1 | ||||||
| Securities lending income — affiliated (Note 2) |
45 | 3 | ||||||
|
|
|
|
|
|||||
| 55,712 | 21,858 | |||||||
| Less: Other foreign taxes (Note 1) |
(66 | ) | — | |||||
|
|
|
|
|
|||||
| Total investment income |
55,646 | 21,858 | ||||||
|
|
|
|
|
|||||
| EXPENSES |
||||||||
| Investment advisory fees (Note 2) |
6,435 | 6,803 | ||||||
|
|
|
|
|
|||||
| Total expenses |
6,435 | 6,803 | ||||||
|
|
|
|
|
|||||
| Net investment income |
49,211 | 15,055 | ||||||
|
|
|
|
|
|||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||
| Net realized gain (loss) from: |
||||||||
| Investments — unaffiliated |
(36,927 | ) | (83,681 | ) | ||||
| In-kind redemptions — unaffiliated |
— | (476,571 | ) | |||||
| Foreign currency transactions |
(1,196 | ) | (743 | ) | ||||
|
|
|
|
|
|||||
| Net realized loss |
(38,123 | ) | (560,995 | ) | ||||
|
|
|
|
|
|||||
| Net change in unrealized appreciation/depreciation on: |
||||||||
| Investments |
(666,836 | ) | (341,474 | ) | ||||
| Translation of assets and liabilities in foreign currencies |
(10,297 | ) | 9 | |||||
|
|
|
|
|
|||||
| Net change in unrealized appreciation/depreciation |
(677,133 | ) | (341,465 | ) | ||||
|
|
|
|
|
|||||
| Net realized and unrealized loss |
(715,256 | ) | (902,460 | ) | ||||
|
|
|
|
|
|||||
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (666,045 | ) | $ | (887,405 | ) | ||
|
|
|
|
|
|||||
| a | For the period from January 31, 2012 (commencement of operations) to August 31, 2012. |
| b | Net of foreign withholding tax of $3,422 and $1,155, respectively. |
See notes to financial statements.
| FINANCIAL STATEMENTS |
41 |
Table of Contents
Statements of Changes in Net Assets
iSHARES®, INC.
| iShares MSCI Global Agriculture Producers Fund |
iShares MSCI Global Energy Producers Fund |
|||||||
| Period from to August 31, 2012 |
Period from to |
|||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||
| OPERATIONS: |
||||||||
| Net investment income |
$ | 55,484 | $ | 84,128 | ||||
| Net realized loss |
(25,900 | ) | (23,866 | ) | ||||
| Net change in unrealized appreciation/depreciation |
(83,631 | ) | (336,323 | ) | ||||
|
|
|
|
|
|||||
| Net decrease in net assets resulting from operations |
(54,047 | ) | (276,061 | ) | ||||
|
|
|
|
|
|||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||
| From net investment income |
(39,624 | ) | (63,057 | ) | ||||
|
|
|
|
|
|||||
| Total distributions to shareholders |
(39,624 | ) | (63,057 | ) | ||||
|
|
|
|
|
|||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||
| Proceeds from shares sold |
10,058,281 | 5,040,238 | ||||||
|
|
|
|
|
|||||
| Net increase in net assets from capital share transactions |
10,058,281 | 5,040,238 | ||||||
|
|
|
|
|
|||||
| INCREASE IN NET ASSETS |
9,964,610 | 4,701,120 | ||||||
| NET ASSETS |
||||||||
| Beginning of period |
— | — | ||||||
|
|
|
|
|
|||||
| End of period |
$ | 9,964,610 | $ | 4,701,120 | ||||
|
|
|
|
|
|||||
| Undistributed net investment income included in net assets at end of period |
$ | 14,236 | $ | 21,897 | ||||
|
|
|
|
|
|||||
| SHARES ISSUED |
||||||||
| Shares sold |
400,000 | 200,000 | ||||||
|
|
|
|
|
|||||
| Net increase in shares outstanding |
400,000 | 200,000 | ||||||
|
|
|
|
|
|||||
| a | Commencement of operations. |
See notes to financial statements.
| 42 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Statements of Changes in Net Assets (Continued)
iSHARES®, INC.
| iShares MSCI Global Gold Miners Fund |
iShares MSCI Global Select Metals & Mining Producers Fund |
|||||||
| Period from to August 31, 2012 |
Period from to August 31, 2012 |
|||||||
| INCREASE (DECREASE) IN NET ASSETS |
||||||||
| OPERATIONS: |
||||||||
| Net investment income |
$ | 170,562 | $ | 49,211 | ||||
| Net realized loss |
(806,071 | ) | (38,123 | ) | ||||
| Net change in unrealized appreciation/depreciation |
(4,094,062 | ) | (677,133 | ) | ||||
|
|
|
|
|
|||||
| Net decrease in net assets resulting from operations |
(4,729,571 | ) | (666,045 | ) | ||||
|
|
|
|
|
|||||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||||||
| From net investment income |
(135,773 | ) | (25,905 | ) | ||||
|
|
|
|
|
|||||
| Total distributions to shareholders |
(135,773 | ) | (25,905 | ) | ||||
|
|
|
|
|
|||||
| CAPITAL SHARE TRANSACTIONS: |
||||||||
| Proceeds from shares sold |
39,170,494 | 124,215,632 | ||||||
| Cost of shares redeemed |
(2,220,737 | ) | — | |||||
|
|
|
|
|
|||||
| Net increase in net assets from capital share transactions |
36,949,757 | 124,215,632 | ||||||
|
|
|
|
|
|||||
| INCREASE IN NET ASSETS |
32,084,413 | 123,523,682 | ||||||
| NET ASSETS |
||||||||
| Beginning of period |
— | — | ||||||
|
|
|
|
|
|||||
| End of period |
$ | 32,084,413 | $ | 123,523,682 | ||||
|
|
|
|
|
|||||
| Undistributed net investment income included in net assets at end of period |
$ | 34,928 | $ | 22,110 | ||||
|
|
|
|
|
|||||
| SHARES ISSUED AND REDEEMED |
||||||||
| Shares sold |
1,700,000 | 6,500,000 | ||||||
| Shares redeemed |
(100,000 | ) | — | |||||
|
|
|
|
|
|||||
| Net increase in shares outstanding |
1,600,000 | 6,500,000 | ||||||
|
|
|
|
|
|||||
| a | Commencement of operations. |
See notes to financial statements.
| FINANCIAL STATEMENTS |
43 |
Table of Contents
Statements of Changes in Net Assets (Continued)
iSHARES®, INC.
| iShares MSCI Global Silver Miners Fund |
||||
| Period from to August 31, 2012 |
||||
| INCREASE (DECREASE) IN NET ASSETS |
||||
| OPERATIONS: |
||||
| Net investment income |
$ | 15,055 | ||
| Net realized loss |
(560,995 | ) | ||
| Net change in unrealized appreciation/depreciation |
(341,465 | ) | ||
|
|
|
|||
| Net decrease in net assets resulting from operations |
(887,405 | ) | ||
|
|
|
|||
| DISTRIBUTIONS TO SHAREHOLDERS: |
||||
| From net investment income |
(14,066 | ) | ||
|
|
|
|||
| Total distributions to shareholders |
(14,066 | ) | ||
|
|
|
|||
| CAPITAL SHARE TRANSACTIONS: |
||||
| Proceeds from shares sold |
4,939,471 | |||
| Cost of shares redeemed |
(1,943,585 | ) | ||
|
|
|
|||
| Net increase in net assets from capital share transactions |
2,995,886 | |||
|
|
|
|||
| INCREASE IN NET ASSETS |
2,094,415 | |||
| NET ASSETS |
||||
| Beginning of period |
— | |||
|
|
|
|||
| End of period |
$ | 2,094,415 | ||
|
|
|
|||
| Undistributed net investment income included in net assets at end of period |
$ | 5,092 | ||
|
|
|
|||
| SHARES ISSUED AND REDEEMED |
||||
| Shares sold |
200,000 | |||
| Shares redeemed |
(100,000 | ) | ||
|
|
|
|||
| Net increase in shares outstanding |
100,000 | |||
|
|
|
|||
| a | Commencement of operations. |
See notes to financial statements.
| 44 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES®, INC.
(For a share outstanding throughout the period)
| iShares MSCI Global Agriculture Producers Fund | ||||
| Period from to Aug. 31, 2012 |
||||
| Net asset value, beginning of period |
$ | 24.88 | ||
|
|
|
|||
| Income from investment operations: |
||||
| Net investment incomeb |
0.28 | |||
| Net realized and unrealized lossc |
(0.05 | ) | ||
|
|
|
|||
| Total from investment operations |
0.23 | |||
|
|
|
|||
| Less distributions from: |
||||
| Net investment income |
(0.20 | ) | ||
|
|
|
|||
| Total distributions |
(0.20 | ) | ||
|
|
|
|||
| Net asset value, end of period |
$ | 24.91 | ||
|
|
|
|||
| Total return |
0.97 | %d | ||
|
|
|
|||
| Ratios/Supplemental data: |
||||
| Net assets, end of period (000s) |
$ | 9,965 | ||
| Ratio of expenses to average net assetse |
0.38 | % | ||
| Ratio of expenses to average net assets prior to waived feese |
0.39 | % | ||
| Ratio of net investment income to average net assetse |
1.93 | % | ||
| Portfolio turnover ratef |
6 | % | ||
| 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, 2012 would have been 6%. See Note 4. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS |
45 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout the period)
| iShares MSCI Global Energy Producers Fund | ||||
| Period from to Aug. 31, 2012 |
||||
| Net asset value, beginning of period |
$ | 24.79 | ||
|
|
|
|||
| Income from investment operations: |
| |||
| Net investment incomeb |
0.43 | |||
| Net realized and unrealized lossc |
(1.39 | ) | ||
|
|
|
|||
| Total from investment operations |
(0.96 | ) | ||
|
|
|
|||
| Less distributions from: |
||||
| Net investment income |
(0.32 | ) | ||
|
|
|
|||
| Total distributions |
(0.32 | ) | ||
|
|
|
|||
| Net asset value, end of period |
$ | 23.51 | ||
|
|
|
|||
| Total return |
(3.77 | )%d | ||
|
|
|
|||
| Ratios/Supplemental data: |
||||
| Net assets, end of period (000s) |
$ | 4,701 | ||
| Ratio of expenses to average net assetse |
0.39 | % | ||
| Ratio of net investment income to average net assetse |
3.16 | % | ||
| Portfolio turnover ratef |
5 | % | ||
| 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, 2012 would have been 5%. See Note 4. |
See notes to financial statements.
| 46 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout the period)
| iShares MSCI Global Gold Miners Fund | ||||
| Period from to Aug. 31, 2012 |
||||
| Net asset value, beginning of period |
$ | 25.00 | ||
|
|
|
|||
| Income from investment operations: |
| |||
| Net investment incomeb |
0.15 | |||
| Net realized and unrealized lossc |
(5.02 | ) | ||
|
|
|
|||
| Total from investment operations |
(4.87 | ) | ||
|
|
|
|||
| Less distributions from: |
||||
| Net investment income |
(0.08 | ) | ||
|
|
|
|||
| Total distributions |
(0.08 | ) | ||
|
|
|
|||
| Net asset value, end of period |
$ | 20.05 | ||
|
|
|
|||
| Total return |
(19.45 | )%d | ||
|
|
|
|||
| Ratios/Supplemental data: |
||||
| Net assets, end of period (000s) |
$ | 32,084 | ||
| Ratio of expenses to average net assetse |
0.39 | % | ||
| Ratio of net investment income to average net assetse |
1.25 | % | ||
| Portfolio turnover ratef |
11 | % | ||
| 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 as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS |
47 |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout the period)
| iShares MSCI Global Select Metals & Mining Producers Fund | ||||
| Period from to Aug. 31, 2012 |
||||
| Net asset value, beginning of period |
$ | 24.76 | ||
|
|
|
|||
| Income from investment operations: |
| |||
| Net investment incomeb |
0.37 | |||
| Net realized and unrealized lossc |
(6.00 | ) | ||
|
|
|
|||
| Total from investment operations |
(5.63 | ) | ||
|
|
|
|||
| Less distributions from: |
||||
| Net investment income |
(0.13 | ) | ||
|
|
|
|||
| Total distributions |
(0.13 | ) | ||
|
|
|
|||
| Net asset value, end of period |
$ | 19.00 | ||
|
|
|
|||
| Total return |
(22.76 | )%d | ||
|
|
|
|||
| Ratios/Supplemental data: |
||||
| Net assets, end of period (000s) |
$ | 123,524 | ||
| Ratio of expenses to average net assetse |
0.39 | % | ||
| Ratio of net investment income to average net assetse |
2.98 | % | ||
| Portfolio turnover ratef |
1 | % | ||
| 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, 2012 would have been 1%. See Note 4. |
See notes to financial statements.
| 48 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Financial Highlights (Continued)
iSHARES®, INC.
(For a share outstanding throughout the period)
| iShares MSCI Global Silver Miners Fund | ||||
| Period from to Aug. 31, 2012 |
||||
| Net asset value, beginning of period |
$ | 24.87 | ||
|
|
|
|||
| Income from investment operations: |
| |||
| Net investment incomeb |
0.11 | |||
| Net realized and unrealized lossc |
(3.90 | ) | ||
|
|
|
|||
| Total from investment operations |
(3.79 | ) | ||
|
|
|
|||
| Less distributions from: |
||||
| Net investment income |
(0.14 | ) | ||
|
|
|
|||
| Total distributions |
(0.14 | ) | ||
|
|
|
|||
| Net asset value, end of period |
$ | 20.94 | ||
|
|
|
|||
| Total return |
(15.18 | )%d | ||
|
|
|
|||
| Ratios/Supplemental data: |
||||
| Net assets, end of period (000s) |
$ | 2,094 | ||
| Ratio of expenses to average net assetse |
0.39 | % | ||
| Ratio of net investment income to average net assetse |
0.86 | % | ||
| Portfolio turnover ratef |
9 | % | ||
| a | Commencement of operations. |
| b | Based on average shares outstanding throughout the 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 rate excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. |
See notes to financial statements.
| FINANCIAL HIGHLIGHTS |
49 |
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,” and collectively, the “Funds”):
| iShares MSCI Fund | Diversification Classification | |
| Global Agriculture Producersa |
Non-diversified | |
| Global Energy Producersa |
Non-diversified | |
| Global Gold Minersa |
Non-diversified | |
| Global Select Metals & Mining Producersa |
Non-diversified | |
| Global Silver Minersa |
Non-diversified |
| a | The Fund commenced operations on January 31, 2012. |
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 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.
| 50 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
SECURITY VALUATION
Each Fund’s investments are valued at fair value each day that the Fund’s listing exchange is open. U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) provides oversight of the valuation of investments for the Funds. The investments of each Fund are valued pursuant to policies and procedures developed by the Global Valuation Committee and approved by the Board of Directors of the Company (the “Board”).
| • | Equity investments traded on a recognized securities exchange are valued at that day’s last reported trade price or the official closing price, as applicable, on the exchange where the stock is primarily traded. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last traded price. |
| • | Exchange-traded funds and closed-end funds traded on a recognized securities exchange are valued at that day’s last reported trade price or the official closing price, as applicable, on the exchange where the fund is primarily traded. Funds traded on a recognized exchange for which there were no sales on that day are valued at the last traded price. |
| • | Open-end U.S. mutual funds are valued at that day’s published net asset value (NAV). |
In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the fair value of such investment or if a price is not available, the investment will be valued based upon other available factors deemed relevant by the Global Valuation Committee, in accordance with policies approved by the Board. These factors include but are not limited to (i) attributes specific to the investment; (ii) the principal market for the investment; (iii) the customary participants in the principal market for the investment; (iv) data assumptions by market participants for the investment, if reasonably available; (v) quoted prices for similar investments in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and/or other default rates. Valuations based on such factors are reported to the Board on a quarterly basis.
The Global Valuation Committee employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Company’s pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values, and reviews of market related activity.
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.
Various inputs are used in determining the fair value of financial instruments. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting purposes. 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. The three levels of the fair value hierarchy are as follows:
| • | Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities; |
| NOTES TO FINANCIAL STATEMENTS |
51 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| • | 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 (such as exchange rates, financing terms, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs; and |
| • | Level 3 — Unobservable inputs for the asset or liability, including the Funds’ assumptions used in determining the fair value of investments. |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. In accordance with the Company’s policy, transfers between different levels of the fair value hierarchy are deemed to have occurred as of the beginning of the reporting period.
The following table summarizes the value of each of the Funds’ investments according to the fair value hierarchy as of August 31, 2012. The breakdown of each Fund’s investments into major categories is disclosed in its respective Schedule of Investments.
| iShares MSCI Fund and |
Investments | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Global Agriculture Producers |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 9,708,978 | $ | — | $ | — | $ | 9,708,978 | ||||||||
| Preferred Stocks |
149,432 | — | — | 149,432 | ||||||||||||
| Investment Companies |
79,977 | — | — | 79,977 | ||||||||||||
| Rights |
— | 156 | — | 156 | ||||||||||||
| Short-Term Investments |
30,470 | — | — | 30,470 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 9,968,857 | $ | 156 | $ | — | $ | 9,969,013 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Global Energy Producers |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 4,586,505 | $ | — | $ | — | $ | 4,586,505 | ||||||||
| Preferred Stocks |
88,011 | — | — | 88,011 | ||||||||||||
| Short-Term Investments |
5,936 | — | — | 5,936 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 4,680,452 | $ | — | $ | — | $ | 4,680,452 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Global Gold Miners |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 32,026,127 | $ | — | $ | — | $ | 32,026,127 | ||||||||
| Short-Term Investments |
81,082 | — | — | 81,082 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 32,107,209 | $ | — | $ | — | $ | 32,107,209 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 52 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| iShares MSCI Fund and |
Investments | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Global Select Metals & Mining Producers |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 115,784,668 | $ | 69 | $ | 0 | a | $ | 115,784,737 | |||||||
| Preferred Stocks |
7,134,928 | — | — | 7,134,928 | ||||||||||||
| Rights |
— | 0 | a | — | 0 | a | ||||||||||
| Short-Term Investments |
3,750 | — | — | 3,750 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 122,923,346 | $ | 69 | $ | 0 | a | $ | 122,923,415 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Global Silver Miners |
||||||||||||||||
| Assets: |
||||||||||||||||
| Common Stocks |
$ | 2,090,657 | $ | — | $ | — | $ | 2,090,657 | ||||||||
| Short-Term Investments |
10,247 | — | — | 10,247 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 2,100,904 | $ | — | $ | — | $ | 2,100,904 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 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, 2012 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
| NOTES TO FINANCIAL STATEMENTS |
53 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
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, 2012, 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.
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.
| 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, BFA is entitled to an annual investment advisory fee of 0.39% based on the average daily net assets of each Fund.
BFA has contractually agreed to waive a portion of its investment advisory fees for the iShares MSCI Global Agriculture Producers and iShares MSCI Global Select Metals & Mining Producers Funds through December 31, 2014 in an amount equal to the investment advisory fees payable on the amount of each Fund’s investment in other iShares funds. The iShares MSCI Global Select Metals & Mining Producers Fund did not hold any iShares funds during the period ended August 31, 2012.
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. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, and any fees or other payments to and from borrowers of securities. Each Fund retains 65% of securities lending income and pays a fee to BTC equal to 35% of such income. As securities lending agent, BTC is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BTC is also responsible for fees and expenses incurred by each Fund as a result of the investment of cash collateral received for securities on loan in a money market fund managed by BFA or an affiliate.
| 54 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
For the period ended August 31, 2012, BTC earned securities lending agent fees from the Funds as follows:
| iShares MSCI Fund | Securities Lending Agent Fees |
|||
| Global Agriculture Producers |
$ | 0 | a | |
| Global Energy Producers |
0 | a | ||
| Global Gold Miners |
167 | |||
| Global Select Metals & Mining Producers |
24 | |||
| Global Silver Miners |
2 | |||
| a | Rounds to less than $1. |
At a special meeting of the Board held on January 5, 2012, the directors approved a new distribution agreement with BlackRock Investments, LLC (“BRIL”). BRIL is an affiliate of BFA. Effective April 1, 2012, BRIL replaced SEI Investments Distribution Co. as the distributor for each Fund. Pursuant to the new distribution agreement, BFA is responsible for any fees or expenses for distribution services provided to the Funds.
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. is the largest stockholder of BlackRock and is considered to be an affiliate of the Funds for 1940 Act purposes.
The iShares MSCI Global Agriculture Producers and iShares MSCI Global Select Metals & Mining Producers Funds, in order to improve their portfolio liquidity and their ability to track their respective underlying index, may invest in shares of other iShares funds that invest in securities in each Fund’s respective underlying index.
Investments in issuers considered to be affiliates of the Funds (excluding short-term investments) during the period ended August 31, 2012, for purposes of Section 2(a)(3) of the 1940 Act, were as follows:
| iShares MSCI Fund and Name of Affiliated Issuer |
Shares Held at Beginning of Period |
Shares Purchased |
Shares Sold |
Shares Held at End of Period |
Value at of Period |
Dividend Income |
Net Realized Gain (Loss) |
|||||||||||||||||||||
| Global Agriculture Producers |
||||||||||||||||||||||||||||
| iShares S&P India Nifty 50 Index Fund |
— | 3,716 | (144 | ) | 3,572 | $ | 79,977 | $ | 168 | $ | (623 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||
Certain directors and officers of the Company are also officers of BTC and/or BFA.
| NOTES TO FINANCIAL STATEMENTS |
55 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| 3. | INVESTMENT PORTFOLIO TRANSACTIONS |
Purchases and sales of investments (excluding in-kind transactions and short-term investments) for the period ended August 31, 2012 were as follows:
| iShares MSCI Fund | Purchases | Sales | ||||||
| Global Agriculture Producers |
$ | 1,086,638 | $ | 330,770 | ||||
| Global Energy Producers |
455,236 | 201,558 | ||||||
| Global Gold Miners |
2,753,364 | 2,730,222 | ||||||
| Global Select Metals & Mining Producers |
18,628,589 | 153,006 | ||||||
| Global Silver Miners |
285,367 | 289,262 | ||||||
In-kind transactions (see Note 4) for the period ended August 31, 2012 were as follows:
| iShares MSCI Fund | In-kind Purchases |
In-kind Sales |
||||||
| Global Agriculture Producers |
$ | 9,290,581 | $ | — | ||||
| Global Energy Producers |
4,780,240 | — | ||||||
| Global Gold Miners |
39,118,738 | 2,215,219 | ||||||
| Global Select Metals & Mining Producers |
105,148,319 | — | ||||||
| Global Silver Miners |
4,934,895 | 1,938,617 | ||||||
| 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 a specified 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.
| 56 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
| 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. Each Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the value of the cash collateral received.
As of August 31, 2012, 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, 2012 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, net of fees and other payments to and from borrowers, and less the fees paid to BTC as securities lending agent.
| 6. | INCOME TAX INFORMATION |
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of August 31, 2012, attributable to passive foreign investment companies, foreign currency transactions and realized gains (losses) from in-kind redemptions, were reclassified to the following accounts:
| iShares MSCI Fund | Paid-in Capital |
Undistributed Net Investment Income/Distributions in Excess of Net Investment Income |
Undistributed Net Realized Gain/Accumulated Net Realized Loss |
|||||||||
| Global Agriculture Producers |
$ | — | $ | (1,624 | ) | $ | 1,624 | |||||
| Global Energy Producers |
— | 826 | (826 | ) | ||||||||
| Global Gold Miners |
(180,781 | ) | 139 | 180,642 | ||||||||
| Global Select Metals & Mining Producers |
— | (1,196 | ) | 1,196 | ||||||||
| Global Silver Miners |
(479,314 | ) | 4,103 | 475,211 | ||||||||
| NOTES TO FINANCIAL STATEMENTS |
57 |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
The tax character of distributions paid during the period ended August 31, 2012 was as follows:
| iShares MSCI Fund | 2012 | |||
| Global Agriculture Producers |
||||
| Ordinary income |
$ | 39,624 | ||
|
|
|
|||
| Global Energy Producers |
||||
| Ordinary income |
$ | 63,057 | ||
|
|
|
|||
| Global Gold Miners |
||||
| Ordinary income |
$ | 135,773 | ||
|
|
|
|||
| Global Select Metals & Mining Producers |
||||
| Ordinary income |
$ | 25,905 | ||
|
|
|
|||
| Global Silver Miners |
||||
| Ordinary income |
$ | 14,066 | ||
|
|
|
|||
As of August 31, 2012, the tax components of accumulated net earnings (losses) were as follows:
| iShares MSCI Fund | Undistributed Ordinary Income |
Capital Loss Carryforwards |
Net Unrealized Gains (Losses) a |
Total | ||||||||||||
| Global Agriculture Producers |
$ | 14,301 | $ | (20,341 | ) | $ | (87,631 | ) | $ | (93,671 | ) | |||||
| Global Energy Producers |
24,467 | (20,639 | ) | (342,946 | ) | (339,118 | ) | |||||||||
| Global Gold Miners |
34,928 | (259,179 | ) | (4,460,312 | ) | (4,684,563 | ) | |||||||||
| Global Select Metals & Mining Producers |
23,590 | (9,471 | ) | (706,069 | ) | (691,950 | ) | |||||||||
| Global Silver Miners |
11,498 | (83,082 | ) | (350,573 | ) | (422,157 | ) | |||||||||
| a | The difference between book-basis and tax-basis unrealized gains (losses) was 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. |
As of August 31, 2012, the Funds had non-expiring capital loss carryforwards available to offset future realized capital gains as follows:
| iShares MSCI Fund | Non- Expiring |
|||
| Global Agriculture Producers |
$ | 20,341 | ||
| Global Energy Producers |
20,639 | |||
| Global Gold Miners |
259,179 | |||
| Global Select Metals & Mining Producers |
9,471 | |||
| Global Silver Miners |
83,082 | |||
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.
| 58 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes to Financial Statements (Continued)
iSHARES®, INC.
As of August 31, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:
| iShares MSCI Fund | Tax Cost | Gross Unrealized Appreciation |
Gross Unrealized Depreciation |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| Global Agriculture Producers |
$ | 10,056,643 | $ | 244,122 | $ | (331,752 | ) | $ | (87,630 | ) | ||||||
| Global Energy Producers |
5,023,491 | 119,205 | (462,244 | ) | (343,039 | ) | ||||||||||
| Global Gold Miners |
36,567,783 | 823,941 | (5,284,515 | ) | (4,460,574 | ) | ||||||||||
| Global Select Metals & Mining Producers |
123,619,187 | 16,455 | (712,227 | ) | (695,772 | ) | ||||||||||
| Global Silver Miners |
2,451,486 | 18,886 | (369,468 | ) | (350,582 | ) | ||||||||||
Management has reviewed the tax positions as of August 31, 2012, and has determined that no provision for income tax is required in the Funds’ financial statements.
| 7. | 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 |
59 |
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 Global Agriculture Producers Fund, iShares MSCI Global Energy Producers Fund, iShares MSCI Global Gold Miners Fund, iShares MSCI Global Select Metals & Mining Producers Fund and iShares MSCI Global Silver Miners Fund (the “Funds”), at August 31, 2012, the results of each of their operations, the changes in each of their net assets and their financial highlights for the period of January 31, 2012 (commencement of operations) through August 31, 2012, 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, 2012 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
October 23, 2012
| 60 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
iSHARES®, INC.
For the fiscal period ended August 31, 2012, 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 Fund | Foreign Source Income Earned |
Foreign Taxes Paid |
||||||
| Global Agriculture Producers |
$ | 55,804 | $ | 6,544 | ||||
| Global Energy Producers |
68,612 | 6,296 | ||||||
| Global Gold Miners |
209,943 | 21,875 | ||||||
| Global Select Metals & Mining Producers |
54,101 | 3,488 | ||||||
| Global Silver Miners |
22,343 | 1,155 | ||||||
For corporate shareholders, the following percentages of the income dividends paid by the Funds during the fiscal period ended August 31, 2012 qualified for the dividends-received deduction:
| iShares MSCI Fund | Dividends- Received Deduction |
|||
| Global Agriculture Producers |
43.59 | % | ||
| Global Energy Producers |
51.07 | |||
| Global Gold Miners |
25.58 | |||
| Global Select Metals & Mining Producers |
21.57 | |||
| Global Silver Miners |
4.73 | |||
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 period ended August 31, 2012:
| iShares MSCI Fund | Qualified Dividend Income |
|||
| Global Agriculture Producers |
$ | 46,168 | ||
| Global Energy Producers |
69,353 | |||
| Global Gold Miners |
157,648 | |||
| Global Select Metals & Mining Producers |
29,393 | |||
| Global Silver Miners |
15,221 | |||
In February 2013, shareholders will receive Form 1099-DIV which will include their share of qualified dividend income distributed during the calendar year 2012. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their income tax returns.
| TAX INFORMATION |
61 |
Table of Contents
Supplemental Information (Unaudited)
iSHARES®, INC.
Premium/Discount Information
The tables that follow presents 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 Funds 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 the 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 the Funds. The information shown for each Fund is for each full calendar quarter completed after the inception date through the date of the most recent 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.
iShares MSCI Global Agriculture Producers Fund
Period Covered: April 1, 2012 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 1.0% and Less than 1.5% |
3 | 4.76 | % | |||||
| Greater than 0.5% and Less than 1.0% |
21 | 33.33 | ||||||
| Between 0.5% and –0.5% |
37 | 58.74 | ||||||
| Less than -0.5% and Greater than –1.0% |
2 | 3.17 | ||||||
|
|
|
|
|
|||||
| 63 | 100.00 | % | ||||||
|
|
|
|
|
|||||
iShares MSCI Global Energy Producers Fund
Period Covered: April 1, 2012 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 0.5% and Less than 1.0% |
4 | 6.35 | % | |||||
| Between 0.5% and –0.5% |
44 | 69.84 | ||||||
| Less than -0.5% and Greater than –1.0% |
15 | 23.81 | ||||||
|
|
|
|
|
|||||
| 63 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| 62 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Supplemental Information (Unaudited) (Continued)
iSHARES®, INC.
iShares MSCI Global Gold Miners Fund
Period Covered: April 1, 2012 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 1.5% |
2 | 3.17 | % | |||||
| Greater than 1.0% and Less than 1.5% |
2 | 3.17 | ||||||
| Greater than 0.5% and Less than 1.0% |
14 | 22.22 | ||||||
| Between 0.5% and –0.5% |
42 | 66.68 | ||||||
| Less than -0.5% and Greater than –1.0% |
2 | 3.17 | ||||||
| Less than -1.0% and Greater than –1.5% |
1 | 1.59 | ||||||
|
|
|
|
|
|||||
| 63 | 100.00 | % | ||||||
|
|
|
|
|
|||||
iShares MSCI Global Select Metals & Mining Producers Fund
Period Covered: April 1, 2012 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 3.0% |
4 | 6.35 | % | |||||
| Greater than 2.5% and Less than 3.0% |
3 | 4.76 | ||||||
| Greater than 2.0% and Less than 2.5% |
5 | 7.94 | ||||||
| Greater than 1.5% and Less than 2.0% |
6 | 9.52 | ||||||
| Greater than 1.0% and Less than 1.5% |
6 | 9.52 | ||||||
| Greater than 0.5% and Less than 1.0% |
5 | 7.94 | ||||||
| Between 0.5% and –0.5% |
25 | 39.68 | ||||||
| Less than -0.5% and Greater than –1.0% |
8 | 12.70 | ||||||
| Less than -1.0% and Greater than –1.5% |
1 | 1.59 | ||||||
|
|
|
|
|
|||||
| 63 | 100.00 | % | ||||||
|
|
|
|
|
|||||
iShares MSCI Global Silver Miners Fund
Period Covered: April 1, 2012 through June 30, 2012
| Premium/Discount Range |
Number of Days |
Percentage of Total Days |
||||||
| Greater than 0.5% and Less than 1.0% |
3 | 4.76 | % | |||||
| Between 0.5% and –0.5% |
13 | 20.63 | ||||||
| Less than –0.5% and Greater than –1.0% |
15 | 23.81 | ||||||
| Less than –1.0% and Greater than –1.5% |
12 | 19.06 | ||||||
| Less than –1.5% and Greater than –2.0% |
13 | 20.63 | ||||||
| Less than –2.0% and Greater than –2.5% |
6 | 9.52 | ||||||
| Less than –2.5% and Greater than –3.0% |
1 | 1.59 | ||||||
|
|
|
|
|
|||||
| 63 | 100.00 | % | ||||||
|
|
|
|
|
|||||
| SUPPLEMENTAL INFORMATION |
63 |
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 Director 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, a Director of iShares MSCI Russia Capped Index Fund, Inc. and a Trustee of iShares U.S. ETF Trust and, as a result, oversees a total of 276 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 Robert H. Silver 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-iShares (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 (55) |
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). | Director of BlackRock, Inc. (since 2007); Trustee of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| Michael Lathamb (47) |
Director (since 2010); President (since 2007). |
Chairman of iShares, BlackRock (since 2011); Global Chief Executive Officer of iShares, BlackRock (2010-2011); Managing Director, BlackRock (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, BGI (2003-2007). |
Trustee of iShares Trust (since 2010); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| a | Robert S. Kapito is deemed to be an “interested person” (as defined in the 1940 Act) of the Trust 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 Trust due to his affiliations with BlackRock, Inc. and its affiliates. |
| 64 | 2012 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 | |||
| Robert H. Silver (57) |
Director (since 2007); Independent Chairman (since 2012). | President and Co-Founder of The Bravitas Group, Inc. (since 2006); Director and Vice Chairman of the YMCA of Greater NYC (2001-2011); Broadway Producer (2006-2011); 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); President and Chief Operating Officer of UBS Financial Services Inc. (formerly Pain Webber Inc.) (2004-2005) and various executive positions with UBS and its affiliates (1988-2005); CPA and Audit Manager of KPMG, LLP (formerly Peat Marwick Mitchell) (1977-1983). |
Trustee of iShares Trust (since 2007); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Independent Chairman of iShares, Inc., iShares MSCI Russia Capped Index Fund, Inc. and iShares U.S. ETF Trust (since 2012). | |||
| Cecilia H. Herbert (63) |
Director (since 2005); Nominating and Governance Committee Chair and Equity Plus Committee Chair (since 2012). | Director (since 1998) and President (2007-2011) of the Board of Directors, Catholic Charities CYO; Trustee (since 2002) and Chair of the Finance Committee (2006-2009) and Investment Committee (since 2006), The Thacher School; Trustee of Pacific Select Funds (2004-2005); Member (since 1994) and Chair (1994-2005) of the Investment Committee, Archdiocese of San Francisco. |
Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Director of Forward Funds (35 portfolios) (since 2009). | |||
| Charles A. Hurty (69) |
Director (since 2005); (since 2006). |
Retired; Partner, KPMG LLP (1968-2001). | Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002); Director of SkyBridge Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC (1 portfolio) (since 2002). | |||
| John E. Kerrigan (57) |
Director (since 2005); (since 2012). |
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); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| DIRECTOR AND OFFICER INFORMATION |
65 |
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 | |||
| John E. Martinez (51) |
Director (since 2003); Securities Lending Committee Chair (since 2012). | Director of FirstREX Agreement Corp. (formerly EquityRock, Inc.) (since 2005). | Trustee of iShares Trust (since 2003); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| George G.C. Parker (73) |
Director (since 2002). | Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University Graduate School of Business (Professor since 1973; Emeritus since 2006). | Trustee of iShares Trust (since 2002); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); 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). | |||
| Madhav V. Rajan (48) |
Director (since 2011); 15(c) Committee Chair (since 2012). | Robert K. Jaedicke Professor of Accounting and Senior Associate Dean for Academic Affairs and Head of MBA Program, 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); Trustee of iShares U.S. ETF Trust (since 2011). | |||
| 66 | 2012 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 | ||
| Edward B. Baer (44) |
Vice President and Chief Legal Officer (since 2012). |
Managing Director, BlackRock (since 2006). | ||
| Eilleen M. Clavere (60) |
Secretary (since 2007). |
Director, BlackRock (since 2009); Director of Legal Administration of Intermediary Investor Business, BGI (2006-2009). | ||
| Jack Gee (53) |
Treasurer and Chief Financial Officer (since 2008). |
Managing Director, BlackRock (since 2009); Senior Director of Fund Administration of Intermediary Investor Business, BGI (2009); Director, Fund Administration of Intermediary Investor Business, BGI (2004-2009). | ||
| Amy Schioldager (50) |
Executive Vice President (since 2007). |
Managing Director, BlackRock (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008). | ||
| Ira P. Shapiro (49) |
Vice President (since 2007). | Managing Director, BlackRock (since 2009); Chief Legal Officer, Exchange- Traded Funds Complex (2007-2012); Associate General Counsel, BGI (2004-2009). | ||
| Scott Radell (43) |
Executive Vice President (since 2012). |
Managing Director, BlackRock (since 2009); Head of Portfolio Solutions, BGI (2007-2009); Credit Portfolio Manager, BGI (2005-2007). | ||
| DIRECTOR AND OFFICER INFORMATION |
67 |
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Notes:
| 68 | 2012 iSHARES ANNUAL REPORT TO SHAREHOLDERS |
Table of Contents
Notes:
| NOTES |
69 |
Table of Contents
Notes:
| 70 | 2012 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-812-0812
Table of Contents
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, 2012, 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, Robert H. Silver and Madhav V. Rajan, all of whom are independent, as that term is defined under Item 3(a)(2).
Table of Contents
Item 4. Principal Accountant Fees and Services.
The principal accountant fees disclosed in items 4(a), 4(b), 4(c), 4(d) and 4(g) are for the forty-seven series of the Registrant for which the fiscal year-end is August 31, 2012 (the “Funds”), and whose annual financial statements are reported in Item 1.
| (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 $498,227 for the fiscal year ended August 31, 2011 and $706,950 for the fiscal year ended August 31, 2012. |
| (b) | Audit-Related Fees – There were no fees billed for the fiscal years ended August 31, 2011 and August 31, 2012 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 $161,600 for the fiscal year ended August 31, 2011 and $230,230 for the fiscal year ended August 31, 2012. |
| (d) | All Other Fees – There were no other fees billed for the fiscal years ended August 31, 2011 and August 31, 2012 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, 2012 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, $2,611,296 for the fiscal year ended August 31, 2011 and $4,042,680 for the fiscal year ended August 31, 2012. |
| (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. |
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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.
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 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 23, 2012 | |
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 23, 2012 | |
| By: /s/ Jack Gee | ||
| Jack Gee, Treasurer and Chief Financial Officer (Principal Financial Officer) | ||
| Date: | October 23, 2012 | |